STARBUCKS: MARKETING PHASE 1

MKTG 361, Sage Section

February 11th, 2020

Team 18
David, Katy
Garcia-Pallares, Raul
Hajare, Shoumik
Tingirides, Maddie
Torres, Austin
Coffee Retailer Industry Overview
The 2019 National Coffee Data Trends Report states that 63% of American adults drink coffee
daily and the market has demonstrated strong growth over the past five years.
According to the National Coffee Association (NCA), the retail coffee industry is worth $46.5
billion. In 2019, coffee consumed on-premises accounts for 32.7% of the total industry revenue.
This includes coffee consumed at coffee shops, restaurants, and other retailer locations

The coffee retail market is highly fragmented and comprised of a large number of
independently owned retailers and restaurants catering to niche markets. This includes small
franchised chains and locally owned coffeehouses. It is estimated that there were 490,566
coffee retailer locations in 2019 (Lifschultz, 2018).

Company Overview
Initially founded in 1971, Starbucks has grown to command coffee’s US retailers with a market
share of 30.5% (Lifschultz, 2018) and become one of the world’s most recognizable brands.
Starbucks has created novelty items including the Frappuccino and the Pumpkin Spice Latte
which has transformed the coffee industry. Starbucks has an international presence in 78
different countries including more than 29,000 locations and 291,000 employees (Lifschultz,
2018). The business model includes licensed stores and company-operated stores.

Starbucks has evolved from solely selling whole roasted beans, to creating the coffeehouse
concept which has paved the way for the coffee retail industry in the US. In addition to the food
and beverages served, Starbucks has become known for its customer experience. Customers
come to work and socialize with free Wi-Fi, multiple charging locations, comfortable seating,
and mood setting music through a curated Spotify playlist.

Competitors
A key competitor to Starbuck includes Dunkin’ Brands Inc. which holds a market share of 11.5%
(Lifschultz, 2018). Dunkin’ is typically known for its donuts and lower priced coffee. Dunkin’
promotes many sweet flavored coffees and beverages which come in larger sizes than
Starbucks. The majority of the market share includes other players. These are small,
independent, or locally owned coffeehouses which cater to their niche customers. For example,
Blue Bottle, Peet’s, Dutch Brothers, and local cafes.

SWOTT Analysis – Figure 1

Strengths
Starbucks’ market share leads the industry giving it the power and flexibility to take risks with
product development which eases their geographical penetration. In addition, they are one of
the world’s most recognizable brands estimated to be worth $11.7 billion (Starbucks Rankings,
2019). They have the reputation for serving the best coffee which is why customers will pay
more for a latte at Starbucks rather than their competitors. The app allows customers to earn
rewards and pre-order for in store pick-ups along with gathering millions of datapoints for
analysis. The app provides customized recommendations and promotions for each user.

Weaknesses
Many of the products are generic and produced by competitors. The once original Pumpkin
Spice Latte can now be found at any coffee store and ready to drink beverage throughout the
fall season. Starbuck’s also carries a higher price point which can deter customers concerned
about costs and limit daily purchases. While Starbucks is international, the stores do not cater
their products to meet the local tastes and preferences. Primarily known for coffee, Starbucks
doesn’t draw many sales from non-coffee consumers.

Opportunities
Already located in more than 70 countries, Starbucks has the opportunity to penetrate the
market in the African continent and further develop in Asian and Latin American markets. Many
customers are interested in seasonal drinks and would even pay more for them providing the
opportunity for future product development. With a strong brand name, it would benefit
Starbucks to partner with another brand or event to boost reputation and goodwill. As the
younger demographic increases their coffee sales, Starbucks can capitalize and retain lifelong
customers.

Threats
In many urban areas the marketplace is oversaturated and recently Starbucks had to close
more stores than it opened. Competitors with lower prices and third wave coffee retailers can
take Starbucks’ customers. As time progresses, coffee consumers are becoming more
interested in supporting sustainable and high-quality coffee retailers. Especially in highly
populated, innovated cities such as New York City and Los Angeles. Artisanal coffee is coming
for Starbucks territory. In Manhattan, New York there are 240 individual Starbucks stores, and
67 “third wave coffee” shops in the same area, but still tourists and locals will fight to find the
smaller and more sustainable shops. In most of the surrounding areas these small coffee stores
are claiming victory over the large coffee shop as well. In this aggressive market where coffee
has become a “necessity” for most individuals, “third wave coffee” brands are a major threat to
Starbucks. The cost of coffee is volatile, dependent on the price of oil, and is expected to rise in
the coming years which will cause Starbucks to raise prices or reduce profit margins.

