Starbucks Company Analysis - Case Study Example

? STARBUCKS COMPANY ANALYSIS PRESENTED Company Overview Starbucks Coffee Company is the largest retailer and roaster of specialty coffee in the world. It was established in 1971 by three partners in the US and has since then spread its operations in over 50 countries globally. It expanded tremendously and tripled its stores between 2002 and 2007 from 5,886 to 15,011 respectively (Starbucks, 2010a). However, its rapid expansion was altered by the recent economic crisis that peaked in 2008. Despite this, the company continued to focus on its expansion goal into the international market. Strong and persistent focus on international sales led to significant growth and expansion of this company during the subsequent years. During the second quarter of 2010, for instance, Starbucks’ profits increased eightfold to $217.3 million (Starbucks, 2010a). Currently, this company has more than 1700 stores in various locations in the world. It distributes its products in terms of stores and does not sell franchises. Apart from specialty coffee, this company owns other two brands namely; Tazo Tea and Seattle’s Best Coffee. This paper examines the external and the internal environments affecting the performance of this company. It also analyzes the key stakeholders of this company and their relationships to the company. PESTEL Analysis The following PESTEL analysis will examine in brief the factors of the external environment that affect the performance of this Starbucks namely economic, environmental, political, legal issues, social and technological factors. Political Environment One of the political factors affecting the performance of Starbucks is trade restrictions in terms of tariffs and other non-tariff barriers placed by various countries across their international borders. Strict and coercive trade barriers may adversely affect the ability of this company to source the best beans and to export its output to over 50 countries in which it operates (Anon, 2010). In addition, this may adversely affect its reputation, sales and competitiveness in the global market. Secondly, political stability in the countries where Starbucks operates is an important issue. In Israel, Starbucks was forced to put off all of its operations due to political hostility between the Palestinians and Jews (Starbucks, 2012). This adversely affected its strategy for expansion into the international market. Generally, political environment is unfavourable to some extent and presents threats to this company. European Union recently expanded to include Hungary, Slovakia, Poland, the Czech Republic, Estonia, Slovenia, Latvia, Lithuania Cyprus and Malta (Kole, 2011). This makes trade across the borders of these countries more liberal and opens opportunities for Starbucks to expand its operations into those markets. Finally, Starbucks has in the past been evading paying corporate taxes in various countries in Europe and this issue has adverse effect on its reputation in the European market (Kole, 2011). Recently, this company has bowed to pressure from the UK government authorities to pay taxes from 2013 henceforth. It is vital for Starbucks should be compliant to such government requirements in all countries where it operates to avoid damaging its image. Economic Environment The stability of the US dollar is a vital issue to the operations of Starbucks. Weak monetary policies, for instance may lead to a decline in the dollar rates in comparison to other currencies (Oxford University Press, 2010). The company may as a result incur higher costs of vital inputs such as coffee, milk and sugar. This may force the company to pass the extra cost to the consumer, which may put at risk its reputation, sales and competitiveness. The recent economic crisis that peaked in 2007 and 2008 led to increased unemployment rates in many countries. For instance, the number of unemployed persons in Britain rose three-fold to 2.5 million by 2010 (National Coffee Drinking Trends, 2011). This also adversely affected income distribution in most nations where Starbucks operates. Consequently, most people who could afford to purchase the company’s expensive specialty coffee were now unable to purchase it and saw it as a luxury. This led to decline of sales in various locations, hence adversely affecting the expansion plan of this company. This implies that economic environment is somehow unfavourable to Starbucks. Social Environment Changes in tastes and preferences in the target market affect the performance of Starbucks. Recent information indicates that consumers in America are increasingly changing tastes in favour of specialty coffee (Politico, 2011). This has favourable impact to this company as it has opened an opportunity for expansion of sales and market share increase. Specialty coffee is more of a luxury product and thus, income distribution is of paramount importance to Starbucks. They should focus on markets where people have medium to high levels of income. Currently, Starbucks sells specialty coffee more to consumers between the ages of 35 and 54. However, consumption of this product by persons of ages between 18 and 35 has been rising and is expecting to continue rising in the future. Starbucks locates its stores in places where people have positive attitude to work and who prefer going out for lunch rather than make purchases from internal canteen. This is advantageous to Starbucks as they have an opportunity to promote their product to the workers. Research indicates that birth rates in most of the target markets for Starbucks are stagnating and population is getting older. This implies that there is need to promote their products more to older people and to expand to markets where population for young people is expected to remain high (Politico, 2011). Technological environment Technological advancement has been changing at an average pace in the food and beverage industry. However, for business organizations to achieve success, they