Starbucks Business Report: Analysis of External and Internal Environment

This report provides a detailed analysis of the external and internal environment of Starbucks, including PESTLE analysis, Porter's Five Forces analysis, and industry life cycle model. It also includes recommendations for the company's future growth strategy.

Starbucks Business
Report

Table of Contents
INTRODUCTION...........................................................................................................................4
Part 1 – Starbucks Business Report.................................................................................................4
Introduction............................................................................................................................4
External environment analysis...............................................................................................5
Internal analysis......................................................................................................................8
Part 2 – Starbucks’ Stakeholder Report.........................................................................................13
a) Internal & external Stakeholders of Starbucks.................................................................13
b) Workforce precedence stakeholders group.....................................................................14
c) Interest & power of Workforce stakeholder group..........................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy refers to the integration of range of plans that are formulated for the
quick attainment of organizational goals and objectives. For developing rightful strategy for
company, it is essential for the management team to conduct effective analysis so that they can
acknowledge best strategy that will contribute in the quick attainment of growth in effective
manner. This can be effectively done with the usage of internal as well as external analysis of
environment. The present report is based on the case study of Starbucks, a global coffee chain
that mainly provides range of coffee in its coffee shop but also provides other food items to its
customers (Byrnes, 2019). The main purpose of this report is to develop effective business
strategy document for the respective company for deeply evaluating internal as well as external
environment in rightful manner.
The current project is mainly divided into two sections. The first part of this report will
provide detailed knowledge on the case study with the inclusion of its competitive position.
Furthermore, it will provide explanation on both the internal as well as external analysis that will
include various frameworks like PESTLE, Porter's five force analysis, Industry life cycle model,
VRIO analysis, Value chain analysis and Competency framework. Later on, recommendation
will going to be provided to the respective company so that they can easily improve its
performance in the upcoming 3 years.
Part 1 – Starbucks Business Report
Introduction
Starbucks is the multinational coffee chain company that provides its services across the
world. Operational activity of this company are executed in such a manner so that quality
products and services can be delivered to the customers in the effective manner ( Cian, 2017).
The respective entity was incorporated in the year 1971 and headquartered in Washington,
United States. Strong global presence of this company simply states that it is market leader of the
coffee industry. In order to maintain its brand name the company effectively make use of
marketing campaigns ion order to attract maximum number of customers towards them for
longer period of time. The annual report of Starbucks have revealed that in the year 2015
revenue of this company was around 16 billion dollars.

Starbucks is already having strong global presence but still the company is also going
through tough competition developed by existing competitive rivalry. On the basis of the
information stated in case study it has been acknowledged that main competitors for Starbucks
are McDonald's, Caribou Coffee, Dunking Donuts etc. All of these competitors not only
influences its existing customer base but also places negative impact over their sales as well as
profitability (Clinton and Whisnant, 2019). Irrespective of the higher competition the company is
still able to attain higher returns as compared to the competitors. Starbucks also offer its
securities as well as shares to the public in order to raise their funds at the time of market
expansion. It also helps them out in generating higher revenue with the marketplace. Return on
equity of Starbucks is approximate 47.08% which is quite higher as compared to its strongest
competitors McDonald's as Return on equity was approximate 32.97%.
It can later be said that competition within the industry does not relies on return on equity
but it can also be measured on the basis of manpower and its strength. It has been acknowledged
that Starbucks manpower is 191000 whereas manpower of McDonald's across the world is
420000. These number simply states that manpower of McDonald's is more than Starbucks it is
also double. By evaluating this it is essential for management of Starbucks to raise its number of
manpower in order to attain higher profitability in the coming year. Also while talking about net
profit margin, it can be said that Starbucks profit margin is 14.57 whereas same of Dunkin
Donuts and McDonald's is 23.55% and 17.34%. Both of the them simply states that competitors
profit margin is quite in respect of Starbucks. Here, it is required by the respective company to
acquire rightful marketing strategy for enhancing their sustainability within the same
marketplace in quicker manner (Dong and Wu, 2015). The overall case study simply depicts that
Coffee Cafe Industry is very dense but still Starbucks hold good position within the industry with
its effective offering and strong global presence. This helps company in acquiring monopoly
within the same industry and enhancing its revenues. For attaining higher success in the near
future the respective company is required to conduct internal as well as external market analysis.
This will further help them out in developing effective strategy through which they can grow in
quicker manner.
External environment analysis
External analysis is mainly conducted for analysis surrounding environment of the
company that directly supports enterprise in developing their knowledge on existing

