Starbucks Strategy: Competitive Position, PESTEL, and 5 Forces

This report provides a comprehensive analysis of Starbucks' business strategy, competitive position, and external environment. It begins with an introduction to Starbucks, highlighting its market dominance and key strategies, including product quality, global presence, and environmental initiatives. The report then examines Starbucks' competitive landscape, comparing it to major rivals like McDonald's and Dunkin'. A PESTEL analysis explores the political, economic, social, technological, environmental, and legal factors influencing Starbucks. Furthermore, the report applies Porter's Five Forces framework to assess the competitive intensity within the coffee industry, evaluating the bargaining power of buyers and suppliers, the threat of substitutes and new entrants, and the intensity of rivalry among existing competitors. The analysis provides insights into Starbucks' strengths, weaknesses, and opportunities for future growth and competitive advantage within the global coffee market.

Strategy

INTRODUCTION

Introduction of Starbucks and its competitive position
Starbucks is most popular coffee firm which has great coffee house chain. It offers wide
range of products to its potential buyers and always takes care of their taste and preferences. It
has branches across the world and has become the leading brand in this sector. Starbucks is
famous for using high quality whole bean in its items. In the year 2015, Starbucks has become
the world leader in this industry and has generated 16 billion revenues which was very high as
compare to other coffee retailers. Company is using licensing and franchising system to run
business worldwide. Its return on investment was 23.1% in the year 2015 whereas it was 6.8%
last year. Starbucks has made partnership with Apple company and I the year 2007 Apple has
given opportunity to its potential buyers that they can browse iTune of Apple at store of
Starbucks (Real and Percell, 2018).
Starbucks is very concern about environment hence, it has started using materials in very
effective manner. Recycling of papers has raised company’s image and also have supported in
reducing its operational cost to great extent. It has fulfilled its corporate social responsibilities
and organized food bank donation camp etc. The main key of its success and its strong position
in the market as compare to its competitors is its strategies and quality of products. Other factor
which has made it able to take competitive advantages and improving image in the eyes of
people is its sustainable activities and commitment to reduce wastes.
Competitive position of Starbucks
There is a huge competition in the coffee industry. Major competitors of Starbucks are
McDonalds, Caribou coffee, Dunkin’s Donuts etc. Starbucks has covered 50% of local market
and then others big brands started targeting the Starbucks.
Starbucks McDonalds Dunkin’s Donuts
Stores Company is having
21000 stores in the
country.
It has more than
36000 stores.
Dunkin has only
11000 stores which
is lower than its
other competitors.
Gross profit
margin (GPM%)
In the year 2014 its
GPM was 58.84%
McDonalds has
44.29% GPM in the
year 2014.
It has 32.38%

Number of
workers
Starbucks has
employed 191000
workers.
McDonalds has
420000 staff
members
It has hired 1134
employees only in
the year 2014.
Return on assets In the context of
return on assets it is
stated that Starbucks
has 23.14% return on
its assets investment
(Competitive position
of Starbucks, 2018).
McDonalds have
13.42 % return on its
assets which is less
than Starbucks.
It has only 5.50 %
return on its assets
which shows that it
is at lower position
as compare to its
rivals.
Net profit margin It has 14.57% net
profit margin.
McDonalds has 17.34
% net profit margin.
It has 23.55% net
profit margin.
The external environment
PESTEL analysis
Political factors
The major political factors which impacts the organizations are tax rate, political stability,
corruption, labour laws etc. The company have analyzed that political factors which have
changed the customer relation approaches and have also decreased the sales of the company. The
company also have to analysed that it has the opportunity to mere with many companies which
are present in the market to grow the business and maintain the quality of their products and
increase the quality of their services. It also focused on the policies of the government so that
they can maintain the quality of the strategies and make them more efficient in the company.
(Cortimiglia, Ghezzi and Frank, 2016)The company also evaluated that the company can
decrease its productivity if they invest themselves in the developing markets as the demand for
coffee in the developing countries will be less and it will decrease the efficiency of the company.
The tax policies and the regulations of the government have to be analyzed in this factor to
increase the efficiency of the company.
Positive effect- Since the termination of UK from EU referendum, the tax rate has declined to
more than 24.5% which has impacted the Starbucks in a positive way. Due to the decreased tax

