ASSIGNMENT 1 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 32: Business Strategy (574)

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Submission date 03/04/2022
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 Table of Content

INTRODUCTION 1

BODY 1

About Starbucks 1

1.1. History 1

Strategic context 3

2.1. Mission, Vision and Objectives 3

2.2. Role of business strategy of Starbucks 4

2.3. Level of strategy of Starbucks 6

2.3.1. Functional level 6

2.3.2. Business level 6

2.3.3. Corporate level 7

Marco environment 9

3.1. PESTEL of Starbucks 9

3.1.1. Political factor 9

3.1.2. Economy factor 9

3.1.3. Social factor 9

3.1.4. Technology factor 10

3.1.5. Environment factor 11

3.1.5. Legal factor 11

Industry audit 13

4.1. Competitive rivalry or competition – Strong Force 13

4.2. Bargaining power of buyers or customers – Strong Force 14

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 4.3. Bargaining power of suppliers – Weak Force 14

4.4. Threat of substitutes or substitution – Strong Force 15

4.5. Threat of new entrants or new entry – Moderate Force 16

Specific stakeholders analysis 17

5.1. Stakeholder map 17

5.2. External stakeholders of Starbucks 17

5.3. The significance of stakeholders in formulating a new strategy 19

SWOT 19

6.1. Opportunities 19

6.1.1. Diversification of products 19

6.1.2. Expansion in emerging markets 21

6.1.3. Partnering with other companies/brands 22

6.1.5. Introduce price differentiation 24

6.1.6. Delivery service for coffee 24

6.1.7. Enhancing online channels 25

6.2. Threats 26

6.2.1. Supply chain problems 26

6.2.2. Competition from low-cost coffee retailers 26

6.2.3. Easily replicable 27

6.2.4. COVID-19 after effects 27

6.2.5. Global recession 27

6.2.6. Local coffee shops 27

6.2.7. Rise in raw coffee bean prices 28

6.2.8. Movements of independent coffeehouses 28

DISCUSSION 28

Porter Five Forces Model with competitors 28

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 1.1. Competitive rivalry or competition 29

1.2. Bargaining power of buyers or customers 29

1.3. Bargaining power of suppliers 29

1.4. Threat of substitutes or substitution 30

1.5. Threat of new entrants or new entry 30

Blue Ocean 30

CONCLUSION 31

REFERENCES 33

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 I. INTRODUCTION

With the responsibilities as a corporate consultant of Deloitte LLP. and along with the task,
which is providing Starbucks Corporation a completely new business strategy. In order to do
that, a clear analysis of an external and an internal environment is a must. Therefore, in this
writing, the Starbucks’ external environment analysis will be analyzed as part 1 before assigned
the new strategy.

II. BODY
1. About Starbucks

1.1. History

Starbucks' origin began in 1971 on the cobblestone streets of Pike Place Market in Seattle.
Starbucks built its first store here, providing consumers with fresh-roasted coffee beans, tea,
and spices from worldwide to take home. The name was inspired by the classic book
"Moby-Dick," symbolizing the early coffee dealers' maritime culture. (Starbucks, 2022).

Figure 1: First Starbucks’ store in Seattle

Source: (Starbucks, 2022)

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2. Strategic context

2.1. Mission, Vision and Objectives

● Mission - One individual, one cup, and one neighborhood at a time - to

inspire and nurture the human spirit (Starbucks, 2022b).
● Vision - To establish Starbucks as the premier purveyor of the finest coffee
in the world while maintaining our uncompromising principles while we
grow.” says Starbucks' vision statement. It explains the actual
accomplishments that the company must make to rank and keep its
position as a top brand in this industry (mission-statement.com, n.d.)
● Values - Starbucks lives these values with their' partners, coffee, and
customers at our core (Starbucks, 2022b):
- Creating a welcoming culture of warmth and belonging for all.
- They strive to be the greatest in whatever they do, holding
themselves accountable for the results.
- Acting courageously, questioning the status quo, and developing
innovative ways to grow the organization and each other.
- Connecting with openness, dignity, and respect while being
present.

Starbucks is a performance-driven company that sees the world

through people's eyes.

● Objectives - According to Starbucks Annual Report 2021, the company has

stated their primary goal is to keep Starbucks one of the most recognized
and respected brands. Starbucks thinks their efforts to build a profit-,
people-and planet-positive organization and their ability to successfully
implement methods that support this effort contribute to the business's
primary goal (Starbucks Corporation, 2021).

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 2.2. Role of business strategy of Starbucks

With the mentioned Mission, Vision, Values and Objectives above, The role of a complete
business strategy is to help Starbucks and to be able to achieve all those Objectives and goals
but still maintain their values. In order to achieve those goals and Objectives above, Starbucks
sticks to one of these strategies for their business:

- “Third-place“ experience: Starbucks locations are effectively positioned as a 'third place'

away from home and work, where individuals may spend time with friends or alone in a
relaxed and comfortable environment. Customers are even able to complete their job in
a Starbucks location. Free wi-fi is available at all company-owned stores in the United
States and most company-owned stores worldwide. "Starbucks stores are meticulously
designed to make customers stay longer, buy more, and return for another visit."
(Dudovskiy, 2017)

- High quality coffee: Product differentiation is a business technique used by Starbucks. As

a result, the coffee behemoth places a premium on product quality, and customers are
willing to pay a premium for it. Starbucks' attractiveness is boosted even more by
excellent customer service, which is one of the company's substantial competitive
advantages.
- Integrating technology into business processes: "Starbucks is adamant when it says
that the purpose of new technology is not just to improve its website or to
process payments quicker for people who are waiting in line." The coffee chain

delivers technology-related value addition by incorporating technology into various

company processes and procedures, including new product development, marketing
message communication, sales completion, and customer satisfaction monitoring. The
Mobile Order & Pay feature launch allows customers to place orders and pay without
directly doing it in-store. Also, the features of placing orders via the Voice ordering app
and "sending text message notifications to customers in the Seattle area when
their mobile orders are ready" are the most notable examples of value creation in

technological integration.

