this is what i want you to do for me it is about Starbucks international expiation. i’m focusing on Colombia. the main thing for me is the (strategic Market plan).5 pages total three sources would be nice and it’s ok if u got more. I attach you a file so you can know what i have done so far please look at it. if you have questions please let me know.
Strategic Market Plan
Market focus, competitive strategy and goals
A. Marketing mission and goals
Strategy, target market, objectives
B. Market positioning
Differentiators, perceptual maps, value proposition
C. Branding strategy
Identity, naming / personality, equity
Ferrell, O. C. and Michael Hartline. Marketing Strategy. New York, NY: Cengage Learning, 2012. Print.
Rafii, Ladan. “The Starbucks or McCafé Crowd: Who Counts More Politically?” Huffington Post. 2nd Nov., 2013. Web. 29th July, 2014
Schoultz, Mike. “Starbucks Marketing Strategy … Making Social Media a Difference Maker.” Digital Spark Marketing. 2013. Web. 29th July, 2014
Starbucks Mission Statement. “Our Starbucks Mission Statement.” Starbucks. 2014. Web. 29th July, 2014
The Company’s mission in South America will be derived from the overall mission, “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Starbucks Mission Statement 1). Despite the company being spread out across 60 nations with over 18,500 coffee houses, it prefers to be viewed as “one neighborhood.” Obviously, this mission statement is a strategy to assist the company to grow in its foreign markets.
I asking to make our own mission statement for our strategy, not just quote the company’s public mission statement.
Regarding coffee, the company will continue offering quality coffee that has been sourced ethically, roasting them carefully and enhancing the lives of the growers (Starbucks Mission Statement 2). In essence, the company desires to achieve the objective of setting its business apart from other coffee shops. In terms of the employees, the phrase “partners” is used (Starbucks Mission Statement 3). For the organization, an employee is not a mere staff member, but also a partner, who works with passion to achieve the collective goal of enriching people’s lives with quality coffee. Among the company’s goals is to embrace diversity and create a place in which everyone can be himself or herself. Additionally, the company emphasizes on treating each other with decorum and respect. In terms of customers, Starbucks is committed to engaging with, relating and uplifting their lives, even if it is only for a few moments (Starbucks Mission Statement 3). This is achieved with the promise of a perfectly brewed beverage, as well as a human connection that goes beyond all expectations.
Regarding the stores, the company is committed to offering a sense of belonging, where the stores become havens, breaking from the worries that characterize the outside world (Starbucks Mission Statement 6). The stores are designed to foster an environment conducive for relaxing with friends. Ultimately, the goal is for enjoyment, at times faster, sometimes slow and savored, but always with a touch of humanity. In the same breadth, Starbucks International will consider every store a part of its immediate community, attempting to take responsibility to be good neighbors. The goal of the company is to be a compelling force for positive action within the community, bringing together customers, partners and the community. In other words, Starbucks will continue using its brand name and reputation to set standards. For the shareholders, the company’s goal will be to ensure accountability and good returns each successive year.
These sound like a generalization of Goals that Starbucks is already doing.. we need a specific mission statement and goals for the market strategy pertaining to Colombia and China.
For example, a goal for Starbucks would be having a strong relationship with local Colombian farmers to help them grow quality coffee and a better quality of life. Think of one for China too, maybe relating to stopping counterfeit stores in China.
3-Starbucks’ success can be attributed to its successful marketing strategy for each of its outlets (Schoultz 5). In China (Beijing) and Colombia (Cartagena and Medellin Cities), Starbucks will employ the same marketing strategy. This involves promoting the brand as a “Uniquely Starbucks Coffee Company,” a strategy that the company is renowned for. Towards this end, Starbucks will continue using unconventional methods of advertising such as referrals and word of mouth. Though seldom used and unique, such methods are perfectly matched with the concept the company desires to portray. The significant aspects of the marketing strategy will be:
You need to address what kind of marketing strategy this is, use the book or look up examples- this could be differentiation strategy, relationship marketing, cause marketing, etc. “Uniquely Starbucks Coffee Company” doesnt make sense.
4-“A perfect cup of coffee”: The Company’s history has demonstrated that it places a great emphasis on its product quality (Ferrell and Hartline 2). The coffee, even if priced at a premium, is known for satisfying its customers with its aroma and rich, delicious taste. This is the concept that will be continued in the new markets.
‘Third place”: Starbucks Company has from the onset concentrated on establishing the “third place” where people can enjoy between work and home (Schoultz 9). Establishing this relaxing and unique atmosphere and experience for individuals will be very significant since the company has realized that it is among its strongest notions, to which customers are extremely enthralled by.
