Starbucks Swot Analysis

University of Washington

TBUS 330

February 2, 2009

Submitted by: Steven Thompson

Submitted to: Dr. Vanessa C. M. Chio

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Starbucks Swot Analysis

Starbucks is known around the world for bringing gourmet coffee and the coffeehouse experience

to the masses. As the company grew from a single store in Seattle‟s Pike Place Market to thousands of

stores worldwide, it has kept its mission statement clear and concise: “To inspire and nurture the human

spirit- one person, one cup, and one neighborhood at a time” (Starbucks, 2009). Starbucks is recognized

for being environmentally responsible, and has a separate mission statement to address this progressive,

important aspect of their business and success: “Starbucks is committed to a role of environmental

leadership in all facets of our business.” Underlying both of these broad concepts is a set of core values

that the company uses as a foundation for all their business practices. Starbucks is committed to serving

high quality coffee purchased from growers in an ethical manner, treating employees as partners in

business, making human connections with their customers, creating store environments that are

welcoming, being a responsible neighbor that is involved in the community and providing shareholders

with the rewards of success (Starbucks, 2009)

Starbucks‟ success has resulted from the company living these values consistently. However, the

world has become a very different place than it was in 1971 when it got its start. A reevaluation of the

company‟s mission through the tool of SWOT analysis will provide a more accurate portrait of where the

company stands today. The company‟s strengths are its commitment to the people and to the

environment, but it faces serious weaknesses in the form of over-exposure, compromised brand image and

high prices. There are good opportunities for Starbucks to grow its business through expansion into

foreign markets and attract investors with the relatively cheap stock prices, but it must addresses the

threat that it faces from its lower-priced competitors, specifically McDonald‟s, as the country continues to

sink into economic recession.

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Strengths

Starbucks can attribute its success to two key factors: people and environment. How the two

factors work well together is what makes the Starbucks experience so unique. People, whether they are

customers or partners (employees), are central to the company‟s mission statement. To provide excellent

customer service, “a manager or assistant manager at a Starbucks receives at least 80 hours of training and

a barista receives 40 hours of training before they are allowed to make drinks without supervision”

(Karth). Excellence through training ensures that customers‟ orders are correct, and employee mistakes

are minimized. Starbucks also provides its employees with excellent benefits, whether they are part-time

or full-time, and they extend these benefits to the farmers and growers of the coffee sold in stores around

the world (Karth). When employees know that their employer cares about their well-being, it translates

into happier, more productive workers. This relatively simple concept of treating customers and

employees well seems intuitive, but this is exactly where many companies lose focus. Starbucks used this

strategy to great effect.

The attention and concern Starbucks pays to the concept of environment, both within the

company and its stores and in the world at large, is the other key success factor. Environment is addressed

in the mission statement as well, emphasizing how important it is to the fundamental concept of the

company. The internal environment that Starbucks strives to create in its stores is one where a customer

“can sit for five hours with a single cup of coffee” (Hanft), a place where “socializing and intellectual

discussion, particularly among students and young urban professionals” (Isidro, 2004) is encouraged.

Customers feel welcome to stay, relax and enjoy the coffee drinking experience. Starbucks cares about

the external environment as well. The 2007 Annual Corporate Social Responsibility report published by

the company states that “65 percent of our coffee was purchased from C.A.F.E. (Coffee and Farmer

Equity) Practices–approved suppliers who are integrating our rigorous standards for sustainability

throughout the coffee supply chain” (Schultz, 2007). By ensuring sustainable coffee production,

Starbucks is investing in its future without compromising the environment and its limited resources.
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Weaknesses

Although Starbucks is widely known to be successful, the company does have three critical

weaknesses. The first key weakness affecting Starbucks is store over-exposure. Around every corner, in

every shopping complex, there is always a Starbucks store, if not two. Many times there will be a

Starbucks store in the same complex as a grocery store and inside the grocery store there will be a

Starbucks. This is over-exposure. Additionally, having kiosks in busy grocery stores is at odds with

