Microeconomics and Starbucks Essay

Supply and demand lies in the heart and soul of economics. The concept is perhaps the single most driving force in an economy, specifically a capitalist economy. Supply and demand is based on two concepts: The law of demand and the law of supply. The law of demand states that the demand of a product rises as its price falls, therefore the demand of a product falls as its price rises. A good example of this occurs in grocery stores. If the price of a case of Coca-cola drops from $6.99 to $2.99 the demand for the product will rise because more people are willing to pay $2.99 rather than $6.99. Not only will typical consumer of Coca-cola purchase more but consumers who are not normally willing to pay $6.99 will make the purchase. Substitution also plays a role in the equation. Substitution occurs when consumers substitute one good for another based on price levels. In the Coca-cola scenario, some Pepsi drinkers will purchase the Coca-cola given the case of Pepsi is price higher.

Supply and demand concepts are all around us. Take for example a shoe factory. From a macroeconomic perspective everybody needs shoes. This type of product is a necessary and not a luxury product. So, there will always be a higher demand of shoes. The company will always try to find the best price to sell the shoes so that the demand increases. The price of shoes is also determined by the production cost of the shoe since it needs to be higher than it. Producing the shoes does not only depend on the company itself but on other macroeconomic indicators. For example, if oil prices increase, the company will need to increase the price of the shoes since it would cost more to pay the suppliers for delivering the materials needed in the production process. Also, as the law of supply says, when supply increases, the price increases. If the supply

2) Garthwiate, Craig; Busse, Meghan; Brown, Jennifer; Merkley, Greg “Starbucks: A Story of Growth” Harvard Business Publishing, July 2012.

Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”

This assignment is based on the Starbucks case study; Trouble Brews at Starbucks written by Lauranne Buchanan and Carolyn Simmons (2009). The aim of this paper will be to discuss the the changing consumer experience, competitive landscape and external circumstances affecting marketing opportunities for Starbucks, while determining how Howard Schultz can provide Starbuck’s customers a greater long-term value.

In this assignment, a savvy financial analyst researching companies in which to invest a U.S. publically-traded company that would be a good investment was chosen. After a lengthy search, a company that my family is unduly familiar with, Starbucks, was chosen and in the following pages a financial analysis will be described.

When demand within a market increases, the equilibrium price of the product increases along with the quantity sold at the equilibrium price. If the market structure is a perfect competition, an increase in demand allows firms or industries to raise the price of

Starbucks Corporation first started in 1971 by Gordon Bowker, Jerry Balswin, and Zen Siegl. Starbucks then went public in June 1992. The first coffee shop was located in Seattle. In addition to selling high quality coffee beans, Starbucks offers teas, hot chocolate, an assortment of specialty coffee drinks, merchandise and a limited menu selection of food items. One of Starbucks’ biggest competitors is Dunkin’ Donuts. All Starbucks stores offer their customers a relaxing and clean atmosphere to enjoy their coffee as well as free Wi-Fi. In 2014 Starbucks had 21,366 stores worldwide, which is an increase of 1,599 stores from the previous year. Starbucks has prime locations in heavily occupied areas. Being located in high populated areas gives them an advantage in the market. Starbucks’ ability to obtain prime locations allows them to have an upper-hand on their competitors in the coffee industry. The Starbucks Corporation has developed buyer power over the years. This allows them to keep costs down because now they have lasting relationships with suppliers, growers, and exporters. Having these relationships help protect Starbucks from sudden price jumps.

Supply and demand is the most basic principle of economics. Supply and demand have an inverse relationship to each other for very simple reasons. When demand increases, people buy more of an item, thus lowering supply. If supply increases, then items demand of an item is decreased unless the price is lowered. The way that this case is affected by supply and demand is when the CAFÉ standards are enacted the price of vehicles will go up due to the increased costs of production. The increase in the price will lower the demand of new cars and increase the supply sitting in dealerships. Also the increase in price of new fuel efficient

Please answer all the following questions as they relate to the case. Please utilize as much outside resources as you deem necessary to reinforce your answers—especially the last question. Remember that this case is over 10 years old and Starbucks has changed since then.

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

All of this gives me confidence that Starbucks—unlike many other retailers—has what it takes to endure as a vital part of the fabric of every community and neighborhood where we do business. In fiscal 2008, we invested in the Starbucks Experience and what we know our customers are looking for when they visit our stores. We put a significant emphasis on coffee—starting with the launch of Pike Place™ Roast, our new everyday brewed coffee. This emphasis included the introduction of the ™ Starbucks Mastrena, our new, lower-profile espresso machines, and the purchase of the company that

For this extra credit assignment, I’ll be doing a Porter’s analysis of a well-known brand, Starbucks. And also talk about how there is a future competitive environment of the coffee industry. How other high-end coffee/tea drinks are growing in the market, and how there are so many café’s selling similar drinks. Starbucks is an American global company based in Seattle, Washington. They are the largest coffeehouse company in the world with 20,373 stores in 63 countries and territories. Since 1987, Starbucks has opened an average of two stores per day. In 2013, the company generated revenues of $14.0 billion. They are best known for their hot and cold beverages, and whole-bean coffee. Most of Starbucks stores sell pre-packaged food items such

This paper will explore the science of Managerial Economics, the cost effective management of scarce resources, through an exploration of the Starbucks Company. This will include an assessment of relevant market forces, market structure and the economic theories that guide business decisions for this company.

Nothing like the fresh scent of brewed coffee in the morning – “Starbucks” a well-known coffee house that is still growing and expanding their operations today is considered the number one specialty coffee retailer around the world and abroad. Therefore, the supply and demand for coffee is on the incline and is regarded as one of the most rapid growing organizations in the world. According to the National Coffee Association, adults between the ages of 18 and 39 are more likely to purchase coffee out-of-home, then older consumers (2016). Even coffee statistics conducted in 2016 indicates “50% of the population, equivalent to 150 million Americans, drink espresso, cappuccino, latte, iced/cold coffee” (E-Imports, 2016). Other statistics numbers show that an estimated of total Americans consuming coffee would be up by 1.5% and specialty coffee up from 20% in this year alone. Even the global consumption will increase by 12% over the next years. Therefore, a key question is how will the “law of demand” predict how the consumers will behave (Lorenzetti, 2016)? Namely, will the higher demand for coffee beans impact what the consumer at Starbucks will pay for a cup of coffee? Therefore, companies such as Starbucks should analyze and understand the microeconomic model to get a clear picture of the price elasticity, cost to produce, and the overall market to make the most effective business decisions and recommendations that will have an