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Introduction to Starbucks Corporation

Starbucks Corporation is American coffee organisation and chain of coffee houses which was established in 1971, at Seattle, Washington by three businessmen Gordon Bowher and Zev Siegl, Jerry Baldwin. The store was named as ‘STARBUCKS’ after the first partner Moby Dick. The company is operating in 28,218 locations worldwide as of 2018.The main aim of Starbucks’ is to encourage and nourish the human spirit, which needs, not just serving amazing coffee but also drawing customers at an emotional level (Nair & Weber, 2017). It has started focusing on the growth at the International level at different locations and evolved into various other lines where it could create value for its supreme brand.

Starbucks has four reportable working segments: 1) China/Asia Pacific (“CAP”);2) Americas, which is inclusive of the U.S., Canada, and Latin America; 3) Channel Development. They also have several non-reportable operating segments and 4)Europe, Middle East, and Africa (“EMEA”), which are referred to as All Other Segments. CAP, Americas and EMEA segments include both organisation-operated and legal stores. America's segment is the most mature business and has achieved significant scale. In comparison to 2017, the revenue of the company has grown by around 10% in 2018.

The Financial performance of the organisation has also been magnificent during the three quarters of 2019.The organisation had grown exceptionally rapid over less time stamp and was remarkably beneficial with 23.1% return on resources in 2014 (in comparison to 14.0% at Keurig Green Mountain Coffee, and 5.5% at Dunkin'Donuts 13.4% at McDonald's,6.8% at Peet's Coffee and Tea). Although, the development was not even everytime, in fact the company had obstructed around 900 of its stores meanwhile in 2008 and 2009.

In comparison to other organisations dealing in the coffee segment Starbucks has remarkably grown and created its unique identity worldwide. The main companies which competed with Starbucks were Caribou Coffee, Dunkin' Donuts and McDonald’s .Globally, autonomous coffee stores have managed to grow and set up their coffee houses by expanding its chain in various places. Starbucks has a prime place in its home market with distribution over 50% of the special coffee bought in the United States over a few years. The U.S is the biggest market for Starbucks coffee. With that the biggest part of Starbucks’ income and the excessive number of its retail stores are also detected in the U.S. Within a couple of years, the organisation has intelligently managed the worldwide supply chain making sure that there is a supply of excellent quality raw material. Although, in current years. Companies like Mcdonald’s and Dunkin Donuts are continuously targeting Starbucks and developing their customer base by serving high quality coffee. Arabica brews at a lower cost than Starbucks' coffee, MCdonalds’ launched its coffee named McCafe in 1993 . Even after being targeted by these companies. The company bought more than 600 million pounds of Arabica coffee in 2016,around 99% of which has qualified the CAFE practices checklist.

The External Environment of Starbucks Corporation

The External environment analysis can be done on the basis of PESTLE Analysis and 5 Force Analysis. The PESTLE analysis is a strategic analytical tool used to analyse the impact of external issues. It can also be called an extended version of PEST analysis. PESTLE stands for 6 major factors that affect the business, which are Political, Economic, Social, Technological Legal and Environmental. The increase in global economic recession has marked the macroeconomic surroundings which Starbucks works in. The recession has injured the consumer’s buying strength.

To increase the market Starbucks has even tied up with Apple and introduced discount coupons via iphone applications. With this it has moved forward to be a part of the mobile computing revolution. Starbucks is assured to take full advantage of the Smartphone revolution. In the US customers have become more conscious of ethics, which means that they prefer that brand which is accepted socially and environmentally during production. The main political factor that is impacting Starbucks is outsourcing the raw material. This highlighted the company in front of politicians in the West and other source countries. Companies need to follow the rules and regulations of the countries from which it buys the raw materials. Increase in political awareness and activism have made it essential. Other political factors to be considered are Tax policy and employment laws.

The ongoing worldwide economic recession is the main external economic driver for starbucks .

This factor marked the benefit for Starbucks which influenced the purchaser to shift to lower price alternatively. As the purchasers haven’t stopped purchasing coffee, this can turn out to be an amazing opportunity for Starbucks. The organisation has to trade with increasing labor and working costs. Other economic factors which can influence Starbucks are the local currency exchange rates, Local economic surrounding in different locations and Taxation level.

