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MUHAMMAD ILHAM

P74155

Porters Five
Forces Analysis &
Porter's Value
Chain
Starbucks
Company Background

Starbucks started in 1971 when three academics: English teacher Jerry


Baldwin, history teacher Zev Siegel, and writer Gordon Bowker,
opened a store called Starbucks Coffee, Tea, and Spice in Seattle.
These three partners shared a love for fine coffees and exotic teas and
believed they could build a clientele in Seattle much like that in the
San Francisco.
Starbucks Coffee Company is a global coffee company and a
coffeehouse chain headquartered in Washington, the US and the
company has generated a consolidated revenues of $14.9 billion
during 2013 with more than 200,000 partners, referred to as
employees (Starbucks Annual Report, 2013).
Starbucks Porters Five
Forces Analysis

Porters Five Forces represents theoretical framework that is


used for industry analysis and strategy development.
Specifically, the five forces shaping competition within the
industry consist of the intensity of rivalry among the
competitors, the risk of entry of new competitors, the bargaining
power of buyers, bargaining power of suppliers and the threat of
substitute products and services.
Starbucks Porters Five
Forces Analysis

The nature of the relationships among these forces is best presented in


the following figure :
Starbucks Porters Five
Forces Analysis

Rivalry among existing competitors

Rivalry among existing competitors is high within the industry


Starbucks operates in with major competitors like Costa,
McDonalds, Caribou Coffee, and Dunkin Donuts and
thousands of small local coffee shops and cafes.

Starbucks Bergaining Power of Suppliers

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.
Starbucks Porters Five
Forces Analysis

The Threat from Substitutes

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 Porters Five
Forces Analysis

Starbucks Bargaining Power of Buyers

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.
Starbucks Porters Five
Forces Analysis

The Threat of New Entrants to the industry to


compete with Starbucks

However, the threat of new entrants to the industry to compete


with Starbucks is low, because the market is highly saturated
and substantial amount of financial resources associated with
buildings and properties are required in order to enter into the
industry
Starbucks Porter's Value
Chain Analysis

Value chain analysis allows the firms to understand the parts of


its operations that create value and those that do not.
Understanding these issues is important because the firm earns
above-average returns only when the value it creates is greater
than the costs incurred to create the value.
Businesss inbound logistics, operations, marketing and sales,
outbound logistics, and service are considered as primary
activities in value-chain as they are involved in value creation in
a direct manner. Support activities in value creation, on the other
hand, include infrastructure, human resources management, and
procurement.
Starbucks Porter's Value
Chain Analysis

Figure in value-chain analysis the business activities :


Starbucks Porter's Value
Chain Analysis

As it is seen from the figure above in value-chain analysis the


business activities are divided into two categories: primary
activities and support activities. The primary activities directly
deal with the creation of products or services, whereas, support
activities can be used to obtain or increase competitive edge in
the marketplace.
Starbucks Porter's Value
Chain Analysis

PRIMARY ACTIVITIES
INBOUND LOGISTICS

Starbucks inbound logistics involve company agents choosing


coffee beans producers mainly in African continent,
communication the standards related to the quality of coffee
beans, establishing strategic relationships with suppliers and
organising the supply-chain management.
Starbucks Porter's Value
Chain Analysis

OPERATIONS
Starbucks operations are conducted in more than 50 countries in
two ways: direct operation of the stores by the company and
licensing. Currently there are 8870 company-operated stores
globally, whereas 8139 stores operate on the basis of license.
OUTBOUND LOGISTICS
The outbound logistics for Starbucks has traditionally involved
selling its products through its stores without any intermediates.
However, starting from recent a range of Starbucks products
such as 3-in-1 coffees in sachets are being sold through a set of
leading supermarkets.
Starbucks Porter's Value
Chain Analysis

MARKETING AND SALES


Starbucks does not heavily invest in marketing relying instead on the
word-of-mouth achieved through the high quality of products and
high level of customer services. However, occasional marketing
activities initiated by the company involve sampling of new products
that are usually conducted within areas nearby the stores.

SERVICE
Providing superior level of customer services is one of the main
objectives of Starbucks and it is driven from the mission statement of
the company. The company staffs are encouraged to go greater lengths
in order to ensure high level of customer satisfaction.
Starbucks Porter's Value
Chain Analysis

SUPPORT ACTIVITIES
INFRASTRUCTURE
Starbucks infrastructure includes a range of general support
activities such as management, planning, finance, accounting,
legal support and government relations that are required to support
the work of the entire value-chain.
HUMAN RESOURCE MANAGEMENT
The workforce is duly perceived to be the most valuable resource
by Starbucks. Accordingly, a wide range of training and
development programs are available for them and they are
motivated by both, tangible and intangible incentives. Specifically,
in UK Starbucks staff is entitled to free drinks during the shift.
Starbucks Porter's Value
Chain Analysis
TECHNOLOGY DEVELOPMENT
Starbucks relies on technology for cost-saving purposes, as well as,
ensuring the consistency of the quality of products and offering a
high level of customer experience in general. For instance, with the
introduction of computerised coffee roasters the consistent taste of
Starbucks coffee was ensured and this has contributed to the level
of customer retention for the company.
PROCUREMENT
This involves purchasing items that are needed for the production
of final products or offering services. For Starbucks it would be
coffee beans and raw food items, as well as fixed assets such as
buildings, machinery etc.
References

1. Clark, T. (2007) Starbucked : A Double Tall Tale of Caffeine,


Commerce and Culture, Little, Brown and Company, New York.
2. Garza, George, (2010). The history of Starbucks. Catalogs.com.
Catalogs.com, n.d. Web. 7 Jun 2010.
3. Hoovers (2010); Starbucks Corporation, Company Description.
4. Porter M. (1985). Competitive Advantage: Creating and Sustaining
Superior Performance, N. York: The Free Press.