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Serving the best quality of coffee, bringing the most relifeing, relaxing environment to the
customer, in order to create their own positions in customers’ minds when it comes to coffee or
a place to taste the best coffee or just hanging out with friends. Starbucks focuses on
strengthening their strategy in order to upgrade their products and service for the customers.
And due to the situations of Covid-19 pandemic, the Starbucks has to be flexible in creating or
changing the strategy to adapt to meet the customers’ demands, such as offering more
promotions in Starbucks app or any delivery services, selling more at-home products due to the
Stay-at-home/ Work-from-home period,...; Therefore, they can complete the Mission, achieve
the Objectives, goals and maintain their value.

2.3. Level of strategy of Starbucks

2.3.1. Functional level

Starbucks uses a variety of functional-level tactics to keep things running smoothly. Starbucks,
at its foundation, uses mass customization to serve customers and set itself apart from
competitors. Starbucks has a vast drink menu that can be personalized in various ways, allowing
consumers to make a drink that is tailored to their preferences and needs. Starbucks' concept
has always included mass customization and comprehensive quality management. Starbucks, its
staff, and the whole customer experience have all benefited from total quality management.
"We're selling an experience, not simply a cup of coffee," Schultz remarked. Starbucks meets
customers' demands for high-quality caffeinated beverages and a welcoming environment with
courteous service. Employees are given comprehensive training. As a result, they are ensuring
consistent products and services.

Additionally, Starbucks uses self-managing teams to teach staff how to address customer issues
without the assistance of management. Employees are given thorough training and
empowerment classes to do this. Employees should be able to rapidly and easily satisfy clients'
requests, knowing that they handled the matter correctly. This reduces service time and ensures
that consumers are satisfied. Finally, to keep products fresh and reduce product storage,
Starbucks employs a just-in-time inventory system. They have a substantially lower inventory

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turnover than the industry average of 5.36 days. Inventory turnover is quick, allowing for a quick
return on investment.

2.3.2. Business level

The two forces that aid in developing efficient strategies are the target market and competitive
advantage. Every business considers these two factors when designing a complementary
product or service. Business level strategies assist the organization in developing a specific
product that meets the demands and expectations of the target audience. Starbucks is a
corporation that has successfully developed sophisticated business strategies that continue to
evolve as the company's opportunities grow. Starbucks' business tactics help to maintain the
company's market position and competitiveness. The company's business-level strategy is broad
differentiation, allowing it to generate various products in response to the changing nature of
customers' tastes and demands. Starbucks has a remarkable ability to adapt to the changing
conditions of the industry in which it operates. These circumstances enable Starbucks to be
more attentive to its customers' demands and develop inexpensive and pleasurable items for
all. The company's strategy aids it in navigating a diverse range of preferences depending on
ethnic and cultural origins, seasons of the year, traditions, and other factors. However,
Starbucks' broad diversification strategy allows the company to understand better and meet the
needs of its customers, regardless of their age, gender, or ethnicity. Furthermore, a broad
differentiation approach is critical for meeting the needs of clients who dislike coffee. It means
that Starbucks strives to address the needs of every customer who walks into the business.

Starbucks is a corporation that employs a variety of business-level tactics to adapt to changing

business conditions. A broad differentiation strategy, for example, may require additional
support from cost leadership, which can catch customers' attention by establishing a flexible
price policy. Furthermore, cost leadership allows Starbucks to save money while maintaining the
same quality and offering its products to customers at the lowest possible price. Many firms
compete to replace Starbucks in the coffeehouse market, which makes the company inventive
and savvy in the rivalry. Starbucks can avoid falling under the unfavorable influence of
competitors because of a combination of various business-level measures.

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Starbucks' key distinguishing trait is creating a product valued by its customers. Furthermore,
Starbucks never manufactures things that its customers cannot afford. From this vantage point,
it is easy to underline that the company's broad differentiation strategy is an essential
component of its mix of business-level strategies. It formulates the company's actual
performance and sets the stage for its move to the next level of activity. A broad differentiation
approach, in particular, has been critical to the company's success.

2.3.3. Corporate level

Starbucks' performance is also heavily influenced by corporate-level tactics. The primary
corporate-level techniques that help Starbucks stay on track with its strategic initiatives are
mergers, acquisitions, and excellent human resource management. Diversification and
integration are also essential factors in determining the company's corporate-level plans.
Diversification is a marketing strategy in which a firm regularly introduces new items to expand
into new markets. Starbucks offers a wide range of products, including coffee-flavored ice
cream, food, coffee beverages, coffee beans, and many types of hot beverage equipment. The
primary objective of the diversification strategy is to develop new items that fulfill the highest
quality requirements while also meeting the needs of customers. Starbucks has increased its
profitability, extended its competitive advantages, reduced threats from the business
environment in the form of new competitors, maintained its reputation and image, and
managed to push the boundaries of its performance by adding new stores to its network thanks
to its diversification strategy. Furthermore, the company continues to impress its customers
with new goods while also preserving its brand and image, which play an essential role in
influencing the attitudes of customers, partners, and suppliers.

