Title: Strategic analysis of Starbucks

Candidate No.:

Date:

Word Count: 3272

Abstract
Starbucks is the market leader in the coffee industry, with over 33,833 stores in 80 countries. Despite
experiencing a significant reduction in sales during the Covid-19 Pandemic period, Starbucks recovered
quickly and is experiencing steady growth. Starbucks has retained its market share and position due to
adopting a differentiation strategy. The report analyses the competitive strategies of Starbucks using four
business frameworks that include; PESTEL, Five Forces, competitive, and VRIO framework. The report
recommends two strategies for Starbucks: wholly-owned subsidiaries and heavy investment in the R&D
department.

Keywords: Starbucks, PESTEL, Coffee, strategy

Table of Contents
Abstract............................................................................................................................................1
1.0 Introduction................................................................................................................................5
1.1 Starbucks overview................................................................................................................5
1.2 Starbucks Revenue growth.....................................................................................................6
2.0 External Analysis.......................................................................................................................6
2.1 PESTEL Framework..............................................................................................................6
2.1.1 Political factors................................................................................................................6
2.1.2 Economic Factors............................................................................................................7
2.1.3 Social factors...................................................................................................................7
2.1.4 Technological factors......................................................................................................8
2.1.5 Legal factors....................................................................................................................8
2.1.6 Ecological factors............................................................................................................8
2.2 The five forces framework.....................................................................................................9
2.2.1 The threats of new entrants...........................................................................................10
2.2.2 Threat of substitutes......................................................................................................11
2.2.3 Bargaining power of buyers..........................................................................................11
2.2.4 Bargaining power of Suppliers......................................................................................11
2.2.5 Competitive Rivalry......................................................................................................12
3.0 Internal analysis.......................................................................................................................12
3.1 VRIO Framework................................................................................................................12
3.1.1 Strong Global Presence.................................................................................................13
3.1.2 Specialty Coffee............................................................................................................13
3.1.3 Upscale and Cozy Atmosphere.....................................................................................14
3.2 Competitive strategy............................................................................................................14
4.0 Recommendations....................................................................................................................14
5.0 Conclusion...............................................................................................................................15
References......................................................................................................................................16
1.0 Introduction
Strategic management is an ongoing assessment, planning, analysis, and monitoring of all
factors required by an organization to meet its objectives and goals (Ferrer, 2018). A strategy is a
plan of action designed to meet or achieve goals and objectives (Ferrer, 2018). Alfred D.
Chandler described the strategy as the determination of a company's long-term objectives and
goals, developing a course of action to achieve the goals, and allocating resources needed to
meet set goals and objectives. Therefore, this paper discusses Starbucks' strategies to ensure it
remains competitive in the market. The report also recommends some of the most effective
strategies to improve Starbucks' positioning and general performance in the market.  
1.1 Starbucks overview
Starbucks Corporation is an American chain of coffeehouses with its head office in
Seattle, United States (Starbucks.com, 2022). It was established in 1971 as a roaster and retailer
of whole bean and ground spices, coffee, and tea. Today, Starbucks has positioned itself as the
largest coffee company, with over 33,833 stores in 80 countries (Starbucks.com, 2022).
Starbucks has distinguished itself from its close competitors as the provider of high-quality
coffee products, thus, attracting millions of customers worldwide and securing the largest market
share of 36.7% in the United States (Ycharts.com, 2022). Consequently, Starbucks is dedicated
to its mission and vision. According to Bowen (2018), the Mission statement helps stakeholders
to understand why the company exists and the kind of business it operates. Bowen (2018) said
the vision statement enlightens the company stakeholders and what the business intends to
achieve in the future. Starbucks' mission is to inspire and nurture the human spirit through the
slogan of one person, one cup, and one neighborhood at a time. Additionally, Starbucks's vision
is to make it a premier purveyor of high-quality coffee globally while upholding its principles,
values, and steady growth.  
1.2 Starbucks Revenue growth

Figure 1: Starbucks 5-year revenue chart (Ycharts.com, 2022).

