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External factors for Starbucks
Starbucks industry analysis
Starbucks business model
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Recommended: External factors for Starbucks
For this assignment, I decided to access the inherent risk of Starbucks Corp. We all might have heard of Starbucks in the past. On our campus alone, there are two Starbucks locations. I frequently go there for tea or hot water before my evening classes to stay awake. Although Starbucks sell teas, salads, drinks, muffins, and cakes, its primary product line is coffee. This is how management described its operations “Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with handcrafted coffee and tea beverages and a variety of fresh food items, through company-operated retail stores” (Starbucks Corp., 2016)
Starbucks Corp. is an American company with locations all over the world. As of 2015, it had 23,043 stores of which 10,808 were licensed stores and 12,235 company operated. Most of these licensed stores are international locations. In terms of revenue generation, the Americas (US, Canada, and Latin America) stores accounted for 69% of the total revenues in 2015 (Starbucks Corp., 2016). This high
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operations are highly susceptible to economic factors outside its control. For instance, the price of coffee beans, which is the raw material for its primary product line, fluctuates every year. The company might be able to hedge against these fluctuations for a period, but this is something that will persist for a long time.
In addition to fluctuations in commodity prices, Starbucks Inc. is highly susceptible to negative economic conditions. Its main product line is not a necessity and as such it depends on the discretionary fund of customers. During economic hardships, customers will easily cutback on their coffee purchases, especially expensive ones. To save costs, they might purchase plain coffee or a coffee bag from retailers like Walmart, or Costco. This is something that is beyond Starbuck’s control and it is a huge part of its inherent
This strategic capitalises on weaknesses since will decrease the cost of coffee beans/beverages but also Starbucks operating cost which they regularly ship across the world to various stores. Starbucks can capitalise on this weakness to improve their brand options. It adds value in the inbound logistics activities, operations and procurements. Starbucks should consider this option since it will decrease their operating cost and therefore will reduce the prices on their menu. The attractiveness is the exact same as mentioned in option 1.
The key to its success lies not only in the quality of its products but also the ability to differentiate itself from the competition. With Starbucks, it has always been about quality. The company manages stringent quality control measures for sourcing the finest coffee beans, roasting processes as well as customer service and ancillary products. Furthermore, differentiation is key to market control and Starbucks is unquestioningly the most differentiated specialized coffee brands in the world. From the design of its coffee shops to the music played to the types of products offered, everything has a touch of uniqueness.
Today, they have expanded lunch programs to a total of 4,150 stores and introduced the ability to warm pastries and provide hot breakfast sandwiches to stores across the nation. Starbucks retail stores are operated through a number of joint venture and licensing arrangements in South East Asia countries as well as Thailand, Singapore and China. When they do the business in foreign countries, the most important issues will have to be aware of the exchange rates. They are planning to open 2,400 stores internationally in 2007, and they have approximately set financial growth targets for total revenue 20 percent and annual earnings-per-share 20 to 25 percent for the next three to five years. In addition, they have proposed new stores count target to 40,000 worldwide (20,000 U.S. and 20,000 International) in the long-term (Starbucks Financial Release, 2007).
The threats facing Starbucks include trademark infringements and increased competition from local cafes and specialization of other coffeehouse chains, and the saturation of the markets in developed economies, and supply disruptions. Furthermore, the increasing prices of its inputs such as dairy products and coffee beans pose a threat
Starbucks is currently the industry leader in specialty coffee. They purchased more high quality coffee beans than anyone else in the world and keep in good standings with the producers to ensure they get the best beans. Getting the best beans is only the first part, Starbucks also has a “closed loop system” that protects the beans from oxygen immediately after roasting to the time of packaging. They did this through their invention of a one-way valve which let the natural gasses escape but keeping oxygen out. This gave them the unique ability to ensure freshness and extended the shelf life to 26 weeks. Starbucks isn’t only about the coffee, it’s also about a place where people can escape to enjoy music, reflect, read, or just chat. It is a total coffee experience. The retail outlet has been responsible for much of Starbucks growth and has contributed substantially to their brand equity.
There is speculation that the company was pouring too much capital into its complex system of joint ventures and licensing agreements, and could not get a hold of its operational costs. They decided to source some of their merchandise and disposables to less expensive suppliers as an immediate cost-cutting measure. They also decided to cut back on the number of new stores and shut down unprofitable ones. Starbucks has had to learn the hard way that external forces go far beyond a society's taste in coffee, and that too much growth can have negative effects.
According to Investopedia website, “a technique that reduces risk by allocating investments among various financial instruments, industries and other categories is known as diversification. Diversification is the most important component of reaching long-term financial goals while minimizing risk” (“Investopedia”, 2011). “Fundamentally, this strategy is about creating new products with new product life cycles and making existing ones obsolete” (Olsen, n.d.). With diversification, Starbucks would be able to enter new markets with new products. By having a diversification strategy enforced, this will create a path for effective growth for the business. As with any company considering new products in new markets, there are risks associated with it and Starbucks would need to be prepared to respond accordingly.
Starbucks is the world’s largest specialty coffee retailer, Starbucks has more than 16,000 retail outlets in more than 35 countries. Starbucks owns more than 8,500 of its outlets, while licensees and franchisees operate more than 6,500 units worldwide, primarily in shopping centers and airports. The outlets offer coffee drinks and food items such as pastries and confections, as well as roasted beans, coffee accessories, teas and a line of compact discs. The company also owns the Seattle's Best Coffee and Torrefazione Italia coffee brands. In addition, Starbucks markets its coffee through grocery stores and licenses its brand for other food and beverage products. Starbucks Corporation was founded in 1985 and is based in Seattle, Washington. (Bramhall)
accessories and equipment, a selection of quality teas and a line of compact discs. Starbucks has over 8,700 retail locations in North America, Latin America, Europe, the Middle East, the Pacific Rim and is continuing to grow. When coffee is considered Starbucks has developed a worldwide name for itself and has become a huge success.
There are many controls that Starbucks as a corporation should have and be effectively executing. The key controls that we think they should have in practice should involve three important categories: revenue recognition, cash, and inventory. These are three of the higher risk areas for any company, therefore, there should be substantial controls for each of these areas for Starbucks.
Nithin Geereddy. 2013. Strategic Analysis of Starbucks Corporation. [ONLINE] Available at:http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf. [Accessed 18 April 14]
Starbucks is an international coffee house and it was created in 1971 when they opened the first store in Seattle, Newcastle. Currently, they own 21,000 stores in 65 different countries of the world, and their passion for the great coffee, excellent service and community interaction exceeds cultures and languages (Starbucks, 2014). This company is the number 1 brand coffeehouse chain in the world due to the best roaster, marketer and seller of speciality coffee. Its main slogan: “Our mission: to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time” (Jurevicius, 2013).
With clear core values towards providing quality coffee, the best service, and atmosphere, Starbucks has enjoyed great success since it was founded 30 years ago. The company has being doing very well for last 11 years with 5% or more store sales increase, even with the rest economy still reeling from the post-9/11 recession. However recent research, conducted to Starbucks, have showed some concerns regarding company’s problem meeting customers’ expectations.
There are factors that can influence the tactical planning at Starbucks that can be to their benefit, or to their detriment. Globalizing Starbucks has made drastic changes in their human resource demands, financial requirements, and their marketing strategies. Pricing at Starbucks has been affected by the economy due to a raise in the price of green coffee beans used for espresso drinks, an...
...bove. This is the primary factor that would be a concern to the management of Starbucks.