Introduction

            The strategic analysis of a company is one of the most fundamental and significant tools that can be utilized by the management of the organization in order to gain a better understanding of business operations and activities. It not only enables the managerial leadership of any organization,irrespective of the size and theextensively of its operations and market stature, to critically analyze the processes and practices integral to the company operations, but also allows the management to align such practices and activities with the organization goals and objectives.

Background

                Founded in 1971, Starbucks has grown rapidly over the past few decades to become the leading American Coffee brand. Today, the company operates with a global network of 31,256 coffee shops (Starbucks, 2020). According to recent studies from Statista, the company turned in about 26.51 billion US dollars in revenue during the past year. Similarly, Starbucks also ranked as one of the most valuable fast food brands in the world in 2019, second only to McDonald’s with a value amounting up to 45.88 million dollars, beating out competitors like KFC, Dominos, Subway, Tim Hortons, Pizza Hut, and Burger King etc(Statista, 2019)

Scope

                This report will focus on the performance of Starbucks in the American market. Despite Starbucks being a global brand, a restricted scope is required to establish accurate results in this analysis, limiting the effect of transnational factors to the result.

Purpose

                This report aims to analyze the strategic issues faced by Starbucks in its bid to become the leading coffee shop in the world. The report will highlight these key strategic issues through the application of tools like the pestle analysis and the five forces framework. An evaluation of the coffee shop industries critical success factors and the unique capabilities of Starbucks to suggest the best routes of action will also be taken. The SAFe factors will also be used to predict the success of the remedies to the issues highlighted.          

The purpose of this report is to analyze the strategic issues and problems faced by Starbucks in its bid to become the leading and most preferred coffee shop destination of customersall over the world. The report attempts to highlight the key strategic challenges through the application of different analysis tools like the Pestle and Five Forces frameworks. Founded in 1971, Starbucks has grown rapidly over the past few decades to become the leading American Coffee brand. Today,the company operates with a global network of 31,256 coffee shops. According to recent studies from Statista, the company turned in about 26.51 billion US dollars in revenue during the past year. Similarly, Starbucks also rankedas one of the most valuable fast food brands in the world in 2019, second only to McDonald’s with a value amounting up to 45.88 million dollars, beating out competitors like KFC, Dominos, Subway, Tim Hortons, Pizza Hut, and Burger King etc(Statista, 2019).

Strategic Issue

            The primary strategic issue at play here is that if the rapidly changing technological factors hold the capability to either boost or damage the growth and progress of the organization in the long run. The consumers are increasingly becoming aware of the latest technological trends and developments. The Starbucks management and leadership drafted and implemented a very rigorous expansion and growth strategy that has seen the small coffee shop business grow into one of the leading food and beverage brands in the world.

Political – Labor Cost Increase: The minimum Wage Strike

                The increased labor costs for fast food workers in the urban areas in the United States has affected Starbucks. Below the poverty line wages and poor working conditions for the Starbucks barista, also led them to participate in the call for better pay (Scheiber, 2020). The 2012 fast food strike in New York that led to over 100 fast food employees striking in the fight for a better minimum wage has led to the adoption of the $15 minimum wage in most of the United States (Harding, 2018).The new laws have granted workers the increased minimum wage in most urban areas , the same areas where there is most traffic in Starbucks stores.

            The success and prosperity of many businesses fundamentally depends on the utilization of the latest technological trends and advancements. Therefore, it is imperative for the management and leadership at Starbucks to ensure effective and efficient implementation of the latest technological developments in order to ensure that the company is able to achieve its organizational goals and strategic objectives in the long run(Lemus et al., 2015).

While this growth strategy has been widely successful and enabled the company to account for exceptional growth numbers, the rapid pace has also posed a range of problems and issues that threaten to derail business operations and activities if not addressed in an effective and efficient manner. One of such strategic issues that occupies critical importance for future of the organization is the challenge of implementation and adaption of latest technological developments.

Industry (political)

While the Starbucks management has made various attempts and drafted new policies in order to implement and integrate new and innovative technology into its business operations and practices, much can still be done. The latest advancements in the field of technology such as machine learning, big data, automation intelligence, and blockchain technology can be used by the company to ensure that the strategic challenges posed by changing technological factors are tackled in an effective and appropriate manner(Sokolowsky, 2019).

For this paper, one factor of the pestle analysis is chosen, it is political. Political factors that can play their role for the company are regional integration of markets, red tape of bureaucraticin developing regions, and improvement in the infrastructure support by government. This is external factors that offers opportunity to company to expand and present accessible content(Donner &Loh, 2019). The business expansion is different under political atmosphere. Due to government involvement, the current trend of expansion in infrastructure will be attained. Tax policy and employment laws in US can alter the business process.

