|Industry||Restaurant – Coffee house|
|Headquarter||Seattle, Washington, the United States|
|CEO||Kevin Johnson (since March 1st, 2015)|
|Revenue:||USD 26.51 billion|
|Profit:||USD 3.18 billion (11.9% net margin)|
|Competitors:||McDonald’s Corp, Dunkin’ Brands Group, Yum! Brand, Wendy’s Co, Chipotle Mexican Grill, Jack In the Box, Shake Shack|
Starbucks sells, roasts, and provides its own brand of specialty coffee. The company operates retail locations worldwide and distributes its whole bean through its sales group, direct response business, supermarket, and online stores. Starbucks also produces and sells bottled coffee drinks and ice cream. Starbucks is the number one specialty coffee retailer that presents in 80 countries with more than 29,300 shops, in which 14,000 shops are managed through franchising agreement and the rest are owned and operated by Starbucks. The U.S market accounts for the majority of Starbucks’ revenue. Let’s dive in a detailed swot analysis of the company
Starbucks Strengths 2021:
- A large retail network with coffee shops and third-party retailers maximize brand exposure.
With nearly 30,000 stores worldwide, including many locations in shopping centers and airports, Starbucks has become a force of nature in the retail business. Starbucks uses its chain to brand out into other retail segments apart from freshly-brew coffee. Starbucks stores now offer teas, CDs, books, and similar lifestyle products. Through a partnership with food manufacturers, it licenses the Starbucks brand for packaged products, such as bottled Frappucino and cold brew coffee. For distributing packaged goods, Starbucks struck a partnership deal with Nestlé in 2018 that allowed the Swiss company to “market Starbucks Consumer Packaged Goods and Foodservice products globally, outside of the company’s coffee shops.” (Nestle, 2018). By utilizing an extensive distribution network of Nestlé, Starbucks hopes to bring its packaged coffee and tea brands to a larger number of consumers.
- A vertical-integrated supply chain helps Starbucks gain competitive advantages by reducing costs between channels, improve coordination, and control the quality of its products.
Supply chain management is a key component in competing in today’s global market because without it, companies would not be able to maintain control of their goods & services quality, as well as costs and customers’ needs. Understand the importance of a well-controlled supply chain, Starbucks operates its roasting, manufacturing, warehousing, and distribution facilities in eight U.S states and other countries. Starbucks owns coffee farms in China and directly sources raw coffee beans from farmers around the world to make sure the beans are kept up to the company’s standards. To prevent coffee beans from over or under-roasted, Starbucks also takes care of the roasting and packaging process itself before sending them out to baristas and customers. By not outsourcing its core business, Starbucks is able to educate customers about its coffee, how it is grown and prepared, hence purchasing a cup of Starbucks coffee becomes more of an experience. As a result, customers would be willing to pay more than a value-added service.
- Social media and technology connect Starbucks with young, savvy customers.
Starbucks has been on the cutting edge of using social media and technology, including its popular mobile application and Starbucks Rewards program as part of its marketing effort. Customers can follow the latest promotions, manage their Starbucks cards, order food and drink for pick-up, or even send a gift card to a friend, all at the convenience of the mobile application. Same-store sales have been increased thanks to the company’s superior customer-facing technology.
- Financial performance is solid.
Starbucks has experienced strong revenue growth in recent years, with revenue climbing ever year from 2014 to 2018. Revenue increased from $16.4 billion in 2014 to $24.7 billion in 2018, an impressive 50% growth rate. Profit spiked 56% during the 2017-2018 period, thanks to the divestiture of its Tazo brand and a lower effective tax rate.
Starbucks Weaknesses 2021:
- Some customers do not like the dark roast coffee that Starbucks offers by default.
The highest quality beans are produced using a dark roast method and that is what differentiates Starbucks from other coffee chains. However, many customers prefer a lighter roast because they think dark roasts taste like burnt coffee. Starbucks also loses money by roasting its beans dark, since lighter roasts save more money.
- Instability in the supply chain can adversely affect profits.
The majority of Starbucks’s green coffee bean sources are coffee farms in developing countries, hence they are subjected to several risks, including bad weather, political risk, and inconsistent quality. Moreover, to keep the price of coffee beans constant, Starbucks has to lock in a price with individual farmers or enters into a futures contract, which will protect Starbucks from any unexpected price increase, but it would not benefit if the coffee bean’s price decrease.
Starbucks Opportunities 2021:
- Expansion to growing markets in Asia.
China has grown to be Starbucks’ second-largest market and has contributed significantly to the company’s growth in revenue. Analysts expect operations in China will see 7% annual revenue gains in fiscal 2019-2020. New technology platforms that resulted from Starbucks – Alibaba partnership should attract more Chinese consumers and drive up same-store sales since Chinese customers are more likely than the American to use mobile orders and digital payments.
- Offer more types of pastries and light snacks at U.S stores.
At the moment, Starbucks’ food selection is limited to a croissant, pound cakes, muffins, and some breakfast sandwiches. To increase revenue from food, currently, at 20% of total sales, Starbucks should offer more types of pastry to complement a morning coffee and slices of cake to go with that afternoon cup of tea.
Starbucks Threats 2021:
- Customers in big U.S metropolitan areas prefer local coffee shops to Starbucks.
With a growing trend of sourcing and using local products as a part of sustainability efforts and support small businesses, local chains are gaining favor among young customers. They are willing to pay extra if the products are sorted by local farmers as part of a sustainability effort.
- Trade tension between the U.S and China will hurt sales and empower Starbucks’ competitors in China.
As Washington-Beijing tension rises up, there might be a point where anti-Western sentiment and a potential backlash against Starbucks are triggered. Luckin Coffee, the number two coffee chain in China, would be happy to take over Starbucks’ customers if they decide to turn away from the Western brand. Historically, a similar movement happened against KFC in 2016 when anti – U.S protests occupied the KFC location following an international ruling rejecting China’s territorial claims in the South China Sea.
Starbucks SWOT Analysis Conclusion:
Strong, consistent performance over the last five years, thanks to a good expansion strategy, strategic partnerships, and superior customer-facing technology. Starbucks is pleasing investors amid an uncertain global economy. With a trade war looming between its largest and second-largest market, Starbucks must have a contingency plan to help mitigate this risk.
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Halen, M. (2020). Starbucks Research. Bloomberg Intelligence.
Nestle. (2018, August 28). Nestlé and Starbucks close deal for the perpetual global license of Starbucks Consumer Packaged Goods and Foodservice products.
Retrieved from Nestle: https://www.nestle.com/media/pressreleases/allpressreleases/nestle-starbucks-close-deal-consumer-packaged-goods-foodservice-products
Paryani, K. (2011). Product quality, service reliability, and management of operations at Starbucks. International Journal of Engineering, Science and Technology, 1-14.