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Table of Contents
1
Description Page
Introduction 4
Conclusion 16
Reference 17
3
Starbucks Corporation (Starbucks Coffee Company) successfully grows through management
effectiveness in addressing the impacts of the five forces in the global coffee industry and
coffeehouse industry environments.The company deals with external factors, such as the ones
outlined in this Five Forces analysis of the business. Michael E. Porter’s Five Forces analysis
model evaluates the industry environment through relevant external factors that define the
competitive landscape. The analysis model provides information for strategic management to
address the five forces, namely, competitive rivalry, the bargaining power of customers or
buyers, the bargaining power of suppliers, the threat of substitution, and the threat of new
entrants. In this external analysis case, Starbucks operates in a business environment that
involves strong competition with other coffeehouse companies, as well as food and beverage
businesses like Dunkin’ Donuts, McDonald’s, Wendy’s, Burger King, and Subway. The SWOT
analysis of Starbucks Corporation shows sufficient strengths to counter the force of such
competitors, although the company needs to continue strengthening its competencies to continue
growing despite the competition.
Summary: The strong force of competition is the combined effect of the external factors
identified in this Five Forces analysis. In this regard, the most significant forces for Starbucks
Coffee Company’s strategic consideration are competitive rivalry, the bargaining power of
customers, and the threat of substitutes. Still, the other forces also influence the company’s
business performance. In summary, the following are the intensities of the Five Forces in
Starbucks Corporation’s industry environment:
• Competitive rivalry or competition – Strong Force
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• Bargaining power of buyers or customers – Strong Force
• Bargaining power of suppliers – Weak Force
• Threat of substitutes or substitution – Strong Force
• Threat of new entrants or new entry – Moderate Force
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component of the Five Forces analysis, competition is among the company’s top-priority
challenges. Starbucks Corporation’s generic strategy and intensive growth strategies are a
reflection of strategic responses to competition.
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• Large overall supply (weak force)
The moderate size of individual suppliers is an external factor that imposes a moderate force on
Starbucks. However, the high variety of suppliers weakens their bargaining power. For example,
suppliers have various strategies and competencies that they use to compete against each other,
with the aim of gaining more revenues by supplying more materials, such as coffee beans, to
Starbucks Corporation. The bargaining power of suppliers is further weakened because of the
large overall supply. For instance, there are many suppliers of coffee and tea around the world.
This external factor limits the influence of individual suppliers. The overall effect of the external
factors in this component of the Five Forces analysis is the weak force or bargaining power of
suppliers on the company. Another consideration is the company’s policy of diversifying its
supply chain as a way of addressing the trends identified in the PESTEL/PESTLE analysis of
Starbucks Coffee Company. Such policy weakens suppliers’ power. As a result, suppliers’
bargaining power is a minor strategic issue in managing the business.
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Starbucks Value chain analysis Starbucks
Primary Activities
Starbucks Inbound logistics
Starbucks inbound logistics and supply chain was subjected to a dramatic restructuring in 2010
after Howard Schultz returned to the role of CEO. The restructuring initiative of Starbucks
inbound logistics involved simplification of supply-chain management and the creation of a
single, global logistics system.
Unroasted Arabica coffee beans are brought from Asia, Africa and Latin America to the US and
Europe in containers via sea. Also, the coffee chain purchases green coffee beans from multiple
coffee-producing regions around the 200,000 to 300,000 square feet in size. Coffees are roasted
and packaged and taken to dozens of central distribution centres around the globe. Along with
coffees from regional distribution centres, central distribution centres also receive deliveries
from vendors for a wide range of products starting from coffee machines to napkins. Central
distribution centres make more than 70,000 deliveries per week to Starbucks 25085 stores
located in 75 countries.
Starting form recently, Starbucks is exploring the opportunities to grow its own coffee.
Specifically, since 2013 Starbucks has its first own 240-hectar coffee farm in PoasVolacno,
Costa Rica. Such a shift in the sourcing of products can increase the effectiveness of new product
development initiatives for the business as the company will have a chance of experimenting
with developing new sorts of coffee.
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Strategic relationships with suppliers is one of the main sources of value for Starbucks inbound
logistics. The company operates eight farmer support centres staffed with agronomists and
sustainability experts who work with coffee farming communities to promote best practices in
coffee production designed to improve both coffee quality and yields.
world and custom roasts them. These are delivered to six regional distribution centres ranging
from .
