Supply, Demand and Price Elasticity of Coffee

The coffee served in Second Cup is also high quality and the drinks available strongly rival those in Starbucks. In the past decade there has been an explosive growth of 157% in the area of coffee shop market. Canadian coffee market share, new companies have limited to no space for growth in North America. Second Cup’s market share at the Canadian market is about 8%.Upon these facts and analysis there is an unlimited growth possibilities in the coffee market in Canada. There are different factors that do influence in the purchase of coffee from these outlets and the the way these coffees are priced. Customers are reluctant to get coffee from these outlets as the prices are too high than the coffees that could be made at home. There is a huge conflict between the pricing of coffees at these places and homemade ones. Coffee shops are determined to serve the best quality coffees which are been imported from South America and Africa, due to the rise in oil prices transportation charges have also been increased. And also due to different global climatic conditions the prices of these gourmet coffee beans have been increased.

In our global economy, the price of coffee is thought of as elastic. What this means is that as the selling price of coffee increases or decreases, so does the demand for it. Simply put, coffee is not needed by humans to survive but rather is a luxury item, so as the price increases there is less of a demand for coffee and vice versa. Things that would be looked at as inelastic in our economy are staple products such as fuel, food, and water. These items are things that we believe we cannot do without and consumers will still purchase these items in spite of the price increases because without them they believe,

In regards to the company Starbucks, their cost of production includes the cost of coffee beans, milk, plastic products, advertising, rent and labor. When it comes to the high price of Starbucks coffee customers should consider the cost of what goes into the coffe, Howard Schultz said “I am concerned about dairy, both domestically and around the world, and we are working feverishly with our suppliers, (and to) identify new suppliers (Thomnson, R. 2014). When it comes to the price of coffee, “prices recently hit a two-year high due to crop-damaging drought in Brazil, the top producer” (Thomnson, R. 2014). This has a huge impact on the price consumers pay for their coffee.

We use multiple products on a daily basis, from toothpaste to ink pens. Though we may use these items for mere moments, there is a different supply and demand cycle for them. Every product has a different supply and demand cycle, and this cycle varies throughout time. Some items may constantly be in demand, like cotton, and others may be in demand seasonally, like eggnog. These shifts in supply and demand may influence the price of certain products, how much of the product is available at any given time, etc. Commodities available during only peak times throughout the year may even be substituted with a similar item. These seasonal items are considered

A shift in either the demand or supply of coffee could be caused by a number of things. I will start with factors that could trigger a shift in the demand curve of my product of choice. The demand curve according to Mankiw (2008), shifts "if something happens to alter the quantity demanded at any given price." To begin with, customer preferences could bring about a shift in the demand for coffee. In this particular case, the amount of coffee consumers demand would increase were consumer's preferences to change in favor of coffee. The reverse is true. A shift in demand could also be brought about by changes in price of other related goods. Here, an increase in the price of complimentary goods, i.e. sugar would reduce the quantity of coffee demanded by customers of the same at any given price. On the other hand, was the price of a substitute good i.e. tea to increase, the quantity of coffee demanded (at the prevailing prices) would increase. The reverse is true in both instances. Changes in income could also lead to a shift in demand. As people's income increase, their demand for coffee would most likely increase and vice

There are many sellers in the market heating up pricing competition. Competitors like McDonald’s, Dunkin Donuts, Peet’s Coffee and other specialty coffee companies incentivize price wars. Furthermore, coffee’s demand is elastic which makes it difficult to increase prices without greatly reducing the demand. This makes differentiation and positioning very important. Also, it is easy for customers to switch from coffee vendors. Whichever company is most convenient for the customer will likely win the business. Competition is a top priority in the industry.