need to follow technological trends consistently and exploit any opportunity that may result from any change or advancement in technology. According to Technorati (2011), Starbucks adopted the recently introduced phone payments system which helps to reduce long queues during peak times. Technological advancement has led to a new platform in form of social media where business enterprises relate with consumers and share ideas and experiences with them. Business organizations are now able to acquire useful data such as consumer interests, tastes and preferences and responses to organizational products and services. Starbucks has exploited this opportunity by creating accounts in the social media sites such as Funspace and Facebook where it runs forums to discuss important issues with consumers and communities (Technorati, 2011). Generally, technological advancement has favourable impacts on the operations and performance of Starbucks. Environmental issues As National Coffee Drinking Trends (2011, p. 49) explains, Starbucks customers often leave shops with their cups and dispose them off in the streets, hence creating a lot of waste. These cups should be made up of material that is as degradable as possible. Some countries have strict laws related to disposable of such wastes and Starbucks must adhere to them to avoid getting sanctions. Non-governmental Organizations and other groups in most countries where Starbucks operate have incredible abilities to force organization to change their practices and comply with various rules and regulations. Often, they influence organization through boycotts and lobbying. They target intangible assets of business organizations such as tarnishing organizational reputation and brand image. However, Starbucks works with various pressure groups such as Fair-Trade movement which help to improve its reputation and image in the international market (National Coffee Drinking Trends, 2011, p. 49). Hence, environment influences are favourable to this company. Legal Influences According to National Coffee Drinking Trends (2011, p. 49), most countries tend to provide protection in various ways to indigenous firms from takeover and unfair competition. Legal issues such as national protection and monopoly laws are likely to affect Starbucks due to its size and expansion strategy in the international market. For instance, India protects its domestic firms through a policy that requires that no foreign firms can own 51 percent in a merger with local companies (Starbucks, 2012). Such protection policies are also available in other nations in various magnitudes. The more such measures are put in place, the more the expansion plan of Starbucks is altered. This indicates that legal influences have unfavourable impact on this company. In summary, PESTEL analysis shows that influences of various factors of the external environment are balanced given that technological, social and environmental influences are favourable, while legal, environmental and political factors pose a threat to this company. Although Starbucks can’t control the external environment, its strengths tend to counteract the PESTEL analysis due to its flexibility to change (by closing a large number of stores in order to adopt) and ability to quickly exploit emerging opportunities. SWOT Analysis The following is a summary of Starbucks’ strengths, weaknesses, opportunities and threats. Strengths One of the strengths of Starbucks relates to its brand image. According to Bohm (2009), Starbucks is one of the few firms in the cafe industry whose market awareness strategies have been successful. This company has been able to stir up consumer interest in its products while preserving its brand name at the same time. This company has been consistent in delivering positive consumer experience. This conveys a message to consumers that their visits to the company’s cafes and consumption of its products are an ‘experience’ rather than just another brand of coffee from another company. The recent change of the company’s logo indicates that Starbucks is confident that the public is aware of its brand and follows the likes of Nike and Macdonald who are widely identifiable by their logos alone. Secondly, Starbuck has a unique strategy that increases its ability to enter into new locations and open new stores that are close to each other. The company evaluates the performance of all the new stores and closes those that fail to meet set achievements (Bohm, 2009). Therefore, the company only retains the stores that are profitable. Additionally, Starbucks enjoys from its valuable and motivated workers. As Starbucks (2010b) explains, the cafe industry is highly dependent on the staff, their attitudes and their ability to provide customers with valuable services. Starbucks’ employees work as a team and collaborate at all levels to bring out the best results. The company constantly engages the workers in training through seminars and workshops to provide them with essential skills needed for the industry. Consequently, they provide customers with exceptional services. According to Starbucks (2010b), this explains the fact that this company has a low level of employee turnover rate. Generally, these strengths provide a favourable impact to Starbucks. Weaknesses One of the weaknesses of Starbuck is its overreliance on the home market. Though the American market has been responding positively in the recent years, Starbucks’ overreliance in it leaves it vulnerable to changes that might occur in the future such as changes in disposable incomes and recession (Politico, 2011). Secondly, the aggressive expansion strategy of Starbuck has an adverse effect to its reputation. This company has recently been engaging in takeovers and acquisitions of coffee houses in various parts of the world as part of its expansion plan. But it closes stores that are deemed not to be profitable, a move that is not supported by local residents. According to Politico (2011), this has led to boycotts