MARKETING STRATEGY OF STARBUCKS

August 25, 2019 by Abhijeet Pratap

Starbucks Marketing Strategy

A Unique Marketing Strategy that Starts from Premium Quality Products

Starbucks has a unique marketing strategy that starts right from its products. It has differentiated itself
from others based on the premium quality of its coffee. From its humble origins in Seattle, the brand
has spread throughout the world to become the number one coffee retail brand. It’s a multinational
brand and the newest chapter in its international growth story is the Asian part. Starbucks has used the
formula of quality based product differentiation which has resulted in higher popularity and customer
loyalty. However, its marketing strategy is not limited to only products but Starbucks is equally great and
unique in other aspects of its marketing and promotions.

Product quality must be considered the central pillar of its marketing efforts. Great quality has several
benefits. First of all, it helps with brand image and reputation. Great taste and quality means higher
recognition and popularity in the fast food industry. As a brand, Starbucks has built great reputation
over time for the quality of its products, their flavour and for unequalled customer service. A lot of
marketing takes place at those stores and through brand merchandise. Great customer service has also
added to the brand’s positive reputation. In the recent years, investment in marketing and advertising
has resulted in better sales and increased brand awareness.

Positioning:

Starbucks has positioned itself as a premium coffee brand based on an overall premium experience
designed to take the coffee experience to the next level. Apart from great quality coffee, the brand’s
value proposition is also based on a great customer experience supported by excellent store
environment meant to drive fatigue away and give the guests premium space to relax.

Segmentation:

Since Starbucks is a premium brand, its customers are mainly from the upper economic strata or the
upper middle class and upper class. The brand targets people who want a peaceful space to drink coffee
and shake fatigue away. These are mostly higher wage earning professionals, business owners or other
higher end customers in the 25-60 age group mainly. People with a fast moving life style want good
quality coffee and premium space to lose stress. Starbucks offers all these privileges at a single place.

Excellent Brand Merchandise and Unconventional marketing Tactics

Brand merchandise are an important part of any brand’s marketing strategy. They also play an
important role in customer retention and driving customer satisfaction higher. Starbucks logo is printed
on the brand’s merchandise. Attractive looking merchandise are always pleasant and add value to a
brand’s products and customer service. A perfect cup of coffee cannot be perfect if the cup is imperfect.
This is a strategy most customer focused brands employ. Starbucks has also employed unconventional
techniques for marketing its brand. Traditionally, Starbucks has not relied on conventional marketing
and advertising methods. It did not advertise its brand in traditional places like billboards, posters, or
advertisements in the common places like Newspapers or television. However, it was still able to
generate very high level of publicity and popularity.

An Ethical Brand

To market itself as a responsible brand, Starbucks focused on its long term branding as a quality focused,
customer oriented and ethical business. Apart from great looking stores where the customers can sit
comfortably and enjoy a great cup of coffee amid excellent service, Starbucks has focused on the other
parts of its business operations to create a unique and strong brand image. Ethical sourcing is also an
important part of its business strategy. Starbucks sources 99% of its coffee ethically from suppliers
around the world. This strengthened the ethical image of Starbucks which proved favourable in terms of
marketing as well as customer loyalty and retention. The image of an ethical and accountable brand can
be a major advantage in the 21st century. Customers are more loyal to brands that are environment-
friendly and accountable.

Now Investing in Advertising

Till some years ago, Starbucks was known for not investing in marketing. All the marketing was based on
its brand image and the fame it had earned by offering premium quality products. In the recent years
however, it made some changes to its marketing strategy and started investing in advertising. Now, its
ads are visible on television, print and other digital channels too. In 2015, it invested more than
$351 million in marketing and advertising. Its TV commercials highlight the newest and most romantic
flavours available at the Starbucks stores. However, advertising and paid promotions are not a central
focus at Starbucks. Compare its marketing budget with other celebrity brands like Coca Cola or Nike and
its marketing expenses are much less.

Till 2006, its focus was to spend more on having talented people onboard and sourcing only good quality
raw material than on using advertising gimmicks for enormous growth. Its 2006 annual report states it
clearly – “When we set out to become the world’s leading purveyor of fine coffee, we didn’t put all of
our focus on how large we’d become or just how much profit we intended to make. Intuition told us
that our ultimate success would depend less on clever advertising gimmicks than it would on the special
individuals we’d bring onboard, one by one, as we worked to make our dream a reality”. That’s how
they rolled till 2006, but in later years, the company started spending on marketing and advertising.
However, the budget has never touched even half a billion. Starbucks has always kept its marketing
budget under control.

Check how its marketing budget has grown in recent years.

STARBUCKS ADVERTISING COSTS AND MARKETING BUDGET 2007-18 (MILLIONS)

YEAR ADVERTISING COSTS ($ MILLION) MARKETING ($ MILLION)

2007 $103.5 M

2008 $129 M

2009 $126.3 M

2010 $176.2 M $198.7 M

2011 $141.4 M $244 M

2012 $182.4 M $277.9 M

 YEAR ADVERTISING COSTS ($ MILLION) MARKETING ($ MILLION)

2013 $205.8 M $306.8 M

2014 $198.9 M $315.5 M

2015 $227.9 M $351.5 M

2016 $248.6 M $378.7 M

2017 $282.6 M

2018 $260.3 M

Social Media Marketing

Apart from the methods outlined above, Starbucks markets itself from the social media platforms. There
are more than 500 interesting and engaging videos of Starbucks brand and products on YouTube. It has
released videos of its products, supply chain and various other aspects of its business operations. The
coffee brand started an animated series with cute characters about life inside a Starbucks store. This
animated series is named ‘first and main’. The series was very popular among the
Starbucks’ audience. Twitter has also become a favourite social media channel for marketers. It has
helped them address a very large audience without any significant investment. Starbucks has made
more than 87,000 Tweets and has more than 11.8 million followers. From its new products and inside
the store stories, the brand shares all the exciting things that happen at Starbucks on Twitter. Even its
CSR achievements and all the critical milestones it has achieved are shared on Twitter regularly. A
critical thing that Starbucks has achieved over time is its millions of fans and followers. They also share
updates about Starbucks all the time. Brands that have invested in brand equity have added real value
to marketing and it is worth learning from them. Starbucks has also proved that to make a real
difference you must be focused on customers and do things that matter for them.

Starbucks Marketing Strategy main points:

Quality based differentiation – premium quality tea and coffee.

Excellent customer service.

Consistent brand experience.

Use of unconventional techniques for marketing and branding.

Image of an ethical brand.

Excellent brand merchandise.

Customer orientation.

High brand equity.

Unconventional social media techniques of establishing consumer connection.

Creating real customer value.

Near no or less use of traditional methods for marketing (till some years ago; now it is using a mixed
strategy).

Good quality products and customer service – higher word of mouth marketing.

Investment in advertising for last 4-5 years.

https://notesmatic.com/2017/01/marketing-strategy-of-starbucks/

Access on 18/12/2019

Company: Starbucks
CEO : Kevin Johnson
Year founded : 1971
Headquarter : Seattle, USA
Number of Employees (2018): 277,000
Public or Private: Public
Ticker Symbol: SBUX
Market Cap (2018): $ 81.06 Billion
Annual Revenue (2018) : $ 24.72 Billion
Profit | Net income (2018): $ 4.52 Billion

Products & Services: Coffee | Handcrafted Beverages | Fresh food | Non-food items | Packaged goods
| Mugs and accessories | Gifts |
Competitors: Costa Coffee | McDonalds McCafe | Dunkin Donuts | Café Coffee Day | McDonalds | KFC

An Overview of Starbucks

Starbucks is the world’s largest American coffeehouse chain that operates in 29,324 stores worldwide. It
was founded in Seattle, Washington in 1971.

With the invigorating vision of Howard Schultz (current Executive Chairman), it became more than a
coffeehouse, a third place between work and home. Kevin Johnson is the current CEO of Starbucks.

SWOT analysis of Starbucks

The SWOT analysis of Starbucks is as follows:

Starbucks Strengths – Internal Strategic Factors

Strong brand image – Starbucks Corporation is the most popular and strongest brand in the food and
beverage industry. Its size, volume, and the number of loyal customers have kept growing over time.

Strong financial performance – With a market capitalization of $81 billion, Starbucks has a stable
financial position in the market. It increased its number of stores from 1,886 to 29,324 between 1998
and 2018.

Extensive international supply chain – Starbucks is known to have an extensive global network of
suppliers. Starbucks sources its coffee beans from three coffee producing regions, Latin-America, Africa,
and Asia-Pacific.

Acquisitions – Company has acquired top 6 companies including Seattle’s Best

Coffee, Teavana, Tazo, Evolution Fresh, Torrefazione Italia Coffee, and Ethos Water. These acquisitions
have proven quite successful for Starbucks.

Moderate diversification – Starbucks has also diversified its business operations by

introducing innovative merchandises and food items. One such example is the addition of ice cubes
made of Coffee which results in a stronger Coffee flavor.

Quality, Taste and Standardization – Due to its premium blends and delicious coffees, Starbucks has
extended globally. It offers excellent quality and consistently standardized products in all the locations.

Efficiency, Strategic Planning, and Reinvestment Strategy – Starbucks reinvests its profits in expanding
its business in different locations. Its efficient operations and well-planned strategic decisions have
produced many advantages for the company.

Employee treatment –It treats its employees very well which eventually translates into happier
employees serving customers well. Starbucks has been consistently listed as one of the Fortune’s Top
100 Places to Work for.

Starbucks Weaknesses – Internal Strategic Factors

High prices – For many middle tiers and working consumers, Starbucks’ offerings are more costly than
McDonald’s and other coffee outlets. Its high prices reduce affordability for the consumers.

Imitability of products – Starbucks doesn’t own the most unique products in the market. This makes the
imitability of products quite easy for other companies. Other coffee shops and food chains like
McDonalds McCafe and Dunkin Donuts offer almost the same products.

Generalized standards for most products – Some of its product offerings are not aligned with the
cultural standards of other markets. For example, in some areas, its crafted beverages do not associate
with the consumer preferences.

European Tax avoidance – Due to its tax avoidance in the UK, it faced several controversies and
criticisms. Reuters’ investigation found out that it didn’t pay tax on its £1.3 billion of sales in three years
prior to 2012.

Procurement Practices – Many social and environmental activists criticized the company for their
unethical procurement practices. They claimed that it procures coffee beans from impoverished third
world farmers. It has also been accused of violating “Fair Coffee Trade” principles.
Recall of Products – Over the years Starbucks has recalled a lot of in-demand products. This
can negatively affect the brand image of the company and lead to the loss of customer base.

In March 2016, Starbucks recalled two products. One was the sausage, egg, and cheddar breakfast
sandwich and the other was cheese and fruit bistro box. The reason for recalling these products was the
threat of contamination and allergens.

During routine testing, it was revealed that the facility that manufactured the breakfast sandwiches had
the presence of Listeria Monocytogenes on the contact surface.

The 250 stores in Arkansas, Texas, and Oklahoma that showcased these sandwiches had to remove
them. The cheese and fruit bistro box was recalled because it contained the almonds found in the box
contained traces of undeclared cashew nuts.

There was no warning label that highlighted the presence of cashew nuts. This could be potentially life-
threatening for people with cashew allergies.
Starbucks Opportunities – External Strategic Factors

Expansion in developing markets – Starbucks has coffeehouses mainly in the US. Global expansion in a
few areas like India, China and few regions of Africa can give a great opportunity to the company.

Business diversification and Products Specifications – It can further diversify its business operations to
improve overall revenue growth opportunities. Besides, developing products as per the customer
preferences in the specific target market is also a profitable opportunity.

Introducing new products – As the company is quite popular, introducing new products and holiday
flavors (Peppermint Mocha, Eggnog Latte, Gingerbread Loaf) under its name would be profitable and
welcomed in the markets.

Partnerships or alliances with other firms – Co-branding always benefits. Starbucks has the opportunity
to develop partnerships and alliances with major firms. This would strengthen its presence and market
share.

Starbucks Threats – External Strategic Factors

Competition with low-cost coffee sellers – Many coffeehouses offer products at an affordable rate. This
can threaten the future’s stability of Starbucks which offers higher prices.

Competition with big outlets – Aggressive competition with multinational companies like Dunkin Donuts
and McDonald’s can also pose a threat to its market position.

Imitation – Products can be imitated by both new and old rivals.

