In this report, the focus will be on conducting the internal and external environment analyses of Starbucks. The competitive position of the company will also be summarized, and this will be conducted by assessing the current status of the major competitors in the market. There will be the use of some models and theories which would help in doing the internal as well as external analyses of the company.

About Starbucks:

Starbucks is an American coffeehouse chain which was founded at Seattle in the year 1971. Starbucks is also known as the most popular and successful coffeehouse brand among all (Starbucks Coffee Company, 2019). Along with being highly successful in the United States, this organization has been highly successful in the international market as well. As of the year 2018, the organization has its stores at about 28000 locations around the world and also currently employs approximately 291,000 employees (Purdy, 2019). The organization is known for its unique tastes of coffee and for maintaining a highly engaging environment at all its coffee chains around the around. This is one of the reasons why the organization has been able to maintain its brand presence over the years. The premium brewed coffee that Starbucks sales to its customers are different and unique from that of the other coffeehouse brands. Along with being successful in North America and Europe, Starbucks is now getting popular in Asian countries as well.

Howard Schultz has been the Chairman and CEO of the company and helped the company to grow forward in the business. He was also highly instrumental in helping the company to overcome the challenges from the competitors (Leduc 2017). However; to understand the current scenario of Starbucks in the market, it will be essential to assess the competitive position of the company. This can be conducted by determining the location of the company compared to the other major competitors.

The competitive position of Starbucks:

As analyzed from the case study, the major competitors of Starbucks in the industry are Caribou Coffee, McDonald’s and Dunkin Donuts. These are the competitors who have also entered the business of adding coffee beverages in their menu. While McDonald’s is considered as the most popular fast-food chain in the world, Caribou Coffee has been highly successful in the Asian markets as well. On the other hand, Dunkin Donuts has started selling espresso drinks since the year 2003 (Whitten, 2019). The price of the coffee offered by McDonald’s is far less compared to that of Starbucks.

Along with this, with the introduction of McCafe in the year 1993, McDonald’s has been successful in selling its coffee drinks as well (Oztopcu, 2017). The high cost of coffee drinks compared to the other competitors has been a matter of concern for the company in recent years. However; the success of Starbucks lies in the fact that it has introduced the concept of high-quality coffee at the United States and the customer service that it provides is highly effective.

External environment analysis:

Starbucks has been hugely successful in maintaining its brand image all over the world. This is the reason why the organization has been highly successful in the foreign market as well. Starbucks is continuously expanding its international market and has been successful in acquiring store spaces in the prime locations of different cities (Lemus et al. 2015). However; as analyzed from the case study, the competitive rivalry for the company is one the rise with the increasing efforts from the competitors such as McDonald’s and Caribou Coffee. Therefore; it will be essential to conduct an external environment analysis for Starbucks. This would help in identifying the impact of the external environmental factors on the business of the company. Therefore; this section of the study will use some of the essential models which can help in conducting the external environment analysis successfully. PESTEL analysis will be thus used as the first model for this task.

PESTLE analysis of Starbucks:

Political: In many international countries, such as China and India, Starbucks imports raw materials. Therefore; the import taxes in these countries do impact the business. Along with this, in many countries, the increasing corporate taxes implied by the respective Government are also a growing concern for the company (refer to appendix 1). The tax policies and the employment laws of some of the international countries can also be impacted by the business of Starbucks. The implementation of Brexit by the UK can be a concern for the company in countries like England. This is due to the fact that there would be a threat regarding the changes in corporate and trade taxes in these countries (Welfens and Baier 2018). However; the Government of the countries like India and Vietnam are continually making efforts to support the international brands. Therefore; Starbucks will also have the opportunity to be highly successful in the states as well.

Economic: In the case of the economic impact, the rates of currency exchange of the internal market can impact the business of the company in the future. Moreover; the economic environment of different countries varies as well. For example, in the UK and USA, the high price of the coffee does not impact the buyers. However; in some countries of Asia and Africa, the impact can be high.

