Starbucks eco 201 - ECO201 milestone 2 PDF

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ECO201 milestone 2...

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Starbucks Corp.

Milestone 2

Marilyn Comstock

ECO 201

Southern New Hampshire University

Introduction

For this assignment I will be taking Starbucks and analyzing the microeconomics of it such as business and market data. I will take the information I collect and supply a detailed layout of the supply and demand, price elasticity and market share that goes along with the Starbucks corporation. Once I am finished gathering and analyzing this data, I will then provide feedback as to any obstacles I may see in the future for the company and possible ways for them to overcome them. History of the Company

The first Starbucks opened in 1971 at a market in Seattle called Pike Place. It was not until 1982 that consumers had the opportunity to purchase Starbucks at certain establishments like fine restaurants and espresso bars. This was also the same time that Howard Schultz joined the company. (Starbucks, Starbucks Company Timeline, 2020)[11] Once he became a part of the company he started exploring and making the changes that has led them to be one of the most popular coffee shops around. With some convincing to the founders of Starbucks Schultz was able to convince them to serve the first Starbucks Latte which ended up being a huge hit. In 1985 Schultz founded the first Starbucks that offered coffee beverages brewed from Starbucks coffee beans. (Starbucks, Starbucks Company Timeline, 2020)[11] From 1985 to 2015 Starbucks has come from one little coffee shop in Seattle to now having 22,519 shops around the world. Most people know Starbucks for being either the overpriced coffee shop, the hipster coffee shop, or the I cannot function without my Starbucks coffee shop. (I am the last one!!) What most people do now know is that Starbucks is so much more than any of those things.

Starbucks has become a staple in many people’s lives. It is a place to meet friends, family or coworkers and have a cup of coffee, tea or maybe a pastry while catching up. To some it is a home away from home. People who travel for business will utilize Starbucks for their place to get away from the office yet get work done at the same time. College students will use Starbucks just like a library used to be used. A quiet place to get work done. With all shops offering free WIFI it allows for more customers to come in sit down and stay awhile. Doing everything through humanity is one thing that Starbucks prides themselves on as they should because it is not something that is seen too often anymore. In 2018 Fortune Magazine listed Starbucks as the 5 most admired company to work for. th

Forbes listed them for being the Best Employers for Diversity in 2018 as well. (Booth, 2019)[2] Big strides have been made within Starbucks since it originally opened all those years ago in Seattle and they keep continuing to make those strides. As someone who is an avid Starbucks client, I look forward to learning more about the history of the company and everything that has gone into it to make it what it is today. Supply and Demand

When looking at Starbucks and the supply and demand that go with it you have to take out the Tazo tea that they serve as well as the products that they sell at gas stations and stores that are made by Nestle. Even those these items do make them money they are not the cornerstone of the company or the market it is in. The supply and demand of Starbucks relies heavily on the coffee farms that supply their coffee beans to them. Starbucks website states that they purchase 3% of the worlds coffee of which is sourced from more than 400,000 farmers. They go on saying that their success “is directly linked to the success of the people who

produce our coffee and the land on which it grows.” (Starbucks, Building a Sustainable Future for Coffee, Together, 2019)[10] In 2014 Starbucks had to raise their prices because the cost of coffee beans had gone up. According to Forbes the Arabica coffee beans price at that time went from 106 cents per pound to approximately 220 cents per pound. (Team, 2014)[12] The reason for this jump was because of unexpected and unplanned weather conditions in Brazil. When you have a business, whose main

(Dali0266, 2014)[3]

product relies heavily on the right kind of weather it can be hard to try to predict what you year in sales will be. Even with this price increase the demand was still there and to make sure that demand was met Starbucks had to pay the extra price for the coffee beans they needed. The customers that are demanding the product come from a wide variety of people. Initially when Starbucks opened, they targeted people of higher income that were willing to pay a little more for a more than average cup of coffee or espresso. Since the first store opening in 1982 the customer base has changed a bit and so has the marketing strategies that are used to bring these customers back. 49% of Starbucks customers are between the age of 25-40, 40 % are between the ages of 18-24 years of age. The other 11% is made up of a variety of other people. With most of their customers being between the ages of 25- 40 it is easy to assume that customers between these ages are employed and are a contributing part of society. These customers are looking for a place they can get a wonderful tasting beverage and maybe a

sandwich or something in between meetings or on their way to work. They also want some place that they can sit down and relax a bit while still doing work and enjoying a cup of coffee. The young adults ,18-24, are categorized as the high school college level customers. These are the customers that are looking for a quiet place to study, somewhere to meet up with friends at or just a relaxing atmosphere where they can go and hang out and enjoy a delightful beverage. The remaining customers can be categorized as customers that come when they are meeting someone there or for the younger ones it is because an adult brought them there. These are not the customers that go out of their way every day to go to Starbucks but also are not ones that boycott it completely. With the wide range of ages for customers also comes a wide variety of customers as well. Customers such as, big spenders, urban-ish, technology adopters, healthy and socially conscious. (Bean-Mellinger, 2019)[1] To keep these customers coming in Starbucks must have a marketing strategy that reaches all categories not just one. With over 28,000 stores in 75 countries (Bean-Mellinger, 2019)[1] Starbucks keeps one thing consistent when it comes to marketing. That happens to be that they “focuses in detail on the experience the store creates.” (Roll, 2017)[8] Rather than utilizing the normal marketing departments like other companies do to try and figure out how to get customers and keep customers Starbucks asks their customers what they would like to see. They do this by, “going against rigorous and complex customer surveys, Starbucks chose casual and informal chats with customers to capture overall mood, understand experience with the store and gather valuable feedback.” (Roll, 2017)[8]

