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Starbucks and its External Analysis

BUS421 Strategic Management Assignment 

You are expected to demonstrate your understanding of applying the PESTLE, Porter’s Five Force and Strategic Group in the assignment. It is an individual written assignment which contributes 20% of your Final Grade.  It is highly recommended that you go through Chapter 1 to Chapter 3 of your textbook and be familiar with the concepts. It is also highly recommended that you go through the Analysing Strategic Management Cases in your textbook. The Rubrics and expectations of the Assignment in the following slides.

Suggestion 

• Brief history of the company

• Company profile 

• Product/services 

• Strategic Business unites (SBU) 

• Market Representations in the world 

• Management Team • Financial performance over 3 years 

• Competitors – who are them and their markets and performance 

• What industry it competes in? What is the industry growth for the past 3 years 

• Trusted sources 

• Company annual reports 


Answer

Report on company background

The current research aims to discuss Starbucks and its external analysis. The background of the company rests on its three founders who are Jerry Baldwin, Gordon Bowker, and Zev Siegel and they founded the company in 1971. The first store of the company was in Seattle, Washington. However, in the current era, there are more than 28,000 stores of the company across the world (statista.com, 2018). The company deals with drinks and refreshment and is primarily known for its coffee products. In the opinion of Huang et al. (2017), a number of coffees are sold by the company including espresso, VIA and caffe latte. Along with that, Teavana has been introduced lately by the company, which is a special type of coffee introduced for dealing with the competitors of the company. Furthermore, currently, the company also deals with pastries, Frappuccino, and chips and crackers. In the United States, the company performs its business activities as a licensed retail store. It is also categorised under the Global service food group for selling packaged coffee products. However, the recent strategy implementation of the company has been the establishment of stores where the customers can avail coffee products and share their experiences under one roof. This would also help in the engagement of the customers with the company.  

As stated by Baughman (2017), the market representation strategy of Starbucks includes the opening of an adequate number of stores all across the US and reaching out to each of the customer sectors in the country. The company has one store every four miles, accounting for almost 20 stores in each region. In all over the US, the company has more than 8000 stores. As far as the management process of the company is concerned, it is headed by Howard Schultz in the position of CEO who took in charge much of the managerial aspect of the company. The opening of new stores to expand customer service and integration of new products are some of the managerial decisions that have been taken by CEO. However, as mentioned by Guler (2018), the company has appointed a base of managerial members to look after its retailing business process in China and European countries.  

The revenue collection of Starbucks in 2015 was USD19.6 billion, and in 2016, it was USD23.2 billion (statista.com, 2018). In 2017, it became USD 22.9 billion. Therefore, from this, it can be stated that the revenue collection of Starbucks has increased substantially in the past three years. Some of the major competitors of the company are Costa Coffee, McDonald McCafe, Café Coffee day and Pete’s Coffee. 

Revenue collection of Starbucks in the past three years

Figure 1: Revenue collection of Starbucks in the past three years

(Source: statista.com, 2018) 

1) Starbucks SBU:

A strategic business unit effectively supplies goods or services for the distinct domain of different activities. It has been observed that a small business unit has one SBU but a large corporation has different SBU. The different purposes of SBU are different decentralized initiatives to various smaller units, encourage different accountabilities and allow the large corporation in varying their business strategies (Linkedin.com, 2018). The strategic business unit is the wide range of objectives that are different types of objectives that a company mainly sets as per their planning. SBU can appear in four different quadrants of the BCG matrix. Different strategic business unit of Starbucks are the syrups and sauces, equipment, impulse items and coffee (Starbucks Coffee Company, 2018). Effective drawings of the BCG metric for the SBUs are showing below:

Stars:

Coffee of Starbucks is the main strategic business unit because most of the customers of Starbucks love to accept the coffees that are delightful and delicious in tests (Linkedin.com, 2018). The unique strategy of the Starbucks in identifying the best coffee beans creates a unique test of coffee that attracts a number of customers (Starbucks Coffee Company, 2018).

Question mark:

Different impulse items of the Starbucks mainly includes a range of biscuits as well as treats along with the ready-to-drink items that can attract customers along with the coffee items if Starbucks (Linkedin.com, 2018). It has been observed that question mark products are growing rapidly, but it does not have the large market shares.

Cash cows:

Cash cows exhibit higher return on assets, but the market shares are less in the markets. Different types of equipment that are offered by the Starbucks are different types of equipment for different branded solution partner (Linkedin.com, 2018).

