Economics Blog #1
By: Alisha Tupchong
October 9, 2009
Starbucks Instant Coffee
Summary of the Event
During the last week of September 2009, Starbucks Corp. announced that they would be selling instant coffee at all of its Canadian stores. This single-serve instant coffee is available in packages of three for $3.45 or packages of twelve for just under $12. In the United States, the same instant coffee was available in February of 2009. Made simply by adding hot water, the company’s CEO, Howard Schultz, says that the instant coffee is a means of bringing “quality coffee” to those who would rather have a single serving versus a full pot. The instant coffee also acts as a marketing tool, since its cheaper price allows it to be available to more people. This means that someone who is usually unwilling to pay the extra dollars required for a fresh cup of coffee from Starbucks might try the instant coffee, since it is more affordable for them. If they like the coffee enough, they may just pay the extra money to buy a fresh coffee from Starbucks, and thus, a new customer is born. Multiplying this scenario by millions of people means that Starbucks makes a large profit, thus acting as a marketing tool.
Three Positive Economic Statements
If Starbucks’ instant coffee is very popular amongst Canadians, then there will be less demand for instant and/or fresh coffee from, say, Tim Horton’s, resulting in less profit made by the Canadian company and therefore less business stability.
If Starbucks’ instant coffee is considered too expensive compared to Tim Horton’s, more people will purchase their instant coffee from there, allowing the Canadian company to profit, and therefore increasing its business stability.
If Starbucks’ instant coffee is more popular than its fresh coffee, then sales of the fresh coffee will decrease as consumers move to the instant coffee, thus inducing Starbucks to lower its prices of fresh coffee, in turn, making the usually expensive fresh coffee available to a larger number of Canadians.
Two Normative Statements
To better the Canadian economy…:
Tim Horton’s should introduce a line of “luxury and/or specialty coffees” similar to those of Starbucks, in which they would be slightly more expensive than its regular coffee, but still less expensive than the average Starbucks drink.
Tim Horton’s should revamp its image from being a ordinary fast-food restaurant to that of a classier food chain that has the same prices but offers a more comfortable eating environment, which may include wireless internet, for example.
Opinion about What should Happen
To better the Canadian economy, Tim Horton’s should introduce a line of “luxury and/or specialty coffees” similar to those of Starbucks. To give it that luxury feel, these coffees would be slightly more expensive than the regular coffee, but still cheaper than Starbucks’ specialty drinks. New drinks like these would be more profitable for Tim Horton’s, since many people would be willing to pay a little bit extra for a special drink. It is important that these drinks be less expensive than the average Starbucks drink, so that people choose to get their luxury drink at Tim Horton’s over Starbucks. As well, by offering a wider selection of flavours and styles of drinks, Tim Horton’s will attract a larger variety of customers, therefore attracting more sales, bettering the Canadian business, and enticing shareholders to buy more stocks. These factors all contribute to a more stable and healthy Canadian economy.