Integration is an element of the company's corporate-level strategies, and it continues to help

the multinational corporation's overall development. The fundamental step in the integration
process is a steady increase in Starbucks-owned farms. In this method, the corporation
decreases unemployment and ensures that its resources are of high quality. Additionally,
Starbucks continues to acquire other businesses that specialize in areas connected to the

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coffeehouse industry. Starbucks began supplying tea to its consumers by acquiring small firms
specializing in the production of tea.

Diversification is the essential corporate-level strategy among the several available. It improves
the company's ability to navigate its consumers' needs by introducing new items. In the case of
Starbucks, diversity is the best option since it allows the company to study the industry further
and assess the changing needs of its customers. Starbucks will almost certainly always find the
optimum approach to satisfying the needs of every client in the never-ending race for quality
and competitiveness. On the other hand, competition has a significant impact on the company's
profitability and overall development.

3. Marco environment

3.1. PESTEL of Starbucks

3.1.1. Political factor

Political factors can have a variety of effects on a company's expansion. The political climate in
the nations where a firm does business can impact its success. If the political situation remains
stable, the corporation may benefit from a favorable business environment. Some political
factors can influence Starbucks:

Starbucks is a multinational corporation; therefore, the support from the Government not only
in the United States but also in their current operating countries and upcoming operating
countries that has a welcome economy but in some countries that has strict policies in the tax
charged or labor laws could cause threats for Starbucks if they want to serve in those countries.

3.1.2. Economy factor

The economic conditions are inextricably tied to a company's operations. If a corporation wants
to increase sales, it could look for stable markets.

The coffee industry is one of the top markets in the world. Many entrepreneurs have launched
their own coffee chains, small local coffee houses,... and the coffee culture keeps expanding

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internationally. This will give Starbucks the opportunity to step into the new market or recover
from the market that they have been failing, like Australia.

As this industry is one of the top markets so there are alot of competitors; this could be some
other big brands, enterprises or even local coffee houses. And at some countries that Starbucks
are operating at, the exchange rate of money could make their prices are quite expensive.

3.1.3. Social factor

Social conditions are essential aspects that can influence a company's sales. Starbucks can
demonstrate how the social conditions of the functional area might affect the company's sales.

The culture of coffee is getting more well-known as this drink is suitable for everyone in any at
most of society-levels. So, this is a good opportunity to develop new drinks, new coffee beans,
new instant products,.. to spread out the values of this coffee culture. Furthermore, customers
can maybe see that Starbucks does their best work to build up the coffee culture not just only
selling coffee.

However, the bigger market, the stricter taste of customers. The major influence of eat-clean,
keto diet, non-dairy/ unsweetened or low fat products could create threats for Starbucks as this
brand is known for sweet beverages, the Frappuchino drinks.

3.1.4. Technology factor

Though technical developments are unlikely to pose a direct threat to the company's expansion,
they may impact the firm in the long run. Starbucks' expansion can be hampered or accelerated
by technology, according to the Pestel analysis:

As the coffee industry and culture is spreading wider. So the technology of the coffee machine,
espresso machine can be upgraded for better results of the taste, the quality. Mastrena is a
machine used by Starbucks. It's a Starbucks-exclusive brand created by Thermoplan AG in
Switzerland. Starbucks makes espresso using highly automated machines with built-in grinders
and a computerized menu to make the process as quick and straightforward as possible. A
Starbucks espresso machine can set you back roughly $18,000. Starbucks espresso machines are

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built for simplicity of use and quick drink output rather than drink quality
(www.espressooutlet.net, n.d.).

However, due to the Covid-19 pandemic, a lot of people can not go out to bue Starbucks; so
another solution is making coffee at home, but not too many people does their coffee tastes
exactly like at Starbucks or has the exact flavors, syrups at Starbucks, this create Nespresso a
huge chance to appear in Starbucks customers’ kitchen. Nespresso is easy and quick to make,
people just have to put the coffee pod in the machine and press the button, they will have a
hot, fresh, at-home cup of coffee. According to Nestle, in the first three months of 2021, sales
of Nespresso coffee machine pods increased by 17%. (the Guardian, 2021).

3.1.5. Environment factor

Environmental issues may or may not directly impact a company's business. They can, however,
have an indirect effect on its advancement. Here are some environmental challenges that may
affect Starbucks' business.

Environment is one of the major factors that Starbucks really cares about; along with the
influences in recycled/ reusable products. At the reusable products, Starbucks does well with
their tumblers, cups or bottles and in Vietnam, customers will have a 10000 VND discount when
customers use their Starbucks’ tumblers, cups or bottles when ordering at Starbucks in order to
decrease the waste; for recycled products, Starbucks uses paper cup for their hot drinks and
also paper cup holders, trays and bags for take-away orders. Furthermore, Starbucks is
developing, expanding plant-based products to give their customers more options.

However, this environmental factor might sometimes be out of their control. The coffee beans’
quality and growth might be affected by the weather, the ground or even catastrophes.

3.1.5. Legal factor

Many legal difficulties might directly or indirectly impact a company's success. If a corporation is
involved in legal proceedings, it might leave an unfavorable impression. It may jeopardize the
company's reputation.

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Starbucks treats their employees extremely well so they might have no problems with the
employees rights. The employees are the main connection with the customers; therefore this
could help Starbucks understand more about the customers too; also make a friendly picture of
Starbucks with the customers. Additionally, Starbucks does not have so many issues with
product safety rules as every product or ingredient that Starbucks sells into the market needs to
pass a strict test from the related departments of the product's safety rules.

