Strategic analysis of Starbucks

Introduction

Strategic management is an ongoing assessment, planning, analysis, and monitoring of all

factors required by an organization to meet its objectives and goals. An organization needs to

keep assessing its strategies for business success. A strategy is a plan of action designed to meet

or achieve goals and objectives. Alfred D. Chandler described the strategy as the determination

of a company's long-term objectives and goals, developing a course of action to achieve the

goals, and allocating resources needed to meet set goals and objectives. It means every

organization must develop a clear and practical course of action to achieve its long-term goals

and objectives. Consequently, strategy is all about creating fit among activities; therefore, an

organization needs to create a strategic fit to retain its competitive advantage over its rivals. An

organization can make three types of strategic fit. They include; second-order fit, simple

consistency, and optimization. One of the primary benefits of strategic fit is that it expresses the

degree to which a company has marched its resources and capabilities with available

opportunities in the business environment. The high degree of strategic fit means that the

company has been able to exploit available opportunities and reduce threats' negative impact. On

that note, an organization must put viable and sound strategies in place or create high strategic

fits that would improve its positioning and performance. Therefore, this paper discusses

Starbucks' strategies to ensure it remains competitive in the market. The report also recommends

some of the most effective strategies to improve Starbucks' positioning and general performance

in the market.  

Starbucks overview
 Starbucks Corporation is an American chain of coffeehouses with its head office in

Seattle, United States. It was established in 1971 as a roaster and retailer of whole bean and

ground spices, coffee, and tea. Today, Starbucks has positioned itself as the largest coffee

company, with over 33,833 stores in 80 countries. Starbucks has distinguished itself from its

close competitors as the provider of high-quality coffee products, thus, attracting millions of

customers worldwide and securing the largest market share of 36.7% in the United States.

Consequently, Starbucks is dedicated to its mission and vision. According to XXX, the Mission

statement acts as a guideline to create awareness among the organization's stakeholders with a

clear picture of what the company is fundamentally there to do. Employees get to understand

why the company exists and the kind of business it operates. XXX said the vision statement

enlightens the company stakeholders and what the business intends to achieve in the future. In

other words, the vision statement portrays the future picture of the company. Starbucks' mission

is to inspire and nurture the human spirit through the slogan of one person, one cup, and one

neighborhood at a time. Additionally, Starbucks's vision is to make it a premier purveyor of

high-quality coffee globally while upholding its principles, values, and steady growth.  

Starbucks Revenue growth

Starbucks 5-year revenue chart

 Revenue is an essential metric when analyzing an organization because it measures the

total value an organization brings in a certain period. For the last five years, Starbucks has been

increasing its total revenues. However, in 2020, the company experienced a decline in its total

revenue due to the impact of the Covid-19 Pandemic. In 2020, Starbucks recorded total revenue

of 23.52 billion dollars, the lowest since 2018. The company recovered from the Covid-19

Pandemic effects and recorded total revenue of 29-06 billion dollars, the highest in the last five

years. For the previous five years, Starbucks' revenue growth peaked in April 2022 at 31%, and it

hit its lowest point in September 2020 at -11.3%. That means Starbucks has adopted effective

strategies that enabled it to recover from the Civil-19 Pandemic impact in the shortest time

possible to record revenue growth of 31%. With increasing revenue growth, Starbucks has been

recording an increase in gross profit with a decline in 2020 due to decreased sales and revenues. 

External Analysis

PESTEL Framework

A strategically sound organization should consider the three layers of the environment:

the internal environment, sector/industry environment, and macro/external environment.

The PESTEL framework categorizes the external or macro-environment into six factors that

include; Political, Economic, Social, Technological, Ecological, and legal. All six factors impact

an organization; therefore, they should be analyzed and monitored closely for business success.