In case of Socio cultural challenges the company can provide low priced products but that drawback is that the company might have to sacrifice the quality. This will make the company expand its consumer base. Starbucks has to upgrade according to the trend. Other socio cultural factors to be focused on are changing the work patterns, preferences of consumers, change in lifestyle and level of education of the population and also change the pattern of family in USA and Europe.

Starbucks is very good in enjoying the benefits of the growing mobile wave for which it has partnered with Apple to bring application based discount coupons. To keep itself updated in Technological the company has also introduced WiFi Capabilities in its stores already. For customers, the internet is a very essential requirement as of now. People can sit and enjoy surfing the web doing work while having a cup of coffee. This can add a value to the brand. Starbucks is also emerging in innovative technologies, Biotechnological development, and growth in agriculture.

With technology Starbucks has to keep environmental factors in its mind. Company has to maintain the trust of the customer and for that it has to follow the environmental rules and regulations. Other factors which can impact is Global warming and other environmental issues .

Starbucks has to make sure that it should not breach any law in the home market and also from the companies from which it buys raw material. The company has to have the knowledge about how much caffeine should be produced and how much it should be consumed according to the policies and rules by the health department (Elliott, 2014). According to the PESTLE analysis Starbucks has proven that it has quite a stable external environment. The main reason behind this might be that it also works in the food and Beverages industry.

According to the Five Force analysis the strong force of competition is the combined effect of external factors. Starbucks Company strategizes in competitive rivalry, the threat of subtitles and the bargaining power of consumers. Apart from that other forces also impact the business performance of the company which is as follows: bargaining power of the purchaser or customer, bargaining power of suppliers, threat of new entry. Starbucks after creating its own unique identity has faced a strong force of competition in the food and coffee house industries. In the model of five force analysis, this force is mainly concerned with the influence of the competitors on one another and also the industry environment. The huge number of firms is an external factor that concentrates on competitive rivalry.

The crowd of competitors is average and diverse in terms of specialty and plan. This variety further reinforces the level of competition in the company. Competition is strengthened because of minor switching costs which is inconvenience to customers when switching from one provider to another. Starbucks Coffee Company undergoes the strong force or negotiating power of buyers or consumers. Among the Porter’s Five Force analysis model, this force is built on the effect of single consumers and a bunch of customers on the global business environment. Other external elements that provide the strong negotiating power of consumers are low changing costs, High replacement proximity and Small size of single purchasers.

Another force is the negotiating power of the buyers is between the most significant forces which affect the company. After lower the switching cost seeks the attention of the customers to Starbucks to other brands. The low size of single purchases equate to the weak impact of single buyers on the business. The two other factors that reinforce the negotiating power of the consumers, this is the highest priority strategic issue. The Starbucks company faces the feeble force as the effect that suppliers have on the organization and its company environment. It experiences the powerful force or threat of exchange, this power pertains to the influence of exchange of goods and services on the business and its external environment. This component indicates that exchanges have strong potential to negatively influence Starbucks Coffee business. The high availability of substitutes is a relief for consumers to purchase these substitutes in place of Starbucks products.

The decrease in the cost strengthens the threat of the substitutes, as it becomes easy for the customer to purchase the substitutes in place of the Starbucks product. Thus, this Five Forces analysis of Starbucks Coffee Company determines that the threat of the substitutes is top-priority strategic management concern. Starbucks has completely understood all these consumers' nature and it has already been constructed. The most important thing in the business is to understand the current scenario and to achieve it. Starbucks has faced many kinds of surrounding effects and it has successfully passed since many years ago.

The product life cycle is the stage in which a product may undergo. It includes the stages the product goes through after development, from introduction to the end of the product The PLC is a beneficial tool that helps marketers manage the stages of a product’s acceptance and success in the marketplace, starting with the product’s introduction, its development in market share, maturity, and possible decline in market share.

It is the first stage of the product life cycle after a product is launched.. The introduction stage is the same as commercialization, or the last stage of the new product development process. Marketing costs are typically higher in this stage than in other stages. An organization’s objectives during the introductory stage often involve educating potential customers about its value and benefits, creating awareness, and getting potential customers to try the product or service (Shirdastian et al., 2019). A company sometimes increases its promotional spending on a product during its growth stage. In other words, although the company must still inform and educate customers, it must counter the competition. Many companies enter different geographic markets or international markets as a strategy to get new users. A product that might be in the mature stage in one country might be in the introductory stage in another market.

