Starbucks Coffee

HOLY ANGEL UNIVERSITY

COVER PAGE
Starbucks Coffee

A SWOT Analysis to the well-known

American Coffee Company, Starbucks

In Partial Fulfillment of the Requirements for the Course

Strategic Business Analysis

Submitted by:
Galang, Marnel Jasper A.
Gozun, Trisha Mae B.
Pangilinan, Jonas Keith Y.
Sinamban, Darlene M.
Singian, Jon Ericson B.
(A431)

Submitted to:
Ms. Claudia Cayanan

March 2022

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Starbucks Coffee
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Starbucks Coffee
Starbucks is the most prominent coffeehouse chain and is notable for selling premium
quality coffee. This multinational corporation has been recognized as one of the fastest-growing
coffee chain clubs in the industry which currently operates in 67 countries with more than 32,000
stores worldwide. It also became extraordinary in terms of its customer service and stores which
is the reason why it became more than a coffeehouse for its customers. Starbucks was able to
establish its powerful brand globally and is considered as an innovator who constantly introduces
new tastes and products in the beverage industry. However, despite the strong brand presence of
Starbucks and its remarkable value in the market. The firm needs to assess the external and internal
factors which play a crucial role in its business. This assessment can illustrate how Starbucks
leverages its competitive advantages to maintain its flourishing global expansion. It will also aid
the corporation in developing cognizance of the elements in strategic planning and intended to
influence the viability of their subsequent business decisions. As the company pursues a unique
business model and continues to maintain its momentum in the industry. It is a clever move to
transform its strategic approach parallel to its resource strengths and opportunities to fuel growth
to the company. But even with this commendatory state and the focus on the affirmative factors of
the business, there will still be weaknesses and external threats associated which also need to be
addressed. The compatible strategies formulated from its strengths will be the key to taking
proactive steps to mitigate weaknesses and assist the company in dealing with the emerging
external threats that can create an immense impact on their business.

a. how to better match a company’s strategy to its resource strengths and market
opportunities
With the commendable performance reflected from Starbucks throughout the years of their
operation. The company was able to establish impressive and significant strengths and realized
numerous market opportunities in the industry. These will be utilized to generate strategies that
are suited to supplement growth. One of the visible strategies of Starbucks is the diversification
strategy. According to Kepka (2021), diversification strategy is applied when a company aims for
continual growth. It is the practice of developing new products into the supply chain of the
company in order to escalate profit. These products could be a new segment in the industry of the
company which is also known as business-level diversification. In the case of Starbucks, it has
been pursuing a long-term strategy of diversifying its core offering beyond beverages. It is one of
the reasons why it has a strong brand presence and public image. It has a growing population of
loyal customers, which contributes to the stability of the coffeehouse business. Based on the site
MartinRoll (2021), branding has been one of the pivotal elements of Starbucks strategy and it
invested significantly in making a standardized look and feel of its merchandise, store and
products. The Starbucks Siren logo is one of the most distinguishable logos in the world. The initial
strong indication that Starbucks is planning to direct its focus beyond coffee and into other
beverages and food products was when its logo was redesigned in 2011 to remove the words

