2004 Starbucks in 2004 announced that it will increase prices at its stores befo

Question

2004

Starbucks in 2004 announced that it will increase prices at its stores before the end of year. Analysts expect prices to rise by 4% to 5%. Prices are going up to adjust for increases in dairy products and rents. The firm is seen as the clear leader in the retail coffee market but opinion is split on whether consumers will continue to pay more for their caffeine. Some surveys indicate that people already think they already pay too much for their coffee while others suggest that Starbucks is actually less expensive than many of its competitors.

Now Read and Watch/Listen to the clips on the links below concerning the “Coffee War” today.

Looks like NPR has removed the clip listed below. The clip describes the closing of as many as 600 stores by Starbucks based on performance and proximity to other stores. If you can't see the clip, read this New York Times article instead.

Fast Forward January 2008

http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=17984599&m=17984563

Current: Starbucks versus Dunkin Donuts

http://abcnews.go.com/video/playerIndex?id=7108261

(1) From the case in 2004, explain the logic for a price increase from Starbuck's perspective.

(2) Can you discuss the effect of operating leverage to why Starbucks had to close about 600 stores in 2008 and why they are being outcompeted by Dunkin Donuts?

Explanation / Answer

1---logic for a price inc rease from starbucks perspective is the lots of criteria

1-to people opinion-------- some peple have different opinion that price is high

2- price is low----some thinks price is low to other competitor

3--dair products and rent adjustmentt therefore price is high

4-4-5% increase price according to scenerio and people

2---becoz it faces loss on 600 stores

it seems that it can focus more fore less stores

dunkin donuts is beneficial

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