Sturbucks: External and Internal Analysis

Sturbucks: external and internal analysis

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To: Mr Howard Schultz and Mr Orin Smith

From: Lucía Aparicio Gil and Fuensanta Gómez Gosálvez

Date: 25.10. 2017

Subject: “Starbucks: new markets, new possibilities”.

Introduction

Starbucks is the result of a company philosophy that has focused on the customer as the centre of its global strategy. With the new business model that was introduced by the company in the United States, Starbucks has managed to create a community of loyal consumers, which makes it a worldwide reference. And that is, success is not a matter of chance, but it is based on answering the needs, and Starbucks has succeeded in examining individual demands. Through the analysis of the information and the current strategy of the company we will try to improve the possible deficiencies that can affect the future of the firm. After analysing all the data and statistics, we have found out that the main company weakness is that it is too focused on the American market (three-quarters of its total costumers). The step we recommend is to expand to different countries such as India, Vietnam or Indonesia, which have a growing coffee demand.

Analysis

Industry definition: Coffee exports is a $20 billion dollar industry making it the second-most-traded commodity, mostly consumed by industrialized nations while being produced by less developed nations. It has a long and overarching commodity chain that involves production, exporting, importing, roasting, distribution and retail. After harvest, coffee is either purchased from farmers by middlemen, or directly exported by large coffee estates and plantations. Coffee is then commonly sold to transnational coffee processing and distributing companies. The industry is vital to the politics, survival and economies for many developing countries.

External Analysis

A. Opportunities

1. The company has the possibility to expand the global operations to new emerging markets such as India and North Pacific nations. The strongest growth in recent years was in Asia and Oceania, at an average rate of 5.2%, well above the world average. This growth comes from both producer countries like Indonesia, Vietnam and India, as well as from importing countries such as Turkey and Japan, all of which continue to show dynamic domestic markets, see Exhibit 1 and 2.

2. Co-branding with other beverages and nourishment suppliers as it has been done with other enterprises, for example, United Airlines, PepsiCo, Barnes & Noble Bookstores or ARAMARK.

3. There is an increasing demand from executives for new charming and friendly spaces where they can have their meetings.

4. On the same line, young people require cosy areas with Wi-Fi connection for studying, working or simply meeting. According to Bloomberg’s researches, demand in the U.S., the world’s top user, is set for an all-time high, and the trend among younger drinkers (19 – 34 years) is also playing out in other big consumers including Brazil and even tea-loving China.

5. Obviously, the rising intake of coffee worldwide, see Exhibit 3.

B. Threats

1. Starbucks is exposed to the variation of the prices of coffee and milk products' components.

2. Starbucks' success has brought with it the entry of new competitors in this market; these imitation brands mean potential threats for the company. Depending on how this problem is solved, there will be a better or worst solution.

C. Five Porters’ Forces

1. New entries: local coffeehouses have a strong advantage: they know better the consumer. What they do is follow the example of Starbucks, so they strengthen their business copying Starbucks model and taking advantage of their close relationship with the clients. More specialized competitors make more exigent clients.

2. Suppliers: Starbucks is taking important steps in order to improve coffee producers' life and protect the environment where coffee is cultivated. This includes economic and eco-friendly challenges which respect the high quality of the coffee. Suppliers bargaining power is low because of the great number of medium and small suppliers that already exists.[1][2]

3. Competitors: Rivalry between competitors is high, but it becomes more intense in developed countries. Some of its main rivals are Costa, McDonald, Dunkin Donuts and little coffee shops. Meanwhile, in non-developed countries penetrate the market is easier.

4. Substitutes: There are also many people who do not like coffee's flavour; this makes them rather drink milkshakes, tea, soft drinks... In the same line, bars or pubs can be an alternative (that is, a threat) to Starbucks shops as meeting points.

5. Buyers: Starbucks clients have a great bargaining power because there is no minimum cost for them but instead there are a lot of possible offers and alternatives in the market.

D. Strategic groups

Starbucks compete with great companies such as McDonalds´s and Dunkin Donuts. These three are the biggest coffee distributors in the USA and currently share the market. All of them have high-quality products as well as a similar price range and geographical distribution. They also offer a wide variety of coffees and snacks. Because of all of this, they compete fiercely using different marketing strategies such as promotions and discounts. See Exhibit 4.

Internal Analysis

A. Strengths

1. Starbucks profitability increased in the past years reaching number one in coffee industry. See Exhibits 4 and 5.

2. Nowadays it is an international brand, known worldwide, with an excellent reputation thanks to their products and services. For instance, it allows consumers to personalize drinks depending on their own tastes. It has maintained its popularity through time by being flexible, being open to adapting to changing consumer tastes and preferences.

3. Starbucks has always maintained its competitive advantage by being the leader in product innovation. Pumpkin spice latte, one of the seasonal favourites at Starbucks, was recently relaunched. The launch followed