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Strategic business analysis of Starbucks
Isabelle Taylor | 24 Mar,2021
Starbucks company and its history:
Starbucks is an American company that is an immensely popular and globally accredited multinational coffeehouse chain. In fact, Starbucks is the world’s largest coffeehouse chain which brings a second wave of coffee culture in the US as well as other countries. The history of Starbucks goes back to 1971 when it was founded by Jerry Baldwin, Zev Siegl, and Gordon Bowker at Elliott Bay, Washington. Starbucks registered as a public company and comes under the scope of the coffee shop industry. The founders opened the first store in Seattle in the 2000s with a mission to sell high-quality coffee beans where the main operations of Starbucks included the selling of roasted coffee beans and not brewed coffee (Starbucks Company Timeline, 2021).
However, the founders sold the company to Howard Schultz and this move helped the company to expand across new dimensions. From primarily being a coffee bean store, it swiftly changed gears to being a leading coffee beverages company. In 2001, the company introduced its ethical coffee sourcing guidelines under the supply chain. It also issued Starbucks cards for customers this year along with expansion to countries such as Austria, Switzerland, Wales, etc. The company also started buying coffee beans directly from the farmers and in 2004 it started a Farmers Support Centre in Costa Rica for better supplier relations and to support them along with continuous expansion in new countries (Starbucks Company Timeline, 2021). Further, in the year 2012, the company entered into new business by acquiring Teavana as its tea category products, and this year, it expanded business in Finland, India, Norway, and so on as well.
Further, the company launched its mobile app in 2013 for better customer services and it has been analyzed that the company also used this platform for promotions where the “Tweet-a-coffee” program was launched under which gift cards were provided to customers. In 2015, it launched a new product category of iced coffee and handcrafted smoothies. This year, the company also achieved the target of 99% ethically sourced coffee milestone and also explained its Starbucks College Achievement Plan for its partners for their graduation. Starbucks started its business in the US but today it has more than 30,000 locations in around 70 countries over the world hence taking its coffee to different corners of the planet in this era of globalization. It has been analyzed that the company has not limited its business to different types of coffees but also introduced Teavana tea products, snacks, juices, etc. with the changing customer preferences. In the year 2018, Starbucks also made it to the Fortune 500 list of US Corporations and enjoyed high market share value during this time. Now, the company is running under the leadership of Kevin Johnson who succeeded not only to enhance the market share of Starbucks but also to grow it as a socially responsible brand (Starbucks Company Timeline, 2021). The company also faced challenges in terms of criticism of the supply chain, the incident of discrimination at the store, the global COVID-19 pandemic, etc. which affects the sales and reputation of the company in the market. However, the vision of global expansion is still held for Starbucks and the company announced to increase the store numbers to 55000 by the end of 2030.
Coffee and snacks market:
It has been analyzed that the coffee market is growing at a global level where the projected growth for the year 2020-2025 is 4.22 % CAGR (Global Coffee Market, 2021). The global coffee market is worth USD 466 billion approximately in the year 2020 which shows an increasing trend due to increasing demand for certified and premium coffee products by consumers as a matter of quality (Dublin, 2021). Further, the major coffee consuming markets are Europe, North America, and Asia where European markets majorly drive the industry through the highest per capita consumption. However, the COVID-19 crisis adversely impacted the market due to forced lockdowns and limited occupancy in line with the social distancing norms. This changed the scenario of the coffee industry where consumers started avoiding going to retail stores for coffee and preferred staying at home instead. There is an increase in the trend of in-house coffee which increases the demand for retailers and roasters coffee sellers. As per the trends of the US coffee market, during shifts in customer habits, the companies such as Nestle showed strong retail growth in their beverages and food sales (United States Coffee Market, 2021). Further, there is an expected growth of 6.02% during 2021-2025 in the coffee market in the US and the roast market becomes the largest segment in this industry which is more than any country at the global level (Statista, 2021).