Social: Starbucks has been mainly able to attract the people of high-income society of the different countries. This is owing to the high price ranges of the beverages. Therefore; the target customers have been limited. With McDonald’s selling beverages at a much lower price, there could be a future concern for Starbucks if further economic crisis impacts the market.

Technology: With the technical advancement, Starbucks has the opportunity to enhance its customer service in the future. Innovative technology can also help the company to improve its supply chain as well as the coffee farming system.

Environmental: With most of the countries giving importance to reducing the environmental impact from the business activities, it will also be the responsibility of Starbucks to follow the compliances with efficiency. By lowering the wastes, Starbucks can implement social responsibility with success.

Legal: Quality maintenance of the products is going to be extremely important as most of the countries are now giving importance to providing safe and high-quality food. Moreover; changes in the employment regulations in some of the countries can also impact the business of the company (Alwaleed et al. 2019). It will be thus crucial for Starbucks to ensure that the legal issues are properly mitigated, and the compliances of the respective areas of business are successfully met in the future.

Porter’s five forces

Industry rivalry: Specialty coffee industry has changed due to a number of rivals in the coffee industry. Unlike early days in the coffee industry, Starbucks competed with few competitors, now the competition is vast against the companies, and there are varying differences in size and product differentiation. The exposure of new companies in the speciality coffee industry has increased tremendously in a different region. Coffee beans are processed in a particular way to distinguish a company’s image and brand loyalty of customers. The product strategy impacts the sale of coffee (Shtal 2018). Starbucks has a different process of preparing coffee which ensures that the upscale and profitability matter with the process of manufacturing, design and distribution. Starbucks competes with Dunkin Donuts, McDonald’s and Caribou Coffee (White 2019). The industry competition is higher in this case, but speciality products and strategies will engage an organization to focus on competition and ensure price and product advantage.

Potential for new entrants: The potential for new entrants is high in the speciality coffee industry. The current environment of the speciality coffee industry has significant barriers to entry, but these barriers can be avoided. The economies of scale have affected and increased the top players’ channels. Dunkin Donuts and McDonald’s have distribution channels and have focused on the distribution system in developed economies. Cost disadvantages are the problem of new entrants as they are dependent on the economies of scale and consider access distribution channel in terms of focusing on the high quality of coffee beans and product differentiation. Taste of coffee, convenience stores and pricing strategy impacts the new entrant’s progress. The barriers to entry in the speciality coffee industry have significantly increased.

Substitute products: The force that substitute products create in the coffee industry is high. Substitute products of coffee available in the market are tea, cider, hot cocoa and beverages. The lower the price of a product, the demand is higher; thereby speciality coffee industry should set a special price for coffee so that consumers do not switch off the products to another. Majority of consumers are stick to a particular product, but a high threat of substitute is always a situation in terms of high price or product differentiation.

Supplier Bargaining power: Power of supplier is high as it major refers to the supply cost that a company faces. There are more suppliers in the speciality coffee industry which will lead to secure low prices for the products with explosive growth in the market.

Bargaining power of buyers: Power of customer is low as it indicates that there is a number of buyers in the industry. Individuals do not bargain as many companies provide the same products in the market (refer to appendix 2). Buyers are less sensitive even though the price of a coffee increases significantly.

Competitive analysis

Starbucks competitors are McDonald’s, Dunkin Donuts and Caribou coffee that reflects the competition in speciality coffee industry. Starbucks has 200,000 employees working in 60 countries with its franchises and licenses. The competition is peer when it comes to comparing the return on investment and profitability index. Starbucks return on assets was 23.1% in the year 2014, whereas McDonald’s with 13.4% and Dunkin Donuts with 5.5%.

The competitive level of Starbucks, McDonald’s and Dunkin Donuts

As per the competitive analysis, the competitors of Starbucks have a substantial impact on annual sales and profitability. Starbucks stores in the year 2014 were 21,100, which has now increased to 31,256 worldwide. McDonald’s stores are 37,855 worldwide. McDonald’s employs 21,000 people in 120 countries with 68 million customers (MADS Junction 2019). This indicates that McDonald’s is a strong competitor for Starbucks. Brand perception of Starbucks has continuously increased with the number of stores and brand image. The coffee-making process is the most attractive strategy that helped Starbucks to capture the market share and gain brand-loyal customers.