Political factors 

Government actions majorly drive political factors. They include things such as; taxation

change, political risks, government policies, changes to civil blocks, and foreign trade

regulations. The political factors have been affecting Starbucks' growth in different ways. For

example, high taxation imposed on coffee farmers in Brazil and Mexico has impacted the prices

of Starbucks products. The company has been paying higher prices for the coffee beans they

purchase, thus, increasing the price for a cup of coffee in its outlets. Additionally, Starbucks was

widely affected by the 9/11 bombing incident. The terror attack of 9/11 adversely affected

international trade relations between the United States and other countries, thus affecting the
Starbucks supply chain and its stores in some countries such as Saudi Arabia. Consequently,

Starbucks should always investigate the political stability of a country before its market

penetration since a change in government can lead to a change in taxation and legislation.

Starbucks should pay extra caution when expanding into countries assumed to be in political

turmoil or civil war, such as Yemen and Syria.  

Economic Factors

The economic factors that can adversely affect business operations include; exchange

rates, business cycles, unemployment rates, interest rates, and global differential growth rates.

With the ongoing global economic recession, Starbucks should adopt effective strategies to help

it deal with the economic recession. The ongoing global economic recession has affected

Starbucks' profitability since some customers have shifted to cheaper alternatives, thus, reducing

its sales volume. Starbucks needs to adopt an appropriate strategy to deal with rising labor and

operational costs and inflation. In 2017, Starbucks suffered a price war with its competitors such

as McDonald's and Costa Coffee. The competitive pricing adversely affected profits as it tried to

maintain its market share. According to XXX, exchange rates have regularly affected Starbucks

when dealing with international trade. Globalization of the coffee market has also been an issue

for Starbucks' supply chain since most of its suppliers or farmer have abandoned coffee farming

due to low earnings.

Social factors

According to XXX, any company's sales can be affected by social conditions; therefore,

an organization should handle social factors with a lot of caution. The critical social factors that

can adversely impact Starbucks sales include; lifestyle changes, changing cultures and

demographics, income contribution, and social networks within its premises. Starbucks can
easily suffer from the changes in the lifestyle of its customers since some customers may start

avoiding a high-calorie diet while observing a healthy diet that would decrease the company's

sales. High inflation rates experienced worldwide, causing the high cost of living, can force low

and middle-income earners to shift from Starbucks' expensive products to the alternatives

provided by its competitors. According to XXX, the population's average age is gradually getting

older with low birth rates. Today, Starbucks targets young people as its primary consumers.

However, the company should change its view in the long-term since the market proportion for

young consumers is diminishing. On that note, Starbucks should widen its target market to

involve older people. Consequently, it is a risk for the company to join new markets where the

local population has a poor attitude to work since it would make it challenging to conduct

recruits, training arduous, and high staff turnover. 

Technological factors

As new technologies emerge, the business world is rapidly changing due to technological

advancement. Businesses are replacing labor-intensive production with capital-intensive

production as more advanced machines are purchased to be used in the production process. On

that note, technological conditions can be a threat to Starbucks' growth in the long run.

Technology can hinder or catalyze the expansion of Starbucks. Some of the technological factors

that can affect Starbucks include; the emergence of discoveries and technologies such as Nano-

technology and internet development. Other technological factors include; the emergence of

innovative technology and biotechnological developments. High-tech coffee machines and easy

transport can make the coffee process from the farm to the mug faster and smoother. Technology

has eased the coffee home delivery services. A customer can order Starbucks products from

home, and the company can deliver the ordered products at ease and in the shortest time possible.
Technological advancement leading to the availability of coffee-making machines has increased

the level of competition in the industry since many of Starbucks' rivals can make high-quality

coffee. Therefore, Starbucks should adopt high-tech software upgrades to help it deal with the

rising competition. The company can improve the accessibility of its

website, www.starbucks.com, and improve the speed and quality of customer services offered on

the shop floor. Consequently, Starbuck should have a cutting-edge R&D department, which

means it should invest heavily in its resources R&D department to encourage innovation and

introduce new products to its menu.  