However, Starbucks might get rejected in getting licenses or meet the requirements of trade
laws in the countries that Starbucks wants to operate in.

Figure 3: PESTLE of Starbucks

Source: (Edrawsoft, n.d.)

Opportunities Threats

- The tax policies and employment P - The tax policies and

laws of the current operating employment laws of the future
countries operating countries.
- Government support

- Expand the business in E - Competitive market

developing countries with - Expensive price for low and
emerging economy middle class people

- Coffee culture is getting S - People is more attracted to

worldwide healthier/ low-fat/
unsweetened/ sugar-free
beverages

- Higher quality of coffee machine T - The upgrade of at-home coffee

- Apply moderner techniques/ machine (ex: Nespresso)
technology in harvesting and
roasting coffee beans
- Delivery service or owned app

- Focus on Sustainability of the E - The growth, quality of coffee

company beans and other factors could
- Recycled or eco-friendly be affected

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 packaging
- Plant-based menu options

- Product safety rules L - Licenses regulations, collisions

- Employments right and customer with trade laws, employment
safety regulations rules could be hinder at the
serving countries.

Macro environment analysis in general and the PESTEL analysis specifically are always being the
top factors to be analyzed when it comes to strategy development. This kind of analysis gives
Starbucks a general, clear, detailed view of the external environment; so they can have more
careful considerations based on the analysis of Political and Legal factors in PESTEL, specify the
competitors in the market with Economic factor, come up with more creative strategies but still
cover the Sustainability of the company with Social or Environmental factor. All these factors of
the macro environment are changed frequently, which requires Starbucks to be aware of its
market, quick-adapted to the world’s economy so they can be able to have a suitable strategy
for the company.

4. Industry audit

4.1. Competitive rivalry or competition – Strong Force

Starbucks is up against a strong force of competitive rivalry or competition in the foodservice

and coffeehouse businesses. This force is related to the impact of competitors on each other
and the industrial environment in the Five Forces analysis paradigm. The following external
elements contribute to the high force of competition in the case of Starbucks Coffee Company.
The vast number of businesses heightens competition. Starbucks Corporation is up against a
slew of smaller competitors. In this regard, the rival population is moderately diverse in
specialization and strategy. According to this Starbucks Five Forces research, such moderate
variation enhances the degree of competition in the sector. Furthermore, competition is
bolstered due to the low switching costs, which are the drawbacks that consumers face when
switching from one supplier to another. Consumers who shift from the company to other

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coffeehouses, for example, have a few disadvantages in this instance. According to this
component of the Five Forces study, competition is one of the company's top-priority concerns.
The general strategy and aggressive growth plans of Starbucks Corporation are strategic
reactions to competition (Greenspan, 2019).

4.2. Bargaining power of buyers or customers – Strong Force

Starbucks Coffee Company feels the powerful force or bargaining power of buyers or customers.
This force is based on the influence of individual consumers and groups of customers on the
international business environment in Porter's Five Forces analysis paradigm. In the instance of
Starbucks Corporation, the following elements contribute to customers' significant negotiating
power.

The negotiating power of buyers is one of the most critical factors affecting the corporation in
this component of the Five Forces analysis model of business. Customers can switch from
Starbucks to other brands due to the low switching costs. Furthermore, the abundance of
substitutes implies that customers can avoid Starbucks if they desire, as there are other
alternatives, such as quick beverages from vending machines. The fact that individual purchases
are minor compared to the company's total sales is overshadowed by these influential variables.
Personal assets are modest, implying that individual customers have little influence on the
business. Despite this limitation, the other factors increase customers' negotiating power. As a
result, this component of the Five Forces study demonstrates that customer bargaining power is
a high-priority strategic concern. Starbucks Corporation's marketing mix, or 4Ps, supports brand
strengthening by partly addressing consumer bargaining power (Greenspan, 2019).

4.3. Bargaining power of suppliers – Weak Force

Starbucks Coffee is up against suppliers who have a weak force or bargaining strength. Porter's
Five Forces analysis model considers this force as the influence suppliers have on the company
and its industry environment. The following factors contribute to Starbucks Corporation's
suppliers' lack of bargaining power.

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A factor that exerts a minor effect on Starbucks is the moderate size of individual suppliers. A
large number of suppliers, on the other hand, reduces their bargaining strength. Suppliers, for
example, employ a variety of tactics and skills to compete against one another to increase
revenues by supplying more commodities, such as coffee beans, to Starbucks Corporation.
Because of the enormous total supply, suppliers' bargaining position is further undermined. For
example, there are several coffee and tea providers worldwide. This external element limits
individual providers' effect. Suppliers' weak force or bargaining power on the corporation is the
overall influence of external forces in this component of the Five Forces analysis (Greenspan,
2019).

4.4. Threat of substitutes or substitution – Strong Force

Starbucks Corporation is subjected to fierce competition or the possibility of being replaced.

This force is related to the impact of replacement goods or services on the firm and its external
environment in the Five Forces analysis paradigm. External variables that contribute to
Starbucks' heightened danger of substitution include.

