The Seattle founded and based company; Starbucks, is a world-renowned coffee beverage service company. In 1971, by three partners, it was later bought out by former CEO, Howard Schultz, and under his leadership, it has witnessed tremendous growth, right from $4 a share to over $60 in 2016.
Industry overview and analysis
They are competing in an industry that depends on disposable incomes, and maintaining an edge is a challenge. Several economic downturns have hit the global financial system, but in all, Starbucks has been able to wither the consequent adverse effects relatively. Before the end of the first decade in the 21st Century, the company grew massively. The retail coffee and snack industry increased from 0.9% to 0.9 to 3.9 % annually from 2009 to 2013. The most significant market share player in it is Starbucks. Competitors are McDonald’s, Costa Coffee, and Tim Hortons, etc. The industry is in a mature stage, and subject to several factors that affect demand. This could be disposable incomes, per capita coffee consumption, attitudes towards health, world pricing rates of coffee beans, and customer demographics. When household incomes fall, the volumes of business sales indeed take a dip. Healthy eating habits could play a significant part in the industry shakeup. Additionally, the increase in demand for coffee beans on global levels also plays a crucial role in increasing the market costs and reducing profitability.
The threats of new entrants are moderate, since no new companies have significantly emerged. This inspires that the barriers of entry aren’t that high. The industry faces a monopolistic competition structure. So with relatively easy market entry, it is expected that new entrants could challenge the large player’s abilities. But through economies of scale, Starbucks can hold their ground. Lowering the costs, and enhancing efficiency as you leverage onto the brand value and colossal market share can be exploited by Starbucks to defend its turf and solidify its growth. The threats of substitutes are high, like tea, fruit juice, water, sodas, etc. people can also make coffee at home at a fraction of the Starbucks stores’ cost. To counter these, the company was trying to sell branded coffee machines and launched a lunchtime food menu, called Mercato, to introduce more products diversifying its sales portfolio.
The bargaining power of buyers is moderate to low pressure. Even though we are experiencing challenging economic uncertainties, the demand for quality products is set to grow in the pandemic era. And Starbucks is well ahead of the curve with notable digital platforms, which encourage seamless transactions and efficient service. The buyer uses the Mobile Order and Pay system launched in 2015, to literally “jump the queue” and have the desired product pick at their preferred location at their convenience. The bargaining power of the suppliers is moderate pressure. With distorted supply chains globally due to the Covid 19 pandemic, their rights point out that many companies are rewiring their supply chains. And with added competition, comes the need to manage their supplier link carefully. It uses the CAFÉ program, the coffee and farmer equity program, creating an appropriate partnership link that offers stability in trading exchanges. Because of vertical integration and the demand power Starbucks has, the power suppliers have is limited in a sense.
The competitive rivalry is intensely high to moderate. With monopolistic tendency, its number two has a significant market share. Starbucks maintains its edge through constant innovation, efficient practices, and premium quality offerings.
Its ability to offer a premium product mix of its high-quality beverages and snacks without compromising quality and consistency has enabled it to blossom. Its human resource values and core competency structure have helped build strong partnerships with both internal and external relationships with employees and suppliers. Their employees’ motivation programs recruit the best; make them partners, by giving them stock options. A collaborative and cross-functional way of engagement has been nurtured at the company level that draws collaborative thinking toward product development and challenges.
First is sits strong market position and having a world recognized brand. It was named in 2017, by the fortune Magazine as the third most admired company in the world, and the best in the food industry. It has high-quality products, and its stores are located in high traffic places. Creative branding has made their stores the best in aesthetic appeal, and all are managed under the best human resource management teams. They enjoy goodwill from their customers who value the company policy of recycling, quality, consistency, and waste management. It also has a diverse product range for all demographics. Furthermore, it leverages its dominance through technology and mobile outlets and can entrench its cultic customer loyalty presence.
Its weaknesses are the expensive product to many, its self-victimization of its success through massive outlet numbers, its overdependence on the USA’s home market, and a corporation image that is frowned upon by many equality activists and campaigns.
Expansion into emerging nations and markets.
The addition of more product mix and offerings.
In-depth technological advances and new distribution channels min delivery of products are necessary.
Increased completion, price volatility of coffee in the market, the saturation levels seen in developed counties, and changing lifestyle choice and consumer tastes.
Starbucks’ growth is in the international arena, in developing markets. It should build up local teams using core competencies in nations and do such a government to continue the Starbucks heritage and model. Investments in tea and fresh juices should be considered, alongside the core coffee product lines.
Investing in nations should come with direct purchases of its coffee like in India and Brazil. Relationships with farmers and their cooperatives should be encouraged to mitigate supply chain shocks.
In saturated markets like the USA, it should seek to increase market share in untapped rural cities.
With the new normal since the onset of the Covid pandemic, the company should seek to increase its footprint in the technological systems of service and delivery that encourages the on-the-go home experience to shoppers.
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