Starbucks Corporation’s Market and Strategic Analysis

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Introduction

Starbucks Corporation is one of the most successful companies in the world. Its growth and progress can be attributed to the strategic choices and business policies it has adopted and implemented. For example, the brand-centric marketing strategy has allowed Starbucks to maintain an iconic identity built around customer service (Pafitis, 2020, para. 4). Starbucks was opened in 1971, where it started as a single store in Pike Place Market in Seattle (Starbucks, n.d. para. 2-3). The business offered some of the finest fresh-roasted whole beans coffees in the world.

Its growth can be attributed to Howard Schultz, who became chairman and executive officer in 1982. The company’s mission has been to inspire and nurture the human spirit, which can be manifested in customer service. Today, the company has over 32000 stores in 83 markets worldwide, which offer more than 30 blends of single-origin premium coffees.

From the background of Starbucks, it is evident the business has always sought to customize the consumer experiences and build its marketing strategies around the brand. However, it is important to acknowledge that most of the strategies and business policies adopted have always been successful. A strategic fit analysis would reveal that the critical success factors include the quality of the products, the design of the ’company’s stores, and customer services. With such strategic elements, the company has managed to grow its sales and revenues rapidly across the world, as well as to conquer new markets.

However, the main focus of this report will be another strategic effort by the company manifested by the sustainability policy. In other words, Starbucks has planned to halve its environmental impacts through a resource-positive strategy (Eddie, 2020, para. 1). The vision is to be accomplished by 2030, which includes such measures as reusable packaging, forest conservation, reforestation, eco-friendly supply chain, and water replenishment (Baker, 2020, para. 1). The focus of this report will be on the market environment, resource capability, and strategic fit os Starbucks.

Market Environment Analysis

Starbucks is a global brand in the beverages market, offering coffee and related products. Coffee has been gaining popularity across the world, which means that many businesses are already involved in the industry. According to Azriuddin et al. (2020), Starbucks Company is the leading roaster and retailer of specialty coffee that is based in North America.

The market environment analysis will explore the conditions in which Starbucks operates. Considering that the strategy being referenced affects the global operations, the research will pay attention to the worldwide market for coffee products. Three main tools will be used for the market analysis: Porter’s Five Forces, PESTEL analysis, and SWOT analysis. The rationale is that combining these tools makes it possible to explore both the macro and micro-environmental factors.

PESTEL analysis examines the external environment in which a company operates. The term PESTEL is an acronym for political, environmental, social, technological, environmental, and legal factors (Saeed, 2019, p. 2; Vasquez et al., 2018, p. 1). The political factors involve global politics, and those of the individual countries affect the business. For Starbucks, many of the countries where it has stores are politically stable. However, bureaucratic red tapes involving such concerns as environment and minimum wages, as well as taxation for exports and imports, tend to affect the country. The company sources coffee from different countries, which means that it suffers from different taxation policies. Other political issues the company has to deal with include working hours and political activism surrounding sensitive topics.

The economic factors involve the business environments across the world where such concerns as growth rates, employment, inflation, and labor costs need to be addressed. For Starbucks, western markets, including the United States, are risky because of the minimum wage legislation. For example, recent legislation saw the company raise the wages of baristas by 10%, which means higher costs of labor in the country (Lucas, 2020, para. 2). However, the global economy remains relatively stable, with many emerging markets offering growth potential. Another major economic issue affecting Starbucks is the rising coffee prices across the world (Volkman, 2019, para. 1). Overall, the global economic environment is suitable for Starbucks to succeed.

The main social factor affecting Starbucks is the rise of coffee cultures across the world. According to (Lipstein, 2019, para. 1), coffee has become the ambrosia of the capitalists and the creative, where it can be perceived as many things, including social rituals. For Starbucks and other businesses in the coffee markets, this can only mean better prospects for growth and expansion. Additionally, there is the growth of the middle class, which should offer more markets. Health consciousness implies the company has to be careful of the health implications for its products.

Technologically, all businesses have embraced new technologies either to explore new markets or to improve market efficiency. For Starbucks, one of the main areas where technology is applied in the efforts marketing with the growing use of social media (McNamara, 2019, para 3). Other technological factors include online shopping and the availability of specialty coffee machines for home use.

