SWOT Analysis Of Starbucks In Malaysia: Strategies, Financial Performance, And External Environment Analysis

Starbucks’ key strategies

Starbucks is an American company that was established in 1971, and is headquartered in Seattle, WA (Starbucks, 2017). The company is a chief roster, vender and a major retailer of specialty coffee with numerous operations and licenced stores in 75 countries in different parts of the world. Starbucks majorly deals in quality and premium priced coffee, tea among other food commodities and beverages (Starbucks, 2017). As such, this report analyses Starbucks’ external and internal environment in the retail market for coffee and snacks in the Malaysia. The report further analyses Starbucks’ overall strategy in relation to financial performances. Moreover, the report examines Starbucks’ overall SWOT framework to specifically ascertain the company’s threats in the industry.

Product differentiation is one of the company’s key strategy that Starbucks has been using in the Malaysian market since its establishment. This entail offering different product mix of coffee beverages and enhanced customer services (Killing, 2012). For example, the company offers fresh juice products in partnership with Evolution Fresh Company. As such, the company has been able to create a premium valued brand that is expensive to replicate for rival firms.

Similarly, Starbucks is developing and infusing new technologies to argument its market dominance (Killing, 2012). By sustaining this uniqueness in production, the company will be able to lower buyers’ power since the consumers will have few alternative products (Killing, 2012). Starbucks’ current strategy stresses on enhanced innovativeness and sophistication, a fact accredited to increased global competition. Starbucks has utilized most of its core competencies through infusing efficient operations into small business units in the form of numerous chain stores. One of these basic methods is the improvement of Starbucks’ core competencies to attract and retain more consumers in the market to subscribe to their products (Markos and Sridevi, 2010).

Also, the company has entered into strategic alliances and smart acquisitions with other firms such as Teavana and Bay Breads. Another key strategy that Starbucks has been employing is rapid expansion into the international markets that are emerging, and are geographically diversified. Currently Starbucks has operations in over 72 countries globally. The stipulated strategies aim at helping Starbucks to establish substantial competitive advantage over the company’s closest market competitors such as Java house (Kindström, 2010).

Strengths

• Strong market competition and a global brand recognition due a large geographical presence with operations in 72 countries
• High quality coffee and related products
• Strategic locations and appealing of the company’s stores
• Competent human resource management
• Customer loyalty
• Diverse product provisions
• Technological applications such as the use of mobile applications

Weaknesses

• Relatively expensive products
• Overreliance on the coffee market

Opportunities

• Expanding into the emerging markets such as India, Mexico and China
• Expanding operations by offering tea and fresh juices
• Increased technological advances
• Discover new distribution channels
• Powerful brand image

Threats

• Intensified competitive rivalry among companies such as McDonalds, Costa Coffee, Pete’s Coffee and Dunkin Brands.
• The volatile nature of global coffee prices
• Fluctuating global economies
• Changing tastes and lifestyle choices among most MALAYSIA consumers
• Large number of substitute products such as tea and fresh juices  

The table below analysis Starbucks financials from 2012 to 2013. From the analysis, the company’s revenue has been experiencing a positive and consistent growth. The company’s operating income have also recorded tremendous improvements during the period apart from 2013 financial year.    

Financial year (ended September)	2012	2013	2014	2015	2016	TTM
Total Revenue	13300	14892	16448	19163	21316	21675
Costs of Revenue	5813	6382	6859	7788	8511	8620
Gross profit	7486	8510	9589	11375	12805	13055
Operating expenses
Sales, general and administrative	4719	5224	5630	6608	7425	7608
Other operating expenses	980	3611	878	1166	1208	1201
Total operating expenses	5700	8835	6508	7774	8633	8809
Operating income	1787	-325	3081	3601	4172	4246
Interest expense	33	28	64	70	81	89
Other income (expense )	305	124	143	372	108	124
Income before taxes	2059	-230	3160	3903	4199	4282
Provision for income taxes	674	-239	1092	1144	1380	1399
Net income from continuing operations	1385	9	2068	2759	2819	2883
Other	-1	0	0	-2	-1	-1
Net income	1384	8	2068	2757	2818	2882
Net income available to common shareholders	1384	0	2068	2757	2818	2882
Earnings per share	0.92	0.01	1.38	1.84	1.91	1.97
Basic	0.9	0.01	1.35	1.82	1.9	1.95
Diluted	0.9	0.01	1.35	1.82	1.9	1.95
Weighted average share outstanding
Basic	1509	1499	1506	1496	1472	1464
Diluted	1546	1525	1526	1513	1487	1478
EBITDA	2672	454	3972	4907	5310	5416

