Starbucks SWOT

An Overview of Starbucks
Starbucks is the world’s largest American coffeehouse chain that operates 17,133 company
operated and 16,700 licensed 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.
Starbucks Strengths – Internal Strategic Factors
1. 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. It has  a brand
value of $13.01 Billion as per 2021 Interbrandranking. 

2. Strong financial performance

With an annual revenue of $29 billion and profit of $4.2 Billion in fiscal year 2021, Starbucks
has a strong financial position in the market. 

3. Growth in stores

It increased its number of stores from 1,886 to 33,833 between 1998 and 2021. Currently,
Starbucks operates two types of stores i.e. company operated and licensed stores. It has 17,133
company operated stores and 16,700 licensed stores globally. Company operated stores
generate ~85% of the total revenue. 

4. Extensive international supply chain

Starbucks is known to have an extensive global network of suppliers. Starbuckssources its coffee

beans from three coffee producing regions, Latin-America, Africa, and Asia-Pacific. 

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. Strong Loyalty Program

Starbucks has a great reward program that keeps customers addicted to its coffee. For every $1,
you get 3 stars ($1 = 3 stars). When you collect 150 stars, you get a free drink (150 stars = 1 free
drink). In addition, reward members get the convenience of mobile payment, pre-order, free
birthday drinks, etc.

11. Increase starting wage for baristas

The coffee giant has increased the minimum starting wages of all its baristas to $12/hour in
2021.  Moreover, Starbucks plans to increase the minimum wage of its workers to $15 in the
next 2 to 3 years, according to Rossann Williams, who is the president of the North American
chain of Starbuck stores. 

The hourly wages were increased for workers who joined Starbuck around and before July 2021,
officially increasing the wages by 5% in October of the same year. Also, Starbucks’ tenured
workers will receive a 6% increase in wages.

12. Gender Neutral Restrooms

Starbucks has introduced gender-neutral restrooms to protect Lesbian, gay, bisexual, and
transgender (LGBT) community against discrimination. It is in response to Anti-LGBTQ
bills that discriminate against specially transgender people. 

Starbucks Weaknesses – Internal Strategic Factors

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. Worst holiday drink

According to a poll carried out by Mashed, more than 21% of coffee loversabsolutely hate
Starbucks’ “Iced Latte.” Starbucks premiered it as a festive Christmas holiday drink. But sadly,
the drink turned out to be a downer. A lot of people said that Starbucks’ iced latte leaned too
much on the sweet side, absolutely not worth the steep price.

Starbucks Opportunities – External Strategic Factors

1. Expansion in developing markets

Starbucks has coffeehouses mainly in the US. Global expansion in emerging economies such as
India, China and few regions of Africa can give a great opportunity to the company.

2. 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.

3. 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.

4. 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.

5. Exploit Latest Coffee Trends and Technologies

Although Starbucks is at the forefront of cutting-edge coffee technology, there is still room for
expansion. From best foam technology to snap-chilling, back to black, and RSI-reducing gizmos,
there are endless possibilities offered by the latest coffee trends and technologies.

6. Adopt Price Differentiation

Some coffee houses are growing their customer base rapidly by offering regular and premium
coffee to cater to different classes. Starbucks can offer regular coffee that is priced lower to
capture the middle-class while serving its expensive variety as premium. 

7. Strengthen Online Channels

The pandemic has discouraged in-store consumption with more coffee drinkers opting for take-
away. Starbucks can strengthen its online sales channels to attract more customers to pick their
coffee curbside or in pickup locations.  
8. Coffee Delivery Service

Currently, customers rely on Uber Eats, Grubhub, and Postmates for its Starbucks coffee

delivery. Starbucks can start its own coffee delivery service for better customer experience.

9. Coffee Subscription

Panera bread has already started coffee subscription service. Starbucks can also try new
coffee subscription business model to expand its customer base.

Starbucks Threats – External Strategic Factors

1. 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.

2. Competition with big outlets

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

3. Imitation

Products can be imitated by both new and old rivals.

4. Third-party Delivery Suppliers (union) Strike

Starbucks’ supply chain consists of many third-party contractors and stakeholders, which makes
it difficult to manage the entire chain effectively. In 2019, Starbucks coffee houses in the Mid-
West grappled with shortages after employees of a major supplier went on strike.

5. 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.

6. 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.

7. Philadelphia arrests

April 2018, 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.

8. Coronavirus

It is expected that pandemic will continue to have significant impact on Starbucks financials
performance due to reduced customer traffic and store hours. 

For example, Starbucks had to temporarily close estimated 2000 stores in China due to the
outbreak of coronavirus. Considering Starbucks has 4123 stores in China, and almost half the
stores were closed during the peak of the pandemic.  

9. Change in customer behavior

Experts predict the pandemic will continue changing customer behavior and tightening

discretionary spending. In addition, the decline in the restaurant industry and
other macroeconomic factors can adversely affect Starbucks’ development plans and operations. 