The climate has forced many businesses to become environmentally conscious. Starbucks is an example of those companies that have developed measures to conserve the environment through the reduction of carbon footprint. Additionally, Starbucks faces a shortage of key resources, which explains why the strategic objective of becoming resource-positive has been implemented (Starbucks, 2020, para 3).

The push for sustainability and growing supports for responsible sourcing is also affecting various practices of the company. Lastly, Starbucks has to deal with many legal issues across the world. For example, the United States regulates product safety, while many countries also restrict GMO products. Employment legislation and policies across the markets served by Starbucks are also critical considerations.

Another framework that can be used to analyze the market for Starbucks is porter’s five forces. According to Oneren, Arar, and Yurdakul (2017, p. 512), the five forces model examines all the factors that affect the strategies used by a firm to compete in an industry. Developed in the late 1970s by Michael Porter, the five forces are the power of buyers, the power of the sellers, availability of substitute products, the potential of new entrants, and rivalry among current competitors. For Starbucks, the coffee market is highly competitive, and these factors will play a key role in determining the success or failure of the company on a global market.

The first force is competitive rivalry, which is a strong force. The availability of multiple firms offering coffee products means stiff competition. Additionally, other beverage companies can easily switch to coffee due to the low costs, which further increases the rivalry. The bargaining power of buyers is also a strong force because they can easily access similar products. The multiple businesses in the market also hint at the fact that the availability of substitutes is high. However, the bargaining power of sellers is a relatively weak force since there are multiple suppliers. Their sizes are also smaller, and they operate in an environment with a large supply.

The fourth force is the threat of substitutes, which is a strong force for Starbucks. The rationale is that there is a high availability of substitutes and firms with low switching costs. Additionally, the affordability of the ’competitors’ products increases the strength of the competition. Lastly, the threat of new entrants is a moderate force because of the average startup and supply chain costs.

Resource and Capability Analysis

The success of companies depends on the resources and capabilities they possess and how they utilize them. Resources often is a term used to imply the productive assets that a firm owns. According to Sar (2019, p. 184), resources can be hired or fired, depreciated or appreciated, sold or bought, and transported across organizational boundaries. As an international corporation, Starbucks has arguably effectively deployed its key resources and capabilities in the pursuit of success.

Key resources can either be tangible or intangible, as explained by (Kamasak, 2017, p. 252). The intangible resources have been perceived as the most likely to offer businesses a competitive advantage. Additionally, human resources in the modern business environment are also critical success factors. In other words, obtaining top talent can help a company achieve great results in terms of individual and corporate performance. Therefore, exploring the key resources for Starbucks will entail highlighting how each of them helps the company become more competitive in the market.

Capabilities can be described as what a company can do and accomplish. It is important to notice that the resources are part of the capabilities, alongside priorities and processes (Sar, 2018, p. 184). The alignment of resources and capabilities is what drives companies to achieve success (Razzak, Al-Kwifi, and Ahmed, 2018, p. 274). In the case of Starbucks, such resources as finances and such capabilities as high-quality products have been critical to the ’company’s brand-centric marketing. Therefore, the Starbucks brand has become a global icon because of the ability of the firm to find the best use of resources.

Before highlighting the key resources and capabilities of Starbucks, it is important to explore the basic too for this task. The VRIO framework comprises four descriptive characteristics of the key resources and capabilities: value, rarity, imitability, and organization. Resources and capabilities that can increase the income and lower the costs of a company are deemed valuable and a source of competitive advantage. However, the helpful resources may fail to offer an edge if they can be easily accessed or obtained by competitors.

Therefore, the rarity of the resources can help sustain a competitive edge for a firm. Similar, resources and capabilities that are easy to imitate may not be effective sources of competitive advantage. Therefore, a firm needs resources that are expensive for the competitors to replicate (Vargas-Hernández & Garcia, 2018, p. 230). Lastly, the resource can display all three features, but without the proper efforts to organize them to capture the value, they may not offer a company competitive advantage. Table 1 below summarizes the key resources and capabilities for Starbucks using the VRIO framework.

