AL AIN UNIVERSITY OF SCIENCE AND TECHNOLOGY

COLLEGE OF BUSINESS ADMINISTRATION

AL AIN CAMPUS

STRATE
GIC
MANAGE
MENT
INDIVIDUAL
TERM PAPER
Starbucks
Dr. Mahmoud Al Askari
Name
:

Reem Salman Ahmed

Aljanabi

ID:

201410108

Starbucks
Table of contents
1.
2.
3.
4.
5.
6.

Table of contents
(Page 2)
Current Situation
(Page 3)
Issue
(Page 3)
Mission
(Page 3)
Objectives
(Page 3)
PEST Analysis
- Political
(Page 4)
- Economic
(Page 4)
- Social
(Page 4)
- Technology
(Page 4)
7. External Analysis
- Porters five forces
o Barriers to entry
(Page 5)
o Bargaining power of suppliers
(Page 5)
o Bargaining power of buyers
(Page 5)
o Competitive rivalry
(Page 5)
o The threat of substitution
(Page 6)
- Opportunities
(Page 6)
- Threats
(Page 6)
- Overall evaluation of the external environment
(Page 7)
8. Internal Analysis
- Organizational strategy
(Page 7)
- Value chain analysis
(Page 7)
- Strengths
(Page 8)
- Weaknesses
(Page 8)
- Market share
(Page 8)
- Overall evaluation of the internal environment
(Page 8)
9. Key success factors
(Page 9)
10.
Alternatives (Strategic Choice of Business Strategies and Corporate Strategies)
(Page 9)
11.
Criteria Matrix evaluation
(Page 9)
12.
Recommendation
(Page 10)
13.
Action Plan
(Page 10)
14.
Contingency Plan
(Page 10)
15.
References
(Page 10)

Starbucks
Current Situation
Starbucks is currently leading the market of specialist coffee shops in the US. In most
areas, there is a Starbucks in every block or just around the corner. The company started in
Seattle, Washington and has franchised and expanded regionally and globally. Starbucks
made its way to the top by ensuring that their customers get a unique experience when they
visit a Starbucks retailer, and the company has kept its word ever since.
Issue
Starbucks may seem like it doesnt have any issues, but even the best companies
come with baggage. For instance, the majority of revenues that Starbucks makes come from
selling beverages, which means, if beverage customers were to shift to another coffee shop
that is trending at some point in time, Starbucks would suffer great loss. This issue needs to
be put into consideration, because even though Starbucks is dominating the US coffee
shops, it is relying mainly on one service, which means that they wont have a safety net to
land on if anything doesnt go their way.
Mission
As per their website, Starbucks mission statement is: to inspire and nurture the
human spirit one person, one cup and one neighborhood at a time.
Objectives
By teaming up with their partners, believing in their products and keeping their
customers at heart, Starbucks have the following objectives and values:
Creating a culture of warmth and belonging, where everyone is welcome.
Acting with courage, challenging the status quo and finding new ways to grow
their company and each other.
Being present, connecting with transparency, dignity and respect.
Delivering their very best in all they do, holding themselves accountable for
results.
Performance driven, through the lens of humanity.

Starbucks
PEST Analysis
Political
Several political aspects can affect industries such as Starbucks. The main one is the
rules and regulations governing the trade as well as the relationship between the United
States (the country where Starbucks is based) and the countries from which the company
imports its fine coffee. Other factors that may also affect the business could include political
stabilities of the countries where Starbucks has its branches; any disturbance in stability may
cause them to shut down their facilities in that area.
Economic
Starbucks is a quality brand, which is exactly how the company made it to the top.
Quality doesnt come cheap, that is why economy could really affect the rate at which
consumers buy the companys products. For example, during the recession, Starbucks had to
shut down hundreds of its locations. Another important economic factor is taxes. Whether in
the US or outside, companies pay huge amounts of taxes to governments and the larger and
more successful the company is, the higher the taxes it pays.
Social
Since the strategy of Starbucks is based on product differentiation, product prices are
going to pose an issue when it comes to middle and lower class consumers. This could also
affect younger consumers due to their lack of income. Trends could also have a great effect
on how well the company performs when it comes to sales. Other social factors that might
affect the company could be that certain countries might not allow all the items on the menu
due to religious reasons.
Technology
Everything around us is turning digital and so is Starbucks. They launched a new
Smartphone application in 2014 that can be used to make orders; the application could also
be used to customize drinks, leave tips and also collect rewards. Having the latest
technological advances helps in enhancing customer experience which will lead to customer
loyalty. Starbucks understands that, they provide their customers with free Wi-Fi access as
well as having several power outlets all over their shops to ensure that customers with
notebook computers or any sort of handheld devices could enjoy their coffee while working
on their devices.