Further, the global snacks market was valued at US $78.1 billion during 2019, and it is expected to reach US $108.11 billion by 2027 with an annual growth of 4.2% CAGR (Industry Growth, 2021). This market can face uncertainties in consumption rate as the customers are more concerned about their health and dietary requirements under which they only prefer healthy snacks. Further, the health conditions of obesity and diabetes, etc. also prevent consumers from eating snacks (Industry Growth, 2021). The snacks market also faces similar challenges where the global pandemic impacted the in-store sales of snack food (Global Snack Food Market, 2021). Thus, it can be said that there is more retail market for coffee than snacks as there is an increasing demand for in-house coffee consumption.
Starbucks financial performance analysis
The following figure provides insights into the financial performance of the company. It has been analyzed from the investor report provided in the first fiscal quarter of the year 2021 that the company is facing certain financial hurdles and downfalls. As per the Starbucks Financial Releases, there was a decrease in the net revenues of the company at the end of 2020 as compared to 2019 where total net revenues decreased from $7079 million to $6749 million (Starbucks Reports, 2021). Further, there is also a decrease in operating expenses because of lockdowns but interest expenses have increased from $91.9 million to $120.7 million from Dec. 2019 to Dec. 2020. The main reason for the decrease in its revenues and increasing interest expenses is the global COVID-19 pandemic under which some stores have been closed down in all countries to follow social distancing norms. Furthermore, the company has to close down some of its stores permanently due to huge operating losses.
| Dec 27, 2020 | Dec 29, 2019 | % Change | Dec 27, 2020 | Dec 29, 2019 | |
|---|---|---|---|---|---|
| As a % of total net revenues | |||||
| Net revenues: | |||||
Company-operated stores | $ 5,726.5 | $ 5,780.7 | (0.9)% | 84.8% | 81.5% |
Licensed stores | 613.8 | 792.0 | (22.5) | 9.1 | 11.2 |
Other | 409.1 | 524.4 | (22.0) | 6.1 | 7.4 |
| Total net revenues | 6,749.4 | 7,097.1 | (4.9) | 100.0 | 100.0 |
| Product and distribution costs | 2,049.1 | 2,236.4 | (8.4) | 30.4 | 31.5 |
| Store operating expenses | 2,867.3 | 2,821.5 | 1.6 | 42.5 | 39.8 |
| Other operating expenses | 91.8 | 101.8 | (9.8) | 1.4 | 1.4 |
| Depreciation and amortization expenses | 366.1 | 351.0 | 4.3 | 5.4 | 4.9 |
| General and administrative expenses | 472.1 | 434.2 | 8.7 | 7.0 | 6.1 |
| Restructuring and impairments | 72.2 | 6.3 | nm | 1.1 | 0.1 |
Total operating expenses | 5,918.6 | 5,951.2 | (0.5) | 87.7 | 83.9 |
| Income from equity investees | 82.7 | 73.9 | 11.9 | 1.2 | 1.0 |
Operating income | 913.5 | 1,219.8 | (25.1) | 13.5 | 17.2 |
| Interest income and other, net | 15.5 | 15.9 | (2.5) | 0.2 | 0.2 |
| Interest expense | (120.7) | (91.9) | 31.3 | (1.8) | (1.3) |
Earnings before income taxes | 808.3 | 1,143.8 | (29.3) | 12.0 | 16.1 |
| Income tax expense | 186.1 | 258.5 | (28.0) | 2.8 | 3.6 |
| Net earnings including noncontrolling interests | 622.2 | 885.3 | (29.7) | 9.2 | 12.5 |
| Net loss attributable to noncontrolling interests | - | (0.4) | nm | - | - |
| Net earnings attributable to Starbucks | $ 622.2 | $ 885.7 | (29.8) | 9.2% | 12.5% |
| Net earnings per common share - diluted | $ 0.53 | $ 0.74 | (28.4) | ||
| Weighted avg. shares outstanding - diluted | 1,183.0 | 1,191.0 | |||
| Cash dividends declared per share(1) | $ 0.90 | $ 0.41 | |||
| Store operating expenses as a % of company-operated store revenues | 50.1% | 48.8% | |||
| Effective tax rate including noncontrolling interests | 23.0% | 48.8% | |||
Starbucks external analysis:
In order to analyze the future of the coffee industry and Starbucks, it is necessary to analyze the external business and to assess the impact of various external factors on the company. For this purpose, Porter’s five force analysis and PESTEL analysis will be done in this section.