Thepolitical factors that can impact Starbucks are also linked with the ongoing recession, profitability, and labor & operational costs increase. This will decrease profitability by causing inflationary environment to prevail. Starbucks in the far environment can have opportunities to gain from high growth of developing regions. Other economic opportunity can be declined level of unemployment rate, so it can bring in more revenues. But rising labor costs are economic threats for Starbucks, as it sources many of its beans from the developing regions(Donner &Loh, 2019).

The impact of political factors may also impact Starbucks as far environment are key challenges that are associated to expand the customer base. It will be a way to expand the lower and middle income people. For instance, ethical chic and green consumers and trends related to ethics, changed family patterns, preferences, work patterns, lifestyle and education are key social factors that can impact Starbucks.It canbe increased use of mobile phones, technology use, and innovation in products, agriculture development and development in biotechnology.

Internal- Rapid expansion

In some strategic environments, thebusiness process vary, for Starbucks, for instance, the product safety regulations, increased regulation of employment and genetically modified organisms’ regulations are impacted under political realm. These are prevailing far environment related factors that can change the scope of performance for Starbucks (Donner &Loh, 2019). Starbucks operates in food and beverage industry so this pestle analysis offers a presence of stability as far external environment. This analysis also means that consumers cannot stop consuming the product but they can reduce it.

The simple and effective model by Michael Porter elaborates about near environment of Industry and presents strategic issues with Starbucks. The competitive rivalry of company is a force that moves from moderate to high level. In the industry, due to monopolistic competition, the firms are operating in competition, where market share is high. The share is linked with McCafe and Dunkin. The differentiation is based on products and premium quality(Nguyen, 2017). For the strategic analysis of Starbucks, bargaining power of suppliers is discussed under Porter’s five forces.

Starbucks is facing low bargaining power of suppliers that moves to moderate level. The brand has focused on high supplier diversity that is linked with ethical sourcing. The coffee brand is focused to control the power of supply chain by removing mediators. It is because of individual purchase, which is small so single buyers have no such influence over the company. The coffee brand has quality products so charges for high price level. It has a diverse customer base and quality sensitive dimensions, therefore, customers are willing to pay high level of pricefor premium quality. The product mix category of company is also diverse that indicates the low power of buyers.

 It is offering high quality products such as juices,non-alcoholic and alcoholic beverages. The restaurants are providing good quality products and convenient ambience which is a key fact for their quality. This provides that the cost of switching is negligible. These factors provide the substitutes facing moderate to a big threat. There are no high barriers for company regarding initial investment so saturation level in the industry can be considered high(Nguyen, 2017).The possibility for company to stay successful and remain in competition is moderate. It has grabbed a larger share in the market, where threats for new entrants is always there. The market share is attributable to the efficiency, infrastructure, quality of products and differentiation. The Starbucks mitigate a large extent regrading brand image and share in the market.

The five forces analysis provides that Starbucks has a competitive edge in performanceso it also has access to suppliers and raw materials. Moderate level threat is there for company to face because coffee is a universal drink and its size and scope varies in different regions. These factors determine the near environment of Starbucks which is managed by strategical framework(Nguyen, 2017).

Analysis of Strategic capabilities

Critical success factors in the Coffee shop industry 

Starbucks operates in an industry that is characterized by intense competition and rivalry between its players. The strong force of competition in the industry as measured through the Five Forces analysis given by Michael Porter gives rise to the second strategic problem for the company. While the industry is characterized by a monopolistic rivalry and Starbucks enjoys the majority share, other players such as Costa, Dunkin Donuts, and McDonald’s also operate with significant global market shares which keeps the management and leadership of the company under constant pressure. Since the switching costs are low and customers have the luxury of choosing between rival brands, the issues of product pricing and brand loyalty are significant strategic challenges for Starbucks.

Unique resources of Starbucks

            Over the last few years, the coffee retail and snack store industry has been characterized by high levels of consumer spending and significant market growth in the United States. The increased customer spending and buyer purchase power is backed up by the rise in disposable income levels and a growth in consumer confidence over the economic and financial outlook of the country.

Unique Capabilities

Similarly, the switching costs and factors between the products and services offered by these companies are also considered to be relatively low. It allows the consumers to switch between the offered products easily which ultimately results in the high competition and rivalry in the industry. The organization is only second to McDonald’s when it comes to be the most valuable food brand all over the world and is valued at 44.5 billion dollars (Statista, 2019).

Competitive advantage

            Every industry has its own set of unique factors and drivers that are critical for any company or business operating within that sector to achieve its organizational goals and objectives. These factors and dynamics play a substantial role in ensuring that the business is successful in the long run. The critical success factors can often be defined as elements and processes of a business that occupy a central role in driving the business to progress and prosperity. 

Responses

Rebranding

The quality of the product is one of the key drivers of customer preference in a highly competitive industry. Therefore, the Starbucks management has to ensure that the quality of its products is not only maintained but also improved and enhanced on a regular basis so that more and more customers walk to its stores for their cup of coffee.