(Knoema, 2020)[7]

(Fernando, 2020)[4] Revenue for Starbucks has taken a big decline as of March because of COVID-19. With people losing their jobs and the health worries that are in place no one is wanting to go anywhere they do not have to. Starbucks may be a need for some but for most it is a want. When times get

tough people cut out the wants and only keep the needs. “Starbucks reported its first quarterly loss in quite some time as quarantine hit its business severely. Earnings and sales fell by less than analysts expected, though still substantially. Same-store sales overall fell 40%, roughly in line with the 41% that analysts expected. One spot of brighter news, Starbucks narrowed the range of its full-year adjusted EPS guidance largely to the upside, from $0.55-$0.95 to $0.83-$0.98.” (Fernando, 2020)[4] Starbucks still has not lost its edge even with the pandemic. “In addition to the durable popularity of its brand and the strength of its operations, Starbucks is also incredibly well-built for the long term. The company does carry $11.7 billion in long-term debt, but that debt is long term and low interest that is well within the company's ability to service. Moreover, it has been able to use that low-cost capital to leverage its growth, with incredible capital return rates that are the envy of its peers:” (Hall, 2020)[6]

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Price elasticity of demand

When someone thinks about coffee one of the first places that come to mind is Starbucks. The reason being is because in almost any city or state and majority of countries you go to you can find one. Unless you are traveling to another country you will typically have the same options at any of them that you got to. If you travel for business or just for leisure it is always nice to have something familiar to you and your routine close by. It has been said that in some cities you cannot walk from one block to the next one without passing at least one Starbucks in between. Most consumers of Starbucks are die hard consumers, even knowing they can get coffee at McDonalds or Dunkin Donuts cheaper they will still chose Starbucks. Even if the price increases at Starbucks they will choose it.” Since their loyal following isn’t especially price sensitive, Starbucks coffee maintains a fairly inelastic demand curve, and a small price increase can have a huge positive impact on their margins without decreasing demand for beverages.” [ CITATION Tuc201 \l 1033 ][13]. “At Starbucks, we see inelastic demand from those consumers who believe Dunkin’ Donuts and McDonald’s are not substitutes. Similarly, pricey Frappuccino’s that are reference points only reinforce inelastic demand. No matter what, consumers with inelastic demand buy their Starbucks coffees.” (Schwartz, 2018)[9]

References 1. Bean-Mellinger, B. (2019, February 05). Who is Starbucks Target Audience. Retrieved from Chron: https://smallbusiness.chron.com/starbucks-target-audience-10553.html 2. Booth, J. (2019, Jan 22). Workers Reveal What it is really like to work at Starbucks. Retrieved from Mashed: https://www.mashed.com/143447/workers-reveal-what-itsreally-like-to-work-at starbucks/#:~:text=In%202018%2C%20Starbucks%20was %20named,admired%20company%20worldwide%20by%20Fortune.&text=Part%20of %20what%20makes%20Starbucks,great%20manag er%20and%20partner% 3. Dali0266. (2014, April 4). Case # 5 Starbucks mobile App. Retrieved from Wordpress: https://dali0266.wordpress.com/2014/04/04/starbucks-mobile-app/ 4. Fernando, J. (2020, July 28). Starbucks Earnings. Retrieved from Investopedia: 5. https://www.investopedia.com/starbucks-earnings-4774457 6. Hall, J. (2020, Feb 8). Forget Coronovirus: These 3 Starbucks Metrics Matter More. Retrieved from The Motley Fool: https://www.fool.com/investing/2020/02/08/forgetcoronavirus-these-3- starbucks-metrics-matte.aspx 7. Knoema. (2020, June 25). Number of Starbuck Stores Globally. Retrieved from Knoema: https://knoema.com/infographics/kchdsge/number-of-starbucks-stores-globally-19922020

8. Roll, M. (2017, July). The Secret to Starbucks Brand Success. Retrieved from Martin Roll Business and Brand Leadership: https://martinroll.com/resources/articles/strategy/secret-starbucks-brand success/ 9. Schwartz, E. (2018, June 8). Who Will Care about Starbucks Price Hikes? Retrieved from Econlife: https://econlife.com/2018/06/prices-at-starbucks/ 10. Starbucks. (2019, October 4). Building a Sustainable Future for Coffee, Together. Retrieved from Starbucks Stories and News: https://stories.starbucks.com/stories/2019/building-a sustainable-future-for-coffeetogether/ 11. Starbucks. (2020). Starbucks Company Timeline. Retrieved from Starbucks: https://www.starbucks.com/about-us/company-information/starbucks-company-timeline 12. Team, T. (2014, July 3). Starbucks Raises Coffee Prices: Boost to Margins and Revenue Growth. Retrieved from Forbes: https://www.forbes.com/sites/greatspeculations/2014/07/03/starbucks-raises coffeeprices-boost-to-margins-and-revenue-growth/#5e2971cd4f43 13. Dawson, T. (2020, September 23). How Starbucks Uses Pricing Strategy for Profit

Maximization. Retrieved from Price Intelligently: https://www.priceintelligently.com/blog/bid/184451/how-starbucks-uses-pricing-strategyfor-profit-maximization...