Starbucks core value of creating an environment where people can gather and relax. According to The

New York Times, “every street corner, airport concourse and roadside rest stop in America seemed to

attract a Starbucks… in [a] five year [time period], Starbucks, nearly tripled the number of stores

worldwide from 5,886 in 2002 to 15,011 in 2007” (New York Times, 2008, p. 1). Since Starbucks has so

many stores, the company is experiencing the cannibalizing effects of its saturating strategy (New York

Times, 2008, p. 1). A saturating strategy put an overwhelming amount of Starbucks stores within a small

area of each other across the nation. This allows Starbucks to be visible to consumers; however this

causes the cannibalization effect. Cannibalization is where Starbucks stores are now competing with each

other (stealing business and customers away from other Starbucks locations).

Store over-exposure has helped lead to a second significant weakness. This weakness is seen by

Starbuck‟s product diversification. Starbucks boomed for years and as customer traffic increased, they

started offering a variety of products other than coffee. This change doesn‟t correspond directly with their

mission to serve coffee, which causes confusion. The New York Times states that eventually customers

started to complain that Starbucks felt more like a fast food restaurant rather than a coffeehouse (2008, p.

1). They are moving away from the strategy of differentiation through quality and environment that set

them apart from low-cost, value restaurant chains. This is a very big problem if Starbucks wishes to be

seen as a traditional coffee-shop (a place to relax and talk over a cup of coffee). Starbucks has hurt their

brand image by straying away from their core values which are Our Coffee, Our Partner, Our Customers,
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Our stores, Our Neighborhood, and Our shareholders. The introduction of breakfast foods and pastries has

caused confusion about their core values and thus damaged their brand image.

The final weakness Starbucks has is their prices. In an article published in Advertising Age,

consumers were surveyed about their coffee choices. “„I started buying my coffee at less-expensive

places,‟ said one respondent. „I have it [only] once a week to indulge myself,‟ said another…” (York,

2009). Given that most consumers see Starbucks coffee as an elastic product, with many possible

substitutes, it is easy for consumers to switch from drinking Starbucks coffee to a substitute when they

think it‟s too expensive. Also according to the article, ninety percent of consumes surveyed said they are

cutting back on Starbucks coffee to save money (York, 2009).

Opportunities

In spite of the weaknesses mentioned above, Starbucks does have opportunities available for

growth and investment. One opportunity for Starbucks is continued expansion in the global market, rather

than in the domestic market. Because of the economic slowdown and the increase in competition in the

United States, it is unlikely to expand or regain their dominance over the market share that they once had.

One of the only ways that they will be able to continue to see a growth in sales is to look to foreign

markets. Erik Kirschbaum states in his article “Starbucks Says International Growth to Cushion U.S.

Weakness” that, “Starbucks is aiming to raise its sales abroad by 20 percent per year over the next three

years, while annual growth of only six percent is expected in the United States” (2008). But even with the

other markets starting to look grim just as the U.S. economy is, it is not as risky for Starbucks to open

new stores on the international scene. According to Business Week “…almost two-thirds of stores run

either by licensees or by partnerships in which Starbucks owns stakes ranging from 18% to 50%”(2008).

The article goes on to talk about how the partners or licensees cover a big chunk or all of the startup costs

and even though if the partners or licensees are not making any money Starbucks Company still is

(Business Week, 2008). Although there are some markets that are not taking a nose dive, for instance as
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Economy Watch stated, “Most analysts project China to become the largest economy in the world this

century using all measures of GDP” (2007). The research shows that there are markets out there that will

support growth and expansion for Starbucks Corporation.