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“coffee” and “Starbucks”. This logo is in use until the present time and is one of the most visual
and recognizable elements of the company. This indication became the starting point where it
gradually diversifies its business by entering related diversification through acquisition or
development of subsidiaries like Ethos Water, Seattle’s Best Coffee, and Teavana. Starbucks also
employs a product diversification strategy. It pursues its plan to diversify its offerings by
introducing baked goods such as flatbread pizza, sandwiches, desserts vegetables and plates of
cheese. It also started to offer alcoholic beverages such as beer, soda and wine. According to the
site Graduate Way (2017), Starbucks retail sales mix was roughly 61 percent coffee and other
beverages, 15 percent whole-bean coffees, 16 percent food items and 8 percent -related products
and equipment. Aside from transforming coffee as a “premium” product and not as a commodity
and introducing new product offerings. Starbucks is widely known for making high quality
products and services. Although the company offers expensive products, they make sure their
prices match the quality of their products that allows the company to sustain its premium image
among its customers. Starbucks Company focuses on using the best input that will assist in
ensuring the final product will be of great quality after value addition in the processes and thus
highly competitive when being introduced to the market. One of the factors behind this is the
extensive global supply chain that strengthens Starbucks by supporting their operations. The
corporation has a global network of suppliers that are carefully selected based on their criteria
pertaining to quality, such as the quality of Arabica coffee beans. This meticulous method of
finding the right supplier makes way for Starbucks to further refine their strategy in diversifying.
This guaranteed quality extends to all their product lines and achieves the trust of the consumers
which leads to excellent performance of Starbucks and make it more remarkable and profitable.
Another one is the strategic product marketability of Starbucks. Technology has altered the
methods of businesses to market their products. One strength that Starbucks possessed to establish
a competitive position of their brand and products was their Wi-Fi and digitisation innovations.
According to Mixson (2021), Starbucks launched its new digital transformation strategy which is
the “Digital Flywheel” in the year 2017. This was designed around four pillars (rewards,
personalization, payment, and order), their goal was to merge the physical customer touchpoints
with the digital to be more connected to their market. In addition, Starbucks reimagined the
customer app with the use of artificial intelligence to personalize product offerings and discounts
based on the users’ spending habits and unique preferences. Then the data collected from the app
is utilized to drive high-level strategy on everything from location selection to in-store staffing
logistics. Though its digital investments have served customers well, the company still plans to
expand its footprint to 55,000 stores by 2030. AI will then play a significant role in the future of
Starbucks. Starbucks also recently announced the making of Aira which is a service that links blind
and low-vision people to remotely located agents who share visual information through a mobile
app. Using Aira, people with impaired vision can navigate Starbuck stores (and social distancing
measures) with ease. The company also made a move to expand its online offerings to customers
with the Starbucks Digital Network together with its unlimited Wi-FI available in its stores. It
effectively utilized technology to market their products and expand globally. This allows them to

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reach almost every domestic and international market. This also allows them to expand their
marketing potential to different demographics and implement new products quickly. It also ensures
to be connected using their app to prevent new entrants from gaining market share. This generated
more revenue for Starbucks and greatly helped them to develop their brand image more. These
vast resources then open immense opportunities for Starbucks to continue in expanding and
diversifying their business worldwide.
According to Dean (2021), Starbucks has been building itself up as a brand synonymous
with social responsibility since 1988 where it transformed as one of the first companies in the US
to provide full medical insurance to both full and part-time staff. It was able to maintain its socially
responsible image, and balanced financial performance with social impact. When Starbucks
introduced its first corporate social responsibility report in 2002, its aspiration was to be seen as
much for its commitment to social responsibility as the quality of its coffee. In 2019, Starbucks
trained over 88,000 farmers at its Farmer Support Centers, invested $46 million in farmers loans
with their Global Farmer Fund program and gave $5 million in grants to help women in the coffee
and tea growing communities around the world. The grants for women fund various projects that
empower women and girls in terms of education, starting businesses, childcare and leadership. The
company also has new plans to reduce the environmental impact of its cups, engage partners in
environmental leadership and promote community service in its more than 25,000 stores. As a
company, they are committed to using their scale to positively impact the communities they serve
around the world. Balancing business and CSR centered policies is also demonstrated in how
Starbucks is paying particular attention to the sustainability and quality of coffee farming. As a
brand whose business mainly depends on coffee, it has a vested interest in ensuring a continued
supply. As such it’s CSR strategy towards local coffee farmers makes business sense as well as
social sense. Starbucks extends above-market rates for the coffee it sources from its farmers. It has
also established several research centers to formulate solutions to agricultural challenges such as
training farmers to improve techniques to increase productivity and creating disease-resistant trees.
On the other hand, another strength of Starbucks according to the site IvyPanda (2021) is
the company’s rapid growth which started from Seattle to other parts of the world. This rapid
growth of Starbucks allowed it to have more profits which in return enabled it to open stores in
numerous locations to the point that there is already location saturation. In the last quarter of 2021,
the statistics show that with 96% fame, Starbucks is included in the Top ’50s most popular dining
brands in the world. This popularity allows Starbucks to create more strategic partnerships with
local businesses to alleviate supply chain disruption risks.
According to riskmethods (n.d.), supply chain disruption risk is the risk that the supplies
will not be delivered to the company due to the following factors; (1) Cyber and security (such as
ransomware, data theft), (2) Financial and company viability (for example, force majeure, revenue
outlook), (3), Geopolitical (such as civil unrest, tariff hikes), (4) Man-made (including fires,
explosions), (5) Natural disaster (extreme weather, earthquakes, etc.), and (6) Reputational and