Independent coffeehouse movements – There are many sociocultural threats for Starbucks. These
sociocultural movements support small independent and local coffeehouse and oppose the expansion of
large multinational chains.

Controversy on California warning rule – A California judge ruled Starbucks and other companies in
March 2018 to provide warning labels on all their coffee products. This was about preventing a violation
from chemical use that may cause cancer.

Philadelphia arrests – Recently, two African-American men were arrested at Starbucks that caused quite
a controversy on social media against Starbucks. Starbucks employees refused them to use the restroom
because they didn’t purchase anything. The CEO Kevin Johnson issued an apology to both men
eventually.

Recommendations
Starbucks needs to bring some improvements and advancements in the company to keep its market
position stable and strong.

For this, few recommendations are given below:

Introduce diversification in products and services offerings. This will help strengthen their position.

Bring innovation and technological advancements in the company to deal with the rising competition
and imitation.

Resolve the issues with the social activists that oppose international market players.

Reduce prices of the products to attract more customers and increase the affordability for all classes of
consumers.

Implement creative marketing campaigns, promotional activities, and branding strategies.

Contribute to community development, participate in Corporate Social Responsibility (CSR), and

sustainability practices.

https://bstrategyhub.com/swot-analysis-of-starbucks-starbucks-swot/

Accessed on 18/12/2019

STARBUCKS SWOT ANALYSIS 2019

August 26, 2019 by Abhijeet Pratap

INTRODUCTION

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

CONCLUSION

SWOT ANALYSIS OF STARBUCKS COFFEE 2019.

Introduction:

Starbucks is the largest coffee brand of the world. Its revenue has grown steadily over the last five years.
The company also undertook some restructuring during the recent years to bring focus back upon the
core and most profitable businesses. Compared to 2017, its revenue grew by around 10% in 2018. Apart
from that, its financial performance during the first three quarters of 2019 has also been impressive. At
the end of the third quarter of 2019, total net revenue of the brand was $19.8 billion compared to $18.4
billion during the same period last year.

Company Starbucks Corp.

 Industry Coffee Industry

CEO Kevin Johnson.

Founded. 1971

Headquarters. Seattle

Net Revenue. $24.72 Billion.

Net Income. $4.52 Billion

Number of Employees. 2,91,000

Number of Stores. 29,324

Main Market. United States.

Starbucks is a premium coffee brand led by Howard Schultz. There are several things that the brand is
well-known for including premium quality coffee, customer service and organizational culture. Its
continuous focus upon product quality and service combined with international expansion have resulted
in accelerating growth rate.

United States is the largest market for Starbucks coffee. It generates the largest part of Starbucks’
revenue and the highest number of Starbucks retail stores are also located in U.S. Over these years, the
brand has smartly managed a global supply chain to ensure the continuous supply of good quality raw
materials.

Number of total stores of Starbucks grew higher than 29,300 in 2018 and higher than 30,000 in 2019. Its
business model is also a core strength of the brand. Starbucks runs its business through company
operated and licensed stores. The company operated stores generate most of its revenue.

Licensed stores contributed just 11% to the total revenue of the brand in 2018. The company is steadily
focusing upon expanding its market share through disciplined global expansion. However, it is
selectively adding new stores to its international business, opening new ones only in select areas.

Learn more about Starbucks, its strengths, weaknesses, opportunities and threats in this SWOT analysis.
Strengths:

Brand equity :-

As the leading coffee brand of the world, Starbucks enjoys very strong brand equity. Its brand image has
grown stronger with consistent focus upon product quality and customer service. These are two
important strengths of the brand that have helped it build trust and gain brand recognition.

In this way, the brand was able to create a strong image without investing a large fortune in advertising
or promotions. Since its foundation, Starbucks did not spend on paid promotions. (At least, this was the
case until a few years ago. Compare it with the other leading beverages brands like Coca Cola, Pepsi and
other FMCG brands and its marketing expenditure is not even one tenth of theirs.)

Instead, the entire focus was upon product quality and the customer experience. However, it was
sufficient to build strong brand recognition through publicity and word of mouth. Good product quality
and focus upon sourcing only the best quality raw materials led to higher trust among customers and
resulted in steady growth over the last several years for Starbucks coffee chain.

Growing International presence :-

Starbucks revenue from the overseas markets has grown in 2018. Its revenue from the foreign markets
was $5.86 billion in 2017 and grew to $7.3 billion in 2018.

China is the second leading market for Starbucks and the company has invested in growing its footprint
faster in the Chinese market in recent years. The company had announced in 2017 to acquire the
remaining 50% of its business in East China which was operated through joint ventures with local firms
UPEC and PCSC. The acquisition was completed in 2018.
Now, Starbucks business in China is run entirely through company owned stores. This required the
company to close down 1,396 licensed stores operational in China in 2017. The total number of
company run stores in the China market has grown to 3,521. The ownership of total 1,477 stores was
transferred to Starbucks as a part of the acquisition which includes 1,396 licensed stores operational in
2017, 84 new ones opened in 2018 and 3 that it closed in 2018. The company also opened 528 new
company owned stores in China in 2018 and closed down 24. As of 2018, Starbucks added net 1,981 new
stores to its existing 1,540 company operated stores in China. East China has a special strategic
importance for Starbucks.

In many other overseas markets, including Japan, Canada, Malaysia and Mexico, the number of
Starbucks stores has grown in 2018. The Japan market has only company owned stores whose number
stood at 1,218 in 2017. In 2018, the company opened 84 new stores and closed down 16. Now, the
number of Starbucks stores in Japan stands at 1,286 all of which the company owns. Mexico, on the
other hand has only licensed stores, where the number of stores grew to 708 in 2018 from 632 in 2017
with the opening of 76 new stores. Canada had 1,109 company owned and 409 licensed ones as of the
end of fiscal 2018.

Organisational culture & HRM:-

The organisational culture of Starbucks has remained the centre of attraction for several years. Its
unique organisational culture whose core focus is customer experience has been acclaimed widely.
While customers are at the centre of everything that Starbucks does, the company culture is equally
unique in terms of employee focus and employee engagement.

Employees at Starbucks receive special customer service training and the company maintains a very
cordial environment inside its stores. Moreover, the brand has featured among top 100 in several of
Forbes’ lists including ‘World’s Best Employers’ for 2019 and ‘Best Employers for Women’ 2019. It has
also been recognised for its efforts to create an inclusive work environment that values diversity and
inclusion. It ranks at number 35 in Forbes list of ‘World’s Most Valuable Brands’. Forbes also ranked it
31st in its list of the ‘Best Brands for Women in 2019’.

The organizational culture at Starbucks is one of the most fundamental drivers of organizational
productivity and performance. It has built a culture of coffee and respect. However, Starbucks has also
been recognized for its focus on ethics and equality. In this way, the culture of Starbucks sets it apart
from the huge crowd of beverages brands.

Cultural excellence has been recognised to be a fundamental driver of HR performance in the 21st
century. The leadership at Starbucks ensures that the staff remain committed to ethics and equality in
all the regions of the world where the company operates.

Number of employees at Starbucks, as of September 2018 was 2,91,000. In United States, it employed
1,91,000 people and approximately 1,00,000 outside U.S. The company focuses on employee
engagement throughout its global operations. It has created several rewards to maximise work
satisfaction.

Product quality :-
A strong supply chain that spans several regions of the world is also a fundamental strength of Starbucks
coffee. Its supply chain plays a central role in maintaining the quality standards. As a coffee brand,
Starbucks has always brought the best coffee flavors for its customers to the stores.

Premium product quality is not just a driver of revenue but also a part of the company’s positioning
strategy. It has also helped the brand earn a distinct place for itself in the market and far above all the
competitors. Strong commitment to product quality has turned Starbucks into the world’s most
renowned premium coffee brand.

To maintain its quality standards and offer its customers the best coffee in the world, Starbucks sources
from select suppliers that produce the best quality Arabica coffee. The company has adopted C.A.F.E.
practices which is an extensive checklist to determine the right suppliers and the right produce. It is
committed to sourcing 100% of its coffee ethically.

The company purchased more than 600 million pounds of green Arabica Coffee in 2016, 99% of which
had passed the CAFE Practices checklist. The brand is also investing in policies and practices that
empower the community of coffee growing farmers including its own suppliers located around the
world. By forming long term and strong relationships with its suppliers, the company has been able to
ensure continuous supply of good quality coffee beans.

Business model :-

Starbucks has a strong business model which is as profitable as it is stable. In the recent years, the brand
has also undertaken some restructuring and made changes that would help it focus on its core and most
profitable offerings.

At the core of its business model is a premium coffee experience and a distinct culture that makes
Starbucks and its business unique. This business model has helped the coffee brand acquire faster
growth.

With time, customer trends have changed and to maintain the profitability of its business, the company
has focused on its core and most profitable business segments. For this purpose, it has done a lot of
restructuring and optimization of its store mix. In some leading geographic markets, its business is now
run fully through company owned stores and in others only through licensed or through a mix of both.
This allows Starbucks greater control on its business and profitability.

The business of Starbucks is divided into five reportable segments including the three leading
geographical segments – Americas, China/Asia Pacific (CAP) and EMEA (Europe, Middle East & Africa).
Americas are the largest operating segment on the basis of revenue followed by CAP. The other two
reportable segments include channel development and corporate and others. Revenue distribution for
2018 was as follows : Americas (68%), CAP (18%), EMEA (4%), Channel Development (9%) and
Corporate and Other (1%).

Strong financial performance :-

The financial performance of Starbucks has steadily improved over the last several years.

Net revenue of the brand rose by more than 2 billion from fiscal 2017 to fiscal 2018. Total net revenue
for 2018 grew to $24.72 billion from $22.4 billion in 2017.
In 2018, net earnings attributable to Starbucks reached $4.5 billion or 18.3% of the net revenue of the
brand, rising from $2.9 billion in 2017 or 12.9% of the net revenue of the company.

Earnings per share grew to $3.24 in 2018 from $1.97 in 2017.

The bottom line of Starbucks coffee is strong and there are several factors behind it. Its business model,
international growth and quality as well as HRM, all have helped Starbucks sustain its growth
momentum.
Net Revenues of Starbucks grew from both its domestic and overseas markets during 2018.

Revenue from overseas market grew driven mainly by growth in China market.

U.S. revenue of Starbucks also rose to $ 17,409.4 million compared to $16,527.1 million in 2017.

Revenue from the foreign markets grew to $7310.1 million in 2018 from $5,859.7 million in 2017.

Overall, the brand also saw its net sales growing for all product categories excluding packaged & single
serve coffees and teas.

Well Managed Manufacturing distribution and supply chain:

A well managed manufacturing and distribution chain is also among the leading strengths of the brand
which sources from suppliers located in various corners of the world. The company has 14 leading
manufacturing, roasting, warehousing and distribution plants. Apart from these, the company has
leased spaces in various corners of the world for warehousing and distribution.

Starbucks has also partnered with other leading brands for sales, marketing and distribution of its
products including Nestle and Pepsi. Pepsi has been a partner since 2015 and in 2018, Starbucks formed
the Global Coffee Alliance with Nestle.

Weaknesses :-

Dependence on the U.S. market :-

The U.S. market is the core market for Starbucks coffee. It accounted for more than 70% of the
company’s revenue in 2018. While Starbucks net sales are growing from overseas markets, still the
brand depends heavily on the U.S. segment.

To reduce its dependence upon U.S., the company would need to achieve enormous growth in the Asian
markets and specifically China.

The number of Starbucks stores is also the highest in U.S. As of end fiscal 2018, there were 8,575 total
company operated stores in United States and 6,031 licensed stores.

On the one hand, it is good for the bottom line, since U.S. is also the largest market for coffee brands, on
the other economic fluctuations and other changes in this market could have a severe impact upon the
revenues and profit margins.

Operational expenses :-
Starbucks is committed to quality. However, this has also resulted in higher operational expenses for
Starbucks.

Total operating expenses of Starbucks grew to $21.14 billion in 2018 or 85.5% of total net revenues for
the year.

In a single year, the operating expenses of the brand have grown by around $2.5 billion whereas
revenue grew by only around $2.3 billion. 2017 operating expenses of Starbucks were $18.64 billion.

Cost of sales including occupancy costs as well as store operating expenses increased significantly for
Starbucks in 2018 compared to the previous year. The growth in operating expenses was driven to a
large extent by the opening of more company owned stores in the China market as well as higher
restructuring and impairment costs. Growth in other expenses including employee salaries and benefits
also caused growth in operating expenses.