Starbucks SWOT Analysis

Table 1: Starbucks’ financial performance analysis between 2012 and 2016 FYs

Source: Nasdaq (2017

From the above financial analysis, it is evident that Starbucks have had a comprehensive operating efficiency coupled with a viable growth record cemented by stronger financial performances. Specifically, the company recorded stronger growth in revenue in the year 2016 with an 11.2% growth and approximately 2,000 new Starbucks stores opened world-wide. Starbucks enormous expansion into the global market has also resulted into an increase in the company’s operating profit margins. This can be attribute an increase in cash flow and sales revenue generated from the new stores. The company’s financial performances is projected to remain strong and viable with an expanding cash reserves from the new income generating sources.

In general, the financial analysis reveals Starbucks’ huge growth over the last five years, expanding operating profit margins and increase efficiency in production. Additionally, Starbuck’s healthy financial performances have attracted consumer and stakeholders’ confidence.                 

According to Makos (2015), PESTEL Analysis refers to a strategy tool used to comprehend the political, economic, technological, legal and environmental factors affecting a particular industry (external environmental dynamics).

Figure 1: PESTEL Framework

Source: Makos (2015)

Malaysia is considered to be one of the Southeast Asia’s successful Muslim majority democracies with relatively calm political temperatures (Financial Times, 2015). The government has directed massive investments towards educating its over 30m population. However, the country’s delicate political and ethnic balance threatens the survival of the booming economy. The country’s GDP is also robust with a projected 6% annual growth making it the second highest in Southeast Asia (Financial Times, 2015.

The major operation slowdown in 2009 due to the raging economic crisis affected the coffee and snacks industry in Malaysia (Helleiner, 2014). Also, fluctuating consumer tastes resulted into a reduction in sales that were made by major companies during the economic crisis. This because of the increase in inflation and a reduction in disposable income among most households (Wilbur and Farris, 2014). As such, most households opted for cheaper coffee drinks due to the dwindling budgets. The worldwide economic stagnation has affected the coffee and snacks market in the Malaysia (Murthy and Naidu, 2012). This can be also be attributed to the decrease in disposable income among most Malaysian households (Lim and Kim, 2012).

There is an increase in the working class and middle-class population in Malaysia. This implies that there is a significant change in consumer lifestyle and preferences (Lim and Kim, 2012). Health concerns surrounding the consumption of coffee have further limited operations in the industry. For example, being a stimulant, some health professionals stresses on restraint in coffee consumption (Murthy and Naidu, 2012). The population growth rate in Malaysia also plays an important role in influencing sales and production of products. As such, the ageing population of Malaysia has greatly affected sales given that most beverage products actually concentrates on the relatively younger generations.        

Starbucks’ financial performance analysis between 2012 and 2016 FYs

The coffee and snacks industry in the Malaysia is experiencing a rapid change in technology. For example, the company has invested in mobile payment technologies to facilitate operations at the company (De Luca and Pegan, 2014). The company also introduced strong information technology platforms to increase “Starbucks experiences” and to increase its competitive advantage (Wilbur and Farris, 2014). The company has been able to attain this through establishing comprehensive unique IT infrastructural frameworks such as mobile apps.           

Malaysia also adopted the Kyoto Protocol that stipulated measures to enhance environmental protection. As such, the government has established strict measures that include an increase in taxation among other regulatory pressures to control GHG’s emissions from Malaysian companies (Performance Works, 2013). The Malaysian government also encourages companies operating in the Retail coffee and beverage industry to consider producing eco-friendly product packaging among other environmental guidelines (Starbucks, 2017). For instance, the Malaysian government encourages firms increase their use of recyclable packaging bags to limit potential pollutions.

The limited regulations, observation and execution of policies on food quality among other related hygiene conditions, and the increased demand for quality coffee has uniquely affected the industry (Henry, 2011).  

