Starbucks Coffee Company Analysis

Starbucks Coffee Company Analysis

Starbucks Coffee Company Analysis

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Introduction

Starbucks Coffee Company is the largest retailer and roaster of specialty coffee in the world. It was established in 1971 by three partners in the US and has since then spread its operations in over 50 countries globally. It expanded tremendously and tripled its stores between 2002 and 2007 from 5,886 to 15,011 respectively (Starbucks, 2010a). However, its rapid expansion was altered by the recent economic crisis that peaked in 2008. Despite this, this company continued to focus on its expansion goal into the international market. Strong and persistent focus on international sales led to significant growth and expansion of this company during the subsequent years. During the second quarter of 2010, for instance, Starbucks’ profits increased eightfold to $217.3 million (Starbucks, 2010a). Currently, this company has more than 1700 stores in various locations in the world. It distributes its products in terms of stores and does not sell franchises. Apart from specialty coffee, this company owns other two brands namely; Tazo Tea and Seattle’s Best Coffee. This paper examines the external and the internal environments affecting the performance of this company. It also analyzes the key stakeholders of this company and their relationships to the company.

PESTEL Analysis

The following PESTEL analysis will examine in brief the factors of the external environment that affect the performance of this Starbucks namely economic, environmental, political, legal issues, social and technological factors.

Political Environment

One of the political factors affecting the performance of Starbucks is trade restrictions in terms of tariffs and other non-tariff barriers placed by various countries across their international borders. Most countries in which Starbucks operate are signatories of various agreements such as the G20, the APEC and the CAIRNS GROUP of agriculture. However, many of them still place some forms of trade restrictions. Strict and coercive trade barriers may adversely affect the ability of this company to source the best beans and to export its output to over 50 countries in which it operates (news.bbc. co.uk). Also, this may adversely affect its reputation, sales and competitiveness in the global market.

Secondly, political stability in the countries where this company operates is an important issue. A country may be friendly to foreign investors, but political instability may still adversely affect the operations of this company. A good example is Egypt where recent political instabilities altered the operations of this Starbucks (Starbucks, 2012). In Israel, Starbucks was forced to put off all of its operations. This adversely affected its strategy for expansion into the international market. Generally, political environment is unfavourable to some extent and presents threats to this company.

Economic Environment

The stability of the US dollar is a vital issue to the operations of Starbucks. Weak monetary policies, for instance may lead to a decline in the dollar rates in comparison to other currencies (Oxford University Press, 2010, p. 48). The company may, as a result, incur higher costs of its vital inputs such as coffee, milk and sugar. This may force the company to pass the extra cost to the consumer, which may put at risk its reputation, sales and competitiveness.

The recent economic crisis that peaked in 2007 and 2008 led to increased unemployment rates in many countries. For instance, the number of unemployed persons in Britain rose thrice-fold to 2.5 million by 2010 (National Coffee Drinking Trends, 2011). This also adversely affected income distribution in most nations where Starbucks operates. Consequently, most people who could afford to purchase the company’s expensive specialty coffee were now unable to purchase it and saw it as a luxury. This led to decline of sales in various locations, hence adversely affecting the expansion plan of this company. This implies that economic environment is somehow unfavourable to Starbucks.

Changes in tastes and preferences in the target market affect the performance of Starbuck. Recent information indicates that consumers in America are increasingly changing tastes in favour of specialty coffee (Politico, 2011). This has favourable impact to this company as it has opened an opportunity for expansion of sales and market share increase. The company speculates the trend of ‘Americanization’ which has been spreading rapidly across developing nations will make it easier for the company to boost its sales in those markets. Also, the push by governments in western countries to adopt healthy eating habits and avoid obesity might require this company to include some new items in its menu in line with these interests. Generally, as Politico, (2011) notes, social influences are favourable to this company.

Technological environment

Technological advancement has been changing at an average pace in the food and beverage industry. However, for business organizations to achieve success, they need to follow technological trends consistently and exploit any opportunity that may result from any change or advancement in technology. According to Technorati (2011), Starbucks adopted the recently introduced phone payments system which helps to reduce long queues during peak times. Technological advancement has led to a new platform in form of social media where business enterprises relate with consumers and share ideas and experiences with them. Business organizations are now able to acquire useful data such as consumer interests, tastes and preferences and responses to organizational products and services. Starbucks has exploited this opportunity by creating accounts in the social media sites such as FunSpace and FaceBook where it runs forums to discuss important issues with consumers and communities (Technorati, 2011). Generally, technological advancement has favourable impacts on the operations and performance of Starbucks.

