Analyzing Starbucks: Porter's Five Forces and Strategic Insights

This report provides a comprehensive analysis of Starbucks' competitive environment using Michael Porter's Five Forces framework. The analysis examines the threat of new entrants, the threat of substitutes, the bargaining power of suppliers, the bargaining power of buyers, and competitive rivalry within the coffee industry. The report finds that the threat of new entrants is moderate due to the high investment required and Starbucks' established market share. The threat of substitutes is moderate to high, influenced by consumer choices and alternatives like tea and home coffee. The bargaining power of suppliers is low due to Starbucks' direct sourcing from farmers. The bargaining power of buyers is moderate, depending on customer price sensitivity and quality expectations. Competitive rivalry is moderate to high, with competitors like McCafe and Dunkin' Donuts. The report concludes with strategic recommendations for Starbucks to maintain its market leadership through innovation and brand loyalty, emphasizing the importance of adapting to changing consumer preferences and competitive pressures.

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Introduction
Starbucks is one of the American coffee companies, which are famous due to its high
quality whole coffee beans, and Starbucks count on genuine services. In today’s time,
Starbucks has successfully grown through an adoption of management effectiveness and
through its strategic approaches; they have led to become number one coffee all over world
(Michelli, 2006).
In terms of porters five force model- there are 5 major aspects which comprises of
threat of new entrant, threat of substitute, threat of competition, bargaining power of the
supplier and lastly bargaining power of the buyers are considered (David, & David, 2013).
Threat of new entrant Effect of threat of new entrant is
moderate in nature of Starbucks.
Threat of new entrant-
In terms of Starbucks, the number of entry in this industry is moderate in nature, as
Starbucks has established a huge chain of stores with its higher investment. As there is low,
possibility of new firm to enter as Starbucks has captured or grabbed a large market share on
the basis of its infrastructure, efficiency and product quality. However, are other company
starts its newer firm with low prices there can be chances to attract more of customers.
Hence, Starbucks competitive edge, which none other can be known, is the access to raw
material and suppliers and having a better quality coffee and larger number of suppliers
globally (Tu, Wang, & Chang, 2012).
Threat of new Substitute Effect of threat of new substitute is
moderate to high in nature of
Starbucks.
Threat of substitutes-

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In terms of Starbucks, threat of the substitute is from moderate to high. As all this is
based to the customer’s choice and preferences, it can be from juices, tea, green tea, alcohols.
Other than this, both restaurants and home are also major substitutes in which people can
have coffee in restaurants as well as homes. However, Starbucks have its own premium
quality coffee with excellent consumers’ services and with the great environment. Hence, due
to its supreme quality and with it infrastructure and brand loyalty reduces the threat of
substitutes (Simon, 2011).
Bargaining power of the suppliers Effect of bargaining power of the
supplier is low to moderate of
Starbucks.
Bargaining power of the suppliers-
In this aspect, Starbucks has very low effect of the bargaining power of the supplier.
As Starbuck is one of the well-known brands which has its own supplier’s diversity policy in
order to select its suppliers. In terms of policy, Starbucks applies ethical sourcing in which
they purchase coffee beans directly from the famers and eliminates the mediators. Hence, this
proves that Starbucks having and excellent supply chain management, which has reduced the
bargaining power of suppliers. In addition, shows that they have only famers as the main
suppliers of their coffee beans (York, 2010).
Bargaining power of the buyers Effect of bargaining power of the buyers
is moderate in nature of Starbucks.
Bargaining power of the buyers-
In terms of bargaining power of the buyers is moderate in nature. In terms of
purchases is relative small so in terms of single buyer do not have enough influencing power.
As this aspect mainly depends over choices of customers as id the customers is willing to the
higher prices he/ she will pay for its premium quality. In terms of quality customers never
compromises and if there, any change in quality customers can start switching. Moreover, the
other reason for customers to switch can be the raised prices. However, if the taste is set for

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the customer he/ she will never comprises in terms of price if they are willing to pay. Hence,
bargaining power of the buyer is moderate in nature in terms of Starbucks (Roby, 2011).
Competitive rivalry Effect of competitive rivalry is
moderate to high of Starbucks.
Competitive rivalry-
In terms of competitive rivalry, it is moderate to high. As in competition terms,
Starbucks have Mccafe, Dunkin Donuts, and many other local coffeehouses. In terms of data,
Starbucks cover 40% of market share as compared many other competitors as they are
continuously working over innovation with their products, working over making their product
specialize and coming up with new strategies in order to attract more of customers and
making competition even more intense. Nevertheless, in terms of Starbucks, they have a
premium quality of products along with the customers’ services and infrastructure. Through
this, they have a strong competitive edge with its core competencies with which they built a
strong brand image and moderate the effect of competitive rivalry (Magretta, 2011).
End results-
Hence, in order to tackle the threat of new entrant Starbucks should work over
innovation. As innovation brings out the new customers, helps in increasing brand
recognition and increases the brand loyalty. As in term of bargaining power of the suppliers is
low as they only purchase the fresh beans directly from farmers rather than mediators. Threat
of substitute is moderate to high as in all it depends on customers’ choice and preferences and
other factor can be the purchasing power and quality aspect. Hence, Starbucks will keep on
increasing its market share till its competitors enhance their performance or use any
innovative technique to competitive with Starbucks till then, Starbucks is in lime light in the
eyes of those customers who are loyal to it.

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References
David, F. R., & David, F. R. (2013). Strategic management: Concepts and cases: A
competitive advantage approach. Pearson.
Magretta, J. (2011). Understanding Michael Porter: The essential guide to competition and
strategy. Harvard business press.
Michelli, J. A. (2006). Starbucks experience. Tata McGraw-Hill Education
Roby, L. R. (2011). An Analysis of Starbucks as a Company and an International Business
Simon, B. (2011). Everything but the coffee: Learning about America from Starbucks. Univ
of California Press
Tu, Y. T., Wang, C. M., & Chang, H. C. (2012). Corporate brand image and customer
satisfaction on loyalty: An empirical study of Starbucks coffee in Taiwan. Journal of
Social and Development Sciences, 3(1), 24-32
York, E. B. (2010). Starbucks gets its business brewing again with social media. Advertising
Age, 81(8), 34.