ASSIGNMENT

LANKA

FND05IBE

INTRODUCTION TO BUSINESS ENVIRONMENTS

FF2421BUS / FF2421COM

Assessment Type and Weight CB Number Hand In

Individual Assignment (40%) CB014388 13-MAY-2024

Table of Contents

Introduction to Starbucks.................................................................................................................4
Porter’s five force........................................................................................................................4
1.Competitive rivalry (Strong force)...........................................................................................5
2. Bargaining Power of Customers (strong force).......................................................................6
3. Bargaining Power of Suppliers (Moderate Force)...................................................................7
4.Threat of Substitutes (strong force)..........................................................................................8
5.Threat of new entrants (moderate force)..................................................................................9
Reference list.........................................................................................................................10
Acknowledgment

I would like to extend my sincere appreciation to Mrs. Nadha Ameer for her invaluable guidance
and support. I am also grateful for the APIIT institute for providing us with essential resources,
and a special thank you to my dear sister, loving family, and wonderful classmates for their
constant encouragement. Your support has been a pillar of strength throughout my academic
journey. Thank you all for being a part of my success.
Introduction to Starbucks.
In the year 1971 three coffee enthusiasts, Jerry Baldwin, Zev Siegl and Gordon Bowker, built
Starbucks coffee house. Starbucks Coffee, steadily evolving as the world's largest coffee
company, has surpassed 32. 000 stores in 80 different countries. Thanks to its mighty position,
Starbucks is known as the master of both the highest quality coffee and as well as excellent
customer service. Starbucks features a large number of drinks, including steamers, espresso, and
fresh-brewed coffee, as well as hot chocolate and tea that is iced. Customers can also buy coffee
beans, pods and instant coffee for home brewing. Moreover, the company has food menu
including pastry, sandwiches, fresh fruits and snack with purpose to create one-stop shop for
customers who are healthy and time-conscious. (Starbuck, 2024) Starbucks has long been known
for its excellence, sustainability and community involvement, one thing that distinguishes it is
the coffee chain's emphasis on experience outside the "third places" in their stores, where
customers can relax, work or socialize thereby creating a welcoming atmosphere to enhance the
human spirit. For the whole bunch to cater to taste and preference. (Starbuck, 2024)

Porter’s five force

Porter's five forces serve the function of a strategic compass for companies, pinpointing the way
through the highly competitive environment. This model determines the competitive landscape
via considering factors like competition, customer dynamics, new entrants and substitutes.
(Gratton, P. ,2024). A firm such as Starbucks would have to get to know the competitive forces
that shape its business and ultimately affect the company's success. It all about delivering quality
site and enhancing decision making.
1.Competitive rivalry (Strong force)
Coffee company Starbucks has strong competition. This power represents the influence of
competitors on each other and the coffee business environment. In this case, the following
factors lead to fierce competition with Starbucks: (Greenspan, R. , 2022)

 Competing brands of coffee chains like Dunkin' Donuts and Costa Coffee

The competition from the long-standing coffee chains such as Dunkin' Donuts and Costa Coffee
is stiff. These many brands have a strong foothold in the industry and compete with Starbucks
for clients.

Ex-: Dunkin' Donuts, with its wide range of coffee and bakery offerings, competes directly
with Starbucks in the fast-casual coffee segment. (Delventhal, S. , 2020).

 Innovation and Marketing Strategies

Starbucks is constantly implementing innovation and marketing strategies to differentiate itself

from its competitors. While competition drives the need for innovation, Starbucks has a strong
brand image and customer loyalty that helps it maintain a competitive advantage.

Ex-: Starbucks introducing seasonal beverages like Pumpkin Spice Latte or

collaborations with popular brands to attract customers. (Chethana G., K. ,2018).

 Local Independent Cafes

Local independent cafes pose a lower level of competition compared to established coffee
chains. While they offer unique experiences and niche products, they generally do not have the
same scale or brand recognition as Starbucks

Ex- A small, cozy neighborhood cafe offering artisanal coffee blends may attract a specific
customer base but may not directly compete with Starbucks on a global scale.
2. Bargaining Power of Customers (strong force)
Starbucks has good influence or communication among buyers or customers. In Porter's five
forces analysis model, these forces are based on the influence of customers and their groups on
the coffee shop workplace. The following other factors make customers have strong interaction
with Starbucks: (Greenspan, R. 2022)

 Availability of Substitutes

Customers can easily choose to buy coffee from other establishments based on their preferences
and convenience, indicating high bargaining power.

