Business Economic Influences on the

Business Economic Influences on the Future of Starbucks Starbucks is the largest chain of coffee shops in the U.S. In line with many other businesses, the organization suffered financially as a result of the 2009 recession. However, when looking to the future, the economic conditions appear to provide for an optimistic outlook; positive influences are emerging for Starbucks as both purchasers and as sellers.

The costs of the inputs appear to be constrained, and in some cases falling, while there are emerging opportunities for the firm to increase internal efficiencies as well as increase sales. Lower costs and increases in sales accompanied by improvements in efficiency will not only lead to a higher nominal profit, they will also lead to performance improvements and a better profit margin, as long as the potential can be realized. Looking first at the input costs, many of the costs will reflect the underlying commodity prices.

One of the most important and apparent inputs are the coffee beans. Starbucks buys only high quality Arabica beans. While the cost of Arabica beans was very high in 2011, in the 2012/13 season there has been a surplus of coffee beans due to a bountiful harvest, which has lead to significant decline in the price of coffee (Josephs, 2013).

Starbucks arranges contract for the purchase of Arabica beans in advance in order to ensure they have sufficient supplies of the required input, but they are still able to benefit from the lower prices (Starbucks, 2012). The contracts used by Starbucks are undertaken on a "price to be fixed" basis, where the firm will fix the price at a future date, with reference to the spot prices (Starbucks, 2012). The firm pays a premium on the beans, but a lower spot price will result in lower costs.

Other potential cost benefits exist in terms of the potential for increased levels of productivity. It has been estimated that over the next five years the coffee industry will be able to achieve an average improvement of 1.2% per annum, which will have a beneficial impact on the overall costs. However, there are also some negative influences. Dairy prices within the U.S. have been showing an upward trend, which shows no sign of abating (Economagic, 2013). The price of oil is also expected to increase (Forecasts.org, 2013).

The United States is not a coffee producing nation, so imports coffee as well as other inputs. The costs will rise where the cost of transportation increases. Overall rising energy costs will also have a negative impact due to the energy needs of operations, increasing the overheads. Starbucks has the potential to benefit from the improving economic conditions. The firm appeals to the mass market, selling a non-essential product. Sales of non-essential products suffer most during economic downturns.

Furthermore, when there is a recovery, firms that sell items of a relativity low cost that are still perceived as 'luxuries' may benefit from even small increases in the level of disposable income (Kotler and Keller, 2011). A key indicator of the economy in the U.S. is the unemployment level; this has dropped to 7.5% in 2013 with a recent Wall Street Journal survey of economists indicating they expect a further 180,000 jobs will be created each month for the next 12 months in the U.S. (Casselman and Izzo, 2013).

As increase employment emerges wages are also likely to increase; raising the level of disposable income where the increases are above the rate of inflation. There is a general agreement that there is a recovery taking place, it may be slow, but it is also believed that another recession is unlikely (Casselman and Izzo, 2013).

Increased jobs will increase the aggregate level of disposable income in an economy, and increase aggregate demands; Starbucks may benefit from that demand and have more consumers who may have the utility to purchase the coffee, and associated products. Increases sales of core items will also increase the potential to sell complementary items. Where there is consumer confidence in the economy, this will also encourage spending, as consumer will not feel the need to remain cautious (Baye, 2007). Starbucks.