Operating margin as well as consolidated operating income of Starbucks were also lower in 2018
compared to 2017. Operating margin declined to 15.7% in 2018 from 18.5% in 2017. Consolidated
operating income of Starbucks also came down to $3.9 billion in 2018 from $4.1 billion in 2017.

Premium pricing :-

Starbucks sells only premium products including beverages and snacks. The premium pricing strategy of
Starbucks on the one hand is good for profit margins, on the other, it limits the customer base to only
the higher end of the market. Starbucks is now focusing on the Asian market. However, growing its
customer base faster would have been easier, if the brand had used a more competitive pricing strategy.

The situation can become all the more challenging in times of economic fluctuation. However,
maintaining its premium pricing is important to maintain the premium image of the brand. Increased
promotional expenses and operating expenses have shrunk its profit margins in 2018.

Faster growth in the Asian markets requires prices to be more competitive. Starbucks sources the best
quality Arabica beans from suppliers in various corners of the world. Store operating expenses of the
brand are also high because of the premium customer experience it offers.

Starbucks could add more customers from middle class by following a competitive pricing strategy.
There are other related challenges too which originate from higher prices and affect the bottom line
including taxes, employee expenses and maintaining a premium brand image.

Opportunities :-
International expansion : –

The U.S. market still holds a lot of potential. In the recent years, the coffee industry has enjoyed
impressive growth rate in America. As per research by Allegra, the U.S. coffee market has grown to a
total valuation of $45.4 billion in 2018 and number of total coffee outlets in U.S. to 35,616. Industry
leaders are positive about growth in U.S. and expect the number of outlets to grow to 40,800 by 2023
with a 5 years CAGR growth rate of 2.8%.

Starbucks holds the lion’s share in U.S. coffee market at 40.1% followed by Dunkin Donuts and Tim
Hortons. Together, the big three hold 68.1% of the total branded coffee market share. However, while
U.S. is an excellent market for coffee brands, opportunities also abound outside U.S. International
expansion can bring much faster growth for Starbucks.

China as well as several other Asian markets too have a large base of customers. Starbucks has
maintained strong presence in major markets and is investing aggressively in growing its number of
stores while also retaining its focus on core products. Several regions in Asia Pacific have seen
impressive economic growth in the recent period and this can be an opportunity for leading coffee and
beverages brands including Starbucks, Dunkin Donuts and Tim Hortons.

Digital marketing : –

Traditionally, Starbucks has not relied upon paid marketing tactics to grow market share and customer
base. If it was not for the increased competition in the market and other challenges which have grown
with time, the brand’s investment in paid advertising would have remained around zero. In the recent
years, it has started investing in advertising but its total advertising costs are a very small percentage of
its total operating expenses. Advertising expenses fell in 2018 compared to the previous year, coming
down to $260.3 million from $282.6 million in 2017.

The world of digital marketing has expanded a lot over the past several years. For fashion, food and
beverages brands there are several low cost opportunities including social media promotions and
blogging as well as video advertising. Social media accounts are one of the central engagement channels
for coffee and beverages brands. Starbucks uses these channels to grow follower engagement and for
promotions as well as seasonal campaigns.

However, for deeper engagement, it might need to learn from fashion and entertainment brands and
the use of microsites for attracting new customers and familiarizing them with the company culture as
well as the product range. The company has a nice looking blog that gives the followers a regular
glimpse of its culture, supply chain and product mix as well as ongoing developments in other areas
including human resource management and supplier relationships.

Partnerships with other brands :-

Starbucks partnered Pepsico in 2015 for the sales and marketing of a limited range of its products in
Latin America. The two entered into an agreement for the sales, marketing and distribution of
“Starbucks ready-to-drink (RTD) coffee and energy beverages including Starbucks Frappuccino chilled
coffee drinks, Starbucks Double Shot Espresso and Cream, and Starbucks Refreshers beverages in Latin
American market”.
 In 2018, Starbucks has entered into an agreement with Nestle for the sales and marketing of its
consumer packaged goods (“CPG”) and foodservice products. Starbucks also received an upfront prepaid
royalty payment of approximately $7 billion. Such partnerships have helped Starbucks extend its
presence throughout the globe. More of such partnerships will help the company grow its sales and
revenue as well as marketing reach.

Threats : –

Operational costs :-

Growing operational costs are one of the leading challenges before the company. Due to the growth in
operating expenses, operating income of Starbucks is reduced. In 2018, total operating expenses of
Starbucks grew to $21,137.4 million and operating income came down to $ 3,883.3 million. Operating
expenses were higher in 2018 and operating income lower as compared to 2017.

In 2017, operating expenses were $18,643.5 million and operating income $ 4,134.7 million in 2017. In
2019 also the operating expenses of Starbucks have risen and operating income remained flat. Total
operating expenses for the first three quarters has grown to $16,973.1 million compared to
$15,702.5 million in the same period last year. Operating margin of the brand also dropped in 2018
versus the previous year.

Regulational barriers :-

Regulation barriers have grown larger in the food and beverages industry over the last several years.
This has led to a need for focus on compliance and quality in all the markets where Starbucks operates.
On the one hand, these barriers add to the operational costs of the brands, on the other, they can also
reduce growth rate. Higher costs of compliance and higher operational costs reduce profit margins.
Regulational pressures often become barriers to fast growth.

Customer trends :-

Changing customer trends can shift the demand patterns. Last year, Starbucks made several changes to
its product mix. This was in response to the changing consumer trends. People want more health
friendly products. Changes in beverage mix also affected the company’s operating margins in
2018. Starbucks needs to remain ready for such changes to maintain its market leading position and
retain its customer base. However, a large group of experts works at Starbucks to take care of new
product development. The company regularly introduces new flavours to delight its customers.

Conclusion:

Starbucks has acquired fast growth in recent years through planned expansion and partnerships. In
2018, it acquired its East China business and converted the entire Chinese business into company
operated model. It has also continued to optimise its mix of company owned and licensed stores. In
some of its markets, the brand has also adopted a wholly licensed model. Operating expenses of
Starbucks have grown but so have its revenue and number of stores worldwide. Its partnership with
Nestle and Pepsico have helped it expand its marketing and distribution reach. The U.S. coffee market
has experienced impressive growth during past five years. It is the largest market of Starbucks products.
However, Starbucks is also focusing on the Asian markets which can be a strong source of revenue in
coming years. Digital marketing and customer engagement can also help Starbucks which has
traditionally refrained from investing in marketing. There are challenges ahead for the brand. However,
it can easily sustain with the help of a strong supply chain and distribution network.

https://notesmatic.com/2019/07/starbucks-swot-analysis-2019/

Accessed on 18/12/2019

Global Coffee Market Analysis & Projections, 2019-2024 with Profiles on Starbucks Corp, Costa Coffee,
The Lavazza Group, Dunkin' Brands, Nestle, The Kraft Heinz Company, Unilever, and Gloria Jeans

Global Coffee Market is growing at a CAGR of 5.5% during the forecast period (2019-2024).

Key Highlights

The global coffee industry is growing at a significantly by producing products almost exclusively in
developing nations. As per the survey conducted by the National Coffee Association in the United States,
more than 70% of the consumers prefer at-home coffee preparation. There has been a gradual shift
observed from soft drinks to coffee drinks among consumers.

The consumers prefer Nespresso coffee machines, coffee brewers, and drip coffee makers to prepare
coffee at home. South America is the largest producer of Coffee in the world whereas, Europe being the
largest producer of high-quality coffee. Germany, Italy, France, Spain, and the United Kingdom are the
dominating coffee consumers in the European region.

Major Market Trends

Arabica Coffee Showcases High Demand

Arabica coffee market is highly produced coffee in the world followed by Robusta. Companies around
the world are focussing on the principles of zero waste and circular economy, by launching fresh ground
coffee pods in two flavors, namely 100% Arabica Ricco and 100% Arabica Aromatica, certified by the
Rainforest Alliance. These pods can be collected with food waste and are totally compostable.

Companies are performing product innovations mianly on Arabica coffee. For instance, Pellini Caff, has
launched Pellini Bio fresh ground coffee pods, which consist of 100% Arabica organic coffee; with this,
the company is targeting Italian consumers who are increasingly looking for organic products. The graph
of the production of Arabica coffee was estimated by United States Department of Agriculture.

Europe is a Major Market for High-Quality Coffee

Many companies in Europe are marketing coffee as an artisanal product rather than a commodity. The
coffee entry in Europe is sourced through the ports covering Antwerp, Bremen, Hamburg, Genoa, Le
Havre and Trieste.

By distribution channel, supermarkets in Europe are the main point of sale for a broad assortment of
coffee, be it capsules or single-origin varieties. It has helped them to become sustainable and efficiently
cater to the preferences, and expectations of consumers. Even mainstream roasters have entered into
the retail coffee market, by developing more individualized products for their consumers.

This trend has also led to price differentiation and proved a challenge for exporters as the market
segmentation has significantly increased.

Competitive Landscape

Some of the prominent players in the market include The Coco-Cola Company, Kraft Heinz, Starbucks
Corporation, Nestle, and Dunkin' Donuts. Acquisition and partnership are the major strategies followed
by the key players. Major players, such as Cafe Nerro, Coffee Beanery, Nestle, and Starbucks, have
mainly focused on partnerships and collaborations with other emerging players in the market and new
product launches.

https://www.prnewswire.com/news-releases/global-coffee-market-analysis--projections-2019-2024-
with-profiles-on-starbucks-corp-costa-coffee-the-lavazza-group-dunkin-brands-nestle-the-kraft-heinz-
company-unilever-and-gloria-jeans-300889345.html

Accessed on 18/12/2019

STARBUCKS SWOT ANALYSIS 2019.

STARBUCKS SWOT ANALYSIS 2019.

Introduction:

Starbucks is the world's largest espresso brand. Its turnover has grown steadily during the last five years.
The corporate has additionally undergone some restructuring in recent times to give attention to its
core and worthwhile businesses. Compared to 2017, its internet sales increased by approximately 10%
in 2018. In addition, its financial outcomes have been impressive in the first three quarters of 2019 as
nicely. At the finish of the third quarter of 2019, the model's complete revenue was $ 19.eight billion,
compared to $ 18.4 billion for the same period final yr.

Starbucks is a premium coffee brand run by Howard Schultz. The model is understood for a lot of issues,
including top quality coffee, customer service, and organizational culture. Its continued give attention to
product quality and repair mixed with international enlargement has led to accelerated progress.

America is the most important market for Starbucks coffee. It generates most of Starbucks' income and
most Starbucks retail stores are also based mostly in america. Throughout these years, the brand has
intelligently managed the global supply chain to ensure steady provide of high quality raw materials. The
full variety of Starbucks stores grew by greater than 29,300 in 2018 and more than 30,000 in 2019. Its
business model can also be the core of the model. Starbucks conducts its business via its company-
owned and licensed stores. The stores operated by the corporate generate most of their income.
License sales accounted for less than 11% of the model's complete income in 2018. The corporate is
steadily focusing on growing its market share by way of disciplined international enlargement.
Nevertheless, it selectively provides new stores to its worldwide business, opening new ones solely in
certain areas.

Study extra about Starbucks, its strengths, weaknesses, opportunities, and threats on this SWOT
analysis.

Starbucks Internet Revenue 2014-2018.

Strengths:

Model: –

As Starbucks, the world's main coffee brand, has a very robust brand. Its brand picture has been
strengthened by regularly focusing on product high quality and customer support. These are two
essential model strengths which have helped it construct belief and model consciousness.

On this method, the model was capable of create a robust image without investing a lot in promoting or
campaigns. Since its inception, Starbucks has not used any paid provides. (At the least that was a
number of years in the past. Examine it to other main beverage brands corresponding to Coca Cola,
Pepsi and other FMCG manufacturers, and its advertising costs are usually not even one tenth of them.)

The entire focus was on product high quality and buyer expertise. Nevertheless, it was enough to build a
robust brand awareness by means of publicity and phrase of mouth. Good product quality and a
concentrate on solely the very best quality raw supplies has led to increased buyer confidence and led to
the regular progress of the Starbucks espresso chain in recent times.

Growing International Presence: –

Starbucks 'Overseas Market Revenue Increased in 2018. Its Overseas Market Revenue was $ 5.86 billion
in 2017 and grew to $ 7.3 billion in 2018.