Key Resources and Capabilities Value? Rare? Expensive to imitate? Organized? Competitive edge?
Strategic global locations Yes Yes No Yes Temporary
Global brand recognition and equity Yes Yes Yes Yes Yes
Aesthetic appeal Yes Yes Yes Yes Yes
Size and global presence Yes Yes Yes Yes Temporary
Human capital Yes Yes Yes Yes Yes
Technology Yes Yes No Yes Temporary
Customer loyalty Yes Yes Yes Yes Yes
Good CSR image Yes Yes No Yes Temporary

Table 1: VRIO analysis of Starbucks (Geereddy, n.d.).

Table 1 above shows that many of the resources and capabilities of the company are being utilized effectively to offer the company a competitive advantage. Regarding prime and strategic locations, the company has set up its stores in places that have high traffic and visibility. Strategically, the company also emphasizes setting up stores in office buildings, university campuses, suburban retail centers, and selected rural and off-highway areas across the world. However, other businesses use the same strategy, which means that this competence only offers a temporary competitive edge. Additional resources and capabilities that provide temporary competitive advantage are the ’company’s size and global presence, technology, and good CSR (corporate social responsibility) image.

The modern business environment has necessitated many companies to utilize these capabilities. For example, those businesses that ignore new technologies can become obsolete. Therefore, Starbucks may have found an effective way to exploit such technologies as social media with positive outcomes. However, similar strategic approaches have become standard across all industries, which means that a resource can display all four VRIO characteristics and still fail to offer ultimate competitiveness.

Global brand recognition and equity are critical for Starbucks in the highly competitive market. Starbucks can be described as the most recognizable coffee house and ranked 91st in the list of best global brands. Additionally, merchandising products and licensing its brand has also boosted recognition and equity, which is enough to offer the company an edge over the competitors. Another aspect is the aesthetic appeal manifested by the concept of the Starbucks stores. The visual appeal and other ideas, including great music, free Wi-Fi, community meeting spots, and a warm atmosphere, have offered the company a capability that competitors can match. Ultimately, it is the financial resources and the emphasis on brand-centric marketing that make it possible for Starbucks to develop the best stores.

Lastly, human capital cannot be ignored as a key resource. Even though competitors can tap into the global talent pool, the corporate cultures surrounding the management of workers can make a huge difference. For example, Starbucks stores have been labeled as one of the best places to work and where employees are offered great benefits. Their performance tends to reflect these facts, which means that Starbucks has managed to organize its human resources to extract maximum value from its services.

Strategic Fit Analysis

Studies of organizational performance have explored such concepts as a strategic fit. According to Apaydin et al. (2021, p. 403), the term ‘”‘fit’ has been used to imply the congruence between a firm and its tasks or environment, which predicts corporate performance. Another description of strategic fit has been offered by Rahman and Rahman (2019, p. 45), who express that it means meeting the external environment of a firm with the resources and capabilities. In other words, strategic fit describes the extent to which a business pursues strategic objectives, including competitive advantage, using the key resources and powers it possesses.

The actions of Starbucks can be aligned with the strategic courses of action where the competitiveness of the company can be perceived as evidence of the strategic fit. In other words, the market environment analysis and the resource and capability analysis have highlighted the key strategic concerns facing Starbucks. A general conclusion can be made that Starbucks has achieved a strategic fit.

SWOT analysis is a framework that can be used to explore the strategic fit by examining the internal factors (strengths and weaknesses) and external environment (opportunities and threats). From the PESTEL analysis discussed above, many of the environmental factors can be classified either as opportunities or threats, as illustrated in Table 1. Internally, however, there are certain aspects of Starbucks that make the company perform at the current levels. Examples include the strong brand that the company has created through a brand-centric marketing strategy (Pafitis, 2020, para 3). Additionally, the company has an extensive global supply chain. A moderate diversification through the use of subsidiaries has offered Starbucks the ability to sustain its quality and customer experience.

