CONTENTS
Introduction page 1
PESTEL analysis page 1
Five forces analysis page 4
Competitor analysis page 6
Resource Audit page 6
Value system analysis page 7
Core competences page 8
Stakeholders page 8
SWOT analysis page 8
Future strategic options page 9
Recommended option page 12
Critical review page 12
References & Bibliography page 13
Introduction:
This is a strategic report on Starbucks.
First of all I will explain the external environment of Starbucks using PESTEL analysis,
Porters five forces analysis and competitor analysis. Next will be an analysis of Starbucks
strategic capabilities. These will be determined using a resource audit, a value system
analysis, the identification of possible core competences and the identification of important
stakeholders. After this I will present a SWOT analysis of Starbucks before discussing
three possible strategic options open to the company. Using the information I generate I
will decide upon the most suitable option and then critically evaluate all the models and
techniques used.
Howard Schultz bought a Seattle coffee company in 1987 then transformed the six coffee
stores into a national, publicly owned company with more than 25, 000 employees and
over 1,300 stores. By 2002 these figures had risen to 5,689 stores in 28 countries. He is the
man behind, and CEO of, Starbucks.
PESTLE Analysis:
PESTLE analysis is a tool that can aid organisations making strategies by helping them
understand the external environment in which they operate now and will operate in the
future. It is a method of examining the many different external factors affecting an
organisation the outside influences on success or failure.
PESTLE stands for:
Political The current and potential influences from political pressures
Economic The local, national and world economy impact
Social The ways in which changes in society affect us
Technological How new and emerging technology affects our business
Legal How local, national and world legislation affects us
Environmental The local, national and world environmental issues
The PESTLE analysis will be used to identify and understand the important factors
Starbucks must consider in all areas of the business.
Political:
Taxation policy high taxation imposed on farmers in those countries producing the coffee
bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any
fluctuations in taxation levels in the industry are almost certainly ultimately passed on to
the consumer. Recently (June 13, 2003) Tanzanias Minister of Finance harmonized and
rationalized local government taxation to boost rural productivity of the coffee bean. Tax
was lowered for these small holder farmers and this saving will have been passed on to
purchasers of coffee like Starbucks.
Deregulation A decade ago, the USA pulled out of the ICA (international Coffee
Agreement) that set export quotas for producing nations and kept the price of coffee fairly
stable. Coffee quotas and price controls ended. Since the deregulation farmers have
suffered and their earnings have dropped. Many have struggled to make a living so have
given up.
International trade regulations/tariffs Trade issues will affect Starbucks predominantly
when exporting and importing goods. When another countrys government imposes a tariff
it not only results in an efficiency loss for Starbucks but large income transfers can become
inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since
9/11, trade relations have been adversely affected between the USA and some other
countries.
Government stability Starbucks should thoroughly investigate the political stability of any
country they plan to expand to. Changes in government can lead to changes in taxation and
legislation. The forthcoming American elections may have an effect on Starbucks as new
legislation or new or existing government may bring in taxes. Also, those countries in
political turmoil or civil war (e.g. Zimbabwe at present) should be approached with great
caution when considering new ventures.
International stability The international economy must be brought into consideration as it
can affect Starbucks sales and markets. The aftermath of 9/11 was an example of an
economic downturn that affected the world market. If the world market is in a slump it is
not usually the ideal time for a business to look at grand expansion.
Employment law A reduction in licensing and permit costs in those countries producing the
coffee bean for Starbucks would lower production costs for farmers. This saving would in
turn be passed on to the purchaser.
Economic:
Interest rates A rise in interest rates means investment and expansion plans are put off
resulting in falling sales for Starbucks and their suppliers. Also mortgage repayments rise
so consumers have less disposable income to spend on luxury products such as coffee.
Low interest rates should have the opposite effect.
Economic Growth If growth is low in the nation of location of Starbucks then sales may
also fall. Consumer incomes tend to fall in periods of negative growth leaving less
disposable income. Consumer confidence in products can also fall if the economic mood is
low
Inflation rates Inflation is a condition of increasing prices. It is measured using the Retail
Price Index (RPI) in the UK. Business costs will rise for Starbucks through inflation, as
will shoe-leather costs as they shop around for new best prices of materials, menu costs
will rise as Starbucks have to create new price lists. Also, uncertainty is created when
making decisions not least because inflation redistributes money from lenders to
borrowers. A firm that borrows 1000 during an inflation period will pay back less in real
terms as the value of this money will decline over the period.
Competitors pricing Competitive pricing from competitors can start a price war for
Starbucks that can drive down profits and profit margins as they attempt to increase, or at
least maintain, their share of the market.
Globalisation Globalisation of the coffee market has meant farmers of the bean now earn
less money than they used to. This can result in a decrease of people willing to do it for a
living, which will mean a decrease in coffee produced, resulting in a drop in Starbucks
supply levels and probably profits.
Exchange rates Starbucks are affected by exchange rates when dealing with international
trade. If the value of the currency falls in the country of a coffee supplier this enables
Starbucks to get more for their $ or when importing the goods to their country. This saving
can be passed along to the customer. Exchange rates are forever changing throughout the
world in todays market.
Social:
Population demographics Population demographics are a very important factor for
Starbucks as they identify what parts of the population they need to aim their products at
or which parts of the population they need to encourage to visit their stores more than they
presently do. Looking at the table in the case study demonstrating the percentage of the
age groups that drink coffee or speciality coffee it can be seen that the age groups that
Starbucks should be aiming their marketing at are the people between 35 and 54. They
should consider targeting the 18-24 age group as they drink the least amount
comparatively and by encouraging this segment to choose Starbucks coffee now, there is a
chance they may continue to drink it long into the future.
Income distribution Where income is distributed is another factor that Starbucks should
look at as this also demonstrates the ideal place to aim their marketing or to locate their
stores. Coffee is more of a luxury product so it is those people/places with the most
amount of disposable income to spend that should be targeted the most intensely.
Attitude to work Starbucks would not want to locate to an area where the local population
have a poor attitude to work. Recruitment would be difficult, training arduous, and staff
turnover would be high. Attitudes to work are important in other ways. A large number of
workers in large cities now go out for their lunch rather than use an internal canteen.
Starbucks can use this to their advantage and promote the shop as a place where people
can meet up and so it will mean that they will get a larger amount of people in their stores
at this time of the day.
Standard of education/skills When Starbucks are deciding upon new premises they must
look at the standards of education and skills locally. They must be sure there are people
who live there with sufficient skills to ensure successful operation of the business, or at
least the potential to learn that comes with a good education.
Working conditions/safety Those people with the most disposable income, e.g. young
single professionals etc, will be accustomed to high standards. Starbucks must ensure its
shops are clean and comfortable, service is of the highest order and health and safety
issues are fully addressed
Location Transport needs to the premises must be considered for both staff and customers.
Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not
to visit.
Age distribution Research shows the average age of the population is getting older and
birth rates are stagnating. Starbucks is presently aiming its product at young people but
maybe these views will change in the long-term as the market proportion for young people
diminishes. The most profitable way forward may be to widen their target market despite
the risk of alienating present customers.
Health consciousness Good health and foodstuffs associated with healthy living are
