Starbucks Canada to Open 150 New Outlets, Biggest
Expansion Ever
Financial Post
February 8, 2013
Thanks in part to Target, Starbucks Canada will be undertaking the biggest expansion
effort in its history this year, with plans to open more than 150 new locations across the
country. …
The subsidiary of Seattle-based Starbucks Corp. will open outlets inside many of the
124 Target locations opening in Canada in 2013 beginning next month — but the exact
number is still a secret, Starbucks Canada president Annie Young-Scrivner said Friday.
The growth is also a response to [the] company’s successful bid to tap into the Canadian
palate with its burgeoning Blonde roast coffee in a way that it had not before, bringing a
host of new customers through its doors, she said in an interview on Friday. …
After the first nine months, Blonde grew to represent
12% of Starbucks Canada brewed coffee sales. Since
the company began a sampling and marketing push last
month in Canada, the lighter blend now accounts for
20% of those sales. Typically 38% of Starbucks Canada
customers drink dark roast and 42% drink medium
roast, she said. “Some people thought our roast was
too dark before. We had a lot of customers who would
come to us for their lattes, but would go somewhere else
for their coffee. I think our mix will continue to shift
more towards the Blonde roast.” … (Source: Financial Post)
Some salient points about the Starbucks expansion is given below:
- Starbucks can increase output by hiring more labour, or
by increasing its plant size. Or it can both increase its
plant size and hire more labour.
- Starbucks can increase its plant size by either replacing
an existing café with a larger one, or expanding the number
of cafés.
- The decision turns on comparing costs, and Starbucks has
figured that it minimizes cost by expanding the number of
cafés and hiring more labour.
- The Average cost and Marginal Cost
curves are given below in Figure 1:
- The
Average total cost curves, the original ATCO and when an extra café is added ATC1 is shown in Figure 2.
Answer the following questions based on the information above:
- The following is the cost calculation of the Starbucks café. Fill in the blanks for A,B,C,D, and E. Show the calculations
|
|
Labours (Workers per day) |
Output (coffees per day) |
Total cost (dollars per day) |
Marginal Cost (MC) (dollars per coffee) |
Average Total Cost (dollars per coffee) |
|
A |
0 |
0 |
1000 |
|
|
|
B |
10 |
400 |
A |
2 |
4.5 |
|
C |
20 |
1000 |
2600 |
C |
2.6 |
|
D |
30 |
1300 |
3400 |
2.67 |
E |
|
E |
40 |
1500 |
B |
4 |
2.8 |
|
F |
50 |
1600 |
5000 |
D |
3.13 |
- To expand its capacity, which is better for Starbucks: increasing the size of existing cafes or adding more new cafes? Give proper reasons.
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