Strategy for Starbucks: External and Internal Environment Analysis

This report provides an analysis of the external and internal environment of Starbucks and offers recommendations for improving performance. It includes a PESTLE analysis, Porter's 5 Forces analysis, VRIO analysis, and value chain analysis.

Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................2
The External Environment..........................................................................................................2
Internal environment...................................................................................................................6
Recommendations.......................................................................................................................9
PART 2 .........................................................................................................................................11
Stakeholder Report....................................................................................................................11
REFERENCES..............................................................................................................................13
Appendix A....................................................................................................................................14

INTRODUCTION
A strategy is defined as a plan of action which is mainly designed to fulfil organisational
aim for long term sustainability and high profitability. Every business organisation needs a
strategy for successful growth, as it allows to gain proper understanding of competition which is
prevailing in business environment and further assist them to plan accordingly in order to gain
more competitive advantages compared to rivals (Gao, Hsu and Li, 2018). Strategy also
facilitates business organisations to effectively fulfil expectations of stakeholders that maximises
company chances of generating more revenue. Present report has been conducted on Starbucks,
company is operating their business operations in coffee shop industry and was founded in the
year 1971. Entity offers wide range of high quality products and services to their customers.
Main products of company includes coffee beverages, baked goods, smoothies, tea, sandwiches
and more. This has been evaluated that, product differentiation is most important strategy of
Starbucks through which they ensure its leading position in marketplace. In addition to this, by
offering quality products and excellent consumer experiences respective company is serving
their customers at its best (Simeone, 2020). Further it has been evaluated that, quality is main
concern of Starbucks which also benefits company is gaining high profitability and more
competitive advantages in industry compared to other rivals. By analysing case study, it is
identified that McDonald's which one of the biggest competitor of Starbucks lacks in quality
control that increases demand of Starbucks product in market on automatic basis.
However, it has been evaluated from the given case study that Coca-Cola which is an
iconic company after failing in meeting its financial targets developed a strategy by Douglas
Daft, in which he states that for higher growth it is essential for company to put more power in
back in the hands of local country managers. In addition to this company also made strategic
alliance with Illycaffe which coffee makers, to build a global franchise for canned or bottled cold
coffee beverages. Coca-Cola is emerging as one of the biggest competitor of Starbucks, as
respective entity challenges Starbucks by buying market shares in leading coffee companies such
as Costa for US$5.1 billion (Coca-Cola takes on Starbucks with $5.1 billion deal to buy world’s
second biggest coffee chain Costa. 2018).
1

Illustration 1: Top 4 Coffee Chain Brands in Europe
In addition to this, it has been determined that Starbucks also get competition for its
bottled coffees, as one of its competitors Dunkin’ Donuts and McDonald's teamed up with Coca-
Cola to bring a new bottles ice coffee drinks line (Coca-Cola follows Dunkin’ Donuts
partnership with new McCafé line. 2017).
Thus, in order to overcome this competition and emerge out as a leading brand while
assuring more share holding, customer base and profitability in marketplace, Starbucks needs to
have a strong strategy. For this entity is required to conduct external and internal environment
analysis of business environment in which they are operating their business. In this report,
internal as well as external environment evaluation of Starbucks is given. Along with this, report
also include recommendations through which company can improve their performance over the
next 3 years. Lastly, report also include stakeholder report.
PART 1
The External Environment
There are different types of factors that are prevailing in external environment and have
significant influence upon business operations and activities (Shtal and et. al., 2018). In terms
with Speciality coffee cafe industry it has been evaluated that, it is one of the fastest growing
industries in around the world. This industry was valued at a revenue of USD 35.9 billion in
2018. Further The respective market is further expected to grow and reach USD 83.6 billion in
revenue by the year 2025.
2

