Starbucks has been working on a closely guarded secret for 20 years â€“ Via Ready Brew instant coffee. A month after its launch, Nestle, the maker of Tasterâ€™s Choice, has begun an aggressive campaign against the new interloper. This campaign includes free samples of Nescafeâ€™s â€œsticks,â€ direct mailings, and Web commercials.
- How should Nestle account for the free samples of coffee?
- Starbucks rolled out Via after 20 years of secretive internal research and development (R&D). Assuming that Starbucks spent a million dollars each year for the R&D, how would this be reflected in their financial statements?
- Use some of the following facts laid out in the article:
Assume that Starbucks and Nestle are the only major companies in the instant coffee industry, which generates $21 billion worldwide in annual sales with 5% in the U.S.
Starbucks sells a 12-pack of single-serve pouches for $9.95.
Nestle sells seven 12-packs of single-serve pouches for $12.16.
If Nestle sells seven 12-packs for every one 12-pack sold by Starbucks, what amount of U.S. sales would each company share? How many pouches should be produced by each company to meet this demand?
SOURCE: Andrejczak, M. â€œInstant-Coffee War: Nestle Takes Aim at Starbucks,â€ Wall Street Journal â€“ Market Watch (Retrievable online at http://www.marketwatch.com/story/instant-coffee-war-brewing-nestle-vs-starbucks-2009-11-18)