Starbuck’s Suply and Demand

The old saying, “there is one every corner” holds true for Starbuck’s coffee shops. One can not walk down a street in any major city without running into one of their stores. When Starbucks first opened their shops they were basically an outlet for selling fresh roasted and ground coffee beans from around the world. The idea for a “coffee shop”, as we know them today, sprang from customer suggestions of offering and supplying new coffees. Although Starbuck’s may have been armed with knowledge of existing markets of coffee drinkers, no one could have predicted the market share that Starbuck’s would encompass. This market was created through the process that involved the interaction of tentative sources of supply and demand that over time became recognizable as the new coffee market. This paper will show how supply and demand for gourmet coffees helped to form the Starbuck’s coffee shop as we know them today.

Why do people flock to Starbuck’s in droves? Because Starbuck’s sensed a void in the market and moved to fill it. Years ago the world of coffee was populated by the likes of Folgers, Maxwell house, etc. A few large companies controlling the entire market share and the existence of small specialty coffee shops was non-existent. In the world of coffee there are two types of beans; Arabica and Robusto. Robusto is a cheap and plentiful coffee bean and not great tasting. However, Arabica beans are more expensive, harder to grow and great tasting alternatives to the Robusto beans. The predominant coffee companies used the more readily available Robusto because of the endless supply. However, Starbuck’s felt the need to supply the Arabica in order to satisfy the demand to its customers for better tasting coffee.

“This is where the lesson in the theory of supply and demand comes into play. Basic economic theory states that prices are determined by how much of something is available, and how badly people want or need it.” (Hydrick, 2005). Starbuck’s coffee aficionados started preferring

the more expensive bean and were willing to pay the prices that the coffee shop charged. This also increased the consumption and need for the Arabica bean and its production and availability. Which in comparison to the Arabica’s counter part was harder to grow and not as plentiful. “Brazil, which grows 43 percent of the world’s Arabica, is expected to generate six million fewer beans than it did in 2004”. (Schlesinger, 2005) Although the supply of Arabica beans has fallen due to droughts and coffee bean bush recoveries, the consumption of coffee has increased. This is due in part to coffee houses such as Starbuck’s opening new stores nationwide and offering their product to more consumers each year. In 2004 a Wyoming Research interview 2,250 people in a study of specialty coffees (flavored, gourmet and specialty). “The national chain specialty segment showed a six percent consumption