Porter (2008), defines Porter’s 5 Forces as the five competitive forces shaping operations is a particular market, and are crucial in establishing related strengths and weaknesses. According to Porter (2008), competitive rivalry, new entrants, buyers’ power, suppliers’ power and substitute products and services are some of the Porters 5 forces (see figure below). 

Figure 2: Porter’s 5

Source: Porter (2008)

The possible threat of new competitors into the industry is moderate. The moderate threat can be attributed to the relatively low barrier to entry that may discourage new rivals. Also, the initial investment into the industry is not significantly high especially when starting a small local shop or business. As such, smaller companies can easily compete because the consumers have no switching costs when opting for other brands. Notably, the industry is also moderately saturated with dominant companies such as Starbucks having larger market share. Such well-established companies have larger economies of scale with relatively low prices, enhanced efficiency in operations and comprehensive market share (Anton, 2015). Therefore, barrier to entry is moderately high given that new competitors have to differentiate themselves based on quality and prices.

The possible threat of substitute products in the industry is high. This can be attributed presence of numerous substitute drinks to coffee such as tea, fruit juices, water, energy drinks, and soda among other beverages. The social experiences at coffee shops can also be substitutes by bars and pubs offering various non-alcoholic drinks. Also, some consumers may opt for home-made coffee using coffee makers. Notably, the switching costs for consumers for opting to purchase substitutes is also negligible (Hitt et al., 2102). 

External Environment Analysis

The buyers’ bargaining power Malaysian retail coffee and snacks industry is moderate. This is because, even though there are many buyers in the industry, the buyers cannot demand a price discount. Also, the products offered in the industry are vertically differentiated to various consumer bases with limited volume purchases, and this reduces the power of buyers in the industry. This can be accredited to the fact that most coffee consumers have moderate sensitivity to premium prices as they are more particular about the quality of the products (Amit and Zott, 2012).

There is a relatively low power of the suppliers in the Retail Coffee and Snacks Industry. This is because coffee beans are grown in many regions around the world. As such, large companies in the industry with larger market share can easily switch suppliers. Also, established companies in the industry directly controls the suppliers business and may significantly influence the price of coffee beans (Hofmann, 2010).

Competitive Rivalry   

The strength of market rivalry in the Retail Coffee and Snacks Industry is high. The high competitive rivalry can be attributed to the many companies operating in the industry such as Starbucks. Also, most of the products in the industry are differentiated with relatively low prices further causing higher level of intensity market competition. Some of the common market competitors include McDonalds, Costa Coffee, Pete’s Coffee and Dunkin Brands (Starbucks, 2017).      

According to Porter (2008), value chain refers to the creation and sustenance of value and superior performances in an industry. The analysis gives comprehensive analysis of such factors that adds value to the operations within an industry. Such operations are categorised into primary and secondary activities that are crucial for the attainment of competitive edge (Bolwig et al., 2010). The figure below is a value chain model. 

Figure 3:  Value chain framework

Source: Porter (2008)

Primary Activities

Under inbound logistics, Starbucks sources its coffee beans from various producers and suppliers. The company has a great relationship with its coffee beans suppliers based on a comprehensive supply chain management system (Agarwal and Vijayvargy, 2011). At Starbucks, the inbound logistics also entail the storage of raw materials and final products. To facilitate such inbound logistics, Starbucks have comprehensive warehouses that are used to store coffee beans among other related products.  

Under operations, the company operates in close to 72 countries worldwide (Agarwal and Vijayvargy, 2011). The company’s stores are uniquely modelled to give refreshing social experiences to consumers. The stores are also efficiently operated and properly licenced by the respective governments in the countries of operation. Also, operations at Starbucks involves the conversion of coffee beans into various Starbucks coffee products (Agarwal and Vijayvargy, 2011). The company’s coffee products are of higher quality and sold at premium prices assisting Starbucks to attract an expanded market base.

PESTEL Analysis

Based on outbound logistic, Starbucks’ products are mostly sold through large box merchants with all payments made at the sources. Also, the company has prepaid cards and mobile payment platforms that facilitates the company’s logistics. Starbucks have an experienced team of specialists who are facilitating every product acquisition and development procedures (Frost et al., 2010). Moreover, the company’s well-spread and strategic stores in the Malaysia with numerous stores globally that have further increased consumers access to a range of Starbucks’ products.  