Revenue is an essential metric when analyzing an organization because it measures the
total value an organization brings in a certain period. For the last five years, Starbucks has been
increasing its total revenues. However, in 2020, the company experienced a decline in its total
revenue due to the impact of the Covid-19 Pandemic. It recorded total revenue of 23.52 billion
dollars, the lowest since 2018 (Ycharts.com, 2022). The company recovered from the Covid-19
Pandemic effects and recorded total revenue of 29-06 billion dollars, the highest in the last five
years. For the previous five years, Starbucks' revenue growth peaked in April 2022 at 31%, and it
hit its lowest point in September 2020 at -11.3% (Macrotrends.net, 2022). That means Starbucks
has adopted effective strategies that enabled it to recover from the Civil-19 Pandemic impact in
the shortest time possible to record revenue growth of 31% (Macrotrends.net, 2022). With
increasing revenue growth, Starbucks has been recording an increase in gross profit with a
decline in 2020 due to decreased sales and revenues.   
2.0 External Analysis
2.1 PESTEL Framework
The PESTEL framework categorizes the external or macro-environment into six factors
that include; Political, Economic, Social, Technological, Ecological, and legal (Buye, 2021). All
six factors impact an organization; therefore, they should be analyzed and monitored closely for
business success.
2.1.1 Political factors 
Government actions majorly drive political factors. They include things such as; taxation
change, political risks, government policies, changes to civil blocks, and foreign trade
regulations. The political factors have been affecting Starbucks' growth in different ways. For
example, high taxation imposed on coffee farmers in Brazil and Mexico impacted the prices of
Starbucks products. The company has been paying higher prices for the coffee beans they
purchase, thus, increasing the price for a cup of coffee in its outlets. Additionally, Starbucks was
widely affected by the 9/11 terror attack since it affected international trade relations.
Consequently, Starbucks should always investigate the political stability of a country before its
market penetration since a change in government can lead to a change in taxation and legislation
(Edrawsoft, 2022). Starbucks should pay extra caution when expanding into countries assumed
to be in political turmoil or civil war, such as Yemen and Syria.  
2.1.2 Economic Factors
The economic factors that can adversely affect business operations include; exchange
rates, business cycles, unemployment rates, interest rates, and global differential growth rates.
With the ongoing global economic recession, Starbucks should adopt effective strategies to help
it deal with the economic recession. The ongoing global economic recession has affected
Starbucks' profitability since some customers have shifted to cheaper alternatives, thus, reducing
its sales volume. Starbucks needs to adopt an appropriate strategy to deal with rising labor and
operational costs and inflation. In 2017, Starbucks suffered a price war with its competitors such
as McDonald's and Costa Coffee. The competitive pricing adversely affected profits as it tried to
maintain its market share. According to Edrawsoft (2022), exchange rates have regularly affected
Starbucks when dealing with international trade.
2.1.3 Social factors
According to Martinez-Contreras et al. (2022), any company's sales can be affected by
social conditions; therefore, an organization should handle social factors with a lot of caution.
The critical social factors that can adversely impact Starbucks sales include; lifestyle changes,
changing cultures and demographics, income contribution, and social networks within its
premises. Starbucks can easily suffer from the changes in the lifestyle of its customers since
some customers may start avoiding a high-calorie diet while observing a healthy diet that would
decrease the company's sales. High inflation rates experienced worldwide, causing the high cost
of living, can force low and middle-income earners to shift from Starbucks' expensive products
to the alternatives provided by its competitors (Edrawsoft, 2022). According to XXX, the
