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Guest Post: Coffee Shops and the Pareto Principle

August 2, 2020

Our Guest Post today comes from Howard Weiss, Professor of Operations Management Emeritus at Temple University

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?

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