Dogs:

Different types of syrups and soups are dog products because it does not have a separate market share as it is used to increase taste in the coffee beverages of the company (Starbucks Coffee Company, 2018).

From the SBU, it has been observed that Starbucks sell huge varieties products with different product ranges. Fir delivering huge range of products, it is necessary in hiring more staff but PESTLW analysis has described the fact that the cost of labor is high in the US that creates difficulties for the USA in achieving higher number of employees. Along with that, the product range of the Starbucks is increasing in the USA that sometimes requires technological advancements in the company because it improves operation and facilitates more innovation.

2) Buyers of Starbucks:

Starbucks is one of the iconic brands that sell their customers from more than 23000 locations that are spread in almost 68 countries. There are 13000 number of branch in the USA, among which, 8222 number of branch are company owned. The customer profiles of Starbucks in the USA are different types of buyers that are showing below:

Urban people and on-the-go:

The target audiences of the Starbucks are the urban people because Starbucks mainly develops their brand in different types of urban area (Linkedin.com, 2018). The main reason behind targeting these people in the USA are urban people are the busy people that spend lots of time more on their cars to go from one place to other, and they spend most of the time sitting in the traffic that is really effective in making their coffee from Starbucks more welcome.

High income and high spenders:

The target audiences of Starbucks are the people who are belonging to the high-income group because Starbucks mainly follows a good quality so that they effectively follow high pricing strategy (Linkedin.com, 2018). Therefore, Starbucks mainly attracts those customers who have the capacities for buying more so that people with a higher level of income are the people that are target audiences for the organizations.

Socially conscious people:

Presently most of the customers are the socially conscious, and they consider the ethics of the organization before buying products from the organization. It has been observed that for attracting this sort of customers, Starbucks mainly develops the support centers for the open farmers, developing and promoting the sustainable growth of the coffee and reducing the footprint of the coffee so that it can attract a number of customers towards the organization.

People who are health concerned:

Coffee has some health benefits. Therefore, to attract a number of people in the USA towards the organization, Starbucks mainly develops the different types of coffee that have real health benefits (Linkedin.com, 2018). For increasing the health benefits, Starbucks added different types of ingredients so that they can attract a number of healthy customers (Starbucks Coffee Company, 2018).

3) Identification of main competitors:

Different direct competitors of Starbucks are the Costa coffee, Café coffee day, Dunkin Donuts, McDonalds McCafe in the US. Different indirect customers of Starbucks are the McDonalds, independent fast food bakeries as well as chains.

The main reason behind the competitive advantage of Starbucks is selling the coffee that is of high quality. It has been observed that the business strategy of Starbucks is offering quality coffee in the premium pricing strategy and offering huge product differentiation for the customers so that it can attract a number of customers (Starbucks Coffee Company, 2018).

It is observed that Starbucks stores positioned them as one the third place that is away from the work and home that makes people spends a huge amount of money in the comfortable as well as a relaxed environment with their families and friends. For offering an effective services to the customer, Starbucks effectively offers free Wi-Fi and all of the stores of Starbucks are effectively designed to make the customers in staying for a longer period so that the profitability of the company can be effectively increased (Starbucks Coffee Company, 2018).

Along with that, Starbucks also integrates their technology in different parts of the business processes so that the operations of the company can be effectively developed and the organization can achieve a better competitive advantage (Starbucks Coffee Company, 2018). Starbucks mainly applies the technology in the development of new products, communication of the marketing message through an effective medium as well as monitoring the effective level of customer satisfaction so that it can satisfy the customers with more efficiency. Starbucks has launched the free order along with the online pay feature that allows the customers in buying the coffee with more efficiency (Meyer et al. 2017). Along with that, launching the app for the voice order can also improve the operation of the organization and attracts the tech-savvy customers towards the organization so that it can help the organization in achieving the sustainable competitive advantage.

Starbucks also offers an effective reward card that also offers a better benefit to the customers and attracts a number of customers for achieving competitive advantage (Starbucks Coffee Company, 2018). For building the loyalty among customers, Starbucks effectively launch the survey for the customer to understand the thoughts of the customers regarding their experiences in Starbucks so that they can understand the need of customers. Therefore, they can implement a better loyalty scheme to satisfy the customers and develops a better and long-term relationship with the customers (Wheelen et al. 2017).

