Starbucks Company’s Potential Challenges

Introduction

Starbucks is an organisation that operates both in the United States and globally as a player in the international coffee industry. Although its coffee is considered to be overpriced by many, this has not stood in the way of its general success in both local and international markets (Roby, 2011). One of the reasons for this achievement is that all the Starbucks coffee shops provide a friendly environment for their customers with a staff that is thoroughly trained to be amiable and helpful towards customers (Roby, 2011). Furthermore, it has also been suggested that people may purchase coffee from Starbucks because it is a status symbol, and they enjoy what their coffee represents (Roby, 2011). The following is an analysis of the challenges that may meet this organisation in both its local and global business environments.

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Economic Challenges

The significant economic challenge that Starbucks may have to face is learning how to operate in price-sensitive markets. This organisation has never had to function in a prolonged economic recession, and many critics fear that it may baulk under the demands for reduced prices, especially in light of the increased competition in the industry (Roby, 2011). The fact that their services are predominantly upscale may negatively impact the loyalty of its customers who may opt to shift to cheaper brands.

Be that as it may, it has also been estimated that despite the increased cost of coffee, the industry is continuing to grow (International Coffee Organization Prices, 2010). In fact, the price of the coffee bean rose by almost 200% between 2009 and 2011. For this reason, Starbucks had to increase the prices of its coffee in 2010, a decision for which it suffered a decrease in profits. Regardless of these barriers, however, some commentators have remained optimistic, believing that the upcoming markets will be sufficient to offset the declining customer base for speciality coffee (Roby, 2011).

One of the markets that are thought to provide a large market for Starbucks coffee in the future is the Brazilian market. This country’s economy is growing, thus resulting in an expanding middle and upper class (Roby, 2011). Therefore, these people may be able to afford Starbucks coffee and other luxury items despite the global recession. Secondly, the Indian market is also considered to hold optimistic prospects for the future. Similar to Brazil, it is also facing an exponential growth in its economy, which portends an increasing customer base (Roby, 2011). Therefore, despite the prevailing economic conditions may constitute a challenge to Starbucks coffee, there may, nonetheless, be opportunities to offset whatever losses may ensue from this hardship.

Concerning the political sphere, Starbucks has had to deal with political unrest in some of its host countries. One of the most notable of these is in Israel, where the company had to shut down six stores due to the prevailing conflict between Israel and Palestine (Jung, 2015). This phenomenon is not new and many authors who have considered the issue are quick to compare these challenges with those that were faced by McDonald’s as it was also expanding into new markets (Jung, 2015).

Furthermore, in foreign markets, Starbucks stores are a likely target for anti-war protestors and terrorists, regardless of their prudent expansion strategies. Starbucks usually forms strategic joint ventures when it wants to expand into a new environment in the hope that this will enable it to secure the goodwill of the locals (Jung, 2015). Despite this strategy, Starbucks stores in Lebanon were boycotted by those people who were opposed to the U.S. led to war in Iraq (Jung, 2015). This was in spite of the fact that these stores in Lebanon are wholly Arab-owned. Also, the country has been criticised by New Zealand protestors who are seeking higher prices for coffee farmers (Jung, 2015). In some cases, globalisation is seen as corporate colonialism, a view that makes such global companies lose favour with the local market players.

Competition

Due to the increase in consumers of coffee, there has also been a proportional increase in the suppliers of coffee. These competitors have their strategic advantages which make their coffee more desirable than that which is offered by Starbucks. For example, McDonald’s usually market their low coffee prices that may prove a formidable challenge for Starbucks since their products are known to be expensive (Roby, 2011). Secondly, Dunkin Donuts, another upcoming competitor, uses the fact that it has better coffee and a wider variety to choose from as its selling points (Roby, 2011).

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Be that as it may, marketing professionals assert that Starbucks may still be able to prevail over its competitors by maximising on its inherent strengths. One of these strengths is that it has expanded widely in upcoming markets, and it has already established its brand in countries like China (Sola, 2016). Secondly, consumers of speciality coffee often buy their coffee, not so much for the price, but for the taste. Therefore, Starbucks may still retain those consumers who are loyal to their brands because of their quality and taste (Roby, 2011). Lastly, Starbucks has formed distribution alliances that ensure that it has expanded its distribution and product portfolios.

