In 2004, Starbucks announced that it will increase prices at its stores before the end of year. Analysts expected prices to rise by 4% to 5%.
According to Starbucks prices went up to adjust for increases in dairy products and rents.
(1) From the case in 2004, explain the logic for a price increase from Starbucks' perspective.
(2) Can you discuss the effect of operating leverage on why Starbucks had to close about 600 stores in 2008.