Starbucks Porter five force analysis:
This industry analysis tool will help to analyze the competitive position of Starbucks against its competitors and other factors in the market. Following is the representation of Porter five forces analysis of Starbucks:
| Porter five forces | strong/moderate/weak | Explanation |
|---|---|---|
| Threat from new entrants | Moderate | An increase in coffee consumption invites many new corporations to enter the coffee industry as retailers or through stores which may act as a threat to Starbucks. Moreover, the cost of operating a Coffee house is relatively lower than other businesses because smaller Cafes’ can easily start businesses at a local level and attract customers (GREENSPAN, 2019). However, there is a need for huge investment to set up an organized business like Starbucks at the global level. Moreover, there is a high cost of brand development against Starbucks, The new entrants may not be able to compete with Starbucks at the global level in decades to high brand strength. |
| Bargaining power of Suppliers | Weak | It has been analyzed that the supply of coffee in the market depends on the yield to farmers which is fluctuating due to changing climate conditions that impact coffee yield. There are a large number of individual suppliers in the market which have a moderate impact on the supply power of Starbucks. Besides this, a large number of buyers of coffee beans also increase the bargaining power of coffee bean suppliers in the market. However, Starbucks has around 4,00,000 suppliers in its supply chain where it directly procures coffee from farmers which involves suppliers from countries such as Africa, the US, Brazil, Asia-Pacific, Canada, France, Mexico, etc. (WILLS, 2021). By this means, the company has easy access to a large supply of high variety coffee. Furthermore, the companies' support to farmers also forms better relationships with suppliers and weakens their bargaining force. Moreover, Starbucks also has suppliers in countries such as China, India, Finland, etc. to provide different equipment such as Kcups, coffee machines, etc. The bargaining power is also low because Starbucks already merged with some supplier companies such as Coven Limited which is a coffee machine manufacturing company that gives easy access to new supplies. |
| Bargaining power of Buyers’ | Strong | This is also a strong force in the market due to lower switching costs to customers when they shift from one coffeehouse to another. Furthermore, customers always substitute coffee and other products which are available at lower prices. However, the small size of individual customers' cannot affect the company’s revenues. Starbucks has managed to overshadow this competitive force through its marketing mix where it creates unique brand strength among customers through premium coffee experience and other products which weaken the customer switching intentions (GREENSPAN, 2019). Moreover, the unique value proposition through customized services such as customization of ingredients in drinks, names written on drink cups, etc. attract customers which are not available at other coffee stores. |
| Threat from substitutes | Strong | This is a moderate force in the market because there is high availability of substitutes in the market where the customers can easily switch from one product to another as per their requirement. The high availability of instant beverages in retail markets, supermarkets, etc. Besides, other food products at fast food stores impact the sales of Starbucks. The companies such as PepsiCo, Cocacola, Vital Proteins, Redbull, etc. provide different beverages and instant energy drinks for customers. There is a threat that the consumers prefer instant food and beverages at supermarkets than Starbucks products. Furthermore, the customer prefers in-house coffee as a substitute which is provided by brands such as Nescafe, Bru, Costa Coffee, etc. (TBS Report, 2021). However, Starbucks provides a variety of products in coffees, iced teas, smoothies, juices, and snacks, etc. but the reason consumers go for instant products is affordability which is the biggest threat to the company. |
| Existing rivalry in the market | Strong | Starbucks faces high competition directly and indirectly from national and international companies such as McDonald’s, Dunkin Donuts, NC Cafe, Costa Coffee, etc. (IBISWorld, 2021). There are a large number of coffee and food retail firms that intensify the competition. Consumers can easily switch from one coffeehouse to another due to differences in prices. Furthermore, the coffee provided by local or other coffee houses is generally lower in prices. However, Starbucks manages its position as a global brand through a generic competitive strategy of differentiation through unique value propositions. The growth and expansion strategy of Starbucks also helps to stay further than its competitors. |