Under sales and marketing, the company has invested massively on its marketing activities with major reliance on Starbucks’ impressive market reputations. Such reputations are primarily based on the eminence of the Starbucks’ products and the unique customer services. This has enabled the company to draw a larger number of consumers to its products. Starbucks’ promotional campaigns have further facilitated augmented the firm’s revenue and growth of profits and operations. Correspondingly, under services, Starbucks has a global reputation of superior customer services to its diverse group of consumers. Also, Starbucks’s exceptional customer services has helped the firm to maintain its competitive advantage in the market (Frost et al., 2010).

Based on firm infrastructure, Starbucks have well-designed and artistically exquisite chain of stores. The company’s operations are also supported by efficient finance, accounting and legal frameworks. Correspondingly, the company’s human resource management stresses on employee empowerment coupled with an effective human capital management (Frost et al., 2010). Starbucks has also invested on a number of innovative technologies such as mobile payment applications that have further facilitated operations in the company.  Under procurement, Starbucks obtains most of its products from various product suppliers of coffee beans.       

The company’s primary competency lies in its inherent ability to efficiently leverage its differentiation strategy to establish premium-priced and high quality beverages and snacks. The company is well-reputed for selling finest quality coffee among other related products (Rothaermel, 2015). Every Starbucks’ customer is offered unique social experiences when inside Starbucks stores. The customer services are supreme with well-polished and maintained stores. This has earned the Starbucks customer loyalty with a huge customer base. Another core competency is the company’s HRM values that are based on establishing viable relationships with the suppliers and employees (Gobble, 2013).   

1.Solution to Starbucks Threats

The company needs to enhance its services through customer relations by facilitating their marketing strategies through the internet such as Facebook, and Twitter since this will expand their customer base. Moreover, the firm needs to diverse the products offered to minimize threats of merchandise substitution by the clients to other industries. Significantly, the enterprise needs a constant supplier to avoid running short of goods to be used. Relatively, the firm should embark on amalgamation with other companies to increase its profitability and lower the cost of production.    

This report recommends that Starbucks should invest more in emerging markets such as India and Mexico to explore the untapped rising middle-class population. As such the company should introduce unique mix of products and prices that resonate with every targeted market. Specifically, the company should target international expansion in Tea and Fresh juices by building up these product mixes along its primary product (coffee). International expansions will help Starbucks to reduce its overreliance on the Malaysian market and effectively penetrate other global markets. 

The report further recommend that Starbucks should use a cost leadership strategy to sustain its competitive edge in the Retail Coffee and Snacks Industry in Malaysia. Given the intense competitive rivalry in the industry, successful implementation of this strategy will help Starbucks to transfer its core competencies and capabilities, and to establish an expanded market share locally and internationally. Cost leadership strategy is one of the current strategy that Starbucks is using to penetrate different markets globally, and this report recommends that the company should proceed with its current strategy based on numerous reasons. Firstly, this strategy will help the company to sustain its market edge in an otherwise competitive Retail Coffee and Snacks Industry.          

Thus, the report also recommends that Starbucks should sustain its current differentiation strategy in the Retail Coffee and Snacks Industry. Through this strategy, the company will be able attain and retain an expanded market share. This strategy is particularly crucial in a competitive market such as the coffee industry in Malaysia (Ter Wal and Boschma, 2011). Through this strategy, Starbucks will also be in a position to penetrate other markets globally and augment its strong market position. By sustaining this uniqueness in production, the company will be able to lower buyers’ power since the consumers will have few alternative products (Tavitiyaman et al., 2011).

6.Conclusion

Starbucks is currently one of the coffee and snacks retail company in the world with an impressive market reputation of quality products. The company’s strong market position can be attributed to its appropriate management strategies that it has used to penetrate different markets. The company’s core competencies such as large market share and quality products and services have also helped in strengthening the company’s market position. Improving core competencies based on its current strategies, therefore, has also assisted Starbucks to a competitive advantage in an industry that is faced with aggressive competitive rivalry. The analysis of the company’s internal and external environment reveals the company’s strong position in the Malaysian and global coffee industry.   

References

Agarwal, G. and Vijayvargy, L. (2011) ‘An application of supplier selection in supply chain for modeling of intangibles: A case study of multinational Food Coffee industry,’ African Journal of Business Management, 5(28), p.11505.

