STARBUCKS Market Analysis

MICRO&MACROENVIRONMENTAL FACTORS
MIRELA GROSU | MARKETING | 10.10.2016

Introduction
1.1 History of Starbucks Coffee Company
Starbucks Company has been referred to as a global coffee enterprise as well as a coffee
house chain located in Seattle, Washington. Starbucks have been nominated as one of the
largest coffee houses all over the globe. It has approximately 21,000 + stores located in 61
countries all over the world. Some of the relevant figures regarding the same are 14,000
stores in United States, 1,300 in Canada, 1,000 in Japan, 500 in South Korea, 800 in United
Kingdom, 750 in China, 300 in Taiwan, 350 in Mexico & 170 in Thailand.
The very first store of Starbucks coffee houses was opened in Seattle Washington in the
year 1971. This store was opened by three partners i.e. Bowker, Baldwin & Siegl. These
three partners were inspired by one of the leading coffee entrepreneur namely Alfred Peet.
Alfred Peet was dealing with high end coffee equipments & coffee beans. The initial years of
Starbucks i.e. 1971 1976 were accomplished at 2000 Western Avenue & soon shifted to
1912 Pike Place. Initially the company sold only roasted coffee & did not start the brewing
process due to lack of equipments etc. In the first year, Starbucks purchased green coffee
beans from Peet & then started to buy the same directly from the growers (Starbucks
Corporation, 2012).
1.2 Market position
Starbucks has been referred to as one of the largest coffeehouses within the coffee market.
Starbucks is a single coffee shop that does not has a single direct competitor. Its closest
competitor is Caribou coffee house with less than 5% number of stores as compared to more
than 11,000 stores of Starbucks situated in United States. Starbucks hold a dominant
position within coffeehouse market (Starbucks Corporation, 2012).
1.3 Market strategy
In order to attain high levels of success every enterprise needs to adopt
some marketingstrategy. Same way, Starbucks opted for various marketing strategies which
would help to expand & grab one of the highest shares within the brewery industry. Some of
the strategies opted by Starbucks were to buy the competitors leases, intentionally operate
under losses & make its presence felt in several locations. For example, Starbucks took its
first mover advantage in the UK market by buying the Seattle Coffee House but after
sometime they realized opening of stores at such prime locations have led to financial loss
(Starbucks

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MICRO ENVIRONMENT: PORTER`S 5 FORCES MODEL

2.4) Porters Five Forces Analysis of the Retail Coffee and Snacks Industry: Threat of
New Entrants: Moderate There is a moderate threat of new entrants into the industry as
the barriers to entry are not high enough to discourage new competitors to enter the
market. (Appendix 2 shows Barriers to Entry Checklist). The industrys saturation is
moderately high with a monopolistic competition structure. For new entrants, the initial
investment is not significant as they can lease stores, equipment etc. at a moderate level
of investment. At a localized level, small coffee shops can compete with the likes of
Starbucks and Dunkin Brands because there are no switching costs for the consumers.
Even thought its a competitive industry, the possibility of new entrants to be successful
in the industry is moderate. But this relatively easy entry into the market is usually
countered by large incumbent brands identities like Starbucks who have achieved
economies of scale by lowering cost, improved efficiency with a huge market share.
There is a moderately high barrier for the new entrants as they differentiate themselves
from Starbucks product quality, its prime real estate locations, and its store ecosystem
experience.6 The incumbent firms like Starbucks have a larger scale and scope,
yielding them a learning curve advantage and favorable access to raw material with the
relationship they build with their suppliers. The expected retaliation from wellestablished companies for brand equity, resources, prime real estate locations and price
competition are moderately high, which creates a moderate barrier to entry.
Threat of Substitutes: High There are many reasonable substitute beverages to coffee,
which are mainly tea, fruit juices, water, sodas, energy drinks etc. Bars and Pubs with
non/alcoholic beverages could also substitute for the social experience of Starbucks
Consumers could also make their own home produced coffee with household premium
coffee makers at a fraction of the cost for buying from premium coffee retailers like
Starbucks. There are no switching costs for the consumers for switching to substitutes,
which makes the threat high. But its important to note that industry leaders like
Starbucks are currently trying to counter this threat by selling coffee makers, premium
coffee packs in grocery stores but this threat still puts pressure their the margins.
Bargaining Power of Buyers: Moderate to Low Pressure There are many different
buyers in this industry and no single buyer can demand price concession. It offers
vertically differentiated products with a diverse consumer base, which make relatively
low volume purchases, which erodes the buyers power. Even though there are no
switching costs with high availability of substitute products, industry leaders like
Starbucks prices its product mix in relation to rivals stores with prevailing market price