Internal environment analysis

Internal environment analysis indicates the results of the company while analyzing internal factor that affects the development of the company. The internal environment tools that are used to analyze Starbucks results are value chain analysis, value creation cycle and VRIO analysis.

Value chain analysis

Value chain analysis includes primary and secondary activities that the organization considers while competing with the competitors. Starbucks primary and secondary operations are mentioned in detail which will present the resources and capabilities of Starbucks (refer to appendix 3).

Primary activities

Inbound logistics: Starbucks focuses on selecting the finest coffee beans while producing coffee beans in America. Coffee beans are procured from farms that are managed by Starbucks. The coffee beans are then transported to several distribution centres to operate by logistic companies. High-quality standards of coffee beans are then processed.

Operations: Starbucks operates in several markets; this states that the company considers owned stores and licensed stores all over the globe. There are 31,256 stores of Starbucks internationally. The company generates 80% of the revenue from operated stores, and 10.5% accounted for licensed stores.

Outbound logistics: There are no intermediaries in Starbucks operations as Starbucks manages the overall stores. The products are majorly stored in licensed stores. There is a range of single-origin coffees that impacts the leading retailers in the US.

Marketing and sales: Superior quality products are expected from Starbucks, and it fulfils the customer expectations with an aggressive marketing strategy. Need-based marketing strategies are considered by the company in terms of new product launch. Competitive CSR initiatives are taken by Starbucks to focus on product development and considers reliance on word of mouth marketing strategy.

Service: there is a great emphasis on service that Starbucks implements in the process. Customer loyalty cards are provided, which ensures offers and discounts on several products. Few companies only focus on gaining customer loyalty while targeting markets in terms of achieving advantages of being unique in the market. Starbucks targets market while selling the most excellent quality coffee and provides a unique experience to customers.

Support Activities

Infrastructure: The operational stores of Starbucks highlight customer service and pleasant and pleasing environment that welcomes customers with charming designs and soothing music. Customers are complemented with service and dedicated work team in terms of satisfying customer needs. Well-dressed employs are wearing aprons to ensure the brand image of Starbucks as it captures the customer’s attention.

Human Resources Management: Committed workforce is a critical attribute that ensures growth and success of the company. Employees are motivated and are provided benefits and incentives for effective results. The company takes care of employees as employees are the primary reason for considering customer needs and providing the best products that indicate sales volume and profitability index (Moyer 2019). The work culture of the organization keeps the staff motivated and provides efficient results in terms of brand image and loyal customers.

Technology development: Starbucks is known for its use of the latest technology. Coffee related processes and cost-saving strategies are adopted with advanced technology and connect with customer needs. Many customers visit Starbucks store while using WiFi facilities and ensure work activities. Therefore with the latest technology, companies attract customers to spend valuable time at the coffee stores and have a cup of coffee along with work duties. Starbucks provides phone applications to customers to make secure delivery of coffee at home or walk-in stores.

Procurement: Purchase of assets and raw materials is handled expertly by Starbucks as it ensures an effective change in the business while focusing on value chain analysis and its components for effective business practices.

Value creation cycle

Value creation cycle indicates the competitive advantage of a company met with the help of a business model, strategies and distinctive competencies. The business model of Starbucks helps operating model that allows focussing on unique skills with product differentiation, and quality emphasizes (Trigeorgis & Reuer 2017). There is sets o competitive strategy that Starbucks focuses on in terms of achieving value chain as it helps to create distinctive competencies that provide a competitive advantage. Distinctive competencies are addressed at Starbucks as the company strengths are brand image, quality product and customer satisfaction rate. This helps the company to focus on superior efficiency products and quality innovation in response to customer expectations.