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compliance (such as conflict of interest, sustainable procurement). One of the ways to prevent this
risk is to diversify the supplier base or supplier diversity.
Blumberg (2021) describes Supplier Diversity as a proactive business program or as a
process of sourcing supplies from minority-owned, women-owned, veteran-owned, LGBT-owned,
service-disabled veteran-owned, historically underutilized businesses and SBA-defined small
business vendors which helps organizations build more strategic relationships with suppliers and
positively affect company culture and community at large. Blumberg also stated that aside from
providing multiple supply channels for goods and services which helps in preventing supply chain
disruption risk, creating new partnerships with these local suppliers also generates a 133% greater
Return on Investment than those firms who stayed on suppliers they traditionally rely upon.
Meanwhile, another strength of Starbucks is their Starbucks Experience. According to
Foster (2018), the former president, CEO, and executive chairman of Starbucks, Howard Schultz,
explains the “Starbucks Experience” in his book Onward as their purpose and reason for being.
This claim is supported by the site National Business Research Institute describing that Starbucks
is not simply about coffee, but a company that focuses on the following factors; Atmosphere,
Quality Coffee, Customer Service, and Partner (employee) Satisfaction. They added that the
success of Starbucks changed the mindset of their customers worldwide: from just being a place
to buy coffee to a place to experience a good cup of coffee. In the 21st Century, one of the
opportunities presented to this coffee shop is to further differentiate the Starbucks experience by
localizing offerings through the strategy of Localization Strategy.
According to the site WEGLOT (2021), a localization strategy will help the business,
particularly Starbucks to enhance its customer experience in a way that it will allow the store to
communicate its purpose to global audiences while maintaining its brand identity. Also, the
strategy will make customers feel connected and familiar with the brand which in return will
ultimately increase revenue. In the part of Starbucks, their Starbucks Experience is top-notch on
the field however, there is still this stereotype that the coffee shop is only for the foreigners or the
rich. For countries like the Philippines which have high levels of poverty, there are still people
who did not bother to try the products and services of Starbucks. However, despite this situation,
Starbucks is still able to find success in the country. That is why the store must further differentiate
its “Starbucks Experience” so that it can cater to a larger audience. The following are the tips
provided by Timofejeva (2021) regarding successful localization strategy for coffee shops; (1) hire
designers to incorporate local elements into the store, including traditional craftsmanship and a
facade that fits right the culture of the place, (2) localized marketing such as commissioning local
vloggers like Wherein Pampanga if the store is in Pampanga, and (3) humanize localization and
translation like saying po and opo when greeting customers in the Philippines.
Lastly, one of the problems that every company struggled with is how to keep their
customers’ attention to their products and services. On the contrary, this problem can be considered
as one of the strengths of Starbucks which is its high customer retention through loyalty programs.

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The site Gravy noticed that in 2021, an average of 21% of Starbucks visitors return within 3 days,
16% return again within 2 days, and 10% within 1 day while only 1% of Starbucks visitors are
seen at another coffee shop. This action shows that even though customers are not regular coffee
drinkers, they are still extremely loyal to the Starbucks brand. Meanwhile, according to the site
tada, the coffee shop's success on customer loyalty can be traced to the continuous revamping of
its customer loyalty programs. In fact, in 2016, the store introduced a value-based program that
awarded customers '2 stars' for every $1 (P50) spent, and members can have free food or a free
drink in exchange for 125 points. Meanwhile, Starbucks revamped this loyalty program, allowing
members to already redeem rewards at 25 points. Meanwhile, the pandemic brought an opportunity
for Starbucks to capitalize on the homebrewing boom to still provide loyal customers a Starbucks
coffee even if they are at home.
According to Gravy (2021), the COVID-19 pandemic affects how customers get their
coffee in a way that many people have already started to make coffee at home. In the part of
Starbucks, the store can sell their coffee brewing kits to their loyal customers as well as ingredients
during lockdowns. Since many people are already brewing their coffees at home, selling brewing
kits and ingredients will ensure customer retention of Starbucks and might increase sales during
the pandemic. However, the challenge is if the people will patronize this homebrewing
capitalization of Starbucks. The strategy that the company can employ is creative marketing
campaigns and promotional activities.
Gilson (2018) described marketing campaigns as the perfect way to grab the attention of
customers. Particularly during this pandemic when everyone is busy thinking about how to survive,
it is a question for Starbucks on how it will communicate its product offerings to them. To start,
Starbucks can send brewing kits to local vloggers in exchange for featuring them in their social
media channels for it to gain popularity. Moreover, the company can sell their brewing kits and
ingredients as a set at a much lower price compared to when the customers only purchase an
ingredient or brewing kit. Furthermore, these items can be bought using stars accumulated in
Starbucks or through payment of cash.

