External and Internal Environments: Starbucks Corporation - Assignment Example

External and Internal Environments Contents Introduction 3 Answer 4 Answer 2 4 Answer 3 6Question 4 6 Question 5 6 Question 6 7 Question 8 8 Question 9 9 Conclusion 10 Reference 10 Introduction Starbucks is a public limited (FMCG) Company which is the largest coffee house internationally. Starbucks Corporation is an American global coffee company it is based in Seattle, Washington. It is the largest Coffee house in the world with 20,891 stores in 64 countries. Starbucks serve hot and cold beverages, and in some stores it also sells packed food items such as hot and cold sandwiches. Starbucks brands also provide ice-cream and coffee in grocery stores. Starbucks has started 140 outlets with revenue of US$73.5 million from US$1.3 million in the year 1987. The company’s market value was US$271 million by this time. Starbucks was first located outside North America. It has also started doing business in Tokyo, Japan. Starbucks entered UK market in the year 1998 with $83 million. UK based Seattle coffee company was re-branding all the stores as Starbucks. The company has also experienced with some beverages in San Francisco through restaurants called Circadia and the restaurant was soon known as the Starbucks cafes. The company was successful in purchasing the best coffee beans from AFC enterprises for $72 million. The deal gained 150 stores for Starbucks for the coffee that is well known in the country. Starbucks also converted the Diedrich coffee to Starbucks. In the year 2008, Starbucks also introduced a program for registered users of Starbucks cards that will offers Wi-Fi internet access to the customers for free and also they do not take any charge for flavored syrups, soy milk and coffee or tea refills for brewed drip. Answer 1 The two segments of the general environment that would rank highest in their influence on Starbucks are as follows contributing to local communities and contributing to coffee beans producing countries. Contributing to communities: Starbucks believes that when the store was opened, the company added an immediate value to the community because it gathers people. Store managers were granted discretion to serve to local causes and provide coffee to the local fund-raisers. It was believed that the literacy power has change to the hope for young children who lived in the underserved neighbors. Contributing to coffee beans producing countries: Starbucks began financial contribution to CARE which is a worldwide relief and development foundation engaged in societal welfare. The objective behind this financial help is to give back the coffee-origin countries. The company financially helped the successful projects of CARE such as clean water system, health and sanitation training and literacy efforts. Starbucks has contributed more than $1.8 million to CARE. Answer 2 Porter’s five force models represent theoretical framework that analysis the industry and strategy Development. The models is consists, threats of new entrants, threat of substitute, bargaining power of buyers, bargaining power of suppliers and intensity of competitive rivalry. Threats of New Entrants There is a moderate threat for those who are entering new in the industry. The industry’s saturation is very moderate with the structure of monopolistic competition. For those who are entering new in the market initial investment is not required as they can lease stores, equipment etc at a moderate investment. But it is very easy to enter the market that is usually countered by occupying the brands of identities like Starbucks. It has achieved low cost, improved efficiency with huge market share. The industry face a monopolistic competition with the largest market share that Starbucks have and its closest competitors also have significant market share which is creating pressure on Starbucks. The industry is mature and the growth rate has been moderately low which causes the intensity of the competition among the companies. The industries do not have high capacity currently but the factors contribute to the intensity among rivals to be moderately high (Hill and Jones, 2007 pp.98-115). Threat of Substitute The threat of substitute is high because there are many substitute beverages to coffee are available in the market such as tea, soft drinks, water, fruit juices, soda’s energy drinks etc. Pubs and bars offer non-alcoholic and alcoholic beverages that could also be the substitute for the social experiences of Starbucks. Consumers can also make their own home made coffee rather than buying from any premium coffee retailers. It offers differentiate between products with a diverse consumer base which make relatively low amount of purchases. As there are no switching cost with the high availability of substitute products. Consumers have moderate sensitivity in premium coffee retailing as they pay high for the higher quality products. Answer 3 The two issues that Starbucks faced was the last economic slowdown in USA and the stores closures challenges. The most effective challenges that Starbucks is facing was the current financial crisis in America. Many companies are suffering from the economic downturn and the country situation. Another challenge it face was the amount of stores closures, they announced that 600 stores will be closed down in United States. Starbucks did close the store location and also letting the public know what was going on. The risks related to finalization of third party agreements and the expected cost savings. Income tax and another benefits associated with the store closures as well. Question 4 The company has their first retail stores in Washington. The issues that it faces in the recent past years were the financial crisis in America and the store closures challenges. But the company has set up an espresso bar in retail where people can come and relax their mind. The company slows down when the financial crisis hit the market and people started spending less in the luxuries food item. At that time it served with some perks like fruit juices and some other complimentary items to keep the market stable. Another challenge it faced was the stores closures it was announced to close around 600 stores in the countries. The company does not want to lose the reputation so it informed that customers for each and every step that was taken by the company. Question 5 The company should take some measures to improve the issues that it has faced in the recent past years. The company can reduce the cost cutting measures including negotiating prices with their landlords and suppliers. It should also state that the few customers will not be served with coffee after the noon instead it is on demand. It should also reduce the cost and try