Competitive advantage and value creation cycle are analyzed with the help of a business model that attracts and differentiates the product of Starbucks with its competitor. Quality of the product helps to differentiate the product with a value proposition as it ensures value satisfaction. Customers can order customized drinks when it comes to enjoy and relax in an upscale environment. A standard retail business model is followed that attracts customers in the emerging markets. Retail stores of Starbucks are attractive landscapes for investors as it helps to expand the business and controls business with core strategy. Starbucks primarily focuses on considering high-quality products and value proposition while enhancing customer’s need and typically providing customers with a consistent environment in the retail stores (Bryan 2019). A sophisticated operating model is run by Starbucks, which beings to procure coffee beans and roast the coffee beans to serve 50 million customers of Starbucks per week.

The company’s operational cost is growing, but the sales volume is high with a business expansion rate. The operating model can be changed as it ensures the efficiency of the organization to achieve business strategy and mission of the business. Value creation cycle consists of planning, sourcing, making and delivering goods (Trigeorgis & Reuer 2017). To address the cost and reorganize the value creation, Starbucks has done effective plan in terms of production planning and new product launch. The product is divided into coffee items which include the manufacturing process (Pilon 2019). Transportation, customer service and logistics are included in delivering raw materials to the retail stores. A thorough analysis of the process is carried on while identifying cost and efficient product service. Thereby a perfect and global logistics system is addressed with end-to-end operations while satisfying customer service. The company continues to expand its product offerings in several countries while following the value creation cycle and ensuring potential benefits from tradeoffs and performance. There are control operations that are carried on with distinctive competencies that help to manage and offer quality products in competitive advantage.

VRIO analysis

Resources	Valuable	Rare	Inimitable	Organized	Impact
Speciality coffee	Yes	No	No	Yes	Realized competitive parity
Upscale and atmosphere	Yes	Yes	No	Yes	Temporary competitive advantage
Global presence	Yes	Yes	Yes	Yes	Realized Competitive, sustainable advantage

Speciality coffee

Speciality coffee is one such resource that ensures valuable support to the customers and satisfies customer demands in terms of value. Speciality drinks are not limited as Dunkin doughnuts offer them in terms of rare product differentiation. The coffee product is imitated as it ensures utilizing the capability of a coffee shop (Cannon 2018). With several options, people can find a similar product like Starbucks coffee to try new drinks and to explore the market.

The atmosphere of Starbucks allows customers to have a cup of coffee in the store and feel relaxed with their companions. The coffee house is welcoming customers and provides an atmosphere that connects with people with unique features and designs of stores. Starbucks has an upscale environment and a tremendous sophisticated ambience where customers can relax. Customers bring computers and are free to work and relax while drinking coffee; therefore, the coffee shop has a cosy environment. It is easy for coffee shops to copy the business model of Starbucks and engage with customers; thereby, it is inimitable. The company takes advantage of a customer’s lifestyle and offer high price products.

Strong global presence is the significant capability of Starbucks to increase sales volume and market share. Starbucks gains revenue from existing and new customers with its appearance of stores in several regions (Gutierrez 2018). Starbucks is considered to be the most recognizable coffee house. No competitors can gain such a global presence in a short time. Starbucks is taking advantage of coffee in more than 60 countries while engaging in the passion for generating profit by providing coffee. The company connects with a large community in terms of culture and language while spreading an impact on customers.

Recommendations and conclusion

Starbucks needs to improve on several areas to uphold the position and to make sure for strategic development. To overcome the declining profit, there are specific ways; the company should deal with. Starbucks should focus on business expansion and increased international expansion to compete in the market and achieve the market share while adopting a market development strategy. Global expansion is profitable, which will bring close the economies of scale and ensure adaptability to strengthen the market and gain market share. Strategic future recommendations for Starbucks are

Expand internationally
Franchising
Corporate and leisure theme stores
Employee training and motivation

Expand globally: To expand the international market, The problem of Starbucks will be solved when it deals with self-cannibalizing and focusing on the positive aspect that impacts the business and new product sales. Starbucks should focus on increases sales performance while working on the international market with existing and related products of choice. Therefore the company should focus on considering new stores in growing economies which will provide product purchase power on a higher rate (Economic Times 2019). Starbucks should concentrate on Middle Eastern countries, Russia and Brazil, rather than focusing mainly on the United States market. International expansion will provide increased sales volume with developing economies that lack the penetration of coffee house. Market development strategy will solve the issues, and it will minimize the risk in such economies.