Trends
According to the National Coffee Association’s (NCA) National Coffee Drinking Trends survey,
coffee consumers are becoming more interested in sustainable and ethically sourced coffee.
Over the past five years, this segment has grown in tangent with rising per capita disposable
income (Lifschultz, 2018).

Unique Selling Proposition

Starbucks provides its customers with the best quality coffee. The is made from ethically sourced
arabica beans grown with C.A.F.É. practices (Starbucks, n.d.). In addition to a premium product,
Starbucks provides a premium customer experience. They have well trained employees, extensive
product personalization, and a comfortable environment to work and socialize. Customers are able
to get their coffee at many convenient locations located around the world, knowing that the quality
of the products and experience will be consistent.

Target Market – Figure 2

Primary Market: Millennials
Starbucks has identified Millennials as their primary target. Millennials do not account for the
largest portion of the coffee industry revenue as seen in Figure 2. However, they consume the
largest amount of coffee on-premises and the largest quantity of gourmet coffees and espresso-
based beverages (NCA, 2019). This means that this market segment is the most likely to
physically go to an external coffeeshop.

In addition, Millennials spend more time on the premises since they view places such as
Starbucks as a third place where they can relax, socialize, and work. When making purchasing
decisions, these consumers tend to value the quality of the product over other factors such as
price or convenience (Mintel, 2019).

Secondary Market: Generation X

The secondary market we have identified is Generation X. According to a survey by Zagat,
people in their 50s and 60s consume the most amount of coffee drink per day averaging 2.4
cups. This leads them to makeup the largest portion of the industry revenue as seen in Figure 2.
However, individuals in their 60s prefer instant and decaf coffee and are the least likely to
consume espresso-based or gourmet coffee, so they weren’t included in a target market.

Generation X consumers are more likely to seek geographic convenience when deciding where
they purchase their daily coffee (Mintel, 2019). They tend to frequent independent coffee
shops unlike Starbucks.

Tertiary Market: College Students

College students is identified as the tertiary market. College students in general have
tendencies to rely on coffee during school and study hours. While consumers this age account
for the smallest share of industry revenue (Figure 2), they are the most likely to consume the
gourmet coffee beverages that Starbucks offers (Lifschultz, 2018).

According to the NCA, consumers aged 24 and younger prefer espresso-based beverages. This
market also has one of the more diversified consumer purchase trends. We see that college
students, and those near that age range have a wide variety of coffee tastes and are the most
open to product diversification (Topper, 2019).

Summary
In conclusion, Starbucks has many strengths and opportunities with its strong industry presence
and brand loyalty. While also working to improve on its weaknesses and aware of competitors
and threats. Starbucks is targeting Millennials, Gen X, and college student market segments to
further increase their sales.
 Attachments
Figure 1 – SWOTT Analysis

Figure 2 – Target Market Analysis

Market Age (Years) Education Geographic Location
Primary: Millennials 25 – 39 College Educated Urban
Secondary: Gen X 40 – 59 College Educated Suburban
Tertiary: College Students 18 – 24 Some College Education College Campus
Figure 3 – Market Segmentation
 References
Ethical Sourcing: Coffee. (n.d.) Retrieved from
https://www.starbucks.com/responsibility/sourcing/coffee

Interbrand (2019). Retrieved from https://www.interbrand.com/best-brands/best-global-

brands/2019/ranking/starbucks/

Lifschutz, M. (2018, July). IBISWorld Industry Report OD6098. About this Industry. Retrieved
from IBISWorld database.

Mintel. (2019, July). Coffee and Tea on Premise. AFH Coffee and Tea Purchase Location.
Retrieved from https://reports-mintel-
com.ezproxy3.library.arizona.edu/display/967870/

Mintel. (2019, July). Coffee and Tea on Premise. Premium Coffee Associations. Retrieved from
https://reports-mintel-com.ezproxy4.library.arizona.edu/display/967876/?fromSearch=
%3Ffreetext%3Dthird%2520wave%2520coffee

National Coffee Association. (2019.). Retrieved from http://www.ncausa.org/Industry-

Resources/Market-Research/NCDT

Stephanie, & Mark. (2015, March 2). Inside Zagat's 2015 Coffee Consumer Trends Survey.
Retrieved from https://dailycoffeenews.com/2015/03/02/inside-zagats-2015-coffee-
consumer-trends-survey/