b. how to alleviate the important weaknesses

Tied to Starbucks’ world-renowned product offerings is the notion of prestige. This is a
notable feature popularly known by its customers. It suggests that each purchase made with the
store comes with a premium paid for exclusivity (Koehl, 2019). Those who are inclined towards
the side of prudence, often fail to see this causing them to label the product as unnecessarily
expensive. Speaking of price, in most cases, there is a direct relationship between quality and price.
If one increases, then the other follows and vice versa. This is particularly true for the products of
Starbucks. The company does not compromise on the products and services catered to the
customers since this is their main source of competitive advantage. As a long-established company,
it had also implemented strategies that reduced inefficiencies like economies of scale and
economies of scope. Thus, they can no longer reduce the prices that appear in their menu since

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they also need to consider inflation and the point discussed earlier regarding exclusivity.
Nonetheless, for markets that put affordability over quality, they can implement point systems that
lead to a reduction in future transaction amounts. In the Philippines, Starbucks carried out the
Starbucks Rewards strategy where they allow customers to collect stars whenever they make a
purchase using their registered Starbucks card. Once a member collects sufficient stars, he can use
them to claim a voucher for Starbucks products such as a drink (Starbucks Philippines, 2022). This
incentivizes customers to make several purchases with the company benefiting both parties.
Another way of alleviating the weakness of Starbucks in terms of prices is rewarding customers
who willingly bring reusable cups. This is considered a green solution as it also promotes the
environmental movement of the company in reducing the use of single-use cups and straws. The
Americas and some parts of Asia Pacific, Europe, the Middle East, and Africa had executed this
rewarding system (Starbucks Stories & News, 2022). Customers are given a discount if they bring
their cups. Therefore, Starbucks can use one or both of these to resolve its issue at high prices
without having to reduce the prices that appear in its menu.
Starbucks, as an American brand, had suffered setbacks as it tries to penetrate markets
where resentment with the U.S. is at large. A big chunk of the rationale behind this is the country’s
dominance in the global arena’s military, economy, and politics which intimidates and begrudges
other countries. This brought about the anti-Americanism movement where American culture had
been boycotted by the advocates (Karabell, 2020). Included in the blacklist of anti-Americans are
American brands such as Starbucks. People who hate the U.S. the most include Palestinian
territories, Pakistan, Yemen, Lebanon, and Iraq (Frohlich, Calio, & Hess, 2014). So, it is not
surprising that most of these countries have not allowed Starbucks to open stores in their territories.
Other countries that are famous for being anti-American are China and Russia. Some of the
enumerated countries have allowed Starbucks in their boundaries, but operations within the
country will not be the same with countries that are free from anti-Americans. Take Russia for
example, as the war between Russia and Ukraine flare-up, American-based businesses are forced
to either halt or close their stores including Starbucks (Lucas, 2022). For obvious reasons,
Starbucks cannot stand against the anti-Americanism movement head-on. It ought to continue
expanding its operations according to sound business strategies. Thus, it cannot eliminate such
weakness all in all with regards to being considered as American Global. Still, it can ease the
impact of anti-Americanism by ethical and legal business strategies. An example would be
partnering with local brewers in penetrating such challenging markets. It would still struggle in
the country, but it will at least provide a safer way of entry. The partnership shall be kept until
such time that the effect of anti-Americanism is negligible. Otherwise, if the partnership proves to
be worthwhile, Starbucks is better off maintaining such business relationships to operate better in
the country. In the Philippines, where American brands are warmly patronized, Starbucks does not
need to implement such a strategy as it can stand on its own upon setting foot in the country.
According to Statista (2021), Starbucks stores are primarily concentrated in the U.S. with
over 15,000 stores while the other 15,000 stores are spread around other countries such as, but not