Source: Adroit Market Research, 2019
Mentioned below Pestle analysis of the Speciality Coffee Café industry is done through
which Starbucks can also evaluate its growth opportunities in respective market segment while
assuring higher profitability and competitiveness:
PESTLE Analysis
Political: Organisations operating their business operations in Coffee Café industry is
highly depended on trade relationships which is also seen in given case study, as Coca-Cola by
formulating trade relationships with different coffee chains around the world are gaining
competitive advantages (BURKE, ROBINSON and Choi, 2020). Trade relationships have its
ultimate impact upon sales that also determines final tag price of the beverage.
Economic: Growing income levels around the globe is having significant impact upon
drink and food industries. Increase in customers income level states potential of consumers to
spend more upon coffee, tea and other luxury beverages. It increases revenue of coffee industry
on continuous bases.
Social:
In this, Coffee Café industry is mainly affected by most important social factors which is
health consciousness. In terms with this, it has been identified that many studies states that
coffee is unhealthy as it have large amounts of caffeine (Shehu, 2018). This increase consumers
concerns as large number of customers are moving towards right eating habits. However, for this
many entities in this sector are coming up with the options like organic coffee.
3
Illustration 2: Global Speciality Coffee Market (USD million) ( Tons)

Technological:
It is an essential aspect for all drinks and food industries. It has been seen that Coffee
Café industry is influenced with genetic engineering as this technology is being largely adopted
by many organisations for have modification in products at genetic level in order to improve its
shelf-life, taste, yield and more (Bonsu, 2019). Along with this this has been evaluated that,
Genetically engineered coffee usage is also increasing in coffee industry that are increasing its
profitability.
Environmental: Coffee Café industry is affected with sustainable farming. As it has
been see that countries around the world is facing with the issue of many environmental issues in
which some of these issues like unsustainable farming processes are leading towards
deforestation (Lin and et. al., 2020). Thus, many leading companies are purchasing raw
materials like coffee beans from those framers who are doing sustainable farming with organic
fertilisers in order to protect environment and promote industry growth.
Legal factors: Coffee Café industry is affected by food standards which is mainly
designed for product consumption. It has been evaluated from case study analysis that, many
organisations like Coca-Cola, McDonald's and more are tying up with other brand to gain more
competitiveness. As coffee falls under food and drink regulations in all countries, this makes
entities to abide all the obligatory laws like caffeine standards in order to engage in safe coffee
handling to ensure growth.
With this analysis Starbucks can gain advantages from various trade agreements, coffee
appliances that are available of larger scale, income level of customer, genetically engineered
coffee to reap greater profitability.
Porter 5 Force Analysis
This analysis assists in determining the extent of competition which is prevailing in
business environment (Duke, 2018). Through this entities can develop strategies to effectively
address limitation for more competitive growth.
Level of Rivalry – High
According to the case study analysis, it has been evaluated that entities like Coca-Cola,
Costa Coffee and Dunkin’ Donuts are teaming up together, in this Coca-Cola is having heavy
investment in these companies market shares in order to gain more competitive advancements
4

against Starbucks for more profitability. It depicts high level of rivalry threat in Coffee Café
industry.
Entry Potential- High
Threat of new entrants is high due to presence of less number of hurdles in market. As
new entrants does not requires high capital investments. In addition to this according to case
study they due to various entry strategy mentioned in case study, such as joint venture and
licensing entry in this industry is easy (Porters-five-forces-of-coffee-industry. 2018). Along with
this they also does not need highly technical staff that increase profit reserves ratios in this
industry.
Power of Suppliers- Low
Coffee Café industry is having low level of bargaining power to suppliers are in this
industry there are large number of suppliers available those who tend towards operating their
business with leading entities for more profitability. This increases strength of companies in this
industry to have more bargaining power with suppliers in order to effectively generate more
economies of scale.
Power of Customer - High
Due to the presence of large number of suppliers in this Coffee Café industry, customers
can easily fulfil their demand as they are having many local and international brands to choose
from (Khushman, 2019). As, according to case study Coca-Cola in order to grow its profitability
are investing in many local brands which is automatically increasing strength of buyers to have
qualitative products in affordable price range.
Substitute Products – High
Because of multiple options of substitutes threat of substitutes in high in Coffee Café
industry. For example, many coffee providers are providing packed coffee to customers of home
brewing which acts as major threatening factor. Along with this other options like cider, tea and
cocoa is also acts an coffee replacing items.
With the help of this evaluation, Starbucks can overcome threatening factors like increase
in level of rivalry, substitutions, new entrants by taking advantage of strategies like low
production cost, high production differentiation, high strategic stake, competitive pricing,
superior quality products, healthy organic beans, online shopping and shipping and Minimum
overhead expenses.
5