The other main reason for the competitive advantage of Starbucks is their finest quality coffee beans because Starbucks mainly purchases the coffee beans that are organic in nature. Starbucks develops the unique taste in their coffee with the help of the Mastrena that is one of the powerful espresso machines to develop a familiar taste in the coffee. This unique taste of the coffee in the Starbucks can effectively attract a number of customers towards the organization.’

4) Graph the main competitors and were Starbucks on market graph:

Costa coffee:

It has been observed that the Costa coffee is the second largest coffeehouse after the Starbucks and they have 3000 stores in more than 30 countries. The net income of the Costa coffee has been increased to $200 million (Owler, 2018).

McCafe:

McCafe has their branch in the 4500 number of outlets, and the organization has more than $1.4 billion in worldwide basis, and they belong to three first coffee based organizations.

Café coffee day:

It has been observed that Café coffee day has 1500 number of outlets in most than 28 number of countries. It has been found that there are 160 million dollars in the organizations (Owler, 2018).

McDonald's:

It has been observed that McDonald's is not only one of the coffee-related brand but they are also one of the organisations that sell fast food to the customers. It has been observed that there is 3700 number of outlets in the entire world. The net income of McDonald's is $22 million (Owler, 2018).

5) Strategic groups:

According to Hill (2017), the strategic group refers to the strategic management concept that is effective in grouping an organization within a particular industry that has the similar models of business or some similar combination of various strategies. Therefore, the strategic group analysis is associated with the identification of the organization with the same types of vital characteristics (Starbucks Coffee Company, 2018). Thus, a different strategic group for the Starbucks is the home delivery and the purchasing products in the store. In the case of the home delivery products, the customer buys products online so that they can get the product from their home. 

6) Power of the suppliers:

Different suppliers of the Starbucks in the USA are the regency centers, Tingyio Cayman Islands holding corporations, First capital realty, in venture foods and dean foods etcetera. For selling coffee and other different beverages, Starbucks mainly borrows coffee beans, milk and sugars from various suppliers (Starbucks Coffee Company, 2018). However, it has been observed that there are several numbers of suppliers in the industry that sell products to their customers and there is a lesser number of big coffee selling organizations in the industry. Along with that, it is also observed that selling products to the big organization is lucrative for the suppliers because they think that selling products to the big organization is really useful for the organization because of the secure payments. This reason has made the thing clear that the bargaining power of the suppliers is lower because most of the suppliers always approached to the organization for securing an adequate income of the profit (Starbucks Coffee Company, 2018). Among different suppliers, Regency centers are associated with leasing the property to Starbucks and first capital reality is associated with leasing property of the Starbucks. Tingyi Cayman islands holding corporation is related to the manufacturer as well as market different types of ready-to-drink products. Inventure food is associated with market various types of best-frozen coffee blends, and Dean Food is associated with selling milk to the organization (Hill et al. 2014). The organization has more than 50 numbers of dairy brands under their name through multiple different companies. Though, there are huge numbers of suppliers in the markets so that it can be said that the bargaining power of the suppliers is less because Starbucks conducts effective negotiation with the employees.

7) Entry barriers:

Barriers to the entry are one of the terms that describe the existence of different obstacles such as substantial start-up costs or other issues that can prevent different competitors to facilitate secure entrance in the business area or industry (Hitt et al. 2017). It has been observed that the switching costs among the customer in the coffee industry of USA are low so that it can create a comparatively lower threat for the coffee based organization that wants to enter in the market (Starbucks Coffee Company, 2018). However, it is difficult for the new company to implement their business because of the development of the supply chain. For the expansion of a better inward and outward network in the organization, it is tough for a new organization to enter the market. 

PESTLE Analysis 

Political 

The political system in the US has been both an opportunity and a threat for the businesses operating in the country. As opined by Morsing and Roepstorff (2015), some of the distinctive features of the US political system are the integration of new markets in every region of the country, governmental assistance for the businesses and red tape in the countries which are developing continuously. Therefore, due to the assistance of the government, Starbucks has been able to expand its business services to other parts of the world as well. Currently, the company has paid much of its focus on the Asian market, primarily the countries of India and China. In addition to that, the assistance from the side of the government has also provided the opportunity for Starbucks to increase the accessibility of markets for suppliers. However, as stated by Jackson (2018), the rigidness of the government regarding sourcing of raw materials shall be a threat for the company. The company shall now be scrutinised by the government as it operates its business activities in some other countries.

