Starbucks Coffee Market Analysis - Case Study Example

Starbucks Coffee Market Analysis College Executive Summary Starbucks is an international coffee and Spice Company that operates within over 60 countries in the global food and beverages industry. Notably, the changes in the business have led to emergence of both opportunities and threats within the business environment. Starbuck has experienced severe competition and must look for new strategies to acquire a competitive position in the market. This report starts by conducting a thorough business environment analysis to reveal both the macro and micro-economic factors that influence the market. Next, the report evaluates the company’s strengths, weaknesses and opportunities to establish the efficiency of its organizational strategies. This provides a ground to provide recommendations for the organization to acquire a competitive position within the beverages market. Further, the report provides an approach which the company can use to monitor and evaluate its business strategies, which will help the organization to measure its performance and apply corrective mechanisms to achieve profitability in the long-term. STARBUCKS COFFEE MARKET ANALYSIS Introduction Starbucks is an international coffee and Spice Company that operates within over 60 countries in the global food and beverages industry. The company has invested in the food and drinks industry, which has become a target by many investors today. The company started from a humble beginning back in 1987 in US under the leadership of Baldwin, Bowker and Siegel, and now is one of the top international companies that supplies coffee products (Gamble & Thompson, 2013). The company has faced numerous challenges both from internal and external business environment, which have threatened the development of the company. The company’s management acted promptly, under the leaderships of the CEO Schultz, to resolve internal weaknesses and to adapt to the changing external market environment to ensure the survival of the organization in this industry. The survival of the company in tough market environment depends on the ability of the managers to target new market segments and redesign their products to suit the contemporary market needs. Analysis of Food and Drinks Market Macro-Economic Factors, Steeple Model One important macro-economic factor that organizations must consider is the social changes within the business environment (Gamble & Thompson, 2013). To begin with, social attitudes have changed in the recent past, making it a challenge for organizations to use diversity strategies to win the market. To begin with, there has been an extensive cultural integration within the US as people global trends encourage movement across the globe. However, Starbucks must be cognizant of the different tastes if they have to satisfy the growing demand. Secondly, the tapering of the purchasing pattern of the old people has affected the purchase of coffee as a leisure product. Companies need to focus on the younger generation whose purchasing pattern is more attractive. Evidence of social-cultural changes puts the coffee seller to develop new business strategies. Secondly, technological advancement in the 21st century has become a possible threat as well as an opportunity for business development. Computer, mobile and internet technology in Europe and US, Starbucks main target markets, has become a challenge for the organization to launch its business online (Gamble & Thompson, 2013). While Starbucks has taken this opportunity to create an effective online presence and to sell their coffee online, it is clear that the company still faces a challenge in using customer feedback. Besides, the online market has become more competitive as companies continue to leverage on technology as part of the business strategy. Economic stability is a key determinant of the market conditions and the ability of the customers to purchase goods and services. Over the past ten years, the food and beverages industry has shown an exponential growth and the same is expected in future. Currently, the food and drinks market is valued at about $35 billion and the projection shows that this is bound to rise. By the year 2020, the food and beverages industry is expected to have a total value of $60.0 billion. This growth trend of this industry can be linked with the rising demand of these products and services due to increased rise in social class and growth of population (United Kingdom Food & Drink Report, 2014). However, it is clear that the demand for food and beverages in rising in the developing markets such as India more than in settled economies such as the US. Therefore, the company has a challenge to focus on new markets where economic situations are friendly and the potential for business is still high. The political and legal factors serve either to encourage of discourage the business strategies within the business environment. In sourcing law materials, political assertion on the need for companies to take care of environment and to provide healthy products to the customers has had an imperative influence in the market. Starbucks has to consider the issues raised in “Fair trade” that requires that organizations