Question

Founded in 1985, Starbucks Corporation offers brewed coffees, espresso beverages, cold blended beverages, various complementary food items, and related products at over 12,000 retail outlets in the United States Canada, the United Kingdom, Thailand, Australia, Germany, China, Singapore, Puerto Rico, Chile, and Ireland. Over 100 outlets are featured in the Greater Chicago Land area alone. For a new unit in Chicago’s O’Hare Airport, suppose beverage customers spend an average $4 on beverages with an 80 percent gross margin, and food customers spend an average $5 on sandwiches and salads with a 50 percent gross margin. In both cases, gross margin is simply price minus input cost and does not reflect variable labor and related expenses. Customer traffic throughout the day is as follows:


A. Assume labor, electricity, and other incremental costs are $175 per hour of operation; calculate the profit-maximizing hours of operation per day.
B. Assume the store is open 365 days per year, and that incremental rental costs are $2 million per year. Calculate optimal incremental profits. Should Starbucks close thissite?


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  • CreatedFebruary 13, 2015
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