and creation of sites such as ihatestarbucks.com. The residents argue that the move by this company to close stores lead to erosion of local culture and environment. Opportunities According to Bohm (2009), business organizations seeking to expand into the international market look for countries with attractive opportunities. As noted earlier, Starbucks has successfully been able to increase its presence in the international market over the past years through penetration in new markets in the world. Recently, this company has been planning to expand to attractive markets such as India that will help to increase opportunities for revenue growth. Such opportunities are supported by anti-protectionist policies that are being adopted by numerous nations the world recently. This will assist this Starbucks to secure the best inputs. Another opportunity is the increasing market for coffee in America as a result of changes in consumer tastes and preferences. According to Bohm (2009), the market for expensive organic coffee in America has been increasing rapidly. This has provided an opportunity for Starbucks to expand its operations in this market, and to acquire a bigger market share. Threats Even though Starbuck does not face stiff competition from specialty coffee sector, it has been facing high level of competition from restaurants and other big shops that sell coffee. For instance, this company has been facing stiff competition from MacDonald’s which sells quality coffee at a lower price (National Coffee Drinking Trends, 2011). The Swot analysis shows that Starbucks has more strengths and weaknesses than opportunities and threats. The analysis however indicates the company is balanced given that its strengths and opportunities are favourable, while its threats and weakness are unfavourable. The company has an opportunity to change its strengths into opportunities. Stakeholder Analysis Starbucks’ key stakeholders include customers, employees, suppliers and shareholders. According to Lawrence and Weber (2011), Starbucks has always been committed to provide its customers with quality specialty coffee. They practice fair trade and provide impressive services to customers that give them as a sense of belonging. Employees of this company fully engage with customers to learn and respond to their requests and interests. The company is committed to providing customers with healthy food with low level of calories such as reduced fats breads. They also entice customers by offering them gift cards and other gift items such as mugs and cups with the company’s logo. In response, consumers in many pars of the world have developed loyalty to the product of this company. Starbucks’ employees are treated well, as partners of the organization. The company has established the Recognition Awards Employee Benefits Package that provides of various gifts for workers in recognition for good performance. They are offered attractive salary and benefits. The company also provides free training to its employees to equip them with valuable skills needed in the cafe industry (Lawrence & Weber, 2011). The coffee master program and the servant leadership workshops are examples of career development programs sponsored by the company to support employee training. Additionally, Starbuck has always been committed to ensure that they attain a level of success that rewards the shareholders. They allow the shareholders and new investors to purchase and sell shares of Starbucks common stock Dividends (Lawrence & Weber, 2011). They pay shareholders’ dividends on its common stock at specific set rates on quarterly basis. Starbucks also ensures that there is fare trade between them and suppliers. They encourage coffee farmers to adopt measures that help to protect the environment. They also train them to develop business skills by compelling them to be accountable for their business activities. However, suppliers are required to put in place safety measures for workers that will lead to fair and human working conditions. They are also required to protect the rights of workers through addressing child labour and discrimination and complying with minimum wage requirements. Conclusion In conclusion, The PESTEL analysis for Starbuck has shown that the influences of external factors is balanced with social, technological and environmental factors being favorable while legal, environmental and political pose threats to this company. The SWOT analysis shows that the company has more strengths and weaknesses compared to opportunities and threats. Having assessed both internal and external environments of Starbucks and their impacts on the performance of this company, it can be concluded that this company has an opportunity to continue expanding into untapped markets. References Anon. 2010. ‘Starbucks' profits jump as sales climb’ http://www.bbc.co.uk/news/business-11699561 [Accessed 21st April, 2013] Bohm, A. 2009, The SWOT Analysis, GRIN Verlag, Copenhagen Kole, W. J. (2011), Go east as European Union Lawrence, A. and Weber, J., 2011. Business and Society Stakeholders, Ethics, Public Policy. 13th ed. NY: McGraw-Hill National Coffee Drinking Trends. 2011., ‘National Association of Coffee. Starbucks Coffee Company, www.starbucks.com [Accessed 21st April, 2013] Oxford University Press 2010. PESTEL analysis of the macro-environment, Oxford University Press Politico 2011. Starbucks CEO Rethinks, http://www.politico.com/news/stories/0311/51727.html#ixzz1aOXYdpe9> [Accessed 21st April, 2013] Starbucks 2009. Annual Report, [Accessed 21st April, 2013] Starbucks 2010a. Company Profile, http://assets.starbucks.com/assets/company-profile-feb10.pdf[Accessed 21st April, 2013] Starbucks 2010b. Recognition http://assets.starbucks.com/assets/starbucks-recognition-jan2010.pdf [Accessed 21st April, 2013] Starbucks 2012. Facts about Starbucks in Middle East, < http://news.starbucks.com/article_display.cfm?article_id=200>[Accessed 21st April, 2013]  Technorati 2011. Starbucks Pay-by-Phone, Read More