rate, company generally incurs less excise duty and other taxes on the export of their raw
material (Phillips and Moutinho, 2018).
Negative effect- Due to the emergence of Brexit, the political stability of UK has somewhat
hindered and the government tend to change on frequent basis. This has given rise to high level
of corruption in UK and this have impacted Starbucks in negative way. The extreme level of
corruption has made it difficult for the organization to conduct their operations effectively.
Economic factors
The economic factors normally encompasses the economic growth, exchange rates,
inflations rates, unemployment rates, interest rates etc. which affects the organization in a great
way. As every market have different currencies and exchange rates the company have to
determine all the rates like GDP of the market, inflation rates, unemployment rate.(Neugebauer,
Figge and Hahn, 2016)
Positive effect- Due to the impact of Brexit, the unemployment rates in UK has declined from
56.7% to more than 32.6% and thus there is high ratio of people that are educated. This has
impacted the Starbucks in a positive way and thus have made it easier for them to hire the skilled
employees who are competent enough to achieve the organizational goals (LIU, 2017).
Negative effect- Since the advent of Brexit in UK, the interest rates have increased from 32.6%
to more than 78.4% and this has made it difficult for Starbucks to effectively manage their
operations. Due to high interest rates, it has become complicated for Starbucks to take loans and
borrow funds for various activities like expansion, opening new outlet etc.
Social factors
These factors mainly consist of population growth, age distribution, lifestyle, attitudes,
cultural barriers, health consciousness etc. The company have to determine the behavioural
patterns of the company and beliefs, cultural values so that they can formulate the effective
strategies in the market to attract the efficiency of the company. The change in the family
thinking can also impact the sales of the company, preferences, tastes, job changes, education
level of the customers are being analyzed by the company it can decrease the efficiency of the
company. The company also have to determine the different pricing strategies to relate with the
income level of the customers in the market.
Positive effect- Due to the growing awareness of people towards their health most of the have
become heath conscious and this has impacted the Starbucks in a positive way. This has enabled

the company to increase the array of their healthful products and thus have helped them to attract
the customers. Due to this, Starbucks have shifted their focus to more health conscious products.
Negative effect- The population and the age distribution where the old age people have
dominated youth in UK have affected Starbucks in a negative way. This has somewhat reduced
the profitability ratio of company as Starbucks mainly focuses on the white collar professionals
and youths who needs coffee to relax their mind from the frustrating busy schedule.
Technological factors
The major technological factors consist of R & D, level of innovation and automation,
growing power of online market, technological changes etc. The company also have to ensure
the change in the technology to increase the efficiency of the company. As the technology
changes very rapidly which ca decrease the efficiency of the company and also decrease the
market shares.(Cortimiglia, Ghezzi and Frank, 2016) The company also have to conduct the
research to innovate the technology according to the behavioral pattern of the customers. The
company also have to examine the new development ares which can decrease the cost of the
company and increase the customers satisfaction, and they can also develop their own
agricultural units with maximum technological advancements to increase the quality of the
company.
Positive effect- Since the advent of technology, people have become technology-oriented and
now wants each and every product online. This has affected Starbucks in a positive way that has
enabled them to diversify their online services through their own application. The growing power
of consumers to access each and every product within a single click has helped Starbucks to
incorporate technology in each and every aspect.
Negative effect- In order to attract the customers and convert them into loyal consumers, a high
degree of technology is required in each and every product and for this a high amount of
investment is required in R & D department. This has affected Starbucks in a negative way as
there a large amount of fund is required for investing in this department.
Environmental factors
The various environmental factors that affects the organizations are climatic and weather
changes, environmental policies, sustainability etc (Rothaermel, 2017).
Positive effect- The growing awareness of people towards environment and reducing the
environmental pollution has impacted Starbucks in a positive way. As now more and more

