ANALYSIS OF MATURE COMPANY:

STARBUCKS COFFEE

Afida Nurul Fazria

Cut Mutia Adlin Nayzura
Fadhlan Hamidi

Marketing Concentration
Business Administration Major
Faculty of Social and Political Sciences
University of Indonesia
 I

EXCECUTIVE SUMMARY

II

INDUSTRY ANALYSIS

2.1. Company Profile

Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a

premier roaster, marketer and retailer of specialty coffee around world. Starbucks opened its
first store in Seattle, Washington. The store initially sold just coffee beans and coffee making
equipment rather than the drinks they have become so famous. After about 10 years, Howard
Schultz was hired as Director of Retail Operations and came to the conclusion that they
should be selling drinks rather than just beans and machines. After conquering Seattle, the
chain spreads across the United States and then internationally. The first location outside of
North America was in Tokyo and they still have a sizable presence in Japan today.

Over the course of its history, Starbucks has bought or acquired companies like Peet's
and Seattle's Best Coffee, and took over many locations of Coffee People and Diedrich
Coffee stores. In the 1990s, Starbucks was offering stock options to employees and went
public. Today, Starbucks has about 182,000 employees across 19,767 company operated &
licensed stores in 62 countries. Their biggest presence is still in the United States, with 11,000
locations. Starbucks can be found in such diverse nations as Chile, Romania, Bahrain and
Bulgaria. The most recent expansion was to Budapest in June of 2010.

Starbucks mission is to inspire and nurture the human spirit one person, one cup and
one neighborhood at a time. They always believe in serving the best coffee possible. It's our
goal for all of our coffee to be grown under the highest standards of quality, using ethical
sourcing practices. Their product mix includes roasted and handcrafted high-quality or
premium priced coffees, tea, a variety of fresh food items and other beverages. They also sell
a variety of coffee and tea products and license their trademarks through other channels such
as licensed stores, grocery and national foodservice accounts. Starbucks also markets its
products mix with other brand names within its portfolio of companies, which include
Teavana, Tazo, Seattles Best Coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh,
La Boulange and Verismo. Starbucks had total revenue of $14.89 billion as of September
29th, 2013.

2.2. SWOT Analysis

2.2.1. Strength

a. Strong Market Position and Global Brand Recognition

Pretty much everyone, at least within the US, knows the name Starbucks and
associates it with highend coffees. In addition, people see Starbucks as the biggest
and best in the business. This is a significant strength because Starbucks has a
natural edge over its lesserknown competitors in that people already associate it
with a high quality and popular experience.
Starbucks is also the most recognized brand in the coffeehouse segment and is
ranked 91st in the best global brands of 2013. Starbucks effectively leverages its rich
brand equity by merchandizing products, licensing its brand logo out. Such strong
market position and brand recognition allows the company to gain significant
competitive advantage in further expanding into international markets and also help
register higher growth in both domestic and international markets.

b. Products of the Highest Quality

At Starbucks, coffee is the heart and soul of their company. And they are
committed to buying and serving high-quality coffee that is responsibly grown and
ethically traded. They honor this commitment through their responsible coffee
purchasing practices (fair-trade coffee), farmer support centers, loan programs and
forest conservation efforts. The cornerstone of their approach is Coffee and Farmer
Equity (C.A.F.E.) Practices. C.A.F.E. Practices is their comprehensive coffee-buying
program that ensures coffee quality while promoting social, economic and
environmental standards. Starbucks successfully changed the public opinion of coffee
products from a commodity to a luxury good, and in so doing, enabled an increase in
price for these goods to a much higher level than would have been possible before.

c. Location and Astethic Appeal of its Stores

 Starbucks has stores in some of the most prime and strategic location across
the globe. They target premium, high-traffic, high-visibility locations near a variety
of settings, including downtown and suburban retail centers, office buildings,
university campuses, and in select rural and off-highway locations across the
world.10 This has earned them a significant competence and advantage to be able to
penetrate prime markets and tap into customers convince factor. Their stores are
visually appealing and have a cool factor attached to it with being designed to
reflect the unique character of the neighborhood they serve in and environmentally
friendly.
Starbucks mission to make its stores a third place for people to go besides
work and home comes by offering services like free internet and comfortable chairs.
They provide free wifi, great music, great service, warm atmosphere and provide an
environment of community meeting spot, which forms a wider part of the Starbucks
Experience.

d. Human Resource Management

Starbucks is know for its highly knowledge base employees. They are the main
assets of the company and they are provided with great benefits like stock option,
retirement accounts and a healthy culture. This effective human capital management
translates into great customer services. Starbucks was rated 91st in the 100 best
places to work for by Fortune Magazine. Starbucks treats their employees as
partners. They strive to create a culture that values and respects diversity and
inclusion. Their goal is to build a diverse workforce, increase competencies, shape a
culture of inclusion and develop a diverse network of suppliers..

e. Goodwill among Consumers due to Social Responsibly Initiatives

Their stores are community friendly, focused on recycling and reducing waste.
They build goodwill among communities where they operate. Starbucks has a well
known practice to make efforts to preserve the environment and be ethical in its
dealings. This gives the company a good public image, which serves to counter some
criticism that its sheer size creates.