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elasticity and competitive premium pricing. Consumers have a moderate sensitivity in

premium coffee retailing as they pay a premium for higher quality products but are
watchful of excessive premium in relation product quality.
Bargaining Power of Suppliers: Low to Moderate Pressure The main inputs into the
value chain of Starbucks is coffee beans and premium Arabica coffee grown in select
regions which are standard inputs, which makes the cost of switching between substitute
suppliers, moderately low. Strategic Analysis Of Starbucks Corporation Starbucks,
with its size and scale, has the power to take advantage of its suppliers but it maintains a
Fair trade certified coffee under its coffee and farmer equity (C.A.F.E) program, which
gives its suppliers a fair partnership status, which yields them some moderately, low
power.7 The suppliers in the industry also pose a low threat of competing against
Starbucks by forward vertical integration, which lowers their power. Starbucks also
forms a highly important part of the suppliers business, due its size and scope, which
make the power of the suppliers lower. Given these factors, suppliers pose a moderately
low bargaining power.
Intensity of Competitive Rivalry: High to Moderate The industry has a monopolistic
competition, with Starbucks having the largest markets share and its closest competitors
also having a significant market share, creating significant pressure on Starbucks.
Consumers do have any cost of switching to other competitors, which crates high
intensity in rivalry. But its important to note that Starbucks maintain some competitive
advantage as it differentiates its products with premium products and services, which
cause a moderate level of intensity in competition. The industry is mature and growth
rate has been moderately low which cause the intensity of competition among the
companies to be moderately high due to all of them seeking to increase market shaper
from established firms like Starbucks. This industry does not have over capacity
currently and all these factors contribute to the intensity among rivals to be moderately
high. Looking at the Porters five forces analysis, we can get an aggregate industry
analysis that the strength of forces and the profitability in the retail coffee and snacks
industry are Moderate.
The United States Segment
Starbucks has been doing very well in The United States of America (USA) for the past many
years as of now. It has been evaluated that, the revenues earned by Starbucks in US was in
double digits even in the initial years of its establishment. It has been reported that, there are
approximately 14,000 stores in United States (U.S.).During 1980, the total sales of coffee in
USA were falling but at the same time, sales for specialty coffee were on roll. It comprised of
10% of the total market in the year 1989.

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Macro Environment (PESTEL)

Starbucks Company has been referred to as a premier coffee house marketer or a retailer. In
order to study its macro environment, a detailed Political Economical Social Technological
Environment & Legal (PESTEL) analysis shall be done.

Political Aspect: The first factor which shall be kept in mind while studying the macro

environment of Starbucks is the political aspect. It has been seen that, Starbucks has
significant levels of presence in the coffee market. Starbucks consists of various types of
products for government offices, corporate offices, etc. In the year 2011, Seattle Coffee has
been reported a growth double digit. It shall be taken into consideration that, the volume of
growth in the overall coffee market has declined by 2.5% whereas the volume at which
Starbucks has increased is by more than 12% (Schrage, 2004).

Economic Aspect: The second factor to be kept in mind while studying the macro

environment of Starbucks is the economic aspect. For the financial year 2010 & 2011, the
leading coffee retailer closed approximately 70 company operated stores all across the
globe. United States (US) has been referred to as one of the largest contributor of coffee;
closure of the stores in the recent past has led to a decrease in the overall profits earned by
the same (Schrage, 2004).

Social Factor: The third factor which shall be kept in mind while evaluating the macro

environment for Starbucks refers to the social factor. Lately, Starbucks have been reported
with increased instances of product recalls. In the year 2011, the department of Agriculture
Food Safety inspected Listeria bacteria in the chicken to be used at Starbucks. In order to be
on the safer side, the Department of Food & Safety recalled all the Chicken Chipotle Wraps
and Chicken Hummus boxed meals(Schrage, 2004).

Technological Factor: The fourth factor which shall be kept in mind while evaluating the

macro environment for Starbucks refers to the technological aspect. Starbucks being one of
the reputed coffee houses had a robust distribution strategy which helped them to stay ahead
of the competition. In the recent years, Starbucks had opted for various types of distribution
strategies in order to reach maximum number of customer in a stipulated time frame
(Schrage, 2004). The company has been trying to opt for various technological
advancements such as use internet & the mobile applications. Starbucks launched a mobile
payment system. This technological advancement helped the customers to pay while sitting
at the store with the help of their smart phones. In the later years, Starbucks also launched a
i-phone mobile payment application. With this application, the customers would be able to
have an access of their favorite Starbucks card application. With the use of various

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technologies, the organization was not only masses but also offered a convenient way of
dealing with the transactions. The use of technology will help the enterprise to break through
the various distribution channels & be a step ahead of its immediate competitors.

PESTLE analysis of Starbucks.

