Current Market Condition Paper

2461 words - 10 pages

Market StructureCoffee is second only to oil as the largest import in the United States. The U.S. consumes one-fifth of the world's coffee, making us the largest population of coffee drinkers in the world (U.S. Market, 2003). As a result, the U.S. coffee industry is extremely competitive on all levels. Retail and coffee house segments like Starbucks are only a part of the total market. Coffee is likely the most widely served beverage in the world. This being said there is no doubt that the specialty niche market that Starbucks has conquered in the past is constantly evolving and highly elastic. To understand the market that Starbucks competes and thrives in we must understand the commodities market for coffee.There are two commodities markets for coffee: the cash market and the futures market (NYCE, 2009). The cash market is the current market price that you would pay today to receive coffee today. The futures market is where the price for future coffee deliveries is determined. The futures market is also where purchase contracts are made for guaranteed future shipments of coffee. The futures market system is important because it offers some stability and protection against loss in the cash market. Take for example, severe climate changes that occur unexpectedly which can affect the coffee bean crop. The contract price per unit in the futures market remains secure although supply has changed.Starbucks is considered an oligopoly and in this type of market structure the emphasis is on knowing exactly what the competition is doing and why. The introduction by McDonalds for example, of a specialty coffee had a significant impact on Starbucks because the McDonalds coffee was less expensive.New Competition for StarbucksThe newest competition for Starbucks is not a new specialty coffee chain, it is the fast food market place trying to get a piece of the fancy coffee market. Recent surveys have shown Dunkin Donuts and McDonalds to be Starbucks most leading competitors even though these companies are not in the same league on many levels. Coffee houses such as Peets and smaller independently owned establishments have tried to model the atmosphere and customer experience of Starbucks but fall far behind in market share.Price is one of the marketing mixes that can be adjusted to move a product. This is an effective marketing strategy that companies have used when introducing a new product or simply to alter the sales of an existing product. Starbucks is not an exception and during these tough economical times, they have had to cut the price of most of their products so as to maintain its market share. Unfortunately this has also led to job losses- the easiest short term measure to cut cost. With the entrance of a new competitor, McDonald, which now sell the same products for a less costs, Starbuck believes that cutting the prices will keep it competitive. One advantage that Starbucks has is the brand name which other competitors do not have, and that they...

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