China is Starbucks' Second Lead market, and the company has invested in recent times to develop its
footprint quicker within the Chinese language market. In 2017, the corporate introduced its acquisition
of the remaining 50% of its East China business, which was managed via joint ventures with local UPEC
and PCSC. The deal was completed in 2018.

The Starbucks business in China is now wholly owned via company-owned stores. This required the
company to shut 1,396 licensed stores operating in China in 2017. The entire number of company shops
operating within the Chinese market has increased to 3,521. As a part of the acquisition, Starbucks
acquired 1,476 licensed stores that may operate in 2017, 84 new stores opened in 2018 and three
closed in 2018. The corporate additionally opened 528 new company-owned shops in China in 2018 and
closed on 24 In 2018, Starbucks added 1,981 new stores to its current 1,540 corporate stores in China.
East China is of special strategic significance to Starbucks.

In lots of other abroad markets, corresponding to Japan, Canada, Malaysia and Mexico, the variety of
Starbucks stores has increased in 2018. In Japan, there are only company-owned shops, with 1,218 in
2017. In 2018, the corporate opened 84 new shops. and closed 16. Now there are 1,286 Starbucks shops
in Japan, all owned by the company. However, Mexico has only licensed stores, which elevated to 708 in
2018 from 632 in 2017 with the opening of 76 new shops. On the end of fiscal yr 2018, there were 1,109
company-owned and 409 licensed corporations in Canada.

Organizational Culture and Personnel Management: –

Starbucks' organizational culture has remained an attraction for a few years. Its distinctive
organizational tradition, which focuses on buyer experience, has acquired broad acclaim. While clients
are at the coronary heart of every thing Starbucks does, the main target is on a company tradition that’s
equally distinctive when it comes to employee focus and commitment.

Starbucks staff receive particular customer support coaching and the company maintains a really cordial
surroundings in its stores. As well as, the model has been ranked among the many prime 100 on a
number of Forbes lists, similar to "The World's Best Employers" for 2019 and "Best Employers for
Women" for 2019. It has additionally been recognized for its efforts to create an inclusive work
surroundings that values variety and inclusion. It is quantity 35 on the Forbes record of the world's most
beneficial manufacturers. Forbes additionally ranked 31st on its listing of "2019 Women's Best Brands."

Organizational tradition at Starbucks is likely one of the cornerstones of organizational productiveness

and performance. It has constructed a espresso tradition and respect. Nevertheless, Starbucks can also
be recognized for its give attention to ethics and equality. In this means, Starbucks's culture sets it aside
from a huge variety of beverage brands.

Cultural excellence has been recognized as a key component of HR in the 21st century. Starbucks
management ensures that our staff remain committed to ethics and equality in all areas of the world
where the company operates.

As of September 2018, Starbucks had 2.91,000 staff. In america, it employed 1.91,000 individuals and
approximately 1,000,000 outdoors the USA. The corporate focuses on employee engagement
throughout its international operations. It has created several awards to maximize job satisfaction.

Product Quality: –

A robust supply chain that spans many areas of the world can also be a founding power of Starbucks
coffee. Its provide chain performs a key position in maintaining high quality standards. As a coffee
model, Starbucks has all the time brought the most effective espresso flavors to its clients.

First-class product high quality just isn’t solely a revenue driver, but in addition part of the company's
positioning strategy. It has additionally helped the model to realize a transparent place within the
market and, above all, ahead of its rivals. Robust commitment to product high quality has made
Starbucks the world's most famous premium coffee model.

To take care of its high quality commonplace and provide its clients with the perfect coffee on the
planet, Starbucks sources sources from selected suppliers of the highest quality Arabica coffee. The
company has introduced C.A.F.E. which is a complete checklist to find out the correct suppliers and the
proper products. It is dedicated to procuring 100% of its coffee ethically.

In 2016, the company bought over 600 million pounds of inexperienced Arabica coffee, 99% of which
had passed the CAFE Practices record. The model also invests in insurance policies and practices that
empower espresso farmers, including their very own suppliers all over the world. By establishing a long-
standing and powerful relationship with its suppliers, the corporate has been in a position to make sure
a steady provide of quality coffee beans.

Business Mannequin: –

Starbucks has a robust enterprise mannequin that is as profitable as secure. In recent times, the model
has additionally undergone restructuring and modifications that assist it give attention to its core
competencies and profitable offerings.

At the coronary heart of its enterprise model is the premium espresso experience and distinct culture
that make Starbucks and its enterprise distinctive. This business model has helped the espresso brand
achieve quicker progress.

Over time, buyer developments have changed, and in an effort to keep enterprise profitability, the
corporate has targeted on core expertise and worthwhile business segments. To this finish, it has
achieved loads of reorganization and optimization of the store collection. In a number of the main
geographic markets, its business is now completely run by way of company-owned shops, while others
are licensed or a mixture of each. This enables Starbucks better management of its business and
profitability.

Starbucks' business is divided into 5 reportable segments, together with three leading geographical
segments – America, China / Asia-Pacific (CAP) and EMEA (Europe, Center East and Africa). The Americas
are the most important working phase based mostly on sales, followed by CAP. The opposite two
reportable segments are channel improvement, corporate and others. Income breakdown for 2018 was
as follows: America (68%), CAP (18%), EMEA (4%), Channel Improvement (9%) and Company and Other
(1%).

Robust Financial Efficiency: – [19659035] Starbucks financial performance has steadily improved over
the previous several years.

Internet revenue for the brand increased by greater than $ 2 billion in fiscal yr 2017 to Price range 2018.
Full-year internet income for 2018 elevated to $ 24.72 billion from $ 22.4 billion in 2017.

In 2018, Starbucks' internet revenue was $ four.5 billion or 18.three% of the brand's internet income.
Progress was $ 2.9 billion in 2017, or 12.9% of the company's internet revenue.

Earnings per share rose to $ 3.24 in 2018 from $ 1.97 in 2017.

Starbucks espresso has a robust start line and is driven by numerous elements. Its business model,
worldwide progress and quality, and human useful resource administration have all helped Starbucks
keep its progress momentum.

Starbucks' internet income increased in each its domestic and overseas markets in 2018.

Abroad market income elevated mainly resulting from progress within the Chinese language market.

US. Starbucks' internet gross sales additionally rose to $ 17,409.four million, compared with $ 16,527.1
million in 2017.

Overseas market revenue elevated to $ 7,310.1 million in 2018, compared to $ 5,859.7 million in 2017.
General, the brand's income also increased across all product groups apart from packaged and individual
coffee and teas.

Properly Managed Manufacturing Distribution and Provide Chain:

A well-managed manufacturing and distribution chain can also be one of the leading strengths of the
brand, provided by sources from totally different angles. world. The company has 14 leading production,
roasting, storage and distribution amenities. As well as, the corporate has leased area around the globe
for storage and distribution.

Starbucks roasting, manufacturing and distribution amenities. img src = Starbucks Annual Report
2018.

Starbucks has also partnered with other leading brands in product gross sales, advertising and
distribution, together with Nestle and Pepsi. Pepsi has been a companion since 2015 and Starbucks
established a worldwide coffee association with Nestle in 2018.

Weaknesses: –

US Market Dependence: –

The US market is the core market for Starbucks espresso. It accounted for greater than 70% of internet
gross sales in 2018. Starbucks' internet sales are rising abroad, however the brand is very dependent on
the US phase.

With a view to scale back its dependence on america, the corporate should achieve large progress in the
Asian market and especially in China.

The number of Starbucks shops can also be the very best in the USA. By the top of 2018, there were a
complete of eight,575 company-owned stores and 6,zero31 licensed stores in the USA.

On the one hand, it’s good for the top end result, as america can also be the most important
marketplace for coffee manufacturers, and however, economic fluctuations and different modifications
on this market can significantly affect revenues and revenue margins.

Working expenses: –

Starbucks is dedicated to high quality. Nevertheless, this has additionally led to an increase in Starbucks
working costs.

Complete Starbucks expense elevated to $ 21.14 billion in 2018, representing 85.5% of complete income
for the yr.

Working bills for the brand have elevated by about $ 2.5 billion in one yr, whereas revenue has
increased by only about $ 2.3 billion. Starbucks' working expenses for 2017 have been $ 18.64 billion.

Sales costs, including rental prices, and in-store operating expenses increased significantly at Starbucks
in 2018 in comparison with the previous yr. The rise in operating expenses was largely because of the
opening of latest business-owned shops within the Chinese market, in addition to greater restructuring
and impairment prices. The rise in operating bills was additionally brought on by a rise in different
expenses, including employee salaries and benefits.

Starbucks' working margin and consolidated working revenue have been also lower in 2018 in
comparison with 2017. Working margin decreased to 15.7% in 2018 from 18.5% in 2017. Starbucks
consolidated operating profit additionally decreased to $ three.9 billion in 2018 from 2018. $ 4.1 billion
in 2017.

Premium Pricing : –

Starbucks sells solely premium merchandise, together with drinks and snacks. On the one hand,
Starbucks' premium pricing strategy is sweet for revenue margins and, however, limits its customer base
to the upper finish of the market. Starbucks is now focusing on the Asian market. Nevertheless, growing
the client base quicker would have been easier if the model had used a extra aggressive pricing
technique.

The state of affairs might turn into much more challenging in occasions of financial turmoil.
Nevertheless, maintaining premium pricing is necessary to sustaining a premium model picture.
Elevated promotional and working bills have lowered profit margins in 2018.

Quicker progress within the Asian market requires increased worth competitiveness. Starbucks procures
the very best high quality Arabica beans from suppliers all over the world. Model stores also have
excessive operating prices because of the premium buyer expertise they offer.

Starbucks might add extra center class clients by following a aggressive pricing technique. There are
other related challenges that arise from greater costs and influence on the top outcome, together with
taxes, employee prices and sustaining premium pictures.

Alternatives: –

International Enlargement: –

The US market still has great potential. The espresso business has loved spectacular progress charges in
America in recent times. In line with a research by Allegra, the US coffee market has grown to $ 45.four
billion in 2018 and complete espresso sales in the USA are 35,616. Leaders in the business welcome
progress in america and anticipate gross sales retailers to develop to 40,800 by 2023 with a 5-year CAGR
2, 8%.

Starbucks holds a lion's share of the US espresso market with 40.1%, adopted by Dunkin Donuts and Tim
Hortons. The three largest corporations account for 68.1% of the full branded product market. While
america is a wonderful market for espresso brands, there are alternatives outdoors america as properly.
Worldwide enlargement can deliver Starbucks a lot quicker progress.

China and lots of different Asian markets also have a large buyer base. Starbucks has maintained a
robust presence in key markets and is aggressively investing in growing the number of shops while
specializing in core products. Economic progress in many areas of the Asia-Pacific has been impressive in
recent times, and this may be a chance to steer main espresso and beverage brands resembling
Starbucks, Dunkin Donuts and Tim Hortons.

Digital Advertising: –
Starbucks has traditionally not relied on paid advertising techniques to develop its market share and
customer base. With out increased market competition and different challenges over time, the model's
funding in paid advertising would have remained near zero. In recent times, it has begun to spend
money on advertising, but its complete advertising prices symbolize a very small proportion of its
complete operating costs. Advertising costs decreased in 2018 compared to the earlier yr and have been
$ 260.three million, compared to $ 282.6 million in 2017.

The world of digital advertising has expanded significantly in recent times. There are a selection of low-
cost alternatives for trend, meals, and beverage manufacturers, including social media offers and blogs,
and video promoting. Social media accounts are one of many focus channels for coffee and beverage
brands. Starbucks uses these channels to extend followers engagement, campaigns and seasonal
promotions. Nevertheless, for deeper engagement, it might be essential to study from style and leisure
manufacturers and using microsites to attract new clients and familiarize themselves with company
tradition and product combine.

The company has a nice-looking blog that provides followers a daily glimpse of tradition, supply chains
and product mix, as well as ongoing developments in other areas, together with HR and vendor
relationships.

Other Model Partnerships: – [19659010] In 2015, Starbucks partnered with Pepsico to promote and
market a limited range of products in Latin America. The two events entered into an settlement to
promote, market and distribute Starbucks pre-coffee and power drinks, together with Starbucks
Frappuccino Refrigerated Espresso, Starbucks Double Shot Espresso and Cream, and Starbucks
Refreshers, in the Latin American market. ".