Starbucks Operations
Starbucks operates in 75 countries and there are two store formats:
1. Company-operated stores. Company operated-stores are important for the business
because they enable the management to observe shifts in consumer tastes and preferences
and collect information about market tendencies in general in a direct manner. By the end
of fiscal year 2016 Starbucks had 12,711 company-operated stores, which accounts for
about 51% of total numbers of stores. Company-operated stores generated 79% of
Starbucks revenues during fiscal 2016.
2. Licensed stores. There were 12,374 licensed Starbucks stores by the end of fiscal year
2016, representing about 49% of total numbers of stores. Revenues from licensed stores
accounted for 10% of total net revenues in fiscal 2016.
The company has divided its operating segments into five groups and the table below illustrates
the share of revenue from each segment.
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All other segments 3% 3%
Starbucks operating segments and shares of revenue
Main sources of value in Starbucks operations include positioning of stores in high-traffic,
highvisibility locations. Moreover, the company is able to vary the size and format of its stores to
locate them in or near a variety of settings, including downtown and suburban retail centres,
office buildings, university campuses and in select rural and off-highway locations.
‘Starbucks experience’, i.e. ‘third place’ experience where customers can spend quality time
alone or in the company is an additional point, where the company adds value to its operations.
The world’s largest coffee retailer also adds value in operations via proving free WiFi internet
access in its stores.
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High level of integration of social media and technology into sales processes represents one of
the solid sources of value for Starbucks Coffee. The company has successfully implemented
mobile order and pay system for its products and currently, about 8% of all orders are placed via
mobile phones. Moreover, Starbucks has “enabled orders via Amazon’s Alexa last year,
announced that the feature would also be integrated into Ford vehicles later this year.”
Starbucks Service
Superior customer services are the core source of Starbuck competitive advantage and this
particular primary activity adds an enormous value to the brand image. Starbucks baristas are
always genially polite and greet regular customers by their names. Occasionally, regular
customer may get their regular coffee free of charge at the discretion of baristas as good gesture
and such acts increase the perception of the service quality to a considerable extent.
Furthermore, amid ever-intensifying hectic nature of lifestyle and increasing speed of the
provision of customer services, service at Starbucks is never rushed. It has been rightly noted that
“Starbucks spends a lot of time measuring and improving how well they match their customers’
speed expectations—delivering a custom (truly from scratch) beverage in a matter of minutes—
they don’t let the need for speed suck the life out of the Starbucks experience.”
Social Media
In June 2010, Starbucks was named the most popular social media brand, according to a snapshot taken of
its fans, followers and subscribers by Famecount, an online statistics and analytics provider. Starbucks
social media space includes technology like its website and social media platforms, including Facebook,
Twitter and Foursquare. According to a February 2010 article in "AdAge," Starbucks was able to use
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social technology to its advantage and bring customers back to its stores by giving them an online space
to submit ideas and provide feedback on the brand and their experience with it.
Mobile App
After a two-year pilot period, Starbucks launched a nationwide mobile payment app in early
2011. The app is available for iPhone, Android and Blackberry, and, according to a June 2011
article on "Mashable," it can be used at 9,000 Starbucks locations. To use the free app, you
simply add your Starbucks card number. From there, you can use the app to make purchases,
track your rewards and check your balance. You can also find which Starbucks stores will accept
mobile payments.
Brewing
In 2008, the "Seattle Times" reported Starbucks' recent purchase of the Coffee Equipment Co., a
small company known for its single-cup coffee maker known as the "Clover." The Clover uses
precise technology and a calculated algorithm to brew coffee within one degree Fahrenheit of its
ideal temperature and produce the ideal flavor. It also controls how long the grounds and water
interact and the flow of water brewing. Clover units are connected via Ethernet port so that the
Starbucks network can manage the diagnostics and details of each unit.
Starbucks Digital Network
Starbucks can serve as makeshift office and meeting place thanks to the free, unlimited Wi-Fi
available in its stores. In October 2010, the company made a move to expand its online offerings
to customers with the Starbucks Digital Network. According to Starbucks, the news,
entertainment and lifestyle channel was available in 6,800 locations as of March 2011. The
digital network is a partnership of Starbucks and Yahoo, and delivers premium content from sites
like "USA Today," "Wall Street Journal," ESPN, Nick Jr. and more to laptops, tablets and
smartphones. When you connect to Starbucks' free Wi-Fi, you're greeted with the landing page
for the digital network that allows you to check in with Foursquare, log in to your Starbucks card
and more.
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their work done in a Starbucks store. All company-owned stores in the US and most
company-owned stores abroad offer free wi-fi. “Starbucks stores are meticulously
designed to make customers stay longer, buy more, and return for another visit.”