population's average age is gradually getting older with low birth rates. Today, Starbucks targets
young people as its primary consumers. However, the company should change its view in the
long-term since the market proportion for young consumers is diminishing. On that note,
Starbucks should widen its target market to involve older people.
2.1.4 Technological factors
Technological conditions can be a threat to Starbucks' growth in the long run.
Technology can hinder or catalyze the expansion of Starbucks. Some of the technological factors
that can affect Starbucks include; the emergence of discoveries and technologies such as Nano-
technology and internet development. Other technological factors include; the emergence of
innovative technology and biotechnological developments. High-tech coffee machines and easy
transport can make the coffee process from the farm to the mug faster and smoother. Technology
has eased the coffee home delivery services since a customer can order and receive coffee
products while at home. Moreover, Starbucks should adopt high-tech software upgrades to help
it deal with the rising competition. The company can improve the accessibility of its
website, www.starbucks.com, and improve the speed and quality of customer services offered on
the shop floor. Consequently, Starbuck should have a cutting-edge R&D department, which
means it should invest heavily in its resources R&D department to encourage innovation and
introduce new products to its menu (Edrawsoft, 2022).  
2.1.5 Legal factors 
According to Martinez-Contreras et al. (2022), legal issues can impact the company's
growth either directly or indirectly. That is not an exception with Starbuck since ongoing legal
cases can create a negative impression and thus, destroy its reputation. Some legal factors that
can impact Starbucks include; competition regulations, rules on ownership, corporate governance
regulation, taxation, reporting requirements, and environmental, labor, and consumer regulations.
Starbucks should observe and adhere to the trade laws imposed in various countries. Some
countries impose tariffs during the importation and exportation of goods (Edrawsoft, 2022). In
that aspect, Starbucks should abide by local planning regulations when penetrating new foreign
markets. 
2.1.6 Ecological factors
Though ecological factors may not affect business operations directly, they can easily
influence its progress indirectly. The ecological factors involve environmental issues such as
climate change, waste, and pollution. On that note, the environmental factors that Starbucks
should consider in its operations include; energy problems, global warming, environmental
protection, waste disposal, recycling, and sustainable development. XXX argued that most
Starbucks customers are known ecological pollutants since they dispose of their waste of coffee
cups in the streets. On that note, Starbucks should consider its packaging for its coffee to ensure
the cups are biologically degradable. Consequently, Starbucks should adhere to laws that strict
the methods of disposing of waste. Some countries have laws that govern how an organization
should dispose of its waste. Starbucks should follow the business sustainability trend since its
strategy can help it attract more environmental-conscious customers (Edrawsoft, 2022).
Additionally, the company can support social and environment-related campaigns to market its
brand and improve its market positioning and performance. 
2.2 The five forces framework
Porter's Five Forces is a framework that helps organizations analyze their competitive
environment. An organization should use the Five Forces framework to determine factors
affecting its profitability in the industry. Additionally, the Five Forces framework helps a
company make informed decisions on whether to join a specific sector, increase its production
level, or adopt new competitive strategies. The Five Forces include; the threat of substitutes, the
threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, and
competitive rivalry in the market. Among the Five Forces, rivalry among the existing firms is
considered the most powerful. 

