Market Competition
Founded in 11971, in Seattle, Washington, the Starbucks Corporation now has its operational framework spread in nearly 27,339 locations across the world, thereby emerging as one of the leading coffeehouse chain in the global scenario. With average revenue of around 22.387 billion USD (2017) and with total asset valuation of nearly 14.336 billion USD (2017), the company employs nearly 238,000 people across the world (Starbucks.com, 2018). However, though the company still remains one of the prominent global leaders in this industry, over the years, the same has been facing increased competitions with new and innovative supply side providers entering the market in all parts of the world (Tu, Wang and Chang 2012). This calls for a robust framework for strategic planning and efficient management of the operations and activities of the Starbuck Corporation, which is discussed in the following sections of the report.
In the recent years, the near-monopolistic position in the coffeehouse industry of Starbucks has been to a considerable extent challenged by other similar companies coming into existence and gaining popularity rapidly, of which the primary ones are McDonalds and Dunkin Donuts. The recent market share of the different coffeehouse brands in the global scenario can be seen as follows:
Figure 1: Market share of Starbucks and other competitors
(Source: USA TODAY, 2018)
As can be seen from the above figure, the share of other competitors in the industry has been increasing, which in turn implies that Starbucks Corporation needs to implement new ideas in its operational framework, in order to stay ahead of its competitors globally, thereby retaining its position as a market leader in the concerned industry ((Hitt, Ireland and Hoskisson 2012). For the purpose of incorporating new ideas and increasing the efficiency of its overall operational framework, the company needs to have a robust strategic framework which can help to keep its activities aligned with the long term goals of the company.
The environmental analysis of an organization, consists of a comprehensive and wholesome analysis of all the influencing factors which are present in the operational environment of the organization and which have considerable implications on the different production, resource allocation, marketing and supply activities of the organization as well as on its revenue generation, prospects, long term profitability and sustainability of the organization (Gupta 2013).
The internal environment analysis of a business organization plays the vital role of determining the aspects related to the current resources present with the business, the cost effectiveness of its production process, the internal strengths and weaknesses present within the organizational framework of the company, the capabilities and limitations the same faces and the work conditions present (Babatunde and Adebisi 2012). On the other hand, the external environment analysis helps the companies to emphasize on the factors which are not inherently present within the company’s operational structure but are extremely crucial in determining the performance of the company in the short run as well as in the long run. These factors mainly include social, political, economic, commercial, financial and technological aspects in the environment where the company operates (Wang, Chen and Chen 2012). These environment analysis can be the analysis of both micro as well as macro factors. Keeping this into consideration, the following section of the report incorporates an overall environmental audit (both internal as well as external) of the Starbucks Corporation, using the relevant and widely used strategic management tools, which is as follows:
Internal Environment
The key factors, both micro and macro, which have to be taken into account while analyzing the internal as well as external environment under which the Starbucks Corporation operates, can be highlighted with the help of the following figure:
Figure 2: Internal and External Environment Factors in Businesses
(Source: Oxford College of Marketing Blog, 2018)
All these factors may not be important for all the organizations depending upon the nature of operations of the organization and the markets in which it ventures. Keeping this into consideration, the analysis of the environment of Starbucks is conducted in the following section:
The internal environment of Starbucks plays a crucial role in determining how the company operates in different aspects of its operational framework and what are the strengths and limitations of the same. The key components are discussed as follows:
Mission and Objectives- The primary objective of Starbucks is to inspire and nurture the spirit of living through coffee, one person and one cup at a time. This strong mission statement has encouraged the workers to put efforts in making the company a global name over the years. The company aims to create a third place, between home and work, where people can meet and converse over coffee (Starbucks Coffee Company, 2018).
Value Generation- The Company has a strong virtue of serving their customers with happiness. Starbucks prioritizes in producing and serving superior quality of coffee to all the sectors of their clientele. The quality served by the company has contributed significantly in making the company.