2. Selling coffee of the highest quality. Starbucks business strategy can be classified as
product differentiation. Accordingly, the coffee chain giant focuses on the quality of its
products and customers pay premium prices for high quality. Excellent customer services
as one of the solid sources of Starbucks competitive advantage further increases the
attractiveness of the coffee retailer.
3. International market expansion with the focus on emerging economies is one of the key
elements of Starbucks business strategy on long-term perspective. The share of
company’s revenues from China/Asia Pacific (CAP) global market segment increased to
14% in 2016 from 7% in the previous year.In total, 2719 new Starbucks stores opened
during the last two years.
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thought, while the portion sizes continue to get smaller at the same time the prices stay
high. We are experiencing a period of great breakfast/lunch innovation in fast food --
Starbucks has to pick up its game.
4. Starbucks continues to disprove the view there are not enough opportunities to open up
more locations in the U.S. Not only is the company opening up more U.S. spots, but is
doing so rather profitably compared to years gone by.
5. Starbucks is crushing its competitors in the packaged coffee and Keurig pods businesses.
6. Starbucks mobile is laughably ahead of every single competitor in the fast food business
in terms of integration with physical store assets. Want a beneficiary of the next
highpowered iPhone from Apple (APPLE) in 2016? It's Starbucks.
7. Starbucks founder Howard Schultz is still very much engaged with the company on a
day-to-day basis. Although Schultz has built up a rock-solid management team, the
market still loves Howard Schultz, and remains willing to hitch its ride to a great orator
on earnings calls and a visionary in the world of business.
8. Keep an eye on these large stores with huge roasteries inside being opened by Starbucks.
I would compare them to retail flagship stores, which serve the purpose of luring in
tourists in key destinations, strongly marketing the brand to passersby, and ultimately
racking up huge sales.
Having said that, now may be an appropriate time to pare back a bit on Starbucks, or avoid it
going into earnings. On a relative basis, Starbucks will show one of the best quarters from a
competitive set, duking it out with product discounts beamed over their mobile apps. However, I
don't think mighty Starbucks is completely immune to several things we have seen from the
restaurant sector in recent months. The problem with that is that the market expects Starbucks to
be immune from the issues tripping up profits at Dunkin Brands (DNKN), Buffalo Wild Wings
(BWLD) and countless others.
Three areas of concern:
China: the country is without question Starbucks future. It's a region where people are still
discovering Starbucks' full assortment of products -- when they do find them, they love them and
want to pay whatever it takes to consume them. But, based on results and comments from
companies such as Coach (COH) and others in the luxury goods industry, Chinese demand for "
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Conclusion
Starbucks has had much market power in the gourmet coffee industry. They have attracted
customers by an experience of an upscale French coffee shop with a neighborhood feel. All are
welcome to join the bandwagon as long as they are willing to pay the price for premium. In the
current economic state, their prices have caught up to them causing their demand to decrease.
People do not want to spend their limited income on premium coffees that they can get from any
of their competitors, like Dunkin’ Donuts, McDonalds and Panera Bread
Starbucks has been forced with the changing times and the economy to drive down their prices to
compete in the industry. The closing of stores and the reduction of staff proves that their pricing
model only projected a short term profit, as in the case of any firm operating in a monopolistic
competition. Whatever forecasting models Starbucks has projected does not hold true as the
income effect and added popularity of their competitors began monopolizing the premium coffee
market. This proves that the price of coffee is elastic and if prices are high than the demand for
the good will decrease.
Many outside factors also contribute to Starbucks losing its brand appeal. People have begun to
realize that they have alternatives to purchasing Starbucks coffee and still sample the luxurious
blend by brewing it at home themselves. Customers no longer follow the hype supported by the
Starbucks name and are becoming more price/value oriented. To remain a major player in the
coffee shop market, Starbucks must reinvent themselves with the changing lifestyles, tastes and
react to the alternatives within the market.
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Reference
Crandall, R. E. (2014) Principles of Supply Chain Management, 2nd edn, CRC Press.
Hayes, R. H. and Wheelwright, S. C. (1984) Restoring Our Competitive Edge, New York,
John Wiley.
Kanigel, R. (1999) The One Best Way: Frederick Winslow Taylor and the Enigma of
Efficiency, Viking.
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Taylor, F. W. (1911) The Principles of Scientific Management (reprinted 1998), Dover
Publications.
Womack, J. P., Jones, D. T. and Roos, D. (1990) The Machine that Changed the World:
The Story of Lean Production, Harper Perennial.
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