Overviewof Starbucks Coffee Company
StarbucksCorporation is a limited company with over 20,000 branches in 65countries. It has over 100,000 employees across the world. Thecompany’s products include Starbucks, Teavana, Seattle’s BestCoffee, and Evolution Fresh (Larson, 2008). These brands offerdifferent coffee products and tastes to consumers. The companyexclusively offers beverages and breakfast. Customers can take awayor consume coffee in the special lounges within its outlets. Therooms are fitted with free Wi-Fi connections to attract clients whoprefer to use their laptops while taking coffee. The sitting areasare also customized to serve as meeting points for friends, socialgroups, business people, and students among others. Additionally, theprices of their offers are affordable, thus appealing to variousmarket segments.
PESTLEAnalysis of the Company
Oneof the political imperatives which the company faces includessourcing of raw materials that has generated a lot of controversiesamong leaders from the West as well as the countries where theygather the materials (Pettinger, 2012). As a result, the organizationhas been pushed to a tight corner where they have to ensure thatevery aspect of their sourcing strategies and processes adhere tosocial and environmental norms to prevent criticism. As a result,they have to ensure that their work culture align with the fair tradepolicies as well as labor laws in countries where they source rawmaterials. Additionally, the increased advocacy and rights awarenessin such countries has grown with time, thus exposing the firm tocontinued criticism. The second overbearing issue is that as aninternational corporation, Starbucks has been subjected to strictregulatory measure to ensure that it is truthful when providingreports to the United States government regarding its operations.
Starbucksbeing an international company is likely to be affected by theeconomic recession in the developing countries. The economicconditions of each country vary and can affect business operations inmany ways. For instance, the company experienced reduced profitmargin during the global economic recession. In some cases, consumerstend to shift to lower priced products. With the increasing activismtrends and political awareness in developing countries, the cost oflabor has been rising steadily, thus raising the firm’s cost ofproduction. At the same time, the frequent changes in the taxationlaws in such countries are likely to affect its operations as well asprofit margin. Apparently, interest rates, tax rates, and the statusof the economy are some of the factors which companies considerbefore venturing into a particular market. A company can be affectedadversely when these factors change suddenly.
Thecompany faces challenges when it comes to expanding their customerbase to include people from all socioeconomic tiers in the marketswhere they operate (Pettinger, 2012). The problem arises from thefact that they have to maintain its quality standards even whenoffering low-priced products. Additionally, the corporation has to becognizant of the environmental and social issues which have emergedwith the expansion of industrialization. A company’s brand imagecan be adversely affected when people accuse it of ignoring itssocial responsibility to the society. Lastly, as the baby boomgeneration becomes old, the organization is likely to be forced totap the emerging generation to remain relevant in the market. Itmeans that they would have to change their approach to businessoperation as well as their product specifications to appeal to ageneration of young people to maintain their customer base. It wouldbe like starting from the beginning, except that the brand image isfirmly in place.
Theprogress in information technology has enhanced the capacity ofStarbucks to improve its business processes and expand its profitmargin (Jones, 2008). For instance, the company partnered with Appleand launched an application-based coupon which is expected to bepopular among the young generation of people. Apparently, the firmhas also introduced free and stable Wi-Fi connection in its variousoutlets to attract more customers, including business people (Jones,2008). It has also introduced mobile payments in America and someparts of Europe to make it possible for people to pay directly fromtheir bank accounts, thus limiting the risk associated with carryingcash in wallets.
StarbucksCorporation operates in the larger food industry. Therefore, theyhave to ensure that the products they offer to people are fit forhuman consumption. It implies that the company experiences periodicalscrutiny from public health officials in the countries where theyoperate. They also have to careful during the selection of rawmaterials to ascertain that they only use the required standard ofbeans to develop their coffee. Any slight deviation from the setstandards can attract numerous lawsuits from activists, politicians,and customers.