Stephen Quinlan and Jose Gomez-Ibanez describes, in “The Coffee Crisis”, that in 2004 the governments of coffee producing countries were considering how to respond to rapid decline to coffee prices. In 2001, coffee prices hit a forty-year low, which resulted in extreme hardships for the local farming communities. On that note, this decline in coffee prices was considered “the coffee crisis.” The coffee crisis came to be thanks in part to coffees: overproduction, under-consumption and oligopoly market

In “The Coffee Crisis”, the authors described that in 2004 the governments of coffee producing countries were considering how to respond to rapid decline to coffee prices. Coffee was the main source of income for about twenty-five million small land farmers in Latin America, Africa, and Asia. In 2001, coffee prices hit a forty year low; resulting in extreme hardship for many farming communities.

In this 21st century, a demand of the coffee and tea is ever-increasing in complexity due to the new life style of modern people. People become more particular in choosing the coffee brand. Buyers hence may have to mainly rely on the brand image and the reputation of the manufacturers in order to simplify their purchase decisions. In addition to brand image, there are other factors that contribute to consumer purchase decision-making such as price of the products, servicescape and so on.

Statistics show that over half of the American population consumes coffee on a daily basis. You may drink coffee hot, cold, mixed, or even in a frappuccino. Individuals are able to make coffee at home, or buy it on the go. Coffee provides people with caffeine, which ultimately gives energy for hardworking people all around the world. The main focus for this paper will cover the following topics, with coffee as the basis: causes for shifts in supply and demand, how coffee supply and demand influence price, quantity,

Prices Coffee bean prices in 2011 are on average 90% higher than 2010 due to the La Nina weather patterns plaguing Central America and South America, significant coffee plant damage in Columbia due to fungus on coffee crops, bad weather in Vietnam, and concentrated supply. Another contributing factor to the 2010 severe rice in coffee prices is the declining of the U.S dollar. This decline results in higher coffee commodity prices for Starbucks. In addition, low interest rates maintained by the Federal Reserve, due to the financial crisis of 2008 and 2009, has led to investors to increase investment in commodities, including coffee, which is another driver for higher coffee prices for Starbucks. The price per pound in January, February, and March 2011 were $2.35, $2.47, and $3.56, respectively. Derived from Treasury inflation protected securities and survey-based estimates, the Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.82 percent. Expected prices for 2011-2016 were calculated based on inflation rates, an existing contract Starbucks has with its suppliers for 2011, the assumption based on research

1999 was supposedly the saturation of the coffee market but since today 's big brands have reshaped the market experience tremendous growth. (Telegraph, 2015) These brands have controlled how the nation perceives coffee to taste, setting a standard for everyone else. This year sales are to reach all-time high of £3 billion in the coffee shop market. (Mintel, 2016) The independent coffee sector makes up 30% of the market. (Word Coffee Portal, 2015).

Pricing a product entirely depends on the quality of the same product. Donkey coffee is one area that is facing the challenge of higher prices for their products. Apart from communicating the value of their products to the customers, the owner of the business ought to be firm on their prices. It is prudent that business people establish the value of their products and services accordingly. Once they establish the value, they should present their prices to the customers with confidence. In the case of Donkey Coffee shop, they should not get intimated by the troubles they are experiencing in regard to the issue of pricing (Carter III,

Coffee has played a key role in the majority of people’s lives all over the world. However, despite its admirable taste, coffee's history is filled with controversy as well as politics. It is evident that the history of coffee is entangled with the facets of the process of globalization, the function of Multi-National Companies, as well as international economic matters. Over the years, the coffee business has been linked to a continuous shift of international powers as portrayed by the global financial system. Ever since coffee was first discovered, and more importantly produced, it has been linked to the world market.

This paper is a case analysis of coffee market. The purpose of this paper is to study the supply and demand mechanism through the case analysis of Starbucks in coffee market. This paper has three main sections. The first two section states the problems in coffee market and its ramifications. The first main problem is that Starbucks being the price maker in the oligopolistic coffee retail market, Starbucks exerts its market power to set its coffee retail price much higher than other coffee sellers. The second problem facing by the coffee retail market is unsteady supply of coffee beans. The third section states the proposed solution to the above two problems. Possible solutions for the first problem include introducing