Starbucks Corporation is a coffee company as well as a coffeehouse chain based in the USA. It was found in 1971 by Jerry Baldwin and two others in Seattle, Washington. Before Starbucks, there were other coffee places in the US, but it distinguished itself from others by quality, taste, and customer experience. Starbucks also popularized the darkly roasted coffee. A number of coffeehouses are using hand-made coffee, while Starbucks makes use of automated espresso machines for both safety as well as efficiency reasons. Starbucks serves a variety of coffees, hot and cold drinks, fresh juices, snacks, and variants of tea. Currently, Starbucks has more than 23,768 outlets across the globe. The first branch of Starbucks outside the American region was in Tokyo. Later on, it grew massively with an average of two new locations in the world daily. The annual revenue in 2015 was more than $19 billion and there are 238,000 employees working at Starbucks.
Following is a detailed Porter Five Forces Model Analysis of Starbucks:
Competitive Rivalry – High
The quick-service restaurant and specialty coffee industry is intense. The competitors of Starbucks include McDonald, Dunkin Donuts, and many small local coffeehouses. Starbucks is the market leader with a 40% share of the US market. The competitors are working continuously to innovate, specialize, and come up with strategies to attract more customers (Dudovskiy, 2017). The switching cost is very low for the customers making the competition even intense. Many of the coffees and beverages being served by Starbucks are also being served by the competitors. There are a few products that are unique to Starbucks that have helped it build a brand loyalty amongst customers. Thus, the competitive rivalry is high for Starbucks.
Threat of New Entrants – Moderate
There a number of entry barriers to this industry. Establishing such a huge chain of stores requires intense investment. Developing economies of scales takes time. Developing a brand and earning brand loyalty takes time. Customers have developed a liking to the taste of the products of Starbucks making it difficult for new entrants to attract them. However, a single outlet can be started with a moderate level of investment. There are many coffee shops on the local level that have been successful in developing a customer base in their areas. Therefore, the threat of new entrants is moderate for Starbucks.
Bargaining Power of Suppliers – Low
The commodities and other raw materials used by Starbucks are being supplied by a number of suppliers. Starbucks works a large number of suppliers worldwide and the massive supply requirements by Starbucks make it paramount for the suppliers. The switching cost for Starbucks is not high (Tan, 2016). Except for the high altitude arabica coffee which is traded at a premium, rests of the coffee beans required by Starbucks are easily available. The suppliers are, therefore, in no position to bargain with Starbucks or attempt to influence its prices. This makes the bargaining power of the suppliers against Starbucks low.
Bargaining Power of Buyers – High
Starbucks is facing intense competition which means an abundance of choices for the consumers. The buyers today are well-informed and know their choices. If Starbucks or any other brand attempts to increase the prices, buyers will simply walk away as switching cost is low for the buyers. However, the store environment provided by Starbucks and its unique taste has earned it brand loyalty. Certain customers are less sensitive to prices and will continue to purchase from Starbucks even if it raises its prices slightly. Coffee also has a certain level of addiction which can force the buyers to return for a particular flavor. Overall, the bargaining power of the buyers against Starbucks is high.
Threat of Substitutes – High
All of the products served by Starbucks have substitutes. The products of Starbucks include coffee, tea, and food items. Many people brew coffee and make tea at home. These beverages have substitutes such as juices, drinks, and other beverages. Food items can also be substituted with low switching cost. Many of the substitutes also cost less than the products of Starbucks (Greenspan, 2017). This makes the threat of substitutes high for Starbucks.
References
Dudovskiy, J., 2017. Starbucks Porter’s Five Forces Analysis. [Online] Available at: http://research-methodology.net/starbucks-porters-five-forces-analysis/ [Accessed 18 July 2017].
Greenspan, R., 2017. Starbucks Coffee’s Five Forces Analysis (Porter’s Model). [Online] Available at: http://panmore.com/starbucks-coffee-five-forces-analysis-porters-model [Accessed 18 July 2917].
Tan, Z., 2016. Starbucks Porter’s Five Forces Analysis. [Online] Available at: https://prezi.com/6-9h2yw-meyt/starbucks-porters-five-forces-analysis/ [Accessed 18 July 2017].