Starbucks PESTEL analysis:
This is the most commonly used industry analysis tool that enlightens the impact of different external factors on a company's industry in terms of threat or opportunity for it. Following is the elaboration of PESTEL analysis factors for the coffee industry and Starbucks:
| PESTEL factors | Explanation |
|---|---|
| Political factor | There are political instabilities at the global level due to issues such as Brexit, US-China war, global pandemic, etc. that cause international trade barriers which impact every industry and country. The main country of business of Starbucks, the US is in a trade war with China which not only impacts the sales and expansion strategies of the coffee industry but also the supply chain. Further, the governments in different countries put bans on international supply chains due to global pandemic which is still in effect in many countries under social distance norms. As Starbucks gets most of its supply in outside countries such as Africa, Asia Pacific, Brazil, etc, it may disrupt its business, and lockdowns also negatively affect the coffee shop industry by loss of revenues. There are also strict government regulations on the import-export of coffee which require different certifications such as Fair Trade Certification, UTZ Certification, and Rainforest Alliance Certification that impact the supply chain in this industry (Global Coffee Market, 2021). |
| Economic factors | It has been analyzed that the global economy is slowly recovering from the effects of the global COVID-19 pandemic 9 It is expected that global GDP will show a growth rate of 5.5 % in 2021 as per reports of International Monetary Funds (IMF) (Lee, 2021). During this time, major economies such as the UK, US are also coming out of the impact of COVID-19 under which they show negative economic growth. The economic growth of the US goes down to -31.4% but it started recovering in the first quarter of 2021 where it reached a growth rate of 33.4% and is now stable to a growth rate of 4.1% (United States GDP, 2021). However, this pandemic impacts the economy adversely and there are issues of unemployment at the global level where it increased to 2.5 million during the pandemic. Besides this, unemployment stands at 188 million at the global level and 166 million people do not get enough pay for their work (The Economic Times, 2021). Under such circumstances, there is a lack of demand for coffee in stores by consumers due to lack of money and their changing habits. |
| Social factors | Coffee has become the favorite drink of Americans, British, and even among the Asian population where consumers demand premium coffee. There is almost a third wave of coffee under which the consumers are really attracted to try different in-store coffee products produced in the market. Further, increasing disposable income in the hands of people in developing countries increases the spending power of consumers for premium services which becomes the basis of the expansion of coffee stores in such countries. However, the consumers still prefer in-house coffee and the global pandemic also changed the consumer perception where they prefer to make in-house coffee. The consumers started preferring instant drinks at home. It has been also analyzed that the coffee industry is expected to come at a growth rate of 4 % CAGR approximately in coming years. However, Starbucks has already faced a loss of $915 million so far due to this pandemic and business is still under uncertainty as consumption power has decreased due to the pandemic (KLEIN, 2020). Moreover, the consumers in the market are very logical and rational when they compare different substitutes which may impact businesses in the Coffee shop industry. |
| Technological factors | There is increasing competitiveness in the coffee industry based on innovation under which every company comes up with new technologies for products or services to impress the consumers and to attract them. In the coffee industry, technology is used throughout the supply chain where blockchain, inventory management software, quality assurance technology, etc. are popular. Furthermore, there is also the use of technology such as Wi-Fi, mobile apps, etc. for better services to consumers. It has been analyzed that Starbucks also feels the need for technological innovation and hence partnered with Apple and Spotify etc., for better consumer experiences. Moreover, it also has acquired Clover Brewing system company which manufactures coffee equipment under which it comes up with new coffee equipment for different tasks to consumers. However, technology is also becoming an issue for companies as consumers are purchasing personal specialty coffee machines for home coffee making. |
