Starbucks: SWOT analysis

Last Updated: 25 May 2023
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Starbucks: SWOT analysis

When you think of a company that has been very successful what company comes to mind? In particular one chain that is available all over the world that has deemed to be very successful is Starbucks. In what was do you think they have strategized or planned to be as successful as they are today? One way a company can develop a plan for success is using a SWOT analysis. “A SWOT analysis is used to assist faculty in initiating meaningful change in a program and to use the data for program improvement” (Orr, 2013).

In reference to the success of Starbucks we will take their opportunities in lock step with this analysis. This will help us see how well Starbucks performs and if it will continue to be a great company. To properly conduct a SWOT analysis a general outline is shown below: (Harvard College Consulting Group)

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SWOT Analysis on Starbucks 

 

The first part of a SWOT analysis we see is strength.

Strength is an item every business wants to capitalize on and a business like Starbucks we know is one that definitely has strengths.

Main Strengths of Starbucks are:

  1. Strong brand image
  2. Extensive global supply chain
  3. Moderate diversification through subsidiaries

If you were to go up to anyone and ask them if they know what are Starbucks is I am sure they would be able to tell you or at least say they have heard the name of the company. When it comes to coffee and people who drink it on a regular basis, coffee drinkers see Starbucks as one of the better companies to get there coffee from. They not only serve coffee at their thousands of locations but they also serve danishes, pastries, and other snack items for others to enjoy.

Starbucks operates more than 9,400 of its own shops, which are located in about 10 countries (mostly in the US), while licensees and franchisees operate roughly 8,650 units worldwide (primarily in shopping centers and airports)” (Starbucks Corporation, 2014). One factor that sets them apart from the rest is that there are locations everywhere. It is almost impossible to go somewhere and not have a Starbucks location within ten miles of where you are.

This makes it great for Starbucks to implement new products and get them across the globe at a very fast rate. Not only are Starbucks international but they are also located in departmental stores such as Barnes and Noble and Target making it easier for people to do the “one stop shop” opportunities.

Lastly, another great strength of Starbucks is offering a great atmosphere with the luxury of Wi-Fi so there customers can come relax, drink coffee and possible get some work done, all in one location to provide that great customer experience for everyone.

Main Weaknesses of Starbucks are:

  1. High price points
  2. Generalized standards for most products
  3. Imitability of products

When we look to the opposite side of things, weaknesses, no company wants to admit they have things their customers do not like. When it comes to Starbucks the number one complaint would have to be the prices on their coffee. Although Starbucks is seemed to be a luxury coffee it still is outrageous to pay the amount of money some people do for a simple cup of joe. If the prices of their coffee were to affect customers when it came to their sales Starbucks wouldn’t have anything to fall back on because they do not have sale is much else.

They do offer side options of their danishes, pastries and other snack items but they do not bring in nearly as much revenue as their coffee. The international market is another item Starbucks need to work on because other chain markets such as Dunkin Donut and McDonalds are already well established in the foreign markets. As Starbucks doesn’t seem to have many weaknesses it does have some that may make or break the company and it may affect the business in a very negative way.

Main Opportunities of Starbucks are:

  1. Expansion in developing markets
  2. Business diversification
  3. Partnerships or alliances with other firms

Even though Starbucks has some weaknesses that have seemed pretty harmful, they have come up with some great opportunities that can really help their company become even more successful.

One great opportunity Starbucks has done is buy companies such as Seattle’s Best and Tazo Tea. They also have expanded their companies to other areas which also cause opportunities for any business who looks to expand. Also with Starbucks looking to expand internationally this gave opportunities to expand products globally to get the word out at a fast pace.

“In May 2005, Starbucks announced the first step into expanding its consumer products channel in the South Pacific region by launching the sales of its Frappuccino line in Japan and Taiwan” (Shah, Hawk, Thompson, 2006).

This was just proof it generated opportunities because this alone provided more than 10 billion in annual sales. Even now if you are to walk into a gas station you see in the cooler Starbucks generated products that you can buy right there instead of going into one of their specific locations.

