In studying Chapter 12 on inventory we learn that ABC Analysis is founded on the Pareto principle that states that there are a “critical few and trivial many.” More specifically, this is phrased as “roughly 80%of the effects come from 20% of the causes.” An example of the Pareto Principle has to do with a couple of measures about Coffee Shop chains.
There are at least 12 coffee shop chains in the U.S,. with over 30,000 branded coffee shops. Starbucks and Dunkin’ accounted for 80% of the over 1400 new store openings in the U.S. over the past year. That is, Starbucks and Dunkin comprise fewer than 20% of the chains but accounted for 80% of the new store openings. Starbucks has a 40% share of the U.S. coffee shop market and Dunkin’ has a 26% share of the market. In other words, fewer than 20% of the coffee chains account for 66% of the market. This is not 80% but it is a considerably high percentage.
The figure below from Daily Coffee News (Oct. 25, 2019) exhibits pre-pandemic numbers.
Classroom discussion questions:
1. Analysts forecast that coffee sales will not rise to pre-pandemic levels until 2024. Should we
expect Starbucks and Dunkin to account for 80% of the coffee shop closings in the next 4 years?
2. Which organizations related to coffee shops will be affected by the current drop in sales due to
the pandemic?