Environmental issues

Non-governmental Organizations and other groups in most countries where Starbucks operate have incredible abilities to force organization to change their practices and comply with various rules and regulations. Often, they influence organization through boycotts and lobbying. They target intangible assets of business organizations such as tarnishing organizational reputation and brand image. However, Starbucks works with various pressure groups such as Fair-Trade movement which help to improve its reputation and image in the international market (National Coffee Drinking Trends, 2011, p. 49). Hence, environment influences are favourable to this company.

Legal Influences

According to National Coffee Drinking Trends (2011, p. 49), most countries tend to provide protection in various ways to indigenous firms from takeover and unfair competition. Legal issues such as national protection and monopoly laws are likely to affect Starbucks due to its size and expansion strategy in the international market. For instance, India protects its domestic firms through a policy that requires that no foreign firms can own 51 percent in a merger with local companies (Starbucks, 2012). Such protection policies are also available in other nations in various magnitudes. The more such measures are put in place, the more the expansion plan of Starbucks is altered. This indicates that legal influences have unfavourable impact on this company.

In summary, PESTEL analysis shows that influences of various factors of the external environment are balanced given that technological, social and environmental influences are favourable, while legal, environmental and political factors pose a threat to this company. Although Starbucks can’t control the external environment, its strengths tend to counteract the PESTEL analysis due to its flexibility to change (by closing a large number of stores in order to adopt) and ability to quickly exploit emerging opportunities.

SWOT Analysis

The following is a summary of Starbucks’ strengths, weaknesses, opportunities and threats.

Strengths

One of the strengths of Starbucks relates to its brand image. According to Bohm (2009), Starbucks is one of the few firms in the cafe industry whose market awareness strategies have been successful. This company has been able to stir up consumer interest in its products while preserving its brand name at the same time. This company has been consistent in delivering positive consumer experience. This conveys a message to consumers that their visits to the company’s cafes and consumption of its products are an ‘experience’ rather than just another brand of coffee from another company. The recent change of the company’s logo indicates that Starbucks is confident that the public is aware of its brand and follows the likes of Nike and Macdonald who are widely identifiable by their logos alone. Secondly, Starbuck has a unique strategy that increases its ability to enter into new locations and open new stores that are close to each other. The company evaluates the performance of all the new stores and closes those that fail to meet set achievements (Bohm, 2009, p. 84). Therefore, the company only retains the stores that are profitable.

Additionally, Starbucks enjoys from its valuable and motivated workers. As Starbucks (2010b) explains, the cafe industry is highly dependent on the staff, their attitudes and their ability to provide customers with valuable services. Starbucks’ employees work as a team and collaborate at all levels to bring out the best results. The company constantly engages the workers in training through seminars and workshops to provide them with essential skills needed for the industry. Consequently, they provide customers with exceptional services. According to Starbucks (2010b), this explains the fact that this company has a low level of employee turnover rate. Generally, these strengths provide a favourable impact to Starbucks.

Weaknesses

One of the weaknesses of Starbuck is its overreliance on the home market. Though the American market has been responding positively in the recent years, Starbucks’ overreliance in it leaves it vulnerable to changes that might occur in the future such as changes in disposable incomes and recession (Politico, 2011). Secondly, the aggressive expansion strategy of Starbuck has an adverse effect to its reputation. This company has recently been engaging in takeovers and acquisitions of coffee houses in various parts of the world as part of its expansion plan. But it closes stores that are deemed not to be profitable, a move that is not supported by local residents. According to Politico (2011), this has led to boycotts and creation of sites such as ihatestarbucks.com. The residents argue that the move by this company to close stores lead to erosion of local culture and environment.

Opportunities

According to Bohm (2009, p. 86), business organizations seeking to expand into the international market look for countries with attractive opportunities. As noted earlier, Starbucks has successfully been able to increase its presence in the international market over the past years through penetration in new markets in the world. Recently, this company has been planning to expand to attractive markets such as India that will help to increase opportunities for revenue growth. Such opportunities are supported by anti-protectionist policies that are being adopted by numerous nations the world recently. This will assist this Starbacks to secure the best inputs.

Another opportunity is the increasing market for coffee in America as a result of changes in consumer tastes and preferences. According to Bohm (2009, p. 86), the market for expensive organic coffee in America has been increasing rapidly. This has provideed an opportunity for Starbucks to expand its operations in this market and to acquire a bigger market share.