performance. This will also support them in developing better future growth strategies for
Starbucks. For evaluating external environment in effective manner three main frameworks that
is PESTLE analysis, Porter Five Force Analysis and Industry Life Cycle Model. All three of
them are explained below in effective manner:
PESTLE Analysis
With respect to Starbucks, each factor of PESTLE analysis is described below for
understanding that whether it is placing positive or negative impact over themselves:
Political factors: High interest rate and strict policies directly places negative impact
over the Starbucks profitability as the entity is not able to procure high quality beans that are
considered as the essential things which is supportive for them in delivering high quality coffee
to customers (Gupta, Nagpal, and Malik, 2018).
Economic Factor: Recession is considered as the main negative factor that places
negative impact over the operational activity of Starbucks. Due to recession, it would not be
possible for Starbucks to execute its working activities worldwide.
Social factors: Higher living standard of people might creates high opportunity for
Starbucks as influence of people towards high quality coffee will attract them towards the entity.
The respective company can also influence interest of customers by introducing green coffee
with the combination of green tea and coffee. This will definitely provide them higher business
opportunity in the near future.
Technological factors: Advancement in technology brings higher business opportunity
for Starbucks as they can effectively execute their operational activities with the usage of digital
tools. Starbucks also make use of WIFI for helping out its employees as well as customers in
accessing net in quicker manner. This will directly enhance number of opportunities for the same
company in coming next three years (Gurski, 2014).
Legal factors: Starbucks has separate legal team which ensures that all activities of
respective company are executed within legal parameters or not. This ensures that they are free
from legal penalties or obligations as they are comply with each and every thing.
Environmental factors: at currrent basis, Starbucks make use of plastic straw which is
not good for the environment. This develops opportunity for Starbucks to introduce paper straw
for contributing their proportion in environmental sustainability. This will also provide support

to the respective company in attaining environmental sustainability in next three years of time
period.
Porter Five Force Analysis
Porter's force analysis framework is effectively used to analyse competition within the
industry in effective manner. In context to Starbucks application of this framework is described
as below in effective manner:
Bargaining power of buyers (High): The influence of this force for Starbucks is high as
there are numerous of companies present in this industry offers similar kinds of products and
services at almost similar range (Harold, 2015). This simply means that if buyers found that at
any stake quality of Starbucks in not going up to the mark then they can move to another one.
For maintaining buyers influence, it is important for the Starbucks to offer high quality of
products and services to the customers.
Bargaining power of suppliers (High): Number of suppliers within the industry are high
but still there are only few supplier who are offering high quality raw material. This means
bargaining power of supplier is high as Starbucks is not having much options from where they
can easily purchase high quality raw material. Thus, they have get agreed on the quotation
discussed with suppliers.
Competitive rivalry (High): The respective industry is highly competitive, main
competitors for Starbucks are Dunkin Donuts, McDonald's, Costa Coffee etc. This depicts that
influence of this force is high for Starbucks. In order to deal with this Starbucks is required to be
constant based innovation for attracting customers towards them.
Threat of substitutes (High): The influence of this force is high for Starbucks as the
competition within the industry is high. Thus, it is important for the company to offer all of its
product range at affordable prices. This will support them in retaining existing customers and
attracting new one for longer period of time (Helm, 2017).
Threat of new entrants (low): Incorporation within this industry is very difficult for new
entrants as they requires higher investment as well as lots of legal regulations for establishing
their business in rightful manner. With respect to Starbucks, it can be said that this company is
having strong market share as well as global market presence. Thus, they are not having any kind
of negative impact from new entrants.
Industry Life Cycle Model

