SWOT Analysis and Report on the Marketing Strategy of Starbucks

Introduction

Starbucks was first founded in 1971 in downtown Seattle Washington. By 1982 Howard Schultz joins the company as director of retail operations and marketing. A year later Schultz traveled to Italy and was impressed by expresso cultured. He came back and tried to convince the current owners Jerry Baldwin, Gordon Bowker and Zev Siegl of his vision to serve expresso style drink in America. The idea was not received well by the current owners of Starbucks, so Schultz opened his own coffee shop Il Giornale. By 1987 with the help of local investors Schultz purchased Starbucks assets and renamed his coffee shop from Il Giornale to Starbucks. According to Seattle Business Magazine Starbucks has grown to be a global company with over 28,000 locations. (Levesque, 2018)

Strategic Issue

Should Starbucks continue to expand internationally and domestically? As mention above Starbucks is a worldwide coffee powerhouse with over 28,000 locations. It has expanded beyond its domestic market of United States to countries ranging from Japan to Poland. According to Forbes, “In the United States it has saturated the market causing cannibalization, which causes one store to take away sales from another store.” (Mourdoukoutas, 2018) In the international market Starbucks faces competition from local brands and different type of regional preference. It also faces cultural difference it needs to adapt to when entering a new market in an international location.

SWOT Analysis

Strengths

Brand Recognition: Starbucks has a worldwide presence with 28,000 location in 59 countries. Its brand is the most recognize brand in the coffee industry. Starbucks has a market share of between 10-12% according to Exhibit 5. (Alkema, R, 2010). Starbucks brand recognition can be used as a strength to market products and also provide revenue by licensing its logo. Their strong logo creates a significant competitive advantage vs other up incoming coffee shop.

Economy of Scale: Starbucks is one of the largest buyers of fair-trade coffees in North America. (Alkema, R, 2010) This provides Starbucks with a greater relationship with its suppliers since it is one of its biggest customers. Because of the size of the company, Starbucks has suppliers in Latin America, Africa and Asia Pacific Since Starbucks a big presence in the world it can reduce its cost by negotiating prices since it has a high level of sales.

Customer Loyalty: Starbucks customers are loyal to the brand. The company has created goodwill with adding social responsibilities initiatives. As mention above Starbucks is the largest buyer of fair-trade coffee, which ensures that the farmers and workers in the field get a fair price for producing coffee. The stores have also aimed to listen to customers suggestion of reducing waste and recycling. By adjusting their vision to meet more of their customers demand they continue retain customers even with high prices. Customers have also been loyal because of the quality of the product. Starbucks has been able to provide a higher end specialty coffee that other competition has not been able to offer.

Weakness

High Prices: With the contract to buy fair-traded coffee Starbucks pays a floor price of $1.26 per pound for coffee. That is more than the average of non-fair-trade coffee. The prices at its lowest in 2001 of $0.41 and highest in 2010 at $1.42 per lb. Starbucks pays an average of $0.31 more per pound for the fair-trade coffee it uses. This cost is transferred to its customers. The high quality of product compared to its competitors as well was the experience also adds to the customers cost. According to CCN Money, in 2010 customers were paying close to $4 for a tall (small) specialty drink. (Rooney, B. 2010)

Saturation of US Market: As shown in exhibit 9 Starbucks revenue has grown from 1993 to 2009 as store growth has decline to drastically by 2009. (Alkema, R. 2010). The aggressive expansion in the early life of Starbucks has cause and over crowding of store per neighborhood. This has caused cannibalization which allows one store to take away sales from another store that is too close in distance.

Opportunities

Expansion into Global Markets: There is great growth opportunities in expansion in developing countries. As the middle class continues to grow in countries such as India and China, expanding to help bring further sales since the US market provides no more expansion due to overcrowding.

Partnership with other Firms: As mention in the article Starbucks partner with McDonalds. (Alkema, R. 2010). This partnership allowed Starbucks to add another steam of revenue by collaborating with McDonald to sell Seattle’s Best Coffee brand which is owned by Starbucks. This opportunity can be applied with other competitors. Starbucks can market its Seattle’s Best brand to other coffee shops to produce more revenue options.

Diversification of Product: Starbucks customers demand a high-quality product and are willing to pay for it. Starbucks can use its customers expectation to add other quality items to its menu by acquiring other high end drink companies such as tea or fresh juice/ smoothie options.

Threats

Coffee Price Volatility: Since coffee is considered a soft commodity its prices do get affected by the economy. Starbucks runs the risk of higher prices when crops do not deliver due to unpredictable weather. This affects its overall cost and reduces the amount of revenues it budgets.

Imitation/ Substitution: The entry to the coffee business is moderate. New competition is not deterred by beginning investment since location and equipment can be leased. In a local environment a small coffee shop can compete with giants like Starbucks because there is no switching cost for the customer. Small coffee shops and also sell high quality expresso and mimic the specialty drinks that Starbucks sells.

International cultural and political issues: Globalization has helped integrate the world allowing Starbucks to do business internationally but with that comes adaptation for current cultures. Starbucks can retain some of its core service and product, but it must change its strategy to local adaptations such as removing the its popular logo in Muslim countries.

Strategic Solutions

Solution one: Continue to expand internationally taking advantage of the growing middle class in developing countries. Pros: Continue revenue growth by expanding operations to international markets that have not been saturated by coffee shops. Provide high quality coffee to new emerging middle class willing to spend extra for a well known brand. Cons: Risk by adopting to local customs can modify the core serve and product served by Starbucks therefore making it a different product than what loyal customers expect.

Solution two: Expand menu to attract new customers and compete with competitors like McDonalds. Starbucks can add a new selection of healthy conscious snacks and drink to attract millennials who are pushing towards reducing sugar intake. A line of fresh juice or teas would help bring a new wave health conscious customer. It can also continue to expand its pre package coffee and build better relationships with grocery stores to sell its instant coffee.

Recommendation

Starbucks should continue to grow internationally and domestically. Even though there is a saturation of market in the United States it mostly targets city limits and well off neighborhoods but it complete disregards more rural customers. Starbucks can begin negotiations with local shops in rural areas to sell its Seattle’s Best coffee. Internationally Starbucks can enter markets with emerging economies. As the population of middle class grows it will attract customers to higher end brand like Starbucks. Countries with emerging markets can include places like India, China and South Africa. This will challenge Starbucks strategic strategy by having to adapt to local customs by adding local classic to their menu. Starbucks will already have a competitive advantage due to brand recognition and the advertising of customers that enjoy posting pictures on social media. A way to get into the emerging markets of developing countries is to partner with local people and shops to introduce the product.

Summary

Starbucks faces high competition within its market. There is no switching cost for customers and the threat of new entrants to the industry is moderate. A competitive advantage Starbucks has is that their brand is well establish and recognize around the world. They are reliant in the market in the United States which provides a risk for their bottom line. Depending to much on one market leaves you vulnerable to reduce popularity of the brand that could reduce revenues. Starbucks benefits from continue expansion to other countries with a growing middle class. It would also benefit with an expansion of menu items to target a more health conscious customer.