Revision : Analysis on Starbucks & The Coffee Industry

For this entry I have decided to make revisions that would be relevant to my exams.

Utilising the knowledge from my previous entries, I endeavour to provide my SWOT, PESTLE and Porter's 5 Forces analyses for Starbucks and the coffee industry.

Starbucks SWOT analysis
Strengths	Weaknesses
Sound financial records No. 1 brand in coffeehouse segment valued at $4 billion Starbucks experience Largest coffeehouse chain in the world Employee management	Coffee beans price is the major influence over firm’s profits Product pricing Negative publicity
Opportunities	Threats
Extend supplier range Expansion to emerging economies Increase product offerings Expansion of retail operations	Rising prices of coffee beans and dairy products Trademark infringements Increased competition from local cafes and specialization of other coffeehouse chains Saturated markets in the developed economies Supply disruptions

PESTLE Analysis

Political

• The key political imperative that Starbucks faces is the concerns over sourcing of its raw materials that has attracted the attention of the politicians in the West and in the countries from where it sources its raw materials. This is the reason why Starbucks is keen on adhering to social and environmental norms and to follow sourcing strategies that are appropriate and in conformance to the “Fair Trade” practices that have been agreed upon by global corporations and the governments of the developing and the developed countries.
• The other political imperative that Starbucks faces is the need to adhere to the laws and regulations in the countries from where it sources its raw materials. This has been necessitated because of activism and increased political awareness in the developing countries, which form the basis for Starbucks’ sourcing strategies.
• The third political imperative, which Starbucks faces, is the regulatory pressures within its home market in the United States because of greater scrutiny of the business processes that multinationals based in the US are now subject to.

Economic

• The foremost external economic driver for Starbucks is the ongoing global economic recession, which as explained in the introduction has dented the profitability of many companies.
• However, studies have shown that consumers instead of cutting down on their coffee consumption are shifting to lower priced alternatives which is an opportunity for Starbucks.
• Of course, the company still has to contend with rising operational and labor costs as the inflationary macroeconomic environment coupled with the falling profitability is squeezing the company from both ends of the spectrum.

Socio-Cultural

• Though Starbucks can offer cheaper alternatives as mentioned previously, it has to do so without sacrificing the quality and this is the key socio cultural challenge that the company faces as it expands its consumer base to include the consumers from the lower and the middle tiers of the income pyramid.
• Apart from this, the “green” and the “ethical chic” consumers who fret about the social and environmental costs of the brands they consumer means that Starbucks has to be cognizant of this trend.
• Third, the retiring baby boomer generation means that spending by the older consumers is likely to taper off and hence, Starbucks would have to lookout for tapping the Gen X and the Millennials as part of its strategy.

Technological

• Starbucks is well poised to reap the benefits of the emerging mobile wave and as it has tied up with Apple to introduce app based discount coupons, it can expect to ride the mobile wave with ease.
• The company has already introduced Wi-Fi capabilities in its outlets so that consumers can surf the web and do their work while sipping coffee. This is indeed an added value to the Starbucks brand and something, which enhances the consumer experience.
• It can also introduce mobile payments and this is something that it is already testing out in pilot locations in the United States.

Legal

• Starbucks has to ensure that it does not run afoul of the laws and regulations in the countries from which it sources its raw materials as well as the home markets in the United States.

Environmental

• There have been several concerns about the business practices of Starbucks from the activists, international advocacy groups, and from the consumers themselves. Therefore, Starbucks has to take into account these concerns if it has to continue holding on to the trust it enjoys with its consumers.

Conclusion

The preceding analysis proves the point that Starbucks is operating in a relatively stable external environment. The main reason for this is the fact that it operates in the Food and Beverages space which means that despite the recession, consumers cut down on the consumption to a certain extent and not completely. Therefore, the task before Starbucks is to lower costs and increase the value so that it retains its consumer base and attracts consumer loyalty.

Porter's 5 Forces

Rivalry among existing competitors is high within the industry Starbucks operates in with major competitors like Costa, McDonald’s, Caribou Coffee, and Dunkin Donuts and thousands of small local coffee shops and cafes.

Starbucks customers possess large amount of bargaining power because there is no and minimal switching cost for customers, and there is an abundance of offers available for them.

The threat of substitute products and services for Starbucks is substantial. Specifically, substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy drinks, whereas pubs and bars can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work environments.

Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas. Moreover, the issues associated with African coffee producers being treated unfairly by multinational companies are being resolved with the efforts of various non-government organisations, and this is contributing to the increasing bargaining power of suppliers.

Threat of new entrants to the industry to compete with Starbucks is high, because it is easy to enter into this market because there are no governmental restrictions or proprietary know-how inhibiting others from entering. Furthermore, the technology is common, easy to access, and relatively inexpensive, making entry to the market fairly easy.