According to this component of the Five Forces research, substitutes have a high potential to
harm Starbucks Coffee company. Because replacements are widely available, customers can
easily purchase them instead of Starbucks items. Substitutes such as ready-to-drink beverages,
instant beverage powders and purees, food and other beverages, vending machines,
supermarkets, grocery stores, and small convenience stores, for example, are readily available
from various outlets such as fast food and fine-dining restaurants, vending machines,
supermarkets and grocery stores, and small convenience stores. Furthermore, the low switching
costs exacerbate the threat of replacements, as it is simple for customers to purchase
alternatives to Starbucks products. Again, many of these alternatives are less expensive than the
company's offerings. Thus, the threat of substitutes is a high-priority strategic management
worry (Greenspan, 2019).

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 4.5. Threat of new entrants or new entry – Moderate Force

Starbucks Corporation deals with a moderate amount of competition or the threat of new
entrants. This force in Porter's Five Forces analysis model refers to the impact of new players or
entry into an industry. The following factors contribute to the modest threat of new entrants to
Starbucks in this business case.

The diversity of the actual cost of establishing and maintaining operations in the coffeehouse
industry is linked to the moderate price of doing business. The cost of running a small
coffeehouse, for example, is cheaper than the cost of running a café chain. Smaller cafés, on the
other hand, have reduced supply needs and, as a result, more affordable supply chain expenses.
These external elements make it possible for smaller businesses to compete with Starbucks
Corporation. Brand development, on the other hand, is an expensive endeavor. This condition
decreases the threat of replacement in the Five Forces analysis approach. Small coffeehouses,
for example, do not have sufficient means to develop their brands. Furthermore, brand creation
takes years to attain the strength of the Starbucks brand (Greenspan, 2019).

According to Porter's model, this generic strategy entails lowering expenses to sell items at low
prices. As a low-cost provider, McDonald's offers items that are less expensive than competitors
such as Arby's. On the other hand, broad differentiation is used as a secondary or supporting
generic approach by the company. This secondary generic approach entails differentiating the
company and its products from competitors. McDonald's, for example, uses the broad
differentiation generic strategy with its McCafé offerings. McDonald's has a strategic goal of
vertical integration tied to the company's general cost-cutting approach. McDonald's, for
example, owns facilities that generate standardized component mixes. In addition, according to
the cost leadership generic strategy, cost minimization is a strategic financial goal. Furthermore,
product innovation is linked to McDonald's generic broad differentiation strategy (GREGORY,
2017).

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 5. Specific stakeholders analysis

5.1. Stakeholder map

Figure 2: Starbucks’ Stakeholders map

5.2. External stakeholders of Starbucks

● Governments: Because of the company's global reach, Starbucks must consider

the interests of various countries as stakeholders. Starbucks, for the most part, follow the
guidelines. In Europe, though, the firm has been accused of tax avoidance. Starbucks has a
network of stores around Europe to take advantage of tax breaks. Much of this approach is still
in place today, with Starbucks in the United Kingdom paying very minimal taxes. As a result, the
company's overall corporate social responsibility initiatives can be strengthened to serve this
stakeholder group better (Thompson, 2017).

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 ● Investors: Starbucks, like every other company, must approach investors as
stakeholders. Investors are interested in the company's financial performance—Starbucks'
dominance in the coffeehouse market and global development signal solid economic
interpretation. Starbucks has recovered and is again on a growth path, despite a significant dip
in 2007. As a result, the company meets the needs of this stakeholder group (Thompson, 2017).
● Customers: Customers are one of Starbucks' most important stakeholders.
High-quality service and products, such as coffee and associated beverages, are essential to this
stakeholder group. As the world's most popular specialty coffeehouse chain, Starbucks
efficiently caters to this demand. By extending the Starbucks culture to consumers at its cafés,
the firm incorporates customers as essential stakeholders. For example, pleasant and cordial
relationships are stressed within the organization and how baristas engage with consumers. As
a result, Starbucks Coffee's corporate social responsibility efforts serve this stakeholder group's
needs (Thompson, 2017).
● Suppliers: Starbucks' suppliers include coffee producers and wholesale supply
companies. Compensation and increasing demand from Starbucks are the critical concerns of
this stakeholder group. Farmers want to boost coffee yields to earn revenue. Starbucks has
some corporate social responsibility programs that cater to the needs of various stakeholders.
The company's supplier diversity initiative, for example, guarantees that more global suppliers
are involved in the supply chain. Furthermore, Starbucks' Coffee and Farmer Equity (CAFE)
program encourages wholesale suppliers to be transparent to ensure that coffee growers are
fairly compensated. As a result, Starbucks' corporate social responsibility efforts cater to the
needs of this stakeholder group fully (Thompson, 2017).
● Competitors: Starbucks' competitors are one of the most important external
stakeholders. Other coffee houses compete with Starbucks, including Dunkin' Donuts,
McDonald's, Caribou Coffee, and more exclusive products, such as Peet's Coffee & Tea
Company. Starbucks has the most significant proportion of the coffee shop market in the United
States; however, it trails market leader Costa Coffee in the United Kingdom (Lock, 2021).

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 5.3. The significance of stakeholders in formulating a new strategy

External stakeholder perspectives and insights are constructive in the early stages of planning
when they contribute to a better grasp of the operational environment and a vision for the
company's future. Each has a unique viewpoint on what the organization will need to flourish
(Everettcc.edu, 2020). For Starbucks, all stakeholders are together conducted to complete the
final business strategy, due to the observation, listening, feedback and communication of the
company with their stakeholders. Starbucks communicates with customers via various methods,
including social media, press releases, websites, and customer surveys. Starbucks must be
aware of its consumers' distinctions to communicate effectively with them - what they care
about and how they want to be connected. It must be aware that some clients prefer a direct
approach, while others want a more personalized approach. When it comes to sustainability, it's
also critical for Starbucks to maintain contact with activist groups such as unions and
environmentalists. These groups can significantly impact how Starbucks communicates with its
stakeholders by pointing out any flaws or areas for improvement. As a result, Starbucks will be
able to take advantage of any feedback received from these groups and make necessary
improvements (HowandWhat.net, 2022).