10. Rising Prices of Raw Coffee Beans

The price of raw coffee beans – Arabica, the world’s most-produced coffee (representing over
60% of the world’s production), has increased drastically during the pandemic due to concerns
over its availability, hoarding, and supply chain disruption. Any additional dollar channeled to
purchase raw coffee beans at an increased price reduces Starbucks’ profitability.  

11. Negotiation with Buffalo workers in favor of unionizing

In December 2021, Starbucks set meetings to negotiate with its Buffalo workers that voted for
unionizing. The company stated that they would talk things out with the voters in good faith,
reaching a mutual understanding. However, Starbucks made its stance clear in a letter sent to its
US workers that it will not back the idea of unionizing. 

12. Starbucks put on the spot for dietary racism

Dietary racism involves compelling BIPOC communities (Black, Indigenous, and People of

Color) to eat unhealthy foods, offering limited food options at cheaper costs. According to a
publicity stunt by Switch4Good, the prank effectively called out Starbucks on its tactics.
 PESTLE Analysis of Starbucks

Introduction
The macroeconomic environment that Starbucks operates in is characterized by the ongoing
global economic recession, which has dented the purchasing power of the consumers. However,
market research done in the last few months has indicated that consumers have not cut down on
their coffee consumption and instead, are shifting to lower priced options. This means that
Starbucks can still leverage the buying power of the consumers in a manner that would give it a
significant advantage over its rivals by offering cheaper alternatives. Apart from this, Starbucks
has already made some moves to jump on the emerging mobile computing revolution by tying up
with Apple to introduce discounted coupons in the apps used in the iPhones. Further, this
exercise has also been accompanied by co-branding and cross selling which means, that
Starbucks is well placed and poised to reap the benefits of the Smartphone revolution. Having
said that, it must be noted that consumers in the United States are increasingly turning “Ethical
Chic” which means that the products they buy and the brands they consume need to prove that
they are following social and environmental norms in their manufacture. This is the key
challenge that Starbucks faces as it confronts the emerging challenges of the new era of
consumer awareness and the galloping Smartphone revolution.

Political

 The key political imperative that Starbucks faces is the concerns over sourcing of its raw
materials that has attracted the attention of the politicians in the West and in the countries
from where it sources its raw materials. This is the reason why Starbucks is keen on
adhering to social and environmental norms and to follow sourcing strategies that are
appropriate and in conformance to the “Fair Trade” practices that have been agreed upon
by global corporations and the governments of the developing and the developed
countries.
 The other political imperative that Starbucks faces is the need to adhere to the laws and
regulations in the countries from where it sources its raw materials. This has been
necessitated because of activism and increased political awareness in the developing
countries, which form the basis for Starbucks’ sourcing strategies.
 The third political imperative, which Starbucks faces, is the regulatory pressures within
its home market in the United States because of greater scrutiny of the business processes
that multinationals based in the US are now subject to.

Economic

 The foremost external economic driver for Starbucks is the ongoing global economic
recession, which as explained in the introduction has dented the profitability of many
companies.
  However, studies have shown that consumers instead of cutting down on their coffee
consumption are shifting to lower priced alternatives which is an opportunity for
Starbucks.
 Of course, the company still has to contend with rising operational and labor costs as the
inflationary macroeconomic environment coupled with the falling profitability is
squeezing the company from both ends of the spectrum.

Socio-Cultural

 Though Starbucks can offer cheaper alternatives as mentioned previously, it has to do so

without sacrificing the quality and this is the key socio cultural challenge that the
company faces as it expands its consumer base to include the consumers from the lower
and the middle tiers of the income pyramid.
 Apart from this, the “green” and the “ethical chic” consumers who fret about the social
and environmental costs of the brands they consumer means that Starbucks has to be
cognizant of this trend.
 Third, the retiring baby boomer generation means that spending by the older consumers is
likely to taper off and hence, Starbucks would have to lookout for tapping the Gen X and
the Millennials as part of its strategy.

Technological

 Starbucks is well poised to reap the benefits of the emerging mobile wave and as it has
tied up with Apple to introduce app based discount coupons, it can expect to ride the
mobile wave with ease.
 The company has already introduced Wi-Fi capabilities in its outlets so that consumers
can surf the web and do their work while sipping coffee. This is indeed an added value to
the Starbucks brand and something, which enhances the consumer experience.
 It can also introduce mobile payments and this is something that it is already testing out
in pilot locations in the United States.

Legal

 Starbucks has to ensure that it does not run afoul of the laws and regulations in the
countries from which it sources its raw materials as well as the home markets in the
United States.

Environmental

 There have been several concerns about the business practices of Starbucks from the
activists, international advocacy groups, and from the consumers themselves. Therefore,
Starbucks has to take into account these concerns if it has to continue holding on to the
trust it enjoys with its consumers.
Conclusion

The preceding analysis proves the point that Starbucks is operating in a relatively stable external
environment. The main reason for this is the fact that it operates in the Food and Beverages space
which means that despite the recession, consumers cut down on the consumption to a certain
extent and not completely. Therefore, the task before Starbucks is to lower costs and increase the
value so that it retains its consumer base and attracts consumer loyalty.