Legal factors 

According to XXX, legal issues can impact the company's growth either directly or

indirectly. That is not an exception with Starbuck since ongoing legal cases can create a negative

impression and thus, destroy its reputation. Some legal factors that can impact Starbucks include;

competition regulations, rules on ownership, corporate governance regulation, taxation, reporting

requirements, and environmental, labor, and consumer regulations. Starbucks should observe and

adhere to the trade laws imposed in various countries. Some countries impose tariffs during the

importation and exportation of goods. In that aspect, Starbucks should consider employment and

religious laws and abide by local planning regulations when penetrating new foreign markets. 

Ecological factors

Though ecological factors may not affect business operations directly, they can easily

influence its progress indirectly. The ecological factors involve environmental issues such as

climate change, waste, and pollution. On that note, the environmental factors that Starbucks

should consider in its operations include; energy problems, global warming, environmental

protection, waste disposal, recycling, and sustainable development. XXX argued that most
Starbucks customers are known ecological pollutants since they dispose of their waste of coffee

cups in the streets. On that note, Starbucks should consider its packaging for its coffee to ensure

the cups are biologically degradable. Consequently, Starbucks should adhere to laws that strict

the methods of disposing of waste. Some countries have laws that govern how an organization

should dispose of its waste. Starbucks should follow the business sustainability trend since its

strategy can help it attract more environmental-conscious customers. Additionally, the company

can support social and environment-related campaigns to market its brand and improve its

market positioning and performance. 

The five forces framework

Porter's Five Forces is a framework that helps organizations analyze their competitive

environment. According to XXX, Five Forces requires more detailed market knowledge than

PESTEL and SWOT. On that note, an organization should use the Five Forces framework to

determine factors affecting its profitability in the industry. Additionally, the Five Forces

framework helps a company make informed decisions on whether to join a specific sector,

increase its production level, or adopt new competitive strategies. The Five Forces include; the

threat of substitutes, the threat of new entrants, the bargaining power of suppliers, the bargaining

power of buyers, and competitive rivalry in the market. Among the Five Forces, rivalry among

the existing firms is considered the most powerful. 

The threats of new entrants 

New entrants pose a threat to the existing market players since the level of competition

increases as the market becomes saturated. New entrants can affect sales volumes and market

share for the existing firms. New entrants face different barriers that include; economies of scale,

differentiation and market penetration costs, government restrictions, and high cost of supply and

distribution channels. However, new entrants into the coffee industry do not pose a threat to

Starbucks. The threat of new entrants is measured through brand equity, supply chain cost, and

invested capital of new entrants. On that note, Starbucks is a well-established entity with deep

financial muscles and strong brand equity built on selling high-0quality coffee and, therefore,

cannot be shaken by a new entrant. As of November 2021, Starbucks had a market capitalization

of 137.85 billion dollars and 1.18 billion fully diluted shares. Starbucks has more than 33,833
stores in 80 countries worldwide, making it a market leader that enjoys significant market share.

Although numerous new coffee shops are joining the market, they do not pose any threat to

Starbucks; therefore, the threat of new entrants is considered less moderate. 

Threat of substitutes 

Substitutes are products that offer the same benefits to the consumer; thus, a customer

can quickly shift to an alternative if the substitute improves customer satisfaction, the substitute's

price or performance ratio is superior, and extra-industry effects. It is cheaper to purchase a cup

of coffee from a vending machine or make it home than to buy it in Starbucks outlets. For

example, McDonald's lattes cost 2.79 US dollars for a medium, while Starbucks medium cup

costs 4.70 US dollars. It means McDonald's lattes are cheaper by approximately 2 U.S. dollars

compared to Starbucks for the medium cup. Starbucks coffees are relatively expensive compared

to close substitutes, and customers can quickly shift to other available alternatives. Therefore, the

threat of substitutes to Starbucks is high.  