This is termed as the effective model which includes various stages that provides
guidance to the employees that how their business activities will going to be executed. In context
to the Coffee Cafe Industry, it can be said that this industry falls under the four main stages
industry life cycle which are explained as below:
Introduction stage: It is the first and foremost stage, in which start up are established
and focuses on increasing their revenue in effective manner ( Honack and Waikar, 2017). At this
stage, for enhancing sustainability, it is required by Starbucks to provide coffee at low prices to
customers for attracting them for longer period of time.
Growth stage: At his level, main focus of company is on attaining smaller profits with
the help of certain strategies. With reference to Starbucks, manager of this company make use of
effective marketing strategy for obtaining growth in quicker manner.
Maturity stage: At this stage, businesses are above the growth stage. Here, Starbucks
can charge high prices from its customer for its offering in order to maximise their profitability.
The present stage of Starbucks belongs to maturity stage in which it offers its products and
services at high prices in order to earn higher profitability.
Decline stage: Last stage of life cycle. At this stage, profit of the entity belongs from the
specialty coffee cafe industry starts declines. As strategy company starts to charge less prices to
sustain in market. Discount offers are also provided to attract consumers (Jo and Kim, 2017).
Internal analysis
It involves use of techniques & frameworks which help in identifying internal
weaknesses and strength of a company with the available competencies as well as resources.
VRIO Analysis
This tool attains to determine the most important and valuable resource of an
organisation which further leads to gain competitive advantage at marketplace. The four factors
which is considered in this analysis in order to find the important resource are valuable, rare,
inimitable and organised as well. The VRIO analysis is discuss below:
VRIO ANALYSIS
Factors Valuable Rarity Inimitable Organized
Upscale cosy
surroundings
✔

Special coffee ✔ ✔
High global
presence
✔ ✔ ✔
Workforce ✔ ✔ ✔ ✔
Valuable:
 Upscale cosy surroundings: The outlets of Starbucks is located on those areas where
population spend money on coffee. The company provides positive environment to
customers n order to make customers feel enjoy and comfortable within the premises.
This helps company to attract customers and earn high profits.
 Special coffee: The taste of its special coffee is the valuable resource of the company.
The non substitutable taste in its coffee is the USP of the company which attracts large
audiences.
 High global presence: The global reach of Starbucks is high which enables them to give
service thousand of peoples in a day (Karthik and Dixit, 2015). The company has more
than 31,000 outlets worldwide through this it is able to serve same taste in many
countries. This global presence helps company to raise value & profitability.
 Workforce: Starbucks has well trained and skilled staff that helps company to increase
productivity and generates high profit.
Rarity:
 Special coffee: The coffee which Starbucks serve to its customer are made of special
coffee machine and with trained chefs that develops a different as well as rare taste of the
coffee.
 High global presence: There are very few companies which provide unique coffee cafe in
worldwide. It leads to a rare resource which company produce.
 Workforce: The training is given to all the staff of Starbucks by a professional trainer
with an aim to produce rare taste of coffee which is not easily find by customers.
Imitable:
 High global presence: The company give services to more than 80 countries worldwide.
Starbucks taste is unique which is not easy to imitate by competitors.

 Workforce: The valuable resources of Starbucks is its employees which is gain by
company through effective process and no can imitate their unique skills of employees.
Organized:
 Workforce: The skilled as well as talented employees generates high revenue for
Starbucks as it helps company to attain competitive edge which is not imitable (Kay,
2019).
The technique which helps company to create value and develop opportunities is termed as value
chain analysis. This analysis is mentioned below:
Primary Activities
Inbound logistics: It involves the development of effective supply chain management for
the company. The higher authorities of Starbucks tries to procure coffee plants by their own. It
helps them to bring something unique in the market and builds good relations with customers.
This strategic relationship raise value of inbound logistics of company.
Operations: Starbucks deliver its service in greater than 80 countries. This operations
took place through franchisee or giving license to others and some stores are self operated. With
this, they analyse and gain information about different culture and taste of customers.
Outbound logistics: Most of the companies enhance sales through online marketing and
offer products such as packaged coffee and Tea. The product of Starbucks that is 3 in 1 coffee is
easily available in the supermarkets like Walmart, Tesco and so on.
Sales and Marketing: Starbucks uses different channels to promote its services or
special coffee. This includes effective advertisement on social media apps such as
Instagram,YouTube, Whatsapp and many more(Koh, Singer and Edmondson, 2019). This helps
company to deliver its value in the market effectively.
Services: Giving effective services to customers is the key to success for any of the
association. In context to Starbucks, the company believes in providing rapid and high quality
service to customers in order to meet customer expectations and gain customer loyalty.
Supportive Activities
Infrastructure: The ambience and design of Starbucks outlets is attractive as well as
unique which gain the eyes of customer and raise their sales.
HRM: The employees is the success key of a company which can grow and develop its
operations. With reference to Starbucks, the managers motivate its employees by giving

