SWOT Analysis of Starbucks

1. INTRODUCTION

The following content is a case study on Starbucks company one if the famous and well known coffee shop in the world. This case study highlights about the:

· SWOT ANALYSIS

· PESTLE ANALYSIS

· PORTERS FIVE FORCES

The history of Starbucks takes us back in the year 1971. It is a trade mark of (SBUX) in Seattle. In the start it was a purchaser and roaster of whole coffee beans. In the year 1970 the first Starbucks out let opened which used to provide finest coffee and coffee related products to the thirsty people of Seattle. In the year 1990 Starbucks went global expanding in the United States and soon become a publicly traded company. In 2000 the company expended in more than 15000 outlets in around more than 15 countries.

Starbucks mission statement is simple; to inspire and nurture the human spirit— one person, one cup, and one neighbourhood at a time

2. Swot analysis for Starbucks

2.1 Strength

* The Starbucks has a strong ethical values and also a strong ethical mission statement ‘Starbucks is committed to a role of environmental leadership in all facets of our business’ a positive approach towards had made Starbucks one of the no1 specialty retailer.

* The market share and capitalization Starbucks owned £4596.6 million and sales growth by 20.9%

* Starbucks holds a strong position in the market wherein they have 8,500 shops owned by Starbucks directly and also around 6,500 shops on franchises and licences with excellent workforce and management that provide excellent service to the customer

* In 2005 Starbucks was one of the fortunes in 100 companies to work for this was mainly because of the well efficient organisation resource management.

2.2 Weaknesses:

* The key weakness of Starbucks is their weakened innovation and creativity that has limited them to coffee and coffee related products

* As competitive pressure increases the lower price rivals such as Mc Donald or costa coffee can undercut the company profits as the Starbucks has premium brand with premium prices.

* It only depends on coffee and coffee related products that give them a limited growth this criticises them from not using free trade products and a bad reputation from pressure group.

* Since Starbucks is a US based company it mainly focuses on the domestic markets of US though Starbucks had grown worldwide none planning on the markets outside the US can affect the targeted profits.

2.3 Opportunities

* Starbucks is global cooperation which sells coffee to about 16,000 coffee shops in over 35 countries, established relation with pepsi-co, barners and nobles, dreyrer’s ice cream and other major brands this gives them a opportunity to diversify.

* Addition of more coffee products and expanding the menu gives them an opportunity to grow

* Outside the domestic US markets there are a lot of opportunities for joint ventures.thr planning restrictions can be considered by reducing costs by relocating at super market chains, pubs and restaurant.

* Become more of social and environmental responsible brand by better public relation activity,fair trade policies and ethical sourcing practices

* Licensing its name through ambient coffee through super market that gives them an opportunity to increase their revenue.

2.4 Threats

* Downturn in the economy affects consumer spending, with less income to spend this has been the threats in the recent years.

* Criticizing on the web site about company’s fair policies, labour relation and environmental hazards had a bad effect on the companies goodwill and has hence affected the revenue

* The threats have been increasing by competition from national brands and new entrants, this putting pressure on profit margins. Companies seeks new way to differentiate to retain customers.

* Saturation in the coffee market can be the worst threat as the Starbucks in very much linked with coffee and coffee related products

3. Pestle analysis for Starbucks

3.1 Political-Current tensions in the Middle East and boycotts of American made products are strategic concerns for Starbucks globalization plans. Starbucks also imports their coffee beans and thus any changes in import laws should also demand special attention.

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3.2 Economic- Economic factors basically concern the nature and direction of the economy in which a firm operates. Current recession has forced people to limit their spending hence this has affected the sales of Starbucks. Also the price hike in the commodities e.g. coffee beans which are used to make coffee in Starbucks has forced them to increase the prices of the coffee. Consumers don’t find as much worth in spending $4.35 for a cup of coffee when they can purchase the same size coffee at 7-eleven for $1. 75

3.3 Social- Promoting the health benefits of coffee remains a challenge for the industry and consumers are often confused with the myths propagated by the media. Social concerns regarding caffeine and it addictive properties also need to be considered these days the people are so environment concern that the company should learn how to reduce their plastic waste and use recyclable items.

3.4 Technological Factors -Starbucks has been continually looking for ways to enhance the customer experience. They have also expanded their partnership with ATT. ATT offered consumers Wi-Fi service in more than 7,000 Starbucks locations in the U.S. in spring of 2008 also the use of latest technology in brewing coffee beans to enhance the taste and flavour of the coffee served.

3.5 Legal – Labour laws( for e.g. increase in the minimum wage of employees)

Environmental law (e.g. ban on non recyclable cups and bottles used for take away drinks).