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limited to, China, Japan, Taiwan, Canada, the United Kingdom, Turkey, Korea, Philippines, and
Indonesia. In a span of five decades since inception, the minimal dispersal of stores can be deemed
as underwhelming. This constitutes a weakness of the business as the competitive landscape is
unforgiving. The strategy to counteract this weakness is theoretically simple, yet difficult to
execute. Starbucks must continue to expand internationally with great emphasis on developing
countries to surf along with the rapid development of the countries. It may continue to provide
licensing to prospects after careful evaluation of the feasibility of the business in the area. It is also
recommended to plant seed stores in prospective countries to understand the market before fully
committing. The company must also be mindful of the diversity in cultures of different countries.
Taste and preferences take prevalence in the mix as the company needs to avoid full
standardization across all stores in the world. Market adaptation comes into the suit as it directly
eliminates the issue of non-uniformity in the markets. It may come with a tradeoff in the
consumption of more resources, but it will put Starbucks in a better position to compete in the
prospective country.
Meanwhile, Starbucks has always made it to the public that they could alter their
ingredients by requesting them on the counter. However, choices given do not include healthy
ones, it is only there as a matter of preference but not of consciousness. Since most of their products
do not only concentrate on coffee, they also have fruit-based beverages, they could start their new
product offerings from there. Starbucks has two options to negate this weakness, make a healthy
alternative to the existing drinks, or further study a new set of drinks that specifically caters to
those who put emphasis on their health. The firm has already established its branding as not being
a joint for kids, expanding their service offerings on the other hand necessitates an immense
amount of initial cash outlay. As a safer resort, Starbucks could opt to have a joint venture with
other companies that caters food for the kids. A joint venture (JV) is a business arrangement in
which two or more parties agree to pool their resources for the purpose of accomplishing a specific
task. This task can be a new project or any other business activity. In a JV, each of the participants
is responsible for profits, losses, and costs associated with it. However, the venture is its own
entity, separate from the participants' other business interests. Companies they could associate with
are Nestle, Unilever, and P & G. On the other facet, Starbucks' main fallback is their long queue
due to insistent demand. In order to resolve this mishap, Starbucks could adopt other means of
ordering. The most inventive decision these days is having an ordering screen, which this utilized
by McDonald’s and Jollibee. Customers order on their own and just give the receipts to the cashier.
Through this, the ordering time of the customer is shorter compared to the conventional process.
Another method is to have counters specifically made only for take-outs. By this customers are
sorted by urgency. All in all, gathering all the weaknesses is not conclusive of being a failure.
However, it is a good response in order to improve and better serve the customers.

c. how to defend against external threats

Threats arise from the circumstances that happen outside the control of the entity.
Starbucks, being a large-scale business does not exempt the company from being threatened by

