Current Market Condition Paper

Essay by alantoviCollege, UndergraduateA-, August 2009

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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...