Report: Porters five

forces analysis of
Starbucks

Course work 1.2

Module: MSIN1003 Information World
Candidate number: GJGM6

Table of Contents
Executive Summary ....................................... 2
Introduction ..................................................... 2
Porters Five Forces ....................................... 2
1) Barriers to entry ..................................... 2
2) Threat from substitute products ............. 2
3) Bargaining power of consumers ............ 3
4) Bargaining power of suppliers................ 3
5) Intensity of competitive rivalry ................ 3
Conclusion ...................................................... 3
Bibliography .................................................... 4

1) Executive summary:
The industry is found to be very competitive, making it unattractive for
new investors to invest.
! Barriers to entry is not a significant factor to prevent new investors
from entering
! Many substitutes of Starbucks available
! Consumers have high bargaining power
! Suppliers have low bargaining power
! High intensity of competitive rivalry

2) Introduction:
This report will be analyzing Starbucks based on the Porters Five
Forces framework.

3) Porters Five Forces analysis

3.1) Barriers to entry: Moderate
Element: Significance of economies of scale.
Information indicator: Calculate the cost of coffee beans from
suppliers if bought without economies of scale If the difference is
great, it will be difficult for others to price their goods competitively.

Element: Funds needed to start a coffee shop.

Information indicator: Cost to start up a caf or coffee shop or
a substitute restaurant in vicinity of each Starbucks branch.

3.2) Threat from substitute products: Moderate to

High
Element: Price of substitute products.
Information indicator: Measure the price of the products
provided by substitutes of Starbucks e.g. Pubs and Dunkin Donuts.

Element: Alternatives to buying ready-made coffee.

Information indicator: A survey gathering data on the number
of people who uses a beverage-making machine at home instead.

3.3) Bargaining power of consumers: High

Element: Alternative choices to Starbucks
Information indicator: Determine the number of coffee shops
and cafes within a 500m distance of each Starbucks branch

Element: Price sensitivity.

Information indicator: Conduct a survey with every customer,
asking if they would be more or less inclined to react to a price cut or
increase in Starbucks.

4.4) Bargaining power of suppliers: Moderate to

Low
Element: Diversification of suppliers.
Information indicator: Determine whether the supplier has
businesses in other areas as well and supplies other products.

Element: Switching cost.

Information indicator: Calculate the cost incurred if a
supplier was switched.

4.5) Intensity of competitive rivalry: Moderate to

high
Element: Concentration of coffee chains and cafes
Information indicator: Number of coffee chains and cafes
within a 500m distance of each Starbucks branch

Element: Advertising
Information indicator: Estimate the amount spent on
advertising by other coffee chains and cafes e.g. Caff Nero and
Costa Coffee

4) Conclusion
From the Porters five forces analysis, it can be concluded that
Starbucks is in a relatively competitive industry hence; it must be always
adaptable to the environment and competitively price their products
accordingly.

Bibliography:
Starbucks Coffee Logo. (2014). [image] Available at:
http://upload.wikimedia.org/wikipedia/en/3/35/Starbucks_Coffee_Logo.svg
[Accessed 26 Oct. 2014].
Notesdesk.com, (2009). Porter's Model | Porter's Five Forces Model | Five
Competitive Forces Model | Notes Desk. [online] Available at:
http://www.notesdesk.com/notes/strategy/porters-five-forces-model-portersmodel/ [Accessed 27 Oct. 2014].
Campos, A. (2014). How Starbucks Built a Global Coffee Empire. [online]
Fool.com. Available at:
http://www.fool.com/investing/general/2013/10/26/how-starbucks-built-acoffee-global-empire.aspx [Accessed 27 Oct. 2014].