Internal environment
It is component of business environment that comprises numerous elements that exists
within the entity and influences decisions, choices, operations, sustainability and competitive
edge of enterprise. In the research, it is identified that key strength of Starbucks is its highest
quality coffee that engages customers and communities across the world to gain success (Akyüz
and Pınarbaşı, 2020). To analyse the internal environment of Starbucks, some of frameworks are
used which are as follows:
VRIO analysis
It is analytical tool that is brilliant for evaluating organisational resources, capabilities
and competitive advantage. According to case study, Coca- Cola, McDonald's, Dunkin' Donuts
and hence forth are certain competitors of Starbucks. The resources and capabilities of Starbucks
that are sources of competitive benefits are as evaluated by using VRIO analysis grid that is as
follows:
Resources and capabilities Valuable Rare Imitable Organised
Strong brand image ✓ X X X
Store environment ✓ ✓ X ✓
Quality and special flavours
of coffee
✓ ✓ ✓ X
Valuable: It states whether the capability and resource works for exploiting opportunities
along with mitigating threats in competitive marketplace (Garrette, Phelps and Sibony, 2018). In
case with Starbucks, its valuable resources are supply chain, strong brand image and special
flavoured quality coffee. It have strong brand image which is valuable resource of company as it
assist in attracting and increasing customer base in market which provides competitive advantage
to the entity. Moreover, store environment of Starbucks is valuable as the company have created
calm surroundings that increases its popularity and retains customers. Furthermore, special
flavours and quality coffee is another valuable resource of Starbucks as it uses different types of
ingredients to make coffee due to which customers flocks at its place despite of competitors such
as McDonald's or other outlets.
6

Rare: When an organisation have rare resources then it provides them competitive
advantage as rare capabilities are absolutely unique among potential competitors. As per case
study, Coca-Cola is tough competitors of Starbucks. The identified rare resources of Starbucks
are store environment and quality as well as special ingredients of coffee. Starbucks have done
significant investment to procure and create special flavours that other companies have failed to
do that is the reason of its competitive position. At same time, store environment can be made
flexible and calm by other companies but it requires special focus, store make up and staff
training that are only acquired by Starbucks in competition.
Imitable: The resources that are hard to be imitated or obtained by other firms are said to
imitable resources (Veselinova and Samonikov, 2017). In case with Starbucks, imitable resource
is quality and special flavour of coffee that other companies or competitors such as Dunkin'
Donuts, McDonald's and other have failed to acquire because of complex procedures and high
prices which provides competitive edge to Starbucks.
Organised: Organised resources or capabilities are those which realises values of above
mentioned elements. As per the research, it is analysed that when resources are organised
successfully, entity enjoys sustained competitive advantages. In case with Starbucks, its store
environment is organised capability as all the activities including order placement, payment,
delivery and others are well organised and sequentially performed that gives competition to other
company as consumers are much happy to follow the sequences.
Value chain analysis
It is strategy framework that is adopted by corporate business for the purpose of
analysing internal activities. It helps in analysing which activities provides competitive
advantage and which ones require improvements to gain competitive edge in industry. As per the
research, Porter's value chain analysis is used in Starbucks and its key activities that provides
competitive advantages are as follows:
Primary activity: This type of activity adds vales in organisational production process. In
context to Starbucks, its primary activities are as follows:
 Inbound logistics: It is the activity that includes acquiring of goods from suppliers and
using them to produce end product (Byrnes, 2019). In context to Starbucks, it acquires
raw materials such as coffee beans, sugar and flavoured ingredients from suppliers so that
tasty and healthy coffee are produced for customers.
7

