Marketing and Strategy: Starbucks Business Performance Report

This business report provides a detailed analysis of Starbucks' performance, structured to guide the CEO's decision-making process over the next three years. The report begins with an introduction to Starbucks, highlighting its competitive position and key performance indicators. It then delves into an external environment analysis, utilizing PEST and Porter's Five Forces frameworks, along with an industry life cycle model to assess market dynamics and competitive pressures. An internal environment analysis follows, employing VRIO, value chain, and SWOT analyses to evaluate Starbucks' resources, capabilities, and strategic positioning. The report concludes with recommendations for the CEO, considering priority stakeholder groups and the application of Mendelow's matrix. The analysis incorporates data from the Starbucks case study and independent research, ensuring that the information is current and relevant.

Running head: MARKETING AND STRATEGY
MARKETING AND STRATEGY
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Table of Contents
Part 1................................................................................................................................................2
1. An Introduction to Starbucks...................................................................................................2
2. External Environment analysis................................................................................................4
2.1 PEST analysis of Starbucks...............................................................................................4
2.2 Porter’s five force analysis of Starbucks...........................................................................9
2.3 Industry life- cycle model................................................................................................13
3. Internal Environment analysis...............................................................................................14
3.1 VRIO analysis of Starbucks.............................................................................................14
3.2 Value chain analysis of Starbucks...................................................................................17
3.3 SWOT assessment of Starbucks......................................................................................21
4. Recommendations..................................................................................................................22
Part 2..............................................................................................................................................26
Priority stakeholder group- Customers of Starbucks.................................................................26
Application of Mendelow’s matrix in Starbucks.......................................................................27
References......................................................................................................................................29
Appendix: Stakeholders of Starbucks............................................................................................34

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Part 1
1. An Introduction to Starbucks
The concerned organization, Starbucks Corporation, is an American coffee company and
coffeehouse chain which was established in the year 1971 and headquartered in Seattle,
Washington (Starbucks.com 2019). In accordance to the data collected in the year 2018, the
concerned venture operates through 28,218 locations worldwide while providing the customers
with wider range of beverage options (Starbucks.com 2019). The specialization of the venture
was based on the proposition of high quality coffee that are extracted from exquisite coffee beans
(Starbucks.com 2019).
However, the organization made subtle changes in the propositions based on the
assessment of the experience based demand of the customers. The organization introduced Fresh
juices, Frappuccino beverages, La Boulange pastries, and snacks as entrees for drawing the
attention of a wider range of customers (Starbucks.com 2019). The seasonal offerings of the
organization encouraged the growth of sales volume through increased customer engagement. It
has been noted that the concerned venture entered the UK markets in the year 1998 while making
an acquisition of around US$83 million (Chung, Liao and Chang 2018). Eventually, the
organization expanded to South America and Russia in the years 2003 and 2007 respectively
(Starbucks.com 2019).
The dynamic expansion rate of the organization in not only the developed but also the
developing economies contributed to its sustenance in the competitive markets with changing
preferences of the customers. The major competitors of Starbucks, as noted from the statistics,
are McDonalds and Dunkin’, where Starbucks holds a competitive position in relation to the

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average sales per square footage, amounting to US$758 (Refer to figure 1). On the other hand, it
has been noted that the concerned business earns a greater return on invested capital, which is
around 16.84% which is greater than that of its competitors (Refer to figure 1). Therefore, the
assessment clearly indicated the highest return that the venture produced for its investors, which
is reflected through the lower amount of weighted average cost of capital from that of the ROIC
adjusted.
Figure 1: Key performance ratios of Starbucks and its competitors for the year 2017
(Source: Gupta, Nagpal and Malik 2018)
The net revenue of the concerned organization was o $22.4 billion in the year 2017 which
increased to US$ 26.51 billion in 2019 (Starbucks.com 2019). The concerned venture continued
to operate on the basis of the Europe, the Middle East and Africa (EMEA) segment while
improving their marketing activities for increasing the amount of potential customers to the
business lines (Atzori, Shapoval and Murphy 2018). However, Real and Percell (2018)
reflected on the research that Starbucks is suffering from diminishing rate of sales in the recent

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years for which the business shifted to lean manufacturing through the closure of 900 stores and
34,000 job layoffs. It might be noted that the increase in the operational expenses affected the
margins of the business against the developments that are made by the competitors. However, the
growth of the coffee markets in different parts of the world holds a unique opportunity for
growth of the concerned business.
2. External Environment analysis
2.1 PEST analysis of Starbucks
Political
 The stabilized political situation in
most of the countries, where Starbucks
operates, permitted the venture in
making extensive market growth (Li
2018). On the other hand, the
minimized government interventions
through taxation programs or customs
again contributed to the wider
expansion of Starbucks.
 However, the US- China trade conflict
might afflict a fatal blow on the
earning opportunities for the venture.
It has been noted that the Chinese
markets meaningfully contribute to the
consolidated and CAP net revenues
and earnings of Starbucks (Koch

