Strategic Analysis Report: Environmental Factors for Starbucks

This report presents a strategic environmental analysis of Starbucks, employing the PESTLE framework to examine political, economic, social, technological, legal, and environmental factors influencing the company. It also utilizes Porter's Five Forces to assess the competitive landscape, including buyer power, supplier power, competitive rivalry, the threat of substitutes, and the threat of new entrants. The analysis highlights key factors such as political influences from US administrations and trade wars, economic opportunities in developing countries, social trends like health consciousness, technological advancements in digitization, legal compliance in international operations, and environmental initiatives like green stores and recycling. The report assesses the bargaining power of buyers, supplier influence, competitive rivalry from various coffee chains and independent shops, the high threat of substitutes, and the moderate threat of new entrants. The analysis aims to inform strategic decision-making for Starbucks, considering its position in the hospitality and tourism industry.

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STRATEGIC MANAGEMENT

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Environmental analysis of Starbucks
The environmental analysis of Starbucks is presented below with the help of PESTLE
analysis tool and with five forces of the industry analysis.
Pestle analysis
 Political Factors – Political factors that may influence Starbucks includes effect of
change in US Administration and Outcomes of trade war with China. For example,
tax cut by trump administration in spite of the rising national debt was reckless and
the company gain interest to hire 10000 refugees in 5-year span of time
(hireimmigrants.ca, 2018). However, people who are supporting Trump government,
as a result, have refused to go to the stores.
 Economic Factors – These factors signify economic changes and conditions
important to business. Considering external environment, Starbucks has various
opportunities from economic factors such as high development in developing
countries, and declining unemployment rates. However, rising cost of labor in
supplier country threat their business as the firm gains much if its coffee beans from
emerging nations. In addition, the company will also be benefitted with the strong
GDP of the nation as it was identified that country current-dollar GDP raised to 5.2
per cent, or $1.02 trillion, in 2018 to a level of $20.50 trillion, related with an upsurge
of 4.2 per cent, or $778.2 billion, in 2017 (bea.gov, 2018).
 Social Factors – It includes social trends and conditions such as increasing health
consciousness and growing coffee culture. The company is undertaking social issues
very carefully as last year, more than 8,000 stores of the company were closed so as to
offer training program to more than 175,000 employees build to address implicit bias
and encourage conscious inclusion (Silva, 2018).
 Technical Factors – Changes in technological advancement requires Starbucks to
reinforce its strategies like focusing on digitization, targeting customer by data
analytics and build out mobile-based platforms. However, Starbucks is doing really
good considering technological aspects like the company formed digital strategy with
the “digital flywheel” recently.
 Legal Factors – At present, the company have their operations in more than 78
countries and thus changes in tax rates and risk of infringements and litigations may

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impact company business adversely. Hence, the company needs to match their
strategies and policies with those respective country laws.
 Environmental Factors – It requires the company to focus on environmental issues.
Starbucks has taken various initiatives considering environmental factors such as
green store initiative, recycling and promoting reusable cups, NextGen Cup challenge
and investment in solar farms that can power up to 600 Starbucks stores.
Five forces of the industry
 Buyers bargaining power – In case of Starbucks, there is high bargaining power due
to low switching costs to other brand as well as availability of various substitute such
as instant beverages from vending machines. The customers of Starbucks are
primarily priced thoughtful and also capable to give greater price for their coffee and
so in future, the company is required to hold enough influence with every single
buyer.
 Bargaining power of suppliers –Starbucks has its own unique policy related to
supplier diversity and the company uses to finalize its suppliers. The company believe
in ethical sourcing and therefore suppliers can exercise only low to moderate force on
the company. Moreover, there are huge number of suppliers that provide Starbucks to
choose from varied range of choices.
 Competitive rivalry – In case if Starbucks, the competitive rivalry is high due to
large number of firms in the same business. The direct rivals for Starbucks comprises
of Costa Coffee, McDonald McCafe and Dunkin Donuts (madsjunction.com, 2019).
Moreover, small number of street coffee shop also poses threat to Starbucks with their
low pricing strategy and accessibility. However, the company is maintained its
premium quality line and so remain strong against competitive threats.
 The threat of substitute – Threat of substitute is high due to high affordability of
substitute products as well as low switching cost. For example, various outlets across
the state offer ready to drink beverages, vending machines, superstores and small
convenience stores. Other than this, consumer can also make homemade coffee with
lower price as compared to Starbucks. However, brand loyalty and premium quality
restrained the risk to certain extent.

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 Threat of new entrants – In case of Starbucks, there is moderate threat of new
entrants as the obstacles are not such high and new competitors can easily contend
with brand at native level. Starbucks has maintained larger market share depend on its
high-quality arrangement and effective quality, however, substituting cost is still low
and new brands can appeal customers with the help of low pricing strategy.

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References
bea.gov. (2018) Gross Domestic Product, Fourth Quarter and Annual 2018 (Initial Estimate)
[ONLINE] Available from: https://www.bea.gov/news/2019/initial-gross-domestic-product-
4th-quarter-and-annual-2018 [Accessed 07/06/2019].
hireimmigrants.ca. (2018) Starbucks and the First One Thousand [ONLINE] Available from:
http://www.hireimmigrants.ca/stories/starbucks-and-the-first-one-thousand/ [Accessed
07/06/2019].
madsjunction.com. (2019) 15 Major Starbucks Competitors List & Indirect Competitors
[ONLINE] Available from: https://www.madsjunction.com/marketing/starbucks-competitors/
[Accessed 07/06/2019].
Silva, C. (2018) STARBUCKS ACROSS U.S. CLOSED FOR RACIAL BIAS TRAINING.
HERE’S WHAT EMPLOYEES WILL LEARN [ONLINE] Available from:
https://www.newsweek.com/starbucks-across-us-closed-racial-bias-training-heres-what-
employees-will-946978 [Accessed 07/06/2019].