University of West London: Strategic Management - Starbucks Report

This report provides a comprehensive evaluation of Starbucks' strategic environment, examining both its internal and external factors. The analysis begins with an executive summary and table of contents, followed by an introduction outlining Starbucks' global presence and mission. The internal environment is assessed using the Ansoff Matrix and SWOT analysis, highlighting Starbucks' strengths, such as its brand prestige and extensive global supply chain, as well as its weaknesses, like premium pricing. Opportunities, including expansion in developing countries, and threats, such as competition from local coffee houses, are also discussed. The external environment is evaluated using the PESTLE framework, considering political, economic, social, technological, legal, and environmental factors impacting Starbucks. Porter's Five Forces model is then applied to analyze competitive rivalry, buyer power, supplier power, the threat of substitution, and the threat of new entrants. Finally, McKinsey's 7S model is used to assess strategy, structure, systems, skills, style, staff, and shared values within Starbucks. The report concludes with an overall evaluation and strategic recommendations for the company.

Running Head: Strategic management
EVALUATION OF STARBUCKS STRATEGIC ENVIRONMENT
DATE:01ST NOVEMBER 2019
STUDENT NUMBER:21351056
TUTOR’S NAME: KIERON COOGAN
MODULE TITLE: STRATEGIC MANAGEMENT (TH60101E)
WORD COUNT

