Economic Influences on the Future of Starbucks
This paper examines the key economic forces shaping Starbucks' near-term and long-term business outlook. Drawing on commodity price trends, employment data, and consumer spending theory, the analysis evaluates both favorable and unfavorable input cost dynamics — including Arabica coffee bean prices, dairy costs, and energy expenses — alongside demand-side factors such as falling unemployment, rising disposable income, and renewed consumer confidence. The paper concludes that, on balance, the positive economic influences outweigh the negative ones, positioning Starbucks to achieve gains in both sales volume and profit margins as the post-2009 recovery continues.
- Introduction: Post-recession economic outlook overview for Starbucks
- Input Costs: Coffee Beans and Productivity: Arabica bean surplus lowers Starbucks' key input costs
- Negative Cost Pressures: Dairy, Oil, and Energy: Rising dairy, oil, and energy costs threaten margins
- Demand-Side Opportunities and Consumer Spending: Falling unemployment and income growth boost sales
- Aggregate Demand and Complementary Sales: Higher demand lifts core and complementary product sales
- Conclusion: Net economic gains expected to outweigh cost pressures
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What makes this paper effective
- The paper balances positive and negative economic forces symmetrically, giving the argument credibility rather than reading as one-sided promotion.
- It grounds abstract economic concepts — such as disposable income, aggregate demand, and complementary goods — in a concrete, recognizable business case.
- The conclusion is proportional and measured, acknowledging uncertainty while still committing to a reasoned forecast.
Key academic technique demonstrated
The paper demonstrates applied microeconomic analysis: it maps standard economic variables (input costs, consumer income, aggregate demand) onto a real firm's operating environment. By connecting commodity spot prices to Starbucks' "price to be fixed" contract structure, the student shows how theoretical pricing mechanisms translate into actual business outcomes — a hallmark of managerial economics writing.
Structure breakdown
The paper opens with a framing introduction that situates Starbucks within the post-recession recovery. It then moves through supply-side analysis (coffee beans, productivity, dairy, energy) before shifting to demand-side analysis (employment, disposable income, consumer confidence, complementary goods). The conclusion synthesizes both sides and delivers a net assessment. This supply-then-demand structure mirrors standard introductory economics organization and is well-suited to the argument.
Introduction
Starbucks is the largest chain of coffee shops in the United States. 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 an optimistic outlook. Positive influences are emerging for Starbucks both as a purchaser of inputs and as a seller of products. The costs of key inputs appear to be constrained and, in some cases, falling, while opportunities exist for the firm to increase internal efficiencies as well as grow sales. Lower costs and higher sales, accompanied by improvements in efficiency, will not only lead to a higher nominal profit but will also lead to performance improvements and a better profit margin — provided that potential can be realized.
Input Costs: Coffee Beans and Productivity
Many of Starbucks' input costs reflect underlying commodity prices. One of the most important inputs is coffee beans. Starbucks buys only high-quality Arabica beans. While the cost of Arabica beans was very high in 2011, the 2012–13 season produced a surplus due to a bountiful harvest, leading to a significant decline in the price of coffee (Josephs, 2013). Starbucks arranges contracts for the purchase of Arabica beans in advance to ensure sufficient supplies of the required input, but the company is still able to benefit from lower prices (Starbucks, 2012).
The contracts used by Starbucks are undertaken on a "price to be fixed" basis, whereby the firm fixes the price at a future date with reference to spot prices (Starbucks, 2012). The firm pays a premium on the beans, but a lower spot price results in lower overall costs. Additional cost benefits exist in the form of potential productivity improvements. It has been estimated that over the next five years the coffee industry will achieve an average productivity improvement of 1.2% per annum, which will have a beneficial impact on overall costs.
References
Baye, M. (2007). Managerial Economics and Business Strategy. McGraw-Hill/Irwin.
Casselman, B., & Izzo, P. (2013). Economic road clearing, but the going is slow. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424127887324059704578473383938968700.html
Economagic. (2013). PPI: Dairy products. Retrieved from http://www.economagic.com/em-cgi/charter.exe/blswp/wpu023
Forecasts.org. (2013). Crude oil forecast. Retrieved from http://forecasts.org/oil.htm
Josephs, L. (2013, March 17). Coffee-bean prices sag as stockpiles build. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424127887324077704578362770217867326.html
Kotler, P., & Keller, K. (2011). Marketing Management. Prentice Hall.
Starbucks. (2012). 10-K for the fiscal year ended September 30, 2012. Starbucks Corporation.
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