| Environmental factors | The conditions of increased temperature, climate changes, etc. concern the governments in every country where there are a number of environmental protection rules and regulations. The coffee industry is also under the impact of environmental changes where there is a declining yield of coffee crops and huge water consumption is also a concern. Besides, the companies in the coffee industry also have to follow regulations related to plastic waste management, water conservation, etc. Starbucks is working on its sustainability commitments where it managed to achieve a milestone of a 99 % ethical supply chain. Further, it is also working on managing ethical production by farmers through its Farmer support center and research center for new coffee beans for production. It is one of the most sustainable coffee companies in the world. |
| Legal factors | The companies under the Coffee industry have to follow different rules and regulations from registration of a business to its operations. The companies register themselves under the country’s laws and have to comply with registration requirements. Further, there are strict Food safety laws where standards may differ from one country to another and Starbucks has to follow global laws of food and beverage safety. Also, there are import-export laws that involve tax duties and other shipping requirements. Besides this, the companies in this industry also follow common laws which involve Consumer Protection Act, Equal Employment opportunities, Fair Trade policy, Far wages to employees, Anti-competitive Laws, Antitrust Laws, Human rights Act, etc. for internal and external affairs. |
Starbucks international expansion business strategy
Since the incorporation of Starbucks, it has followed an aggressive expansion and growth strategy to enhance its market share at the global level. Under the leadership of Howard, Starbucks showed aggressive expansion to other regions such as Seattle, California, the West Coast of the US, British Columbia, and so on. It has now expanded the business to more than 70 countries over the world with more than 31000 stores (Trefis Team, 2021). The company opens thousands of new stores every year and enters a new country every year. This has been a consistent strategy practiced by the firm since its incorporation. It is noteworthy that the speed of expansion of Starbucks is faster than other companies such as McDonald's. The international expansion strategy of Starbucks not only involves growth through new stores opening but also new services. The company started expanding its market through mobile app services so that customers can be attracted through quick survival delivery. The digital payment platform started by Starbucks during its expansion to the Asia Pacific region to better customer services is a fine example. Moving further, the expansion strategy also involves new styles of outlets at different locations where Starbucks shifted from dine-in stress to drive-thrus in urban areas. Recently, the company has an agenda to take the count of stress to 55000 by the end of 2030 and for which the expansion strategy majorly involved opening up express stores (walk thru stores) (Bartiromo, 2021). It already opened such stores in New York, Seattle, and Boston. This will increase store penetration and increase incremental growth of Starbucks store openings global level.
Further, the growth strategy is also based on elevating the coffee experience and pulling all the stops to attract customers by serving happiness. The following picture shows the principle basis on which the company expanded its business.
Starbucks also engaged in partnerships and mergers to expand its business. The company has merged with famous brands such as Teavana, Seattle’s Best Coffee, etc. but also with coffee equipment-making companies. Besides, Starbucks entered into a partnership with Macy’s stores and other such brunch businesses to enhance its customer base. The company came up with K-Cups initiatives for taking advantage of increasing demand for home coffee and partnered with Pepsi, Anheuser Busch, etc. in different countries to enhance growth through the ready-to-drink segment. There is a growth of 10% per annum through this segment and all such services help Starbucks to attain a 75% market share in the US (Trefis Team, 2021). Thus, it can be said that Starbucks comes up with every possible product and service to expand its market share at the global level.