Amit, R. and Zott, C. (2012) ‘Creating value through business model innovation’, MIT Sloan Management Review, p.53.

Anton, R. (2015) ‘An Integrated Strategy Framework (ISF) for Combining Porter’s 5-Forces, Diamond, PESTEL, and SWOT Analysis’.

Bolwig, S., Ponte, S., Du Toit, A., Riisgaard, L. and Halberg, N. (2010). Integrating poverty and environmental concerns into value?chain analysis: a conceptual framework. Development Policy Review, 28(2), pp.173-194.

De Luca, P. and Pegan, G. (2014) ‘The Coffee Shop and Customer Experience: A Study of the US Market,’ Musso F. e Druica E., a cura di. Handbook of Research on Retailer-Consumer Relationship Development. IGI Global, pp.173-196.

Financial Times (2015) The political risks in Malaysia are growing. Retrieved from: https://www.ft.com/content/8ceb5f68-d7ac-11e4-849b-00144feab7de

Frost, W., Laing, J., Wheeler, F. and Reeves, K. (2010) ‘Coffee culture, heritage and destination image: Melbourne and the Italian model,’ Coffee culture, destinations and tourism, 24, p.99.

Gobble, M.M. (2013) ‘Innovating the corporation,’ Research-Technology Management, 56(6), pp.61-65.

Helleiner, E. (2014) The status quo crisis: Global financial governance after the 2008 meltdown. Oxford University Press.

Henry, A. (2011) Understanding strategic management. Oxford: Oxford University Press.

Hitt, M. Ireland, R. D. and Hoskisson, R. (2012) Strategic management cases: competitiveness and globalization.South Western: Cengage Learning.

Hofmann, E. (2010) ‘Linking corporate strategy and supply chain management’, International Journal of Physical Distribution and Logistics Management, 40(4), pp.256-276.

Killing, P. (2012) Strategies for joint venture success (RLE international business) (Vol. 22). Routledge.

Kindström, D. (2010) ‘Towards a service-based business model–Key aspects for future competitive advantage,’ European Management Journal, 28(6), pp.479-490.

Lim, Y.H. and Kim, S.H. (2012) ‘Survey on consumption of coffee beverages and energy contribution ratios of coffee beverages and accompanying snacks by college students in Daejeon city and Chungnam province in Korea,’ Journal of the Korean Society of Food Culture, 27(3), pp.240-250.

Makos, J. (2015) ‘An Overview of the PESTEL Framework.’ PESTLE Analysis, 18.

Markos, S. and Sridevi, M.S. (2010) ‘Employee engagement: The key to improving performance,’ International Journal of Business and Management, 5(12), pp.89-96.

Murthy, P.S. and Naidu, M.M. (2012) ‘Sustainable management of coffee industry by-products and value addition—A review,’ Resources, Conservation and recycling, 66, pp.45-58.

Nasdaq (2017) SBUX Company Financials. Retrieved from: https://www.nasdaq.com/symbol/sbux/financials?query=income-statement (Accessed 5^th April 2017).  

Performance Works (2013) Change management: Why change? What is environmental scanning? – Performance Works. [Online] Available at: https://www.performance-works.co.uk/2013/03/27/change-management-why-change/ (Accessed 21^st Apr. 2016).

Porter, M. E. (2008) Competitive advantage: Creating and sustaining superior performance. New York: The Free Press.

Rothaermel, F.T. (2015) Strategic management. New York, NY: McGraw-Hill.

Starbucks (2017) Experiments turned into Experiences. Retrieved from: https://www.starbucks.com.my/ (Accessed 5^th April 2017).  

Tanwar, R. (2013) ‘Porter’s Generic Competitive Strategies’, IOSR Journal of Business and Management, 15(1), pp.11-17.

Tavitiyaman, P. Qu, H. and Zhang, H. Q. (2011) ‘The impact of industry force factors on resource competitive strategies and hotel performance’, International Journal of Hospitality Management, 30(3), pp.648-657.

Ter Wal, A. L. and Boschma, R. (2011) ‘Co-evolution of firms, industries and networks in space’, Regional Studies, 45(7), pp.919-933.

Wilbur, K.C. and Farris, P.W. (2014) ‘Distribution and market share,’ Journal of Retailing, 90(2), pp.154-167.