people wants reusable products and become highly conscious against the plastic products, this
has enabled Starbucks to design the sustainable products like paper coffee cups. This has helped
company to increase their profitability ratio.
Negative impact- Strictly adhering to the environmental policies has somewhat been a
challenging task for Starbucks and have affected it in negative way. For reducing the
environmental pollution, Starbucks is required to use fuel-efficient equipments as well as
biodegradable materials that reduces carbon emission and it requires a high amount of
investment.
Legal factors
The legal factors consist of discrimination laws, employment laws, consumer protection
laws, copyrights, patents etc.
Positive effect- having a well-through patent and copyright of their products have helped
Starbucks to protect their rights and processes of innovation. The patent have allowed the
organization to perform their function ethically and thus attract the customers through ethical
manner (Taecharungroj, 2017).
Negative effect- As Starbucks operates in wide range of countries thus this affect the
organization in negative way as they remain exposed to changing political and legal laws.
Sometimes the laws of a particular country are framed in such a way that it does not favour the
operations of organization and thus hinders their performance.
Five force analysis of Starbucks
There are some factors which can have impacts on the performance of Starbucks and
opportunity of competitive advantages. So, it is important to analyse all that forces. 5 forces of
porter's are described as below:
Bargaining power of buyers: It is stated that this company faces a strong force of
bargaining power of its customers. There are several factors which lead and put pressure on
customers to switch shop such as low switching cost and availability of substitute products which
have almost same features which they require (Lewis, 2017).
Bargaining power of suppliers: In this context it is stated that, Starbucks faces weak
force and there is a weak intensity of this power. In this industry there are several suppliers
which becomes the main reason of this force.

Threats of substitute products: There is a strong force of this factor as some rivals have
same features of products as like Starbucks. Starbucks is famous for its high quality products but
still there are some substitutes such as: ready to drink beverages, instant beverage powders which
can decrease sales of this company.
Threats of new entrants: New entrants force is moderate in this context. There is the
main factor by which people cannot enter in this industry in an easy manner such as high brand
development cost. There is a requirement of moderate cost of doing business but for expanding
and growing business as like Starbucks there is requirement of high cost. It is beneficial for the
company (Starbucks Five Forces Analysis, 2019).
Competition among existing players: Starbucks has several competitors that give strong
force and is the main reason of intense competition. Dunkin’s Donuts, McDonalds are strong and
popular brand which are main competitors of this company. Due to strong force of low switching
cost, it puts high pressure on Starbucks to invest in technologies and take competitive
advantages.
So, from the above it can be said that most of the factors have strong and moderate force
which can decrease sales of Starbucks, so it is important to make changes in strategies (Mahat,
2019).
Five force analysis of Starbucks
There are some factors which can have impacts on the performance of Starbucks and
opportunity of competitive advantages. So, it is important to analyse all that forces. 5 forces of
porter's are described as below:
Bargaining power of buyers: It is stated that this company faces a strong force of
bargaining power of its customers. There are several factors which lead and put pressure on
customers to switch shop such as low switching cost and availability of substitute products which
have almost same features which they require (Lewis, 2017).
Bargaining power of suppliers: In this context it is stated that, Starbucks faces weak
force and there is a weak intensity of this power. In this industry there are several suppliers
which becomes the main reason of this force.
Threats of substitute products: There is a strong force of this factor as some rivals have
same features of products as like Starbucks. Starbucks is famous for its high quality products but

still there are some substitutes such as: ready to drink beverages, instant beverage powders which
can decrease sales of this company.
Threats of new entrants: New entrants force is moderate in this context. There is the
main factor by which people cannot enter in this industry in an easy manner such as high brand
development cost. There is a requirement of moderate cost of doing business but for expanding
and growing business as like Starbucks there is requirement of high cost. It is beneficial for the
company (Starbucks Five Forces Analysis, 2019).
Competition among existing players: Starbucks has several competitors that give strong
force and is the main reason of intense competition. Dunkin’s Donuts, McDonalds are strong and
popular brand which are main competitors of this company. Due to strong force of low switching
cost, it puts high pressure on Starbucks to invest in technologies and take competitive
advantages.
So, from the above it can be said that most of the factors have strong and moderate force
which can decrease sales of Starbucks, so it is important to make changes in strategies (Mahat,
2019).
Industry life cycle
Cycle help to know different stages of business to upgrade and develop their business at a
large scale.
Introduction
Starbucks offer new unique product to their customers. Company need to develop
effective research for their products to bring innovation in their services. Need marketing to
attract customers towards development of business at a large scale(Davidson, Binks and Gediga,
2016.). Innovation help company to satisfy their customers.
Growth
Company need funds for development of their business. Need to develop their marketing
skills to earn a competitive advantage over their competitors and to make them effective and
attract towards success of organization at extreme level. Funds are required for overall
development of business.
Maturity
In this stage where companies sales are increasing which help them to increase
profitability of their business. It is a stage where company is able to expand.

