Coffee has the distinction of being the second most traded commodity on the global market. Historically the coffee prices have traveled from boom to bust due to fluctuations in the production side. “Starbucks Coffee Company believes in buying the best quality coffee and providing unmatched store experience” (Hoovers)The factors which would influence demand for coffee at Starbucks areRapid expansion in consumer baseIncrease in price of complementary goods such as coffee mugsDecrease in the price of a substitute product such as teaQuality Plan :- Lower or Higher grades of coffeeIncrease in price of coffee beansFluctuations in ProductionThe factors which would influence supply for coffee at Starbucks areIncrease in Price of coffeeAdvent of technologyIncreased costs at the plantation for example higher wages for workersNo competitionPrice is a factor which affects Starbucks on both the demand and supply side. The price of coffee will determine how many individuals are willing to buy and will buy at a higher price. The company has to keep in mind the maximum price that the customer would be willing to pay or the reservation price beyond which sales would dip to negligible.
In short and increase in the price charged by Starbucks will cause a decrease in the quantity demanded while a decrease in price will result in an increase in the demand for coffee at Starbucks. However as Starbucks offers good quality freshly ground coffee and positions itself as “Quality Coffee”, the demand curve will shift to the right as depicts in the graph below because of a population who pays for good taste. This shift also takes place because there is an increase in the population or in their income or and increase in the price of the substitute i.e.
tea. As the company believes in quality, there is no situation where the population will increase due to a decrease in price brought on by a decrease in quality. Other factors which will affect the demand curve and because a shift to the left are change in trends or belief i.e. Coffee intake is bad for health, change in the size of population, competitor offers inferior product at lower price. Supply on the other hand would be affected by an increase in price of coffee beans, as Starbucks has to keep in mind that the price of coffee needs to be sustainable at the consumer end, high costs at the supply side may not be sustainable. An increase in the production of coffee beans would result in a decrease in price and hence increased available quantity for Starbucks.
The company will also be able to decrease costs on the long run if there is new technology. Competition is a factor which will affect both demand and supply.