Main Threats of Starbucks are:

  1. A competition involving low-cost coffee sellers
  2. Imitation
  3. Independent coffeehouse movements

This company is trying to make it more convenient for you to buy their products without having to go to their exact location. Lastly, the parts of the SWOT analysis that no company wants to deal with but has to overcome are threats.

Threats are always going to be around no matter what kind of business you are. With Starbucks main focus being on coffee you can know from the get go that there are going to be lots of threats or competition. There are numerous places and companies that sell coffee and most of them are offering it at a way lower price than the infamous Starbucks.

There are companies out there who have already previously established themselves before Starbucks even existed and that is something that they have to compete with. Another threat may be that other coffee company may be able to provide coffee with a longer shelf life than Starbucks can offer therefor making customers buy that companies coffee instead. There will always be an unlimited amount of threats when owning a company and the best thing to do is just try to overcome the obstacles and offer the best possible products to your customers.

Conclusions of SWOT analysis for Starbucks

Starbucks has proven to be one successful company. We can see from the SWOT analysis they have taken into account strengths, weaknesses, opportunities, and threats. Each one of these items can make a company be who they want to be and Starbucks has used these items to their advantage. Many of the decisions Starbucks has made for the most part have been in the right direction. The one fear of Starbucks is that they may not have a broad enough company to stay afloat if the coffee industry is to fade out.

One recommendation I would give to the company is to develop other product that would serve as a backup service for the company that would take the place of coffee if it was to ever be unsuccessful. One item Starbucks could start to offer could be an ice cream chain because that is one company that seems to stick around for a while and never fade out. Some other items Starbucks may want to look into is lowering the price of their coffee, offering different flavors and expanding the marketing in their foreign markets.

Each one of these items can really help Starbucks evolve into something even more than what they already are. As you can see, Starbucks is a very well-known company that has used the SWOT analysis to their advantage. They are a chain company that has carefully strategized and planned out their goals and accomplishments so they can be a successful company. Remember there are always room for improvement no matter what kind of company you are and next time you need a change take the time out to fill out a SWOT analysis on your company and develop some goals.

Also interesting is SWOT Analysis Gym essays

Starbucks Strengths and Weaknesses

After reading Starbucks’ “Management Discussion and Analysis” portion of its 10-K, it is apparent that the company currently possesses a highly competitive position and progressive management strategy. Starbucks’ top position in its industry and management strategy comes from the fact that this company has multiple areas of strength and lacks overwhelming weaknesses. Strengths and weaknesses with regard to a firm like Starbucks are based on the internal factors relating to a company.

The internal analysis of Starbucks shows that it enjoys much strength as a company. When analyzing the strategic management of a company, a strength is defined as a firm’s “resources and capabilities that can be used as a basis for developing a competitive advantage” (QuickMBA). The “Management Discussion and Analysis” section of the Starbucks Annual Report features many strengths according to this definition. Starbucks’ capabilities go way beyond simply selling coffee at Starbucks shops in America.

In fiscal 2012, Starbucks experienced a 7 percent growth in global store sales, 50 percent increase in “Channel Development,” and 20 percent raise in licensed stores revenue (SBUX 2012 Annual Report, 25). This fact alone presents multiple strengths Starbucks has. Starbucks has stores and a positive presence implanted in multiple countries divided into the three sectors of the Americas, “EMEA” (Europe, Middle East, and Africa), and “CAP” (China/Asia Pacific). Additionally, Starbucks maintains the operating segment of “Channel Development” which focuses on the sale of Starbucks and Tazo branded K-Cups and other beverage innovations.

As stated before, this segment of Starbucks’ operations witnessed a 50 percent increase in revenues in fiscal 2012 which shows how strong Starbucks as a firm really is. On top of these optimistic facts, Starbucks simply continues to show its strength with regard to its market dominance and brand-name recognition throughout America and other countries. On the other side of the internal analysis of Starbucks, few weaknesses are present within the company. A weakness can be looked at as “the absence of certain strengths. For example, a lack of patent protection, weak brand name, poor reputation among customers, high cost structure, lack of access to the best natural resources, or a lack of access to key distribution channels can all be classified as a Company’s weaknesses (QuickMBA). Starbucks, however, does not appear to possess any of these weaknesses. Especially since Green Mountain Coffee’s expiration of their patent for K-Cup, Starbucks has not been hindered by access to key distribution in their Channel Development sector (Daily Finance).

