Porter's Five Forces Analysis of Starbuck Porter's
Five Forces denote theoretical framework, which is applied in industrial analysis as well as strategy development. The five forces influencing competition in the industry comprise of the entry risk of new competitors, the rivalry intensity among the competitors, the buyers bargaining power, the suppliers bargaining power, as well as the threat of services or products substitute (Market Research World, 2008).
Starbucks Coffee Corporation is an international coffee firm and a house chain of coffee, headquartered within Washington, the US. The corporation has created a consolidated income of 14.9 billion USD in 2013 with over 200000 partners as workers or employees (Porter, 2008).
Bargaining Power of Purchasers or Buyers
Starbuck has relatively low threat level from the buyers' bargaining power. This is because of a large number of purchasers with small purchases. The industry of coffee is dependent on individual customers purchasing a cup of coffee as well as a snack. However, it is crucial to note that consumers never face any significant variation of costs whenever moving amid coffee shops or outlets. This grants certain power to the purchasers. Moreover, coffee drinkers can prepare the product within their own premises instead of purchasing it, this also grants them more power.
Suppliers’ Bargaining Power
The suppliers' bargaining power poses a low threat to Starbuck. This is partly because of standard inputs for the industry contrary to a differentiated one. This permits firms to switch easily and quickly between suppliers. Consequently, suppliers are not locked within a specific company in the sector or industry (Richard, 2013).
Threat of New Entrants
There exist low threat of novel entrants into the United States' snack and coffee shop industry. This low threat of new entrants results from performance and cost advantage of the existing companies. These companies are well-established and have understood how to constantly lower costs as well as improve performance. Moreover, the firm has a large market share as well as a strong brand identity in the sector. A novel entrant to the sector may anticipate retaliation from the existing company because of a stiff competition in the market share. Even though difficult, possibility for new entrants to thrive within this market exists. For instance, insurance, licenses, as well as other qualifications, which may be needed are not involving to acquire. Besides, customers incur low switching costs when changing suppliers they are capable of purchasing from many stores (Richard, 2013).
Threat from Substitutes
High threat from services and products substitutes within the snack and coffee shop industry exists. Most of the coffee drinkers consider hot chocolate, tea, as well as energy drinks as reasonable substitutes for snacks and coffee. Besides these coffee substitutes, buyers may opt to prepare their own coffee instead of buying from a shop. Because these substitutes are the same as a store-bought snack and coffee, customers never incur costs for switching products (Bakery Ino.co.uk., 2009).
Rivalry among Players
Rivalry among competitors is high in the sector Starbucks functions. Competitors include McDonald's, Costa, Dunkin Donuts, Caribou Coffee, as well as other small local cafes and coffee shops (Review, 2008). Reason for this rivalry is that the company is not expanding rapidly; it is in a mature market. Because of no significant variations within the product among competitors, buyers never incur high costs when switching from one firm to another (Market Research World, 2008). This is partly because products are not complex; moreover, do not need significant producer-consumer interaction. Brand identity in the sector is an important factor for the competition or rivalry as two main brands has penetrated or captured the entire market. Nevertheless, it is crucial to note that coffee sector, now, do not have excess numbers.
Benefits of Porter's Five Forces Analysis
Five forces analysis assists firms to know the factors influencing profitability within a particular sector, and may assist to inform decisions regarding on whether to join a particular firm, or whether to raise the capacity within a specific sector, and/or developing competitive strategies (Richard, 2013).
Drawbacks of Five Forces Analysis
In the opinion of Porter, the model of five forces ought to be applied at the level of business line; it is not developed to be utilized at the industry sector or industry group category. A firm is described at a lower basic category: a market where closely related or similar services and/or products are sold to customers. A company, which competes within a single sector, must design, at least, one five forces model for its sector. Porter explains that, for diversified firms, the first basic issue within corporate strategy should be a selection of firms (lines of business) where the firm should compete. Moreover, every line of business must design its own, sector specific, five-force model (Richard, 2013).
Value-Chain Analysis of Starbucks
Value chain analysis enables the company to know the sections of operations, which add value and the ones that do not. Fathoming these aspects is crucial since the firm earns over average returns if it generates is more than the costs expend to develop the value (Hitt et al., 2009, p. 84). Value chain analysis may be categorized into two groups: primary activities as well as support activities. Support activities may be applied to increase or achieve a competitive edge within the market while primary activities directly handle the creation of services and products.
Primary Activities
Inbound Logistics
Starbucks inbound logistics entail company agents selecting coffee beans producers primarily within Africa continent, establishing strategic connections with suppliers, communication of the standard associated to coffee beans quality, as well as managing, the supply-chain.
Operations
Operations of Starbuck are done in over fifty nations in two manners: direct operations via licensing and management of stress by the firm. Presently there are eight thousand eight hundred and seventy company-operated stores internationally, while eight thousand one hundred and thirty nine stores operated based on license (Starbucks Company Profile, 2011).
Support Activities
Infrastructure
Starbucks infrastructure entails a number of support activities, for instance, planning, management, finance, legal support, accounting, and government relations, which are needed to support the infrastructure of the whole value-chain (Hitt et al., 2009, p. 87).
Human Resource Management
The workforce is the most valued resource by Starbucks. A broad range of development and training programs are available in Starbuck, and motivation of intangible and tangible is achieved by incentives. For example, in UK Starbucks workforce is given free drinks in the shift.
Technology Development
Starbucks depends on technology for saving costs, and guaranteeing consistency of the products' quality and providing a high degree of customer experience. For example, the introduction of automation or computerized coffee roasters ensures consistent taste of coffee. This has resulted in the retention of customers for the company.
It is significant to consider that a comprehensive industry analysis requires interviewing customers, competitors, industry experts, suppliers, as well as other sources. Nonetheless, as a general opinion, applying porter's five forces, or model is an excellent means to understand whether to invest within a particular sector or industry (Porter, 2008).
References
Bakery Ino.co.uk. (2009). UK coffee shops set to grow despite recent casualties.
http://www.bakeryinfo.co.uk/news/archivestory.php/aid/6200/UK_coffee_shops_set_to_grow_despite_recent_casualties.html [Date accessed: 12/03/2014]
Hitt, MA, Ireland, RD & Hoskisson, E. (2009). Strategic Management: Concepts & Cases, Cengage Learning.
Porter, Michael E. (2008) Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press.
Market Research World. (2008). Coffee shops in the UK.
http://marketresearchworld.net/index.php?option=com_content&task=view&id=118&Itemid=77
[Date accessed: 12/03/2014]
Review, R. (2008). Is Starbucks a Broken Brand?
http://blogs.marketwatch.com/greenberg/2008/01/isstarbucks-a-broken-brand/
[Date accessed: 12/03/2014]
Richard, P. (2013). What in the World is Competitive Advantage? January 28, 2012. http://www.anderson.ucla.edu/faculty_pages/dick.rumelt/Docs/Papers/WhatisCA_03.pdf.
Starbucks Company Profile, 2011, Available at: http://assets.starbucks.co.uk/assets/aboutus-companyprofile-q1-2011-final-3-8-11.pdf