Decline
When Starbucks not able to bring changes and develop innovation in their business then
it leads to decrease in their sales and reduce overall profitability of business.
The Internal environment
This is defined as to culture, members, events and components within the enterprise that
has capability to influence the decision of an enterprise and this also determines the behaviour of
the human resource.
Source of competitive advancement can be determined as-
VRIO analysis- It is framework that aids to compare the resources and capabilities of
Starbucks and helps to gain competitive advancement (VRIO ANALYSIS OF STARBUCKS
COFFEE, 2016). This is defined as-
Value-:
 Strong brand image- It is the entity that has strong brand image and this is one of the
valuable resource that assist at enlarging the customer base and this entity also great
reputation.
 Special flavours and quality of coffee- It is valuable resource as this allows to
customers flock to Starbucks.
 Customer service- It can be termed out as valuable resource as the staff of this firm
provides proper customer assistance and also complements the quality of Starbucks
commodities and this aids to enhance customer retention.
 Supply chain- This is highly valuable resource that aids to source of good quality raw
materials and also retain the quality of commodities.
 Global presence- This is valuable resource that makes the Starbucks more competitive
and this is stronger than competing brands.
Rare-:
 Strong brand image- It is rare but this also has challenge for competing the brands.
 Special flavour and quality of coffee- This can be defined as significant investment as
this goes into procurement and then creation of special flavours.
 Customer service- It can be accomplished by other firms too. This requires investment
to undertake the activities as staff training and special consideration.

 Store environment- This can be accomplished by other entities too. They needs to
undertake investment in store make up, training to staff and special focus.
 Supply chain- It is quite typical to accomplish as this requires both investment and
strategy.
 Global presence- It is difficult to accomplish for others due to significant financial
investment involved.
Inimitable-:
 Strong brand image- This is difficult to imitate but also possible in the long run.
 Special flavour and quality of coffee- It is quite typical to imitate due to the price and
procedures.
 Customer service- Therefore, this is difficult to imitate.
 Store environment- It is quite typical to imitate.
 Supply chain- This is quite typical to imitate but also possible within the long term.
 Global presence- Due to the issue of investment this is also quite difficult to imitate.
Organised-:
 Strong brand image- This is the entity that strong brand image within the market.
 Special flavour and quality of coffee- The flavour of the Starbucks is talk of the town
and also an significant aspect of Starbucks marketing and customer retention strategy.
 Customer service- It is another fact that has made the operations of Starbucks popular.
 Store environment- This is crucial part of Starbucks marketing and customer retention
strategy.
 Supply chain- The Starbucks sources 99% of coffee ethically. Thus, better advancement
of this firm is due to exceptional quality of beans that are sourced around the world and
this give the brand an edge.
 Global presence-This helps the Starbucks to generate the high amount of profitability.
Value chain analysis- The concept of value chain termed out as entire range of activities that is
defined as process of bringing a product to market and to customer (PORTER’S VALUE CHAIN
ANALYSIS OF STARBUCKS, 2017). Henceforth, activities under this framework are divided into
two categories as-:
Primary activities-:

 Inbound logistic- This is inclusive of obtaining the raw materials from the suppliers.
Therefore, the main consideration of quoted entity is to maintain excellent relationship
with suppliers. In case of Starbucks, the unroasted and green coffee beans are procured
directly from the farms by Starbucks buyers.
 Operations- Starbucks operates their business activities in more than 75 markets either
by the company owned stores and licensees. Therefore, quoted entity has more than 2400
stores internationally and this is inclusive of Starbucks coffee, Teavana etc.
 Outbound logistic- The Starbucks sells its commodities to customer via the company
stores and from their licenced stores. Henceforth, ready commodities are shipped to retail
stores from warehouse and distribution centres. This entity also uses the online channels
of distribution the products.
 Marketing and sells- It is one of the effective market value chain. Starbucks do not use
the traditional method of marketing its brand. This is firm that uses the social media
marketing approach and customer engagement purposes. Therefore, this mainly rely over
the word of mouth marketing and effective customer services.
Support activities-:
 Infrastructure- It is inclusive of departments like legal, management and legal etc. this
is all required to keep the firms stores operational. Thus, internal infrastructure of the
Starbucks stores are quite impressive. This is the brand that also has captured the strong
position of excellent leadership and management.
 Human resource management- Starbucks entity has focused on human resource
policies and this also provides the staff the enough level of satisfaction from their job by
providing training opportunities. Henceforth, the focus is being ethical and customer
oriented to create the effect working environment that facilitate the collaboration.
 Technological development- The quoted enterprise uses the technological advancement
to serve its target market. With use of better technical advancement the entity can run
business an sell the commodities to online and mobile payment system. Apart from it,
technical advancement plays major role within supporting the administrative functions
inside the quoted enterprise like human resource, accounting and payroll as well as
communication internally and externally.

