Here’s some background information for you; Starbucks is not doing well financially.
Although one may think the business is thriving while standing in the 11-person line at the library (waiting to order a Salted Caramel Mocha before going upstairs to attempt the latest MEL for the 23rd time), the reality is the complete opposite. Starbucks has fallen short …show more content…
Most people just can’t afford to pay six dollars for a medium coffee with whipped cream and caramel drizzle.
Getting back to the economics, it is commonly know that the fundamental concept of it all is scarcity. Limited goods, or scarcity, create problems which are solved with the economic concepts studied today. (pg9) Another way to look at scarcity is to consider it as a low supply; at the moment the coffee world in general is experiencing a huge hit as far as supply goes. As one could probably imagine, supply is simply how much of a product is being produced. If the supply of a product increases, then the price decreases and the demand (how many people want to and are able to buy it) increases as well. Unfortunately, the exact opposite is true for coffee beans. In the past year, the supply of coffee beans from Brazil has decreased from 46 million bags to 40 million bags, a thirteen percent decrease. Brazil is the world’s largest supplier of coffee beans, and without their contributions, the other suppliers, i.e. India and Vietnam, won’t be able to stabilize the markets on their own. But, what happened to cause this change in the supply? In the wonderful book, Cocktail Party Economics, Adomait explains that countries that …show more content…
Even with this increase in price, people’s demands for coffee in general aren’t going to change. Everyone, from parents; to professionals; to broke university students (who are up at 3am writing PEAR assignments), people are still going to want their coffee. Instead, they’re going to look at the prices of related goods and try to find a substitute for their grande pike roast at Starbucks, and perhaps they’ll settle for a medium dark roast from Tim
Hortons. Even though both prices have increased, the Tim Horton’s coffee is still cheaper, so people will opt out for the cheaper coffee house instead (pg 83). With the decrease in sales from the price increase on top of their current financial troubles as it is, the future of all Starbucks locations is not looking promising.
Luckily for Starbucks, there is actually a thing called the “Starbucks effect.” Normally, in times of economic downfall, companies would have to increase their prices, resulting in some loss of sales. Then there’s companies like Starbucks, where customers would still purchase their products. Brand loyalty is key with these companies, but one has to wonder, when will it reach a point of being “too much?” Is that time coming soon for Starbucks? Well, let’s hope