Economic variables and their relationships

Coffee Industry Economic Environment:

The coffee market is a mature industry in the United States where the dollar sales growth is fueled by consumers paying high prices for this product. The higher prices for coffee is attributed to four major factors including the increasing costs for raw or green coffee beans, tendency by customers to drink premium coffee, ever-increasing thirst for specialty coffee beverages, and exceptional growth of single-serve coffee packet formats. The United States coffee industry or market is classified into two major categories i.e. foodservice outlets and retail outlets for bulk and packaged coffee. The foodservice coffee outlets primarily sell liquid coffee for take-out or instant consumption on the premises while retail outlets sell coffee products to be prepared by consumers at different locations. Notably, there are some outlets such as Starbucks and other supermarkets that sell both kinds of coffee, which implies that they are concurrently foodservice and retail outlets.

Analysis of the Industry's Economic Environment:

In the past decade, the coffee industry has experienced constant growth and profitability that was temporarily slowed down by the 2009 global economic crisis. In addition to the economic slowdown, the coffee market was also affected by changing consumer tastes, though to a lesser extent (Samadi, 2012). The coffee industry economic environment can be understood through examining some economic variables about the industry such as & #8230;

Productivity:

The coffee industry has been a market that has experienced tremendous growth and productivity in the past decade. The productivity of this industry is evident in its annual revenue growth, especially in the past three years after the 2009 economic crisis. While the industry was affected by the global recession in 2009 that contributed to revenue decline of 6.6%, it has experienced significant revenue growth and productivity of 3.0% and 3.1% in 2010 and 2011 respectively. This productivity has also led to estimates that the coffee industry will continue to be productive at an annual rate of 1.2% in the next five years.

Unemployment Rate:

In the past five years, the coffee industry has experienced marginal growth in employment despite of increase in unemployment during this period. Industry employment rose at an average annual rate of 3.6% to 591,277 employees. However, this is a slow growth rate in employment as compared to previous years when the industry underwent an extensive period of rapid expansion. One of the major reasons for the slow growth in the rate of employment is because many operators consolidated certain underperforming outlets. However, it's expected that industry employment will increase at an annual average rate of 2.1% because of increased profitability, increase in sales volumes, and tendency by consumers to use high-priced premium coffee (Samadi, 2012).

Minimum Wage:

Since employment levels in the coffee industry will recover in the short-term and experience minimal growth, the minimum wage will also recover slightly because of greater automation. Currently, the minimum wage for every worker in this industry is $12,589 and is expected to increase to $13,197 in the next five years. The automation of the food-preparation process is considered as the major factor for the long-term trend of declining wages.

Personal Income:

The coffee industry is characterized by low to medium industry revenue volatility because of significant growth in demand from higher-income households that continue to rely on quick snacks and beverages. Therefore, personal income plays a crucial role in determining consumer behavior and trends. The high-income households or individuals contribute to low to medium industry revenue volatility because these consumers are income-rich but time-poor.

Inflation:

Even though the coffee industry is an economic powerhouse and a crucial part of Americans' lifestyles, the financial performance of this industry is determined based on inflation-adjusted figures or terms. The projection of industry sales and profitability is based on these inflation-adjusted terms because of the impact of inflation on the economy (Porjes, 2011).

Exchange Rates, Tax Rates, and Interests Rates:

The profitability of the coffee industry is determined based on earnings prior to recording of taxes and interests by industry players. Therefore, profits for these industry operators vary based on the size of the company, which implies that larger operators basically benefit from economies of scale. The current tax rates, interests' rates, and exchange rates are beneficial for the larger industry operators in light of the economies of scale as compared to small operators.