Customer satisfaction: This is an issue that the company takes great pride in. From the point of entrance to the actual outlet itself to the drop of coffee, the company desires to make customers feel the exclusivity of enjoying the Starbucks coffee experience. Towards this end, excellence in customer service will be emphasized.
Creation of a Starbucks community: The organization’s marketing strategy will be expanded to include a community around the brand (Schoultz 7). The company will achieve this by encouraging customers to share their experiences on the company’s website, where the company “personally” joins in the conversations.
Smart partnerships: The Company has been known to establish strategic partnerships that portray its willingness to collaborate and grow (Schoultz 8). The company will use this technique to gain productive alliances that will see sales and revenues grow in China (Beijing) and Colombia (Cartagena and MedellÃn Cities).
Innovation: Over the years, Starbucks has consistently come up with innovative and creative concepts to add on to their services and products (Schoultz 8). For instance, there have been new flavors to the coffee, internet capability in the coffee outlets and a greater variety of foods on the menu.
Brand marketing: The marketing strategy will focus on advertising by word of mouth, as well as letting the product and service quality speak for itself. The unique Starbucks experience has been known to appeal to many customers and lead to repeat visits.
This section comes from a student’s paper…http://www.scribd.com/doc/80404562/Marketing-Strategy
Please use better sources to draft the strategy.
The company will target a population of men and women aged between 25 and 40, which is actually 49 percent of Starbucks’ total business (Rafii 2). The reasoning behind this decision is the reality that consumers within this age group tend to possess professional careers and high income, implying that they can purchase coffee priced at a premium. Additionally, this group grows 3 percent annually, implying that the company will continue having a significant portion of the market. However, the company will continue to serve individuals from all facets and walks of life.
This is a good start but please try and look up specifics about the Colombian cities and Beijing. I’m sure you can find general information to strengthen the case. EX: Medellin is the second largest capital in Colombia, Cartagena is a tourist hot spot with many high end boutiques.
6-Starbucks will also continue its positioning strategy of locating its outlets in places where individuals perceive to be relaxing and comfortable, a home away from home. Starbucks will achieve this by creating comforts, for instance, wireless internet, complimentary books, handicapped access and common collaboration areas. In terms of quality, the company differentiates its coffee products from those of other coffee shops by handpicking coffee berries right from the fields, processing them to provide a rich experience.
This is not copied word for word, which is better. But you’re pulling from a non credible source.
7- Regarding perception, brands like Dunkin Donuts offer coffee in a “no-nonsense” manner, which usually appeals to consumers who are exceptionally price sensitive (Rafii 5). On its part, Caribou Coffee offers an environment that is identical to that of Starbucks (free internet, cozy surroundings and comfortable furniture). However, Caribou’s failure to expand its market has prevented it from gaining prominence as Starbucks has. McDonalds and Panera Bread take a middle ground where Caribou Coffee and Dunkin Donuts distinct themselves. This is summarized in the perceptual map below.
This paragraph is not needed and confusing. We don’t mention Caribou or Panera in our SAR.
8- Exhibit X: Starbucks’ Perceptual Map
Can you redo this perceptual map? I don’t see what the horizontal axis represents and it uses brands we are no focusing on.
9-The company’s value proposition focuses on a brand approach that comprises various components (Ferrell and Hartline 102). For instance, the term “live coffee” showcases the brand’s versatility. From a retail vantage point, this implies sustaining an experience that individuals would desire to incorporate into their daily lives. The most significant element of the value proposition is the coffee itself. The company offers the highest quality of coffee and controls the supply chain as a way of ensuring this is maintained. The second element is service. Starbucks describes this as “customer intimacy,” which includes simple aspects such as remembering customers’ names and their drink orders. The final element in Starbucks’ value proposition is the atmosphere. The company strives to ensure individuals stay in its outlets not only for the coffee, but also for the comfortable atmosphere.
I want to use a Value Proposition statement.
Our Product is:
10- In terms of branding strategy, the company uses its brand name as a strong tool for attracting customers (Rafii 10). Starbucks has established a strong, distinctive brand. Additionally, the company has continuously rebranded its logo over the years (see figure 2), desiring to create an identity that compels people to “think beyond the coffee.” The coffee giant has not stopped at the logo; rather, it constantly reviews its design and aspects such as signage, displays and packaging, which is intended to establish a unique experience that has connected well with the customers. The ultimate objective the company hopes to achieve through its brand strategy is to foster customer convenience and loyalty.
