Effects of the Expansion of Starbucks

Effects of the Expansion of Starbucks 1. Background information Starbucks has expanded rapidly since 1995. Yet, as a result of the economic crisis causing a decline in sales, Starbucks was forced to take measures that enable it to cope with this economic crisis. (Jannarone, J. June 14 2010) 2. Effect of Starbucks expanding 2.1 Effect on the PPF(Production Possibilities Frontier) curve Starbucks has expanded at a very fast rate, adding stores in the US at an annual rate of 27% from 1995 to 2005.( Jannarone, J. June 14 2010)This would cause the PPF(Production Possibilities Frontier) curve for the goods of Starbucks to shift outwards as shown in the diagram below due to the increase in the quantity of resources being put into the production of goods since stores are categorize under capital resources. (Assume that Starbucks produce only two goods, coffee and cake) 2.2 Effect on the market demand and supply curve The expansion also caused the supply curve of the goods of Starbucks to shift to the right due to the increase in the number of suppliers (shops). This has resulted in an increase in supply of the goods of Starbucks. The equilibrium market price would fall while the equilibrium quantity would increase as shown in the diagram below. The blue thin lines indicate the equilibrium price and quantity. Q-quantity, P-price, E-equilibrium point, S-supply 3. Market structure of Starbucks The market structure that Starbucks is operating in is oligopoly. The following are the reasons which lead to the conclusion. 3.1 Number of sellers in the market Starbucks is a large firm operating in a many different countries. It supplies most of the speciality coffee in the world. There are also very few competitors such as MacDonald and Coffee Bean which are competing with Starbucks for its customers whom are mainly well-off working professionals. 3.2 Substantial barriers to entry for new firms It is very difficult for a newcomer to set up a speciality coffee chain in the world as cost is very high. For example, advertising the new coffee product would take a huge amount of money. Researching and coming up with a new coffee product may take years and cost about a few million to a billion dollars. Moreover it is very hard for newcomers to compete for customers with established firms like Starbucks as these firms already have an established brand name. As such customers would rather drink the coffee at these firms instead of others as they trust the quality of the coffee there. 3.3 Mutual interdependence Some of the actions taken by Starbucks competitors depend on the actions taken by Starbucks. It means that firms in an oligopoly weigh the effects of its own behaviour on the other firms behaviour. For example as a result of Starbucks having espresso-based drinks, McDonald decided to launch espresso-based drinks too. (Jannarone, J. June 14 2010) 3.4 Type of oligopoly Starbucks is a differentiated oligopolist due to the fact that evidence in the newspaper articles seems to suggest this. For example McDonald has launched espresso-based drinks but this has hardly affected Starbucks sales. (Jannarone, J. June 14 2010). This is due to the fact that Starbucks espresso-based drinks may have different physical qualities such as a better taste compared to the ones offered by McDonald. Therefore Starbucks is likely to be less sensitive to any price changes of its competitors products as the products it offers are different compared to its competitors products. 4. Behaviour of Starbucks Starbucks practices non-price competition which means that it designs itself to increase its share of the market without changing the price of its products. This can be seen from the fact that when McDonald launched espresso-based drinks, Starbucks sales at stores swung positive in the past several months even though it did not decrease the price of its products. (Jannarone, J. June 14 2010) Here are some of the possible ways Starbucks practice non-price competition through product differentiation. 4.1 Physical differences Starbucks products are of better quality compared to its competitors. An example could be that Starbucks espresso-based drinks have a better taste compared to McDonald coffee. This can be seen from the fact that even though McDonald launched espresso-based drinks in 2009, Starbucks sales at stores swung positive in the past several months. (Jannarone, J. June 14 2010).This shows that generally Starbucks products are of better quality compared to its competitors products. 4.2 Location Starbucks outlets are normally located at areas where the competitors outlets are not located. This can be seen from the fact just 23% of US Starbucks locations have a McDonalds outlets within a quarter-mile radius. (Jannarone, J. June 14 2010)This makes it difficult for their regular customers and even future customers to switch to other alternatives. 4.3 Product image Starbucks has also fostered in people mind that it provides coffee that is of the highest quality. This is done through advertising. 