monetary benefit or incentives. The company has reduce its turnover rate by fulfilling the needs
of its workforce.
Technology development: Starbucks provide Wi-Fi facility in there stores so that
customers can do their work while consuming coffee. With this, The company has an online
platforms on which customer can put queries or give suggestions.
Procurement: The company had developed rules as well as policies in order to ensure
high suppliers quality and ethical practices.
RESOURCES
Starbucks featured both intangible & tangible resources that helps them to gain
competitive advantage in the market. The tangible resources of company is machines as well as
high equipments (Mason, Cole and Goza, 2017). With this, the skilled workforce gives an
outstanding service to customer and brings it to the new heights. On contrary, the methods to
brew coffee, customer satisfaction, reputation in market, employee relationship is the intangible
resources of Starbucks.
CAPABILITIES
The brand equity is the major strength of Starbucks. Its global presence is high which
leads to the generation of high revenue and raise customer base as compare to its rivals. It offers
different quality products to its customers such as coffee or snacks. The company basically
emphasise on giving high quality and timely service to customer in order to build loyal
customers (Mason, 2017). The supply chain of Starbucks is strong that makes company to offer
high quality coffee beans to customers. In addition to this, It offers price range to its customers.
COMPETENCY FRAMEWORK
Competencies includes skills, attributes and knowledge as well of an employee who is
working in the organisation. This framework helps the manager of Starbucks to analyse the
behaviour and attitude of each employee working in organisation. It includes:
Leadership development: The Human Resource manager of Starbucks carry out those
activities which increases confidence level, abilities and skills of employees. This activities
develop the leadership skills in employees and they render high service to customers.
High talent: Starbucks featured experiences and talented staff that meets customer
expectations by offering quality services. It also assist them to attain goals within time frame.

(Source: Competency Framework, 2019)
Recruitment & selection: The Human Resource manager of Starbucks implement
recruitment process after analysing the requirements of candidates properly. They scrutinize
candidates with the help of online software or tools with an aim to hire effective workforce.
Performance management: The company set some standards as well as expectations
and then match the performance of employees with it (McCluney, Roberts and Wooten, 2017).
This helps Starbucks to analyse the contribution of each individual towards the goals.
Succession planning: It is essential for every organisation to analyse and then fulfil the
gap which occur among the teams and individuals. Herein, the company develops modules with
an aim to fulfil gaps. In addition to this, the manager of Starbucks decide to replace leaders with
more energetic and innovative employee of the company.
Rewards & recognition: In order to encourage people, the higher authorities give
appreciation to employees of their hard work in front of all other employees. This builds positive
environment and raises confidence level of all the staff members. Along with this, they also give
monetary rewards to customers.
Recommendations:
Illustration 1: Competency Framework