Threats

Even though Starbuck does not face stiff competition from specialty coffee sector, it has been facing high level of competition from restaurants and other big shops that sell coffee. For instance, this company has been facing stiff competition from MacDonalds which sells quality coffee at a lower price (National Coffee Drinking Trends, 2011, p. 53).

The Swot analysis shows that Starbucks has more strengths and weaknesses than opportunities and threats. The analysis however indicates that this company is balanced given that its strengths and opportunities are favourable while its threats and weakness are unfavourable. The company has an opportunity to change its strengths into opportunities.

Stakeholder Analysis

Starbucks’ key stakeholders include customers, employees, suppliers and shareholders. According to Lawrence and Weber (2011, p. 74), Starbucks has always been committed to provide its customers with quality specialty coffee. They practice fair trade and provide impressive services to customers that give them as a sense of belonging. Employees of this company fully engage with customers to learn and respond to their requests and interests. The company is committed to providing customers with healthy food with low level of calories such as reduced fats breads. They also entice customers by offering them gift cards and other gift items such as mugs and cups with the company’s logo. In response, consumers in many pars of the world have developed loyalty to the product of this company.

Starbucks’ employees are treated well, as partners of the organization. This company has established the Recognition Awards Employee Benefits Package that provides of various gifts for workers in recognition for good performance. They are offered attractive salary and benefits. The company also provides free training to its employees to equip them with valuable skills needed in the cafe industry (Lawrence & Weber, 2011, p. 75). The coffee master program and the servant leadership workshops are examples of career development programs sponsored by the company to support employee training.

Additionally, Starbuck has always been committed to ensure that they attain a level of success that rewards the shareholders. They allow the shareholders and new investors to purchase and sell shares of Starbucks common stock Dividends (Lawrence & Weber, 2011, p. 75). They pay shareholders’ dividends on its common stock at specific set rates on quarterly basis. Starbucks also ensures that there is fare trade between them and suppliers. They encourage coffee farmers to adopt measures that help to protect the environment. They also train them to develop business skills by compelling them to be accountable for their business activities. However, suppliers are required to put in place safety measures for workers that will lead to fair and human working conditions. They are also required to protect the rights of workers through addressing child labour and discrimination and complying with minimum wage requirements.

Conclusion

In conclusion, The PESTEL analysis for Starbuck has shown that the influences of external factors is balanced with social, technological and environmental factors being favorable while legal, environmental and political pose threats to this company. The SWOT analysis shows that the company has more strengths and weaknesses compared to opportunities and threats. Having assessed both internal and external environments of Starbucks and their impacts on the performance of this company, it can be concluded that this company has an opportunity to continue expanding into untapped markets.

References

BBC.co.uk (2010) ‘Starbucks’ profits jump as sales climb’

Viewed 21st April,2013, http://www.bbc.co.uk/news/business-11699561

Bohm, A. (2009), The SWOT Analysis, GRIN Verlag, Copenhagen

Lawrence, A. and Weber, J. (2011). Business and Society Stakeholders, Ethics, Public Policy.

13th ed. McGraw-Hill Companies, Inc. New York,

National Coffee Drinking Trends. (2011) ‘National Association of Coffee. Starbucks Coffee

Company.’ Viewed 21st April 2013, www.starbucks.com

Oxford University Press (2010). PESTEL analysis of the macro-environment, Oxford University

Press

Politico (2011) ‘Starbucks CEO rethinks,’ Viewed 21st April 2013,

http://www.politico.com/news/stories/0311/51727.html#ixzz1aOXYdpe9>

Starbucks (2009) ‘Annual report,’ Viewed 21st April 2013,

<http://media.corporateir.net/media_files/irol/99/99518/SBUX_AR.pdf>

Starbucks (2010a) ‘Company Profile,’ Viewed 21st April 2013

http://assets.starbucks.com/assets/company-profile-feb10.pdfStarbucks (2010b) ‘Recognition’ Viewed 21st April 2013

http://assets.starbucks.com/assets/starbucks-recognition-jan2010.pdf

Starbucks (2012) ‘Facts about Starbucks in Middle East,’ Viewed 21st April 2013 <

http://news.starbucks.com/article_display.cfm?article_id=200>

 Technorati (2011) ‘Starbucks pay-by-phone,’ Viewed 21st April 2013,

<http://technorati.com/technology/article/new-starbucks-pay-by-phone-will/>