2.2.2. Weaknesses

a. Expensive Products
 While most people consider Starbucks coffee a luxury good and would pay
whatever price is set for it, there is an increasing opinion that Starbucks charges too
much. Starbucks does differentiate their products with being highly quality couple
with the whole Starbucks Experience, but in times of economic downfall,
consumers will likely consider switching costs to competitors products with lower
prices. Starbucks are also very inflexible in terms of location while setting prices.
For example, Starbucks charges the same price for their products whether youre in
LA or Beijing. These premium prices could also pose some weakness for it to
succeed in developing countries.

b. Self-Cannibalization Through Overcrowding

By aggressive expansion and high saturation due to overcrowding in the
market leads starbucks to self-cannibalization, which means one Starbucks store
couldve been overtaken by another nearby Starbucks store that had a nicer location,
or more spacious store, or another reason. This could diminishes long term growth
targets of Starbucks. This is happening especially in the United States where
Starbucks operates 8078 stores.

c. Lack of Inernational Adaptation

In addition to fixing its prices for international customers, Starbucks also has
lacked some tact in the way of international relations. American/European coffee
culture clash with that of other countries. This means Starbucks coffee culture may
not widely accepted in some countries. But they have not yet adapted to each
country as part of their international expansion strategy. Also, In line with self-
cannibalization of the US market with 8078 stores, Starbucks generates a huge
percentage of their total revenue from the US and this makes it very sensitive to
prospects of the US economy and growth.

2.2.3. Opportunity

a. Emerging International Markets

Starbucks has made good inroad into many countries, with India recently
joining the list with a joint venture entry. Starbucks has a great growth potential in
further expanding into the emerging and developing markets. They can use their
size, broad resources, experience, financial ability and efficiencies to make new
market share and expanding themselves an international business. This generated
 even more revenue for Starbucks and really helped to develop their brand image.
One of their biggest opportunities continues to be in expanding and diversifying
their business with their vast wealth.

b. Expansion of Product Mix and Retail Operations

Starbucks recently started to expand their product mix by venturing into the
Tea and fresh juice product offerings with a smart acquisition strategy. By
purchasing companies such as Seattles Best, XM Caf, and Tazo Tea, Starbucks
used a different brand name to get business in a different market niche. Beside
emerging into different range of products, Starbucks currently sell its packed coffee
products, iced beverages and merchandizes through large box retailers. This markets
potential is yet to be fully realized and this provides Starbucks great opportunities
for the future to future monetizes their brand.

c. Technological Advances
Starbucks has leveraged the use of mobile applications and has an investment
partnership with Square, a mobile payments app that is integrated with its Starbucks
app. This creates an ease of use process for customers, aligns customer loyalty
through reward programs. Starbucks has already set the bar in the industry with this
advancement and about 10% of its transactions in the US have been made using
mobile applications. This is a growing field and would drive more business to their
stores as technology advances. Not only for the mobile apps, technological advances
differ and has various effects in every aspect such as transportation, computer
system, architecture, and stuff. Starbucks could have another advantage by using
technological advance, like pushing down budgets, creating a more efficient
production or delivery system, expanding their global marketing, and so on.

2.2.4. Threats

a. Increased Competition
This is by far the biggest threat that Starbucks faces with the market being at a
mature stage, there is increased pressure on Starbucks from its competitors.
Companies such as Peets and the Coffee Bean have grown large enough to seriously
compete with Starbucks. Other companies, such as McDonalds, Dunkin Donuts, Burger
King, etc, already have the infrastructure in place and are instead adding quality coffee
 to their menus to compete with Starbucks. Not only that, since Starbucks has made
another standards for coffee shop, so many new coffee shops popping out and using
imitation logo of starbucks or selling the same menu with lower prices. This could effect
a price-sensitive consumer to switch their daily coffee brand.

b. Price Volatility in the Global Coffee Market

There has be significant fluctuations in the market prices of high quality coffee
beans, which Starbucks cant control. Because of the specialization of their industry,
Starbucks is very dependent on supply factors such as the price of coffee beans,
which could hurt their business.

c. Developed Countries Market and Economy

Since Starbucks starts emerging their business to developing countries in
Africa and Asia, each of countrys market and economy situation should be a
concern for them. Developing countries had such a risky standing point for their
economic, social and politic situation. In an increasingly economically integrated
world, an economic crisis could have a trickle down effect from the developed
markets to the developing markets. This threat would hurt revenues for Starbucks as
consumers shift away from premium product mix to stay in limited budgets during
economic hardships. Beside that, the peoples tastes different in each country, and
some country even dont have a culture of drinking coffee, so its a threat if
Starbucks will still be using the same universal standarized approach to expand their
business.

d. Changing Customers Tastes and Lifestyle

Another potential threat is that coffee is just a fad and eventually people will
grow out of it. If this is the case, Starbucks only hope is to diversify its business into
other industries to potentially give it some security from fluctuations in the coffee
market. The shift of consumers toward more healthy products and the risk of coffee
culture being just a fad is somehow becoming a threat for Starbucks going into the
future.