Starbucks business canvas model
The above discussion provided that the basic business strategy of Starbucks is to expand its business all over the globe and stay above the competition through new product and service developments. The following business canvas shows different operations of Starbucks under its business strategy:
| Key partners | Key activities | Value propositions |
|---|---|---|
Suppliers such as Tingyi Cayman Islands Holdings, Dean Foods, First Capital realty, etc. Farmers in the US, Brazil, Africa, Asia, etc. to buy coffee Investors as The Vanguard Group Ltd., BlackRock Fund Advisors, Fidelity management and research Corporation, etc. Licensees such as Macy’s stores Distributors and Supermarkets to sell Starbucks Coffee Wares Digital information partners such as Apple, Spotify, Yahoo T-Mobile etc. Subsidiary companies such as Teavana Corporation, Seattle’s Best Coffee, Coven Limited, etc. | Growth through expansion and new markets and products Build ethical supply chain Sustainable procurement of coffee beans Sell coffee beans and coffee products through groceries Provide premium quality coffee drinks to consumers at the store Distribute customer orders Manage IT platforms for better customer services Acquire new businesses for product development Marketing of products and public relation | Premium and high-quality coffee products Easy availability everywhere World’s largest coffee retailer Quick ordering processes High consumer experience through online apps and music lines Cultural and heritage-based Starbucks store in every country Cozy atmosphere Variety of drinks in coffee, tea, smoothies, juice, etc. products along with food snacks |
| Customer Segments: | Customer relationships: | Key resources: |
Coffee drinkers All public in societies without special segment | The premium quality of coffee with no other match Distinctive consumer experience at Starbucks coffeehouses Smartphone scanner for payment Social media presence and iTunes for better music experience to consumers | Wide coverage globally with more than 30000 stores The premium quality of products Ethical procurement of coffee Recycling plastic and paper activities Mobile payment options High quality and best taste Highly furnished coffeehouse Employees as partners of Starbucks |
| Channels | Cost structure: | Revenue streams: |
31000 Coffee shops Online apps and mobile payment Grocery and retail stores Specialty retailers Google play and app stores availability Social media platforms and website | Supply goods payments Farmer’s compensation under CAFE practices Employee wages Distribution and marketing cost Facilities maintenance Taxes | Sales of different beverages and food products Cross-selling of coffee wares Licensing Media service charges |
Interlinkage between business canvas elements:
All these elements in the business canvas model are interlinked where the partners of companies such as suppliers and farmers provide coffee and other materials. The other partners provide different services of finance, customer services, technology, etc. which are all used to enhance customer experience and to create a value proposition for customers. Moreover, Starbucks’ ethical sourcing activities help in creating better relationships with customers in a society based on premium products and sustainability. Besides, it caters to the corporate social responsibility obligations of the company.
In order to provide different products and services to customers, Starbucks uses different channels such as coffee stores, drive-thru, Starbucks app, mobile payment services, etc. which further help to create a value proposition and maintain relationships with the customer. In addition to it, the channel is also used to create customer awareness about new services, products, and locations of Starbucks which contributes to revenue generation for the company. For all the key activities, value generation, managing channels, etc. the company has to invest money which comes under its cost structure. Further, partnerships with suppliers, farmers, mergers, etc. all involve cost. Thus, the cost structure element is input for other elements such as key activities, partners, customer relations, etc. that results in a revenue stream element through sales of products and services.
Starbucks marketing analysis:
Starbucks Marketing Mix (4ps):
The marketing mix of Starbucks provides detailed information on various strategies adopted by the company for its products, distribution, pricing, and promotion.
Products:
Starbucks presents a wide variety of product range for the customers which are provided at its store at different locations. The product category of Starbucks involves hot coffee beverages, cold coffee products, iced tea products, food products for breakfast or other meals. The following figure provides different product categories offered by the company (Starbucks Menu, 2021):
The company provides high and premium quality products from customers which is the basis to attract customers in the market and to create value proportion for them. The company does not compromise with the quality of products and always focuses on giving unique and better tastes for customers.
Price
The pricing strategy of the company is based on premium pricing where the company fetches high prices for the consumers through its products. The premium pricing of the company also shows the premium quality of products provided by Starbucks (Bhasin, 2018). This pricing strategy is also relevant based on the brand reputation and image of Starbucks where it has premium services for the consumers from its stores to the service delivery at the stores. However, the price varies based on the type of cup for the ordered product. To illustrate: Starbucks has different sizes tall, grande, venti for different quantities. Talking about a single product, Freshly brewed coffee costs $1.85 in tall, $2.10 in grande, and $2.45 in a Venti cup. Thus, there is no difference in prices under the international pricing strategy at Starbucks. The pricing is totally based on a premium pricing module for its products across all its retail outlets. However, international pricing may show little changes in prices based on the cost of supply of coffee and also main ingredients used in drinks in each country. To illustrate: Maple syrup hot coffee drink and iced tea latte are popular in Canada whereas Mexican customers prefer mango yogurt Frappuccino. Similarly, tea lovers in China prefer tea-based drinks by Starbucks with regional ingredients to coffee (Jacobs, 2020).