Starbucks is offering its services in multiple countries and also built its good market in
china but the company have the opportunity to grow in more markets and reach to its potential
customers. It is suggested that company can also offer affordable pricing product in market as it
will help in raising sales and revenue. The company can expand its outlets in more markets and
transfer its competencies to other countries which increases its global presence as well as market
share. The company can add such as juice, tea in its product line which further leads to raise in
customer base as well as profit level. Starbucks can produce their own coffee beans as it declines
the cost of company and leads to high revenue. The company offers tea or healthy drinks as its
core product which gives customer more choices at a place and they did not prefer other brands
for juices or tea. As many of the corporate people prefer to consume juice and adding this in the
menu helps company to increase its footfall which automatically increases sales (Paik, Kwon and
Chen, 2017).
It is also recommended that Starbucks should focuses on development & growth
strategies. Herein, the company can use Ansoff matrix for market penetration and to produce raw
materials cost effectively. This analysis involves operations of techniques and tools of the
company. In addition to this, SMART objectives can be developed which are as follows:
 To increases sales of its product by 15% in the coming quarter with the help of different
marketing channels and by use of qualitative & cost efficient materials.
 To high market growth by 10% in 5 months by providing proper information on
marketing channels and adopting innovative techniques which reduces cost and raises
profit.
The company can advertise its new offerings on Instagram and YouTube as it attracts large
number of audiences at a time. This helps Starbucks to sustain in future effectively in the market.
In addition to this, it will brings out positive outcome in a short span of time.
Part 2 – Starbucks’ Stakeholder Report
a) Internal & external Stakeholders of Starbucks
Stakeholder Group Internal or External Reasons for considering
them
Customers External They are the assets of a
company and leads to gain

higher profits.
Employees Internal The key behind success of a
company and leads to
enhance productivity as well
as profitability.
Shareholders Internal They helps company to
increase capital as well as
market share.
Government External A regulatory body who has
the authority to give rights to
company for execution of
plans.
Suppliers External They supply raw materials
through which company can
process activities and offer
high quality coffee to
customers.
b) Workforce precedence stakeholders group
The main stakeholders due to which Starbucks increases productivity and market is its
talented employees. According to the case study, the higher authorities inspire its workforce
through rewards and monetary benefits as per their efforts (SAHU, 2016). It gives medical
services, paid holidays, insurance service, stock option and many more benefits to all the staff
members. The company offers all these advantages with an aim to engage employees for longer
time and gain their trust. The training programs as well as personal development programs is
conducted by organisation to enhance skills as well as quality of workforce. In addition to this,
the company believes that employees are the most valuable resources for them which brings it on
the peak in market.
Starbucks have more than 1,90,000 talented employees who supports to give quality
service to customers. The roles of these employees is different such as store development,
warehousing, roasting, monitoring and checking, keeping maintenance and many more. The

company consist of both male as well as female workforce. Apart from this, there is no culture,
caste discrimination in the organisation. The employees are highly trained and have good
communication skills. With this, they are highly service and deals with customers easily.
c) Interest & power of Workforce stakeholder group
The matrix of stakeholder involves four quadrants which reflects the power and interest
of each employee in the organisation. The matrix is discussed below in relation to Starbucks:
From the above matrix it has been stated that the employees have low power whereas the
interest is higher when they carry out activities and their duties (Shiau, 2016). The employees
have no authority to take part in the decision making of company.
The higher authorities uses various communication medium to interact with all the
members of the company. They use Emails, messages and conference call to interact and give
appropriate information to employees. This helps company to effectively carry out operations
and higher the quality of its services (Wattel, 2016).
CONCLUSION
On the basis of overall information presented in the above section, it is comprehended
that Starbucks is large scale company which holds strong global presence which is maintained by

its management team for reducing influence of the competitors. It has also been acknowledged
that external environment has both the positive as well as negative impact over the performance
of the company. With the help of PESTLE analysis it has been identified that technology factor
places positive impact over Starbucks performance as it develops higher opportunity. On the
contrary, economic and political might place negative response over the same company. Usage
of Porter's five force analysis was helpful in developing knowledge on the competitiveness of
Coffee Cafe industry. Along with this, internal analysis was done effectively with the usage of
value chain and VRIO analysis. From this, it has been identified that workers are most important
resource for Starbucks that supports them in gaining competitive edge within the industry. On
the basis of all this, the main recommendation provided to firm is to emphasize on making use of
effective marketing activities and also use available resource in optimum manner for saving their
cost.

REFERENCES
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