4.4 Reasons for Starbucks behaviour Starbucks is doing this as it does not want to have a price competition with its competitors. This is because if a price war occurs, Starbucks would be forced to lower the prices of its products, causing the price to be lower than the marginal cost of producing each of its products. This would cause it to lose a lot of revenues and the total revenue earned may be much lower compared to the total cost incurred. As such Starbucks would be operating at a loss and might even close down. 5. Effect of economic recession on Starbucks 5.1 Income elasticity of customers of Starbucks Starbucks customers demand for the goods of Starbucks is income elastic. This is because during the economic recession where many of Starbucks customers suffer a decrease in their incomes, sales of Starbucks goods began to weaken, resulting in a 9% decrease. (Cain Miller, C. January 28, 2009)It came to the point where Starbucks was forced to retrench. (Jannarone, J. June 14 2010) As such in conclusion, the absolute value of the income elasticity of demand of customers of Starbucks for the goods of Starbucks is above 1.This shows that customers of Starbucks are very responsive to any change in their income in their demand for Starbucks goods. As a result, the demand curve for Starbucks goods would shift to the left by a lot. 5.2 Starbucks closing down stores Starbucks has closed down 300 stores, causing about 700 of its employees to lose their jobs in 2009. (Cain Miller, C. January 28, 2009)This is because in the short-run, at the point of output where the marginal revenue is equal to the marginal cost, the price per output of Starbucks is below the average variable cost. As such Starbucks is not able to cover part of its variable costs and its total fixed cost. Therefore Starbucks loss would be part of its variable costs that it is not able to cover and its total fixed cost if it decides to continue on production. However if Starbucks shut down its stores, its loss would be just the total fixed cost. Therefore to minimize loss, Starbucks has decided to close down some of its stores. Starbucks PPF(production possibilities frontier)curve would shift inward as the quantity of resources being put into the production of its goods is decreased since retrenching will reduce the amount of labour being employed and closing down stores would reduce the amount of capital being put into the production of Starbucks goods. This can be seen from the diagram. (Assume Starbucks produce only two goods, coffee and cake) 5.3 Effect of recession on demand for Starbucks goods In the first quarter of 2008, Starbucks revenue has decreased from $2.77 billion to about $2.6 billion and sales at Starbucks stores decreased by about 9% (Cain Miller. January 28, 2009). This is due to the fact of expectations of its customers. Starbucks customers expect their money income to decrease as a result of the economic recession. As a result, they would buy less of Starbucks goods as a result of their anticipation of a decrease to their money income. This would cause the demand curve for Starbucks goods to shift to the left, resulting in a decrease in the equilibrium price and quantity. 5.4 Starbucks cutting down on cost Starbucks also has tried to cut down on cost. This include cutting down on variable costs such as reducing the salaries of employees such as Mr.Schultz , cutting down on fixed costs by renegotiating prices with landlords and suppliers. (Cain Miller, C. January 28, 2009). This would cause the supply curve of Starbucks to shift to the right as a result of the decrease in resource price such as labour, as a result of this, market equilibrium price would decrease and the equilibrium quantity would increase due to decrease in the cost of production. Starbucks is doing this so as to reduce its total cost by about $400 million to $500 million. (Cain Miller, C. January 28, 2009). This also has enabled Starbucks to increase its operating profit margins from 0.6% to about 4.5 % (Cain Miller, C. January 28, 2009). Such measures has enabled Starbucks to increase its (total revenues-total cost) difference. As such gap between total revenues curve and total cost curve would be larger due to the decrease in cost. 6. Conclusion 6.1 Economic profits Starbucks is an oligopolist; it would in the long-run have an economic profit due to substantial barriers to entry such as a high start up costs and the presence of established brand names. As a result, lesser firms would enter the market that Starbucks is operating in. Lesser number of Starbucks customers would get snatched away, therefore demand for Starbucks goods would not reduced by a lot, as such Starbucks would still earn an economic profit 6.2 Allocative efficiency Starbucks cannot attain allocative efficiency as the price of its goods are larger compared to the marginal cost associated with producing that good. This show that consumers are paying an amount that is larger compared to the additional cost of producing a unit of Starbucks good. Therefore consumers would be better off if Starbucks produce more of its goods. 