Impact of Macro Environment on Starbucks

This report analyzes the impact and influence of the macro environment on Starbucks, including political, economic, social, technological, legal, and environmental factors. It also examines the internal environment and capabilities of Starbucks using SWOT analysis, VRIO model, and McKinsey 7S Framework. Additionally, it applies Porter's Five Forces model to assess the competitive forces in the industry. The report provides strategic insights and recommendations for Starbucks to address challenges and restore its brand image.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Impact and influence of Macro Environment on Starbucks...................................................3
LO2..................................................................................................................................................6
P2 Internal environment and capabilities of Starbucks...............................................................6
LO3..................................................................................................................................................9
P3 Porter’s Five Forces model for Starbucks..............................................................................9
LO4................................................................................................................................................12
P4 Strategic Management Plan for Starbucks...........................................................................12
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy can be defined as a set of actions that is undertaken to be completed I
order to achieve certain objectives of the business. strategic plans consider different elements
affecting and influencing organisation and achievement of goals and on the basis of which
strategic decisions are taken. This report will involve strategic management plan based on
analysis of macro environment, internal environment and competitive environment for
Starbucks. Starbucks is an American multinational chain of coffeehouse and roaster reserves.
Company was founded in 1971 and is headquartered at Seattle, Washington. Starbucks serves
worldwide and operates at around 30000 locations in more than 70 countries. Products of the
company mainly include Coffee beverages, smoothies, tea, baked goods and sandwiches.
Starbucks is going through the problem that is growth of Starbucks affected and destroyed its
brand value and some other issues like change in brand value and image as well. This report will
involve identification of strategic choices for Starbucks, to deal with challenges and work on
restoring brand image.
LO1
P1 Impact and influence of Macro Environment on Starbucks
Macro factors are those factors that are external and influence operations and decisions of the
company significantly. This environment and elements of the environment can be analysed with
help of PESTLE analysis mode. This model involves 6 factors of environment that are known be
most important for influencing and affecting business decisions and operations (Priporas and
et.al., 2019). Impact and influence of Macro environment on Starbucks is as follows-
PESTLE Analysis
Political
There are several factors included in this factor of macro environment. Elements affecting
Starbucks are political stability in home country that is US, this has direct impact on the
operations of Starbucks. Political relations of US with other countries because Starbucks is a

multinational organisation, in this situation negative relations can affect operations and success
of organisation in other country. Increasing role of politics in developing countries, because of
which operational success can be affected. Regulatory pressure result of politics such as taxation
policy and different employment laws, this is also a part of this environment. These are several
factors in this environmental factor and have significant impact on organisational strategy and
decision making. In most of the situations that are negative for Starbucks and create threat,
Starbucks needs to change its internal operations to cope reduce its effects. For example- good
political relations are an opportunity for Starbucks and it should make strategies to utilise it in
best possible way.
Economical
This factor of the environment is concerned with monetary and financial aspect of an
organisation and how it gets affected by external rules and regulations. Factors involved in this,
are, Exchange rate, difference in currencies of the country, in relation with multinational
organisation, this has significant impact on organisations and their financial performance.
Economic condition of country, this directly links with how an organisation will perform in a
country based on its financial decisions and financial or economic condition of a country. For
example- Starbucks is a premium organisation and success of Starbucks will remain limited in
economically weak country. Taxation and cost of operations in a country and increasing cost of
labour are other elements to affect this factor for Starbucks. Economic conditions when are not
favourable Starbucks needs to ensure it has right strategies to reduce impact on unfavourable
economic situation (Lin and et.al., 2020). For example- when cost of labour increases, it requires
developing strategies to reduce requirements of labour.
Social
This environment consists of ideologies and preference of those who are customers of the
Starbucks. This is one of the most important environmental factors for Starbucks. Influences of
this factor are changing preferences of customers, customers willing to consume food products
that are healthy and natural. Changing lifestyle and changing values and trends is also an
important element in this factor of Starbucks. Growing coffee culture refers to people are getting
more inclined towards coffee and consumption of coffee has increased. Increasing health