Figure 2: The Porters five forces

2.2.1 The threats of new entrants 

 New entrants pose a threat to the existing market players since the level of competition
increases as the market becomes saturated. New entrants face different barriers that include;
economies of scale, differentiation and market penetration costs, government restrictions, and
high cost of supply and distribution channels. However, new entrants into the coffee industry do
not pose a threat to Starbucks. The threat of new entrants is measured through brand equity,
supply chain cost, and invested capital of new entrants (Business Insider, 2022). On that note,
Starbucks is a well-established entity with deep financial muscles and strong brand equity built
on selling high-0quality coffee and, therefore, cannot be shaken by a new entrant. As of
November 2021, Starbucks had a market capitalization of 137.85 billion dollars and 1.18 billion
fully diluted shares (Business Insider, 2022). Starbucks has more than 33,833 stores in 80
countries worldwide, making it a market leader that enjoys significant market share (Business
Insider, 2022). Although numerous new coffee shops are joining the market, they do not pose
any threat to Starbucks; therefore, the threat of new entrants is considered less moderate. 
2.2.2 Threat of substitutes 
Substitutes are products that offer the same benefits to the consumer; thus, a customer
can quickly shift to an alternative if the substitute improves customer satisfaction, the substitute's
price or performance ratio is superior, and extra-industry effects. It is cheaper to purchase a cup
of coffee from a vending machine or make it home than to buy it in Starbucks outlets (Team,
2022). For example, McDonald's lattes cost 2.79 US dollars for a medium, while Starbucks
medium cup costs 4.70 US dollars. It means McDonald's lattes are cheaper by approximately 2
U.S. dollars compared to Starbucks for the medium cup. Starbucks coffees are relatively
expensive compared to close substitutes, and customers can quickly shift to other available
alternatives. Therefore, the threat of substitutes to Starbucks is high.  
2.2.3 Bargaining power of buyers
The bargaining power of buyers can be defined as customers' ability to determine product
prices. It means if consumers are powerful, they can easily demand low prices, thus reducing the
company's profitability. Furthermore, customer power is considered high when they have low
switching costs, are concentrated, and can supply their inputs (Team, 2022). Starbucks'
customers can easily switch coffee providers since they can easily purchase their coffee from
other available coffee shops in the market. Particularly in big cities such as New York, numerous
coffee shops are scattered in every street, enabling customers to switch between those shops with
no problems. Consequently, most Starbucks customers are individuals purchasing a coffee for
themselves out of their conscience. They do not make bulk orders. Instead, they make small daily
orders. The customers can also make coffee at home or the street vending machines. Therefore,
the bargaining power of buyers is high. 
2.2.4 Bargaining power of Suppliers
Suppliers' bargaining power is defined as suppliers' ability to determine the cost of inputs
or raw materials. If the suppliers are powerful, the company's profits are lower. Suppliers' power
is considered to be high when they can switch to high costs of inputs, they can integrate
forwards, and are few. According to the Starbucks website, the company outsources its raw
materials from farmers or suppliers (Starbucks.com, 2022). The company does not cultivate its
raw materials; therefore, it relies on suppliers for the availability of raw materials. The suppliers
are expected to follow Coffee and Farmer Equity (C.A.F.E.) practices when growing cocoa, tea,
coffee, or any other material required by coffee shops, including Starbucks (Team, 2022). As a
result, Starbucks can procure from any supplier whose raw materials are of the quality needed,
thus, reducing the bargaining power of suppliers against Starbucks. Additionally, Starbucks is an
international company with thousands of stores in over 80 countries, giving it more bargaining
power over suppliers. 
2.2.5 Competitive Rivalry
Competitive rivalry is a significant threat to the business's well-being and existence in the
market. Competitive rivalry is determined by the number of competitors operating in the
industry. The rivalry degree also depends on high fixed costs, low differentiation, industry
growth rate, and high exit barriers. Starbucks is facing stiff competition from local cafes and
other established companies operating in the coffee industry, including; Costa Coffee,
McDonald's McCafe, and Dunkin Donuts. Starbucks adopted a differentiation strategy as a way
of dealing with stiff competition in the market (Team, 2022). It offers a wide range of drinks.
Most of the Starbucks competitors offer similar products that include; Americanos, lattes, and
standard coffee drinks, thus, increasing the competition in the industry. Therefore, Starbucks'
competitive rivalry is high. 

3.0 Internal analysis

3.1 VRIO Framework
The VRIO framework helps a company identify its resources, giving it strategic capabilities and
a competitive edge (Buzatu et al., 2019). The VRIO framework involves four measurements of a
company’s success: value, rarity, inimitability, and organization support. An organization uses
the VRIO framework to develop new business strategies to help it retain its competitive
advantage in the market. VRIO analysis states that organization capabilities should create value
to achieve sustainable competitive advantage (Buzatu et al., 2019). The resources should not be
accessed easily by close competitors. Moreover, the resources should be inimitable and
organizationally embedded. Starbucks has three primary strengths that give it a competitive
advantage over its competitors. The three strengths or capabilities include; a strong global
presence, specialty coffee, and an upscale and cozy atmosphere (Pratap, 2022).

Starbucks Valuable? Rare? Inimitable? Organized? Effect on

capabilities competitive
advantage
Specialty Yes No No Yes Competitive
Coffee parity
Strong global Yes Yes Yes Yes Sustainable
presence competitive
advantage
Upscale and Yes Yes No Yes Temporary
 cozy competitive
atmosphere advantage

