BPP MSc Mgmt Strategy: Starbucks Business Strategy Report 2020

This report provides a comprehensive strategic analysis of Starbucks Corporation, examining its external and internal environments. The analysis begins with an introduction to Starbucks, its mission, vision, and competitive landscape, including key competitors like Dunkin' Donuts and McDonald's. The external environment is assessed using PESTEL analysis, considering political, economic, social, technological, environmental, and legal factors. Porter's Five Forces are applied to evaluate the industry's competitive dynamics. The industry life cycle model is used to understand Starbucks' current stage and future prospects. Opportunities and threats are identified. The internal environment is analyzed using the VRIO framework to assess resources and capabilities. The report identifies strengths and weaknesses, offering strategic recommendations. The report includes a stakeholder analysis and references to support the findings. The report is based on the BPP MSc Management Strategy coursework brief from 2020.

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Strategy

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Contents
Introduction......................................................................................................................................2
External Environmental analysis.....................................................................................................3
PESTEL analysis..........................................................................................................................3
Porters 5 force analysis................................................................................................................5
Industry Life cycle Model............................................................................................................7
Opportunities and threats.............................................................................................................7
Internal Environmental Analysis.....................................................................................................8
VRIO model.................................................................................................................................8
Strengths and Weaknesses.........................................................................................................10
Recommendation...........................................................................................................................11
Stakeholder report..........................................................................................................................12
Reference.......................................................................................................................................14

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Introduction
Starbucks Corporation is an American coffee company and coffeehouse chain. It was founded in
Seattle, Washington. It was established on March 31, 1971, and the founders of the corporation
are Jerry Baldwin, Zev Siegl and Gordan Bowker. Starbucks is serving in more than 28,000
locations. It includes more than 182,000 employees. They include roasted and handcrafted high-
quality coffees, tea, beverages and snacks (Starbucks Corp, 2018). Starbucks deals in marketing
te products with the help of company-operated and licensed stores. The mission statement of the
organization includes inspiring and nurturing the human spirit. The main aim of the organization
is to develop a wide range of products in the market. Their vision includes establishing the most
recognized and leading brand in the world. High-quality products and service, well-managed
brand and reputation social responsibility make the company consumers and investors. The
competitors of Starbucks are Caribou Coffee, McDonald’s, Dunkin’ Donuts and Peet’s Coffee &
Tea.
Starbucks' main competitors are fast-food restaurants and specialty coffee shops. There are a
large number of competitors in the specialty coffee beverage industry. The company believes
that its customers mainly choose retailers based on product service, service, price, and
convenience. Recently, Starbucks experienced intense direct competition from large American
competitors from fast-food restaurants. The marketing and operating resources of these
restaurants are far greater. As the competition in the US ready-to-drink coffee beverage market
intensifies, Starbucks also faces mature competitors in the international market (Starbucks Corp,
2018).
Starbucks' product range has grown to include freshly brewed coffee, hot and cold espresso
beverages, mixed coffee and non-coffee beverages, Tazo tea, baked pastries, sandwiches, and
salads. Starbucks appliances include coffee grinders, espresso machines, coffee brewers, music
CDs, books, movies, and gift cards. Global consumer products include bottled Frappuccino, iced
coffee and espresso beverages, whole bean coffee, tea, coffee liqueur, and premium ice cream.
Starbucks understands the concepts of brand recognition and product differentiation (Sari and
Hunar, 2018). They take advantage of consumers' feelings and try to distinguish between
products or services of other companies. Starbucks recognizes that success depends on the value