obtaining source materials adapt corporate social responsibilities to ensure that they operate with the utmost good of the public (Gamble & Thompson, 2013). On the legal aspect, the employment laws have become a threat to the survival of Starbucks coffee product. When the company considered lowering its salaries, the company was on the verge of colliding with the legal bodies for under paying the employees. Micro-economic factors; Porter’s five forces In future, there are high chances that there will be new market entrants. This implies that competition is bound to rise in this industry and companies must prepare to operate within a very competitive business environment. This sends out a warning to the company to become more vigilant in redesigning strategies to remain marketable in the long-term. The food and beverages market has become more sensitive due to changes in the consumer tastes. Due to the rising standards of living, the public are choosing low priced, high quality services. The global industry is marked by variation of market tastes as people switch to healthier eating (United Kingdom Food & Drink Report, 2014). For instance, the public have become more conscious of diabetes and are abstaining from the consumption of sugary foods and beverages. Therefore, the marketing managers are under pressure to suit these new preferences if they have to sustain their performance. Starbucks has a duty to follow these changes and design strategies to satisfy the dynamic customer demands. Secondly, there has been an increase in substitute products threatening the consumption pattern of the coffee beverage. For instance, there has been an increase in the number of soft drinks in the US and Europe (Gamble & Thompson, 2013). Since Starbucks have used coffee shops to target the leisure market, competition from substitute products has become a threat in the sales of their coffee. It is apparent that customers are willing to try out new products as they pursue their leisure. As a result, the demand for coffee has fallen and Starbucks is already experiencing a challenge in remaining relevant in this market. From a close look, the customers bargaining power has increased considerably due to the existence of new products and competition within the rivalry market. As the number of service providers increase, the customers have a variety from which to choose from, making it possible for them to opt for one company other than the other. Consequently, the service providers have lost their bargaining power to the customers, as they have to compete for a relatively smaller target population (Gamble & Thompson, 2013). The implication is that prices are bound to go down as consumers prefer companies that sell high quality products at lower prices. As a result, this has become a tough time for Starbucks forcing them to focus on cost reduction strategies to acquire a competitive position. Unfortunately, the competition in the food and drinks and beverages has intensified in the past few years. The main competitors included McDonalds and Dunkin Donuts, Costa Coffee, Pete’s coffee and mom and pop coffee stores. Over time, the company has faced a strong competition from Costa Coffee, Nestle, Caribou Coffee Company and the Coffee Roasters. This competition has been accelerated by the poor pricing strategies that Starbuck continues to use over its history. The company’s weakness exists in its inability to apply positive price reduction strategies in markets where price is a major influence of demand (Cardenal, 2012). High prices of products have given the company a bad reputation and promises to be limiting factor in the future of this company. Another weakness emanates from the company’s dependence on coffee as the primary profit reaper. The company has little influence on the coffee prices and the fact the price of coffee is unstable makes the company profits fluctuate. For the company to excel in its business operation it requires reducing its dependence on this product. Swot Analysis A SWOT analysis of Starbucks will help in revealing the strengths, weaknesses, opportunities and the threats of the company, which are important factors that influence its performance. One of the company’s strength lies in a strong customer-oriented marketing model. Over its history, the company has focused on providing products designed trough customer feedback. This helps to win customer loyalty and to establish a unique brand within the business environment. The companies endeavor to take care of the customer tastes saw its rapid developed into 4500 stores in 43 countries outside US. A second strength of the company lies in its customer expansion strategy, especially in the international market. The company’s ability to select global expansion strategies and to satisfy the customer tastes has helped the organization to increase the number of its customers. In addition, the company remained creative in designing unique products and in modeling its business profile (Buchanan and Simmons, 2009). For instance, the countries discovery of the window selling helped the company to increase its profit by over 30%. However, the company has a number of weaknesses that over time has suppressed its development. To begin with, the