Place
The company provides its online and offline services which are the distribution channels by Starbucks. The main place of serving products by Starbucks is its own stress. The company has more than 30000 Starbucks stores in more than 70 countries in the world where it offers product differentiation in its services to the customers (GREENSPAN, 2019). Furthermore, it also provides product service through an online app where the customer can order products at the nearby location of Starbucks stores and then quickly get the order from the store by online payment. The company is expected to increase the number of stores by 55000 till 2030 where the company plans to open Walk-thru stores where the consumers will quickly get their orders that they place on the Starbucks app at a nearby facility and leave from the store. This will increase the speed of service that satisfies customers.
Promotion
The company uses different promotional tools for advertising and promoting its products and services among the customers (Bhasin, 2018). The company uses traditional as well as modern communication channels for marketing. At the local level, Starbucks uses marketing channels such as banners, posters, newspapers, etc. so that it can provide information about new stores in a locality through the local channel of communication. Besides this, the own website of Starbucks acts as a promotional tool that provides news updates and new products offered by Starbucks stores. Besides his Starbucks app also provides detailed information on products provided in each locality near the consumers for easy services to them. Additionally, the company indirectly promotes its products through iTunes, Spotify, etc. advertisement sources. Some of the services at stores such as Free Wi-Fi for all, Starbuck cards for loyal customers, etc. also act as promotional tools for the company. Moreover, the stores use other tactics such as self-promotion tactics where the stores mention the customer name on the cups and most of the customers post the picture with cups on their social media accounts which attracts other customers. Having said that, Starbucks is cultivating the astonishing advantages of social media to market its brand in a worthwhile manner. This also acts as a word of mouth advertisement for companies where the reference group shares their Starbucks experience with others and creates an impression of highly customized services that attract new customers. Moreover, Starbucks partners sometimes intentionally spell wrong names on cups so that more and more customers share them on their social media that gives more attention to Starbucks. Given the fact that social media marketing is proving to be the best outreach strategy for brands, Starbucks is leaving nothing to chance when it comes to engaging social media users.
At a larger level, the company uses social media marketing tools where it posts updates on Instagram, Twitter, Facebook, etc. for creating customer awareness about its products hence building high customer indulgence. Talking about social media marketing, Starbucks is active on all social media platforms to regularly update all the information about new launches of products, new stores opening, etc. Given the fact that social media marketing is proving to be the best outreach strategy for brands, Starbucks is leaving nothing to chance when it comes to engaging social media users. Moreover, Starbucks has different ages for stores in different countries so that better information can be provided to the local audience.
Starbucks STP approach:
Starbucks Segmentation and Targeting:
The company has divided its market into different segments based on geographic, demographic, and behavioral segments, etc. Under The geographical segment, the company involves 70 countries where the major locations are in urban areas or metropolitan areas where people with high income reside. The company has its business in different countries such as the US, Asia, Europe, Africa, etc. under this segment. Further, the demographic segment involves all genders from age of 18 and above who like to visit retail stores and restaurants for meals and beverages. Further, it also segmented consumers based on their perception about Starbucks products such as regular users of Starbucks coffee, ambitious personalities as consumers, etc., and also involved the high or average income class to sell its premium products.
Based on this segmentation, the company targets all the people in public who belong to high and middle-income classes for selling premium-priced products. Further, it gives major focus to the students, employees, or professionals who are mainly regular users of Starbucks coffee.
Starbucks Positioning:
The following figure shows the competitive positioning of Starbucks against its competitors in the market. The positioning map shows the position based on cost and experience factors here it has analyzed that Starbucks has a higher cost and high experience than other competitors. McDonald’s also comes in this category but its cost and experience are quite lower than Starbucks. However, Dunkin Donuts which is also regarded as a huge brand in the US and other countries lies in the category of lower experience and cost.