Strategic management
Executive summary
Starbucks is considered as one of the most prestigious and popular brands
when it comes to coffee; it has established its brand name in market for
delivering premium coffee to their customers. There are large number of
small and medium scale coffee house and cafeterias which service similar
kinds of menu at different location. It is important to evaluate the
strategic position of Starbucks. Hence, there internal analysis of the
Starbucks helps company to design strategy which enables them to
compete against competitors with using strengths and capitalizing on
available opportunities. The PESTLE framework evaluates the position of
Starbucks in the industry and discusses about external environment
factors which affects the way it is being operated in the economy. Porter’s
five force model evaluates the position of Starbucks in regards with an
external environment. The framework is being used to determine the
intensity of competition in an industry and its profitability level. Other
frameworks used for evaluation are Ansoff matrix, and Mckinsey’s 7S.
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Table of Contents
Executive summary..................................................................................................2
Table of Contents.......................................................................................................3
Introduction................................................................................................................5
Assessment of internal environment.................................................................6
ANSOFF Matrix for Starbucks........................................................................6
SWOT analysis.....................................................................................................6
Assessment of external environment..............................................................10
PESTLE framework.........................................................................................10
Porter five force model.................................................................................11
Mckinsey’s 7S model......................................................................................13
Conclusion and evaluation..................................................................................13
References.................................................................................................................16
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Strategic management
Introduction
Starbucks Coffee is operating in 80 countries having more than 50,000
outlets across the globe. Starbucks’s mission is to inspire and nurture the
human spirit – one person, one cup and one neighborhood at a time. The
company has diversified its specificities into fast food serving other than
coffee which has imposed several challenges to competitors’ company in
the industry (bstrategyhub.com, 2019). The report aims to evaluate
internal and external environment of Starbucks in UK region (Madan,
2014). The internal analysis discusses about strength, weaknesses,
opportunity and threats of the company where as external environment
evaluates the aspects of PESTLE, Ansoff matrix, Mckinsey’s 7S and porters
five force model. The internal and external analysis would enable
company to evaluate the existing position in the market and gives an idea
for competing against rival coffeehouse & restaurants, such as Dunkin’s
Donuts, Wendy’s, McDonald’s, Burger King etc.
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Strategic management
Assessment of internal environment
ANSOFF Matrix for Starbucks
The above diagram shows the Ansoff matrix for Starbucks. It indicates
that Starbucks has been a premium brand and has invested on those lines
over the years; however, it now plans to diversify its product portfolio
from only beverages to beverages and food services. They have started
introducing premium coffee with rare beans. As part of existing strategy,
they have started writing names of the customer on the coffee glasses for
higher personalization.
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Strategic management
SWOT analysis
Strength of Starbucks
It was observed that Starbucks is considered as one of the most
prestigious and popular brands when it comes to coffee, it has established
its brand name in market for delivering premium coffee to their
customers. Furthermore, company is facilitating its customers’ demands
by operating more than 50000 outlets across the globe, apart from that
company has collaborated with like Ethos Water, Seattle’s Best Coffee,
and Teavana cafes to extend their offerings. Diversification minimizes the
effects of market and industry risks. The extensive global supply chain
enables Starbucks to deliver premium coffee beans to their customers
with no change in taste. It has self-regulated supply chain which maintain
the quality of beans starting from growing in farms till reaching the end
customers (Lee, et al., 2014).
Financial Analysis and Market Performance
The quarterly revenue of Starbucks has been rising significantly year-on-
year with $6.823B, an 8.12% increase in the quarter ending June 30,
2019. Moreover, the revenue in last 5 years annually has been on the rise,
as shown in the figure below:
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Total revenue (historical and projected) in years
Starbucks has a significant presence across in more than 60 countries
with a market share of around 40% in the USA. The growth in revenue in
2017-2018 CAGR has been 10.82% for Starbucks; maximum in
comparison to near competitors like dunkin brands, Yum brands and
McDonalds.
Weaknesses of Starbucks
The aspects of weakness restrict the company from extending their
capabilities. Starbucks has kept premium price for their products. The high
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price may give them high profit margin but limits the affordability for
majority people. This in turn will increasing the switching of brands which
offers similar product on lower price. There is no doubt that products
offered by Starbucks are standardized and easy to imitate. The
preparation might not be accurately followed by local players but taste
can be more or less matched (Ali, et al., 2016).
Opportunity of Starbucks
The opportunity includes the list of factors which offer growth and
development to the existing brand. When it comes to Starbucks, it can
cater to the market of developing countries where disposable income is
observed to be increased and people tend to spend more money in
entertainment. They can opt for business diversification by introducing
ready-to-eat coffees and drinks. It can contribute to their growing
revenue. To sell this consumer goods and new offerings, Starbucks should
collaborate with established retailer to sell their products on their behalf.
It would help company to strengthen their market share and presence in
the industry (pdfs.semanticscholar.org, n.d.).
Threats of Starbucks
There is a huge competition pose by the local coffee house, where they
provide similar kind of ambience and premium coffee with half price.
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Many times, people tend to evaluate products based on value it is being
delivered to them. Hence, those who are still conscious about their status
and choices, they prefer to go to Starbucks, else they joined other coffee
house without giving second thought. These aspects hamper the business
performance (rodrigo, 2012).
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Assessment of external environment
PESTLE framework
Political aspect: the political factor of external analysis denotes how
political background of nations affects the operations of company. While
considering the political scenario of UK, the relationship with neighboring
country affects the way business is conducted. After the Brexit
formulation, the relationship with nations growing coffee crops has been
largely affected; along with that, high VAT tax in UK has affected the
margin of Starbucks. It is observed that Starbucks is moving to developing
nations and closing UK operations.
Economic factor: the demand and supply of coffee in UK is very
unpredictable, the recent trends shows that there is lower supply coffee
against high demand which results in increase in prices. Furthermore, the
decreased rate of GDP may lead to recession in the country (Roby, 2011).
If we consider the purchasing pattern of consumers, it was observed that
disposable income is decreasing and therefore people may spend less on
such high-priced coffee brands.
Social and demographic: The consumption pattern in UK with respect to
Coffee and similar beverages is lower in comparison with other country
but business is growing every year. It is observed that coffee culture is
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building around the society of UK where individual is getting hectic
schedule in weekdays and they tend to wait for weekend to sit with friend
for having coffee. The populace of working women is increasing and social
media is considered to be the place where people ask for the experience
before purchasing anything (Nanan, 2015).
Technological factor: Facebook and social media marketing is
preferred by most of the firms in country. Starbucks tends to promote its
brand over there on social media. Furthermore, Starbucks offers in store
Wi-Fi and digital content networking for their customers. Starbucks has
used Geo fencing technology to avoid cyber-attacks and they can identify
the paired devices and relevant locations.
Legal factors: It is essential for Starbucks to stay alert about the policies
and practices introduced related to caffeine production and consumption
in respective countries. The it should also consider the regulations
designed by health authorities to avoid the wrong allegation once the
production and distribution has started. Starbucks has been adhering
to Fair Labor Standards act and Americans with Disabilities Act as
part of the employee legislation along with having minimum wage
for its employees and other legal benefits.
Environmental factors: it was noticed that the prices of coffee beans is
increasing due to bad weather, moreover, Starbucks has been purchasing
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substantial amount of coffee beans from Brazil farms, where there is an
environmental disaster and epidemic observed since last few months.
Porter five force model
Competitive Rivalry with Starbucks Coffee: Based on the secondary
research, it was observed that Starbucks is facing strong competition from
the local coffee house and other chain of restaurants. The competition is
fierce in food and beverages industry. There are large number of small
and medium scale coffee houses and cafeterias which service similar
kinds of menu at different location. Hence, people tend to visit the nearest
coffee outlet if comfortable ambience is provided. Hence, the switching
cost is very low in this case (Dudovskiy, 2017).
Bargaining Power of Starbucks’s Customers (Buyers): Starbucks
Coffee brand is experiencing strong force from their customers and
buyers. The bargaining power of buyer states the intensity to which
customers behavior affects the company’s internal operations. As
discussed, the switching cost is very low in food and beverages industry,
people don’t mind to switch to different brand if it facilitates with similar
ambience and products. Starbucks needs to market itself continuously to
retain their customers. Furthermore, the ranges of substitutes make
competition severer. That in turn affects the profit margin of Starbucks.
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