Bargaining power of buyers

The bargaining power of buyers can be defined as customers' ability to determine product

prices. It means if consumers are powerful, they can easily demand low prices, thus reducing the

company's profitability. Furthermore, customer power is considered high when they have low

switching costs, are concentrated, and can supply their inputs. Starbucks' customers can easily

switch coffee providers since they can easily purchase their coffee from other available coffee

shops in the market. Particularly in big cities such as New York, numerous coffee shops are

scattered on every street, enabling customers to switch between those shops with no problems.

Consequently, most Starbucks customers are individuals purchasing a coffee for themselves out

of their conscience. They do not make bulk orders. Instead, they make small daily orders. The
customers can also make coffee at home or the street vending machines. Therefore, the

bargaining power of buyers is high. 

Bargaining power of Suppliers

Suppliers' bargaining power is defined as suppliers' ability to determine the cost of inputs

or raw materials. If the suppliers are powerful, the company's profits are lower. Suppliers' power

is considered to be high when they can switch to high costs of inputs, they can integrate

forwards, and are few. According to the Starbucks website, the company outsources its raw

materials from farmers or suppliers. The company does not cultivate its raw materials; therefore,

it relies on suppliers for the availability of raw materials. The suppliers are expected to follow

Coffee and Farmer Equity (C.A.F.E.) practices when growing cocoa, tea, coffee, or any other

material required by coffee shops, including Starbucks. As a result, Starbucks can procure from

any supplier whose raw materials are of the quality needed, thus, reducing the bargaining power

of suppliers against Starbucks. Additionally, Starbucks is an international company with

thousands of stores in over 80 countries, giving it more bargaining power over suppliers. 

Competitive Rivalry

Competitive rivalry is a significant threat to the business's well-being and existence in the

market. Competitive rivalry is determined by the number of competitors operating in the

industry. The rivalry degree also depends on high fixed costs, low differentiation, industry

growth rate, and high exit barriers. Starbucks is facing stiff competition from local cafes and

other established companies operating in the coffee industry, including; Costa Coffee,

McDonald's McCafe, and Dunkin Donuts. Starbucks adopted a differentiation strategy as a way

of dealing with stiff competition in the market. It offers a wide range of drinks. Most of the

Starbucks competitors offer similar products that include; Americanos, lattes, and standard
coffee drinks, thus, increasing the competition in the industry. Therefore, Starbucks' competitive

rivalry is high. 

Internal analysis (VRIO, Competitive strategy)

VRIO

The VRIO framework helps a company identify its resources, giving it strategic capabilities and

a competitive edge. The VRIO framework involves four measurements of a company’s success:

value, rarity, inimitability, and organization support. An organization uses the VRIO framework

to develop new business strategies to help it retain its competitive advantage in the market.

VRIO analysis states that organization capabilities should create value to achieve sustainable

competitive advantage. That means non-value-adding resources can act as the company’s

weaknesses, thus, making the company lose market share. Consequently, the resources should be

rare so the company can improve its profitability. The resources should not be accessed easily by

close competitors. Moreover, the resources should be inimitable and organizationally embedded.

The capabilities and resources should be expensive for the rivals to access or imitate. The

organization needs to be well organized to exploit the capabilities and resources.

Starbucks has three primary strengths that give it a competitive advantage over its competitors.

The three strengths or capabilities include; a strong global presence, specialty coffee, and an

upscale and cozy atmosphere.

Starbucks Valuable? Rare? Inimitable? Organized? Effect on

capabilities competitive
advantage
Specialty Yes No No Yes Competitive
Coffee parity
Strong global Yes Yes Yes Yes Sustainable
presence competitive
advantage
 Upscale and Yes Yes No Yes Temporary
cozy competitive
atmosphere advantage