Ex: In the coffee industry, customers have a wide range of choices, including independent
coffee shops, Dunkin Donuts, and specialty cafes.

(Rizea, R.-D., Sarbu, R. and Condrea, E. ,2014).

 Price Sensitivity

Customers often compare prices and promotions when choosing a coffee supplier, so price is an
important factor in their decision.

Ex: Starbucks faces high price sensitivity from customers who may choose cheaper options
such as fast food chains or local cafes, which affects their bargaining power.

(Zhou, Q. ,2024).

 Customer Volume

Starbucks' large customer base and global presence allows the company to leverage economies
of scale and negotiate better deals with suppliers. (Starbucks.com. ,2019).

Ex: With millions of every day clients around the world, Starbucks can secure favorable
estimating on coffee beans and other supplies, giving them an advantage and lessening
client bartering control.
3. Bargaining Power of Suppliers (Moderate Force)

The coffee company Starbucks has low power or communication among its suppliers. Porter's
five forces analysis model defines these forces as the influence of suppliers on coffee shop
operations and businesses. The following external factors weaken the bargaining power of
suppliers against Starbucks Corporation: (Greenspan, R. ,2022).

 Number of Suppliers

Starbucks has many stores that offer a variety of products such as coffee beans, milk, and
accessories. Although many suppliers have reduced the power of suppliers to some extent, the
demand for quality products and special ingredients forces suppliers to compete with each other.
(STARBUCKS STATEMENT ON CALIFORNIA TRANSPARENCY IN SUPPLY CHAINS
ACT OF 2010 (SB 657). ,2019).

 Switching Costs

If Starbucks can easily switch between suppliers without significant costs or disruption to its
operations, the strength of its supply chain will be low. For example, if a milk supplier increases
prices, Starbucks may switch to another milk supplier that will have less impact. (Ganesan, S.,
George, M., Jap, S., Palmatier, R.W. and Weitz, B. ,2009).

 Uniqueness of Inputs

Suppliers who offer specialty coffee beans or specialty flavors may have more bargaining power
due to limited supply. For example, a seller selling rare coffee beans indigenous to a region may
have significant bargaining power. (Starbucks ,2024).
4.Threat of Substitutes (strong force)
A powerful force or threat of change has impacted Starbucks Corporation. In the five forces
analysis model, this threat relates to the exchange of goods or services between the coffee shop
and the external environment. The following external factors led to significant changes at
Starbucks: (Greenspan, R. ,2022)

 Availability of Substitutes

Starbucks faces a major threat from substitute products such as tea, soft drinks and specialty
drinks. Besides coffee, customers have many options (Sherpa, 2021)

 Price Sensitivity of Customers

Because consumers will take price changes into consideration when choosing between Starbucks
and cheaper options. For example, if a competitor offers similar coffee at a lower price, some
customers will switch. (Rahmah and Pradana, 2022)

 Ease of Switching

Coffee chains are very easy to change, thus affecting the threat of change. For example, if
Starbucks is not convenient or available, customers can easily choose another coffee shop.
(Kim, 2018)
5.Threat of new entrants (moderate force)
Starbucks is up against a barrier of slight threat or new competitors. Weak Porter`s five forces
analysis model refers to the new entrants or the potential entry of players into the cafe industry.
The following external factors make new entrants into this industry a threat to Starbucks:
(Greenspan, R. 2022)

 Capital Requirement

The coffee industry needs a lot of capital to open stores, source quality coffee beans, and
maintain consistent standards. High resistance to entry may discourage new competitors.

Ex: Coffee startups that want to compete with Starbucks must invest heavily in basic
facilities, equipment, and marketing. (Luckin Coffee) (Luo, 2020)

 Brand Loyalty and Customer Switching Costs

Starbucks has a loyal customer base that has built up over the years, making it difficult for new
entrants to attract customers. However, switching costs for consumers are not very high.

Ex: Despite the emergence of new coffee lines, many loyal Starbucks customers continue to
support the brand due to familiarity and recognition. (Tu and Chang, 2012)

 Access to Distribution Channels

Coffee products need distribution channels such as stores, online stores and partnerships with
supermarkets. While the construction of these pipes may cause problems, they are also easily
accessible.

Ex: New coffee brands can leverage online platforms and third-party distributors to
attract customers without the initial investment in a physical store. (Bussines, 2023)
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Tu, Y.-T. and Chang, H.-C. (2012). Corporate Brand Image and Customer Satisfaction on
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https://doi.org/10.22610/jsds.v3i1.682.

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