Starbucks is everywhere, even as a non-coffee drinker the Starbucks brand is engraved in my mind. The logo, the coffee cups, and the excitement that generates in my office when it's time for a coffee run.
There are many coffee shops in Canada, some of the more well known being Tim Hortons, Starbucks, Second Cup and Good Earth.
Coffee shops fall under the definition of perfect competition because there are many buyers and sellers in the market, and there is relatively easy entry into the coffee business. Another common characteristic of perfect competition is that there are no preferences shown to one specific company. I would initially say that Starbucks doesn't meet this definition solely based on the attitudes of my current office downtown where everyone shows a preference to Starbucks, however, outside of the office I know a lot of people who like Tim Hortons, Second Cup and even McDonalds and therefore, the preferences balance themselves out. As well, under perfect competition, not one person is powerful enough to control the price of the product being sold. In fact, “Coffee is one of the most economically sensitive commodities out there, and prices have gotten well above where the fundamental values say they should be,” said Spencer Patton, of Chicago-based Steel Vine Investments LLC.
The price for coffee at Starbucks is comparable to the prices of its competitors, however, the cost of specialty coffees is much higher. I believe that one of the reasons Starbucks has been afforded the opportunity to charge higher prices for their products is because of market saturation. Starbucks locations are conveniently and strategically placed in malls, office buildings and even Chapters locations.
Recently, Starbucks has been hit hard by the recession and their huge expansion efforts, and has been forced to close hundreds of stores as a result of dwindling profits. (Starbucks Gossip)
The following is a quote taken from a letter written to the CEO of Starbucks by Chairman Howard Schultz in February 2007. "The loss of aroma -- perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage?". This quote resonates with me when considering Starbucks and their business practice. Starbucks needs to go back to the basics and revisit their values to once again stand out in the market with the uniqueness of their coffee experience. If Starbucks is trying to achieve long-run profitability, they need to consider the short term and perhaps run in a marginal loss in order to begin the process of reestablishing themselves in order to become profitable once again.
The following is a depiction of a decrease in prices on Starbucks coffee:
Starbucks Gossip: http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html
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