Future Campaign

The level of customer service goes hand in hand with the quality of the products offered. Effective and efficient customer service can also transform into a competitive advantage for the company (Larson, 2008).

 Sharing cost

Buyers have increasingly become more sentient over the production practices and procurement processes of companies and businesses over the past few years. The policies for addressing climate change, energy consumption, and social responsibility that the business has in place can play a major role in attracting customers to business outlets today (Atzori et al., 2018).

 The availability of different loyalty and discount programs also play an important part in attracting the buyers towards company shops. Research over the years has also indicated that buyer purchasing behavior is influenced by presence of loyalty programs and other advantages at offer.

Evaluation and Improvement

            Starbucks has a network of more than 14000 coffee shops and outlets in the United States alone and such a high number of stores has led to some shops and outlets being located in close proximity to each other (Whitten, 2019). The third strategic challenge for Starbucks is concerned with the expansion and growth strategy that the company has implemented over the past years. While, the rapid expansion strategy that the company has in place has enabled to open new stores and coffee shops at a lightening pace, it has also resulted in sales cannibalization and supply chain complexities for the company. This phenomenon has adversely affected the sales of some of the coffee stores.

Starbucks Experience of The Future strategy

Another significant strategic issue for Starbucks is the changing customer preferences and requirements. Starbucks signature product, the Frappuccino coffee, saw a dip of 14 percent in sales in 2015, which went down further by 3 percent in 2018 and accounted for only 11 percent of the company’s aggregate revenue. Similarly, the procurement of quality resources and the distribution of resources to different locations in an effective and timely manner has also become a strategic problem for the company. Starbucks has also actively looked to expand and diversify its menu and product offerings recently in order to create some sort of differentiation between itself and the products offered by competitive brands. The company has added cold beverages and refresher energy drinks amongst other products to its menu in an attempt diversify products and attract more customers(Whitten, 2019).

Key Stakeholders

            While the retail coffee market has shown a significant growth rate over the last decade, it has not reached the summit just yet. The global coffee retail industry is forecasted to grow at a rate of 5.5 percent in the coming years(MarketWatch, 2019). Despite the recent growth trends, the coffee retail industry is still substantially susceptible to economic downturns and recessions as the sales that drive the coffee retail and snack stores like Starbucks and Dunkin Donuts are significantly dependent on the levels of disposable incomes of the buyers. During an economic slowdown, the disposable income levels fall significantly which adversely affects the coffee retail industry and ultimately companies like Starbucks, as evident during the global financial crisis of 2008(Geereddy, 2014).

Sustainability and Feasibility

Starbucks Corporation is one of the leading roasters and retailers of coffee in the world today. The company began its operations in 1971 with a single outlet in Seattle as a roaster and retailer of coffee, spices, and tea. Starbucks has since enjoyed exponential growth over the years and has grown into the leading coffee roaster and retailer all over the world. According to recent studies carried out by Statista, Starbucks accounts for approximately 39.8 percent of the United States coffee market with a network of over 15,000 outlets and coffee shops spread all over the country alone (Statista, 2019). Similarly, the company accounts for a 10.5 percent market share in the restaurant industry as per the data gathered by CSI Market (CSIMarket, 2018). The company today operates with a network of over 30,000 coffee retail outlets and snack stores in more than 80 countries of the world, hence making it a major player in the global marketplace (Starbucks, 2020).

Improvement

The management has previously tried to tackle issues and challenges stemming from the intense industry rivalry by devising different strategies and policies targeted at improving product quality, enhancing customer experiences, and strengthening brand loyalty. While such policies and strategies have allowed the company to create and maintain customer loyalty to some extent, much can still be done to address this strategic issue properly (Haskova, 2015). Starbucks can primarily be classified as one of the biggest players in the coffee retail and snack store industry of the world. It has led to a higher rise in the demand for coffee when compared to the rest of the regular products available at any of the snack stores.

Conclusion

The report is about strategic analysis of Starbucks.By including three main strategic issues that company is facing, the research has supported key facts and decisions of business process. The first segment of strategic issues discussed pestle analysis and far environment of Starbucks. This extended to include near environment also, which is based on porter’s five forces framework. The internal advantage of company was discussed by explaining its key internal policies for business. The second strategic question was about strategic positioning, advantage and capability. It addressedposition of company in the industry, position of industry and organization and critical success factors which are essential for any company. The unique resources and company’s capabilities re also explained. Third strategic question discussed evaluation and improvement in the form of new strategy prevailed in company and its power to tackle the issues. Suitable evaluation under SAF tests was discussed regarding stakeholder’s positioning and its feasibility. The report discussed an overall competitive performance of Starbucks that has high market share and revenue in the industry due to its premium products and pricing.

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