consciousness is also involved in this environment factor. These are some of the factors that are
included in this environmental factor. In relation with strategies Starbucks, most strategies can be
applied in this factor. For example- increasing health consciousness, Starbucks should offer food
and beverages that are healthy choices for customers. Starbucks is a premium coffee chain and
its image and brand value plays important role in its success and this is why maintaining brand
value is very important for Starbucks’s success.
Technological
This factor involves innovative technology, implementing technology for creation and
manufacturing for coffee and other products. This contributes in ensuring effectiveness of
production activities for the organisation. Biotechnological development is also an important
element in this factor of Starbucks. Increasing purchase through mobiles, this create important
opportunity for Starbucks and company needs to be ready equally in order to ensure it can utilise
opportunities and serve its customers. Technology has become centre of success of the
organisations and this is why in order to gain advantage of opportunity it is important that right
strategies are developed (Sztompka, 2020). This means Starbucks should ensure there is digital
platform for selling products and suitability of products accordingly. Other than this ensuring
quality in creation of products is another important context for creating strategies.
Legal
This involves increasing regulations for food safety and standards, Licensing regulations,
Difference in Employment regulations these are certain factors influencing Starbucks. On the
basis of this strategies needs to be created that regulations can be accurately adopted. Strategies
for this also focus on ensuring that regulations do not affect success of organisation negatively.
Increasing regulations create challenge for Starbucks but fair adoption can also contribute in
building and strengthening organisational image and reputation.
Environmental
Elements in this factor of macro environment include environment rules and regulations,
resourcing sustainability, utilising high quality and sustainable resource and material and waste

management (Gürhan-Canli, Hayran and Sarial-Abi, 2016). Coping global warming is also
important element of this factor.
LO2
P2 Internal environment and capabilities of Starbucks
Internal environment and capability refers to factors and elements that exist within
Starbucks. There are different theories and models through which strength and weaknesses of
Starbucks can be identified and evaluated.
SWOT Analysis
Strengths
 Strong brand image of Starbucks
 Effective financial performance of organisation
 Overall growth of organisation worldwide
 Effective international supply chain of organisation
 Product development strategy of organisation
 Effective quality, taste and standardization
 Effectiveness of operations and strategic planning
Weaknesses
 Premium prices are losing their value because of extensive growth that reduced its
exclusiveness
 Imitability of products of Starbucks
 Generalised standards for products
 Availability of similar products by affordable brands
Opportunities
 Expansion in developing countries
 Diversification of business and specification of products
 Partnership and alliances with other firms

 Using price and promotional strategy
Threats
 Intense competition with brands having strong brand image and brand value and
providing products at lower prices
 Independent coffeehouse movement
 Frequently changing customer preference and taste creates challenge
 Economic recession
Application of SWOT analysis outlines that Starbucks has several strengths in which its brand
image and brand value is involved (Sholihah and et.al., 2016). Strengths also involve its price
and operational strategies. It also outlines weaknesses along with potential opportunities and
strengths.
VRIO Model
Resources
and
capability
Valuable Rare Inimitable Organisation Competitive
advantage
Strong global
presence
Yes Yes Yes Yes Sustainable
competitive
advantage
Experience
provided
Yes Yes No Yes Strong in
competition
Special coffee Yes No No Yes Realised
competitive
advantage
Store
environment
Yes No Yes Yes Competitive
advantage for
short term (in
long term it
can be created)
Supply chain Yes Yes Yes Yes Long term but
not sustainable

competitive
advantage
McKinsey 7S Framework
Shared Values
Values of Starbucks involve culture of warmth and belonging in which everyone is welcome.
Delivering best of what we do and accountability for results. Acting with courage and
challenging status quo and identifying new ways to grow company and each other. Being
present, connecting with transparency, dignity and respects, these are values of Starbucks that are
shared by every member of the organisation.
Strategy
Strategy of Starbucks is based on differentiation and providing value to its customers along with
maintaining exclusive brand image of Starbucks (HENG, 2019). This means that its strategy
allows company to charge premium price in exchange of providing value to its customers.
Structure
This element is concerned with organisational structure of Starbucks. Starbucks has a divisional
organisational structure and this integrates geographic and brand-based divisions in organisation.
Systems
In relation with system there are several systems that are employed in Starbucks to facilitate its
day-to-day activities. Systems in Starbucks involve hiring, team development, orientation,
transactional system, customer relationship management system, business intelligence system,
knowledge management systems and extend to several other systems that bring efficiency in
operations of Starbucks.
Skills
Skills involve its front line employees who are knowledgeable and friendly that contribute in
providing overall effective experience to customers. Its baristas who prepare drinks and coffee

