For perfect competition there must be a large number of buyers and sellers, and all of these must be small in relation to the whole market. Which when it comes to coffee drinkers around the world Starbucks would be considered to be only one of the players in this market. In perfect competition a decision by any particular consumer to increase or decrease her purchases will have no perceptible effect on total sales, that is true for the Starbucks individual patron.
The main reason for Starbucks to realign there business practices is because they were loosing money. They brought back Howard Schultz to head up the organization again after the corporation was loosing money. He decided that the company had lost its flare and individualization which made it the coffee house of choice that consumers wanted. By the decision which Starbucks executives made along the way which seemed like good ideas at the time, they had made themselves more like a cookie cutter business. Which in turn had also turned off patrons, as well the fact the you could find a Starbucks at every corner did not make the experience special any longer.
With the decision to close locations the majority of the location that would be closed were very close to another location already. Many of the locations where in a high saturated area of stores. The number of stores closing were originally to be 100 however climbed to 600. The additional 500 stores had been on an internal watch list as they were under performing already.
The costs of closing a store must be more beneficial than to wait to see if the store location is going to turn around and can cover its variable costs at this time. For Starbucks to decide to close the locations the closing costs would have had to out weigh the benefit of keeping them open.
Starbucks was committed to relocating as many employees as possible however still believed that they would be spending $8 million US on severance packages to employees in the store locations, $120 to $140 million US in lease termination and future lease termination costs, and the total closer charges would be $348 million US. These are significant amounts of money that obviously had been analysed and the repercussion contemplated greatly. However saying all of this for the 2008-2009 time period, Starbucks still planed on going ahead an opening 200 new stores in 2009. This number had been cut in half from the original 400 new store openings slated for 2009.
Coffee at Starbucks is a premium price is how I categorize the amount that they charge. However I also engage in more than just a plain brewed cup of coffee when I go to Starbucks. My coffee of choice is a Skinny Latte, which I then choose a flavour depending on the time of year. Right now for a treat I will have the pumpkin spice, which I really enjoy and it is more like a dessert treat.
The reason that Starbucks can charge the prices that they do is because we as a society have allowed this to happen and we have bought into the deluxe lavish coffees. We are no longer completely satisfied with a brewed cup of coffee that we make at home, we like to treat ourselves to a more lavish life style. Starbucks had great timing they entered a market at a time when consumers had more disposable income and were willing to spend it.
If Starbucks was to lower their prices there would be an increase in demand for the product, however they need to balance the quality factor and makes sure that they can still deliver the same quality at a lower price or they could end up loosing customers if they cut there prices to lower and quality suffered.
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CBC News, (July 2, 2008), retrieved September 13, 2012, www.cbc.ca/news/business/story/2008/07/01/Starbucks-closure.html.
Seattle Times The, (July 2, 2008), retrieved September 13, 2012, seattletimes.com/html/businesstechnology/2008028854_starbucks02.html.