Logo is the identity part of the branding section. You need to address the naming/personality, and equity. I would talk about the naming strategy for china in this one. Since they use an entirely different alphabet.
Table of Contents
Executive Summary ……………………………………………….…………… 3
Situation Analysis ………………………………………….…….…………….. 4
Market Analysis …………………………………………………….……………13
Competitive Analysis …………………………………………………………… 17
SWOT Analysis ………………………………………………………………… 22
Works Cited ……………………………………………………………..……… 27
Many markets in South America and Asia have been tapped, but there are still areas available to expand. Countries with high coffee production and those with an emerging economy make good potential markets. Populations of emerging countries are more willingly to pay higher prices if it means they get products of higher quality. Starbucks may use this to its advantage by promoting its products as high, classy quality products. It is also important to note, when entering these countries, a full understanding of the country’s beliefs, values and cultural customs must be taken into consideration. One of Starbucks strengths is their diverse product lines and distribution channels, this can be used to their advantage when expanding to more Asian and South American Markets.
Starbucks Establishment Corporation functions as the number one global powerhouse of coffee and consists as a roaster, seller and wholesaler of coffee like a neighborhood crack dealer on every corner. It’s provisions offer coffee and tea brews, packaged from baked whole beans and coffee ground, with also being a single server of goods, juices and bottled water. Starbucks acts also as a distributor of fresh food contributions, manufactured drinks and an array of other products including; pies, breakfast toasties, lunch items, as well as mixables. Starbucks also offers its daily customers with wifi hotspots at nearly every locations. Starbucks has recently experimented with bitcoins as a form on online currency at locations in Seattle. (Yahoo Finance)
In addition, it licenses the rights to produce and assign Starbucks exclusive products to The North American Coffee Partnership with the Pepsi-Cola Company, as well as licenses its logos through licensed stores, grocery, and national foodservice financial records. The company offers its products under the Starbucks, Teavana, Tazo, Seattle’s Best Coffee, Starbucks VIA, Starbucks Refreshers, Evolution Fresh, La Boulange, and Verismo brand names. Till end of year 2013, it functioned approximately 10,194 company-operated stores and about 9,573 licensed stores. Starbucks Corporation was founded in 1985 and is based in Seattle, Washington. (Yahoo Finance)
The retail for coffee is an extremely saturated market, consisting of many small and independent retailers and restaurants. As of fiscal year 2013, Starbucks makes up 33 percent of the coffee retail industry in the U.S. and one of its closest competitors, Dunkin’ Donuts makes up for a merely 2% (Ibis) The majority of the rest of the shares are made up of individual cafe. The coffee industry in the U.S. is extremely saturated. In order for Starbucks to grow, they need to look beyond the border and begin internationalization. Starbucks target countries with dense population sizes , high income, and with a high interest in American culture. Eastern nations often have a high interest in American products and culture made them the first countries to be targeted by Starbucks initial globalization. Japan was one of the first countries Starbucks expanded into and it was highly successful which turns Starbucks’ desire in expanding into other regions and countries became stronger.
Starbucks was not the first American company to expand globally. McDonald’s, one of Starbucks’ main competitor was way ahead of Starbucks on that. McDonald’s is well known all over the world from its brand name to its unhealthy food. Starbucks took advantage of McDonald’s reputation of cheap, fast food and promoted itself as a healthier more classy brand would otherwise give an advantage in other countries with a higher health conscious population.
Both weaknesses and strengths of Starbucks external marketing decisions and internal policy list competencies that are built from tangible and intangible assets and organizational capabilities. Proprietary information, logos and trademarks combined with the marketing strategy of customer satisfaction, the perfect cup of coffee and creating a community of followers makes up a few of the intangible assets that Starbucks is so famously known for. The tangible assets are most easy to identify are “Starbucks cash and short-term investments that were $2.1 billion and $1.4 billion as of October 2, 2011 and October 3, 2010”. (Yahoo Finance)
Starbucks coffee purchases from the highest quality robusta seeds from searching numerous strains throughout the world and only the highest quality of coffee beans from ideal coffee-producing climates are chosen. With the promoting of equitable relationships, farmers workers and the local communities have formed organizations focusing on protecting of the environment. Starbucks improved marketing know-how, upgraded its supply chain, and has positioned themselves advantageously to utilize the basic resources for meeting customer expectations and producing quality roasted coffee. This move secures the company’s supply-level. Furthermore, Starbuck’s price and quality has set industry standards competitive in the new markets and worldwide coffee industry.
Starbucks’ unique research of key locations helps it to attract locals and foreigners, in which it promotes the Starbucks’ brand image and raises prominence and credibility. This makes foreigners comfortable with the brand, aware of the quality of service and products that Starbucks is offering. The intangible resources is the proprietary logo, brand and trademark. The basic ideas for Starbucks creation were taken from Italian coffee shops, where Mr.Schultz (Starbucks current CEO) learnt Italian culture of exotic coffee drinking. This knowledge and the experience gained since the 70’s has left Starbucks with the unique know-how in the US markets, which raises competitiveness in the international markets.
The Starbucks brand has elements of uniqueness and originality. This perception of brand distinctiveness and quality is essential for international consumers.The Starbucks Coffee company brand name is easily distinguishable throughout most countries around the world and this makes customers pay a higher premium price for the cup of coffee.
Starbucks has surpassed the conglomerates from a no-named logo to a big league brand like Nike and other leading brands, which could assist the expansion of franchising into other countries which not only have different languages but different script. This is a very good marketing strategy to make its product mainstream word wide. So they don’t have to change their logo individually for every country and making it so common that its country’s local public would know that what does this logo say, what is their product, and what they are going to get if they visit the particular. Letting people know about your product is called marketing. And this particular strategy has been one of the most successful ones, though it takes time to make your name in the market for couple of years and prove your quality.
Starbucks being one of the companies that has lower rates for employee turnovers, also has a high employee satisfaction rating. This makes international recruitment much easier for Starbucks, and has been viewed internationally as pleasant to work for. Starbucks has a reputation for being a socially and environmentally responsible company.
Starbucks has been rated as eco-friendly by encouraging customers to use recyclable cups. It has incorporated green designs in its stores and helped farmers reduce carbon emissions. All the hype and buildup in its brand imaging throughout the world has increased the customer loyalty around the globe (Yahoo Finance).
Starbucks has became a very successful company in the United States, in order to find room for growth, Starbucks must aim for globalization. It is easier said than done; Not all factors can bring benefit to Starbucks’ desire for expansion. These factors are :
Political/Legal, Economic, socio-Cultural, technological, and environmental. Below are brief analysis of each factors
According to Asian Legal Business, despite Vietnam being one of the top coffee producers in the world, the coffee retail industry itself is suffering. Illegal acts such as tax evasion, mismanagement, insolvency, high interest rates and a credit squeeze cause many of the coffee shop owners crippled with debts with banks refusing loan requests. The same article follows up on “Vietnam’s 2013/2014 coffee crop is forecast to be a bumper harvest, around 17 million to 29.5 million 60-kg bags, based on a Reuters poll, adding to a global oversupply and pressuring coffee prices which have lost about 10 percent since October,”(Nguyen) and only some of the top exporters were able to make a profit in the same fiscal year.
In countries that do not have a large amount of coffee supply, Starbucks would have to import coffee beans from other sources which means Tariffs. DutyCalculator provided some tariff information on Coffee import to various countries. Unlike countries such as the UK, Japan, or south korea who has little to none duty rate. China has a relative high duty rate and sales tax, unroasted coffee import has an 8 percent duty rate while roasted coffee’ duty rate almost doubles up to a 15% which could affect some of Starbucks’ potential profits in this market.
One major factor that would affect consumer purchase power are sales tax. The three potential markets for Starbucks all has sales tax. China especially, has a 17 percent sales tax while Colombia has 10 percent, and Vietnam has 5. Anyone lower middle class customers might have trouble making purchases in their local Starbucks.
One economic factor that could benefit Starbucks is China’s emerging economy. China’s GDP is growing at an incredible rate and it is creating an urban middle class in China that were practically non-existent in the 90’s. This middle class is re-defining the whole Chinese market. Consumers are shifting from lower priced, cheap products to a higher priced, classy products. Companies such as Starbucks with a classy image is especially attractive to this segment of market.
Socio-cultural factors are all the forces that affect the value, perceptions, preferences and behaviors of customers. Coffee drinking culture has been around in China and is growing in potential markets such as Vietnam and Colombia. In addition, countries like China and Vietnam often look at American culture as a way the higher class lives, therefore they wish to adapt the U.S. culture. Since Starbucks promotes itself as a classy brand, this gives the company an advantage on capturing customers in emerging economies. This status symbol Starbucks promotes in foreign countries brings psychological effect that would give customers a boost in ego. Starbucks customers in asia often think that “I am holding a cup of Starbucks cup of coffee, I am in a higher class than those who are not”
With technological influences, everybody are becoming connected to each other and causing the barriers between nations are starting to disappear and different cultures begin to merge together. This lowers the risk of backlash from cultural differences and allows Starbucks to meet customer needs and with ease globally. Since people are becoming more connected, Starbucks will also be able to engage with its customers easier through online campaign
Environmental factors include external forces that would affect Starbucks. According to National Geographic, Fungus and Climate change are threatening a majority of the world’s coffee supply. For the past six years, there has been a fungus commonly known as Rust destroying coffee trees In Guatemala and throughout Central America. Climate changes are causing more rain in central america allowing this fungus to multiply very quickly.
Recently, people are becoming more and more environmental friendly and this does not do good for Starbucks at all. As of right now, Starbucks’ paper cups are still yet recyclable. If Starbucks does not uses new, recyclable materials for their own cups, it will most likely damage its brand image.
Very little information is available about the global coffee industry but, according to information from the International Coffee Organisation, we can at least see that global coffee consumption has been rising from 137 million bags to an estimated 145.8 million bags in 2013. Exhibit 1 shows the trends in global coffee consumption over the past 3 years. While there is not a lot of data that is available relating to revenue generated by the coffee industry at a global level, we can look at the consumption trends and see that revenues are increasing as well (International Coffee Organization).
Mexico, Argentina, Colombia, and Brazil are all large exporters of coffee and have a huge impact on the industry. In an article from Euromonitor International, the potential in these four countries was assessed. Mexico showed the most estimated growth from 2011 to 2016 of around $600 million dollars. Looking at exhibit 2, we can see the estimated growth between the four countries as well as the independent and chained value from 2011 of the coffee shops in the respective countries. This chart gives a good indication as to what the coffee industry is expected to look like for four large countries (Euromonitor International).
(source: Euromonitor International)
A better understanding of the global market can be established by looking at trends in the U.S. market. Similar to the global coffee market, the U.S. industry is showing growth. The industry grew at an annualized rate of 0.9% from 2008 to 2013 with current industry revenues at $29 billion in the US. The industry is forecasted to continue to grow at an annualized rate of 3.9% over the next five years, with potential to reach $35.1 billion in revenue (Geereddy, pg. 1).
The U.S. coffee industry includes a myriad of products ranging from instant coffee to coffee beans. Exhibit 3 below is from IBIS World and gives a breakdown of the different products offered in relation to the industry. The majority of the industry’s sales are made up of fresh brewed coffee which can be found at just about any coffee shop and the smallest portion of industry sales is made up of instant coffee which is generally found at different retailers such as grocery stores or even in coffee shops (Coffee and Snack Shops in the US, IBIS World).
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Since the industry has been very strong with a decent amount of growth over the past few years and is expected to continue to grow, there are not a lot of large issues going on within the industry. The largest issue that the global coffee industry is expected to face, is related to the supply of coffee. As seen in exhibit 1 above, coffee consumption is expected to amount to 145.8 million bags in 2013. The problem is that estimated supply in 2013-2014 production year is set to be just short of this number at 145.7 million bags. This could lead to a drastic increase in prices for the commodity which could ultimately result in a lot of unhappy customers and a loss of business for places that serve coffee.
Coffee plays an integral part of everyday life all over the world, some countries more than others. The main segmentation criteria used by Starbucks are demographic and psychographic segmentation, targeting customers based on their lifestyle and attitudes.
Starbucks’ primary target market is men and women between age 25 – 40. This segment accounts for roughly 50 percent of its total business. There are two strategies that Starbucks uses to appeal to this age group of customers. First, Starbucks has a consistent, hip, and contemporary design. Second, Starbucks promotes its product as a status symbols. This segment of customers generally live in urban areas with a stable high income in professional careers. This segment of customers grows at three percent every year.
This segment has an age range of 18 – 24 and makes up for 40 percent of Starbucks’ sales. Starbucks appeals this age group by positioning its stores in convenient locations for hanging out, group study, or to meet people. Starbucks also introduce technology as soon as it becomes available that are focused around on social networking for this younger segment.
Kids and Teens:
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Kids and teens are also part of Starbucks’ segment. This segment has an age range of 13 – 17. This segment makes up for 2 percent of Starbucks sale with most items for kids purchased by young adults or adults. Although caffeine content are not encouraged for kids and there really is nothing Starbucks can do about it, Starbucks do makes its products more kid friendly. For example, Starbucks offer child size drinks to this segment of segment and non-caffeinated drinks such as lemonade mixed with tea.
Consumer Buyer Behavior and needs:
Starbucks promotes its products as status items which involves more customer involvement than unbranded or cheaper coffee. By using various campaigns such as offering seasonal drinks, Starbucks is able to successfully gets on human’s natural inclination to go back to the store and try new things. One advantage Starbucks has over other coffee shops that affects buyer behaviors is its strong brand. With Starbucks being recognized as the king of all coffee shops, many customers do not consider going to try other brands that is not Starbucks.
Starbucks is also very capable of meeting needs of various type of customers. Starbucks offer comfortable space for those who like to sit in indoor or outdoor spaces to enjoy their coffee while their coffee are also good for on the go. Starbucks also offer both hot and cold drinks year round for any weather. Customers are also able to “customize” their own drinks if they desire, they are allowed to add whip cream, change the milk base to soy milk, extra hot and many other options.
Starbucks’ loyalty program “My Starbucks Rewards” is consider one of the most successful loyalty program. Customers are able to charge any amount of money onto a registered gift card. When a customer purchases a drink, all he or she has to do is to give the cashier the gift card and no extra fees will be info. This creates a perception where the customer will feels as if the drink was practically free. On top of that, every time a customer purchases a drink at Starbucks, they will earn a star. When customers reach five stars on the card, they get free refills of tea or brewed coffee. Once customers reach 30 stars, they get a free drink after every 15 stars, a gold gift card, coupons, and other offers. By giving a free drink after a certain number of stars, Starbucks can almost guarantees any customers to go back.
Starbucks is very consistent with their stores and drinks as well. A Starbucks Latte in the U.S. would taste the same as another Starbucks Latte in the U.K. Every Starbucks store are also similar in their decor, giving customers a sense of familiarity regardless of which Starbucks coffee shop they go to furthermore increasing customer loyalty.
Starbucks has 23,000 stores in 64 countries around the world including China, Canada, Japan, and the UK.
(Yanofsky, David. A cartographic guide to Starbucks’ global domination. Quartz, 2014)
Above is the map that features every single global location of Starbucks provided by Quartsz. Starbucks has more stores alone in the US than throughout the world.
Starbucks’ major weakness is its over reliance of the U.S. market. If Starbucks wishes to keep growing, it will have to focus its growth on a global scale. Luckily, Starbucks has a popular global brand perception. As it is shown on the map above, Starbucks has little to no presence in Vietnam and zero presence in Colombia, the two largest coffee producers in the world after Brazil according to bloomberg.com. According to Quartz, over half out of top 25 highest Starbucks filled cities are in the U.S. while Bogota and Ho Chi Minh City a, the biggest cities of Colombia and Vietnam respectively, are not even on the list which makes sense consider the world map location of Starbucks above.
Steven Johnson, a coffee enthusiast made a list of daily coffee consumption per capita by countries and Colombia and Vietnam do not even make it to the top 30 on the list. So why is United States in the top 15 while being the top importer of coffee but Colombia and Vietnam so low on the list? What happens is that, these countries prefer to export their specialty coffee for profit while drinking the cheap stuffs themselves. Consumption in most exporting countries is relatively low, with significant potential for promotion. These coffee export giants, unlike the U.S. they do not have a coffee shop around every corner.
The theory behind this is that the presence of coffee shops could affect customers’ behavior. That means there are lots of growth potential in Colombia and Vietnam once Starbucks decide to expand over in those countries. “In Colombia, however, the coffee shop culture does not really exist, or, at least, is still very new.” (lainG) If Starbucks were to expand over there, it will certain give them a competitive edge over many other future coffee shops. In addition, given the global brand image Starbucks has, the company will have no problem attracting customers. When a starbucks opens up in a new location in Colombia or Vietnam, customers who have been hearing the brand for years will be excited to finally be able to try a cup of coffee from this famous king of coffee shops. Once customers start going in, with Starbucks successful loyalty program it is easy to retain these customers. Not to forget, these are some of the countries with the highest coffee production in the world, there will be plenty of easy supplies for Starbucks.
In their 2013 Annual Report, Starbucks defined their competition as quick-service restaurants and specialty coffee shops. We have defined these sectors as their direct competitors, however other indirect competition exists. Starbuck’s indirect competitors include specialty coffees sold at supermarkets, and other specialty retailers like fast-food giant, McDonalds. Indirect competitors may not be a primary risk, but they have the potential to pull away a substantial amount of potential customers from Starbucks.
To fully understand where Starbucks stands against competitors, competitive forces are examined to gauge if the competition is high or low, and if the force positively or negatively effects the company.
Porter’s Five Forces
Porter’s Five Forces is a useful tool for identifying and accessing competitive forces that shape every industry. The framework examines and helps determine an industry’s weaknesses and strengths in five key areas: Threat of New Entrants, Threat of Substitutes, Supplier Power, Buyer Power, and Competitive Rivalry. The model below shows the coffee chain industry’s competitive forces and identifies which forces positively or negatively affect Starbucks.
With a high level of market saturation, the threat of new entrants in the industry is low. Starbucks is a global powerhouse with an abundance of financial resources to open more chains, which makes it very difficult for new businesses to enter the market. Low threat of new entrants positively affects Starbucks’ competitive standing.
Substitutes for products and services compared to Starbucks are high and as complex as can be. Specifically, coffee can be substituted for tea, juice, carbonated beverages, water and energy drinks. Furthermore, specialty coffee beverages from the chain can be substituted with other coffee or caffeinated beverages available at grocery stores, convenience stores, or fast-food chains. Most recently, bars and pubs have now become a substitute since Starbucks’ alcohol offering and since both have similar experience environments.
A high threat level of substitutes usually has a negative effect on an organization, but Starbucks has been able to innovate and create new products and services to keep up with the emergence of new product substitutes.Exhibit 6
Coffee is the main and most important product in the industry’s supply chain. Coffee is in high demand, with world exports increasing every year. The International Coffee Organization reports global annual consumption is on the rise, with an annual growth of 2.1 percent over the last four years. Last year’s growth shows a 2.7 percent increase to 145.8 million bags from 2012’s 142 million. Established traditional markets (like North America, Europe, and Japan) account for almost 53 percent of global consumption, exporting countries account for another 30 percent, and emerging markets make up 9 percent.
Not only is global demand high, but coffee can only be produced in certain climate conditions and geographical areas. Coffee suppliers have a high bargaining power because supply is in high demand, and producers have many buyers to choose from since the industry is highly saturated. High supplier power negatively affects Starbucks because prices for coffee are on the rise from weather related supply shortages and demand continuing to grow year over year.
Customers have a lot of buying power with coffee since many substitutes exist and many competitors exist in the market. Since the switching costs for customers is low, this negatively affects starbucks who rely on the consumer to place Starbucks as their first choice in a product set list.
Rivalry from existing competitors is high because Starbucks has increased competition from direct and indirect competitors. For most coffee chains, this force would negatively affect their business, but because Starbucks owns most of the market share and has a highly complex product channel compared to competitors, the threat of competitive rivalry remains neutral.
To identify significant players, competitors were assessed by a product or market’s competitive advantage. There are four levels of competitive advantage: Product Form, Product Category, Generic Competition, and Budget Competition. Exhibit 7 examines each level of competition and which competitors are Starbuck’s biggest threat.
Levels of Competition
|Product Form – same product, same market||Product Category – Different product, different market||Generic Competition – different product, same customer need||Budget Competition – Different product competing for same dollar|
|Market||Retail Coffee & Coffee Chains||Fast-Food chains (w/ AM menu)||Energy Drinks||Bars and Pubs|
|Examples||Nestlé, Dunkin Donuts||McDonalds, Burgerking||Redbull, Monster||Local bars and pubs|
|Direct or Indirect competitor?||Direct||Indirect||Indirect||Indirect|
Retail coffee and coffee chains are the biggest threat to Starbucks. They compete with the same product in the same market. Some examples include the chain Dunkin’ Donuts and Nestlé coffee products. Starbucks is able to stay ahead of these competitors because they have a high marketing advantage. Their global brand recognition, diverse product line, and vast channels of distribution keep them at the top as market leaders. Another competitor that has recently become an increased threat is fast-food chains like McDonalds. While they offer a different product line (lower quality coffee and breakfast), fast-food chains have seen an opportunity to divert the customers looking for the coffee shop experience to their fast-food chains.
Dunkin’ Donuts has been around since the 1950’s with the philosophy, “Make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well merchandised stores” (About Dunkin’ Donuts, 2013). By 2010, the company had 8,800 stores worldwide, with 6,000 franchised stores worldwide, and 2,400 shops in 31 countries (Dunkin’ Donuts Press Kit, 2014).
Dunkin’ Donuts definitely tries to keep up with Starbucks diverse product lines. In 2002, they launched a line of espressos, lattes, and cappuccinos. They also partnered with Proctor & Gamble in 2007 to introduce their coffee drinks at retail outlets and grocery stores (Dunkin’ Brands History, 2007).
McDonald’s started it’s first restaurant in 1940 and to this day has over 35,000 stores worldwide (About Mcdonald’s). While the chain belongs to the fast-food and convenience segment, by improving their image and atmosphere they have been able to divert typical Starbucks customers to their versions of specialty coffee.
McCafé is the new product line and chain that proves McDonald’s commitment to improve and expand their coffee product lines. McCafé is a coffee line here in the states, while internationally some McCafé shops exist that only sell their coffee products (Baertlein, 2008). McDonald’s strives to beat Starbucks on cost advantage, they believe they can equal the quality of coffee without the added expense of the Starbucks atmosphere/experience.
A SWOT analysis is a good indicator for a company and for investors that gives an indication of strengths, weaknesses, opportunities, and threats within a company. Investors can compare a SWOT analysis to many different aspects of a firm to help the investor in determining the long-term health of an organization. In relation to Starbucks, the company does not seem to have an overwhelming amount of threats or weaknesses which is why the company has shown growth in recent years. There are however a few key opportunities and threats that have been observed that could benefit the company significantly. The company’s SWOT Analysis can be seen below (Exhibit 8).
Expanding Operating Margin
Starbucks had reported an operating income of $2 billion for 2012 compared to a reported $1.7 billion in 2011. This increase was seen in part because of closures of Seattle’s best stores within Borders bookstores. Another factor contributing to this was an increase in sales leverage for the company as net revenues increased 14% in 2012 (Starbucks Corp., Business Insights: Essentials).
Global Retail Footprint
Starbucks operates in a total of around 18,006 stores across 60 countries worldwide. Starbucks also has shown plans to open new stores in addition to remodeling its older stores in the U.S. demonstrating further company expansion (Starbucks Corp., Business Insights: Essentials).
Starbucks offers a growing selection different types of not only coffee but pastries, teas, music from the store, and recently even alcohols and wines. This is a huge benefit to those stopping in at Starbucks in the mornings because now they are able to grab a complete breakfast and it allows them to more directly compete with McDonalds who offers coffee and breakfast (Starbucks Corp., Business Insights: Essentials).
Strong Brand Image
The Starbucks brand is a widely recognized brand that has grown to hold a reputation for being a quality and more upscale coffee. This strong brand image makes the company more valuable and can help persuade consumers to purchase coffee over smaller unknown businesses (Starbucks Corp., Business Insights: Essentials).
Loyal Customer Base
Thanks to Starbucks’ new loyalty program, the company reported record sales in Q3 of 2013. Upon creating the loyalty program, Starbucks’ operating income increased 14% (Tierney, 2013).
Overdependence in the U.S. Market
Although Starbucks has stores across the globe, U.S. sales accounted for about 76.5% of Starbucks’ total sales leaving the rest of the world accounting for only 23.5% of total sales. Having such a large dependency on the U.S. market could be devastating if the U.S. market were to decline as it would have a much larger impact on the company than if they were to have a better balance globally (Starbucks Corp., Business Insights: Essentials).
Starbucks has raised prices seven times since their opening in 1997 and the rising prices could lead to an unstable customer base in the long-term (Goudreau, 2007). There is always a cap in the customers mind about what is an acceptable amount to pay for a cup of coffee and if current trends continue, Starbucks could quickly hit this limit. The already high prices of a cup of Starbucks coffee is already much higher than competitors.
Business Expansion Overseas
Starbucks is constantly investing in expanding their business to add to their global footprint. By opening more stores overseas, Starbucks can create more stability by being less dependent on the U.S. By opening more stores in a smart way (mixing well with local culture) the company could create a substantial amount of profit (Starbucks Corp., Business Insights: Essentials).
Starbucks has began an initiative to cater to time-sensitive consumers. Traditionally, Starbucks has not been somewhere that an individual could go if they were in a hurry. Recently Starbucks has began catering to these individuals by adding a drive-thru to some of their restaurants. Other efforts have began such as wine and alcohol offerings but Starbucks needs to continue these efforts in addition to constantly making changes to fit changing demographics.
Starbucks competition includes everything from specialty coffee shops to restaurants. The coffee industry is one that is constantly growing and shows no signs of slowing in the near future. If Starbucks is unable to maintain quality and retain customers, they could quickly lose customers to the competition.
Increasing Commodity Cost
Starbucks’ major product (coffee) has been increasing in price at a higher pace over the years. According to the International Coffee Organization, coffee price has risen from 147.2 cents/pound in 2010 to 210.39 cents/pound in 2011. These higher commodity costs negatively impact Starbucks because the company must then make the decision to raise prices, slow growth, or accept smaller profits (International Coffee Organization).
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