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of the Starbucks brand, and Starbucks has a high reputation for its product quality, excellence,
and consistent customer service.
Starbucks is not the only coffee shop on the market, other products such as Dunkin 'Donuts,
McDonald's and Panera Bread have the same taste and effect as Starbucks beer, but they can
induce them to blend in and charge a high price to have a rich life among customers The aroma
of the way. There are other homogenous coffee shops on the market, but their loyal customers
believe that no other coffee brewing unit can find good quality, taste, and aroma. On the one
hand, their customers are more interested in dressing up with Starbucks Cup representatives, but
due to the current economic situation, their customers are beginning to reconsider their impact on
the price of black gold they drink (Sari and Hunar, 2018).
Starbucks fully shut down its operations for several hours for employee training. Dunkin Donuts
took this opportunity to win new customers. Dunkin Donuts sells small amounts of latte,
cappuccino or espresso for 99 cents (Sakal, 2018).
External Environmental analysis
PESTEL analysis
Political factors
Political factors impact the business which includes following the laws and regulations of the
countries for sourcing the raw materials. Starbucks is required to follow the social and
environmental norms sourcing strategies that are effective and includes fair trade practices for
the growth of the business (Shirdastian, et al., 2019).
Economic factors
The economic factor which drives the Starbucks is the global economic recession. In an
economic situation, it is necessary to consider the buying power of consumers as it reduces or
increases the overall profits of the organization. The currency exchange rate is required to be
considered by the organization for expanding the business. the factors which impact the
Starbucks are taxation level, economic environment and exchange rates of currency (Shirdastian,
et al., 2019).

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Social factor
It is analyzed that Starbucks is required to decrease the price of the products. It is necessary to
consider the social factors which expanding the business. The socio-cultural factors which are
required to be focused are the preferences of customers, change in family patterns, working
patterns are changing, the lifestyle of the people and changing value among the population
(Rothaermel, 2106).
Technological factor
Starbucks is adopting the technological changes for attracting consumers. Starbucks is required
to start the mobile application and selling online. Starbucks has already started to provide the w-
fi facility in outlets. It helped in adding value to the brand and helps in enhancing the experiences
of consumers. Starbucks is required to focus on the emergence of innovation and technologies
and agricultural development for growing the coffee beans (Rothaermel, 2106).
Environmental factor
The environment is a major concern for the organization. Starbucks is required to focus on the
environmental factors for growth and development. It is analyzed that the regions that are
producing coffee beans face environmental disasters more. The business practices are required to
be adopted for holding the trust of consumers (Michael, et al., 2018).
Legal factor
It is analyzed in the case that Starbucks is not violating the rules and regulations which are
required to be followed.

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Porters 5 force analysis
Threats of New Entrants
The threat of new entrants is considered moderate for Starbucks as the entry barriers are not
much high which discourages the new competitors from entering the market. The monopolistic
competition structure makes the industry's saturation moderate. For new entrants, the initial
investment is not important, because they can rent shops, equipment, etc. in moderation.
Investment level. At the localization level, small coffee shops can compete with competitors
such as Starbucks and Dunkin Brands because Consumers have no switching costs. Even think it
is a competitive industry, new possibilities Medium winners in the industry. However, this
relatively easy way to enter the market is often affected by large existing brand identities (such
as Starbucks to achieve economies of scale by reducing costs, improving efficiency and huge
markets share it. The difference between new entrants and Starbucks is that they have a higher
threshold of Product quality, "experience" of major real estate locations and store ecosystems
(Liu and Liu, 2019).

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Threat of substitutes
There are many reasonable alternatives to coffee drinks, mainly tea, juice, water, Soda, energy
drinks, etc. Bars and pubs that use non-alcoholic beverages can also be substituted Starbucks'
social experience. Consumers can also make their own coffee with high-quality coffee machines
at home as the cost of buying from premium coffee retailers such as Starbucks is only a fraction
of it.
It does not include any switching costs for consumers to substitutes which helps in making the
threat of substitution high. But it is analyzed in the case that Starbucks is an industry leader and
they are trying the counter the threat by selling coffee makers in grocery stores (Liu and Liu,
2019).
Bargaining power of Buyers
Starbucks includes individuals and companies as their competitors. It is analyzed in the case that
Starbucks includes the moderate to low pressure of Buyers. Consumers include the moderate
sensitivity in getting the premium coffee retailing as in Starbucks customers are paying higher
for getting the quality products (Lingley, 2019).
Bargaining power of Suppliers
It is considered as low to moderate pressure of suppliers as their main input is the coffee beans
which are grown in selected regions. Starbucks is considered highly important for the business of
suppliers because of the size and scope which makes the supplier's power as low. Suppliers have
low bargaining power (Ojo, et al., 2015).
Competitive Rivalry
The specialty coffee market is highly competitive in terms of product quality, innovation,
service, convenience, and price. The industry is mature and the growth rate has been moderately
low, leading to fierce competition between companies medium to high because everyone is
trying to grab market share from mature companies like Starbucks (Ojo, et al., 2015). Speciality