2.3. Porters Five Forces Analysis

2.3.1. Competitive Rivalry

 The threat caused by competitive rivalry in the industry, is prettih high, considering
that its so easy to find any other brands trying to catching up with Starbucks. Coffee
shop industry has a monopolistic competition, with Starbucks having the largest markets
share. The industry is mature and growth rate has been moderately low which cause the
intensity of competition among the companies to be moderately high due to all of them
seeking to increase market shaper from established firms like Starbucks. Its closest
competitors like Dunkin Donuts, J.Co, Coffee Bean & Tea Leaf are also having a
significant market share, creating significant pressure on Starbucks. In addition, theres
more low-priced coffee shop that tastes just slightly different from Starbucks. This make
consumers do have any cost of switching to other competitors, which creates high
intensity in rivalry. But its important to note that Starbucks maintain some competitive
advantage as it differentiates its products with premium products and services, which
cause a moderate level of intensity in competition.

2.3.2. Threat of New Entrants

There is a moderate threat of new entrants into the industry as the barriers to entry
are not high enough to discourage new competitors to enter the market. The industrys
saturation is moderately high with a monopolistic competition structure, and Starbucks
being the leader. But at a localized level, small coffee shops can compete with the likes
of Starbucks and Dunkin Brands because there are no switching costs for the consumers.
Even thought its a competitive industry, the possibility of new entrants to be successful
in the industry is moderate. Anyway this relatively easy entry into the market is usually
countered by large incumbent brands identities like Starbucks who have achieved
economies of scale by lowering cost, improved efficiency with a huge market share.
There is a moderately high barrier for the new entrants as they differentiate themselves
from Starbucks product quality, its prime real estate locations, and its store ecosystem
experience.The incumbent firms like Starbucks have a larger scale and scope, yielding
them a learning curve advantage and favorable access to raw material with the
relationship they build with their suppliers.

2.3.3. Threat of Subtitutes

Threat caused by subtitutes are high. There are many reasonable substitute
beverages to coffee, which are mainly tea, fruit juices, water, sodas, energy drinks etc.
Bars and Pubs with non/alcoholic beverages could also substitute for the social
experience of Starbucks. Consumers could also make their own home produced coffee
with household premium coffee makers at a fraction of the cost for buying from premium
coffee retailers like Starbucks. What makes the threat from subtitutes are high is There
are no switching costs for the consumers for switching to substitutes. So its important to
note for industry leaders like Starbucks for trying to counter this threat by selling coffee
makers, premium coffee packs in grocery stores, to at least minimalizing threat from
subtitutes.

2.3.4. Bargaining Powers of Buyers

Starbucks offers vertically differentiated products with a diverse consumer base,

which make relatively low volume purchases, which erodes the buyers power. Even
though many substitute products dont offer low switching costs for buyer , Starbucks
prices its product mix in relation to rivals stores with prevailing market price elasticity
and competitive premium pricing. Threats come from buyers are not that high, but still
have to be watched. Consumers have a moderate sensitivity in premium coffee retailing
as they pay a premium for higher quality products but are watchful of excessive premium
in relation product quality. Also with newer entrants and competitors such as McDonalds
who claim to offer premium roast coffee of reasonable quality for lower price, buyers
now have slightly more bargaining power than theyve had in the past.

2.3.5. Bargaining Powers of Suppliers

Suppliers do have low pressure on Starbucks. The main inputs into the value chain
of Starbucks is coffee beans and premium Arabica coffee grown in select regions which
are standard inputs, which makes the cost of switching between substitute suppliers,
moderately low Starbucks, with its size and scale, has the power to take advantage of its
suppliers but it maintains a Fair trade certified coffee under its coffee and farmer equity
(C.A.F.E) program, which gives its suppliers a fair partnership status, which yields them
some moderately, low power. This makes the suppliers in the industry also pose a low
threat of competing against Starbucks by forward vertical integration, which lowers their
power. Starbucks also forms a highly important part of the suppliers business, due its size
and scope, which make the power of the suppliers lower. Given these factors, suppliers
pose a moderately low bargaining power.