 Operations: Herein, materials are converted by production department of Starbucks in
final product for adding values throughout production line.
 Outbound logistics: After producing coffee or other products, they are distributed to end
consumer by Starbucks team.
 Marketing and sales: In this activity, huge promotions of brand and its offerings are
done to generate awareness among target population. It helps in making larger sales of
products.
Supportive activity: Activities which assist primary activities for attaining competitive
benefits are supporting activities. According to research, key supporting activities that provides
competitive advantage to Starbucks are as follows:
 Firm infrastructure: It is necessary for each entity to ensure that their legal structures,
management and finance work effectively to drive the company forward. According to
case study, shift of Coca-Cola towards localisation didn't produce growth that was
expected. However, Starbucks have managed its infrastructure effectively that drives the
entity to achieve competitive advantage.
 Technology development: Time to time, Starbucks have installed new and updated
technology in its stores to produce flavoured coffee which reduces various costs and adds
values to develop its products and gain competitive advantage in the industry
(Sokolowsky, 2020).
In accordance with mentioned resources and capabilities, it is analysed that there are
some resources that are strength for Starbucks while others are weaknesses. The resources which
are strength for the company are store environment, inbound logistics, technology development
along with quality and flavoured coffee. At same time, resources that are weaknesses for the
company are firm infrastructure, strong brand image, operations, marketing and sales as these are
not able to maintain sustainability of company in industry and needs more improvement.
According to case study, Coca-cola is leading competitor of Starbucks which granted
local operations as high independence degree for overseeing operations as managers found fit. It
placed renewed focus on Coke's flagship brands to become global company across the world.
With major changes in marketing strategies, Coca-Coke made hit in its financial targets that
provided it competitive benefits. In contrary to Starbucks, the marketing tyactics of Coca-Cola
8

were much better. In this context, Starbucks can analyse marketing strategies and delivery of
content of Coca-Cola to improve its performance in future.
Recommendations
As per according to the above mentioned evaluation it has been seen that, Starbucks
business operations is affected by number of factors for example, investment of its competitors
like Coca-cola in Dunkin’ Donuts to compete Starbucks iced bottled coffee. Thus, to effectively
overcome this competition and assure more sustainable growth and profitability Starbucks CEO
is being recommended to take advantage of certain specific steps as to assure high performance
in the next 3 years. This has been identified that World is affected with the Covid- 19 pandemic
that largely disrupts economies and market all around the globe. Thus, to recover from the losses
and ensuring more sustainable and profitable business CEO of Starbucks is recommended with
mentioned below measures. It has been seen that Starbucks is facing challenges in terms of:
 Need to company policy to switch towards sustainable business in order to save natural
environment.
 Decrease in sale due to Covid-19.
In order to overcome these challenges company CEO can undertake use of some given
recommendations:
SMART Objectives
Specific:
In this, Starbucks by taking advantage of “ monitor and adapt” on daily basis is required
to continuously monitor Covid-19 impact upon each communities in order to further work under
health officials recommendations to effectively make their customers and partner safe. Company
is also recommended to use options like mobile ordering and pick-up along with innovation to
provide drone delivery services in order to serve consumers in responsible manner.
Measurable:
Increase sales of Coffee by 8% over last year by December 31, 2023. In order to fulfil
this objective Starbucks CEO is recommended to provide training to 200,000 coffee farmers by
9

2023 in order to make them invest in innovative efforts as to increase long term sustainability of
coffee products.
Achievable:
In order to become world's largest green retail business Starbucks is recommended to
make 50% reduction of carbon emission from their supply chain and direct operations. In
addition to this, CEO of respective company is also recommended to overcome climate crisis
with the help of having Environmental, Social and Governance value. For this company can
make reduction is the zero the use of plastic cups and reduce utilization of plastic straws in all
their stores (Novak and Richmond, 2019). This will increase overall goodwill of company is
respective market segment through which entity can see increase in their market share holding.
In addition to this company by making $10 million investment n four established Community
Development financial institutions can effectively drive economic opportunities in providing
support to local business.
Relevant:
With having Starbucks in-app system company can gain competitive advancements in
payment platforms through 2023. Along with this, in order to serve nature with sustainable
practices, Starbucks by having 100% ethically sourced coffee can effectively promote
sustainable agricultural product . This will significantly increase overall profitability of company
in effective manner.
Time-bound:
In order to gain more competitive advantages customers are playing most important role.
Thus it is essential for Starbucks to follow up with every prospect and consumers within 24
hours of sales call in order to gain more customers loyalty.
Thus, by effectively emphasising upon all the above mentioned recommendations CEO
of Starbucks can meaningfully contribute in different aspects like reduction in the use of plastic
waste, promoting sustainable business practices, high customers satisfaction and more
(Sztompka, 2020). All the above given recommendations will benefits respective company to
increase their market sales, goodwill and profitability will automatically increases company
performance and sales in marketplace.
10