In 2018, Starbucks has entered into an agreement with Nestle to sell and market consumer packaged
goods ("CPG") and dietary merchandise. Starbucks additionally acquired a prepayment of roughly $ 7
billion. Such partnerships have helped Starbucks increase its presence all over the world. More of those
partnerships will help the corporate grow its sales and income and obtain advertising.

Threats: –

Operational Value: –

Growing operational value is likely one of the company's challenges. Because of greater operating bills,
Starbucks' working revenue will decline. In 2018, Starbucks' complete costs increased to $ 21,137.4
million and working revenue decreased to $ three,883.3 million. Operating expenses have been greater
in 2018 and operating revenue decrease than in 2017.

In 2017, working bills have been $ 18,643.5 million and working revenue $ four 134.7 million in 2017. In
2019, Starbucks' operating expenses have also increased and operating revenue remained secure. .
Complete operating expenses for the first three quarters have increased to $ 16,973.1 million compared
to $ 15,702.5 million for the same period last yr. The brand's working margin additionally decreased in
2018 compared to the previous yr.

Regulatory limitations: –

Regulatory limitations have increased within the food and beverage business in recent times.
Consequently, there is a have to concentrate on compliance and quality in all markets the place
Starbucks operates. On the one hand, these obstacles improve the working prices of manufacturers, and
then again, they will also decelerate the expansion price. Larger compliance prices and better working
costs scale back profit margins. Regulatory pressures typically grow to be obstacles to speedy progress.

Customer Tendencies: –

Modifications in buyer tendencies can change demand patterns. Final yr, Starbucks made several
modifications to its product range. This was in response to altering shopper tendencies. Individuals need
extra health-friendly products. Modifications in the beverage mix additionally affected the company's
working revenue margins in 2018. Starbucks must remain prepared for such modifications to be able to
keep its market management position and retain its buyer base. Nevertheless, a big group of specialists
is working at Starbucks to develop new merchandise. The company recurrently introduces new flavors
to please its clients.

Conclusion:

Starbucks has achieved speedy progress via current enlargement and partnerships. In 2018, it acquired
its East China business and reworked the whole Chinese language business into a company hall model. It
has additionally continued to optimize company-owned and licensed shops. In some markets, the model
has also introduced a totally licensed model. Starbucks' operating costs have elevated, but so has its
internet gross sales and variety of stores worldwide. Its collaboration with Nestle and Pepsico has
helped it increase its advertising and distribution network. The US coffee market has grown considerably
during the last five years. It’s the largest market for Starbucks products. Nevertheless, Starbucks can also
be focusing on the Asian market, which is usually a robust source of revenue for years to return. Digital
advertising and buyer engagement also can help Starbucks, which has traditionally avoided investing in
advertising. The model faces challenges. Nevertheless, it may be easily maintained by way of a robust
provide chain and distribution network.

https://gobushido.com/starbucks-swot-analysis-2019/

Accessed on 18/12/2019

Industry and marketing analysis of Starbucks Coffee

3244 words (13 pages) Essay in Marketing

5/12/16 Marketing Reference this

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authors and do not necessarily reflect the views of UK Essays.

Starbucks is a coffee chain company which started its business in Seattle which is situated in
Washington, United States. Now, Starbucks is recognised as an International Organisation which is
famous all over the world for its quality coffee. It has almost 16,120 stores in 49 different countries
which makes it the largest coffee company in the world. Apart from coffee Starbucks serves snacks with
soft drinks and also espresso based hot drinks. It has also started supplying some fancy items like coffee
mugs with Starbucks logo on it. Later on with the brand name of Hear Music Starbucks entered into
music division. It has also started selling some books and movies related to the locality of the stores
along with some seasonal and specific company products. Also in many countries at various grocery
shops Starbucks has started selling ice-cream with its brand name. Today the Starbucks has become the
power brand for its coffee all over the world and is famous for its Italian style of coffee, espresso
beverages, teas and pastries.

In this report we will first discuss the corporate mission statement of the Starbucks Company. Then
based on Competitive analysis and PESTLE analysis we will analyse its industry structure. Later on we will
perform SWOT analysis and discuss Porter’s five forces model. After this we will discuss and analysis
various core competencies of the Starbucks company, its competitive advantages and its potential
fallout. Also, based on the two strategic models, we will discuss the various strategy recommendations
for the company. As a conclusion various other suitable recommendations and competitive strategies
for the further growth of the company will be discuss.

2. Mission Statement of Starbucks Coffee Company:

The Starbucks coffee company was started by Howard Schultz. He started supplying blends of premium
coffee and soon became famous all over the world as a top supplier of the coffee.

“To inspire and nurture the human spirit, one person, one cup, and one neighbourhood at a time”.
Starbucks Mission, Starbucks website

The mission statement of the Starbucks provides us with the clear view about the various companies
value. Also it can be seen that the companies values were made while considering and preserving
sustainability and human spirit. During the expansion of the company, the Starbucks also considers
environmental issues as one of the important issues and provides positive approach towards it.

Starbucks considers six guiding principles. These are as follows:

For successfully doing the business, adapting diversity is considered as an important factor.

The environment at the workplace should be healthy and good and everyone should be treated with
dignity and respect.

Every time proper standard should be maintained while purchasing, roasting and during delivery of fresh
coffee.

Profitability should be identified for the future growth and success.

Every time the customer should be satisfied with the service.

Everyone should think positively towards an environment and should respect other communities.

3. Industry structure of Starbucks Company:

The industry structure of the Starbucks Company can be analysis by applying two analyses.

3.1 PESTLE Analysis:

The various important elements or factors of the Starbucks Company can be examine, understand and
identify by using PESTLE analysis.
Political Factor:

Globalisation has resulted in the change in various pattern of doing business all over the world. Now a
days many companies find it very difficult to survive and last on their available domestic market only.
Taking into account the various countries political background and studying other related issues,
Starbuck manage to expand its business and today it has knowledge of almost all countries political
pattern.

Economic Factor:

Economic factor plays a vital role for this company because Starbucks coffee is considered as a luxury
product. If the interest rate increases, then it directly affects the Starbucks and their suppliers various
investment plans. This may result in decrease in the sales and which ultimately affects expansion of the
business.

Social Factor:

Starbucks should undertake some techniques or policies that help them to identify their potential local
customers and encourage them to come to the stores as frequently as possible.

Technological Factor:

Today technology is used everywhere. Considering the benefits of advance technology every company is
trying to incorporate it wherever possible. Starbucks also uses the advantage of technology. In 1998
Starbucks has launched its website. It uses latest coffee machines in its stores. In some of its stores
internet facility is also provided within the stores.

Legal Factors:

Different countries has different laws and as Starbucks has its stores in various countries the company
should know all the laws related to product restrictions, trade, health, employment and also safety
regulation laws. It should also be aware of religious laws of the particular country in which they are
doing business. Starbucks should take care that they do not break any laws, rules and regulations of any
country in which they are doing their business.

Environmental Factors:

Starbucks should also pay attention towards the various factors related to environment such as
pollution, disposal of waste, planning permission, etc. The company should apply some techniques
which should be eco-friendly. As far as possible the company should try to use the material that is
recyclable.

At present Starbucks has become brand name for the coffee all over the world. Most of the credit goes
to its marketing strategies which focus mainly on satisfying customer’s needs and their expectations.
The credit also goes to their employees and other staff members. Starbucks Company also takes care of
their employees and considers them as the business partners.

3.2. Competitive Analysis:

Porter’s Five Force Model:

In the industry environment the competition can be analysed by using Porter’s five force model
technique. It consists of issues like threat of new entrants, bargaining power of customers, bargaining
power of supplier, threat of substitutes and competitive rivalry within industry.

New entrant’s threats:

The environment in which the Starbucks operates is very competitive. The company has to compete
with the other strong brands in the market such as burger king and Mc Donald’s. For the Starbucks to
enter into the coffee market is comparatively low because it requires less capital investment for renting
or purchasing a store. In the market there are many new entrants which operate in a single store. The
Starbucks is able to reach its potential customers through its various distribution services like
supermarkets, grocery stores, mail delivery and also through internet.

Customer’s bargaining power:

The profit of the Starbucks Company is directly related to its number of customers. Earlier the
bargaining power of customer is less but now due to various brand competitors and new entrants in the
market the situation has been change. Also previously in coffee market customers has less bargaining
power because of the monopoly of Starbucks but now as the number of coffee suppliers in the market
has increased, it has increased the bargaining power of the customers. Now the customers can easily
switch between the companies which are offering fewer prices. Starbucks has to maintain its uniqueness
in order to minimise the bargaining power of customers.

Supplier’s bargaining power:

Suppliers that supply raw material to the Starbucks have very high bargaining power. As this raw
material such as coffee beans are very essential, Starbucks generally fixes the prices with its suppliers.
Also the companies which supply coffee machines and other advanced machines as high bargaining
power because within the industry there are very less suppliers that supplies these machines.

The other suppliers of Starbucks such as napkins and coffee cups have very less bargaining power. Also
the Starbucks has contract agreements with almost all of his suppliers which ultimately reduce their
bargaining power with the Starbucks.

Threat created by substitutes:

In the market there are many other products like energy drink, beer, smoothes, soft drinks, fruit juices,
etc which can replace coffee. All these products possess a threat to Starbucks. Also in the market there
are many other pubs, lounges and bars that provide the similar environment as provided by the
Starbucks. Starbucks has to deal with all these products effectively and efficiently.

Competitive rivalry in industry:

All over the world the Starbucks is recognised as a brand name. The other competitors such as Gloria
Jeans coffee, De Bella and Mc Donald are also famous all over the world and also has a brand image. All
these increase the competition in the market for the Starbucks. Also other coffee supplier such as
burger king and dunkin donut further increases the competition. All these competitors provide almost
similar products which further raised the competition between them.

4. SWOT Analysis:
Strengths:

The biggest strength enjoyed by the Starbucks is that it is a brand name and highly recognised
worldwide. Almost 70 percent of world’s population know about this company and their products. In 40
countries Starbucks have 15,000 stores and all the services and products offered by the Starbucks are
accepted by the consumers. This increases the potential customers and sales for the company and is
considered as the biggest advantage. The other strength of the company is that among the people they
have a good impression. Starbucks respect his employees and provide them good working environment.
Starbucks is able to reach the global market by globalisation. Starbucks is successful to satisfy the
market needs and changing demands through new innovations and by establishing new products.
Starbucks maintains good relations with their suppliers and are loyal to their customers. Starbucks
always provide their customers good quality services and products which have helped them to achieve
the good reputation in the market. Starbucks provide pleasant environment for the people to hangout,
socialise and talk with each other while enjoying their coffee.

Weaknesses:

With the increase in the number of stores all over the world the Starbucks Company is also lacking its
internal focus. Also its pricing policy is considered as a major weakness. People find the prices of the
company really high as compared to its competitors and usually consider Starbucks as a luxury item.
Also the prices of the Starbucks are similar irrespective of the different locations. The Starbucks depends
heavily only on its coffee business and therefore now they are required to look for other related
products too. The parent company which is in US controls all the stores as the company doesn’t have
any franchisee system. The variety of coffee provided by Starbucks is fever as compared to their
competitors and therefore sensible growth policy should be applied instead of aggressive expansion.

Opportunities:

Starbucks has many opportunities. Now, as the recession is almost over in United States, Starbucks can
again open its stores which got closed due to recession. Also the Company can spread its business to
various nations like India and Brazil in Asia and South America where the competition in the market is
also less related to coffee industry. There is also scope to improve in technological methods and retail
operations. Many observers are of the opinion that there is vast scope and potential to expand if the
company co-brand or franchise itself with other drink and food companies.

Threats:

The biggest threat that the Starbucks Company possess is the competitors in the market like Mc
Donald’s which are entered into the coffee market. Mc Donald’s has the similar prices as set by the
Starbucks but if the prices vary in future Starbucks will directly get affected by it. Also the company can
be affected by the heavy competition due to the opening of new less costly coffee shops and
restaurants. The company also have to be inflexible with its pricing strategy especially in developing
countries. There are also chances that the price of products and services can be affected if there is an
increase in the price of raw material and dairy products.