3.6 Ecological Factors- Starbucks also has a strong environmental mission statement. Starbucks promotes ethical sourcing as well and encourages the use environmentally friendly products. Starbucks uses key performance indicators to be sure they are measuring the degree to which they fulfil their social and environmental responsibilities. Starbucks should maintain abreast of any changing environmental legislation that could impact their corporate strategies.

4. Porter’s Five Forces Analysis

The Porter 5 forces analysis is a framework by Michael E. Porter in 1979 for industry analysis and business strategy development to achieve its organisational goal. According to Michael porter there are 5 major factors which influence the business.

* Bargaining power of suppliers

* Bargaining power of buyers

* Threat by substitute products

* Rivalry between competitors

* Threat of new entrants to a market.

Starbucks should consider the following:

4.1 Power of Suppliers: Starbucks prides itself on its guiding principles one of which states, “Our Coffee-It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them.” Therefore, in keeping with their mission and principles, Starbucks must ensure that the type and quality of coffee it offers is always the same. This means they would use the same suppliers that integrate their standards. An over-populated market could also give the suppliers more bargaining power. Starbucks needs to be aware of supplier power and potential price increases.

4.2 Power of Buyers/Customers: A buyer group is powerful if the industry’s product does not save the buyer money (Pearce and Robinson, 2007) This is a plus for Starbucks as their coffee products are higher in price and considered a luxury brand. Starbucks is much more concerned with the quality of their product versus price. However; the other consideration is small local coffee companies that were around before Starbucks took over the marketplace. These smaller coffee shops may have their core customers who will not give their business to anyone else.

4.3 Available Substitutes: Starbucks must be aware of substitute products. Given the current grave economic crisis, consumers are vying towards less expensive alternatives than the luxury coffee Starbucks provides. This effect could alter Starbucks current pricing strategies. As more substitutes become available, the current pricing model would become more elastic since customers have more alternatives. Potential substitutes include bottled water, healthy water/juice drinks, and at home espresso machines.

4.4 Current Competitors: While companies like Dazbog and Caribou Coffee appear to be the most obvious competitors, McDonalds and Dunkin Doughnuts are Starbucks tops competitors. Both these organizations can compete with Starbucks in terms of sandwich items and coffee related products. More of a concern with these two competitors is their pricing modules. Both competitors are priced less than Starbucks products.

4.5 Threat of New Entrants: Starbucks provides a luxury good that consumers often scale back on when they want to save money. In 2007, Starbucks saw its shares fall more than 30% partly down to customers deserting it for cheaper rivals. As McDonalds and other chains like Dunkin Doughnuts realize the money in luxury coffee more companies will begin to enter the marketplace offering similar product lines for less cost.

5. Reference

To conclude the Starbucks has done very well in the terms of business they have managed to grow within the industry in few years. I’ll say this because from a single privately owned coffee house Starbucks was able to expand as a well known coffeehouse internationally and they managed to keep their position in the market. Starbucks needs to keep a close watch on its competitors because of the risk for competitive pressure. Also it needs to develop new types of coffees to sustain the threats for subistutes and also from competitors. They also need to utilize their opportunities to greater extant to be more successful in the future.

6.REFERENCE

* Information and financial management, swot analysis, pg 23,10th edition ( Trowbridge, Wiltshire, 2005)

* Bob Nelson and Peter Economy, Managing for Dummies, 2nd ed. (New York: Wiley, 2003)

* Forbes Magazine. Forbes, S. (2005, December 12). Who’da Thunk It? Coffee Is Hot. Forbes, pp. 33, 33. Retrieved May 15, 2009, from Business Source Premier Database

* Starbucks. (2009b). Company Profile. Retrieved May 10, 2009, from http://www.starbucks.com/aboutus/Company_Profile.pdf

* Moneyweek Magazine. Which firms can survive a storm? Tim Bennett, Nov 27, 2007 http://www.moneyweek.com/investment-advice/how-to-invest/which-firms-can-survive-a-storm.aspx

* Brewing Battle: Starbucks vs. McDonald’s, from http://www.time.com/time/business/article/0,8599,1702277,00.html

* Starbucks. (2009c). Our Starbucks Mission. Retrieved May 10, 2009, from http://www.starbucks.com/mission/default.asp

* Starbucks 2007 Annual Report. Corporate Social Responsibility Brochure

* Howard Schultz: Chairman of Starbucks Corporation. http://www.marketingcrossing.com/article/220025/Howard-Schultz-Chairman-of-Starbucks-Corporation/

* Regis University (2009). Strategic Management and Financial Ratio Analysis. Columbus, OH: McGraw Hill/Irwin