Strong Global Presence capability

Starbucks' strong global presence is considered a valuable asset of the company that increases its
revenues and strengthens its brand over other coffee shops. It is also rare since Starbucks is the
most recognized global coffee chain with over 33,833 stores in 80 countries. This capability is
considered inimitable and non-substitutable since no other coffee chain can gain such a large
global presence within a short-term period. It requires significant resources and time to gain a
global presence. Starbucks has taken advantage of having a strong global presence to offer
satisfactory customer services, high-quality coffee, and embrace different cultures, as indicated
on the company's website. Therefore, the global presence has made the company realize its
sustainable competitive advantage.   
Specialty Coffee
Starbucks coffee is considered valuable because it is unique and of high quality compared to its
competitors, such as Dunkin Donuts. Starbucks further includes calorie information for specialty
coffee on its menus to attract more customers, something its competitors do not do. However, the
specialty coffees are not limited to Starbucks since other coffee chains such as McDonald's
McCafe offer it year-round; therefore, it is not rare. Consequently, this capability has been
imitated by other coffee chains, which is not inimitable. Starbucks is well established to exploit
the specialty coffee capability and offers a variety of options while regularly changing its menu.
Customers who like new drinks will ever find something to drink at Starbucks. The specialty
capability made the company realize competitive parity. 
Upscale and Cozy Atmosphere
Starbucks values the locations of its stores since they are located in an atmosphere that gives
customers a reason to grab a cup of coffee any time of the day. Starbucks' website clearly states
that the company believes coffeehouses should be inviting, welcoming, and familiar places for
the customers to socialize; therefore, its stores are designed to reflect the unique character of the
neighborhoods they serve. According to XXX, Starbucks is the only coffee chain with an
upscale, sophisticated ambiance that encourages customers to come with their computers and
relax. Therefore, the capability is rare. However, the other coffee chains can easily copy
Starbucks' business model and renovate their stores to create upscale; therefore, this capability is
not inimitable. Starbucks is taking advantage of the Upscale and Cozy Atmosphere capability to
attract customers who enjoy the trendy lifestyle. Therefore, the competitive advantage brought
by Upscale and Cozy Atmosphere capability is temporary. 
 Competitive strategy
Michael Porter argued that three types of competitive strategies could help an organization
achieve a competitive advantage. They include; differentiation cost leadership and focus
strategy. According to XXX, a differentiation strategy involves producing unique products and
services that have value to the customers. XXX argued that product differentiation is the primary
competitive strategy of Starbucks that enables it to retain its competitive edge over other market
players. Through a differentiation strategy, Starbucks offers excellent customer experience and
high-quality coffee in its well-designed outlets with good ambiance and professional staff.
According to XXX, Starbucks outlets are characterized by welcoming décor with friendlier
baristas, which is not found in its competitors such as McDonald's McCafe. The differentiation
strategy of having unique and premium coffee drinking outlets has given the company a
sustained competitive advantage in the coffee industry. 
Recommendations
Starbucks is an international company with a strong and reputable brand. However, its products
can easily be imitated by new entrants in the market. Starbucks is recommended to adopt
appropriate strategies for protecting its business against imitation. It is highly recommended to
use aggressive innovation, particularly in product development. The company needs to invest
heavily in the R&D department in order to produce coffee products that are difficult to imitate.
Consequently, Starbucks has been using a Joint venture strategy to enter foreign markets.
However, the strategy can limit business exposure and weaken its market positioning. The joint
venture also causes difficulties in integrating and coordinating effectively in the business
operations. For that reason, Starbucks is recommended to use wholly-owned subsidiaries where
it would own total control of its business operations, thus, improving its market positioning.
Additionally, the wholly-owned subsidiaries strategy would help Starbucks achieve rapid market
entry through acquisitions. 
Conclusion
Strategic management is vital for the success of the business. An organization adopts a well-
designed course of action to help it achieve its long-term objective and goals. Starbucks should
use the most effective strategies to improve its market positioning and performance. Some key
frameworks that would help Starbucks improve its positioning include; PESTEL, VRIO, Five
Forces, and competitive strategy framework. Additionally, Starbucks is highly recommended to
invest heavily in its R&D department and use an aggressive innovation strategy to produce
products its competitors cannot imitate. It is also highly recommended to use a wholly-owned
subsidiaries strategy when entering new foreign markets. 

Recommendations

References