5. Competitive Advantage and Core Competencies:

For every company the design of their competitive advantage strategy plays a vital role. It helps the
company to sustain in this competitive market environment. It is consider as an essential tool to
discover and reach the potential customers. Starbucks is a company which is famous in the market and
has generated a huge profit. It is considered as a well established company in the market. But its
sustainability can be affected if its competitors offer similar services and products as offered by the
Starbucks Company in the market. Therefore to survive in the market every company should have its
competitive advantage strategy.

Starbucks looks in a different way towards its customers and suppliers which makes them successful.
They are able to provide their customer with good customer service, more value quality products and
access to the internet and the most important the capability to offer the best coffee. Starbucks
encourage and motivates their employees so that both parties get satisfied. Starbucks is able to sustain
in the competitive market because of it unique competencies which their customers most valued.

Starbucks is succeeding in maintaining its long lasting growth because of its various strategies related to
pricing of the product, product development and market development. Also all existing products of
Starbucks are identified by its value and quality. Starbucks has managed to increase its profit and market
share with its expansion strategies and by various joint ventures with other related companies. In United
States Starbucks has collaboration with companies like Dreyer’s ice cream and Sazaby which further
increases their share in the market.

Starbucks has always concentrated more on its expansion policies. The company has experienced huge
benefits because of it large integration methods and international, domestic and national expansion.

6. Potential Fallout:

The potential issues which can result in the downfall for Starbucks are discussed below:

Fast Expansion:

In 2008, many stores were shut down in United States. It is stated that almost 600 stores were close
down which contributes to the 8 percent. This has resulted because it was discovered that within same
location there were many stores which further resulted in saturation of customers. The decision was
made to reduce the density of Starbucks stores which was very high.

Lower discretionary income:

Products of Starbucks are considered as a luxury items. It may be possible that because of the global
financial downturn the customer may find it difficult to spend on Starbucks product which are little
costly as compared to their competitors product.

Increase in competition:

Globalisation has resulted in the increase in the competition for the Starbucks Company. The Starbucks
has to compete in the market ranging from the various international companies such as donut king and
Mc Donald to the coffee shops which are situated locally. It has also found out that the fast food
industry is also giving good competition to the Starbucks.

Operations involving high cost:

The investments made by the Starbucks are to design their stores is very high. This is done in order to
attract many customers and provide them with pleasant and refreshing experience. This can be resulted
costly to the company.

Eco-foot print:

The common problems faced by the Starbucks are proper disposal of waste and global warming which
resulted due to its raw material production. Starbucks uses various innovative recycling methods to
minimise its waste in the environment.

7. Various Strategy Recommendations:

The strategies I would recommend for the Starbucks Company are Dynamic Growth Cycle and
Commercial Interface.

7.1 Dynamic Growth Cycle:

It is an interesting concept in which the innovation of new product or process is done and with proper
strategy it is introduced in the market. Starbucks can execute its plan regarding low price depending
upon the value and its position in the market. This gives the customers an opportunity to save their
money while conserving coffee and other food items. This will also help the company to expand while
maintaining the customers bargaining power. Following this cycle, the company slowly can earn huge
profits which can be further invested for the growth of the company. Thus, further expands the
customer base all over the world.

7.2 Commercial Interfaces:

The commercial interface pyramid consists of customers buying power, shaping the aspirations, proper
knowledge of locals and improving access.

Customers Buying Power:

Before entering the market any company should be aware of its level of economy. Without knowing this
no company can price its products. Once it is decided it should make the customer feel affordable to
purchase the product. As Starbucks is a coffee company their prices should be affordable so that the
customers can come to the store regularly.

Shaping the Aspirations:

The company can sustain and grow in the market if the customers develop trust in their product which
results in increasing the sales. The customers trust can be developed by providing them with proper
education and knowledge about the product.

Proper Knowledge of Locals:

It is essential for any company to have the proper knowledge of the local competitor in the market. This
allows the company to notify the strength and weakness about their competitors and provides them
with competitive advantage. This enables the company to provide the service which their competitors
are unable to provide. Employees of the Starbucks provide good customer service but due to the high
price of its products it restricts customer from accessing the stores regularly.
Improving Access:

In United States Starbucks have 11,000 stores and around 1000 stores worldwide. Through extensive
marketing strategy it got success in making the brand accessible easily. Starbucks has various
opportunities in developing countries like India where there is high demand for coffee and also has less
competitors in the market.

8. Preferable Recommendations:

Starbucks has the strategy of opening more stores to get more sales. This should be avoid. Instead the
company should pay more attention towards satisfying customer needs.

The cost of the products should be fixed which depends on the purchasing capacity of the local
customers.

Starbucks should discover new products before their competitors to gain more market share and be
leaders.

Various research should be made and the company should be able to find out new deals and offers for
their customers.

Maintaining proper relations with farmers so that they remain loyal with the company and do not switch
with competitors.

Knowing that consumption of tea has more health benefits as compared to coffee, Starbucks should
invent and introduce in the market various special drinks related to tea.

Starbucks should reconsider its pricing policy and it must be flexible in different countries.

Starbucks should concentrate more on its coffee making methods as majority of the business depends
on serving good quality coffee.

UKEssays. November 2018. Industry and marketing analysis of Starbucks Coffee. [online]. Available from:
https://www.ukessays.com/essays/marketing/industry-and-marketing-analysis-of-starbucks-coffee-
marketing-essay.php?vref=1 [Accessed 18 December 2019].

https://www.ukessays.com/essays/marketing/industry-and-marketing-analysis-of-starbucks-coffee-
marketing-essay.php

Accessed on 18/12/2019

How Starbucks Makes Money

Expansion in international markets is Starbucks' best bet for growth

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By JAKOB ECKSTEIN

Updated Sep 24, 2019

Starbucks (SBUX) is easily the biggest name in coffee. The company began as a simple coffee shop in
Seattle in 1971, but the Starbucks we know today really began when Howard Schultz—the mastermind
behind the Starbucks brand—took over the company in 1989. Since then, the Starbucks corporation has
grown to sell its products in almost 30,000 locations worldwide and has one of the most recognizable
brands on Earth. Schultz left Starbucks to in 2018. In 2018 the company operated in 78 markets and was
worth over $24 billion.

The story of Starbucks’ success is a story of branding. In the eyes of the public, Starbucks has
successfully converted what was once a mere beverage into a symbol of productivity and refinement
that has become integral to a hip and modern lifestyle. This branding is Starbucks' greatest asset and
perhaps its greatest weakness. Its future success hinges on its ability to ensure this brand remains
desirable to consumers. If consumer desire shifts, it could be difficult to Starbucks to alter its well-
established brand quickly and effectively.

On November 16th, 2018, when Starbucks released its 10-K and annual report, it had a market
capitalization of $85 billion. 2019 has been good to Starbucks so far. At the time of this writing, its
market cap was $107 billion, its highest ever. According to Ycharts, Starbucks has a current
ratio of 2.2 and a return on equity (RoE) of 384%. Growth, however, is shrinking. According to the
company's Q1 2019 filings, 2019 Starbucks had revenues of $6.3 billion—a 4.5% YoY increase, down
from 10.42% in 2018.

The Business Model

According to its annual report, Starbucks makes most of its money, 91%, by selling coffee and other
products at its many locations. The remaining 9% come from an assortment of other revenue streams,
of which the largest is the sale of ready-to-drink beverages through various channels.

KEY TAKEAWAYS

Starbucks operates in 78 markets with almost 30,000 locations.

Starbucks makes 91% of its revenue from sales in stores.

Starbucks’ greatest strength is its brand.

In Q1 2019, Starbucks’ revenue growth fell to 3% from 10.42% in Q1 2018.

Company-Operated vs. Licensed Stores

Although Starbucks is a global brand whose products can be found in grocery stores and convenience
stores, it still makes 80% of its money from its over 15,000 company-operated stores. In most cases,
these stores aren’t franchises. With a few exceptions in smaller markets, they are all owned and
operated by Starbucks. On one level, Starbucks makes this money by selling its customers food and
beverages, mainly coffee. But to stop there is to overlook the company’s true value. Starbucks isn’t
really selling coffee, it is selling the opportunity to participate in the coffee shop culture it has
commodified. This usually entails the act of drinking coffee in a well-designed space, working on a
laptop that is connected to the shop’s free Wi-Fi, and occasionally getting up to buy a pastry when
peckish. People don’t really pay Starbucks for coffee, they pay to drink coffee at a Starbucks. This is what
the company calls the “Starbucks Experience.”

Starbucks also sells products at an additional 14,000 licensed stores, but these locations have much
lower gross margins, and only contribute 11% of the company’s revenue. At these locations, Starbucks
sells coffee, tea, food, and related equipment to licenses for resale. To ensure its brand is
communicated adequately in all locations, Starbucks requires employees of its licensed stores to attend
its training classes as well.

Starbucks makes 80% of its revenue from the 15,000 coffee shops it owns and operates worldwide.

The remaining 9% of Starbucks’ revenue comes from an assortment smaller streams including ready-to-
drink beverages sold outside of Starbucks’ stores and the sale of packaged coffee to various foodservice
businesses. In May of 2018, Starbucks announced it would give Nestlé (NSRGY) limited rights to sell
ready-to-drink Starbucks branded products. However, the revenues from this partnership are still
minimal.

Coffee Supply

Unsurprisingly, Starbucks’ income relies on its ability to source high quality coffee at low prices. 74% of
Starbucks’ retail sales are in beverages, which are mostly coffee-based. Starbucks buys green coffee
beans from various coffee producing regions around the world, like Brazil, Vietnam, and Colombia. It
then roasts, packages, and distributes the coffee itself. Starbucks purchases the majority of its green
coffee with fixed-price purchase commitments in which prices are determined prior to the delivery date.
Prices are based on the current price of coffee in the commodity market. In Sep. 2018, Starbucks had
committed to purchasing $1.1 billion in green coffee. Of this, $996 million is made up of fixed-price
commitments. The remaining $166 million are price-to-be-fixed commitments, in which price will be
determined at a future date.

Markets

Starbucks operates in 78 markets around the world, but the U.S. is by far the company’s largest. As of
Sep. 2018, there were 8,575 company-operated Starbucks coffee shops in the U.S., and an additional
6,031 licensed stores. These make up 49.8% of all Starbucks locations. China is second, with 16.76%.

49.8% of all Starbucks coffee shops are in the U.S., the company's biggest market. China is its second
biggest with 16.76%.

Future Plans

More Stores, New Products

Starbucks has faith in its “Starbucks Experience,” so its strategy going forward consists largely of what it
calls “the disciplined expansion of our global store base.” This includes adding more stores in markets
that have already proven their worth, like the U.S., and expanding more aggressively in higher-growth
markets, particularly China. To maintain consumer interest in its new stores, Starbucks is also continually
pursuing the development of new beverages, particularly seasonal beverages à la
the outrageously successful Pumpkin Spice Latte. These new beverages serve primarily to boost
Starbucks’ brand by creating media buzz and engagement with with the Starbucks brand on social
media. For instance, in April, Starbucks introduced a new “Summer Menu,” which included the
aggressively polychromatic “Tye Dye Frappuccino.” This concoction brought about a blizzard of online
articles and instagram posts. The future health of Starbucks’ brand relies on its continued ability to
release such products on a regular basis.

To maintain the popularity of its coveted brand, Starbucks must continually roll out new products that
generate ample buzz in the press and social media. These products must be visually exciting to
encourage customers to post photos online.

New Features for the Digital Consumer

Starbucks also plans to roll out new features that increase customers’ engagement with the brand.
Beginning this year, the company has ramped up its advertisement of the Starbucks Rewards loyalty
program on social media platforms. This seems to have been a success, because the active member base
of Starbucks Rewards increased by 14% in Q1. In addition, Starbucks partnered with Uber Eats (UBER)
this year to introduced a delivery service that allows customers make online orders that are delivered to
them. In April, Starbucks partnered with Alibaba-owned (BABA) Ele.me to expand this service to China,
which has given it a crucial leg up over Luckin Coffee, its biggest Chinese competitor.

Key Challenges

The biggest risks to Starbucks' future success is competition with growing companies that could diminish
the popularity of its brand relative to others. While Starbucks is the undisputed king of coffee in the U.S.,
it is also facing increasingly tough competition in international markets—most notably from U.K.-based
Costa Coffee and Luckin Coffee (LK) in China.