Mostcorporations have been criticized for ignoring their socialresponsibility to the environment. Starbucks can enhance its brandimage by sourcing responsibly and emphasizing CSR in its supplychain, and enforcing policies which would ensure that their partnersand shareholders also behave responsibly towards the environment. Thegoal is to minimize adverse impacts to the environment. For instance,the company can develop a special message which urges its customersto dispose coffee containers to the designated bins for latercollection. They can also establish a comprehensive recycling programfor the containers used to carry coffee from their outlets with theaim of reducing littering of the environment.
Fromthe assessment, it is apparent that the two most influential segmentson Starbucks Corporation are political and economic sectors. Theirinfluences are strong because they bring uncertainty in the businessenvironment of the organization. The political and economic aspectsvary from one country. The related policies are also likely to changefrom time to time. Therefore, it implies that the organization islikely to adjust its strategies and processes to meet the new demandsresulting from such changes. Moreover, they are difficult to controlbecause the changes often result from government approaches. Thecompany cannot interfere in governmental processes. Therefore, theyrely on government officials to ensure that the political climate andeconomic status of their country are favorable enough to support thegrowth and development.
PorterFive Forces on Starbucks
Competitiverivalry is one of the strongest forces which Starbucks has to contendwith in the market. Organizations such as Dunkin’ Brands Group andMcDonalds are equally established, equipped, and have high financialpositions in the food and beverage industry (Larson, 2008). They alsohave a strong customer base in America and other countries.Correspondingly, they also seem to have the same business model suchas Starbucks. Moreover, they focus on establishing strong brandidentities to maintain the loyalty of their customers. Therefore,they are capable of offering great competition to Starbucks.
Thebargaining power of buyers is high because of the low switching cost,the availability of substitute products, and abundance of coffeeproducts in the market due to increased competition in the market.Therefore, the company has to work hard to maintain its customerbase. For instance, they have to reduce the prices of their productssignificantly to remain relevant in the market. Correspondingly, theyhave to enhance the quality of their products to compete effectively.
BargainingPower of Suppliers
Thisforce is weak because there are a large number of suppliers who wouldwant to work with Starbucks (White, 2004). The fact that overallsupply of raw materials is large further weakens the bargaining powerof suppliers. The company’s supply chain is diversified, thuspreventing suppliers from dominating. As a result, the corporationdoes not need to focus on suppliers, except when it is ensuring thatthey are adhering to lawful labor standards and environmentalpolicies.
Thepower of alternative products has been made stronger by the fact thatthe cost of shifting to alternative products is insignificant (White,2004). Correspondingly, the prices of products from other companiessuch as McDonalds are equally affordable, thus making it easy forpeople to switch. Moreover, there are plenty of substitutes in themarket. Therefore, the threat of substitutes is an area of priorityfor Starbucks.
Threatof New Entrants
Thecost of setting up and doing business in the beverage industry ismoderate (Welhen et al., 2014). Additionally, the cost of the supplychain is equally average. Finally, it is cheap to initiate andmaintain a brand in the industry. This assessment implies thatStarbucks is likely to experience a moderate challenge from newentrants. Therefore, this threat should be a second priority to theorganization.
The analysis of Porter Five Forces on Starbucks reveals thatcompetition and the threat of substitute products are the mostsignificant forces in the company`s external environment. Otherfactors such as the high bargaining power of buyers depend on thesetwo factors. For instance, increased competition results in thelowering of product prices in the market. As a result, consumers findit easy to switch from one brand to another depending on their levelof appeal. Similarly, the threat of substitute products provides agreater choice flexibility to consumers. In such a case, maintainingthe loyalty of a customer base is difficult when they know that theycan choose any product in the market and still become satisfied.
Inthe past, Starbucks tried to neutralize these forces by adoptingstrategies which would make customers depend on them. For instance,they installed free Wi-Fi connections in their outlets. They alsoimproved the ambiance of such shops to attract more customers.Correspondingly, the organization enhanced the quality of theirbeverages to distinguish them from other products. However, suchapproaches have been inadequate in countering the competition.Therefore, the corporation is likely to diversify its products toinclude lunch and dinner to minimize the risk of relying on onebusiness idea.