Economic 

As commented by bea.g

ov (2018), U.S is the largest economy in the world with a GDP of more than $20 trillion. The GDP growth has taken by 4.1% since the past year. Therefore, this reflects a positive aspect of the economic status in the UK which is a decisive factor for the business process of Starbucks as well. Furthermore, in the opinion of bls.gov (2018), the rate of unemployment is also decreasing at a gradual rate which became less than 40% in the current year. Therefore, it can be evident from this that there is a higher chance of revenue collection by Starbucks. However, the high labour cost in the US which is more than $30 is likely to incur some expense of the company, thereby, causing economic difficulties. The economic factor in the US is not expected to impact the production process of Starbucks because it outsources coffee beans from outside countries. Moreover, it also has a base of farmers who look after the brewing process of the coffee beans.

GDP growth in the US


Figure 2: GDP growth in the US

(Source: bea.gov, 2018)

Social 

The societal trend in the US has been a boon to the business process of Starbucks. At the very beginning, according to Mason, Cole and Goza (2017), there has been an increase in the coffee demand from the society. Along with that, the people are also hugely inclined towards the experience that is provided by the stores of Starbucks. In addition to that, the people are hugely aware of the health and safety and the impact of the food products on their health. Some of the products of the company such as the low-calorie snacks and unique tea are helpful for the maintenance of health and safety of people. Therefore, this has culminated hugely to the increase of customer base of the company at a gradual rate.

Technological

The total number of internet users in the US amounts to more than 78% (Ragozzino, Reuer and Trigeorgis, 2016). Therefore, it can be stated in this context that advancement of technology has resulted in the increased use of Smartphone. Thus, due to the use of that, it shall be hugely favourable for the businesses that provide online facilities and services to its customers. However, Starbucks shall face particular issues in this regard owing to its excessive focus being given on the offline market, rather than the online market. Henceforth, the company must pay attention to the development of its online facilities through app development. Furthermore, as stated by Morsing and Roepstorff (2015), the development of technology has expanded to the farmers as well who use some technical devices for cultivation and brewing. Therefore, since, Starbucks has a base of farmers for coffee cultivation; they shall be beneficial from this.

Legal 

The US government has initiated some acts for the maintenance of health and safety of the people. Therefore, according to Taecharungroj (2017), the companies in the food sector in the US need to abide by some factors to comply with the legal jurisdictions in the company. Along with that, the regulations related to employment are also increasing, based on which the employees in the US must be provided with equality and fairness. Henceforth, Starbucks must give justice to its employees regarding time shifts and remuneration. Moreover, as influenced by Snell et al. (2017), this also makes it mandatory to appoint a human resource department in the company for the employees. The human resource department shall pay attention to the needs and specifications of the employees and therefore, design the business strategies for their benefit. 

Environmental 

The increasing trend of sustainability in businesses has called for the need to adhere to corporate social responsibilities more. Therefore, as influenced by Schwartz (2017), companies are needed to pay attention to the fact that they incur less impact on the environment with their business procedures. However, complying with the environmental safety factors, the company has integrated a base of farmers to look after the brewing process of the coffee to ensure that the impact on the environment is minimal. In addition to that, as commented by Verhoef, Kannan and Inman (2015), the focus of the company on the outsourcing of the products requires betterment in the supply chain sector as well.

Porter’s five forces analysis: 

A threat of new entrant

As stated by Schaper et al. (2014), the US government has provided tremendous opportunities to the businesses that are entering the business sector in the US. Along with that, to start a coffee business, a firm shall not need to invest a considerable amount of money and coffee is not a costly product either. Therefore, this is another factor for which any new company shall enter in the food sector in the US.

On the contrary, it must be noted that the market share of Starbucks is enormous and it shall not be easy for new entrants in the sector to compete with the vast customer base of Starbucks. In the opinion of Wirtz et al. (2016), the heavy price of the food products of Starbucks is a factor that puts a negative impact on the customers. Hence, they can shift to any brands that provide low-cost products. Thus, the threat of new entrant for Starbucks is moderate.

The threat of substitute products

As studied by Ragozzino, Reuer and Trigeorgis (2016), the product range of Starbucks consists of coffee products, tea products and snacks such as chips and pastries. Therefore, these products shall easily be substituted with tea products or fruit juices. Pubs and restaurants are hosts to some refreshment drinks, high-quality food and excellent ambience as well. Along with that, packaged coffee and tea products are also available to the consumers which they can make at home. Therefore, this has resulted in the high threat of substitute products in the industry. Starbucks faces a massive risk regarding the products because they can be easily replaceable by the other companies. However, the coffee products sold by Starbucks are somewhat unique and premium in quality as well (Michelli, 2014). Thus, the other brands shall only substitute the products, but not the high quality of the products.