The Biggest Obstacles Abroad

Costa Coffee is the UK’s biggest coffee chain, where it has over seven times as many stores at Starbucks.
While it is unlikely that Costa will ever dethrone Starbucks in the U.S., it is poised to give the company a
run for its money in international markets, particularly in China. Costa was acquired by Coca-Cola (KO) in
January 2019 for $4.9 billion. In April, Coca-Cola announced plans to roll out a line of ready-to-drink
coffee beverages, something the company wouldn't be able to do without Costa's coffee know-how.
Coca-Cola’s plans for Costa's coffee shops are currently confidential, but the soda giant’s international
reach will likely make Costa a serious threat to Starbucks in developing markets.

Luckin Coffee, China’s biggest coffee chain, is challenging Starbucks in the world’s largest market. It has
seen rapid growth since its founding in 2017. As of March 2019, Luckin had 2,370 stores in China and
plans to add 2,500 more by the end of 2019. Unlike Starbucks, Luckin’s stores are smaller and focus on
coffee to-go for China’s growing white-collar class, while still offering prices about 25% lower than
Starbucks’. This undermines the dominance of Starbucks' coffee shop model. Luckin’s lower prices,
heavy promotional discounts, and alternative branding are its greatest weapons against Starbucks. But
with a market cap of $2.9 billion, it is still small fish compared to Starbucks' $107 billion—it remains
unclear whether Luckin’s savviness will be enough to unseat the coffee giant. (For related reading, see
"The Top 4 Starbucks Shareholders")
https://www.investopedia.com/articles/markets/021316/how-starbucks-makes-money-sbux.asp

Accessed on 18/12/2019

SWOT ANALYSIS OF STARBUCKS

Starbucks Corporation which is also popularly known as “Starbucks Coffee Company” has acquired its
position to be the largest coffeehouse chain throughout the world. The company had undoubtedly
implemented certain business and marketing strategies to achieve this zenith of success. The company
also might have certain threats in the recent market environment. There are also many future
opportunities which the company is yet to explore. It is also very usual that Starbucks also has many
weaknesses like any other business firms. Thus one “SWOT Analysis” is really mandatory to understand
all the “weaknesses”, “threats”, “opportunities” and “strengths” of Starbucks within “the coffee industry
environment”.

SWOT Analysis

Strengths: Starbucks has many strong points which serve as the major strengths for the company. These
prime strengths of Starbucks are as following:

Starbucks had made one strong name of itself within the entire coffee industry throughout the world.
This strong brand image serves as the most prominent strength for Starbucks. The name of Starbucks
makes people recall about its rich quality and excellence. The company had undoubtedly made one
dominant position within the overall “coffee and beverages” market worldwide (Gregory 2018). This
brand image has also increased with the affordable pricing of Starbucks’ coffee and other snacks. Thus
the company had reached the ultimate zenith of the entire coffee industry.

The company enjoys one extensive supply chain and that too of global dimensions. Thus the company
had been able to reach to near about each country and their people. Such a vast “supply chain
management” policy of the company had increased its overall sales growth. The overall profitability of
Starbucks had also increased consequently.

Starbucks also includes moderate diversification within its business operation. Such moderate
diversification is performed through many subsidiaries of the company. It is another major strength of
this coffee company.

The strong and prominent financial performance of Starbucks serves as a prime strength for the coffee
company. Such bold financial statistics had helped the company to occupy the number 1 place within all
“Coffee and beverages retailers” throughout the world.

The overall value of Starbucks might also be regarded as strength for this company. The company is
worth $4 billion and such huge valuation is undoubtedly a huge strength for any business organization.
This value had helped Starbucks to be way ahead of its competitors within the industry market.

Starbucks had become the biggest chain of coffeehouse throughout the world both for its high volumes
and size. Starbucks also enjoys huge ranges availability. The company could offer its premium ranged
products as well as products of the middle tier (Haskova 2015). Such middle tier typed products might
able to attract more middle class or college going customers. Thus Starbucks had indulged all typed
products within its service.
Starbucks is also well-known for the “pioneering people management” within the industry of coffee.
Such industry like coffee is much dependent upon “soft skills” and “people skills”. The welcoming and
positive work environment of Starbucks has made its working force more vibrant. Such a happier
customer serving association leads to the ultimate benefit of Starbucks.

Weaknesses: The weaknesses which Starbucks still have are listed as following:

A certain customer’s base had complained about Starbucks’ “high price points”. There are issues that
the company is not always affordable for the middle-class or college-school oriented consumers. Thus
highly priced products of Starbucks might have created certain barriers to all class consumers. Such
extra high pricing of Starbucks had made many consumers be more frequent to McDonald’s rather than
Starbucks.

The standard of all the products of Starbucks is rather generalized. Such generalized standards have
definitely one huge issue for the company.

The products of Starbucks are quite imitable that means the products might be duplicated quite easily.
The competitors of the company might have the tendencies to copy the products of this company (Ng
and Tan 2015). Starbucks needs to look after this particular issue more prominently.

The company has high dependence upon one major input of the company and that is it’s highly chosen
coffee beans. The pricing of these coffee beans also put much effect on the overall profitability of this
company. Such determinant of coffee beans’ pricing and their pricing’s fluctuation create huge price
sensitivity. It is indeed one major weakness for Starbucks. Starbucks requires enhancing its product
ranges’ diversification and thus it could reduce its financial risk associated with such dependence.

Another major weakness of the company is that it recently had to face some allegation to the
procurement practices of the company. Many “environmental and social” activities have protested
against Starbucks’ unethical practices of procurement. The accusation is that the company obtains its
coffee beans from impoverished farmers of the third world. Another accusation is that Starbucks had
violated the mandatory “Fair Coffee Trade Principles” (Sakal 2018). This particular issue although was
tackled before few years.

Companies like Burger King and McDonald’s are ruling the market of breakfast segment. Thus Starbucks
needs to diversify its existing products range to stand tall in such onslaught competition. The recent
compressed schedules within working consumers had made them more frequent to such fast food
outlets. The less popularity of Starbucks than McDonald’s is indeed one burning issue for the company.
Such an issue is needed to be rectified sooner to have a more prominent business base within the entire
“coffee and beverages” industry.

Opportunities: Starbucks is yet to explore many future opportunities within the entire coffee industry
which are:

There is a huge opportunity for Starbucks to extend its suppliers’ network. The company might have
excluded the mercy of the suppliers who are whimsical by nature. The company rather needs to expand
its suppliers’ range more vastly. It would also help this particular company to become much less
sensitive with the pricing of changeable coffee beans. The company could also become more resilient
against the dreadful risks of the supply chain. This particular opportunity could help the company to
avoid its major weaknesses also.

There is undoubtedly a huge opportunity to expand its business within the existing “coffee and
beverages industry”. There are huge possibilities which are waiting in the future prospect for Starbucks
within this particular industry. Increase of working consumers serves as one major reason behind such
business expansion (Sholihah et al. 2016). Countries like India and China might be considered as the
most promising fields for Starbucks. It is because people are having increased tendencies of instant
snacks, coffee or other beverages. Starbucks might target these emerging markets of these countries to
explore a much greater scope in the industry.

Starbucks also have the opportunity to expand its business domain to be full-spectrum retailers of “food
and beverages”. Thus the company might compete with companies like Burger King and McDonald’s.
The company might be exploited to take full advantages of these industries’ future prospects. It is
indeed one huge opportunity for the overall business of Starbucks.

Starbucks might expand its retail store’s networks significantly throughout the entire US. Thus the
company could achieve its market segments and market shares. Thus the company encourages its
market opportunities throughout the entire retail chain. Starbucks could also be exposed to such new
segments of consumers (Wei 2016). The coffee company also might enhance its footprints within the
overall US and other global areas also.

Threats: Starbucks also includes certain threats within the industry and they are as follows:

The pricing of coffee beans are ever increasing and that too in a rapid rate. It is indeed one major threat
to the company. The company thus have engulfed into the risks of the supply chain. The company also
faces the risks of key inputs with the fluctuations. The company has the maximum threats with its dairy
products and the company had thus generated huge threat to Starbucks’ overall profitability.

Starbucks has also a significant threat of some lesser-known rival companies who want to piggyback
upon Starbucks’ success. Thus there are issues of copyright and trademark infringements with
Starbucks. The company had to fight many legal battles against many multi-national retailers which
misused its fame and brand logo. Such legal battles for brand infringement are indeed one major threat
for the company. (Panmore.com 2019)

Many local coffee houses are providing much competition to the company. Thus the company is indeed
having some issues of attracting more “niche customer segments”. These local stores are much
patronized by some loyal clients. Such local stores are also not enamored by big brands. Still, the
company like Starbucks is really having tough competition regarding these local fast food or coffee
brands.

Starbucks had also scarcity to expand its existing market within the entire emerging market scenario. It
has become really the necessity for Starbucks to make vast expansion. It is because the company could
not surpass its existing competitors without such expansion. Recession is also another prime threat for
Starbucks within the existing retailer’s group. (Pestleanalysis.com 2019)
Starbucks also has many challenges to its “global supply chain”. There are also immense disruptions
within its supply chain. The local or global conditions are mainly responsible for such disruptions. The
company needs to take immediate actions against such weaknesses to rectify them sooner.

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4Marketing Management and Leadership Practice in Starbucks

Introduction

Purpose of the Report

The purpose of the report is to present the in-depth analysis of the Starbucks and thisanalysis identify its
management and leadership models that have been developed within
the past few years. This report discusses the situational analysis of the Starbucks which help toidentify
the major issues that are facing by Starbucks. For this, the overall marketingenvironment of the
Starbucks will be examined which identify issues that are held within themacro and microenvironment.
This examination is possible through using frameworks such asPESTLE, McKinsey 7s, Cultural Web, and
Porter Five Forces. This report will discuss majorissues of the organisation and provide a detail critically
assess its importance and implicationand then justify one issue and challenges related to leadership and
management.Moreover, this report also provides a literature review that is based on the ability
tocritique different approaches to management and leadership. In addition to this, the literaturereview
also consists of different innovative management and leadership approaches that might be adopted
by the Starbuck to resolve out the identified challenges. Furthermore, this reportalso presents the
strategic recommendation that addresses leadership and managementchallenges. Moreover, this report
also provides a change management plan that is used byStarbucks to gain support from key business
functions.

Starbucks

The name of the organisation that is used for in-depth analysis is Starbucks. In 1971,Starbucks was
established by Zev Siegel, Gordon Bowker, and Jerry Baldwin who were thestudents at the University of
San Francisco(Zhao, 2017). In Seattle, Starbucks started itsoperation with a single shop that offers whole
bean and ground coffee and now its stores arelocated in more than 62 countries. In addition to this,
approximately 192,000 employees arecurrently working in 20,000 stores that are located throughout
the world. Starbuck offers avariety of products that include single-origin premium coffees, Iced Coffee,
Cold Brew, Baked pastries, salads, yoghurt parfaits, fruit cups, and non-coffee blended
beverages.Moreover, products mix of Starbucks is also marketed through different brand namessuc

h as Seattle’s Best Coffee, Starbucks Refreshers, La Boulange, Tazo, and Teavana

. Starbuckis a Business to Consumer (B2C) organisation. Social media has been used by the Starbuck
to be developing a relationship with the customer and engaging with their customers. Starbuckshas
approximately 900,000 followers in Instagram which help the company to create anemotional
connection with its loyal customers. Not only this, their customers can share coffeeimages of Starbucks
with other fans on customers. In the early days, the competitors ofStarbucks were the local speciality
and small scale coffee retailers(Sakal, 2018). But by
the passage of time and after its expansion across the world increase its competitors. Such

competitors are Caribou Coffee, Van Houtte, Dunkin Donuts, McDonald’s, and Peet’s coffee.
6The reason to choose this organisation is that it provides key trends, developments, andcustomer
dynamic of the Starbucks marketing environment which help in the depth assessmentof the company.
Situational Analysis

Current Situation

The current situation of Starbucks can be identified through five primary factors. Todesign a strategic
approach to growth is the first factor that demonstrates the feasibility of theStarbucks business model
and also takes the benefits of the demographic groups. The secondfactor is that the management and
leadership of Starbucks attract the highest quality employeeswith the help of the healthcare
implementation plan(Sisson and Bowen, 2017). Another factoris the strategic alliance which allowed the
company to create a sustainable supply chain for itshigh-quality coffee. The fourth factor is related to
the community environment as the leadershipof the company try to remove the social barriers through
casual social interactions. The lastand the most important factor is the ability of the management and
the leadership to adopt thechanges related to the consumer demographics however such factors may
become the challenge for the company

