Competing as Starbucks

Starbucks can be considered part of a perfect market competition because:

There is extensive specialization – coffee, which results in specialized trade within the market - the purchase of a commodity (coffee beans), the processing of it, and the sale of freshly brewed coffee.

There is perfect competition. First, there is a number of other businesses selling coffee. They compete with other large firms such as Caribou Coffee, McDonald’s McCafe, Dunkin Donuts and Tim Horton’s, as well as small coffee shops, which offer coffee, donuts and pastries.

Also, entry into the market is easy – buy coffee, make sweets and sell them. Starbucks is not able to control the price because people are willing to pay a limited amount for a cup of coffee. All competitors have access to the same market information and trends, and free to act with this information as they choose.

There is private, not government ownership of Starbucks.

There is a “legal and social foundation.” Starbucks is a publicly traded company and must follow the regulations as set out by legislation.

Starbucks had to Realign their business practices, according to “Starbucks Gossip,” February 14, 2007, were to Howard Schultz and others’ decisions to who they were as an organization; an organization that once had “romance and theater…[with] the La Marzocca machine” and becoming a chain store no longer part of a warm neighborhood. Between July and October 2009, they close a number of stores (70% of the stores opening since 2005 were being closed) and putting 12,000 people out of work. They stated the reason is due to the stores are not expected to be profitable
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The impact these decisions had on Starbucks

In terms of the short-run, Starbucks changed the way the workers prepared coffee and interacted with their customers. They were to become more efficient in their labour input, increasing output until the law of diminishing returns came into effect.

In terms of the long-run, Starbucks has used pecuniary economics of scale by increased its number of variable costs by opening specialty retail operations including: locations in airports, bookstores and grocery stores, selling coffee, tea and CD’s, forming partnerships with Pepsi and Dreyer, and teaming with Burger King. As well, Starbucks continues to close US stores and increase the number of international market

On 11/12/10, Howard Schultz, CEO, announced that "Our ability to navigate through the financial crisis and come out much stronger gives us reason to start growing the company again," CEO Howard Schultz told Bloomberg in an interview in China's Yunnan province Shultz told the news outlet that Starbucks plans to open 500 stores this fiscal year, 400 of which will be outside the U.S. China will be the coffee shop chain's biggest growth market over the next two years, the report said, and Middle Kingdom consumers can expect to choose from over 1,000 Starbucks locations in the country in the "near future," according to the company's China chief, Jinlong Wang.”

Starbucks’ coffee prices

Change too much? No. Starbucks targets young professionals who are willing to pay the price.

If prices were to be lowered, Starbucks would have to utilize technical economics by continuing the division of labour, and machine specializations. A decrease in demand will cause prices to decrease in the short-run, but increase in the long-run.

Q1 FY2011 Earnings summary: $346.6 million/.45 EPS, ↑ from $241.5 million/.32 EPS one year ago.  SBUX revenue ↑ from 2.93 billion to 3.0 billion.

 http://topics.nytimes.com/top/news/business/companies/starbucks_corporation/index.html
http://www.starbucks.com/
www.wikinvest.com/stock/Starbucks_(SBUX
http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html
http://www.cbc.ca/news/business/story/2008/07/01/starbucks-closures.html
http://seattletimes.nwsource.com/html/businesstechnology/2008028854_starbucks02.html
http://www.thestreet.com/story/10920822/1/starbucks-to-open-500-new-stores.html