Internal Analysis of Starbucks

Starbucks corporation is a globally recognized coffee and beverages brand that has rapidly made strides into all major markets on the globe. The company is a leader with its nearest competitors including Barista, Café coffee Day and other emerging opponents. Indeed, Starbucks is so well known throughout the western hemisphere that it has become a household of neighbor coffee.

Starbucks Strength

Starbucks corporation also known as Starbucks Coffee Company maintains its position as a biggest coffee house chain in the world through innovative strategies, is a strong brand image and one of the most sought for by their customers, who are loyal to it and kept it growing over the time. It has a brand value of $ 11.7 billion as per 2019 intern brand ranking.

It has a strong financial performance with an annual revenue of $26.5 billion and profit of $3.6 billion in 2019. As reported in 2019, it had 31,256 running stores across the world. It has an extensive international supply chain of coffee beans from Latin America, Africa and Asia Pacific. Starbucks has acquired top 6 companies including Seattle Beans Coffee, Tevana, Tazo, Evolution Fresh, Torrefazione Italia Coffee and Ethos Water and it has been extremely positive for the company.

It’s premium blend and delicious coffee has helped Starbucks to extend itself on the International map. It offers excellent quality and consistently standardized products in all the locations globally. Starbucks reinvest its profit in expanding its business in different locations. Its efficient operations have taken the organization to a different level altogether.

Starbucks was one of the first companies to use social media as a way to advertise. Plus, they were the first company to get 10 million likes on Facebook. Beside social media, Starbucks commercials are always fun to watch. 

The company is known for its pioneering people management in an industry where people skills and soft skills make the difference between success and failures. In other words, Starbucks has actualized a positive and welcoming workplace for its employees which translates into happier associates serving customers in a superior way leading to all round benefits for the organization. It treats its employees well so that it eventually translates into happier employees serving customers well. Starbucks has been constantly listed as one of the fortune top 100 places to work for. Starbucks has introduced gender neutral restrooms in response to anti LGBTQ bills to avoid discrimination against transgender people.

Starbucks Weaknesses

The company is largely dependent on its key input, which is coffee beans and hence, is acutely dependent on the price of coffee beans as a determinant of its profitability. This means that Starbucks is overly price sensitive to the fluctuation in the price of coffee beans and hence, must diversify its product range to reduce the risk associated with such dependence.

Usually in developing nations, Starbucks is offering more costly products than its competitors like McDonalds and local players for its working consumers and many middle tier crowds. Their high-priced menu reduces the affordability for such consumers. Starbucks products are not unique, and imitability is possible. Other coffee shops and food chains, like Dunkin Donuts, McDonalds, McAfee offer similar products. For instance, small local competitors could develop beverages that are not the same, but similar to the company’s product. Even the design and ambience is imitable.

Starbucks has high price points that maximize profit margin but reduce the affordability of its products. This internal strategic factor is a weakness because it limits companies market share, especially in areas with relatively lower disposable incomes (Suzianti et al., 2019). Also, SWOT analysis considers generalized standards weakness that limits the flexibility of the coffee and coffee house chain business. For example, the company's generalized standard for its crafted beverages, reduces these product’s cultural alignment with local target markets and associated consumer preferences.

The generalized standard for most products somewhere does not align with the cultural standard of many other markets. Most of its signature beverages do not go well with consumer preferences. The brand has been criticized by many social and environmental activists for violating fair coffee trade principles. They claim that it procures coffee beans from impoverished third world farmers.

The company must immediately diversify its product range if it has to compete with full spectrum competitors like McDonald and Burger King in the breakfast segment which is rapidly growing as a consequence of compressed schedules of consumers who would like to grab a bite and drink something instead of making it at home.

Some instances have been in the past when Starbucks has recalled a lot of in-demand products. This can negatively affect the brand image of the company and lead to the loss of the customer base. In March 2016, Starbucks recalled two products, one was sausage, egg, and cheddar, breakfast sandwich and other was cheese and fruit bistro box. The reason for recalling these products was the threat of contamination and allergies. This recall was due to the identification of the presence of listeria monocytogenes on the contact surface of the breakfast sandwich while being manufactured. The cheese and fruit bistro box were recalled because the animal found in the box contained traces of undeclared cashew nuts. There was no warning level that highlighted the presence of cashew nut, which could be potentially life threatening for people with cashew allergies. This was showcased in some states of the USA.

