Question

In: Operations Management

What is management’s assessment of Starbucks risk associated with interest rates, changing prices and self insurance?

What is management’s assessment of Starbucks risk associated with interest rates, changing prices and self insurance?

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Expert Solution

The Starbucks is a leading coffee retailer which buys good quality coffee bean directly from the farm and roast it and sell it as a bean and also a as a veriety of products like drinks coffe extracts. They have retailer outlets in the form of coffee shops that sell all the accessories associated to tea and coffee.

Although a leading brand the management has to constantly assess the risk factors so as to make the business survive in the competitive market.With regard to the interest rates, the outlets are being opened by availing loans from banks and an increase in the interest rates could affect the profitability of the business. The income of the firm is based on the sales percentage and it cannot be judged. The expenses on the other hand goes increasin year after year but the cost of the coffee and the end products cannot be raised as there are chances of losing the customers.

The outlets of the Starbucks that serves coffee and tea products, provides accessories like spoon. napkin and tissue paper to the customers which are not charged and are sourced from the third party. If the prices of these supplies are changed frequently the firm would find it difficult to maintain the profit statistics and ensure a fixed profit. The management hance took steps to find reliable suppliers of these materials and signs contract with them so that they may not increase the prices with in the time period mentioned in the contract.

A company with the highest turn over in the field needs to be insured so as to keep itself save from the fluctuations of the share market as well as natural calamities and theft. A disater would occur that cannot be judged and the loss occured would be huge that the profit of the other outlets has to be used for this. Once the firm is self insured against the odds that cannot be predicted nor prevented, the survival of the same would not be at a stake if such incidents occur.


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