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Coffee Café Industry includes the monopolistic competition as Starbucks includes the largest
market share.
Industry Life cycle Model
An industry life cycle includes the various stages in the business operation, progress, prospect,
and slump are included in the organization. It includes the stages of startup, growth, shakeout,
maturity, and decline.
At the introduction stage, Starbucks has introduced the Coffee with the strategic objective of
achieving the growth in the market. At this stage, the innovation is required to be adopted.
Starbucks has taken the initiative to cover the market and leverage network effects. The growth
rate of Starbucks is increasing from the last few years. At the mature stage, low growth, standard
products, higher entre barriers are considered for the key to success (Kang and Namkung, 2018).
As products gradually attracted greater market attention, the industry has entered a stage of
growth where profitability has begun to increase. Improvements in product functionality result in
ease of use, which increases the value to customers. Complementary products are also starting to
appear on the market, so people will get greater benefits when buying this product and its
supplements. As demand increases, product prices fall, which further increases customer demand
(Kang and Namkung, 2018).
At the shakeout stage, Starbucks has increased the revenue and slowing started generating
profits. The maturity stage of the organization is considered as well-established in which
Starbucks has taken the various strategies for maintaining the profitability and reducing the
rivalry.
Opportunities and threats
Opportunities
It is analyzed in the case that the organization includes the opportunity to expand the business in
an emerging market. It includes great growth potential for expanding the business in the
development market. for making the new market share, they can adopt the strategy of leveraging
the size, experiences, and efficiency (Herningsih and Tchuykova, 2019).

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Starbucks can expand the product mix which includes offering fresh juice products with a
strategy of a smart acquisition. The retail operation can be expanded in the developing market.
Starbucks has a strong brand image, which can be used to expand to the horizontal line Conduct
business and get involved in product diversification by controlling brand dilution risks. The
partnership with Nestle is considered an opportunity for the organization which includes dealing
with perpetual rights. It will help in expanding the reach of Starbucks in the consumer packed
foods (Herningsih and Tchuykova, 2019).
Threats
Starbucks faces the threat of increased competition. The competition is increasing in the café
coffee market and the major competitors are Dunkin, McDonald's, etc. The change in taste of
customers and lifestyle choice are shifting the customers towards healthy products and culture of
coffee is decreasing. Starbucks is not realizing the expansion in a new market as Starbucks is
required to develop in more developed countries with the idea of changing the culture. The price
volatility is considered as the threat of Starbucks as the significant fluctuation in the prices of
coffee beans of high quality and Starbucks does not have control over prices of high-quality
beans (Lemus, et al., 2015).
Internal Environmental Analysis
VRIO model
VRIO Analysis of Starbucks includes the analysis of Valuable, Rare, Inimitable and organized. It
is used for analyzing the competitive position of Starbucks.
Resources and capabilities Value Rare Imitate Organized
Price and strategic locations Yes Yes No Yes
Global Brand Recognition & Equity Yes Yes Yes Yes
Large Size and Strong Global Presence Yes Yes Yes Yes
Brand Image Yes Yes Yes Yes
Customer service Yes Yes No Yes
Supply chain Yes Yes No Yes

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Core capabilities, resources, and competencies of Starbucks include the product differentiation
strategies in which they offer the premium product mix of high-quality snacks and beverages.
HRM is another core competence of Starbucks which includes the values-based approach which
helps in building an effective relationship with the suppliers. It is helpful in developing business
strategies in the international market (Lemus, et al., 2015).
In the case of the location of Starbucks, they choose the high-visibility location which includes
the downtowns and suburban areas. They focus on tapping into the convince of customers.
Starbucks is considered the most recognized brand which helps in effectively leveraging the rich
brand equity with the help of merchandising the products in the market. The operations of
Starbucks is more than in 60 countries. Customer loyalty is considered a competitive advantage
to Starbucks which includes they have status among the customers. they provide loyalty based
programs to customers (Glowik, 2017).
The industry's demand for quality coffee and snack products is mainly driven by many factors,
including disposable income, per capita coffee consumption, attitudes towards health, global
coffee prices and demographic information. This industry is highly sensitive to macroeconomic
factors affecting household growth disposable. During the recession, the decline in household
disposable income was due to increased unemployment and Stagnant wages have brought
downward pressure on the industry's income and profitability (Geereddy, 2013). The key factor
in analyzing industry demand is per capita coffee consumption has increased the income of
coffee and snack bars. The main driver of consumption growth as the economy improves and
consumers begin to relax budgets, disposable income will increase.
The key strategies are adopted by the organization in the market which includes offering product
differentiation like product mix, locations, reputation and effective customer services which
helps them in building the premium value brand. In order to enter the market, Starbucks adopts
the strategy of strategic alliance and acquisitions.
It is analysed in the case that Dunkin’s and McDonald's customer base of Starbucks by providing
high-quality coffee. Arabica brews were less costly than Starbucks beverages. In the
international market, Starbucks has faced competition from Caribou coffee which sells baked
goods, specialty coffee, and supply brewing coffee (White and Moraschinelli, 2019).