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these events. Commodities or prices of the company’s inputs are relevant costs in decision making
of the company. This is under the bargaining power of the suppliers, it is relatively high since the
quality of the products that Starbucks produces are one of the vital reasons why customers
patronize the company. Change of suppliers or ingredients measurement alteration is not very ideal
since it could pre-empt the company’s product quality. This dilemma however, could be solved
through a good accounting contract, which is derivatives specifically forward, future or option
contracts. These contracts are a customized contract between two parties to buy or sell an asset at
a specified price on a future date. This could certainly mitigate the threat of the volatility of price
commodities.
As Starbucks is well-known for being an esteemed company that buys approximately three
percent of the world’s coffee, sourced from more than 400,000 farmers in 30 countries, it is
undeniable that it is the leading provider of different coffee-based beverages in the world. Be that
as it may, Starbucks is not free from the threat of fluctuations in the coffee supply. In fact,
according to Bloomberg (2018), Starbucks bought a coffee farm in Costa Rica in 2013 to protect
itself against possible coffee deficit. However, the growing demand for coffee products at present,
specifically coffee beverages, poses a threat to the coffee supply of the company. Starbucks can
aid this threat by utilizing streamline stock management systems and other innovative technologies
that accurately forecasts demand in production inputs. These assist in tracking purchases, keeps
count of coffee supplies in stock, and reorders supplies when levels get low. It is also important to
keep a minimum in-stock count for each supply. Safety stock is a level of extra stock that is
maintained to mitigate risk of stockouts caused by uncertainties in supply and demand. Alongside
with this, it can also use the economic order quantity (EOQ) to calculate the ideal order size,
allowing Starbucks to meet demand without overspending. Meanwhile, according to Investopedia,
Starbucks has been fighting its low-priced competitors, Dunkin' Donuts and McDonald's, for the
top position as coffee king for several years. It is inarguable that the prices of the coffee beverages
of these competitors are cheaper and more affordable, thus, providing a threat to Starbucks. This
can be relieved by strengthening its position through improved marketing campaigns and
promotional activities. Rather than trying to compete with cheaper chains like Dunkin’ and
McDonald’s, Starbucks can separate itself from the pack and reinforce the premium image of their
brand and products. Aside from TV commercials and social media posts, Starbucks can make
marketing campaign ads that come along with the latest trends, in order to make it more attractive
to consumers. Since it is evident that promotional activities can help in boosting sales and customer
loyalty, providing promo coupons in stores or through food courier applications, and giving special
dates for huge discounts can be a great aid for Starbucks.
According to Global Edge (2018), the coffee industry is growing at a significantly
large compound annual growth rate of 5.5%, and the product is produced almost exclusively in
developing nations. The number of new entrants in the industry is gradually increasing. In fact,
according to Business Wire’s “Coffee and Tea Global Market Report, 2020-30: COVID-19 Impact
and Recovery” report, the total coffee and tea market is predicted to grow from $142.1 billion in

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2019 to $148.5 billion in 2020, an annual growth rate of 4.6 percent. Although Starbucks is an
established coffee shop worldwide, it is not excused from the threat of new entrants that are more
attuned to local trends and to the needs of the market. Nevertheless, this can be alleviated through
market adaptability. It can be done by accommodating the new local trends in the market and by
customizing the Starbucks experience that will appropriately meet the preferences of its target
market in different countries or regions. Example of which is by providing a new ambience to
consumers by innovating their interior designs and putting trendy additions but still retaining the
trademark of Starbucks.
The last threat that is faced by Starbucks is the threat of high-end competitors like Caribou.
Caribou Coffee is a specialty coffee and espresso retailer, the second largest in the United States
after Starbucks. Caribou sells gourmet coffees, teas, and bakery goods in 415 company-owned
coffeehouses in 16 states and the District of Columbia, as well as 80 franchise locations worldwide.
It competes with Starbucks when it comes to producing high quality of coffee beverages. Despite
this, the threat can be mitigated by Starbucks’ improved and immense coffee experience after it
has taken itself to a whole new level of classiness—in the form of Starbucks Reserve. Starbucks
Reserve is a selection of the rarest, most extraordinary coffees Starbucks has to offer. Along with
its classic espresso drinks, the Roastery offers specialty drinks, tasting flights, and a variety of
coffee-brewing methods that aren't on offer at typical Starbucks locations. Accordingly, the prices
are higher but this whole lot of premium and improved Starbucks experience can promote
customer loyalty and further strengthen the position of Starbucks in the coffee industry.

Conclusion
Starbucks became a successful brand by offering premium quality coffee to its customers
over the years. Part of its success lies in capitalizing on its strengths and opportunities through
proper strategy formulation and execution. Some of the strategies that maximize both the strengths
and opportunities of the company are diversification strategy (S1, S3, O2), product marketability
strategy (S7, O1), corporate social responsibility strategy (S4, O5), supplier diversity strategy (S5,
O6), localization strategy (S2, O4), and creative marketing strategy (S6, O3). By the same weight,
Starbucks also created and used strategies to eliminate or reduce the adverse impacts of its
weaknesses. Such strategies include pointing system and payment reduction rewards (W1),
partnership with local brewers (W2), international expansion and market adaptation (W3),
healthier, natural, and organic alternatives (W4), partnership with children companies (W5), and
provision of take-out counters (W6). Likewise, Starbucks also needs to defend itself against threats
that are external to the company. With this, strategies that it made and implemented include
engaging in hedging instruments (T1), streamlining stock management systems (T2), conducting
marketing campaigns and promotional activities (T3), adapting to the market (T4), and launching
Starbucks Reserve (T5). Together, all these strategies lead to the outstanding performance of
Starbucks in the present and the near future.

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