 Procurement- It is highly significant within 21st century. Firms are focussing over to
efficiency and profitability. Therefore, procurements of Starbucks has received a lot of
attention. It is the brand that has set the strict rules in relation to making choice to its
suppliers and product quality.
Recommendations
CEO of Starbucks need to improve overall effectiveness of their organization. Require to
achieve goals of organization on time and need to maintain effectiveness of organization. Need
to develop effectiveness of marketing strategy to expand their business at a large scale. CEO
need to motivate employees and share plan and objectives with employees to make them familiar
with organization.
Specific
Starbucks want to attract large number of customers towards working of their
organization and want to develop effectiveness of their business. Company need to fulfil their
marketing objectives more effectively to attract customers towards their business. Company need
to develop their overall presence in market. Need to innovate different ways to make their
business grow.
Measurable
Starbucks aim is to increase profitability of their business. Need to maintain work
environment in their organization. Aim to develop new product in new markets to increase their
market share(Bjerke and Renger, 2017. ). Aim to develop their name at an global level. Make
effective use of all resources available to organization. CEO of Starbucks need to set their
organization objective and analyse ability of employees to achieve those goals.
Achievable
CEO need to improve their efforts for development of business. Make an effective use of
all available resources to establish their business at an extreme level. Company need to hire
employees with skills and abilities to develop their business. Need to bring innovation in their
business to improve.
Realistic
Starbucks need to analyse technology and resources available to their organization. Need
to develop skills and abilities of employees for their development, and maintain their employees

abilities and help them to expand at a large scale. Need to motivate employees towards
development of organization at a large scale. For marketing of their business company need to
know about methods that are available to organization.
Timed
Company aim is to achieve those goals within 3 year to expand abilities of their
company. Their aim to make their organization one of the leading. Marketing need time to
improve their organization for development at a large scale.

Part 2
Stakeholder Report
Stakeholder plays a very important role in a company and so do they play a very
important role in Starbucks and the different stakeholders in a company are creditors, directors,
employees, government, owners, suppliers, unions, community and the customers in a company
(Davis, 2016). The internal stakeholders hold the decision-making powers in their hands which
make the company work efficiently and effectively and that is a very important factor because to
make a profit in the market it is very important for the company to have a strategy and method to
function better. The customers are playing a very important factor in the company as well
because that is making the company have a better understanding in the company and the
company is being able to understand that factor better which is why the company is improving
accordingly so that they can satisfy the needs and wants of the customers since it is very
important to satisfy the customers in the company (Boone, 2017). In all the countries in which
the company has expanded itself it is very much visible that the company has captured the
market very well and is having the good coffee market shares in the regions of Canada, United
Kingdom, Western Europe, Asia, etc. The employees in the company is 291,000 as of 2018 and
the company has made around $4.51 billion in 2018 which is great progress for the company
because there is a lot of customers who have a loyalty towards this company since the quality of
the company is very good. It is because of the experience and skilled employees the company
was able to capture such a large market for themselves. The characteristics of the customers of
Starbucks is that they get used to the quality of coffee or other products the company is
providing them because there is a lot of quality improvement which has taken place in the
products of the company for the satisfaction of the customers (Akisik and Gal, 2017). From the
past 3 years the company has improved on the quality and the services which they are providing
to the customers of the company because the company is not being able to provide the right
expectations of the customers.
According to Mendelow's matrix The customers have a great interest in the company and
the power of the customers is not so much in the company's functioning because the company
has made a name for themselves over a long time in the market and the experience the company
has gained is a lot which is why the company is being able to make better decisions which is
helping in the company's functioning factor. The customers have a high level of interest in the

company which is making the company have a great influence in the company and that is making
the company improve for the customers. The power is still with the other stakeholders of the
company and that is a great way of staying in the market for the company because the customers
should not be having a control on the company so that the company can take their own decisions
for the benefit of the company (Hutt, 2016).
CONCLUSION
Hereby, it can be concluded that strategy defined as plan of action that helps to give
framework to enterprise to conduct the business activities in well defined manner. It is planning
and directing the operations of business enterprise to achieve the long term plan of business. The
present report has covered the business activities of Starbucks.
Furthermore, report has covered internal and external environment to analyse the
condition of working of enterprise. Henceforth, the stakeholder report has been outlined to
determine the role of stakeholder within the enterprise.

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