PART 2
Stakeholder Report
As per according to the evaluation of appendix A stakeholders analysis, it has been
identified that Employees are One Priority Starbucks stakeholder Group form the list (Rodeia,
2017). As company see its workers as one of the most important source of revenue generation
through which they can not only increase their overall sales but can also serve customers in best
effective manner which automatically increases company overall profitability, goodwill and
market share.
Employees:
This has been evaluated that Starbucks significantly prioritizes their employees as
company one of the most important corporate social responsibility. It has been identified that
employees mainly seeks for job security, better form of working conditions and higher wages
(Thompson, 2017). Thus, Starbucks is significantly emphasising upon organisational culture that
focus upon employees-first-attitude. In addition to this, as per according to the evaluation it has
been identified that company is offering wages to their employees which is basically above the
legal mandated minimum wages in order to increase their job satisfaction in significant basis.
Further as per according to the evaluation it has been determined that company is also providing
scholarships to their employees with having partnerships with many universities. Along with
this, this has been evaluated that around 3,000 employees of Starbucks earned bachelor’s degrees
online through the company-university partnership program (5 Years Since Starbucks Offered to
Help Baristas Attend College, How Many Have Graduated?. 2018). Further, with having
Starbucks College Achievement Plan respective organically is significant offering amazing
combination of reimbursement funds and scholarship as to provide aid to baristas, employees and
store manager which is most important stakeholders of company.
11

Starbucks is operating their business operations with more than 291,000 employees. This
makes them one of the most important aspect of company which is playing major role in
contributing higher sales of company (Indah and Sanawiri, 2018). With the help of these
measures and contribution Starbucks is increasing level of performance and sense of loyalty and
commitment among employees which is automatically maximises sales and profitability of
company. Thus, as per according to the provide case study evaluation it has been signified that,
due to high competitive environment in which many companies like Coca-Cola is investing in
local brand with the help of various entry modes, Starbucks however gained significant
advantages by investing in employees that further allow company to attract and retain employees
for long period of time. These education-support program is offerings Starbucks to motivate their
employees and reduce cost of hiring, selecting and recruitment process (Swartz, Crawford and
Luck, 2020).
Further it has been critically evaluated that employees as a stakeholder group is having
high power or influence over Starbucks operations as well as activities. According to
Mendelow's matrix, employees are known as partners and offer high productivity and
profitability to company. In addition to this, it has been determined that employees makes
Starbucks one of the leading customers serving organisation. This makes respective company to
take advantage taking various channels like e-mail, company chat software such as Google
Hangouts, Microsoft, Slack, cloud technology like Google Drive and more to communicate with
employees.
12