6. SWOT

In the PESTLE analysis section above, some of the opportunities and threats of Starbucks are
mentioned, additionally, those opportunities and threats are going to be analyzed in more detail
and expanded in this section.

6.1. Opportunities

6.1.1. Diversification of products

Starbucks is well-known for certain products, but it could perform even better if it expanded
into new specialized industries. The company can look into alternative beverage options that
add to the base coffee product or different products like teas, sodas, and flavored waters.
Starbucks' menu should be expanded to give clients more choices. Normally the company is
well-known, introducing new items and seasonal tastes (Peppermint Mocha, Eggnog Latte,

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Gingerbread Loaf) under the brand name would be profitable and well-received. Starbucks has
a 78 percent customer satisfaction rating (SEOAves, 2022).

Otherwise, Starbucks can expand their range of products by making new drinks based on trends
or customers’ demand. With the huge rise and impact of Tiktok, people started customizing
their Starbucks’ drink with the order’s instructions from Tiktok’s trends, this means customers
do not order the drink from the Starbucks’ regular menu but they will create their own
off-menu drinks. Customers are willing to pay for a Starbucks drink with around 5 to 10
customization options that cost them over $12, such as, add in additional pumps or syrup,
substitute whole milk to nut milk as people are getting more and more into healthy, organic
food and beverages; infact, not really much people are willing to pay $12 for just a cup of coffee
before Tiktok gets viral worldwide; Anna Sitar is a TikTok Starbucks Appuccino star. She has a
fan base of 9 million people who enjoy watching her taste-test various concoctions known as
"Starbies." She begins each video with a tagline — "another day, another Starbies!" — before
describing the drink, which is frequently recommended by a fan, then ordering it at a drive-thru
and drinking it in her car. Her brow furrows as she takes her first sip, then she smacks her lips,
and finally, she says, "It's great." (BuzzFeed News, n.d.).

18
 Figure 4: The Starbucks “Sunset drink”
Figure 3: Customized the famous Starbucks’ Source: (Sweet Steep, 2022)
Pink Drink
Source: (Pinterest, n.d.)

6.1.2. Expansion in emerging markets

Starbucks has a considerable foothold in the United States, and its footprint in China is steadily
increasing year after year.

These findings can be utilized as a model for expanding into new locations, building on lessons
learned, and interacting with new communities to build a better worldwide brand reputation. It
may be able to keep up its phenomenal expansion record by becoming the first or largest
participant in essential markets.

Starbucks is primarily a coffeehouse company based in the United States. Global expansion in
developing economies such as India, China, and a few African countries could give significant
potential to the organization.

19
Additionally, Starbucks now has around 60 stores in Vietnam, in different regions, from the
North to the South, including the Starbucks Reserve. Starbucks is still in the top 10 coffee chains
in Vietnam, attracting the middle to high class people. And Starbucks is now available in 83
countries all over the world.

Figure 5: Leading coffee chains in Vietnam, 2021

Source: (Statista, n.d.)

6.1.3. Partnering with other companies/brands

By co-branding some things with other companies or cross-promoting other brands in its stores,
Starbucks may reap the benefits of connecting with other established organizations. When done
correctly, this relationship improves both businesses' public image and can increase sales
(SEOAves, 2022).

20
Co-branding is usually beneficial. The coffee company can form connections with large
corporations and collaborate with them. As a result, it would be able to expand its market
share. Because of a partnership between Starbucks and Nestle, various coffee creamer products
are now available in retail stores.

For example, in November of 2021, Starbucks opened their location in Amazon Fresh Go in New
York. The store is a hybrid of a Starbucks Pickup and an Amazon Go, combining the Starbucks
app's order ahead feature with Amazon Go's Just Walk (stories.starbucks.com, 2021). This new
store still serves the full menu like other Starbucks, also with the sandwiches, baked goods and
pre-made salad options (stories.starbucks.com, 2021).

In the same year, in April, Starbucks and Herschel collaborated to launch a merchandise
collection to celebrate Earth Day, with reusable products (drinkwares and accessories) made
from recycled coffee grounds, only for Asian market. (stories.starbucks.com, n.d.)

21
 Figure 6: Merchandise collection from Starbucks x Herschel

Source: (stories.starbucks.com, n.d.)

6.1.5. Introduce price differentiation

Most Starbucks' products are reasonably priced, which may deter some customers and force
them to look for less expensive alternatives. As it seeks new premium-level beverages, it may
also examine more cost-effective alternatives that would appeal to thrifty or more
cost-conscious customers, boosting an entire market area for the company.

Some coffee businesses are rapidly expanding their customer base by offering regular and
premium coffee to appeal to people of various socioeconomic backgrounds. Starbucks may
provide regular coffee at a cheaper price range to appeal to the middle class while still
marketing its premium variety. Starbucks had global revenue of $26.5 billion (SEOAves, 2022).

6.1.6. Delivery service for coffee

GrubHub and Uber Eats have become increasingly popular, particularly during the COVID-19
pandemic. Starbucks may take advantage of this rising customer demand by partnering with

22
companies like these to distribute its products or developing an in-house delivery service to
better meet customer needs.