PESTLE Analysis

Macro-environment of the Starbuck has affected due to the constant global economicrecession which
becomes a challenge for the leadership of Starbucks. According to the report,consumers of Starbucks
cut down their consumption of coffee to purchase the coffee with lower prices(Shtal et al., 2018). This
shows that the low price of the product still becomes a challengefor the management and leadership of
Starbucks. Consumer awareness about the ethic,environmental and social norms become the challenge
for the company. These issues can beexplained through the PESTLE factors.Political FactorSourcing the
raw material is one of the main political factors as it takes a lot of politicalattention in the West. The is
the reason, the leaders of Starbuck follows the laws related to theenvironmental and social norms. Laws
and regulations of host countries also become the
major political factor that impacts the business of Starbucks. Not only this, in the USA
regulatory pressures that lie within the home market also creates a challenge for the company.
Moreover,coffee beans that are used in the coffee are imported from various countries(Shtal et al.,
2018).This most challenging factor to the leadership of the company as in those countries high
 8taxation imposed on farmers. In the result, Starbuck charged a high price to its customer
who borrows their products. Any fluctuations in tax ultimately passed on to the consumer of thecoffee
due to the high price customers switch towards the competitors of the company whichdecrease the
sales of the company.Economic FactorThe prime external economic factor that effect the Starbucks is
the ongoing globaleconomic recession. This factor reduces the profitability of the company as this force
the buyerto shit the products at a low price. Not only this, but high inflation rate also increases the
costof the labor and operational costs which decrease the revenue of the company and also decreasethe
salary package of their employees. According to the report, the profit of the firm declinedfrom 36
million Euros to 15 million in 2017 due to the high inflation rate(Shtal et al., 2018).Such challenges force
the leadership and management team of the Starbucks that they mustmake such practices that help the
company to maintain its goodwill in the market. Suchmethods help out the company to retain its
customers who switched to other companies.Social FactorIt is possible for the Starbuck that they can
offer their coffee at a low price but the quality ofthe product can be affected. For the management of
Starbucks, it becomes the main socio-cultural challenge. Not only this, another concerning factor is
ethical chic and green consumersthat show their concerns over the environment and want that
organisation must follow the rulesand regulations to save the environment.Technological FactorThe
technological factor is the most important as it upgrades the company and makes it morecompetitive as
compared to other competitors. One of such examples is emerging mobile wavewhich gives a lot of
benefit to the Starbuck(Mason et al., 2017). Starbuck introduced app-

9 based discount coupons which help the company to increase its sales through the mobile app.In
addition to this, rapid changes in technology put the management of the company in troubleas they
have to invest a million dollars over new technologies. If other companies increase theirspeciality over
the machines then it directly threatens the company.Legal FactorOne of the most important factors is
the legal factor related to the employees. Inrecent world regulations related to employees has been
increased if the management of theStarbuck does not create any model related to the employees
benefit then company facerestriction from the court which may harm the goodwill of the
company.Environmental FactorEnvironmental factors such as laws and regulation related to the
environment andincreasing global warming affect the goodwill of the company. To protect the world
fromglobal warming the leadership of Starbucks handle this issue with an effective way.
Starbuckaddresses the effects of climate change and puts its attention towards the cultivation processof
its supply chain. Not only this, Starbucks leaders robust a plan that is used to addressclimate change.
This plan consists of three important phases which include cultivation, packaging, and consumption (see
figure
Stories

Employees of Starbucks does notfollow the core beliefs of thecompany that is welcomingeverybody with
respect.

Not enough employees within thecompany.

Management and leadership ofStarbucks do not communicate withthe employees.

Ritual and Routine

Starbucks deal with millions of people daily due to which theirquality of service decline.

Organisational structure

Starbucks follows the informalstructure due to which everyoneemployees cannot share their problems
with the leadership of thecompany(Zhao, 2017).

This structure discourages thecollaboration among the employeesand the management

Symbols

Starbuck do to commit itself towaste reduction and it reflects theircareless behaviour.

13

Power structures

Power is not equally distributedamong the employees andmanagement.

Upper management of the companydoes not listen to their lower-levelemployees.

McKinsey 7s

Seven 7 Strength Weakness

Strategy

Provide good customerservices with good quality ofcoffeeLow strategies related tocompetitors

Structure

The strength of theStarbucksStarbucks needed differentcountry regulation andcompany structure

whenoperating in other countries(Grant, 2016).

System

Good customer complaintshandling system and internalcommunication. Need to improve the

productdevelopment sector.

Staff

A large number ofemployees i.e. 200000which provide their services(Grant, 2016).Low level of
motivationamong the employees.

Style

Team oriented, andinnovative.Low competitiveness andcooperation.

Skills

High knowledge of IT andmedia sector.Motivation skills require inmanagement.

Shared Values

Distinct Values Unethical Sourcing.

SWOT ANALYSIS

Strength

Good Financial Records.

In the coffee sector, Starbuck isconsidered as a number one brand.

Possesses a long history ofexperience.

Proper and Excellent employeemanagement(Sholihah et al., 2016).

It is one of the largest chains of acoffeehouse in the world.

Weaknesses

The foreign country imposes heavytaxes over the coffee beans.

The high price of the coffee.

The low budget spends over the publicity and advertisement.

Opportunities

Starbucks can extend its supplierrange.

Expansion in products range.

Retail operations can expand.

Threats

The rising price of dairy productsand coffee beans.

Competition from competitors, andlocal cafes.

Developed economies have saturatedmarkets(Sholihah et al., 2016).

Disruption in the supply chain.All of the above analysis shows that lack of leadership skills, management
skill andlow marketing budget and strategies are the reason for low performance and challenges thatof
the Starbucks

The most important thing is that when managers and leaders of the organisation knowtheir roles than
they effectively perform it. Most of the challenges that occurred are due to thelack of management and
leadership skills in the company. All of these challenges can beresolved by adopting the appropriate
leadership and management approaches. Theseapproaches help out the managers to establish good
working conditions and relationships whichincrease the motivation among the employees to resolve the
issues with confidence(Lemus etal, 2015). Management and leadership approaches can be used by
managers and leaders of thefirm to help them to exercise their authority within the organisation. These
approaches providea plan to the manager about how to organize work and how to deal with challenges
that arerelated to the micro and macro environment of the firm. To resolve the challenges, Starbuckcan
use Transformational leadership and Motivational Approach.Transformational leadership can be defined
as the style in which leaders empower theiremployees through change, to create a bond with them, and
inspire them through their actions.Transformational leaders can bring a change within the whole
organization from their specificstyle. According to theBui and McCarthy (2015), transformational
leadership has been
used by the leaders and it is characterized by the several patterns of their behavior. Suchcharacteristic is
the employ the charisma of leaders, inspiration, intellectual stimulation, bringcreativity, problem-solving
skills, and offer individualized considerations. This approach helpsout the leaders of the Starbucks that
can meet the objective of the firm by setting the standardswithin the organisation. The most important
thing that is seen during the analysis of theStarbuck is that the main reason behind all of the issue is the
lack of leadership skills withinthe manager. All of the issues can be resolved through the following
transformationalleadership skills. Starbuck can manage all the technological changes with the help of
 17transformational leadership skills. As such leaders easily understand the changing conditionsand help
their employees during the change.For this, Starbucks managers can train and motivate their employees
and alsocommunicate to their employees that their long-term interest depends over the systemic
change(Lemus et al, 2015). Moreover, this leadership style helps the Starbuck managers and leadersto
easily understand the laws and regulation of other countries so that they can change
them polices according to them. In addition to this, this style encourages employees to bringcreativity
within Starbucks. In the result, a company can improve its products with new ideasand with
time.Moreover, it is analyzed that there is low motivation among the employees ofStarbucks. In this
case, motivation is very necessary for the employees of Starbucks asemployees invest themselves in
the company. Motivation can not be always measured throughthe salary that a company gives to its
employees. It can be depending on the happiness that onehas for their work. It is analyzed that Starbuck
is depended on its employees as they have toserve coffee and drink to customers. If the staff of the
Starbuck is happy with the company,then they provide a quality of services to their customers. In the
result, customers of Starbuckswill surely visit the store next time. When the manager of the Starbuck
gives motivation totheir employees then they think that the work, they are doing is special and they can
easilyaccept all of the instruction that managers provided to them.The most important thing that
Starbuck analyzed is that it is necessary to build respectand trust among employees and leaders (Mullins
and Christy, 2016). Through committingemployees' success, creating an interesting environment, and
defining employee goals andobjective a company create a value of its customers. According to the
theory of Mintzberg, acompany must have a regional director for each region so that they can overlook
the matters

18and do the legal authority for customers and employees. In addition to this, Starbuck alsoemploy
district manage who perform its role to motivate the employees and connect uppermanagement and
employees for upward and downward communication. According to thetheory of Fredrick Herzberg, it
can be measured and analyzed about the satisfaction of theemployees about the job workplace and
their employment conditions. This theory also termedas Two-factor theory of motivation and their
factors can be seen below:
When this theory applies in Starbucks then it is analyzed that and also shown in theabove figure that the
most hygiene factors for the employees are the security and salary. WhenStarbucks faces a challenge
from the political environment about the high tax then it createsinsecurity among the employees that
they salary will be cut down by the company. In additionto this, another factor is security as every
employee wants security in the workplace but if theycan not find out then they put resignation. Such
factors create low morale among the otheremployees of the Starbucks that company can not fulfil its
duty in terms of security(Sisson
19and Bowen, 2017). Such factors create low morale among the employees and discouragemotivation
among the employees.

Strategic Recommendations for Starbucks

If Starbucks wants to achieve its goals and objectives either related to the economic,in terms of
customer, and more productivity within the employees. Then it is recommendedthat the company
should follow the transformational leadership style:

Changes Required to Implement the Transformational Leadership Style

Starbucks should reshape the organisational structure through theimplementation of intellectual

stimulation. As it helps the transformationalleaders to inspire other employees to create more new
innovative ideas thatimprove product development.
Should Provide guidance and encouragement among the employees so that theycan accept the new
leadership style.

Starbucks leaders should create check and balance which encourage employeesto communicate with
their store staff. This change can help the leader to knowthe experience of the customers.

Leaders should enhance their leadership skills which increase the motivationamong the employee

21

4. Communicating Change Vision

Transformation leaders must encourage every medium for communication either it isupward and
downward communication or to establish new communication strategies andvision(Doppelt, 2017). This
helps out the manager to listen to their employees to sort out their problems. Also inform them about
upcoming events, changes that are going to be implemented.

5. Empowering Broad-Based Action

It is necessary for the transformational leader that they must remove the obstacles thatheld during the
change system which undermine the change vision.

6. General Short-Term Wins

The transformational leader of Starbucks motivates its employees through rewarding them andmust
make planning for visible improvement in performance.

7. Consolidating Gains and Producing More Change

This is the most important step as it helps the leader in promoting, developing, andhiring employees
who implement change vision in future.

8. Anchoring New Approaches in Culture

The transformational leader through productive and customer-oriented behavior cancreate a better
performance of Starbucks employees(Thi, 2017). In addition to this, it alsoimproves the morale of the
Starbucks employees through effective management, and with better leadership.The most important
thing that any leader or a company face during the implementationof the change management plan is
the resistance that comes from the employees. As changedemands more effort and work from the
employees and sometimes employees do notunderstand the strategy behind the plan. For instance,
Starbucks decided to change theleadership style of their manager and now employees have to
communicate directly with their

22managers(Doppelt, 2017). In this situation, employees of Starbucks may face problem todirectly
communicate with the manager. Transformational leadership style of a manager helpsto provide
confidence to employees that they can feel comfortable while sharing their ideas. Inthe result,
motivation will be increased among the employees and they work hard to achievethe objective of
Starbucks.

Conclusion

To conclude that the current situation of Starbucks can be identified through five primary factors. To
design a strategic approach to growth is the first factor that demonstratesthe feasibility of the Starbucks
business model and also takes the benefits of the demographicgroups. Laws and regulations of host
countries also become the major political factor thatimpacts the business of Starbucks. The prime
external economic factor that effect the Starbucksis the ongoing global economic recession. The most
important thing is that when managers andleaders of the organisation know their roles than they
effectively perform it. Most of thechallenges that occurred are due to the lack of management and
leadership skills in thecompany. The most important thing that any leader or a company face during
theimplementation of the change management plan is the resistance that comes from theemployees