for customers is another important element in its skills. Concerned with skills, it provides
different types of training to its staff and specially baristas to create different drinks specifically
for customers having right combination and right measurement.
Staff
Comprehensive training and effective compensation are two important elements that allows
Starbucks to employ best of available talent. Staff of Starbucks is competent, committed, capable
and have values that are aligned with values of Starbucks.
Style
Style of Starbucks involves servant style in leadership, according to this every individual this
encouraged to grow in the company. Relationship-driven approach is another style, relationships
are focused and given significant importance in Starbucks. Employees as a result share warm and
friendly relationship with other employees (Fischer and Roy, 2019). Collaboration and
communication is another style that is practiced in Starbucks and inclusion and diversity with
help of which Starbucks maintain equality and implement anti-discrimination policy within
organisation.
On the basis of above discussion it can be said that Starbucks has several strengths in
which its shared values, style and systems allow it for a specific advantage over its competitors.
LO3
P3 Porter’s Five Forces model for Starbucks
Threats of new entrants
This is concerned with threat because of new entrants that can enter into industry in
which Starbucks is operating. Threat of new entrant is concerned with those firms or
organisations that can enter into coffee shop industry. This threat is concerned with barriers of
entry into industry. Barriers for entry involve cost involved, resources required, and competency
and capability required operating in coffee industry. In relation with attractiveness of industry
moderate cost of doing business, cost of brand development is high (Wellner and Lakotta, 2020).

However small firms can easily enter into the industry and but Starbucks is operating at big level
and entering to the level of its competitor is difficult. This is why position of Starbucks is
moderate in this force.
Starbucks using its brand image and reputation and quality can deal with this threat
effectively.
Threats of substitute
Substitute refers to a product that can provide same value and fulfil needs and
requirements of same order. The threat of substitute gets affected by number of substitutes
available and cost of switching of the product and value provided by the substitute. Concerned
with threat of substitute for Starbucks there are several substitutes for Starbucks and its products
and this is why position of Starbucks in this force is weak. This force has strong for Starbucks, in
which substitute of Starbucks are affordable compared to products of Starbucks.
Strategy that can be adopted by Starbucks to stay strong in this force is by differentiating
its products and communicating and appealing high value of the products.
Bargaining power of suppliers
Bargaining power of suppliers refers to power that suppliers possess in industry. This is
also a competitive force, in which suppliers those who supply different resources and material to
Starbucks (Lewis, 2017). This force and bargaining power of suppliers gets affected by number
of suppliers and cost of switching, and products and resources that are being supplied to
Starbucks. Force of suppliers is weak in relation with suppliers because there are numerous
suppliers who can supply required products to Starbucks. Moderate size of individual suppliers
keeps their force moderate and provides enough number of choices to Starbucks. Overall supply
of resources and material is also another factor because of which force of suppliers is weak.
Starbucks can utilise its strong position in this force by ensuring low cost on material and
resources. This will positively impact and influence overall cost and quality of Starbucks.
Bargaining power of buyers

This is the power and force that is related to buyers or customers. This power gets
affected by number of sellers, cost of switching, and availability of substitute products. In
relation with Starbucks its position in this force is weak and customers and buyers have strong
force. The reason behind this is high substitute availability, low switching cost, and high number
of sellers in the industry. These are reasons, because of which Starbucks has weak power in this
force.
In order to reduce power of buyers and enhance overall position in this force it is
important that Starbucks has strategy to communicate its value in most appealing ways. Other
than this, they should also ensure that customers are getting right and adequate value in exchange
of the price that they provide to Starbucks.
Industry Rivalry
Competitive rivalry is concerned with competition within existing firms in coffee shop
industry. Regarding this there is intense competition in coffee shop industry. Factors affecting
this force are large number of firms, low switching cost, and firms providing differentiated value
to customers. On the basis of this Starbucks experience significant competition in its industry.
Some of the important rivals of Starbucks are McDonald’s, Costa Coffee, Dunkin' Donuts.
In order to stay strong in competition it is important that Starbucks maintains a special
brand image that differentiates it from its competitors (Chesula and Kiriiny, 2018). It is also
important that Starbucks keeps its brand exclusive as per its premium policy.
The above discussion outlines that influence and impact of different competitive forces
varies for Starbucks on the basis of different factors associated with the force of competition. On
the basis of different forces and position of Starbucks in these forces overall attractiveness for
Starbucks is at moderate level. But along with this there are different opportunities available that
Starbucks can utilise to enhance its competitive position in its industry.
LO4
P4 Strategic Management Plan for Starbucks
Executive Summary

Strategic management plan involves different strategies that are employed to achieve
specified objectives for organisation. This plan involves determination of strategies for Starbucks
on the basis of different strategic direction available. This plan also involves
Vision
“To be premier purveyor of the finest coffee in the world”
Mission
“To inspire and nurture human spirit – one persons, one cup and one neighbourhood at a time”
Objectives
 To increase profitability by 10% in year 2020-2021
 To reduce overall cost by 7% in year 2020-2021
 To increase 10 product choices in year 2020-2021
Strategies available
Ansoff Matrix
This matrix provides strategic options to organisation based on product and market development.
Strategic option in this context is as follows-