Starbucks Competitors analysis:
The above-given map presented some major competitors of Starbucks, however, the competition is tough as it involves many other direct or indirect competitors. Starbucks has around 31,000 stores worldwide at 70 locations, however, its competitor McDonald’s has more than 38000 in 119 markets around the country (Statista, 2021). Moreover, McDonald's McCafe is coming up as a direct competitor to Starbucks and gaining huge market share due to back up by McDonald’s which is present almost everywhere. McCafe is among the top coffee seller retailers with 4500 outlets. Further, Dunkin Donut is already known as the largest baked food and coffee chain in the world since the 1950s and currently has around 12000 restaurants in 42 countries whereas its major presence is in the US with 8500 restaurants (Dunkin Donuts, 2021). This brand has gained a loyal customer base over the years which becomes the basis of tough competition by Dunkin Donuts to other food and coffee chains over the globe. Moving further, Cafe Coffee Day is also a direct competitor of Starbucks which is the largest Arabica beans producer in Asia. Besides these competitors, Starbucks also has alternative coffee segment rivals such as Dilmah, Twinings and The Republic of Eta, etc. which are major tea brands having international recognition. All these companies have turnovers exceeding billions and have a strong brand reputation in a market being older than Starbucks.
Starbucks Consumer analysis:
It has been analyzed that the Starbucks consumers involve men and women who belong to upper-income classes and have the capacity to afford Starbucks at a high price. These segments of consumer classes majorly involve males who are basically well-paid corporate employees and use Starbucks as their regular drink. Further, it has been analyzed that each store of Starbucks serves around 500-700 customers daily which makes a huge customer base as Starbucks has around 30000 stores at the global level (Statista, 2021). However, the number of consumers may vary at the new stores of Starbucks. There is increasing traffic of consumers at Starbuck stores due to the increasing purchasing power of people for which tea can afford to buy Starbucks’ beverages regularly or weekly as per their convenience. Furthermore, half of the stores of Starbucks are established in the US which is a developed country and have generally high-income levels which also ensure high consumer rates at Starbucks stores in the US. Moving further, Starbucks also started its operation in emerging economies like India where it recently started its drive-thru services also which shows the increasing income level of consumer’s demand for Starbucks products.
Starbucks SWOT analysis
| Starbucks Strengths | Starbucks Weaknesses |
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| Starbucks Opportunities: | Starbucks Threats: |
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Recommendations for Starbucks
Based on all the analysis on Starbucks, it is highlighted that the company is doing well in its business and has succeeded to create a powerful global brand image. Starbucks adopted an aggressive expansion and growth strategy which is helping it to increase its global market share and also customer base due to the increasing demand for coffee products. However, it has been analyzed that Starbucks still has many difficulties due to competition, pricing, supply chain, etc. which may affect its brand positioning.
The company is humbly recommended to make changes in its pricing policy where it should provide some products at an affordable cost so that it will be able to target middle-income customers also. The dynamic pricing strategy in different countries will help companies to enhance their customer base because Starbucks has to lower its prices if it wants to expand business in developing countries like India where most of the consumers belong to the middle-income group. This will also help the venture to compete better with other major companies which have global outlets.
Probing further, Starbucks should also focus on upscaling technological innovation in its internal supply chain operations where the use of blockchain technology and inventory management software can help in cost reduction and enhance the efficiency of the supply chain. Further, the use of Artificial intelligence in stores for order processing and payments, etc. will not only help in saving the cost of new stores to be opened by companies but also enhance the consumer experience in new markets.
Further, the company is also recommended that it should focus on its corporate social responsibility activities where it should avoid any activities of tax avoidance and other incidents which can impact its brand reputation in the market. It should focus on emerging as a global coffee brand that does not source its material ethically but also ethical in its economic and social sustainability activities.
As online purchasing is becoming popular after the global COVID-19 pandemic thus, it is necessary for Starbucks to start online ordering and delivery services through the Starbucks app so that more and more customers can be attracted. It can provide different offers for consumers to get this series which involve discounts on purchases of more than two or more drinks etc.
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