The

constant

global

economic

recession

has

dented

the

macroeconomic environment which Starbucks operates in. The

recession has hurt the consumers purchasing power.
Recent market research reflects that consumers have not cut
down on their coffee consumption. Instead, they are shifting
to options with lower prices. This means that the firm can still
influence the buying power by offering cheaper products.
Starbucks has taken steps to be a part of the mobile computing
revolution. It has worked with Apple and introduced discounted
coupons via iPhone apps. They also attempt co-branding and cross
selling. Starbucks is well poised to enjoy the benefits of the
Smartphone revolution.
Consumers in the US are also becoming more and more conscious
of ethics. This means the brands they buy from should abide by
social and environmental norms during production. Consumer
awareness is challenging Starbucks.
These are the most obvious factors affecting the firms business. But
there are many other factors seeking attention.
I have divided and organized these issues according to the PESTLE
factors. You will find the details for how the factors impact business
for Starbucks below.

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IMPACTS OF POLITICAL FACTORS ON STARBUCKS

The main political factor is about sourcing the raw materials. This
has gathered a lot of the attention from politicians in the West and
from the source countries. For this reason, the company wants to
adhere to social and environmental norms. It is willing to follow the
sourcing strategies. It gives importance to fair trade practices.
Another

impact

is

the

need

to follow

the

laws

and

regulations in the countries from where Starbucks buys the raw

materials. Activism and increased political awareness in developing
countries have made his essential.
The regulatory pressures within the home market in the US are also
a factor. Multinationals based in the US are now subject to greater
scrutiny of the business processes. The company must monitor
political stability within the country as well.
Some other factors to consider are:

Tax policy

Employment laws

IMPACTS OF ECONOMIC FACTORS ON STARBUCKS

The ongoing global economic recession is the prime external

economic driver for Starbucks. As I already mentioned, this factor
dented the profitability of Starbucks. This has convinced buyers to
shift to cheaper alternatives. As they did not quit buying coffee,
Starbucks should seek an opportunity here.
The company has to deal with rising labor and operational costs. The
inflationary environment and falling profitability is causing a lot of
stress.
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Some other economic factors which can affect Starbucks are:

Local currency exchange rates

Local economic environment in different markets

Taxation level

IMPACTS OF SOCIO-CULTURAL FACTORS ON STARBUCKS

As already stated, Starbucks can offer cheaper products but it might

have to sacrifice the quality. This is the main socio-cultural challenge
that the start-up faces. It will expand consumer base to include the
buyers from the lower and the middle-income tiers.
The green and ethical chic consumers are also concerning. They
fret about social and environmental costs of the brands. Starbucks
has to be aware of this trend.
The baby boomer generation is retiring. This means spending by
older consumers will decrease. Now, Starbucks will have to
tap the Gen X and the Millennials as customers.
Other socio-cultural factors to focus on are:

Changing family patterns in USA and Europe

Consumer preferences

Changing work patterns

Changes in lifestyles of population

The level of education of the population in local markets

Changing values among population

IMPACTS OF TECHNOLOGICAL FACTORS ON STARBUCKS

Starbucks is in a good position to enjoy benefits of the emerging

mobile wave. Its partnership with Apple to bring app based
discount coupons is helping it ride the mobile wave easily.
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The company introduced Wi-Fi capabilities in its outlets already.

Internet is important to the consumers. They can now surf the web
and do work while sipping Starbucks coffee. This is an added value
to the brand. It enhances the overall consumer experience.
Starbucks is also enabling mobile payments. They are testing this in
pilot locations in the US.
Some other technological factors to keep in mind are:

Emergence of innovative technology

Biotechnological developments

Developments in agriculture

IMPACTS OF ENVIRONMENTAL FACTORS ON STARBUCKS

Many

Starbucks

business

practices

concern

activists

and

international advocacy groups. Even the consumers have expressed

issues. So, the company should take these into account to continue
holding consumers trust.
Some of the other environmental factors Starbucks should worry
about are:

Environmental rules and regulations

Environmental disasters in countries which produce coffee

beans
Global warming and other environmental issues in a
global level
IMPACTS OF LEGAL FACTORS ON STARBUCKS

Starbucks must ensure that it does not violate any laws and
regulations in the home market and countries from where they buy
raw materials.
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It should also stay alert about introduction of caffeine production

and consumption related policies and regulations by health
authorities.
Others factors that might affect the company are:

Introduction of stricter customs and trade regulations

Licensing regulations related to the industry.

The PESTLE analysis above proves that Starbucks has a quite

stable external environment. The key reason behind this
might be because it operates in the Food and Beverages industry.
This means consumers might reduce consumption partially but will
not stop buying completely.
So, as recession is the most important factor, Starbucks has to lower
costs and increase the value. This way it can retain its consumer
base and also gain consumer loyalty.

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