Organizational Structure- The Company has one of the most robust organizational structures which is a hybrid of different conventional organization structure. The company has efficient teams in each of its stores across the world, which is dedicated in delivering quality services to the customers. However, the management of the company is run in a top down monitoring process with the CEO on the top, which often creates hurdles in the management of its huge and globally dispersed operations (Ramaswamy and Ozcan 2016).
Corporate Culture- The Company believes in employee empowerment and employees are actually the faces of Starbucks. The corporate culture is of immense importance for each of the employees in Starbucks and is implemented in the activities of all the employees starting from the top most level of management. The company is also known for its corporate social responsibility and its commitment to the environment and society as a whole, which is also borne by the logo of the company, which is known as Siren in Greek mythology (Flamholtz and Randle 2012). The company is well known for its role in the implementing recycling in its production process.
External Environment
Human Resource Quality- The Company keeps strict vigilance in the aspect of training and behavioral management of each employee across the world. The employees of the company, especially in the stores, are highly approachable, amiable and warm. They try to ensure that the customers coming are fully satisfied both by the food and beverages as well as by the ambience of the stores.
Tangible Resources and Tie-ups- The Company enjoys the presence of huge financial resources as well as updated technologies which help them in gaining competitive edge over its rivals. The company offers nearly 30 blends of coffee in their stores thereby increasing the number of options in the hands of the customers and catering to clienteles of different tastes and preferences. The company has also formed alliance with organizations like Pepsi-Cola, Apple, Visa and Kraft Foods, thereby helping in spreading the popularity of the brand across the globe (Schultz 2012).
Customers- The Company enjoys a significant share of loyal customers, which can be attributed to the consistency in the quality of their products which they have maintained over the years.
Prices- The Company however, keeps the level of prices above the average market level, which given the fact that the number of competitors are increasing with time, can prove to be detrimental to the competitiveness of Starbucks.
Apart from the internal factors, inherently present within the operational domains of Starbucks Corporation, much of the company’s performance is also attributed to the micro as well as the macro external factors influencing the company and its production. Keeping this into consideration, both Micro as well as Macro Analysis of the external business environment is conducted as follows, using the most popularly used strategic management tools:
One of the primary strategic management models which are used in analyzing the micro factors of a company’s external environment is the Porter’s Five Forces Model, which analyzes the situations of the companies in terms of the following components:
Figure 3: Components of the Porter’s Five Forces Model
(Source: E. Dobbs 2014)
The micro environment of the business operations of Starbucks Corporation, based on the Porter’s Five Forces Model is as follows:
- a) Bargaining Power of the Buyers-The Company operates in a market where the commodities are mainly of medium luxury types, which in turn indicates that the price elasticity of demand for the products of Starbucks is moderately high. With the increase in the number of local as well as global competitors in every country, the options in the hands of the customers are also increasing. Starbucks however enjoys a significant number of loyal customers who prefer their coffee over other companies, in spite of a comparatively higher price level of the former (Grant 2016).
- b) Bargaining Power of the Suppliers-Starbucks is still considered as the most popular specialty coffee chain across the globe and over the years has developed huge economies of scale in their production, much of which can be attributed to the strong supply chain the company enjoys. Starbucks directly buy their primary ingredient Arabica beans directly from the producing countries- 50% from Latin America, 35% from the Pacific Rim and 15% from East Africa (Warren 2015). Due to the global presence of the company and its huge and increasing clientele, the suppliers need the company as much as the company needs them. The company being a strong source of their income, the suppliers do not enjoy very high bargaining power.
- c) Threat of Entry-The Company has been facing increased competition with the increase in the expansion of companies like Dunkin Donuts, McDonalds as well as country specific coffee chains. The entry cost in this industry is not much high, which clubbed with the increase in the scope of expansion, poses increased competition for the company in near future.
- d) Threat of Substitutes-The quality and blends of coffee provided by Starbucks have contributed significantly in its popularity. However, the new competitors are also providing quality products and variations in their menus, which encourage the experimenting customers to shift temporarily as well as permanently.