Starbucks
External Analysis
Porters Five Forces
Barriers to entry
It might not take a lot of money to open up a coffee shop; but it takes a lot of
effort to keep it open and competing against other shops. The reason for that difficulty
is that it takes a lot of authorizations to open up such places, and they undergo
periodic health inspections and so on. Another factor contributing to the difficulty of
keeping such businesses open is the fact that the market is saturated. Coffee shops
are found around the corner of every block and all of them offer similar services at
competitive prices.
Bargaining power of suppliers
It is debatable whether the suppliers of coffee beans have a great bargaining
power when it comes to Starbucks; because as we all know, high quality coffee beans
are not very common around the world, which gives the coffee beans suppliers a high
bargaining power. But, on the other hand; Starbucks held around 60% of the market
share of specialist coffee shops in 2013 according to Euromonitor International; this
gives Starbucks power over its suppliers, because if a supplier doesnt offer the
company a good deal, they will lose the biggest buyer they could ever get in todays
market. To solve this dilemma, Starbucks has partnered up with its coffee bean
suppliers rendering them powerless when it comes to bargaining.
Bargaining power of buyers
The thing that gave Starbucks its current position in todays market is the loyalty
of its customers. Although Starbucks has made it to fame and taking that away is not
going to be an easy task, because even if a few people changed their minds about
going to Starbucks, that is not going to affect its status among other coffee shops. But,
in all fairness, if people steered away from Starbucks, it wont be affected on the short
run, but in the long run, it will definitely be affected and it will start losing its spot as
Americas #1 coffee shop. Thus, it is safe to say that buyers do possess some
bargaining power in this industry.
Competitive Rivalry
Starbucks has a lot of rivals in the American market including Dunkin Donuts,
Panera bread, Costa and most recently McDonalds. All of these companies offer similar
services to those of Starbucks but not quite the same. For example, McDonalds offers
coffee at a rate starting from $1 per cup, while Panera bread offers endless refills on
coffee. One can say that the competition is fierce between these rivals and Starbucks
must always stay one step ahead of the others if it wants to keep its spot at the top.

Starbucks
The threat of substitution
Starbucks handled the threat of substitution in a very diplomatic and smart way.
The main substitutes for coffee would be: Tea (Starubucks purchased Teavana tae
shops in 2012), juice (Starbucks purchaced Evolution Fresh in 2011) and baked goods
or food in general (Starbucks purchaced La Boulange Bakery in 2012). Although buying
these companies and starting to sell their products in Starbucks outlets all over the
states may not protect the company from being substituted; but it will definitely make
the task much harder.
Opportunities
Starbucks has many opportunities that it has started to embrace already such as their
Starbucks Evenings program which features a selection of beers and wines alongside some
appetizers that are served in selected locations after 4 PM. This will increase the flow of
customers during evening hours, because coffee is generally perceived as a day drink.
Although Starbucks popularity is based on their strategy of product differentiation; but they
need to give some serious consideration into launching an economic menu in addition to
their existing menu. This is because the main reason people might consider other coffee
shops is due to the competitive pricing that rivals are offering. Many companies have
adopted this option and succeeded, for example Apple launched iPhone 5c, which features
many great qualities similar to those of iPhone 5s but at a cheaper price to cover a larger
consumer base. Launching iPhone 5c did not affect the quality of other Apple products and
they are still known for their high standard items and services, it just expanded their
audience. The same thing could happen if Starbucks was to consider launching the more
affordable menu.
Other opportunities that Starbucks is investing in are selling products that can be prepared
at home, or bottled and sold in supermarkets and convenience stores. Another opportunity
would be expanding their international presence and increasing the number of outlets inside
and outside of the United States.
Threats
The main threat that faces Starbucks is the possibility of its rivals taking over the
industry, which is possible if Starbucks doesnt keep on coming up with new trends and ideas
to overcome the attempts of other companies to surpass Starbucks. Companies like
McDonalds (McCafe) offer a variety of drinks for a more affordable price, which might
eventually lead people away from Starbucks, especially in circumstances similar to those of
the recession that happened a few years back. Other threats might include the fact that the
coffee shop market is already saturated in developed countries; which leaves little room for
expansion.

Starbucks
Overall evaluation of the external environment
Starbucks is leading the specialist coffee shop industry for the time being. For it to stay
on top, it needs to study the services that its rivals are offering and try to overcome them by
coming up with new services that will meet the needs of the consumers and at the same
time maintain the image of Starbucks as a high quality coffee shop.
Internal Analysis
Organizational strategy
As mentioned earlier, Starbucks main strategy is based on product differentiation. It
offers goods and services that are unique in quality and brand from other companies. It also
provides a distinctive ambience that attracts people to make it a habit to get their coffee and
spend their day breaks at Starbucks. Their aim is to make their shop a third place between
work/school and home where people can go to relax and grab a bite.
Another strategy adopted by Starbucks is vertical integration. They managed to partner up
with their suppliers and started to roast their own beans. This move eliminated a huge
portion of the bargaining power that suppliers had over Starbucks. They also adopted
corporate diversification strategy by purchasing several other stores that offer different
goods and services. This gave Starbucks the luxury of owning those goods (Fresh juice, Teas
and Pastries) rather than having to buy them from third party sources.
Value chain analysis
As a company, Starbucks offers many products and services; but because beverage
purchases rendered 75% of the companys revenues in the fiscal year of 2013, we are going
to analyze the value of coffee in this section.
Starbucks buys its coffee beans from the finest farmers around the world, most of it comes
from Latin America and the rest comes from the Pacific Rim as well as East African sources.
After the coffee beans are imported they are roasted and ground in Starbucks facilities and
then either sent to retail shops or packaged and sold individually in Starbucks shops as well
as supermarkets and convenience stores. The coffee is freshly brewed inside the coffee
shops and prepared with an exquisite choice of milks and flavors and served to customers in
customized cups. The service doesnt end just yet. Another thing that adds value to this
service is the environment provided at all Starbucks coffee shops, with a variety of seating
arrangements as well as a soft musical tone in the background to provide customers with the
peace and quiet the crave.