This area of focus may be one of Starbucks’ weaknesses though because, unlike Starbucks franchises throughout America that basically stand untouched compared to other coffee shops, Starbucks branded K-Cups compete with many other viable brands such as Green Mountain Coffee in the home-brewed portable coffee sector of the coffee industry. Additionally, Starbucks’ expansion into other countries, although proving to produce positive income, can be looked at as a weakness. For example, Starbucks’ presence in Europe has received some resistance due to the strong European “cafe culture” and preference for different “regional tastes” (NY Times).

In summation, Starbucks has a positive future and experienced a fiscal year filled with strengths and few weaknesses in 2012. Its main strength as a firm is the powerful brand and presence that has been established by Starbucks. This strength is supplemented by Starbucks’ expansion into multiple countries and different areas within the market for coffee including K-Cups. Starbucks’ weaknesses seem to be associated with its strengths stemming from expansion, which is seemingly normal and acceptable.

To increase the firm’s strengths and mitigate its weaknesses, Starbucks senior management plans to “focus on achieving sustainable growth from established international markets while at the same time investing in emerging markets, such as China” (Starbucks Annual Report, 27). Additionally, Starbucks management seeks to expand upon its Channel Development segment by developing new innovations and ready-to-drink beverages, which will simultaneously bolster their internal strength and disintegrate the current weakness of having less establishment and dominance in this area of the coffee industry.

Starbucks Brand SWOT analysis

Starbucks: SWOT analysisStarbucks Corporation is an American coffee company and coffeehouse chain. It was founded in 1971 as a coffee-bean roaster and retailer. In 1987, the original owners sold the Starbucks chain to former employee Howard Schultz, who rebranded his Il Giornale coffee outlets as Starbucks and then began an aggressive expansion campaign. By 1989, 46 stores were established across the US and a small part of Western Canada. When Starbucks initially went public, its revenue was approximate $73 million. In just a few years, the company’s stock rose by 70%.

As of November 2016, it operates 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204 (+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan and 872 in South Korea (bumping United Kingdom from 5th place).

Starbucks employed approximately 254,000 people worldwide as of October 2, 2016.

Strengths

Strong Brand: Starbucks is a well-recognized brand throughout much of the world, and likely the most recognizable brand in the coffeehouse business. The Starbucks logo is easily identifiable, and attracts both new and repeat customers. Stores are typically in the most prime locations around the globe, with high traffic and visibility. As we mentioned above, the company has a wide geographic presence, with locations in 68 countries. Its strong market position, diversified products, and brand recognition has allowed the company to have a leg up on most competitors and has given it the opportunity to further expand its business.

Excellent Finances: The company, thanks to those impressive comps and an effective leveraging of fixed overhead costs, like rent and labor, maintains robust free cash flow and a first-rate balance sheet. This supports product development and aggressive unit expansion, both at home and abroad. It also enables Starbucks to pay a modest dividend, with the yield typically hovering around the 1.5% area. The company is valued at more than $4 Billion which is a key strength when compared to its competitors

Weaknesses

High priced products: The high price of Starbucks products is a major weakness of the brand. While its products are premium in quality, they are higher priced than most competitors. This is an important factor since Starbucks loses a large number of customers for its high prices. The products it sells are also imitated easily by the competitors who sell them at lower prices. These are the two major weaknesses of Starbucks. Only if Starbucks could bring the prices of its products lower, it could attract customers in larger numbers. Its quality rich coffee and excellent service come at a price that is not affordable for all. As a result, consumers started to leave Starbucks and shifted to Dunkin’ Donuts and McCafé (they’re relatively cheap). Starbucks’ premium prices can prevent the company’s development in developing countries and lose the competition to Dunkin’ and McCafé. Also read SWOT analysis of Ice Cream market

Slow Expansion in Europe: The Europe, Middle East, and Africa segment only contributed 6% to revenues in fiscal 2015. This may be a bit surprising to some, as European customers in particular have comparable wealth to those in North America, and the continent has a wide subset of the population with high levels of disposable income. Sales to China/Asia Pacific are more than double that of Europe. Part of the problem may be the coffee culture in Europe. Coffee drinkers in Italy or France, for example, may not take Starbucks seriously as a seller of coffee, just as they may not take American wines as seriously as French or Italian wines. The American cultural habit of sitting in a Starbucks may also not be as appealing to a European who wants to sit at a nice, local coffee shop. The negative image of a large American corporation selling coffee has likely turned some Europeans away.