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McDonald's has also started the McCafe for offering high-end coffee beverages like Starbucks.
Dunkin Donuts is also a major competitor to Starbucks. It is recommended to Starbucks to
expand the business in Eastern Europe and understand the coffee culture. It is required to analyze
the competitive strategies for acquiring a large base of customers (White and Moraschinelli,
2019).
Strengths and Weaknesses
Strengths
The strength of Starbucks is a strong market position and brand recognition in the market.
Starbucks has a presence across the world and includes the operation in more than 60 countries.
In the coffeehouse segment, Starbucks is the most recognized brand which helps the company in
gaining competitive advantages in the market.
Quality of the products is a strength as they give the priority to products quality and avoid
standardization. Customer base loyalty has grown the company which is achieved by
implementing the loyalty-based programs (Starbucks, 2020).
Weaknesses
The products of Starbucks are expensive and so the customers switch to other competitors for
lower prices. The coffee culture of Starbucks is not accepted in various countries which are
adopted as the expansion strategy. Because of overcrowding, Starbucks also leads to self-
cannibalization and diminish the long term growth targets.
Although Starbucks is famous for its smoothies, pumpkin spice latte and big chocolate cookies
they do not have the most unique market. Many other cafes, chain stores or other cafes offer
similar products but only lose to Starbucks. The procurement practices of the organization are
considered ineffective and adopt unethical practices (Starbucks, 2020).
The core competencies of Starbucks include the coffee of high quality and products at an
accessible location, sharing to the community for providing the experiences and variety of
choices. It is analyzed in the case that they consider the value ethics and practices of the
business. It is analysed that the competitive advantages of the organization are quality, services,

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culture, and ambiances of the stores. They try to maintain the innovativeness by bringing the
product innovation (Tu and Chang, 2018).
Starbucks maintains its popularity through flexibility. It can adapt to changing consumer tastes
and preferences. Its flexibility is also part of the reason for its success in the difficult but mainly
Chinese tea market. Therefore, in addition to other non-dairy alternatives (such as coconut milk
and soy milk), it is not surprising that almond milk was introduced in its stores (Chua and
Banerjee, 2017).
Recommendation
Starbucks is required to grow in its international segment. The emerging markets of Starbucks
are China, South Africa, Brazil and India in which the organization is required to open more
stores for serving the customers. In the case of international strategy, the organization is required
to transfer the core competencies and capabilities for expanding the business in several countries.
Starbucks can adopt the strategy of bringing tea and Fresh juice products. It is necessary for the
organization to build customer loyalty which is possible by adopting the home delivery strategy
(Hahn and Kim, 2016). It is analyzed in the case that Starbucks is required to implement the
marketing strategy for promoting the products in the market. Investment is required in
advertising and marketing of the brand.
SMART objectives
It is recommended to Starbucks focus on the objectives which include the specific, measurable,
achievable, realistic and timely. Starbucks should include sustainable coffee which is required to
increase the prosperity and resilience. Starbucks is required to focus on growing coffee for
reducing the fluctuation in prices of coffee beans. For the next 3 years growth, Starbucks is
required to be the world’s largest green business which includes building and operate stores by
aiming to minimize the environmental footprints. It will include the greener cup, stores, power,
and partners. Starbucks is required to strengthen the communities (Alderman, 2012).
Coffee beans are an important input in the Starbucks value chain, and the price of coffee beans
fluctuates greatly. The market price of high-quality coffee beans is high. Starbucks can mitigate
the risks of such price fluctuations Implement effective hedging strategies, such as futures