6.3 Challenges faced by Starbucks Starbucks faced a declining demand for its goods as consumers now prefer healthier drinks. However Starbucks emphasizes on milky, sugary drinks, hurting its image as an authentic coffee house. (January 28, 2009) This would result in Starbucks demand curve shifting to the left due to the taste and preferences of consumers, resulting in the decrease of equilibrium price and quantity. Starbucks has also expanded by a lot; this has resulted in it experiencing diseconomies of scale as more layers of management are needed to coordinate the Starbucks operations. This would result in a higher cost for Starbucks as a larger amount of resources is required to coordinate and manage resources such as labour. Starbucks may have also experienced the law of diminishing returns which is as more and more variable inputs are added into the fixed resource of Starbucks such as its stores, marginal product of the additional variable input would ultimately decline due to congestion and crowding. This is shown when the marginal physical product curve is decreasing from its maximum point. This would also result in it experiencing increasing marginal costs as shown in the diagram. This is shown by the marginal cost curve increasing from its minimum point. 6.4 Starbucks strategies Starbucks has shown that it is capable of adapting to situations. For example, during the economic recession, it cut down on cost. It also attempted to attract more customers and retain existing ones by giving special offers such as giving loyalty cards that provide discounts and coming up with breakfast combination meals. (Cain Miller, C. January 28, 2009). Starbucks has also attempted to widen its market reach by opening new stores in new markets such as China. Many of those stores have matured and operating profits could soon be earned from them. (Jannarone, J. June 14 2010) To cut down on cost as well as diseconomies of scale, it also has shut down 300 stores. (Cain Miller, C. January 28, 2009) 6.5 Future of Starbucks Starbucks has proven itself to be capable of adapting to situation while attempting to take the initiative in taking advantage of new opportunities. This shows that despite challenges such as declining demand for its products, Starbucks is still capable of remaining competitive.

Case Study: Company Law Essay

Question 1 The shares of ABC Limited, a private company are held by Ann and Andy Anderson and Bev and Bob Brown. The Andersons who together hold 90% of the company shares are concerned that the company is in need of further capital but because of family difference, the Andersons are not willing to inject additional funds so long as the Browns are shareholders in the company. They have therefore decided to pass a resolution which will enable the majority acquire compulsorily at full value shares of the minority. Advise Bev and Bob Brown. Bev and Bob Brown my advise to you is that the Anderson being the majority shareholder of ABC Ltd. can remove you Bev and Bob Brown by ordinary resolution of the company in general meeting, and if you Bev and Bob was appointed by the articles you can be removed by a special resolution passed to alter the articles. The Anderson’s decisions being majority shareholder is binding on you the minority shareholder whether you like it or not it is they who control the company ultimately. However Bev and Bob you can take representative action against the Anderson’s for fraud committed against you Bev and Bob as in the case Eastmanco.  Ltd. V Greater London where they stultify the purpose for which the company was formed and deprive you the minority shareholder of your existing prospects of obtaining votes. Being a member of ABC Ltd. you can bring representative action against the Company to protect your personal rights which you Bob and Bev enjoys. There have been a breach of duty owed to you Bob and Bev the minority shareholder cannot be ratified by a majority of shareholders. Question 2 Discuss the rule in Foss V Harbottle The rule in Foss V Harbottle illustrates the principle of majority control and minority protection.  If a wrong is done to the company then the only proper plaintiff to bring an action to redress the wrong is the company itself and not a shareholder or anyone else. Where the minority’s complaint is that some act has been done wrongly, which would nevertheless be lawful if there were an ordinary resolution in general meeting to authorize it, then the court will not interfere at the instance of the minority. The rule places the majority member in a very strong position over the minority as in the case Bamford V Bamford. The rule prevents the company from spending money on litigation to no ultimate purpose if an independent majority does not wish to pursue a claim. The rule may be used by majority shareholders to perpetrate fraud on the minority members especially if the majorities are also directors of the company. The rule is an inevitable consequence of a corporation is a separate legal entity. Therefore, if harm is caused to a company then only the company itself can take legal action. No one else, irrespective of their losses, will have the necessary power to take legal proceedings. Question 3  Dave is minority shareholder in ABC Company Ltd. Andy, Bev and Carol are also major controlling shareholders and in addition, they hold the position of chairman, managing director respectively. Dave is aggrieved that: i. The company has just sold 5 acres of land