Strategic Analysis: Internal & External

SWOT Analysis:

Strengths: Brand image is a key strength of Starbucks. It has successfully created awareness for the specialty coffee category while maintaining superior brand recognition even without heavy advertising.

Another strength lies in its strong market position and global recognition. Starbucks has a significant presence across the globe and has operations in over 60 countries. Starbucks is also the most recognized brand in the coffeehouse segment and is ranked 91st in the best global brands of 2013 (Interbrand, 2013). This helps the company to gain significant competitive advantage in expanding internationally and gain higher growth domestically and internationally. Over the years, they have achieved commendable economies of scale with superior distribution channels and supplier relationships.

Moreover, they give prime importance to the product quality in spite of a higher production output (Starbucks, 2013). Store location is another strength. They target premium, high-traffic, high-visibility locations near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off-highway locations across the world (Starbucks, 2013). The main aim for the firm is to make their stores a ‘third place’ besides home and work (Starbucks Website, 2014).

Starbucks has great employees. They enjoy benefits like stock option, retirement accounts and a healthy culture. It was rated 91st in the 100 best places to work for by Fortune Magazine (CNN, 2013).  Social responsibility initiatives by Starbucks create great goodwill. They build goodwill among communities where they operate (Starbucks, 2014). Starbucks has a diverse product portfolio that caters to all age groups (Globaldata, 2013). Starbucks uses technology effectively. They make significant investments in technology to support their growth every year (WSJ Blog, 2013).

Weaknesses: While Starbucks differentiates its products with high quality and a Starbucks experience, the premium prices could prove as its weakness in developing countries. Moreover, their aim to expand rapidly might make them lose their uniqueness due to overcrowding and saturation. Another weakness is that 75% of its profits are based off its coffee products and other specialty beverages (Starbucks Corporation, 2010).

However, its weaknesses don’t outweigh its strengths, which is a positive thing.

Opportunities: There is an opportunity to expand into emerging & developing markets. India has recently joined the list with a joint venture entry (WSJ, 2013). They can leverage their size, experience, financial prowess and efficiencies to make new market share (Forbes, 2013). Moreover, there is an opportunity to expand their product mix. Starbucks has started to expand their product mix by venturing into the Tea and fresh juice product offerings with a smart acquisition strategy (Seeking Alpha, 2012).

Threats: Increasing competition from Dunkin Brands, McDonalds, Costa Coffee, Pete’s Coffee etc is a key threat. Another threat is price volatility of high quality coffee beans, which is not under Starbucks’ control.

Overall, Starbucks has more opportunities for business than threats.

Porter’s Five Forces: Porter’s Five Force Model allows for proper identification of the landscape of the industry (Thompson, Strickland, & Gamble, 2007).

Suppliers: Starbucks understands the importance of the health of the overall supplier ecosystem (Iansiti et al, 2004). Supplier relationships are treated as partnerships. Since the high quality coffee beans that Starbucks uses as inputs are scarce, the threat by suppliers is Moderate.

Customers: Since the product offerings and the brand are highly differentiated, Starbucks faces a very low threat of customers. 80% of Starbuck’s revenue comes from regular customers who visit an average of 18 times/month (Rae & Jeneanne, 2006). Moreover, Starbucks is able to drive consumer preferences and knows how to move a product upscale, thereby making the threat from customers Low.

Competitors: It is hard to define a basis for competition for Starbucks. Analysts identify Dunkin Donuts, McDonalds, Nestle and Caribou Coffee as Starbucks’ competitors (Hoovers, 2014).  The competitors are growing and expanding rapidly as well. Hence, the threat from competitors is moderate to high due to the increasing number of companies competing along undefined lines.

New Entrants: Entry barriers in this industry are not high enough to discourage competition. However, Starbucks has developed skills, competitive positioning, knowhow and consumer base which is very difficult for new entrants to create. Thus, the threat of new entrants is Low, but that doesn’t mean complacency for Starbucks.

Substitutes: On a product level, substitutes include tea, soft drinks, energy drinks, smoothies etc. Starbucks sells these in its stores as well, thereby eliminating the threat. On a venue level, the substitutes might be the experience that customer can have at other bars and cafes. Despite this, a person who wants that particular environment will always choose the coffee shop over other substitutes; therefore, the threat is low.

Suggestions & feedback are most welcome.