Starbucks coffee is the most well-known coffee brand in the world. The company’s mission statement is: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time (Corporation)”. The company has grown rapidly since it was bought in 1987 by Howard Schultz, and currently operates all over the world. In 1995, the company expanded to selling bottled frappuccinos due to a partnership with the Pepsi Corporation. At the end of 1996, Starbucks employed over 20,000 employees and operated over 1,000 stores in thirty-two markets in North America (Kachra). By 2002, the company had expanded into Europe, Asia, and the Middle East, and brought its total store count up to 5,886 (Corporation 2). By the end of 2003, that number would rise to 7,225. At the end of 2015, Starbucks had 22,519 stores in operation, and operated on every continent except Antarctica. The company made hiring commitments in the past, including hiring a certain amount of veterans and their spouses, and hiring disadvantaged youths. In 2015, Starbucks launched a tuition payment plan, which allowed students to attend partnering universities and receive online degrees. These plans show that Starbucks incorporated certain cultural milestones into its growth plan. The company, as part of its ethics goals, reported that as of 2015, 99% of its coffee is sourced from ethical coffee producers.
Porter’s Five Forces for Analysis demonstrate the potential threats a business can have based upon the power of suppliers/buyers to influence a business’ decision making, and the competitive external threats of new entrees into the market to increase competition, the current level of substitutes available for consumers, and the level of competition in the marketplace today. Starbucks faces considerable external threats worldwide, but the company has continued to grow and produce quality coffee nevertheless. The company’s largest threats lie in the level of competition that its inception created, and the competition faced by the company continues to this day.
Starbucks is the perfect model of a company that has locked down its supply chain and maximized efficiency. Starbucks specifically specializes in specialty coffee, which is more expensive than normal coffee (Kachra), but tastes better. Starbucks developed one of the most advanced supply chains in the world to meet this need, as the coffee is not sourced from Latin America, Africa, and Polynesia, it is kept completely air tight during the roasting process so that oxygen does not damage the product. Essentially, Starbucks ensures quality by protecting its brand from its growth to its coffee cup. As Starbucks runs four types of models for selling its coffee, supply chain operations can be difficult.
However, Starbucks helped ensure its efficiency by making its suppliers as happy as possible. Competition for serving Starbucks is high, as many local coffee growers know that business would be consistent and the pay would be good. Starbucks also understands problems suppliers face in production, and encourages them to come forward with problems they might have as soon as possible (Kachra), so that the large corporation can anticipate changes to demand. Starbucks also expects its suppliers to take back bad batches of coffee, implying the relationship is consistent with that of a friendly, but professional, business relationship. Starbucks also takes responsibility to train its exporters on the business culture Starbucks expects.
Because the company keeps its suppliers happy, there is little relative threats of supplier bargaining power. The company does not import from large, powerful coffee bean companies, but relies on smaller-scale, locally produced farmers to provide the company with a regular supply of coffee (Kachra). This not only increases the ethical standards of Starbucks, but helps prevent the suppliers from gaining bargaining power.
Starbucks’ relationship with its customers is a little bit tricky to understand. The company has never faced serious issues with its consumer base, as its image has been geared towards them since the beginning. The company has always maintained an image of more expensive coffee, as the specialty coffee it imports is higher price, and that helps add to the mystique of the store. The company purposefully markets its products to adhere to the Starbucks experience, and ensures the highest quality on its brand name goods. Starbucks utilizes its supply chain to also give the appearance of an ethical company, as 99% of its coffee beans come from ethical sources. Starbucks has always tried to maintain an appearance of an ethically minded global company, which has helped reduce the backlash that other companies, such as Wal-Mart and McDonald’s, have faced in the past.
This being said, Starbucks has faced frivolous issues in its past before. During the Christmas season of 2015, Starbucks faced evangelical criticism over its use of a red coffee cup to depict the Christmas season, as the consumers believed it was not “Christmas enough”. Starbucks is also currently facing a lawsuit over customers complaining that the corporation is under-fillings its coffee cups, but most of the case had been dismissed. Starbucks, like all retail corporations, does place considerable weight on the opinions of its customers. However, Starbucks customers are generally pretty loyal, and its consumer base is large among millennials, ensuring that the company can continue to expect profit for years to come.