to Bev’s cousin at half the price the company paid for it ii. The company has recently engaged Andy’s uncle as its marketing director at an annual salary of $5 million. His service contract includes a provision that in the event of his death, his widow shall continue to receive his annual salary by way of pension payment for the rest of her life. Andy’s uncle was in very poor health at the time of his appointment. Andy, Bev and Carol do not admit that anything improper has taken place. Advise Dave on the legality of Andy, Bev and Carol’s action and whether he can bring an action against them. Dave base on the actions of Andy, Bev and Carol you can bring an action against them as in the case Daniels V Daniels. The major shareholders Andy, Bev and Carol owed fiduciary duty to the company and most act in good faith and in the best interest of the company and not in their own interest. The directors have been exercised in a manner that is unfairly prejudicial to the company and also breach of their fiduciary duties as in the case Kelmer V Baxter. Andy, Bev and Carol action are base on personal interest. The court can make an order to rectify the matters as in section 213A of the 2004 Company Act. The court can order for the company to regulate the company affairs by amending its articles against Andy’s uncle who was appointed as marketing director at an annual alary of $5 million and he was in very poor health at the time of his appointment. The court can regulate the company affairs by amending ABC Ltd. articles so that Andy’s uncle widow does not receive his annual salary by way of pension payment for the rest of her life after he dies. The court can also order for compensation to the company for the 5 acres of land that Bev’s cousin buy at half price the company paid for it. Dave you can bring action against them in the court. Question 4 The articles of association of ABC Ltd. public company provides inter alia ‘At a general meeting of the company, subject to any right or resolutions for the time being attached to any class or classes of shares, on a show of hand, every member in person shall have one vote’ Marvin, a shareholder who was present at a meeting of the company voted but the directors refused to register his vote in connection with passing of a special resolution. Advise Marvin who wants to compel the directors to register his vote. Marvin base on information given above you take Representative action against the company to protect your personal rights as in the case Pender V Lushington. Being a member allows you to bring representative action against the company. The directors of ABC Ltd. owe fiduciary duty to you personally. Suing under representative action to prevent the company from acting contrary to its articles which states that: ‘At a general meeting of the company, subject to any right or resolutions for the time being attached to any class or classes of shares, on a show of hand, every member in person shall have one vote’. You were present at the meeting and voted but they the directors refused to register your vote so you can bring them to court.

Custom College Term Papers - the Conspiracy

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Teenage Suicide Is A Big Problem - 940 Words

What started as a missing person, ended in tragedy. At the beginning of my freshman year at Hanover High, a student named John Smith*,(he was a year older than me) was missing. I knew who he was because his mom used to work with me in the learning center at Marion Cross, the elementary school in Norwich. He went missing sometime in October. Weeks went by, then months and then finally they found him. When they found him it was early March so the snow had melted and he was hanging from a tree in his backyard. When I came to school that day you could hear people talking about it. Teen suicide is a BIG problem. â€Å"Adolescent suicide continues to be a major cause of death of our youth. The National Center for Health Statistics (1996) has found suicide to be the 3rd leading cause of death for 15-24 year olds, behind only accidents and homicide and the tenth leading cause of death in children under the age of fifteen (Ellis Lane, qtd in â€Å"Do Increasing Adolescent†. As stated by these facts, even though they are out of date, suicide is on the rise. Suicide is an important topic in my life; I lost a great uncle to suicide when I was little. He had COPD and didn’t want to go through the suffering that comes with that particular disease. It was tragic when my 80 year old great uncle committed suicide but it seems more tragic when teens at the beginning of their life commit suicide. In his article called â€Å"Teens Are Particularly at Risk for Suicide†, Michael Jellinek, gives us someShow MoreRelatedConsidering The Causes Behind Increase d Teenage Suicide.1536 Words   |  7 Pages Considering the Causes Behind Increased Teenage Suicide Yesterday, 16-year-old Rachel decided to commit suicide-- an all too common increased trend in America as suicide is the third leading cause of death for 15- to 24-year-olds (â€Å"Teen Suicide Is Preventable†). Rachel felt like she could not handle her life anymore. 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