company has failed in developing a unique identity, which is crucial if the company has to remain unique. For instance, when the company diversified its products by introducing non-coffee products, the company lost its identity. For instance, an online comment compared Starbucks to McDonalds after the company lost its coffee aroma due to the smell of sandwich in the hotel. Secondly, the company failed in its domestic expansion by introducing too many stores that ended up being expenses rather than sources of income (Buchanan and Simmons 527). Since the domestic markets are always bound to saturate, it is a weak idea to expand extensively within this organization. Lastly, the company failed in introducing weak price-based models to reduce the prices of their products. While it was wise for the company reduce its coffee prices, it was a wrong idea to reduce the comfort of their coffee shops as this affected the customers tastes adversely. The company has numerous opportunities that can help to regain its market position and increase profits. To begin with, the company should focus on the emerging international market such as China and India where the public purchasing power is increasing more rapidly. This will help the company to increase its customer and profit from developing economies. Secondly, the company has the opportunity to extend its brand by focusing on other forms of drinks that have no effects on the coffee tastes (Gamble & Thompson, 2013). For instance, the company can stock juices and fruits in the company to meet the needs of visitors who may not opt for coffee drinks. This will help to meet the diversified tastes of the company. Various threats in the external business environment seem to push the organization out of profits. To begin with, competition in the coffee market has continuously increased from companies such McDonalds and Donuts who have focused on both the international and domestic markets. The ability of these companies to provide cheaper products makes them a favorite for many customers. In addition, economic changes in the business environment are pushing the expenses high especially in the fuel market. While the company is in a price-shifting phase, the company is spending more on fuel, which makes it hard to reduce its prices (Buchanan and Simmons 531). This is a severe threat that is seeing it lose a lot of profit, while the prices of products remain constant in a competitive market. Segmentation, Targeting, Positioning and customer value proposition Marketing segmentation refers to the grouping of a broad business markets into smaller subsets markets comprising of consumers with similar tastes and preferences, a strategy used to ensure that a company optimizes its performance. Hunt (2010), in his marketing theory, states that market segments are groups of unique customer tastes that an organization must strive to satisfy. In the food and beverages industry, Starbucks have used different products to target different customer segments. For instance, the “skinny” line of drinks developed in 2008 was a superior strategy that ensured that those who were conscious of sugary foods could enjoy a cup of low sugar drinks with a Starbucks store (Hooley, Piercy & Nicoulaud, 2008). However, it is clear that new market segments are rising and there is need to satisfy them if the company has to remain profitable. For instance, the growing Indian markets are becoming potential investing markets but their tastes are unique and different from those of different countries. While this may be a new market that Starbucks may target, satisfying this market segment requires that the company launches a research to understand the customer tastes in these new markets. Over its history Starbucks has used positioning strategy to survive in the competitive market. Market positioning helps a company to have a competitive position within the market and to win loyalty from its customers. So far, the company’s unique corporate image has become an important marketing feature. The company is well known globally and this gives it a unique identity in the food and beverages industry. However, the company has risked the loss of identity since the time that the company ventured in the provision of foods and snacks within it stores. The company experienced a heightened business challenge between 2007 and 2008, a time when the company experienced a flat growth rate. One of the reasons is because some of the strategies in this organization turned out against the initial company plans. For instance, the company taste changed when the company started selling foods, which unintentionally changed the coffee aroma that had attracted the customers into the company. The company needs to rebrand its image to ensure that it retains its popularity within the company (Hooley, Piercy, & Nicoulaud, 2008). Losing its identity may jeopardize its position in the market, which is crucial if organizations have to remain productive. The 7Ps of Marketing Mix The 7Ps of marketing is a superior approach of analyzing the marketing strategy that a company employs to roll out its products (Smith & Taylor, 2004). The company has shown commitment to defining high quality products that meet the customer tastes. The “sweet scented’ coffee has been a unique quality products desirable by many customers. The company promotion strategy has been unique all through with the company involving technology and direct marketing strategies in rolling out the products to the customers. For instance, the company’s online presence has helped the company to brand its image in the international scope. In terms of price, the company failed in introducing weak price-based models to reduce the prices of their products. As the customer demand less costly services, it becomes hard to sell expensive products that the company provides. Another important element of the 7Ps marketing model is people. The company has over 6 thousand employees entitle to full employee benefits, which helps to win their loyalty. However, it is clear that the company has yet to satisfy its customers by providing cheap and quality services (Gamble & Thompson, 2013). The company has also been poor in collecting customer feedback especially in its online presence. Its ability to streamline its processes through the use of information technology has been an important achievement for the company. The use of the web platform and social media as marketing platform is crucial in this era of technology. However, there is pressure to remain unique due to the evolving social media marketing strategy that demands a two way communication strategy. Recommendations In the changing market environment, the company has a challenge to use its strength and take advantage of its opportunities to overcome its weaknesses and market threats. To begin with, it is crucial that the company focuses on price reduction strategies to ensure that it provides affordable products to its customers (Zott and Raphael, 2011). In a time of economic recession, price is an important factor that customers consider while purchasing from different shops. One strategy to reduce prices would be to employ part-time employees, who work on demand (Gamble and Thompson, 2013). This will help to reduce the high expenses that the company spends in paying full benefits for full time employees. The company can provide health benefits to win the loyalty of part-time employees. The organization can also reduce its expenses by closing a number of the domestic stores and using fewer stores to cover the needs of the domestic market. The company needs to focus on the technology development to ensure roll out its products. Starbucks UK should focus on the use of social media, which has become an important marketing platform (Zott and Raphael, 2011). Since most members of its target class are within the internet age, it is possible to meet them through customized websites and social media sites such as Facebook and twitter. This will help to increase its customers and to improve the organizational productivity. Business Monitoring and Evaluation Business monitoring seeks to measure the organizational performance and compare it to the specific targets that a company sets at the beginning of each fiscal year. For Starbucks, monitoring would a necessity if the company has to remain profitable in the long-term. To this end, it would be crucial for the management to consider the turnover value at the end of each year to ensure that it remains profitable. While measuring the sales may be a good way to measure income, it may be ineffective when high rate of sales does not necessarily imply higher profits. Therefore, it is crucial to consider the net profit at the end of each fiscal year. Secondly, the company needs to device an approach to evaluate its business performance after every two years. Comparing the profits within each market and with different markets will tell the management which markets are productive or have higher potential. This way, it is possible for Starbucks to model its business strategy depending on its previous performance. The ability of the company to monitor and evaluate its strategies and performance will be crucial for its survival in the competitive beverages market. Bibliography Buchanan, L, and Simmons, C, 2009, Trouble Brews at Starbucks. Richard Ivey School of Business. Cardenal, A., 2012, Starbucks SWOT Analysis: A Tasty Coffee Stock. Available from: < http://beta.fool.com/acardenal/2012/11/09/starbucks-swot-analysis-tasty-coffee- stock/16100/> Gamble, J., & Thompson, A. A. 2013, Essentials of strategic management: The quest for Competitive advantage. New York, NY: McGraw-Hill/Irwin Hooley, G. J., Piercy, N., & Nicoulaud, B. 2008, Marketing strategy and competitive positioning. Harlow, England: FT Prentice Hall. Hunt, S. D. 2010, Marketing theory: Foundations, controversy, strategy, resource-advantage theory. Armonk, N.Y: M.E. Sharpe. Lussier, N., 2012, Management Fundamentals: Concepts, Applications, Skill Development. Mason, Ohio: South-Western. Smith, P. R., & Taylor, J. 2004, Marketing communications: An integrated approach. London: K. Page. United Kingdom Food & Drink Report 2014, United Kingdom Food & Drink Report, 2, pp. 1-189, Business Source Complete, EBSCOhost, viewed 27 June 2014. Zott, C.,, and Raphael, A., 2011, The Fit between Product Market Strategy And Business Model: Implications For Firm Performance." Strategic Management Journal 29.1 (2008): 1-26. Read More