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-: