Starbucks Success Factors

Continuous war in combination with rampant drug trafficking has caused the coffee industry in Colombia to struggle for many years, though Colombia’s long history with coffee predates that struggle. The coffee plant first reached Colombia sometime in the late 1700s (Encyclopedia of World Trade: From Ancient Times to the Present) and Colombia entered the coffee trade in the 1830s (Wikipedia, Coffee Production in Colombia). The geography of Colombia lends itself well to coffee production. Located in southern South America, Colombia is home to the Andes Mountains, which provides an optimal altitude for coffee (and coca) to grow. The Andes have three sets of mountain ranges, the Western Cordillera, the Central Cordillera, and the Eastern Cordillera. The majority of the coffee plantations in Colombia are on the western side of the Eastern Cordillera (Philip’s World Factbook 2008-2009).

Coffee had lots of demand, but little supply. The country that could grow and export the most coffee had a substantial economic advantage over other countries in terms of commerce.

Coffee is globally traded commodity. It is the second-most traded commodity with oil being the first. Coffee is generally traded in financial instruments known as futures contracts, and this is mainly done through the New York Board of Trade. In recent years, countries producing coffee has been increasing. Established producers like Colombia have faced bigger competition from these countries seeking to enter the market. Because of increasing number in countries it makes it harder for coffee producers to influence prices. Over the last few centuries, coffee has grown into one of the world’s most popular drink. There has been strong growth for coffee as it has become a fashionable drink. Coffee has replaced alcohol as a drink of choice for workers

According to statistics, Finland is the country with the highest per capita consumption of coffee, and China is the lowest one, but in Finland there are nearly five million residents only, which means Finland will consume a million bags of coffee every year, but the 1.3 billion residents of China will provide approximately 200 million potential coffee consumers, and this will make China becomes a major coffee market. On the other hand, under the same culture background, compare to Japan and Korea, Chinese average annual per capita consumption is only around 20 Cups, but this also means Chinese consumer coffee market has a big room for future growth.

As mentioned above, the specialty coffee industry had seen steady growth for years and the trend was expected to continue.

Starbucks has developed a brand image that has revolutionized coffee drinking experience. It has created an ambiance that is designed to attract customers and keep them coming back to Starbucks stores. It offers wide varieties of services such as comfortable seating areas with unique music and free wireless Internet for their customers while sipping their favorite coffee. This distinctiveness sets Starbucks apart from most of its competitors and has allowed the company to successfully grow and profit while charging premium prices for their products.

In years past, coffee was relatively inexpensive to buy because coffee was typically consumed in certain countries, but now that many more countries are consuming coffee, the supply is having a difficult time keeping up with the demand. For instance, if economists predicted in 1980 that the demand for coffee would increase between 50% and 80% by 1990, then it would stand to reason that farmers would have probably enlarged the size of their crops in order to accommodate the demand. However, in 1990 the demand for coffee only rose by 10% thereby creating a surplus of coffee on the market for consumers. Because coffee is so easily obtainable, and farmers are trying to sell their goods so the crops will not go to waste, prices begin to drop to help tempt purchasers, which helps the producers so they avoid losing their investment entirely.

The 9th largest coffee producer in Latin America is Peru. It is mainly produced in the valleys of Chanchamayo and Urabamba. The coffee is described as being “mild, flavorful, and aromatic”. Most farms are small in the country, being only 5 acres. The crops are grown all over the country, but

Since that time coffee has spread throughout the country and they have become the best at it. During the 1920’s, Brazil, monopolized the international coffee market and supplied 80% of the world’s coffee. (Rahman, 2014)

Assuming that the demand and supply for premium coffees are in equilibrium, the price will be at a constant, without significant pressure from the market. If Starbucks introduced the world to premium blends, this would cause a positive shift in the demand curve. There a higher equilibrium price and higher quantity when demand increases and supply remain unchanged. As prices increase, and the market moves to a new equilibrium, we will see higher wages, more advances and investments in technology and infrastructure, and greater competition. As production become more efficient and competition becomes greater, supply will increase and cause prices to settle back down. There are several factors that will impact the long-term equilibrium, such as changes in supply. For example, if a hard freeze eliminated Brazil’s premium coffee crop, this would cause a negative shift in the supply curve. Assuming demand remains constant a negative shift in the supply curve will cause quantity to decrease and equilibrium price to increase. Research shows that in 2011 a frost occurred in Brazil's southeastern coffee growing belt. Traders worried that next year's yields could be hurt. At the same time, heavy rains during harvest forced Columbia to reduce its crop estimate for 2011. Understanding the impact of problems along the supply chain and how the changes in supply

Several key success factors exist for Starbucks, a leader in the coffee industry. They include

During the time of the coffee boom, another industry was beginning to rise. By the late 1930s, agricultural industries began to take a back seat to industrialization of the cities. Even as times were changing however, Brazil remained one of the world’s top coffee producers.

A review of the estimated growth in retail sales of coffee over the next four years indicates that while sales of non-specialty coffee products are expected to decline, sales of ground specialty coffee products and whole bean coffee should rise. Further, sales of ready-to-drink products are projected to rise almost 50%.

Starbucks main strengths includes their financial performance and establishment of a brand that draws in a large group of loyal consumers. High financial performance has allowed Starbucks to have the leverage and funds available to expand globally as well as invest in premium products. In addition, Starbucks has been able to use their financial leverage to create their brand of a premium coffee business that treats employees and the environment with respect. Thus, creating a desirable place for quality employees as well as a desirable place for consumers to spend their money.

Starbucks is one of the leaders in the coffee house industry. This is possible because Starbucks is the leading purchaser of coffee worldwide. Despite this, the coffee house market as a whole must be aware of possible future volatility in coffee bean production. According to Philip Ross at the International Business Times, Arabica beans, which are 75% of the coffee produced worldwide, are expected to fall by up to 25% in some regions of the world. This is in part to the rising temperatures that those regions are facing. This will affect world prices, and as a result corresponding demand for the same.