Supply and Demand: Starbucks

Many have complained that Starbucks is way too expensive for coffee. At the same time, Starbucks has become one of the most sucessful businesses in the world. Now though with the current financial situation, people are cutting back thus demanding less or substituting other alternatives like McDonald’s McCafe. This from the Wall Street Journal:

“Starbucks Corp. Chief Executive Howard Schultz said the coffee giant is ready to fight back against rivals’ claims that the company’s coffee drinks are expensive and the notion it is losing share to cheaper coffee makers.

As it reported a 77% drop in quarterly profit, the company on Wednesday also said it will adjust its pricing in some markets, raising prices of some of the more complicated drinks, while lowering those on basic drinks. For example, Starbucks will offer a “grande” size iced coffee for less than $2, shaving as much as 45 cents off the price, depending on the market.

The moves come as Starbucks is struggling to attract and retain consumers in a recession. Starbucks said U.S. comparable-store sales fell 8% in its latest quarter as traffic fell 5%, and average transaction totals fell 3%.”

This is how competitive markets adjust prices to be the most efficient. The rest is here.

~PCCapitalist

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Published in: on May 5, 2009 at 12:12 pm  Comments (10)  
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10 CommentsLeave a comment

  1. A McDonald’s cappuccino is not inexpensive. Yet it is only slightly less expensive than Starbuck’s equivalent. For example, a small McCafe costs $2.29 + tax; a tall cappuccino at Starbucks costs $2.55 + tax.

    McDonald’s seems to have set a price point that won’t be considered “too cheap” by the Starbucks customers its trying to lure away.

    for more, read…http://www.bevoost.com/?p=333

  2. http://cavalierme.wordpress.com/2010/03/23/india-does-not-need-starbucks-although-they-are-welcome/

    Here is osmething on Starbucks generating a heated debate on the reasons for its continued absence in INDIA…..would like people’s take on it!!

  3. I completely agree with ‘bevoost’ that they have tried to cunningly lure away the cheaper end of the starbuckateers but the biggest thing holding them back is the brand, it could even be exactly the same coffee but many starbucks goers will be too smug to drink there.

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