Industry and Strategy Analysis of Starbucks

Yiwei Liu

FINA 375

Case 1.1

Jan 26, 2016

                       Industry and strategy analysis of Starbucks

a. Porter’s five forces of Starbucks

1. Threat of new entrants

It doesn’t have strong effects on Starbucks industry because Starbucks has already built a strong brand. The Starbucks wants to create a third place that besides customer’s home and work place. Moreover, due to the clean environment and well-maintained operation, the Starbucks has built a high degree of customer loyalty. Obviously, those new entrants don’t have the popularity, reputation and loyalty customer like Starbucks. Also, Starbucks has a large market share of coffee industry. At the end of fiscal 2012, Starbucks has 18066 locations worldwide.

1. Power of buyer

This is a threat of Starbucks because people can shift from Starbucks to other brand easily. It is low switching cost for choosing other brand, and many substitute like juice, milk. Also, customer can drink from a restaurant, or drink home made coffee. However, Starbucks keep innovate new drink and food, so that most customers are more likely to remain loyal. On the other hand, due to the large market share of Starbucks, it is easier for customer to find Starbuck than other coffee shop because Starbucks almost everywhere.

1. Power of suppliers

Starbucks purchases green coffee beans from the world, and roasts and blends them to its exacting standards. Starbucks purchases the higher quality coffee, and the material price is much higher than market price. Starbucks also purchases many dairy products form supplier located near its retail store, so that the food material is fresher than other coffee shop. Thus, Starbucks has weak force for the power of supply.

1. Threat of substitutes

Starbucks has strong force on this part. First is the availability of substitutes. We can drink tea, juice, milk, and many other kind of drink, and those drinks are very easy to find at supermarkets. Second is low switching cost. People can stay away from Starbucks easily with no extra cost. Third is low cost of substitutes. Obviously, a bottle of drink and homemade coffee is much cheaper than Starbucks coffee so people can abandon Starbucks coffee anytime.