Bargaining power of suppliers 

Suppliers in the food sector; primarily the coffee sector in the US cannot opt for individual purchases and therefore, they sell their products to a mass (Jackson, 2018). As a result of this, there is not the much influential power of the suppliers in the sector. Moreover, in order to meet the diverse needs of the population, the companies need to pay attention to the factor that the premium quality of the coffee beans is maintained. Owing to the fact that there cannot be a vast product range, the only factor that shall result in the innovation of the company is the quality of the coffee products. However, as stated by Morsing and Roepstorff (2015), currently, the prices of coffee products are being determined by the international market, and thus, the companies cannot keep the costs of the products very high. As a result of that, the suppliers cannot demand the high cost of raw materials. Therefore, due to that, there is low bargaining power of suppliers in the coffee sector in the US. 

Bargaining power of buyers 

The substitute products available to consumers shall make it easy for the customers to switch to other brands. However, as stated by Guler (2018), as far as the quality of the coffee products is concerned, the consumers are highly aware of the quality and therefore, adhere to premium quality products at higher costs as well. A very few numbers of companies are there which cater high-quality coffee products, and this is the reason for which the customer base of Starbucks is high. Therefore, the bargaining powers of the buyers are low.

Competitive rivalry 

The competitive rivalry in the sector is high. This is because of the assistance and support provided by the government. In the opinion of Baughman (2017), the market type of the coffee sector in the US consists of oligopoly, and therefore, all the companies are fighting for gaining a majority of the market share in the country. As far as Starbucks is concerned, it faces a tremendous amount of competition regarding market share from other companies such as McCafe and McDonalds. However, Starbucks has been able to remain competitive in the market through the initiation of unique products. Along with that, as commented by Huang et al. (2017), there has been the betterment of the coffee sector in the global field as well. Therefore, due to that, the competitive rivalry in the coffee sector in the US is moderate to high.

Strategic Group analysis 

The strategic group implementation of Starbucks has associated corporate social responsibilities hugely. The primary aim of Starbucks is given to the betterment and well being of the customers, and therefore, ethics has integrated more into the business procedure of Starbucks than profit orientation. According to Taecharungroj (2017), the products and services of a company play in an important role, and that is why Schultz has paid special emphasis to products and services of the company. Primarily, the company used to provide packaged coffee only. However, with the advent of time, the company also developed the aim of engaging the customers more and therefore, it decided to provide coffee products as well along with experience and ambiance. Moreover, as influenced by Stead and Stead (2014), the company also integrated the accessibility of customers as one of its strategies. The company has over 2000 stores all across the US, and the stores are not confined to the important regions of the country only. The company has also opened stores in airports and all the major highways. This would ensure that the company is reachable by people at every possible place, even in places where no other food company is present. In addition to that, the company has aimed to provide satisfaction to the customers as well. As opined by Snell et al. (2017), one of the issues that the company faces from the customers is the refraining of the middle and lower income group people due to high prices of the products. However, in order to eradicate this financial issue of the customers, the company has initiated various vouchers and discounts to the customers, with the help of which the customers shall be able to avail discounts on the products they buy from Starbucks. Moreover, the diversification strategy of the company is the initiation of new products such as Teavana and bay bread for each of the sectors in the market (Schwartz, 2017). 

The PESTLE analysis of Starbucks in the US revealed some of the issues and barriers that might harm the business process of Starbucks. Therefore, as stated by Verhoef, Kannan and Inman (2015), the excessive reliance of the company on US market shall be somewhat detrimental for the financial operations of the company. The strategy in this regard is the expansion policy of the company to other parts of the world as well. The current Asian trend has been beneficial for business, and the huge population backs up the financial growth of the businesses at the same time. Thus, taking this into consideration, the company has chiefly targeted the market in China and India. In addition to that, the employees of the company are also provided with certain privileges and facilities. They avail financial aid in terms of their education and medical insurances as well. Moreover, the farmer base owned by the company is also provided with various financial aid and facilities (Schaper et al. 2014). Therefore, the strategy implementation of the company is associated with corporate social responsibilities and well being of its stakeholders. 

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