The Analysis of the internal environment of the company:
A Starbucks value chain system can be classified into two categories; (1) the primary activities, which involve the physical creation of the products, marketing and delivery system, and after-sale service and support activities; and (2) the secondary activities, wherein company infrastructure and inputs allow the primary activities to take place (Porter 1998). When these activities are already defined, the value chain system can be analysed to aid the development of a strategic goal and gain competitive advantage or, in our case, to understand the current downfall in the Starbucks business model.
The current value chain of Starbucks is intended with international and technological developments. The upstream value chain allows the development of new products that suit international markets better, e.g. green Tea Latte in Starbucks Japan. The downstream is the online storefront customization, which allows customers to order online and create new drinks etc. The newly-added mobile app could locate Starbucks locations and order drinks.
Starbucks’ value chain creates additional value for its products, which the customers are willing to pay for. Hence, the customer is not reluctant to pay above-market prices for Starbucks coffee. In fact, its customers are not looking for the price of the coffee but they are seeking for the quality of the products and the brand image that the company offers.
“SWOT Analysis is a simple but powerful tool for sizing up an organization’s resource capabilities and deficiencies, its market opportunities, and the external threats to its future” (Thompson et al., 2007: 97). Starbucks Coffee Company is in one of the top positions as the biggest coffee chain in the world. The reason is they cover their weakness through strengths to utilize their opportunities and overpower their triumph barriers, such as threats in the coffee industries. The SWOT Analysis gives a framework for knowing company’s strengths and weaknesses -internal- and opportunities and threats -external-. It helps to exploit on minimising weaknesses and taking the possible advantage of opportunities available. As a result, considering external and internal factors is essential because they clarify the world in which the business or the unit operates, enabling it to get a better envision for the desired future (Pahl and Richter, 2009: 4-5).
Starbucks Strength (Internal Strategic factors)
• It’s an internationally strong brand company. Branding is one of its biggest strength.
• Excellent Work relationship with Suppliers. Proper delivery time, proper stock and proper stock management.
• Social media Support. Starbucks is one of the top followed coffee company in social media.
• It creates a trendy atmosphere.
• Following proper ethical values.
Starbucks Corporation has one of the world’s powerful and most famous brands. The company has a huge following population of loyal customers, which additionally gives a stability of the coffeehouse business. The company has a global network of suppliers that are helping to select coffee beans based on criteria pertaining to quality, such as the quality of Arabica coffee beans. Also, the company gradually diversifies its business, such as through the acquisition or development of subsidiaries like Ethos Water, Seattle’s Best Coffee, and Teavana. Diversification minimizes the effects of market and industry risks. The internal strategic factors identified in this part of the SWOT analysis of Starbucks Corporation shows that the business has strengths that promote resilience through diversification and a global supply chain.
Starbucks Weakness (Internal Strategic Factors)
• Products which are considered unhealthy. Like coffee is not preferred by those people who are ill or sick.
• Large turnover of employees. Management of the employees is tough of the expansion globally.
• Constant beverage innovation.
• High retail price for coffee. Coffee is a very expensive raw material.
The high price points which maximize profit margins of Starbucks is considered as a weakness as it reduces the affordability of products and limit the company’s market share. The flexibility of coffee and coffeehouse chain business is also limited due to generalized standards. Example – consumer preferences and local targets get reduced due to the generalized standards. The products, design and ambiance of Starbucks can be very easily copied by small local competitors. This indicates that the company should develop strengths to overcome the adverse effects of imitation.
Starbucks Opportunities (External Strategic factors)
• Product innovation and new growth platforms. Expansions globally many with new products and fast foods items.
• Increase in Coffee Consumption
Most of the Starbucks revenue is generated from the US. The company can increase its income by expanding the business in developing markets. It can improve the industry position by developing its operations to exploit the opportunities in the global industry environment.
Starbucks Threats (External Strategic factors)
• Increasing price of coffee beans
• Sentimental Issue to the bad effect of coffee from society
• Global competition such as costa McCafe etc
A major threat to Starbucks corporation is the restaurant chains that offer low-cost coffee products reducing the company’s market share. There’s always a threat of imitation that includes firms that copy the taste, look and feel of Starbucks products. Some socio-cultural efforts support the operation of small independent local coffeehouses and eventually oppose the expansion of multinational coffeehouse chains. Such trends influence the perception and purchasing behaviour of the consumer.