Starbucks
Strengths
Starbucks strength relies in its unique and high quality products that are served in
places that are specifically designed to provide customers with the quality time they seek.
Since Starbucks basically invented the specialist coffee shop trend, it has a sort of first
mover strategy on its side. And since Starbucks has kept their word when it comes to high
end services over the years, their customers have become loyal and even though many
competitors have emerged, customers loyalty was not compromised. Another area of
strength for Starbucks is that even when it expanded internationally it is still one of the most
popular coffee shops in almost every country it franchises in. The continuous growth of the
company on all aspects makes it very strong in the industry of making coffee.
Weaknesses
The only weakness that threatens Starbucks is the fact that it only offers products at a
specific range of pricing that doesnt appeal to all classes of the society. The problem is that
Starbucks has made it to where it is today by serving luxurious goods to their customers,
and to downgrade from that would betray the trust of its loyal fans and customers. The other
weakness that might come to mind is, the majority of the revenues comes from beverage
sales, which means if the sales of beverages were to decline, the company would suffer a
great loss.
Market share
According to a study conducted by Euromonitor International in 2013, Starbucks value
share in the foodservice industry was 59.9%, and ranks #1 among its competitors. In the
same year Starbucks net sales were $14,892.2 million, from which $325.4 million were in
loss. This means that even though the company suffered losses that year, it still was the
leading company in the industry.
Overall evaluation of the internal environment
Based on what was mentioned above, Starbucks needs to consider adding a new
strategy to its organization that includes a cost leadership kind of approach. It may not be
what the company is used to offer, but it seems necessary under the current circumstances.
Countries are not stable and this makes the economy unstable itself, which compromises the
competitive position that Starbucks holds. Furthermore, the company may need to start
focusing on how to increase the revenues from all of its products and services rather than
beverages alone.

Starbucks
Key success factors
The main key for the success of the Starbucks is the brand that it has made for itself
by providing high quality products to customers. Other factors include the availability of
Starbucks retailers at practically every corner of every block, which makes them very
approachable to customers. Another smart move made by Starbucks was the purchasing of
several other small businesses in an attempt to expand their product range to appeal to a
wider consumer base.
Alternatives
(Strategic Choice of Business Strategies and Corporate Strategies)

In order to solve the main weakness that threatens Starbucks in the current market, it
needs to come up with a solution to the cost of its products. This requires Starbucks to think
of ways to attract more consumers from all economical classes. Some of the suggested
alternatives might be the introduction of an economic menu that includes more affordable
ranges of products. Another option could be opening new retail shops that only serve to go
products at fixed rates, which will lower expenses and increase revenues. The last option
that comes to mind could be purchasing a small business that also brews coffee and provides
similar services to those of Starbucks but at more affordable rates, this option will let
Starbucks keep the same standards of quality that come with the brand while serving all
layers of the economic society via a sub-brand.
Criteria Matrix evaluation
The Criteria Matrix evaluates each alternative based on a set of criteria, each has a
certain
weight
and
options
are
evaluated
based on
how much
effect
they have
in each
criterion.

Starbucks
Recommendation
Based on the evaluation generated by the Criteria Matrix the best option for Starbucks
is to launch an economic menu alongside its original menu. This will give the customers a
wider range of items to choose from as well as a more affordable list of products and
services while maintaining the old and traditional products.
Action plan
In order to implement the recommended solution for Starbucks economic dilemma, a
new menu needs to be studied and put into action, which will include similar but basic items
from the old menu. The thing that might help make these products cost less could be getting
coffee beans (for the new menu) from new distributers at cheaper prices, or it could be by
cutting back on the flavors and cup accessories. The menu could go for a trial run at first,
start as a beta-menu until its optimized and launched throughout the chain around the
world.
Contingency Plan
In case the first alternative (economic menu) did not work out, the next alternative
should be considered. Opening take-away stands is a very smart way to earn higher
revenues. The rent is much less and the services provided other than foodservices are nonexisting. This might appeal to busy customers, and saves them the time wasted while
waiting in line to get their order fulfilled. This plan may not offer much when it comes to
lowering prices, but it can help cut down expenses if the economy goes into recession.

References
1. Euromonitor International (http://www.portal.euromonitor.com/portal/analysis/relatedtab).
2. Starbucks (http://www.starbucks.com/about-us/company-information).
3. Scholars at Harvard (http://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf).

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