Opportunities

Product Diversity: There are opportunities to further diversify the food and beverage range, including cross-selling some of its retail products like its ice cream available in U.S. grocery stores and putting it in the coffee houses for sundaes or ice cream cones. There has been some discussion about adding beer and wine to encourage visits to Starbucks in the evening and make it more of a social gathering spot. Product diversification might also include a range of coffee makers to compete with Keurig or other pod coffee makers as well as other strategic partnerships to offer more music, book, and other types of entertainment products.

Expansion in the Emerging Markets: Starbucks has a significant opportunity before it in the form of the large and untapped emerging markets. Markets like India and China can prove important sources of customers and revenue. However, Starbucks should also try to align its products as per the cultural standards of these markets. Diversifying its product line can also help the brand grow and improve its brand value. Currently, the brand is mainly known for its premium quality coffee. It can add other products including beverages and snacks to its product line to provide its customers with variety.  Its assortment of products is limited. The company has an opportunity to expand its supplier network and expand the range of suppliers from whom it sources in order to diversify its sources of inputs and not be at the mercy of whimsical suppliers. Further, this would also help the company in becoming less sensitive to the prices of coffee beans and make it resilient against supply chain risks. Read also McCafe Swot Analysis

Threats

Competition: The specialty coffee business remains highly competitive on the price, quality, service, and convenience. In the U.S., large companies in the quick-service restaurant sector have been increasing efforts to sell high-quality specialty coffee beverages. McDonald’s has been making a big push into the coffee business in recent quarters, and this could become a big challenge for Starbucks. Another major competitor is Dunkin’ Brands Group, which has been in the coffee business for a long time. This company has long had a strong presence in the eastern portion of the U.S, and is expanding in the western part of the country. The rival brands make the same products available at lower costs. It increases the competitive threat for Starbucks. The company also faces intense competition from local coffeehouses and specialty stores that give the company a run for its money as far as niche consumer segments are concerned. In other words, the company faces a tough challenge from local stores that are patronized by a loyal clientele, which is not enamored of big brands. The market for packaged coffee, tea, single-serve packs, and ready-to-drink beverages has been heating up, as well.

Coffee Price Variability: The cost of raw materials and ingredients are rising, along with volatile exchange rates, can also threaten Starbucks regarding profitability and may force the company to raise prices, which could lead to more customer migration to the competition. Since Starbucks cannot necessarily control these prices on raw materials, they have to find other ways to make their business efficient so as to offset the rising material costs.

References

  • SWOT Analysis: Starbucks Corp.[http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Starbucks_Corp_.aspx#.WTkhlGjyjIU]
  • The Five Largest Coffee Shop Chains On Earth [http://www.therichest.com/business/companies-business/the-five-largest-coffee-shop-chains-on-earth/]
  • Starbucks Fiscal 2016 Annual Report [https://s21.q4cdn.com/369030626/files/doc_financials/2016/Annual/FY16-Annual-Report-on-Form-10-K.pdf]
  • Starbucks SWOT Analysis [http://www.cheshnotes.com/2016/09/starbucks-corporation-swot-analysis-2016/]

Starbucks Weakness

Starbucks, as we all know, are one of the globally popular companies, but like everything else, it has its own weaknesses. Here I will suggest some solutions to help solve the problems faced in their inventory management processes. Starbucks follows the EOQ model, which involves heavy calculations and predictions. Without the formulas and some basic information about the demands from customers, the cost of placing orders, and other variables, the calculation of the EOQ model will not be able to reach its optimal potential.

