Strategy Analysis of Starbucks Corporation

Strategy Analysis of Starbucks Corporation

1. Introduction

Starbucks Corporation, an American coffeehouse founded in 1971 in Seattle, WA, is a premier and worldwide roaster, marketer and retailer of specialty coffee. Starbucks offers a range of exceptional and premium priced products, including coffee, handcrafted beverages, merchandise and fresh food and licenses their trademarks through other channels such as grocery and national foodservice stores. Its mission is to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time. Starbucks’ main strategic plan is to earn the highest respect and brand recognition for its coffee and specialty drinks. In terms of the strategy, their goal is to achieve an annual global comparable store sales growth of 3% to 5% and purchase the remaining 50% ownership of the East China market.

1. The External Analysis

2.1 Overview of general industry

With the development of food service, coffee is one of the world’s largest export commodities. Starbucks primarily performs in the coffee retail industry. Over the past several years, coffee chains have prevalent among customers who enjoy their coffee to go. This out-of-home retail market was dominated by the companies Starbucks(39.8%) and Dunkin Brands Inc.(21.9%) with a combined market share of over 60 percent in 2016.  

The industry grew at a low annualized average growth rate of 0.9% from 2008 till 2013. The maturity of the market can reasonably explain the slowing growth. Currently, improving economy, increasing concerns of health and expanding menu setting may become main factors to generate growth.

2.2 Models of Environmental Threats

• Threat of new entrants & rivalry

    The barriers to enter the industry are low. The cost to have raw materials is not high, since the supplement of coffee beans are varied, and the necessary equipment and office space are affordable by leasing. Compared with the high-qualified and premium-priced products of Starbucks, lower-priced with moderate quality coffee may attract the customers who want to switch to economical products. However, the company with famous brand and reputation, like Starbucks, could easily monopoly the qualified raw materials and tastes of customers in a certain extent. Besides, Starbucks achieves economies of scale by lowering cost, improved efficiency with a huge market share. Considering the maturity of industry, new entrants and competitors are tough to differentiate themselves from Starbuck’s product quality, privilege locations, and experience of development.

• Bargaining Power of Buyers

    Each Starbucks store provides free access to wireless internet for customers and varies its product mix depending upon the size of the store and its location. Since Starbucks focuses on selection of high-quality ingredients, nutritional value and great flavor, and customized service, their main customers accept to pay premium.

•  Bargaining Power of Suppliers

Starbucks’ main ingredient is coffee bean. Starbucks buys coffee using fixed-price and price-to-be-fixed purchase commitments to secure an adequate supply of quality green coffee. The suppliers of these materials are abundant, so the switching cost is low. It also invests in supporting collaborative farmer programs and activities – including Coffee and Farmer Equity (C.A.F.E.) Practices to improve farmer livelihoods and ensure a long-term supply of high-quality coffee. Based on solid relationships established with suppliers, the risk of non-delivery on such purchase commitments is remote, which makes the power of the suppliers lower.

•  Threat of substitutes

      The substitutes of coffee are numerable, such as milk tea, juice, and water. It is extremely easy for customers switch to another beverage or make home-made coffee with high-qualified coffee beans. To deal with that situation, Starbucks are pushing out the instant coffee, coffee machine in regular stores to compete with those substitutes. Even though the switching cost is low, Starbucks always grasps considerable customers who pursuing their brand reputation and insurance of quality.