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2019). Therefore, the increased
taxation in the Chinese markets would
affect the capabilities of the concerned
organization in retaining the value of
their sustainable earnings.
Economic
 The increasing rate of fluctuations in
the global economy might affect the
capabilities of the concerned
organization in empowering the
efficiency of the operations. It has
been noted that the major prospects of
growth for the concerned venture
depends on the developing economies
(Guler 2018). In this relation, apart
from the US, the most prospective
nation for the concerned venture was
China with a GDP of US$ 14,200
Billion (Kang and Namkung 2018). It
has also been noted that Starbucks
moved to a strategic partnership with
Alibaba on August 2018 to “transform
the coffee experience in China”
(Devia, Aisjah and Puspaningrum

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2018). The adoption of Ele.me,
Alibaba's on-demand food delivery
platform, permitted the growth of
Starbucks in China (Donner and Loh
2019). However, the increased tension
of the US-China trade conflict might
affect the strategic partnership
drastically.
 The reduced employability or earnings
of the people in the developing
countries might restrict the market
scope for the concerned venture. It has
been noted that the US markets would
remain the major contributors to the
revenue and net margins for
Starbucks. The reduced earnings of
the population in the developing
economies might drive their
preferences towards the cheap
substitutes, which might affect the rate
of sales volume of Starbucks.
 The changing preferences of the
customers and the growing trend of

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Socio- cultural
experience based buying have
diversified the market scope. In this
relation, the concerned organization
might face significant challenges
while adhering to the changing
preferences of their customer base. It
has been noted that most of the
Starbucks customers are business class
baby boomers within the age group of
25- 60 years (Purkayastha et al. 2019).
However, the growing millennial
population in most of the operating
countries might challenge the
sustainable capabilities of the
business.
 The growth of disposable income
among the different developing
economies would empower the
potentiality of the buyers. However,
the increased cost of the propositions
that are made by the concerned
venture might not be opted over the
cheap substitutes that are available in

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the different markets (Alwaleed et al.
2019). It might affect the prospective
of the organization in sourcing
potential customers towards their
propositions in the developing
economies.
Technological
 The technological innovations that are
made by the organizations strongly
contribute to the competitive vantage
points of the same while operating in
the different markets. In this relation,
the concerned venture took the
initiative of collaborating with Apple
for introducing a new application that
would provide considerable amount of
discounts to the Apple users on every
buy of its propositions (Novak and
Richmond 2019). The strategy enabled
the venture in gaining a competitive
advantage while empowering the sales
volume of the same. On the other
hand, Starbucks also employed
technology while introducing the wi-fi

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zones in their cafeterias (Liu and
Zhang 2019). It enabled the
organization in gaining the attention of
the business class people who
schedule their meetings in the
different outlets of the concerned
venture. The implementation of
relevant technologies in the
organization permitted the
organization in gaining a competitive
advantage over the existing players in
the market.

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2.2 Porter’s five force analysis of Starbucks
Competitive rivalry
(High)
The competitive rivalry among the businesses
in the specialty coffee market is extremely
high, based on the parameters relating to
quality of the propositions, innovation,
service availability and price. The ambience
of the cafeterias might be taken as one of the
major contributing factors for the intense
competition in the markets (Prabandari,
Sembiring and Angela 2018). It has been
noted that Starbucks holds most of the market
share of the specialty coffee sectors.
However, companies like Dunkin’ Brands and
McDonald’s set up strong competition against
Starbucks through the proposition of premium
specialty coffee beverages at a slightly lower
price than that of Starbucks (Gray and Huels
2018). The improved propositions and
continuous innovations have again
contributed to the increased competition in
the markets.
The possibilities of new entrants is influenced
by the lower barriers to enter the specialty

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Threat of new entrants in the market
(Moderate)
coffee markets. It has been noted that the new
entrants might make small investments for
their startups while taking lease stores,
equipment and the like. Again, the lower
switching costs of the customers would allow
the small regionalized coffee shops in
upholding a competitive position against
Starbucks. However, the brand value of
Starbucks and the increased economies of
scale that are applied by the same through
lowering cost and improving efficiency might
affect the vantage point of the new entrants
(Marie 2019). Therefore, the threat of new
entrants are moderate in the specialty coffee
markets. The increased loyalty of the
customers towards the coffee based
propositions of Starbucks is again an
important factor that nullified the effect of the
new entrants on the company’s brand image.
The threat of substitutes for the specialty
coffee sectors are based on the continuous
improvement in the propositions that are
made by the other firms in the beverage