Starbucks Opportunity

Starbucks is mainly present in 10 countries, however, if we talk about its global expansion, it is existing in 77 countries. Starbucks has coffee houses, mainly in the USA, thus, it has plenty of opportunities for global expansion.

The company has an opportunity to expand its supplier network and expand the range of suppliers from its sources in order to diversify its sources of inputs and not to be at the mercy of whimsical suppliers (Jun et al., 2019). Further, this would also help companies in becoming less sensitive to the prices of coffee beans and make it resilient against supply chain risk.

The company has a huge opportunity waiting for it, as far as its expansion into emerging markets is considered, with a billion consumers likely to join the pool of those who want instant coffee and breakfast in China and India. The company can expand into these countries and emerging markets, which represents a lucrative opportunity for the taking.

It can further investigate business diversification for revenue growth opportunities. Besides, developing products as per customer preferences in the specific target market is also a profitable opportunity. Starbucks is popular at introducing new products and holiday flavor (Peppermint Mocha, Gingerbread Loaf), under its name would be profitable.

 New way of distribution – Starbucks introduced a new delivery system called, Mobile pour. This is a great opportunity to improve their distribution system and drive more revenue.

The company can significantly expand its network of retail stores in the United States as part of its push towards greater market share and more consumer segments. This opportunity ties in with the other opportunities described above related to the expansion into the newer markets, diversifying into newer consumer segments increasing its footprints across the USA and globally.

Technological Advancement – Starbucks has leveraged the use of Mobile Application, “Starbucks App” provides a reward program and creates a friendly comfortable environment for the customers. Today 10 percent of transactions in the USA are being made through Mobile Apps and Starbuck will surely be effective. Starbucks has an opportunity to work in partnership or alliance with other firms. This would strengthen its presence in market share as well.

Starbucks Threat

Starbucks has a high level of competition with low-cost coffee sellers. Many coffee houses offer products at extremely affordable rates, which can threaten the future stability of Starbucks with a high range menu price (Lemus et al., 2015).

The company faces threat from rising prices of coffee beans and is subject to supply chain risks related to fluctuation in the prices of these key inputs. Further, the increase of the prices of dairy products impacts the company adversely, leading to another threat to its profitability. Its competition with multinational companies i.e. Dunkin Donuts, MacDonald, Costa Coffee could also pose a threat to its market position. Starbucks must expand into emerging markets as a necessity as a developed market that it has traditionally relied on is saturated and given the fact the ongoing recession has made the going tough for many retailers. It faces significant threats from this aspect (Azriuddin et al., 2020).

Its product can be intimated by both new and old rivals, whether small or big players. They are also the challenge of the independent coffee house movement. The social cultural movement supports local coffee houses which is not a pleasant situation for the expansion of large multinational chains.

A California judge ruled Starbucks and other companies in March 2018, to provide warning labels on all their coffee products. This was just for preventing a violation from chemical use that may cause cancer. The Philadelphia arrest, in April 2018, where two African American men were arrested at Starbucks that caused a controversy on social media against Starbucks (Palmatier & Crecelius, 2019). Starbucks employees did not allow them to use the restaurant as they did not purchase anything, however, the CEO Kevin Johnson issued the apology to both, apparently.

Recommendations for Starbucks Corporation

The strong coffee brand like Starbucks should work on some advancement to keep its market position strong and wide. Firstly the organization can reduce prices of some of the products to attract the middle class tier and increase the affordability for all classes of consumers. The organization can also introduce diversification in products and services offering. They should bring technological advancement as well. It should implement creative marketing campaigns and promotional activities and branding strategies. Subsequently, it should also contribute to community development.

The industry environment of Starbucks Coffee Company involves diverse challenges. The coffee house chain business gets slammed by competition, imitation and social trends that oppose international players in the local markets.

Recommendation to protect Starbucks business against imitation is to aggressively innovate, specially in the area of product development. Innovation can make the company’s product more difficult to imitate (Dalton & Thatcher, 2019). Further, it is also recommended that Starbucks corporation should consider pricing strategies that are more attractive to a larger group of customers. For instance, bundle pricing can help address the threat of competition involving low cost sellers.