From this, collecting the accurate information for the calculations is vital, the company has to acquire reliable and timely sources. Conveying surveys, searching data online from sources like Google Analytics about the spending behavior, and carrying out research are among the ways to collect vital info from current and potential customers. By doing this, it can help determine the annual demand of the company, which can help solve or at least ease on the uncertainties of demand.

Having skilled or experienced employees/ staff is also crucial as they are considered by some are the most valuable assets of a company, which they experience customer feedback firsthand. These ‘customer feedback’ are useful to further improve the customer of said company. Listening to employee feedbacks can also help to execute certain operations, selling products to customers, and how to do things better (Vos 2013, p. 1). Other than that, having good employees that takes charge of the calculation, for example the calculation of the EOQ model, are vital because they are needed to calculate the best possible figures of ordering.

Through this, it can help narrow down the EOQ model predictions. Also, they can help predict through experience without completely relying on the calculations. Calculation based on the EOQ model also requires constant set of data. For example, the demand for the year has to be known (which has been covered on the second paragraph on accurate data collection), the cost of ordering has to be same throughout the year and also the lead time must not fluctuate and remains consistent.

Having a good supplier can help solve the consistency of ordering cost and also constant lead time (Ready Ratios, 2013). A good supplier will be able to achieve expected results, offering good quality of products and delivering goods on time are among some of the benefits of having a good supplier. Building a good relationship with the supplier will get you more benefits, such as priority as a valued customer, competitiveness (in terms of pricing, quality, reliability ahead of the competition, in this case, Starbucks, is facing), innovation and also product development (Bob Reiss, 2010).

Other than that, having good material handling can also help cope with the unpredictable usages or the uncertainties of demand. By having good material handling, the company can improve the efficiency of the production this will save time and indirectly save labor cost as productions run faster. It can also maximize space utilization by storing materials in the way it should, it also can reduce cost by saving on inventory carrying cost which is not properly handled.

All of this are necessary to make sure if something goes wrong in the calculation, the loss can hopefully be covered by the savings in material handling, making the loss easier to swallow. Having good transport of goods is also beneficial by having shorter lead time and at the same time transporting more goods are both time and cost saving. Furthermore, keeping a contingency plan at the ready can also help the company in case of unpredictable situations happening, such as natural disasters, shortage of raw materials usually hits us by surprise.

So, to keep the company on their toes, to be ready to face emergencies such as this, the company can either keep additional safety stocks, or have another backup supplier from another region to provide with the supplies just to counter the sudden changes and to prevent stock outs to happen. Other than that, the appropriate application of the contingency plan can showcase how the company can utilize and prove to others that the company can manage themselves well, inviting more investors to join in the company.

Moreover, advancement of technology plays a part in the inventory management of Starbucks. They can use it to keep track of their inventory much faster and efficient. This allows them to keep track and keep updated with how many units they have. With this said, they can improve their inventory flow and also quickly order materials that are needed for fear that miscalculation happens in the EOQ model which leads to surplus or shortage of materials, with the help of inventory management system (IMS) that Starbucks uses, they can further improve their services and provide better quality products.

To wrap things up, to have a successful company, one needs to have more than a capable workforce, it needs to have a blend of luck and some daring decisions to start up something new. For instance, Starbucks Corp. which was founded by a few teachers and their friends, and with a simple idea of a company selling overpriced coffee with decent atmosphere. Who could’ve thought that it could be this successful?

References

1. Bob Reiss. (2010). Build a Good Relationship With Suppliers. Available: http://www.entrepreneur.com/article/205868. Last accessed 15th June 2013. 2. Readyratios.com. 2013. Economic Order Quantity Model (EOQ). [online] Available at: http://www.readyratios.com/reference/analysis/economic_order_quantity_model_eoq.html [Accessed: 16 Jun 2013]. 3. Vos, L. 2013. People: The Most Important Asset of Any Company. [e-book] Georgia: p. 1. Available through: Georgia SBDC http://www.georgiasbdc.org/pdfs/vos09.pdf [Accessed: 16 Jun 2013].

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Starbucks: SWOT analysis. (2018, Feb 19). Retrieved from https://phdessay.com/starbucks-swot-analysis/

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