to appeal in value conscious customers. The company should also introduce variety of coffee so that the customers can choose from a wide range and the cost should be reduced to have a huge number of customers. As Starbucks is known by everyone internationally and it has also entered in India in joint venture so it can do business well with effective prices (Hax, 2009 pp.150-160). Question 6 The external threats that are affecting Starbucks can be the operations and the competitions in the retail coffee and snacks store industry. This industry has an experienced of major slowdown in the year 2009 due to economic crisis and changing the consumers tastes. The industry revenue went down to 6.6% from $25.9 billion. This industry also has a decade of growth consistent. Due to the economic crisis the customers spent less on luxuries eating, they prefer to choose low price items rather than having high priced coffee drinks. The industry grew at less annualized average growth rate of 0.9% from 2008 till 2013. The industry is now declared to grow an annualized rate of 3.9% over the next five years with a value to reach $35.1 billion revenues in US. The growth will improve the economy; increase the confident of customers and expanding the menu offering within the industry. The opportunity that Starbucks coffee has is to enter into emerging markets to increase the saturation of the US market and its international strategy which is more important. Starbucks has recently listed in India with a joint venture entry. It has a very good growth rate in expanding the business into emerging and developing of markets. It can also be the products mix by venturing into tea and fresh juices offering with a purchasing strategy. It provides very good opportunity for Starbucks. It has also expanded its business by selling packed food products, iced beverages and merchandises retailers. Question 7 The major strength of Starbucks is its brand name which well-known to global people. It associates with high end coffees. Starbucks is the biggest and best in the business which is the significant strength for the company because Starbucks has an area of its lesser known competitors but people already associated with the high quality products. The huge number of Starbucks locations allow them to reach the domestic market and as well as in the international markets. This helps them to introduce new products quickly across a large demographic. Starbucks successfully changed the opinion of coffee from a commodity to a luxury food item which is doing a good business. The weakness of Starbuck coffee is that most people consider it as a luxury good and the price it has to pay what is fixed for it. The opinion of the public is that the Starbucks charge a very high price and most of the people cannot afford it to buy. The main problem of Starbucks is that its whole business is depending on the coffee industry. If coffee does not turn out to be craze among people than it have to diverse it business. Moreover Starbucks only serve with a single flavor coffee, whereas its competitors such as Peet’s and coffee beans and Tea leaf offers a wide range of variety of coffee. Question 8 The key strategy Starbuck should follow is the product differentiation that is offering the differentiators such as premium product mix, locations, coffee beverages reputations, and supreme customer’s services for building a premium valued brand which is very costly to intimate for competitors. Starbucks has also followed a shrewd strategy of strategic alliance and making smart purchase. It do not follow franchising model and operates company oriented stores and joint ventures in international market. The weakness of Starbuck coffee is that the price of the coffee is very high. Most of people considered it as high end luxury products. It also serves with a single flavor coffee whereas the competitors of the Star bucks serve a wide range of products. Starbucks should introduce some more varieties in coffee and tea for the better response in the market. As Starbuck is the name known by everyone within US it will do the business successfully if it could provide some more varieties. Moreover the Question 9 The core competence of Starbucks has the ability for the product differentiates strategies that are offering a premium product mix of high quality beverages in and snacks. Starbucks brand is created on selling of finest quality of coffee and related products. The core competence is based on human management value that built very strong internal and external relationship with the suppliers which drives in successful business strategy of organic expansion into international markets. The resources and capabilities of Starbucks can be analysis as below: Starbucks have a very good manpower and they are well trained employees from the level of counter service staff until managerial level. They are very strong resource team owned by Starbucks. It is rapidly expanding and building up a huge number of retail stores in the worldwide. The location strategy for retail store became another asset and resources to continue expanding. The continuous growth for brand equity is Starbucks one of the most valuable resources and capabilities (Tallman, 2010 pp. 75-88). The power of the suppliers in Starbucks coffee is low to moderate as the main input in the value chain of Starbuck is coffee beans and the premium Arabic coffee grown in selected region which are standard input. The switching between substitute suppliers is moderately low. The suppliers in the industry also face low threats of competing against Starbucks which lower their powers. Conclusion In this assignment the corporation that has been chosen is Starbucks coffee which is a FMCG company. Here it has described the five forces competition of Starbucks and other competitors of Starbucks where it tells about the bargaining power of the buyer, suppliers, threats of entrants, threats of substitute. It helps to understand where the company stands and whether it can enter into a new market and what are possibilities of the company. It has also described about the strengths, weakness and opportunities of the company. It also tells about the resources, capabilities, and core competencies of the company. From this paper we have came to know about the issues that it faced in the recent past years. The financial crisis hit the market very rapidly in the past years and it has also stated that around 600 stores will be closed down. The company has successfully overcome the issues or challenges that it faced in the past. Reference Hill. C, and Jones. G. (2007), Strategic Management :New York: Cengage Learning. Hax. C. A, (2009). The Delta Model: Cambridge: Springer. Tallman. S. (2010), Global Strategy: London: John Wiley & Sons. Read More