SWOTAnalysis on Starbucks
One of the strengths of Starbucks is its robust and recognizablebrand (Kinicki & Williams, 2005). They can use it to distinguishtheir products from others in the market, thus redressing thechallenge that arises from imitation. Additionally, the company has asteadily growing customer base due to its unwavering commitment tooffering high-quality beverages at affordable prices. Lastly, it alsohas an efficient growth and expansion strategy. For instance, itacquired subsidiaries such as Teavana and Seattle`s Best Coffee, thusdiversifying their brand (Kinicki & Williams, 2005). They shoulduse the same strategy to enhance their survivability y exploringoptions that previously were thought to be of other corporations. Theorganization has a stable value and supply chain in place. It alsohas various outlets in different countries. Therefore, it would beeasy to slot in new products to maximize the profits of the company.
One of the predominant weaknesses of the company is that its productsare relatively expensive compared to others, thus making theminaccessible to lower and middle-class members of the market (Kurtz &Boone, 2009). The company can redress this weakness by developingeffective strategies which focus on cutting production cost to allowthe company to reduce the prices of their products. Secondly, theproducts are likely to offer less appeal because they are based ongeneralized organizational standards rather than aligning with thecultural demands in some markets. Starbucks should enhance theircustomer relations approaches and value co-creation to enable them todevelop products which meet the cultural needs of various people.
Starbucksopportunities include expansion to the Middle East and Africa whereit has a minimal presence currently. This approach will give themadequate time to establish their brand firmly in such regions aheadof other companies (Kurtz & Boone, 2009). They can also takeadvantage of the rapidly rising economy of Asia to expand theirprofit margin which has otherwise been limited by increasedcompetition. Lastly, it can still diversify its products despiteestablishing four different brands. This approach would enhance theirsurvivability and minimize the risk associated with having a singlebusiness line in the midst of increased market rivalry and increasedbargaining power of the buyer.
Low-costproducts from McDonalds among others are the greatest threats tocompany’s profitability (Kurtz & Boone, 2009). The risk isfurther enhanced by the fact the cost of switching to other productsis low. Additionally, the presence of alternative products alsocompromises the loyalty of Starbucks’s customer base. The companycan counter this challenge by improving the quality of their productswhile reducing their prices at the same time. They can cut theirproduction costs to give them more leverage for revising theirprices.
Starbucks’sResources, Capabilities, and Core Competencies
Starbuckshas a strong financial position in the market (Lussier, 2008). Theycan use this resource to facilitate their expansion and growth intonew markets. Secondly, they also have several outlets in variouscountries, thus making it easy to introduce new products.Additionally, they have an adequate workforce in those countries tomeet their increasing labor demands. The company also has anefficient diversification strategy (Lussier, 2008). For instance, itopts to purchase other businesses rather than initiating new brands.Additionally, Starbucks’s strong brand makes it easy to market newproducts and create a distinction from other products in the market.Lastly, it focuses on quality and enhancing customer experience, thusfurther improves the image of the company in the market.
ValueChain of Starbucks
Themost important element of Starbucks’s value chain is the outboundlogistic. It entails selecting the finest grades of coffee beans tobe processed into the company`s products. It implies that any smallerror in the selection of these raw materials can compromise productappeal and drive customers away. Therefore, the management should puta lot of emphasis on the selection of raw materials. Alternatively,the company can participate directly in the farming of coffee beans.This way, they would be able to maintain a close relationship withthose who are tasked with caring and tendering for the plantations.They will also be able to inject their research-based knowledge whichaims at improving the quality of the beans. This approach will givethe company the opportunity to enhance the quality of their productsand overcome the challenge arising from increased competition andthreat of substitute products in the industry. This value will thenbe transferred to consumers who will realize that Starbucks’sproducts are distinctively better than others.
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