This report provides a PESTEL analysis of Starbucks Canada, examining the external factors that influence its business operations. It also highlights the opportunities and threats that the company faces in the food and beverage industry in Canada.
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Running head: MGMT 204: PRINCIPLES OF MANAGEMENT1 PESTEL Analysis of Starbucks Canada (Course Instructor) (University Affiliation) (Student’s Name) (Date)
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MGMT 204: PRINCIPLES OF MANAGEMENT2 Starbucks Canada Starbucks is a food and beverage multinational corporation which was founded in 1971 in America and is based in Seattle (Starbucks, 2017). In Canada, the first location was opened in Vancouver, British Columbia (Glowik, 2017, pg. 156). Since then the company has expanded its operations to meet the high coffee drink demands among the Canadian population. The food and beverage industry that Starbucks operates has dramatically changed since the company’s inception. Unlike in the past where specialty coffee competed against small scale specialty coffee retailers, the company now faces competition from companies of different sizes such as McDonalds and Burger King (Gregorash, 2017). The company was chosen for the report since it is the market leader and offers an opportunity to analyse the entire business environment affecting the food and beverage sector in the country. PESTEL Analysis Starbuck’s market leadership owes much to the company’s effective strategies in dealing with external factors that influence its business operations. PESTEL analysis provides a strategic tool for examining these external factors and how they may influence the company’s performance (Murray-Webster & Williams, 2010). Political Factors At the heart of the success of the operations at Starbucks Canada are the political influences. According to (Guerrero & Rowe, 2013) the political factors refers to industry specific rules and regulations, which govern business operations. They also include the level of political stability. Canada has a stable political system and this provides good environment for businesses to operate. However, businesses who wish to operate in the country must do so subject to a
MGMT 204: PRINCIPLES OF MANAGEMENT3 number of government regulations. These regulations include federal, state, provincial, and municipal government regulations. In addition, the business environment in Canada is influenced by regulation standards from the industry associations and other government approved regulatory bodies. Economic Factors The economic environment includes those factors that influence the spending power and consumer purchasing power. For example, any changes in the value of Canadian dollar, the shortage of labor, and the environment sustainability. According to (Guerrero & Rowe, 2013) the food services industry in the country is competitive and the operators are expected to face far more challenging times in the coming years. The authors point that the potential economic slowdown in the country could lead to consumer cutbacks which can cause reduced consumer spending. However, the industry is projected to grow owing to dropping international prices (International Coffee Organization, 2018) and the high demand for coffee and the growth in the population of major coffee drinkers who are aged 13-16. The increasing population and the low inflation rates are bound to create a favorable economic climate in the country. Socio-Cultural Factors The sociocultural environment consists of the demographic variables such as race, income distribution, age, gender, and sexual orientation, among others. According to (Gregorash, 2017) the Canadian population is diverse and there is presence of cultural alternatives which educates the consumers in specific cultures. Consumer consciousness has increased and the author asserts that most people in Canada are now rejecting mass produced food, seeking high quality, flavour and uniqueness (pp. 444). The changing trend represents an opportunity that
MGMT 204: PRINCIPLES OF MANAGEMENT4 Starbucks can exploit by incorporating the new cultural trends in consumption patterns of the consumers. Also, the country has large portion of aging population who are well informed and are living longer with a lot of disposable income. In addition, large and diverse population growth owing to influx of immigrants and growing economy has improved the disposable income, which offers a significant opportunity for coffee and other fast food businesses. Technological Factors The technological environment includes work methods, human knowledge, physical equipment, business processing systems, and electronics and other telecommunication devices (Rao, 2007). There has been tremendous change in technology over the past years, which has seen rise in mobile-based applications and product and service technologies. The uptake of technology in the food and beverage sector in Canada is tremendous. Some companies such as SunChips has employed solar energy in one of its manufacturing units to manufacture better consumer snacks which are environmentally friendly. The huge penetration and uptake of technology in the country, provides a key tool through which companies such as Starbucks can exploit to gain a competitive advantage. Environment Like any other country, there are increasing demands for environmentally friendly business processes in Canada. The external macro-environmental factors that Starbucks faces in Canada include sustainability efforts, responsible sourcing, and growing needs for environmentally friendly products. The company has developed responsible sourcing polices, offers its products in recyclable packaging and participates in corporate social responsibility practices.
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MGMT 204: PRINCIPLES OF MANAGEMENT5 Legal Factors The legal factors in the external environment analysis include the regulations and laws that govern the business operations. The legal factors of concern to people wishing to start businesses in Canada include product safety regulations, the regulations that govern use of genetically modified crops, and the regulations that govern employment (Willie, Pirani, Jayawardena, Sovani & Davoodi, 2013). The regulations that allow the use of genetically modified crops offer an opportunity, whereas the increasing employment regulations are possible threats to conduct of business in the country. External Analysis Opportunities and Threats The major sources of opportunities in the food and beverage industry in Canada are the growing consumer demands. According to (Guerrero & Rowe, 2013) though the industry is becoming so competitive, there is an increasing consumer demands for coffee in the country. The other opportunity is the aging population that is well educated with high income levels. Such population offers an opportunity for increasing the company revenues through sustained increased sales of coffee. However, increased sustainability efforts that demand green energy and processes is a major threat. The company has been criticised by environmental groups for lack of recycling of its coffee mugs, which end up in dumpsites. Moreover, there emergence of other players in the food and beverage industry who fight for the same market segment as Starbucks offers a major threat to the company. According to (Guerrero & Rowe, 2013) companies such as McDonalds
MGMT 204: PRINCIPLES OF MANAGEMENT6 and Burger King have intensified their efforts for the beverage and food industry which has increased competition. The company also faces threats owing to increasing costs of production. Conclusion Starbucks is a multinational corporation that is renowned for its specialty coffee. In Canada, the company has established several outlets, which offers coffee in addition with other food. The company must understand its external market in order to develop effective competitive strategies. The analysis of the external environment in Canada using PESTEL strategic tool reveals a growing demand for coffee. In addition, the there is increasing adoption of technology, growing population of baby boomers and youth aged 13-16, and increasing disposable income, offers new opportunities. However, the increased competition from other companies such as McDonalds and the increased sustainability efforts are the major threats the company faces in the country.
MGMT 204: PRINCIPLES OF MANAGEMENT7 References Glowik, M. (2017).Global Strategy in the Service Industries: Dynamics, Analysis, Growth. New York: Taylor & Francis. Gregorash, B. (2017). The modern Canadian restaurant: food for thought.Worldwide Hospitality and Tourism Themes,9(4), 442-450. Guerrero, L., & Rowe, W. (2013).Cases in leadership(3rd ed.). Thousand Oaks, Calif: SAGE Publications. International Coffee Organization. (2018). Coffee prices in August fall to 57-month low. Retrieved from http://www.ico.org Murray-Webster, R., & Williams, G. (2010).Management of risk: guidance for practitioners. Norwich, England: The Stationery Office. Rao, V. (2007).Human Resources Management: Text and Cases(2nd ed.). New Delhi: Excel Books. Starbucks. (2017).Company Information.Starbucks Coffee Company. Retrieved 22 July 2017, from https://www.starbucks.com/about-us/company-information Willie, P., Pirani, A., Jayawardena, C., Sovani, A., & Davoodi, R. (2013). Trends in hotel investment and financial management in Canada.Worldwide Hospitality And Tourism Themes,5(2), 190-204.