REFERENCES
Books and Journals
Gao, H., Hsu, P.H. and Li, K., 2018. Innovation strategy of private firms. Journal of Financial
and Quantitative Analysis, 53(1), pp.1-32.
Simeone, L., 2020. Characterizing Strategic Design Processes in Relation to Definitions of
Strategy from Military, Business and Management Studies. The Design Journal, pp.1-
20.
Shtal, T and et. al., 2018. Methods of analysis of the external environment of business
activities.\
BURKE, K., ROBINSON, P. and Choi, M., 2020. Developing meta-strategies for hospitality
experiences. Managing Hospitality Experiences, p.141.
Shehu, A., 2018. Structural analysis and its implications for oxide ion conductivity of lanthanide
zirconate pyrochlores(Doctoral dissertation, Queen Mary University of London).
Bonsu, S., 2019. Strategic Management: The Concept of Competing With Self. Journal of
Marketing and Management, 10(2), pp.20-44.
Swartz, S., Barbosa, B., Crawford, I. and Luck, S., 2020. Professional learning through
collaborative online international learning.
Lin, C.S.K and et. al., 2020. Food Waste and Manure. In Handbook on Characterization of
Biomass, Biowaste and Related By-products (pp. 899-938). Springer, Cham.
Duke, D., 2018. Porter’s five forces and the coffee industry. Management Teaching
Review, 3(3), pp.241-251.
Khushman, A., 2019. An Evaluation of Entrepreneurial Activities and Growth Strategies–The
Case of Starbucks Coffee House. Available at SSRN 3594916.
Sztompka, K.E., 2020. The project of improving the process of selling products at
Starbucks (Doctoral dissertation, Katedra Innowacyjności i Przedsiębiorczości).
Novak, A.N. and Richmond, J.C., 2019. E-Racing together: How starbucks reshaped and
deflected racial conversations on social media. Public Relations Review, 45(3),
p.101773.
Rodeia, M.N.R.G., 2017. The power of CSR and its implications on employees’ satisfaction,
motivation and happiness at work: the case of Starbucks (Doctoral dissertation).
Rossing, J.C.P., Johansen, T.R. and Pearson, T.C., 2019. Tax governance: the balance between
tax regulatory requirements and societal expectations. International Journal of
Corporate Governance, 10(3-4), pp.248-274.
Indah, D.C. and Sanawiri, B., 2018. Analisis Implementasi Corporate Social Responsibility
(CSR) terhadap Keberlangsungan Bisnis Perusahaan Multinasional (Studi Pada
Starbucks Coffee Grand Metropolitan Mall Bekasi). Jurnal Administrasi Bisnis, 54(1),
pp.120-129.
Thompson, A., 2017. Starbucks Coffee’s Stakeholders: A CSR Analysis. Panmore Institute.
Bundy, J., Vogel, R.M. and Zachary, M.A., 2018. Organization–stakeholder fit: A dynamic
theory of cooperation, compromise, and conflict between an organization and its
stakeholders. Strategic Management Journal, 39(2), pp.476-501.
Akyüz, A. and Pınarbaşı, F., 2020. Brand Coolness in a Competitive Environment: An Empirical
Study on Starbucks Turkey. In Strategic Priorities in Competitive Environments (pp.
341-356). Springer, Cham.
13

Garrette, B., Phelps, C. and Sibony, O., 2018. Structure the Problem: Analytical Frameworks. In
Cracked it! (pp. 95-116). Palgrave Macmillan, Cham.
Veselinova, E. and Samonikov, M. G. eds., 2017. Building brand equity and consumer trust
through radical transparency practices. IGI Global.
Byrnes, W., 2019. Boiling Starbucks’ Roasting Down to the Essence of its Residual In the
Netherlands State Aid case. Available at SSRN.
Online
Coca-Cola takes on Starbucks with $5.1 billion deal to buy world’s second biggest coffee chain
Costa. 2018. [Online]. Available through<https://financialpost.com/news/retail-
marketing/update-3-coca-cola-takes-plunge-into-coffee-with-5-1-bln-costa-deal>
Coca-Cola follows Dunkin’ Donuts partnership with new McCafé line. 2017. [Online].
Available through<https://www.foodbev.com/news/coca-cola-and-mcdonalds-release-
new-line-of-rtd-coffee/>
Porters-five-forces-of-coffee-industry. 2018. [Online]. Available
through<https://www.porteranalysis.com/porters-five-forces-of-coffee-industry/>
5 Years Since Starbucks Offered to Help Baristas Attend College, How Many Have Graduated?.
2018. [Online]. Available through<https://www.edsurge.com/news/2019-07-25-5-years-
since-starbucks-offered-to-help-baristas-attend-college-how-many-have-graduated>
Sokolowsky. J., 2020. Starbucks turns to technology to brew up a more personal connection with
its customers. [Online]. Available through
<https://news.microsoft.com/transform/starbucks-turns-to-technology-to-brew-up-a-
more-personal-connection-with-its-customers>
Appendix A
In order to make significant improvement in company corporate social responsibility
practices Starbucks is playing important its important role towards every stakeholders group.
Mentioned below main stakeholders of company is given:
14

1. Employees (baristas, partners): These are internal stakeholders of company.
2. Customers: These are company external stakeholders.
3. Suppliers (supply firms, coffee farmers): External stakeholders of Starbucks.
4. Environment: They are external stakeholders of firm.
5. Investors: Internal stakeholder of company.
6. Governments: These are external stakeholders of company.
15