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Economics & Institutions

TReNDS

Martin Pitek

MGMT - 7730

March 20, 2009

Starbucks Coffee

Table of Contents

Introduction 3
Product Analysis3
Product Overview3
Market Structure4
Competition5
Dunkin Donuts7
Krispy Kreme3
McDonalds8
Panera Bread8
Elasticity Estimates
Pricing Strategy10
Forecast12
Determants of Demand13
Forecast Model15
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Summary15
Works Cited

Introduction

With the economy in trouble, the stock market tanking it is important to start your day with a good cup of coffee to take on these challenges. Can Starbuck’s sustain it business model and place in the market? The paper examines Starbucks business and it respective practices.

In 1971, the original Starbucks opened in Pike Place Market in Seattle, Washington by three partners named Jerry Baldwin, Zev Siegal, and Gordon Bowker. Their focus was to sell coffee beans and equipment. They purchased green coffee beans from Peet’s, a specialty coffee roaster and retailer, during their first year of operation. Later, they began buying coffee beans directly from the growers. In 1983, an entrepreneur by the name of Howard Schultz joined the company; Schultz felt that the company should sell coffee and espresso drinks as well as coffee beans. The partners felt that selling coffee and espresso drinks would take away from their primary focus of selling coffee beans. Since the idea did not work, Schultz started his own company called II Giornale coffee bar chain in 1985. In 1987, the original owners of Starbucks sold their chain to Schultz’s II Giornale. Schultz changed II Giornale outlets to Starbucks chains and quickly began to expand.

Starbucks coffee has grown into the largest coffeehouse company in the world with 16,120 stores in 94 countries such as in Australia, Canada, China, Puerto Rico, etc. Starbucks has thirty blends and single origin coffee. Starbucks brand coffee can also be purchased in local stores to brew at home. Starbucks employs over 140,000 employees worldwide with over five million customers a week. At one point they had typical customers coming in on an average of six times a month while loyal customers come in on an average of eighteen times a month spending averaging $50. Starbucks is one of Fortune magazine’s 100 Best Companies to work for in 2008 and is Business Ethics 100 Best Corporate Citizens for the fourth year.

Product Analysis

Product Overview

Starbucks product line has grown to include fresh brewed coffee, hot and iced espresso beverages, coffee and non coffee blended beverages, Tazo tea, baked pastries, sandwiches, and salads. Starbucks paraphernalia includes coffee grinders, espresso machines, coffee brewers, music CD’s, books, movies and gift cards. The global consumer products include bottled Frappuccino, iced coffee, and espresso drinks, whole bean coffee, tea, coffee liqueurs and premium ice cream.

Starbucks understands concepts of brand identity and product differentiation. They have tapped in on what the consumer perceives and had managed to identifiable differentiate themselves between other companies’ products or services. Starbucks realizes this success depends significantly on the value of the Starbucks brand while relying on its excellent reputation for their product quality, superior, and consistent customer service.

The management believes it must safeguard and develop the value and importance of the Starbucks brand in order to bring continued success in the future. The perception of brand value by the consumer is based on an array of personal qualities. Starbucks has been able to establish an ambiance of sophistication and intellect. Loyal customers enter the retail chain as an escape from their mundane lives into a serene, regal atmosphere where they...
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