Starbucks has significant competition around the world. While the company is the largest coffee retail company in the world, others are vying to take that place. In 1997, Starbucks never cornered more than fifty percent of the North American market, except for in a few Canadian cities (Kachra). The company faced significant challenges from smaller level companies, usually locally owned and operated. Consumers enjoy shopping at these stores for their atmosphere, or because they enjoy shopping with small businesses. Indeed, these stores have challenged the hegemony of Starbucks across the world, and in some cases, Starbucks has not adapted well to different cultures. For instance, coffee sales in Italy for Starbucks are not as high for other parts of the world, though Italy’s coffee consumption is among the highest for coffee-consumption per capita.
There are several companies currently edging Starbucks out for international control of the coffee market. Their primary concern on the international market is Costa Coffee, which was founded in England in 1971, has produced the largest level of competition. Costa reportedly brews coffee the Italian way, with a focus on quality expresso, and has achieved considerable growth (Rodenberg). The company’s products are typically cheaper than Starbucks, and some consumers believe it to be higher quality than the American brand. Both companies appeal to the same target audience, as both appeal strongly to millennials and businessmen/women. Therefore, Starbuck’s direct competition is Costa on the international market.
Other forms of competition are also threatening Starbuck’s hegemony. Big brand names like Dunkin’ Donuts and McDonalds have always served coffee, meaning that competition to Starbucks is coming from an indirect source. The brands don’t usually siphon much business away from Starbucks, as people typically go to Starbucks for the coffee not the food. However, the potential threat of these other two corporations producing good coffee does influence consumer demand and preferences, which is something Starbucks cannot ignore. Starbucks counteracts this threat by also selling food in its cafes, but it is usually higher priced. Therefore, Starbucks cannot expect to compete with the low prices of Dunkin’ Donuts and McDonald’s, making it difficult to attract their target audiences.
Starbuck’s faces the threat of substitution as well, as consumers may prefer hot chocolate or tea over coffee. However, this threat is relatively small, as Starbucks acquired Tazo tea and Teavana, and sells those products in the store (Kachra). Other big name coffee brands have also copied their behavior, and also sell these products in store. As Starbucks took advantage of the chance of substitution early, it has rarely been an issue for the company, and tea/hot chocolate sales constitute a significant portion of the company’s income.
Starbucks does face considerable threats when it comes to the possibilities of new entrants into the market place. Entry into the market is relatively easy, as there is no technological barrier in place, and no income requirement. Finding suppliers is also relatively easy, as there are huge numbers of small scale coffee producers across the world. This increases the potential for small businesses to crop up and challenge Starbuck’s hegemony over local coffee markets. The major corporation has typically challenged this threat by opening stores close to other stores, making it uneconomical for other shops to open up and compete, as both stores would lose business. The ease of entering the market will still always remain a threat to the company, and the only thing the company can do is attempt to remain highly competitive and innovative as a natural defense, which Starbucks does by their partnerships with other companies and business decisions.
The industry is attractive to many entrepreneurs because of the high incomes major coffee corporations receive. Thus, the coffee market is a great example of a market near perfect competition, though Starbucks remains outside this realm because of its focus on specialty coffee. This focus has been the key to success, driving the corporation’s revenues because it creates an experience that is unique to Starbucks. The company’s marketing tactics play to this strongly, by creating an atmosphere of connectedness and uniqueness. Starbucks has remained successful because of their branding and focus on the brand image, which is a great example of how marketing has made a company what it is today. In order to continue to remain successful, the corporation needs to find methods to decrease their prices in order to reach new types of consumers. For instance, a typical cup of McDonald’s coffee will cost the consumer $0.99, which a similar cup of Starbuck’s coffee will cost over twice that. Starbucks must apply pressure on its competitors by increasing the types of coffee it sells, in order to steal customers from its competitors and increase the level of its sales.
Works Cited:
Corporation, Starbucks. “Mission statement.” Starbucks. Starbucks Coffee Company, 2016. Web. 21 June 2016.
Kachra, Ariff. “Starbucks.” Ivey Management Services. Ivey Management Services, 2 Mar. 2014. Web. 21 June 2016.
Corporation 2, Starbucks. “Starbucks company Timeline.” Starbucks. Starbucks Coffee Company, 2016. Web. 21 June 2016.
Rodenberg, Joseph. “Costa Coffee vs Starbucks.” rodenberg.nl. n.d. Web. 21 June 2016