Technology

Technology plays a crucial role in ensuring that the business remains competitive. In light of recent technological advancements, coffee houses have also had to diversify their services to stay relevant with their customer bases. Starbucks was established from the inspiration of Italian Coffee houses. The founder of this organisation has since revealed that the idea behind the company was to create a relaxed atmosphere where people could get their coffee while they socialized (Sola, 2016). Therefore, keeping with this vision, the business has had to include some technological perks to its services so as to remain competitive and still achieve its original objective. Some of these perks are the free wireless internet, a Starbucks Digital Network that allows access to iTunes, Wall Street Journal other online services that require a fee (Miller, 2010). The obvious challenge, therefore, is the additional operational costs that arise due to the addition of these services.

Cultural

Many of the cultural challenges that arise do so as a result of expansion into new markets. While analysing the challenges that might face the company when expanding into Italy, Sola (2016) asserts that culture might prove to be one of the biggest hindrances. Regarding coffee culture, Italians consume most of their coffee from their homes, as many Europeans have been found to do. This may prove problematic for any coffee house because they thrive on people taking beverages outside their houses. Secondly, Italians have a dislike for chain cafes, preferring instead of their bars and independent cafes, which make up 89% of the coffee market (Euromonitor International, 2016). From this, it is evident that culture clash may serve as a significant barrier to the expansion agenda, which is one of Starbucks’ strategic moves. However, the success that was recorded in China, which was a predominantly tea-drinking state, may serve to encourage Starbucks in overcoming these cultural barriers.

Demographics

The changing demographics of coffee drinkers have also been a factor that is cited as fuelling the coffee war among competitors. One of the major advantages of Starbucks is that the Millennials, who are increasingly forming a majority of its customer base, have grown up with the high coffee prices and are therefore less likely to be deterred by its seemingly exorbitant prices (Woolf, 2014). Also, the National Coffee Association of America recently reported that 61% of all the Americans who are above the age of 18 are coffee drinkers (Woolf, 2014). This is a sizeable share of the population that all the coffee retailers are trying to tap into. The primary challenge concerning demographics is the attempt to penetrate into areas where another brand is already established. For example, Dunkin Donuts is estimated to have over 7000 outlets in the U.S., many of which are in the Northeast and New England (Woolf, 2014).

Conclusion

On the whole, businesses that seek to expand beyond their home countries are set up to face unique challenges that are brought about by the entry into foreign markets. Starbucks has long upheld the tradition of forming strategic joint ventures when entering new markets. This allows them to secure the goodwill of the locals as those who manage the business in the foreign states are residents of those states. However, as the above discussion has revealed, this is not always an effective approach. Some barriers that may still not be pierced by such partnerships, especially those that are politically and ideologically founded. Also, the fact that many other businesses are expanding forms a unique challenge because not only does a business have to overcome the difficulty of connecting with a new environment and culture, but they also have to fight against other competitors who are eyeing the same markets. However, this paper has also revealed that Starbucks’ operational advantages may prevail against the competition if they are sustained and improved.

References

Euromonitor International. (2016). Cafes/ bars in Italy. Web.

International Coffee Organization Prices. (2010, December). International Coffee Organization – News from the ICO. Web.

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Jung, H. (2015, April). Coffee in a time of conflict: Starbucks’ growth risks backlash. Organic Consumers Association. Web.

Miller, C. C. (2010). Aiming at rivals, Starbucks will offer free Wi-Fi. The New York Times. Web.

Roby, L. (2011). An analysis of Starbucks as a company and an international business. (Unpublished Honors Program Thesis). Liberty University, Lynchburg. Web.

Sola, K. (2016,). Six challenges Starbucks must address to succeed in Italy. Forbes. Web.

Woolf, N. (2014). Starbucks faces growing rivals as coffee wars reach boiling point. The Guardian. Web.

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