Figure 1 Ansoff Matrix
Market Penetration
This strategy involves increasing sales in existing markets with help of existing products.
This strategy involves increasing promotional efforts of the company and modification in price
to attract customers.
Market Development
This is concerned with increasing market of the strategy and using existing products. This
means that Starbucks needs to develop market in terms of geography, demographic
characteristics of market (Martins, 2020). In terms of products in new market, Starbucks needs to
use same products in new market.
Product Development
This is concerned with developing new products to serve needs and requirements of
existing market and customers in existing market.
Diversification

This strategy is concerned with developing new market and new products and this
strategy contains highest risk compared to all other strategies.
Starbucks can employ product development and market penetration strategies together.
This means that in order to serve needs of existing market and increase sale Starbucks needs to
develop new market. Product development can be utilized to penetrate existing market of
Starbucks.
Porters’ Generic Strategies
This is based on cost and differentiation of the products and on the basis of strategies are
developed and employed by organisation. Strategic choices available for Starbucks on the basis
of this model are as follows-
Figure 2 Porters' Generic Strategies
Cost Leadership
This strategy involves lowest possible cost of the products that allows cost benefit to
organization. In this strategy cost of Starbucks is likely to be lowest and market where this
strategy is employed is broad.
Cost Focus

This is similar to cost leadership strategy factor that differentiate these strategies is
market focus. This means that market where strategy is employed is narrow.
Differentiation Leadership
In this strategy business is expected to provide value through differentiation. This means
that products of Starbucks are expected to be clearly different from its competitors (Omsa,
Abdullah and Jamali, 2017). This provides value to customers and also become basis for cost
premium of organization.
Differentiation Focus
This is similar to differentiation strategy and factor differentiating these strategies is
focus in terms of market. In this strategy market focus of organization remains narrow.
Starbucks can employ differentiation and cost focus strategy together. This means that
differentiation to communicate its value and Starbucks also needs to employ cost focus to
particular group of customers (Akyüz and Pınarbaşı, 2020). In this Starbucks need to reduce
price of the products by means of promotion and discount to increase its sales.
Monitoring and Evaluation
This is concerned with monitoring performance and evaluating outcomes of the strategy
employed. Monitoring performance of strategies can be done through-
Observation- observing performance after implementing strategies
Surveys- This is another strategy and technique in which through survey Starbucks can monitor
performance
Other than this talking with people, benchmarking are other techniques for monitoring.
Evaluation of results can be done by comparing standard performance and organizational
objectives for strategy implementation with actual achievement of objectives.
KPI are also used to measure performance output, in this plan KPI are-
 Cost

 Profitability
 Product development
Measurement will involve comparison with reduced cost, increased profitability and
profitability of the Starbucks through implementation of strategies.
CONCLUSION
On the basis of above discussion, it can be concluded that business environment of
Starbucks involves several challenges but also involve different opportunities for the company.
These opportunities are for growth and for increasing profitability of the Starbucks. This plan
involved analysis of macro environment and its influence on Starbucks. Further, strength and
capabilities of identified. On the basis of problems that company is facing and opportunities
available through different environment and their factors a strategic plan was developed. This
plan involves different strategic directions that are available for Starbucks, these strategies were
identified on the basis of Ansoff Matrix and Porter’s Generic strategies. This plan also involved
monitoring and evaluation techniques through which Starbucks can monitor and evaluate its
strategies’ implementation and results.

REFERENCES
Books and Journals
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Fischer, D. and Roy, K., 2019. Market Entry in India: The Curious Case of Starbucks. Rutgers
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technologically fast-paced, connected, and constrained environment. AMS
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OPTIMIZATION OF STARBUCKS IN CHINA (Doctoral dissertation, SIAM
UNIVERSITY).
Lewis, R., 2017. Porter's Five Forces of competitive advantage.
Lin, M.S and et.al., 2020. Formal and informal SME financing in the restaurant industry: The
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Martins, A.M.A.R.D.L., 2020. Scenarios and Ansoff Matrix (Doctoral dissertation).
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implementation of Porter’s generic strategies to gain firm performances.
Priporas, C.V and et.al., 2019. The impact of the macro-environment on consumer scepticism
towards cause-related marketing. International Marketing Review.
Sholihah, P.I and et.al., 2016. The Strategy of Starbucks and it's Effectiveness on its Operations
in China, a SWOT Analysis. Asian Journal of Business and Management. 4(5).
Sztompka, K.E., 2020. The project of improving the process of selling products at
Starbucks (Doctoral dissertation, Katedra Innowacyjności i Przedsiębiorczości).
Wellner, S. and Lakotta, J., 2020. Porter's Five Forces in the German railway industry. Journal
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Online

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<https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/>.
Expect more than coffee. 2020. [Online]. Available Through: <
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<https://www.businessballs.com/strategy-innovation/porters-generic-competitive-
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