In terms of weaknesses, Starbucks suffers from high price points, which can be perceived as the result of the emphasis on quality. Even though the prices help maximize profits, they also tend to be detrimental to the affordability of the products. The efforts to maintain the brand image have also resulted in generalized standards for virtually all products. All the stores are designed to hale familiar outlooks and developments. Therefore, it can be argued that consumers with different tastes are not served. The imitability of the products also means that Starbucks has to deal with stiff competition.

Positive Negative
Strengths Weaknesses
Internal
  • Strong brand image
  • Extensive global supply chain
  • Diversification
  • High product price
  • Product generalization
  • Imitability of products
Opportunities Threats
External
  • Regionally integrated markets
  • Emerging markets
  • Growth of coffee culture
  • Growth of middle class
  • Online business
  • Pursuit of sustainability
  • Environmentally-friendly products
  • Government red tapes
  • Rising labor costs
  • Availability of specialty coffee machines for home use
  • Environmental regulations
  • Employment regulations

Table 2: SWOT analysis for Starbucks (developed using MS Word).

From the SWOT table above, it can be argued that many of the environmental factors have been addressed using the resources and capabilities. For example, the ability to build an extensive global supply chain alights with the presence of regionally integrated markets. Additionally, a strong brand image helps the company take advantage of the growing corporate culture and the rise of the middle class with higher purchasing power. Therefore, the environmental factors are exploited using the key resources and capabilities.

The VRIO analysis summarized in Table 1 above can also be used to illustrate how the company has achieved strategic fit. For example, technology is a key resource that Starbucks possesses, which can be used to exploit such opportunities as online businesses. It has been mentioned that the company extensively uses social media for marketing purposes, which is an example of how the company creates value from technology in alignment with the external environment.

Conclusion and Recommendations

Starbucks is a highly recognizable global brand whose success has been built on the strategic actions it has taken since its establishment. The report has explored the market environment, key resources and capabilities, and the strategic fit of Starbucks. It can be concluded that even though coffee is highly competitive, there are a few aspects that have given Starbucks an edge. Examples include a strong and recognizable brand and a global presence, as well as a positive image aligned with corporate social responsibility.

The competitiveness has been explored using ’Porter’s five forces, which has also indicated that the competitiveness is threatened by the presence of other firms and closely related substitute products. Despite the nature of the market, the VRIO analysis shows that the key resources and capabilities have properly been exploited to offer Starbucks an edge. For example, all businesses have talented workers, but the environment and culture created at Starbucks place the company on top of the competition.

With these conclusions, one key recommendation that can be made is that the company should continue with its strategic efforts to ensure the future success of the business. Currently, the entire planet is focused on making the future better with sustainability efforts. Therefore, such efforts as environmental conservation and corporate social responsibility have been geared towards the prudent use of natural resources. The need to become resource positive, the current strategic initiative of Starbucks, is highly recommended.

The existing brand image has been built around such deeds, and the future success will depend on how consumers perceive environmentally-friendly and those with high carbon footprints. It has been expressed that Starbucks already has a positive CRS image, which has aided in making the Starbucks brand a global icon. Therefore, more focus on going green means that many current consumers will appreciate the efforts and remain loyal to the company.

Reference List

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Lucas, A. (2020) Starbucks raises wages for baristas as restaurant industry braces for minimum wage hike. Web.

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Razzak, M., Al-Kwifi, O., and Ahmed, Z. (2018). ‘Rapid alignment of resources and capabilities in time-bound networks: a theoretical proposition’, Global Journal of Flexible Systems Management, 19(4), pp. 273-287.

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Sar, A. (2019). ‘Aligning key success factors with resources and capabilities to win in the market’. KIIT Journal of Management, 15(1/2), pp. 183-188.

Starbucks (2020) Starbucks announces coffee-specific environmental goals. Web.

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Vargas-Hernández, J. and Garcia, F. (2018) ‘The link between a ’firm’s internal characteristics and performance: GPTW & VRIO dimension analysis’, Administration Magazine, 8(2), pp. 222-235.

Vasquez, M. et al. (2018) ‘A framework for PEST analysis based on fuzzy decision maps’, Espacios, 39(16), pp. 1-11.

Volkman, E. (2019) Cofee bean prices are set to surge: should Starbucks investors be worried?. Web.

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