Starbucks SWOT Analysis

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This is a free sample analysis of Starbucks. 
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Starbucks Corporation

Strengths:

  • Starbucks is No. 1 specialty coffee retailer of - in terms of market share and market capitalization. (1997, £4596.6 million and sales growth 20.9%)[1]
  • It is a global organisation with 16,000 coffee shops in 15 countries world-wide.[2]
  • Strong brand image associated with high quality coffee and excellent customer service - “The Starbucks Experience”.
  • Extensive store network, 8,500 shops are owned by Starbucks directly. The company franchises and licenses 6,500 shops. It has developed excellent skills in franchise management.
  • Due to its specialism in all things coffee - it achieves high buying volumes - scale economies and utilizes international sourcing, some from fair trade suppliers.
  • Committed workforce, one of Fortune Top 100 Companies to Work for[3]

Weaknesses:

  • Starbucks is a premium brand commanding premium prices. As competitive pressures increase, the company could be undercut by lower price rivals such as McDonalds or Costa Coffee.
  • Starbucks is seen as an “American Global”, possible perception that big American chains are trampling on national cultures, “Starbucks was trampling on Chinese culture”[4].
  • Over-dependency on coffee and coffee related products.
  • US based company, focus on the US domestic market.
  • Reputation with pressure groups. Criticized for not using more Free trade products[5].

Threats:

  • Possible saturation in the coffee, café market. In the US, 600 underperforming company-owned stores were closed[6]. Consolidation on the high street, growing competition from national brands and new entrants, aggressive marketing (price wars, promotions), putting pressure on profit margins. Companies seek cost savings and new way to differentiate to retain customers.
  • Several activist groups maintain websites criticizing the company’s fair-trade policies, labour relations, and environmental impact[7].
  • Recession or downturn in the economy affects consumer spending, with less disposable income to spend. Consumers defect to lower price venues and competitors.
  • Raw material cost rising - Starbucks is exposed to rises in the cost of coffee, labour and dairy products, and adverse changes in exchange rates[8].

Opportunities:

  • Significant opportunities exist, especially outside domestic US market for joint ventures. Starbucks could overcome planning restrictions, reduce costs through co-locating at supermarket chains, pubs & restaurants.
  • Product range diversification into greater food ranges and non-food items. The company has experimented with warm sandwich lines, and I-tunes (music link)[9]. Also, sold music CD’s and linked with clubs (e.g. book clubs) etc.
  • Licensing its name (e.g. ambient coffee through supermarkets) could provide new streams of revenue[10].
  • Through CRM and database marketing it could target its high net worth customers and build greater loyalty with customer base. The introduction of loyalty schemes such as Starbucks Card, free re-fills and technology (free downloads of music) provide a competitive edge to its value proposition.[11]
  • Continued focus on improving efficiency and effectiveness in the organisation, from procurement, to supply chain to customer service delivery[12].
  • Become more of a socially responsible brand. Better public relations activity, introducing more fair trade products, better distribution of profits to farmers and ethical sourcing practices.

[1] Starbucks Corporation, http://www.hoovers.com/starbucks/–ID__15745–/freeuk-co-factsheet.xhtml

[2] Starbucks Corporation, Annual Report 1996

[3] http://search.forbes.com/search/find?MT=starbucks

[4] International Business 6e by Charles W. L. Hill, McGraw Hill

[5] http://en.wikipedia.org/wiki/Starbucks

[6] Starbucks Downside, Wall St Journal, 1 July 2008

[7] http://en.wikipedia.org/wiki/Starbucks

[8] Bennett, R (1996) International Business: Pitman Publishing

[9] Starbucks Annual Report, 2006

[10] Starbucks Annual Report, 2006

[11] Starbucks Corporation, Annual Report 1996

[12] Johnson and Scholes (1999) Exploring Corporate Strategy, Prentice Hall

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