Franchising: Starbucks should focus on a franchising model as McDonald’s is working on expanding its market all over the globe. Starbucks stores are company-owned, which will result in investing less in the organization as it leads to a harmful situation. This strategy will ensure long term profitability of the organization and achieve low cost of control. Minimizing control in franchise store is applicable, and it helps in building quality products with the increased brand image. Franchising will assist in entering in potential market and gain a positive result in Middle East countries.

Corporate and leisure theme stores: New themes should be introduced by Starbucks to engage in corporate theme stores and leisure theme stores. This will help to achieve desired standards which will remodel store requirement and focus on corporate people entering in new stores. Leisure stores theme will have a comfortable environment and ambience for people who come to store for a peaceful chat with friends. The stores will have light music and have instant digital photography that will ensure party themes and will help attract customers from pubs and bars. Pictures at the wall will be a theme for customers which will be memorable and will have a positive impact on sales.

Employee training and motivation: Employee training and engagement will ensure employee satisfaction, and thereby customer service is provided with effective results. Employees should be trained to welcome customers in a way that will increase sales and profit index.

Part 2: Starbucks Stakeholder Report

Internal and External Stakeholders

Stakeholder	Internal
Employee	Internal
Customers	External
Suppliers	External
Environment	External
Government	External

These are the types of stakeholders of Starbucks

Priority Starbucks Stakeholder

A priority Starbucks stakeholder group that is selected is customers from the list of internal and external stakeholders (Refer to appendix 4). Customers are currently the primary focus of attention for Starbucks. Due to the growth and success of the business, it is essential to focus on customers need, which will engage in providing positive results for the company. Customers of Starbucks groups are a specific group with important characteristics, demographics and size. These are specifications that tend to attract and target customers in terms of their lifestyle or behaviour. Different customer groups are

High income

Youth

Technology adopters

High spenders

These groups are specifically drawn, which will emphasize the level of involvement of customers. High-income people are targeted, which will underline their spending power consequently. There is specific logic behind targeting high-income groups; the income will decide the spending and purpose (Silvius & Schipper 2019). Therefore high income and top spenders will derive the significant consequences of targeting customers who are willing to spend for the cup of coffee. High-income people will be ready to pay on these products as these products have high status and a consequent lifestyle.

Technology adopters group of the customer is targeted as it will engage in high sales and profitability. This strategy tends to gain an overall image that people who use Smart Phones can now order their coffee with the help of online payment. Therefore there are applications that technology adopters use to save time and money. Youth age of 15-25, are attracted towards new coffee houses and spend the income as per the status. Therefore, these are customer groups that are attracted towards Starbucks brand image and recognition. Customer loyalty is expected from these groups as they are highly targeted while reviewing the lifestyle and behaviour.

Power and interest

Using Mendelow’s matrix, power and interest of stakeholder are critically analyzed.

Source: (Oxford College 2019)

Mendelow’s matrix is used to analyze stakeholder’s group based on power and interest. High power and highly interested people, high power and less responsive, low power and high interested and low power with low-interest people (Linaker & Regnell 2019). These are specific categories that are provided in terms of customer segmentation. Customers are highly interested and have high power in terms of buying purpose. The influence is unpredictable as it ensures the brand image of the business (Oxford College 2019). They should be informed with the new products while engaging in advertisement and social media strategy. This seems to be a relative measure taken by the coffee brand to focus on the interest and power of customers. Advertisement strategy will motivate customers to indulge in buying process ad ensure the success and growth of the business.

References:

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Appendix

Appendix 1

Source: (Purdy 2019)

Appendix 2

Source: (White 2019)

Appendix 3

Source: (Moyer 2019)

Appendix 4

Stakeholder	Internal
Employee	Internal
Customers	External
Suppliers	External
Environment	External
Government	External

List of stakeholders

STARBUCKS BUSINESS REPORT

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Introduction:

About the report: