Starbucks as a coffee industry in comparison to its strong competitors
The main focus of the assignment is to discuss Starbucks as a coffee industry in comparison to its strong competitors. Starbucks is a coffee industry chain that was established in 1971 in the USA. Starbucks at recent times has achieved annual revenue of $27.7B and is valued at $108.36B dollars.
The top competitors of Starbucks include Caffe Nero, Costa Coffee, Dunkin Donuts, McDonald’s, Café Coffee Day, KFC etc. Starbucks has stores where it provides food for on spot eating or take away for home. Starbucks was able to restore its partners in this competitive era, thus it is one of the significant reason for its growth factor. Starbucks has been providing more than 30 brands of premium coffee which are mostly handmade. It has also been able to diversify its products from sole sale of coffee to different types of beverages, foods. A part from that it includes baked pastries, sandwiches, fruits, salads etc. Starbucks could understand the tremendous pressure of competition so they have been substituting products for all types of customers to enjoy and in order to increase its customer base. Starbucks has substituted dairy milk with substitutes such as almond milk, soymilk, coconut milk and so on. So that the customers who are lactose intolerance or those who does not like milk could enjoy the flavors equally.
The total number of stores that Starbucks has is around 21,100 which is more than Dunkin Donald 11,000 and less than McDonalds 36,000. The annual sale of McDonalds is the highest if we compare these three it is striking $27,44B whereas Starbucks is $16.408 and Dunkin Donald’s $748.71M. Even McDonalds possess the highest number of employees which is approx. 420,000 in other hands Starbucks has 191,000 employees and Dunkin Donald’s 1,134.
Its competitors are also no way less- Caffe Nero is one of the leading coffee houses in Europe. The main vision of the brand is to create traditional Italian coffee shops all over the country. It provides top quality coffee along with friendly neighborhood to its customers.
Costa Coffee is also a multinational coffee industry established by the Costa Brothers . At present it has more than 3,800 stores in 32 big markets in United Kingdom and the second most successful coffee company across the world. It has reached impressive revenue of $1.7B with its 18,400 employees in 2018.
The total number of Coffee Shops owned by the world’s largest fast food chains, thus the great success as mentioned above by McDonalds made it the greatest success chain in the world where about 15% of the revenue is generated by McDonalds alone regularly as per a study in 2003.
Dunkin Donuts is among the first five global coffee chains in the world, though mostly popular in the US. It has expanded is business in the world wide firm with over 10,000 restaurants, and 47% of the total revenues in US alone.
In the assignment detailed analysis of the competitive advantage of Starbucks and its well-known competitors are made. Starbucks has seen tremendous growth in its last couple of years.
The external environment analysis of Café Coffee
Pestle analysis of Café Coffee
The political factors that are affecting the Coffee industry
The business of coffee is dependent on international trades. The biggest coffee producers of the world are mostly located in South America, Asia, and Africa. Moreover coffee is the most common drink in countries of Europe and America. The relationship between countries those who manufacture the coffee and those who consumers have a very strong relationship as they are directly dependent on each other. They also demand the final price tag of the coffee which ultimately impacts sales.
Economic factors that are affecting the coffee industry
As the economics of the world has been growing for the last couple of years, there are common benefits of the coffee industries that are consumers are likely to have growing incomes. Which indicated that the consumers will have more money to spend every year. This can also highly influence the consumer goods firms as well alongside affecting the food and drink industries. When the consumers are getting richer they are more likely to consume coffee or other luxury beverages.
Sociocultural that is affecting the coffee industry
Health Consciousness- in the 21st century there is a drastic change about the people’s concern about their health could visibly be noticed. Thus making choices that are healthy is now at most hottest trends, thus this is influencing the customers to spend more time in exercising and keeping themselves fit, eating healthy food and avoid bad habits. Though there are numerous studies that have shown that coffee is not healthy for the body as it contains a lot of caffeine. So as a part of healthy life style many of the consumers have been giving up on coffee for better mood, sleep and wellbeing.
Fair trade-another visible socio cultural trend is fair trade. Fair trade is generally a international movement that have been done in the motive to give a fair compensation to the farmers behind the produce, instead of the middle man who have been reaping huge product. The fair trade movement mainly targeted the coffee industries specially. As many of the consumers have shown higher demands for the coffee products the farmers could earn more and the middle man would earn comparatively less, thus improving the standards of living of the hardworking farmers.
Technological factors that are affecting the coffee industry
One of the recent trends in many foods and beverage industry is Genetic Engineering. Genetic Engineering helps in modifying the produce at generic level to improve the quality of yield shelf-life and yield. Mostly the engineered coffees are finding increased used within the coffee industries. The genetic engineering has helped the coffee industries to grow, as it allows the producers to generate larger amounts of profits.
Coffee machines- the coffee specific appliances have also brought about a drastic change in the coffee industry. The inventions of coffee grinders, espresso makers and drip machines have make it easy for the companies to serve large qualities of quality and tasty coffee profitably. This has also encouraged many consumers to brew coffee at home on their own.
Environmental factors that affect the coffee industry
The world has been facing numerous health related issues because of environmental calamities. Though some of the issues are not related to food or drink industries but some are. Sometimes unsustainable farming can result in deforestation. Moreover there are other concerns to farming methods like using of too much pesticides and fertilizers or even wastage of water. At recent time’s world has been leaning more towards sustainable farming.
Legal factors that are affecting the Coffee industry
As the products are designed for consumption most falls under the food and regulation standards of the country (ÖZTOPÇU, 2017). So the food and drink industries are to abide by varies to law concerning how it should be stored, brewed or transported as in the case of coffee. Moreover as coffee contains a huge quantity of coffee, so it has to maintain a particular standard of caffeine contain.
Porter’s Five force Analysis of Coffee industry
Competitive Rivalry
Despite the coffee industry have been growing at a 5% growth interest, the coffee industry still faces strong rivalry due to the presence of multiple competitive competitors. Starbucks has been leading the coffee industry with revenue of approx. 22.38B USD followed by Tim Horton with revenue collection of 3 B USD every year. Other coffee industries such as Dunkin Donuts, Costa Coffee, Panera Bread, Peet’s Coffee and Caribou etc follows. Hence it can be said that the coffee industries that are competing with each other have massive financial strength even in the international markets.
Bargaining power of Buyers
The power of bargaining of the buyers in these coffee industries is usually high because of the presence of a large number of coffee providers with no radical differences as such. Customers those who show loyalty towards the brand are not strong and the switching probability of the customers is high or low or with no switching cost. As the buyers have many options to choose from, starting from local to international all these keeps the buyers power high and thus high bargaining power of the companies.
Bargaining power of suppliers
The bargaining power of the suppliers is eventually low as the companies here are strong and they have a large number of suppliers to choose their raw materials from. There are also some companies who choses their own coffee beans as the main ingredient of coffee. As the companies have the option to choose from different suppliers it keep the companies strong and in dominant position.
Threat of new entry
In the coffee industry the threat of new entries are the highest as the hurdles for new market entry is low. As the hurdles of the coffee industries are not usually complex they can be easily eliminated hence the entry to the new market is easy. Moreover there is no requirement of huge capital investment as most of the coffee cafeterias starts with minimal budget at a smaller level with takeaway options. Which concludes that capital is not the hurdle for entering into new market and The skill requirement does not need to be highly technical or trainable, making it further easy to enter the market.
Threats of substitutes
As there are availability of number of substitutes hence the threats of substitutes are high. Moreover the number of substitutes of the coffee industry has been increasing day by day which can be a concern. Tea is one of the major substitutes of coffee.
Industry life cycle model of Coffee industry
The product life cycle of coffee includes many stages such as introduction stage, growth stage, maturity stage and decline stage.
Introduction Stage- this stage comprises of product’s life cycle initiation with high good price, high advertising cost and selective distribution in limited markets. In many industry the introduction stage happens in the year before the widespread of coffee chains.
Growth stage- the rapid increase is characterized by the increasing growth of the product or the brand. Prices are supposed to stay at higher levels if the demand of the product is also high or else the price can be dropped to get more attention of the customers.
Product maturity stage- the maturity of the product life cycle features high awareness of brand , low price o remain competitive, wide distribution of product and continuous product modification for distinctiveness.
Decline stage- Modern Coffee makers are enabling consumers to make single cups of coffee in few minutes in their home and snatching of customers from other companies by means of lower prices can be a decline phase.
Internal environment: Starbucks competitive advantage and how it differs from its competitors
Starbucks strategies have made them one of the most recognizing coffee brands globally. Starbucks have been able to sustain their competitive position in massive rivalry and established themselves as the number of coffee shop in the world because of the quality of the coffee. Starbucks at present day is has also been able to create a strong loyal base of customers because of their friendly service and amazing products. Starbucks was also able to survive the crisis of 2008 in the financial department beautifully. By the year 2008 Starbucks was running on losses with a net income of about -53% yet by the year 2009 they not only cope up with their losses but was also able to gain profit of about 24% (Duke,
2018).
Starbucks enjoys its competitive advantage on a number of criteria; those are mentioned as follows
According to VRIO
According to the research analysis of VIRO, the study showed that financial resources of Starbucks is usually of high value, thus helps in investigating in external opportunities.
Again according to VIRO Starbucks analysis, the local foods products here highly differentiated because of its high value sources (Goswami,
2018).
The VIRO analysis also showed Starbucks customers as one of the valuable resource to the organization. The workers here are highly trained leading to more productive output.
Patent is also considered as a valuable source as it would allow the brand that is Starbucks to sell its products without any interference (Misbra and Sachan, 2018).
The VIRO analysis also showed that Starbucks distribution network is a valuable chain as it helps to reach out a lot of customers on daily basis which kept on increasing over the time.
The VIRO analysis shows that cost is not a valuable source as the method of production is way more costly than completion cost affecting the overall profit margin (Blake,
2019).
The research and development department at Starbucks is considered to be non-valuable according to VIRO as it has proved to be costly comparing the innovation that it provides to the organization. There has been very few new innovative breakthrough products in the past few years (\Nair and Weber, 2017).
The financial position of Starbucks is declared as rare as strong financial position is enjoyed by few companies of this field.
The patents of Starbucks are known as the rare source as identified by the Starbucks VRIO analysis. This patent is not so easily available and also not possessed by any of its competitors.
The distribution value chain source is also declared as the rare source by VIRO in Starbucks analysis as the competitors would require a lot of time and investment to have a better distribution network than Starbucks (Nguyen, 2016).
The financial resource of Starbucks is costly to imitate as declared by VIRO analysis of Starbucks. The sources were gained by the company after prolonged years of profit (Azriuddin et al. 2020).
Though the local foods of Starbucks are not costly to imitate as declared by VIRO and hence lots of its competitors are seen to imitate its food products.
Even the employees of Starbucks can easily be imitated and not that costly as declared by VIRO as other firms also can train the customers to be more skilled (Li, 2017).
Value Chain- the term value chain is used for the understanding and segregation in different useful and wasteful activities in each step of the development process of the product. It also states that if values are added at each step of the production, then the value of the ultimate product also increases, thus makes Starbucks achieve greater degrees of profit margin (Li et al. 2019).
The resources and capabilities of Starbucks are as follows-
Brand Equity- From the beginning Starbucks was able to create a goof brand image for itself in the minds of the customers. It is known all over the world as an ethical and accountable premium brand. It can be said that Starbucks’s brand image has helped in faster growth of the brand. The strong image of the brand is because it has maintained its quality and customer service (Atzori et al. 2018).
Pricing strategy- As Starbucks is a premium coffee brand, its pricing strategy is one of its key strengths. It targets mainly the coffee lovers of higher status. However its customer is willing to pay the higher charges because of its quality and customer service (Han et al.
2019).
Variety of product range- A variety of different beverages and food items has helped Starbucks having a competitive advantage over the others. It keeps on experimenting with new unique flavors to add to its coffee range. Apart from coffee it has also been serving beverages and snacks. Hence it gives a lot of variety to the customers to choose from (Voigt et al. 2017).
Customer loyalty-Starbucks has been enjoying a strong loyalty base from the customers. The customers keep on returning back to Starbucks mostly for its quality of beverages and food and customer service. Starbucks has also given individual attention to all its employee members for fulfilling experience. The quality and variety of beverage and food choices has made the environment welcoming for millions of customers all over the globe (Wu, 2017).
Customer service- this is another source of competitive advantage Of Starbucks, it has made customer service as its cultural logo from the beginning of its establishment whereas other brands got to know the importance of customer service later (Mason et al. 2017).
HR management- Human resource has been one of the significant assets of a company. Starbucks has been investing on it for their employee satisfaction as they keep their employees at first priority, this has helped Starbucks in bringing more productivity and performance of their employees. By the year 2018 Starbucks has employed more than 291000 employees among them 191000 were native to US (Kopsidas and Politi, 2016).
Leadership- Leadership is also a criterion that provides strength to a brand, thus provides a competitive advantage. Starbucks has witnessed some of the strongest leadership of the decade like Howard Schultz and Kelvin Johnson. They have focused on improving creativity and enhancing ethics (Smith, 2017).
Supply Chain Management- the strong supply chain management of the company also aids in providing strength and competitive advantage to the brand. The brand has always focused on good quality of coffee beans, thus it has been selecting its farmers and suppliers carefully (Ulsido and Li, 2016).
Global Network- the large wide network of Starbucks has proved to be one of its competitive advantages. At present there are more than 29.324 stores are present worldwide. Starbucks has been the largest coffee brand for last couple of years in US (Pascucci, 2018).
The Starbucks core competencies are defined as high quality coffee and food products that are usually accessible in locally and at cheaper price, a community that shares coffee drinking experience and different choices. Starbucks has always been practicing good ethics and practices. Starbucks enjoys its competitive advantage on quality, service, culture and ambience. Starbucks control its important business steps directly. At present there are a number of trade agreements globally who are making sure that the coffee industries be successful. Hence also with the growing economy, the consumer is more likely to seek for higher quality of products such as higher qualities of coffee grains. . Not be forgetting that these are only the international chains whereas the local chains within each of the specific country are also a part of the competition which intensifies the rivalry even more (Cruz et al. 2020).