February 2011, coffee prices hit a 14-year high at $2. This trend is likely to continue for some time as this rising prices according to analysts is primarily due to a combination of the growing demand for different types of coffee and the poor harvests we have had in past years. How should the company position itself against the continuous increase and/or fluctuations in the price of its main raw material?
Background: Starbucks is almost synonymous with coffee, although the company offers other beverages and products.
The organization prides itself as the premier roaster and retailer of specialty coffee in the world with about 17,000 stores and operating in more than 50 countries worldwide. Coffee is its major raw material and like the competition, the recent price increases have been passed on to an extent to the consumers.
Concern: According to the NewYork times, “In 2008, Starbucks found itself in an economic climate that had most people reassessing their daily spending habits on luxury items.
The company’s revenues and profit tumbled as a result.
Starbucks was hurt by rising costs, the cannibalizing effects of years of overexpansion, and stiff competition in espresso drinks from the likes of McDonald’s and Dunkin’ Donuts. In the summer of 2007, its customer traffic declined for the first time since the company went public, sending the stock tumbling. By the end of its fiscal 2008, Starbucks stock, once seemingly invincible, had declined by over 50 percent” In other words the company may not be invincible and continuous price increases of its products coupled with stiff competition can affect the company.
With 17,000 stores worldwide, growing number of partners (as their employees are referred to ) and stockholders, the failure of the company will have a huge impact on many families and economies.
Plan of Study: This paper seeks to recommend ways the company can maintain its consumer base and profitability in the face of these price fluctuations. To achieve this, the research will involve an examination of the coffee industry, major sources of coffee, how prices are determined and factors that drive the process.
In addition, the effect of price increases and how it affects Starbucks and its consumers will be examined. Furthermore, the effectiveness of Starbuck’s current strategy on the issue will be considered before recommendations for the future are provided.