Starbucks’ External Environment Analysis

by Liz

 

Starbucks is an American global coffeehouse company mainly selling coffee of high quality. Starbucks locations serve hot and cold beverages, whole-bean coffee, full-leaf teas, pastries, and snacks. Most stores also sell packaged food items, hot and cold sandwiches.

Starbucks belongs to the food service industry, but more precisely, it belongs to the coffee industry.

 

Through the Porter’s Five Force Model, opportunities and threats the Starbucks faces can be well presented.

 

1) Rivalry among established companies                                    

The coffee industry is fragmented. None is dominant in the industry. Today, Starbucks have over 18,000 stores in 62 countries. However, around the world just one in 100 cups of coffee served is Starbucks.

 [1] http://qph.is.quoracdn.net/main-qimg-459eb9e1bf4253e46184e7b93afa481e

Starbucks’ competitors for coffee beverage sales are quick-service restaurants and specialty coffee shops, such as Nestle, Costa, Dunkin’ Donuts. Costa coffee market segment is closed to Starbucks, which also uses the luxury coffee and the comfortable environment to attract the middle-class. In 2010, Costa coffee took over Starbucks and gained the biggest market share in England. As the demand of the coffee in the west is saturated, the competition is quite fierce.

 

The other challenge Starbucks face is posed by Nestle coffee. Differentiated from Starbucks, Nestle uses the low price to attract customers, whose price is one fifth of Starbucks’. During the economy depression, the demand of the coffee declines and Nestle coffee appeals to the customers from Starbucks.

 

2) Potential competitors                                                                   

Starbucks’ biggest potential competitors are the fast-food leading corporations like McDonald and KFC. Both of them have the economic scale as they opened up stores in all over the world and had much more distribution centers. It is easy for them to launch into the coffee industry and take market share from Starbucks.

 

For customers, they have no switching cost.The government regulation either cannot stop the potential competitors. In a word, the barrier of the coffee retailing is low. What is able to protect Starbucks market share is its brand.

 

 

2) Bargaining power of buyer: Low

Buyers have less bargaining power. Consumers choose Starbucks isn’t on the basis of the price but the comfortable environment, high quality of product and its service.

 

 

 

3) Bargaining power of suppliers: Low

Starbucks is dominant in doing business with its providers. The number of the coffee bean providers is large, so Starbucks can be strict with the quality of the coffee beans and lower the coffee bean prices.

 

 

5) Substitute Products: Low

The substitute of coffee can be soft drinks like sodas, juices, tea and so on. In 2011, Starbucks bought the Juices Company-Evolution Fresh and Starbucks was planning to develop the tea business to cater to the Asian favors. Therefore the substitute product posed no threat to Starbucks.

 

The Macro environment

1)    Political

 China is more open to the world than before. Falling barriers to international trade and investment have made Starbucks much easier to enter.

2)    Economy:

Economic growth in China has created large new markets for Starbucks and is giving it opportunity to grow profits faster. According to Starbucks 2012 Annual Report, China Sale growth rate in2012 is 15%, accounting for a significant portion of the net revenue.

3)    Social:

The life style of Chinese is changing. The selling of coffee is increasing 30% annually according to a report released by Mintel Inc. However, as China is suffering from inflation and CPI is uprising, the coffee beans may charge Starbucks higher price.

4)    Technology:

The baking coffee technology is not developed in China. Starbucks have the technology advantage.

 

 

 

Internal Environment analysis

Resources:

Starbucks have the global supply chain:

In Americas:

There are 4 coffee roasting facilities;2 soluble facilities;2 farmer support centers;50 plus distribution centers;1 tea blending facility;4 baker locations,1 frsh pressed juice facililty.

 

In Europe, Middle East, and Africa:

There are 1 coffee roasting facility,3 farmer support centers and 20 plus distribution centers.

 

In China and Asia Pacific:

There 1 coffee roasting facility; 1 farmer support center and 10 + distribution centers.

 

Starbucks enjoyed the economic scale and quick responsiveness to customers due to the global supply chain.

 

Capability:

Starbucks have the information technology systems across operations, including for administrative functions, point-of-sale processing and payment in stores and online, management of supply chain, Starbucks Cards, online business and various other processes and transactions.

 

SWOT:

S:

1)    reputation and brand value

2)    experienced staff and baristas who give customers a superior in-store experience

3)    quick responsiveness to customers due to the global supply chain

4)    high productivity

 

W:

1)    A vendor’s or supplier’s failure to meet standards, provide products in a timely and efficient manner, and comply with applicable laws is beyond control.

2)    Diversify the growth platform and start the packaged coffee business may destroy the value of the brand.

 

 

O:

1)    Economic growth in China, India gives Starbucks opportunities to enter the market and make it possible to gain superior profit;

2)    Coffee Culture prevails in the developing countries;

 

 

T:

1)    Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities

2)    economy depression leads to the shrink of demand

3)    new entrants exacerbate the competition in the coffee industry

4)    foreign currency exchange rate fluctuations, or requirements to transact in specific currencies;

Why Starbucks succeed?

1)    Starbucks success depends substantially on the value of brands. It focuses on the quality of coffee, service and store environment and deliver a consistently positive consumer experience.  It created a third space in life for lingering coffee drinkers.

                      

2)    Starbucks business depends in large part on the success of business partners and suppliers, and brand and reputation. Starbuck business strategy, including plans for new stores, foodservice, branded products and other initiatives, relies significantly on a variety of business partners, and licensee and partnership relationships, particularly in international markets. Licensees are often authorized to use Starbucks logos and provide branded beverages, food and other products directly to customers.

 

 

3)    Starbucks is cautious when select staffs. Experienced baristas, proper staffs ensured the high quality of coffee and service.

 

4)    Product innovation. Starbucks never content itself with selling coffee. It developed the different favor coffee and different beverage actively to cater to the local people favors.

 

 

5)     Efficiency. Starbucks apply high tech to the operation, which increases the productivity and lower the operating expense. From the illustration, we can note that the productivity is getting higher and higher. Starbucks use information technology systems across operations. It is beneficial for Starbucks to effectively manage business and coordinate the production, distribution and sale of products

.

(Source: Starbucks shareholder meeting)

 

6)    Starbucks always select the proper sites to open up the stores where the target consumers converge.

 

7)     Starbucks develop diversified growth platforms and launch the packaged coffee business.12% of at home coffee sold in the U.S. is Starbucks.

 

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