In addition to this, a suitable recommendation in this case could be to implement creative marketing and branding strategies that build Starbucks corporation as a contributor to community development. This idea could help reduce socio culture opposition against the company. This recommendation focuses on minimizing the negative impact of the internal factors’ enumerator in the SWOT analysis.

Stakeholders Report

Starbucks continues to upgrade its corporate social responsibility practices to mark the concerns of various stakeholder groups. Internal stakeholders are entities within a business (e.g., employees, the board of directors, managers,investors). Employees want to earn money and stay employed. Owners are interested in maximizing the profit the business makes. Investors are bothered about earning revenue from their investment.

External stakeholders are entities not within a business itself but who are concerned about or are affected by its performance (e.g., consumers, investors,regulators, suppliers). The government wants the business to pay taxes, hire more people, obey laws, and truthfully report its financial conditions. Customers want the business to supply best-quality goods or services at less price. Suppliers want the work to continue to buy from them. Creditors want to be refunded on time and in full. The community wants the work to contribute positively to its local surrounding and population.

Stakeholders Group

Internal /External

Justification for including them on the list

Employees (baristas, partners)

Internal

 Starbucks’ organizational culture emphasizes the employees-first attitude

Customers

External

Starbucks culture to customers at its cafés.

Suppliers (supply firms, coffee farmers)

External

The main interest of this stakeholder group is compensation and a growing demand from Starbucks.

Environment

Internal

Starbucks has corporate social responsibility programs for environmentally sound business.

Investors

External

Investors have interests in high financial performance of the company.

Governments

External

Starbucks must address the interests of numerous governments as stakeholders, considering the company’s global presence.

Starbucks prime concern is employees in its corporate social responsibility efforts. As stakeholders, employees typically ask for better functioning conditions, job safety and higher wages. Starbucks’ organizational culture focuses on the employees-first attitude. Employees are also given salaries above the lawfully mandated minimum wage. In 2014, Starbucks raised its CSR production for this stakeholder group by giving benefits in the form of Scholarships to employees based on a collaboration with Arizona State University. In this partnership, Starbucks pays for 56% of education fees for employees’ first and final years at the University. However, the company’s production in addressing employees as stakeholders has room for development. In some countries like New Zealand, Starbucks gives very low salaries to young workers (teens rates). These youth rates are often condemned. The firm can upgrade its corporate social responsibility performance by addressing such issues in this stakeholder group.

References for Starbucks Business Report

Nair, A., & Weber, T. (2017). borjo coffeehouse: Franchise, Independence, and Starbucks. Entrepreneurship Theory and Practice41(5), 861-875.

Shirdastian, H., Laroche, M., & Richard, M. O. (2019). Using big data analytics to study brand authenticity sentiments: The case of Starbucks on Twitter. International Journal of Information Management48, 291-307.

Dalton, C. M., & Thatcher, J. (2019). Seeing by the Starbucks: The Social Context of Mobile Maps and Users’ Geographic Knowledges. Cartographic Perspectives, (92).

Jun, Y., Ma, Y., & Lee, H. (2019). Empirical Study of Space Localization Approach on Brand Attitude: The Case of Starbucks in South Korea. Archives of Design Research32(4), 27-36.

Azriuddin, M., Kee, D. M. H., Hafizzudin, M., Fitri, M., Zakwan, M. A., AlSanousi, D., ... & Kurniawan, O. (2020). Becoming an International Brand: A Case Study of Starbucks. Journal of the community development in Asia3(1), 33-43.

Suzianti, A., Avianto, L. H. D., & Larasati, N. A. (2019, November). User engagement analysis on mobile application starbucks ID study case. In Proceedings of the 5th International Conference on Communication and Information Processing (pp. 54-59).

Palmatier, R. W., & Crecelius, A. T. (2019). The “first principles” of marketing strategy. AMS Review9(1-2), 5-26.

Lemus, E., von Feigenblatt, O. F., Orta, M., & Rivero, O. (2015). Starbucks Corporation: Leading Innovation in the 21st Century. Journal of Alternative Perspectives in the Social Sciences7(1), 23-38.

Elliott, C. (2014). Consuming caffeine: The discourse of Starbucks and coffee. In Brands (pp. 356-367). Routledge.

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