Uber Eats, Grubhub, and Postmates are the companies that deliver Starbucks coffee. Starbucks
may establish a coffee delivery service to provide a better customer experience. Revenues from
online food delivery services are expected to top $97 billion in the coming years(SEOAves,
2022).

6.1.7. Enhancing online channels

As a result of the epidemic, many people are getting coffee to go. Starbucks will benefit from
enhancing its online sales channel, allowing more customers to pick up their coffee at a pickup
spot or curbside. Starbucks now has their own app, which customers can make pick-up orders
on the way and pick up at their nearest stores or redeem points, use rewards or even pay the
orders and some other helpful functions with Starbucks app.

Figure 7: An overview of Starbucks app

Source: (Smart Business VN, 2021)

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 6.2. Threats

6.2.1. Supply chain problems

Several reasons, such as poor coffee bean crops, severe weather events, or even strikes at
third-party providers, could impact the supply chain in the future. This makes the corporation
vulnerable to slight changes anywhere in the supply chain, from bean manufacturing to the
restaurant's brewing process. When possible, Starbucks should look for solutions to avoid future
shortfalls.

Starbucks' supply chain is complicated by several third-party contractors and stakeholders,

making proper management difficult. Due to a strike by one of the company's significant
suppliers, several Starbucks coffee stores in the Midwest experienced a shortage in 2019
(SEOAves, 2022). Due to weather-related crop shortages, coffee prices are expected to rise.

6.2.2. Competition from low-cost coffee retailers

Other breakfast food franchises charge far less for a standard cup of coffee than Starbucks.
These chains offer a severe threat to a business that relies on higher-priced products due to
lower profit margins or a slight drop in quality. Many coffee cafes have reasonable prices for
their goods. There's a chance that Starbucks, with its higher costs, will run into financial
difficulties.

Starbucks coffee is substantially more expensive than McDonald's, despite some of the
components being the same (SEOAves, 2022). In the US market, local coffee shops or enterprise
coffee chains are becoming much more popular than in the past, when Starbucks created its
own Blue Ocean in the coffee industry. For example, Peet’s Coffee is one of the top internal
competitors of Starbucks; beside, McCafe or Dunkin Donut. Peet’s Coffee has over 300 stores all
over the US and has become a more affordable coffee choice for consumers than Starbucks. In
Canada, there is Tim Houston, the largest fast-food chain in Canada, and Canadians would
prefer to support this domestic chain than Starbucks as their prices are more comfortable.

24
 6.2.3. Easily replicable
Many everyday menu items can be made at home for a fraction of the cost of those found at
most diners. Let's imagine Starbucks wants to be the market leader in "basic" coffee. If that's
the case, the corporation needs to dispel the myth that simplicity makes duplication difficult by
focusing on the original beans or the brewing process.

6.2.4. COVID-19 after effects

The COVID-19 outbreak significantly impacted the general public's spending and purchasing
habits, with some of the ramifications lasting for years. Restaurants were forced to operate with
substantially reduced client capacity or shut down completely, resulting in considerable revenue
losses. The pandemic's economic consequences will affect every company, including Starbucks.

Due to a coronavirus outbreak, Starbucks has temporarily closed over 2000 locations in China.
Starbucks has 4123 locations in China, with more than half of them closed, putting its financials
in jeopardy in 2020 (SEOAves, 2022). Due to the COVID-19 epidemic, almost 17% of all American
eateries will remain closed in 2020.

6.2.5. Global recession

Despite its "high-end" brand image, the corporation may be affected by other national and
international recessions. If customers want to cut back on frills, a cup of pricey coffee can be
one of the first things to go. Starbucks may be able to offer more cheap solutions to minimize
this type of consumer loss. Experts predict that the current recession will be worse than past
ones. Starbucks' profits have already started to dwindle. The pandemic caused a 5% drop in
revenue in the second quarter of 2020 and a 38% drop in the third quarter. This year, the world
economy is forecast to decline by 5.2 percent (SEOAves, 2022).

6.2.6. Local coffee shops

The other end of the spectrum is a smaller, locally-owned coffee shop that promotes
community relations or a "shop local" concept. Consumers will negatively think of a larger

25
restaurant chain eliminating a local business. Starbucks must be mindful of this niche, which has
even more ardent supporters among some community members.

As mentioned above, in different markets, it does have its own competitors, and in the coffee
market, local coffee shops or coffee enterprises are top competitors. With the examples of
Peet’s Coffee and Tim Houtons in the North America market. Vietnam is one of the top
countries that export coffee and consume coffee so there is no surprise when local coffee shops
have a strong history, foundation and support from the citizens or the Government. Therefore,
Vietnam might be a tough market if Starbucks wants to focus on the low or middle class, true
enthusiast coffee lovers. In the United States, coffee and tea shops have declined by 7.3
percent.

6.2.7. Rise in raw coffee bean prices

Throughout the epidemic, the price of unroasted Arabica coffee beans (which account for 60%
of global production) has fluctuated substantially due to concerns about availability, hoarding,
and supply chain disruption. Every additional dollar spent on expensive raw coffee beans harms
Starbucks' financial health (SEOAves, 2022).

6.2.8. Movements of independent coffeehouses

Starbucks faces a slew of social challenges. Small independent and local coffee shops are
championed by these sociocultural forces, who oppose the rise of multinational businesses
(SEOAves, 2022).

