1. Threat of Entry
a. Economies
of Scale:
Starbucks currently have 5
roasting facilities and opening a new one in China, which will be biggest so far
and will serve approx. 6000 Starbucks in China itself. At this scale, it is
very hard for any new entrant to compete with Starbucks on cost.
https://u.osu.edu/commoditychaincoffee/manufacturing-page/
b. Product Differentiation:
Starbucks not only buys best
coffee beans out there but also help them grow. They always use Arabic Coffee
beans, which are considered best in quality for dark roasting and never mixed
them any other type to cut down the cost and increase profit.
“Starbucks Arabica beans are
different from regular Arabica beans. At every step, we go to great lengths to
make sure our beans meet the highest standard of quality. How do we do it? Glad
you asked.” -- https://www.starbucks.ca/coffee%2Fethical-sourcing%2Fcoffee-quality
Starbucks not
just serve coffee but also serve the best experience. Even in Starbucks stores they
spend lot of money and resources to train their baristas and train their
employee to serve the coffee with smile which is something Starbucks founder Howard
Schultz learner in Milan, Italy.
Customer loyalty
is maximum among the Starbucks.
https://dgajsek.com/starbucks-marketing-strategy/
Speed of Delivery is part of experience
and Starbucks have mastered this process also. They know that to serve their
morning customers who are heading to office, they need to speed up the process.
To add speed to this process, they even have introduced Mobile apps to order
upfront.
Starbucks always believed in
hiring the right people and nurture them. Starbucks offered best wages,
healthcare benefits, and even paid college tuition fees. This helped Starbucks
attract best employees.
c. Cost Advantage:
Proprietary
technology: Starbucks invested heavily into Research and Development of Coffee
roasting facilities. Most of their processes are automated and once the beans
go into roasting process, almost no human intervention is required, unless
there is fault or problem.
Know-how: With
lot of research, coffee tasting, and quality inspections, they have found the
balance of flavors suitable for their customers. This is long process which
need lot of dedication and patience for any company to achieve. They are ahead
of all other players in this segment.
Favorable Access to Raw Material: Since
Starbucks is helping farmers financially and technically, farmers treat
Starbucks as part of their farming process. This is huge advantage. Apart from
that, Starbucks also signed multiyear contracts with many farmers to secure the
beans for years to come.
Favorable Geographic’s
Location: Starbucks always looks for busy intersections with heave foot
traffics. This gives Starbucks multiple advantages, one it helps grow their
business, second it helps bring the Starbucks in limelight, third this attracts
talented employees, and now they also use some these locations as Hub-And-Spoke
model for serving the local logistics hubs for nearby stores.
Learning
Curve Cost Advantage: Starbucks is always analyzing the customer behavior and
customize its operations to fit the needs of its customers.
2. Rivalry:
Starbucks
has established itself as a unique brand and flavor of coffee is quite suitable
to American people. Apart from selling coffee, they also have introduced many
other Non-Coffee drinks and food options, giving it edge over the competition.
Still they face intense competition primarily from McDonalds and
Dunkin at National level, and many local Coffee houses, which differentiate themselves
from Starbucks in terms of taste, experience, and location. In North, Peet's
Coffee is also giving tough competition to Starbucks. (https://www.peets.com/menu/store-list)
Dunkin is giving still completion
to Starbucks by offering more Coffee options at lower price points. They are established
brand for Donuts and other sweets baked products, and with dinning options,
Coffee with such product is many customer’s favorite. To go along with this strategy,
Dunkin is marketing itself as restaurant
chain rather just Donuts store, they even have dropped “Donut” from brand name.
With massive presence of 11,300 Dunkin’s restaurant, this is serious threat to
Starbucks.
https://fortune.com/2018/10/24/dunkin-espresso-challenge-starbucks/
McDonald also started offering
better Coffee menu, with brand name McCafé, which goes well other food items
and McDonald is known if its speed of service and low-price points. Although McDonalds
is not trying to take away the Starbucks only coffee business, but they are
making a big dent by offering low price at par espresso coffee quality. In
terms of Black Coffee, they are almost head to head and if we look at it from
customer perspective, coffee with morning breakfast menu goes long way and it
is always better to make making single stop rather two.
Peet’s Coffee, originally started by
Starbucks founders, is another big threat to Starbucks. JAB is major stockholder
in this. JAB is same investment firm which owns Panera and Pret A Manger. Although
currently it is very small in size, but recent acquisitions of Coffee companies
by JAB group signals big growth strategy in Coffee marker. Peet’s has also branded
itself as very high-quality authentic coffee. They are planning to raise $2.2 Billion
dollars in Europe IPO for further expansion into take home brands.
https://www.cnn.com/2020/05/19/business/jde-peets-ipo-europe/index.html
Starbucks owns big portion of market-share
3. Substitute
All the cold carbonated and energy
drinks are substitutes of coffee and such substitutes are backed by big
corporations such as Coke and Pepsi. But because of harmful effects of sugar
and other elements in these drinks they are earning bad name and even helping
Coffee industry to grow. Starbucks is beneficiary of this affect. Apart from
that, Coffee has a family feel and hot beverage with little or no substitute in
real life. There cold be substitute within the coffee industry such as Arabic or
Colombian Coffee beans, but not a real threat as of now from any other
beverage.
In terms of Starbucks, one big substitute
which is another Coffee company, Keurig, has emerged. They give quite significant
competition for simple black coffee. With the speed and may options available
in market, an average customer might not might want to go store and spend extra,
when they can have comparable taste at comfort of their home or office.
Since COVID19, many customers preferred
to stay home rather going to Starbucks and even as people started work-from-home
stop at Starbucks on the way to office has been replaced by home brewing coffee.
https://www.qsrmagazine.com/finance/covid-19-has-cost-starbucks-915-million-so-far
4. Supplier Power: Most of the
coffee beans are grown by small farmers which do not have much negotiating power
with Starbucks. So, Starbucks don’t feel much of pressure from suppliers and
even further minimize this threat now they lock in multi year contract with
farmers, by supporting them financially and provide them advanced technological
information which might not have been possible for farmers to get by their own.
Even Starbucks market its support for farmers and help their communities
to grow and prosper.
“In total, Starbucks has invested more
than $70 million in collaborative farmer programs and activities – including
C.A.F.E. practices, farmer support centers, farmer loans and forest carbon
projects. All of these integrated programs directly support improving farmer
livelihoods and ensuring a long-term supply of high-quality coffee for the
industry.” – from Starbucks website
https://www.starbucks.com/responsibility/community/farmer-support
5. Buyer Power:
Most of Starbucks revenue is
coming from individual users. Only portion of its business is into selling whole
beans or single serves. As individual users, we do not engage in contracts or negotiations,
so it is little or no threat to Starbucks. Even Starbucks keeps its users engaged
by offering bonus star rewards or birthday free drinks. This further minimize
the risk. Only a few big buyers such as Target, Walmart, Amazon, or any other
big store doesn’t have much bargain power as Starbucks beans are demanded by
customer themselves over others.
“Starbucks' Channel Development segment includes branded
roasted whole bean and ground coffees, including Seattle's Best Coffee;
Starbucks and Teavana-branded single-serve products; ready-to-drink beverages
such as Frappuccino, Doubleshot, Refreshers, and Teavana iced tea; and other branded products sold worldwide
outside of company-operated and licensed stores”
https://www.investopedia.com/articles/markets/021316/how-starbucks-makes-money-sbux.asp
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