- e) Competitive Rivalry-One of the primary aspects in which the company has been facing stiff competition is the price level which the competitors are keeping for their products. This is even truer in the developing countries, where the local shops sell coffees and snacks at much lower prices, thereby capturing a major share of clienteles, especially the college going youth cartels, which generally prefer quality over quantity (Brize 2014).
To understand the components of the Macro Environment of Starbucks, PESTLE Analysis can be employed:
Figure 4: Components of PESTLE Analysis
(Source: PESTLE Analysis, 2018)
Political Factors- The main political issues in the operational framework of Starbucks is in the aspect of acquiring raw materials. The company acquires most of their materials from the developing countries, where the political awareness and activism is increasing. The company, thus, needs to abide by the laws and regulations as well as the tax and tariff policies in these countries.
Micro Analysis with Porter’s Five Forces Model
Economic Factors- The company has its operations in nearly all the countries of the world, thereby making the currency exchange rates, standard of living and expenditure patterns of the customers crucial for the company’s sales.
Social factors- The clientele of the company being multi-cultural and of different economic strata, their taste and preferences also vary massively. Along with that, the baby boomer generation is also retiring which implies an increase in the millennial segment of the potential clientele of the company (Haskova 2015).
Technological Factors- With increasing usage of internet and smart phones across the globe, the company has taken into consideration the technological innovations in its operations. It has tied up with Apple and also has its personalized app, where various discounts and coupons are provided (Askalidis 2015). The outlets are also equipped with Wi-Fi facilities to attract more Gen Y customers.
Environmental Factors- With rising awareness of environmental degradation, the activities of Starbucks are also subjected to scrutiny by the environmental activists as well as aware clientele. The company needs to constantly take into consideration the rules and regulations present in this aspects, both in the countries from where it gets its supplies as well as in those where it supplies. The company however has gained popularity by implementing recycling in its production process (Epstein and Buhovac 2014).
Legal Factors- With the licensing and trade regulations becoming more strict along with the increasing significance of customer’s forum, especially in the developing countries, the company has to make their operations more aligned with the legal requirements specific to the different countries.
In an overall scenario, the company enjoys a more or less stable external environment. The company, in spite of global turmoil still enjoys a considerable share of loyal clientele and a positive word of mouth of the existing customers. The overall positive and negative traits of the company can be seen from the following SWOT Analysis:
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Strengths · Presence across the globe · Considered as one of the 100 top companies to work for · Well motivated and trained employees · Huge variety and excellent quality of products · Commitments towards society and environment · Well designed apps and comfortable outlets |
Weaknesses · Needs to expand more in other countries than the USA, especially to tap the newly developing markets in the high developing countries · The products are priced higher than average, especially in the developing economies, due to the objective of company to provide only superior quality commodities |
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Opportunities · Immense scope of global expansion · Scope of co-branding with other manufacturers in foods and beverage industry · Technological advantages · New markets in the emerging developed economies · Increase in the share of customers who prefer quality over quantity |
Threats · Increase in the number of competitors · Increase in cost of dairy products due to recessionary environment · Cultural and preferential discrepancies · False publicity of poor treatment of first hand supply side providers due to political agendas in many developing countries |
In the contemporary period, with the purchasing power of the customers, especially in the developing countries like India, Middle East and BRICK nations, the popularity and demand for superior quality of foods and beverages is also increasing. Starbucks, therefore, can incorporate the strategy of expansion in these markets as one of the primary strategies for future implementations. Starbucks should also consider the aspects of franchising its operations like that of McDonalds in the new markets instead of owing all the operated stores. To increase the share of loyal clientele, the company can introduce loyalty cards, providing special benefits and cash backs to the regular customers (Maharani and Siahaya 2016). The opening of corporate themed stores, keeping in mind the necessities and preferences of the corporate customers, inclusive of internet facilities, area for meetings and provision of different newspapers can attract more customers to these outlets of the company. With the increase in the number of competitors, revamping of the menu of the outlets across the globe is of utmost importance, keeping in mind the region specific taste and preferences of the customers.
Macro Analysis with PESTLE Analysis
References
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