Starbucks Supply and Demand Strategy in the Coffee Industry

What makes this paper effective

• Applies core economics concepts (substitute goods, non-price demand variables) to a real-world corporation with concrete examples, grounding abstract theory in observable business behavior.
• Provides specific financial data (Teavana acquisition for $620 million, coffee futures prices, Tazo purchase in 1999) that supports each argument and demonstrates research depth.
• Balances demand-side analysis (advertising, substitute products) with supply-side analysis (input costs, technology), showing a comprehensive understanding of market dynamics.
• Includes direct evidence from corporate leadership (Howard Schultz interview on hedging strategies) and strategic business moves (Costa Rica farm purchase) to illustrate how theory translates into executive decisions.

Key academic technique demonstrated

The paper uses the framework of non-price variables in supply and demand to structure its analysis. Rather than focusing on price changes alone, it isolates and examines individual factors—substitute products, advertising, input costs, and technology—that shift supply or demand curves. This technique allows the writer to explain why Starbucks' strategic decisions (acquiring tea brands, investing in social media, purchasing farms) are economically rational responses to market pressures, not arbitrary business moves.

Structure breakdown

The paper opens with context about Starbucks' market position, then divides into two main analytical sections: demand-side variables (substitutes and advertising) and supply-side variables (bean costs and technology). Each subsection pairs economic theory with specific Starbucks responses, creating a cause-and-effect narrative. The conclusion synthesizes these analyses into a strategic recommendation that Starbucks should continue its current approach. This structure allows readers to understand both the economic principle and the business application simultaneously.