III. DISCUSSION
1. Porter Five Forces Model with competitors

McDonald’s is one of the biggest of Starbucks, even though their niche in this industry is not
really similar; one is fast food, one is coffee. However, both of them do sell and serve coffee and
food, so McDonald’s and Starbucks are still competitors. And here is the Porter’s Five Forces of
McDonald’s

26
 1.1. Competitive rivalry or competition

Global fast-food corporations like McDonald's and local mom-and-pop fast food restaurants are
among the many companies in the fast-food restaurant sector. This external factor amplifies the
competitive power in the industry. In addition, firm aggression is a component that drives
competitiveness in the Five Forces analysis paradigm. In this scenario, most medium and large
businesses sell their products aggressively. McDonald's Corporation faces more intense
competitive rivalry due to this circumstance. Furthermore, consumers can easily migrate to
other restaurants, such as Wendy's and Burger King, due to low switching costs. (Gregory, 2018)

1.2. Bargaining power of buyers or customers

The ease of changing from one restaurant to another (low switching costs) enables consumers
to impose their demands on McDonald's easily. In the Five Forces analysis model, this external
factor strengthens the bargaining power of customers. Because of market saturation,
consumers can choose from many fast-food restaurants other than McDonald's. This condition
makes the bargaining power of buyers a strong force in affecting the company's external
environment. Moreover, the availability of substitutes is relevant in this external analysis. In this
case, the availability of many substitutes adds to the bargaining power of customers. For
example, reserves include food kiosks and outlets, artisanal bakeries, and microwave meals and
foods that one could cook at home. (Gregory, 2018)

1.3. Bargaining power of suppliers

The significant number of suppliers weakens the effect of individual suppliers on McDonald's
Corporation. This shortcoming stems from the lack of powerful regional and global supplier
alliances. Most McDonald's suppliers are not vertically integrated into this regard. This implies
they don't control the distribution network that delivers their goods to companies like
McDonald's. According to Porter's Five Forces research model, low vertical integration
undermines suppliers' bargaining strength. Furthermore, the relative abundance of goods such
as grain and meat lessens the influence of particular suppliers on the organization. (Gregory,
2018)

27
 1.4. Threat of substitutes or substitution

Various alternatives to McDonald's items include artisanal food producers' products and local
bakers' baked goods. Consumers can also prepare their meals at home. This external
component contributes to the strength of the threat of substitution in the fast food service
industry, according to the Five Forces analysis model. Furthermore, switching from McDonald's
to replacements is simple because of the low switching costs. For example, switching from the
company to alternatives usually has trivial or minor drawbacks, such as slightly higher meal
costs in some circumstances or more fabulous time spent preparing food. Alternatives are also
competitive in terms of quality and consumer happiness (high performance-to-cost ratio).
(Gregory, 2018)

1.5. Threat of new entrants or new entry

Because of the low switching costs, customers can quickly switch from McDonald's to other
fast-food chains. According to Porter's Five Forces analysis model, This external component
strengthens the threat of new entrants. Furthermore, the variable capital expenses of opening a
new restaurant enable new companies to enter the global fast food restaurant market. Small
restaurant enterprises, for example, have lower capital expenses than giant corporations in the
market. McDonald's faces a moderate threat of new entrants due to this external issue. Building
a solid brand in the industry, on the other hand, is costly. Many small and medium enterprises
do not have the means to develop a strong brand that can compete with McDonald's. (Gregory,
2018)

2. Blue Ocean

Blue Ocean Strategy is the pursuit of differentiation and low cost at the same time to create
new market space and demand. It's all about securing uncontested market space and rendering
the competition obsolete. It is based on the concept that market limits and industry structure
are not set in stone and maybe recreated by industry participants' actions and beliefs. (Blue
Ocean, 2018)

28
 Figure 8: Comparison of Red and Blue Ocean
Source: (Blue Ocean, 2018)
Starbucks is an example of a corporation that has effectively applied the Blue Ocean Strategy.
When Starbucks arrived on the scene, several well-established coffee businesses were already
there. Instead of focusing on their coffee, they attempted to establish Starbucks as a unique
brand, addressing a hitherto untapped market. They served coffee and tea, smoothies, and
Frappuccino drinks. They also sold CDs and newspapers, enticing coffee drinkers to stay and
converse. Starbucks was able to become a social gathering spot due to this. Furthermore, in the
company, employees call each other as “partners” for office staff or in-store staff (Bogusz Mikuła
et al., 2018). Compared to other competitors, Starbucks also first launched other products and
services besides serving coffee, like drive-thru service, packaged products (Via instant coffee
line), merchandise (mugs) in the 1990s (icsid.org, 2022).

IV. CONCLUSION

The writing has analyzed the external environment of Starbucks Corporation before handing
down the final business strategy. Based on the analysis above, the basic strategic context of the
company, including the mission, value, vision and the objectives are the main targets for the
company to complete, maintain and update, depending on the external environment’s situation
at the current moment. The influences of stakeholders of Starbucks are presented clearly as a

29
stakeholder mapping with detailed analyzed; also the macro environment analysis ( PESTEL
model ), industry audit ( Porter’s Five Force Model ), Opportunities and Threats ( SWOT ) are
mentioned in order to give the company variable perspectives, options to carefully prepare for
the business plan. Additionally, based on the situation of Covid-19 pandemic, Starbucks has
faced several difficulties, as closing hundreds of stores internationally, challenging in competing
with at-home making coffee products ( Nespresso ), etc; however, this Covid-19 context gives
Starbucks the opportunity to enhance their owned app, pandemic business strategy, based on
the communicate, listen and get feedback from the customer or the stakeholders in general.

30
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