3.1.1 Strong Global Presence

Starbucks' strong global presence is considered a valuable asset of the company that
increases its revenues and strengthens its brand over other coffee shops. It is also rare since
Starbucks is the most recognized global coffee chain with over 33,833 stores in 80 countries.
This capability is considered inimitable and non-substitutable since no other coffee chain can
gain such a large global presence within a short-term period. It requires significant resources and
time to gain a global presence. Starbucks has taken advantage of having a strong global presence
to offer satisfactory customer services, high-quality coffee, and embrace different cultures, as
indicated on the company's website (Pratap, 2022). Therefore, the global presence has made the
company realize its sustainable competitive advantage.   
3.1.2 Specialty Coffee
Starbucks coffee is considered valuable because it is unique and of high quality compared
to its competitors, such as Dunkin Donuts. Starbucks further includes calorie information for
specialty coffee on its menus to attract more customers, something its competitors do not do.
However, the specialty coffees are not limited to Starbucks since other coffee chains such as
McDonald's McCafe offer it year-round; therefore, it is not rare. Consequently, this capability
has been imitated by other coffee chains, which is not inimitable. Starbucks is well established to
exploit the specialty coffee capability and offers a variety of options while regularly changing its
menu (Pratap, 2022). Customers who like new drinks will ever find something to drink at
Starbucks. The specialty capability made the company realize competitive parity. 
3.1.3 Upscale and Cozy Atmosphere
Starbucks values the locations of its stores since they are located in an atmosphere that
gives customers a reason to grab a cup of coffee any time of the day. Starbucks' website clearly
states that the company believes coffeehouses should be inviting, welcoming, and familiar places
for the customers to socialize; therefore, its stores are designed to reflect the unique character of
the neighborhoods they serve. According to Pratap (2022), Starbucks is the only coffee chain
with an upscale, sophisticated ambiance that encourages customers to come with their computers
and relax. Therefore, the capability is rare. However, the other coffee chains can easily copy
Starbucks' business model and renovate their stores to create upscale; therefore, this capability is
not inimitable. Starbucks is taking advantage of the Upscale and Cozy Atmosphere capability to
attract customers who enjoy the trendy lifestyle. Therefore, the competitive advantage brought
by Upscale and Cozy Atmosphere capability is temporary. 
3.2 Competitive strategy
Michael Porter argued that three types of competitive strategies could help an
organization achieve a competitive advantage. They include; differentiation cost leadership and
focus strategy. According to Haque et al. (2021), a differentiation strategy involves producing
unique products and services that have value to the customers. Haque et al. (2021) argued that
product differentiation is the primary competitive strategy of Starbucks that enables it to retain
its competitive edge over other market players. Through a differentiation strategy, Starbucks
offers excellent customer experience and high-quality coffee in its well-designed outlets with
good ambiance and professional staff. According to Panmore Institute (2022), Starbucks outlets
are characterized by welcoming décor with friendlier baristas, which is not found in its
competitors such as McDonald's McCafe. The differentiation strategy of having unique and
premium coffee drinking outlets has given the company a sustained competitive advantage in the
coffee industry. 

4.0 Recommendations
Starbucks is an international company with a strong and reputable brand. However, its
products can easily be imitated by new entrants in the market. Starbucks is recommended to
adopt appropriate strategies for protecting its business against imitation. It is highly
recommended to use aggressive innovation, particularly in product development. The company
needs to invest heavily in the R&D department in order to produce coffee products that are
difficult to imitate (Danso et al., 2019). Consequently, Starbucks has been using a Joint venture
strategy to enter foreign markets. However, the strategy can limit business exposure and weaken
its market positioning. The joint venture also causes difficulties in integrating and coordinating
effectively in the business operations. For that reason, Starbucks is recommended to use wholly-
owned subsidiaries where it would own total control of its business operations, thus, improving
its market positioning. Additionally, the wholly-owned subsidiaries strategy would help
Starbucks achieve rapid market entry through acquisitions. 

5.0 Conclusion
Strategic management is vital for the success of the business. An organization adopts a
well-designed course of action to help it achieve its long-term objective and goals. Starbucks
should use the most effective strategies to improve its market positioning and performance.
Some key frameworks that would help Starbucks improve its positioning include; PESTEL,
VRIO, Five Forces, and competitive strategy framework. Additionally, Starbucks is highly
recommended to invest heavily in its R&D department and use an aggressive innovation strategy
to produce products its competitors cannot imitate. It is also highly recommended to use a
wholly-owned subsidiaries strategy when entering new foreign markets. 

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