Threats

The most significant threat the company faces today is the national economic downturn

into recession. Because of this Starbucks had to lay off 6,700 employees and closed 300 stores in

addition to 600 U.S. store closures announced last year (The Business Journal, 2009). Starbucks

also announced plans to cut another 700 non-store jobs, including 350 at its Seattle headquarters

(The Business Journal, 2009). However this came as no surprise for the employees of Starbucks,

because of the worldwide recession Starbucks did announce store closures as well as employee

layoffs would happen in 2009. During the earnings report for the company‟s fiscal first quarter

the company reported a 6 percent drop in revenue, to $2.6 billion. Starbucks profits were also

reported to have fallen from $208.1 million to $113 million (The Business Journal, 2009).

Starbucks also faced stiff competition for coffee drinkers from McDonald‟s and other fast-foot

establishments which lead to another threat for the company.

Starbuck‟s competitors are taking advantage of the current economic state to position

themselves as lower-cost alternatives to expensive, boutique coffee. Although hard to believe,

McDonald‟s premium coffee is one of Starbucks leading competitors. McDonald‟s launched its

own premium coffee about 3 years ago and added specialty coffee drinks to more than 800 of its

U.S. stores (Associated Press, 2009). The company offered its premium coffee for about $0.50

cheaper than similar Starbucks offerings. Besides the lower price McDonalds sustained

popularity of its coffee by its quick service. Don Thompson, president of McDonald‟s USA,

remains confident, saying “We want to move from beverages as an accompaniment to being a
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beverage destination” (Associated Press, 2009). These factors help give McDonald‟s premium

coffee the edge in the coffee market compare to Starbucks, and give them the potential to

become the world‟s largest chain of coffee houses.

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References

The Associated Press (2009). Coffee clash: McDonald's takes on Starbucks. Retrieved January

24, 2009, from http://www.msnbc.msn.com/id/21837962/.

China's Economy. Retrieved February 4, 2009, from Economy Watch Web site:
http://www.economywatch.com/world_economy/china/

Hanft. A. (2009). What you can learn from Starbucks. Retrieved January 28, 2009 from

http://www.inc.com/ resources/marketing/articles/20050401/starbucks.html.

Isidro, I. (2004, October 24). Learning from Starbucks: 10 lessons for small businesses. Retrieved

January 28, 2009 from http://www.powerhomebiz.com/vol144/starbucks.htm.

Karth, D. (n.d.). How Starbucks achieved its amazing success. Retrieved January 28, 2009 from

http://www.helium.com/items/674277-how-starbucks-achieved-its-amazing-success.

Kirschbaum, E. (2008). Starbucks Says International Growth to Cushion U.S. Weakness.

Retrieved January 26, 2009, http://www.reuters.com/article/ousiv/

idUSL1614331820080616.

Matlack, Carol.(2008, July 2). Will Global Growth Help Starbucks. Retrieved February 3,2009,
http://www.businessweek.com/globalbiz/content/jul2008/gb2008072_462789.htm?campaign_id=
rss_daily

The New York Times. (2008, November 11). Starbucks Corporation. The New York Times.

Retrieved January 22, 2009 from http://topics.nytimes.com/topics/news/business/

companies/starbucks_corporation/index.html.

Schultz, H. (2007). Our commitment to ethical coffee sourcing. Retrieved January 28, 2009, from

http://www.starbucks.com/aboutus/csrreport/Coffee_Report_PDF_FY07.pdf.

Starbucks Corporation. (2009). Our Starbucks mission. Retrieved January 23, 2009 from

http://www.starbucks.com/mission/default.asp.

Tancer, B. (2008). Brewing Battle: Starbucks vs. McDonald's. Retrieved January 24, 2009, from

http://www.time.com/time/business/article/0,8599,1702277,00.html.

The Business Journal (2009). Starbucks to close 300 more stores. Retrieved February 3, 2009,

From: http://triad.bizjournals.com/triad/stories/2009/01/26/daily44.html?ana=yfcpc
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Yahoo Inc. (2009). Starbucks. Sbux. Retrieved January 26, 2009, from Yahoo Finance Website:

http://finance.yahoo.com/q?s=sbux

York, E. (2009, January 19). Consumers skip Starbucks for plain ol‟ joe. Retrieved January 23,

2009 from http://adage.com/article?article_id=133871.