In-depth Analysis for Starbucks Corporation - Case Study Example

INDEPTH ANALYSIS FOR STARBUCKS CORPORATION Name: Course: Professor’s Name University Name City, State Date due Introduction Starbucks Corporation first started its operations in Seattle, Washington DC on 30th March 1971. The company started as a partnership, made of three partners who were students of the same school at the University of San Francisco. The founders were Zev Siegl, who was a History teacher, Jerry Baldwin, who was an English teacher and Gorden Bowker, who was a writer. The three partners gained interest in selling high-quality coffee beans when they had their inspiration from Alfred Peet. He taught the three entrepreneurs the art of roasting the coffee beans. Starbucks Corporation is a multinational company that has its headquarters in the United States of America. Starbucks Corporation operates under the name Starbucks Coffee in America. It is a global company that usually deals with providing the services of coffee to its consumers. Starbucks Corporation is one of the largest companies, in the world; that usually acts as a coffee house. The company has a total of 22,551 stores that are currently in operation around the world. In America alone, the company has established a total of 12,739 stores, which is more than half of their total number of store operating, worldwide. The other retail stores are set strategically in other countries like China, United Kingdom, Japan and Canada and other 60 countries. Starbucks Corporation has made acquisitions and mergers with other companies. The company’s first acquisition was when they purchased Peet's company. Later, the original founders and owners of the Starbucks Corporation sold the chain of stores to Howard Schultz. The company usually offers both hot and cold beverages to its customers in all the stores available worldwide. Starbucks Corporation usually has products that range from beverages, coffee, full leaf teas, pastries, micro ground instant coffee and other snacks. Some of the stores of Starbucks Corporation act as evening stores that usually provide beers and wines to the clients. Since some of the products, like coffee, are usually seasonal products, the company also acts as a market for other products during the low season of their products. In the years, 1971 to 1976, Starbucks Corporation operations were on the sale of roasted coffee only. Today, the company has made partnerships with companies like Apple Inc., which has created collaboration for the company to sell music in the stores [RDu] Starbucks Corporation was rated top 100 companies for in the year 2013. Similarly, comparing the companies that deals with the roasting and selling of coffee beans and beverages, Starbucks Corporation is among the largest company. When Starbucks Corporation is incorporated in 1971 as a retail store selling, it came into the market facing high of competition from the already existing companies. Some of the companies that were already in existence at the time of incorporation included the McDonalds Corporation, Kentucky Fried Chicken, Pizza Hut restaurant chains and Taco Bell fast-food restaurant. With such competition, the company risked not gaining any market share in the products. Starbucks Corporation had the largest market control as at the financial year ended 2014. In 2014, Starbucks Corporation recorded an increase in revenue collected to US$ 16.447 billion. McDonalds, Nestle, and Kentucky Fried Chicken recorded greater revenue than Starbucks Corporation meaning that they have a greater market capitalization than Starbucks Corporation. Starbucks Corporation, however, recorded a decrease in the total assets of the company such that they decreased from US$ 11.5167 billion to US$ 10.752 billion. The other factors that determine the performance of the company improved in 2014 as compared to 2013. The shareholders equity of Starbucks Corporation increased to US$ 5.272 billion [STA13]. Starbucks Corporation has grown significantly over the years it has been in operation. They have gained popularity since their products and services have been made unique and differentiated from those of the competitors. Starbucks Corporation usually emphasizes its processes and activities to the improvements of their products and growth of the market. Therefore, despite stiff competition facing the corporation, there is room for its future survival and development. The avenue is viable through some processes available to the organization. This will help the company to operate in a devised ways, towards increased profitability and performance, thus improved the value of the company. The study will focus on the management of the corporation and how the corporation can use the macro-environmental analysis and the porters five force analysis to improve the corporation’s performance for both the long term and the short term periods. The two forms of analysis are increasingly being adopted by an organization to help identify threats and the opportunities that face the organization and how each of this can be worked on to provide positive returns to the organization. PESTEL Analysis PESTEL analysis seeks to analyze the internal and external factors affecting the company. It is a form of marketing strategy where the political, economic, social, technological and legal processes of a company are analyzed. The PESTEL analysis usually provides an overview of the opportunities that the company faces in various environments and daily activities. Opportunities for Starbucks Corporation should consider the aspects that affect the product and the market. The economic factors affect both the market and product for a company [Bru08]. Political factors affect the market as the stability of a country will determine how many companies are willing to invest in the country. The social factor also determines the market direction that the company takes in venturing into new markets. The legal factors also affect the market growth for the company. The economic factors in PESTEL analysis are mainly concerned with profitability and growth of the company. Starbucks Corporation strategizes in taking up opportunities that expand their market size and promote the growth of their products. Stability in the countries that the companies operate determines how much companies are willing to invest in the countries. With economic stability, development of the available opportunities within a corporation becomes feasible [Mar13]. Therefore, the tool helps to identify the economic stability facing Starbucks Corporation and how the management can stabilize each of the variable factors in the corporation for prosperity to be achieved both in the long-term and short-term periods within the organization. . The political stability of countries usually determines the willingness of companies to invest in a given country. Political instability usually deters companies from taking investment opportunities. For instance, Starbucks Corporation needs to research and investigate which countries could pose possible markets for diversification of products and understand their political stability. If the countries are politically stable, then Starbucks Corporation can take up the opportunity and invest in the countries [Ray12]. The economic factors have a major impact on how the business operates and how decisions are made. Such factors include interest rates, inflation rates, and the exchange rates that determine the economic growth of the country. The economic factors are usually a measure of the health of the economic systems in a given region. The key determinants of the economic health of any region are the credit accessibility, unemployment rates and the disposable income that is available for the buyers. The social factors include age distribution, careers and education background of the citizens within which the company wishes to diversify their products. For product diversification, Starbucks Corporation needs to consider the education background and careers of the citizens in the new market. The skills that Starbucks Corporation would require for the production of a new product need to be available in the market; otherwise the diversification process may result in a failure [Rut10]. The technological factors are used to recognize the technologies that are available to different organizations that can be advanced to optimize the internal efficiencies in the market. The technological factors are determined by the level of technological advancement and automation as a form of technological incentives. The rate of technological advancement is usually triggered by the research and development (R&D). The technological factors determine the entry barriers for the different countries and the efficiency of production. The technological advancements determine the quality of products, costs and innovation in the type of products and services that they provide. Some of the key technological factors common to most firms include new discoveries and innovation, the rate of technological obsolescence and the new technological platforms that are available to the organization [Bel14]. The environmental factors are the factors that include both the ecological and the environmental aspects of a business such as the weather patterns, climate and its changes that may have effects on the business and in most cases have drawbacks to the business. Pollution is one of the major problems facing the world today. In an attempt to control pollution, the government and consumers usually impose penalties on firms that affect the environment. Some of the environmental factors developed include laws on waste disposal, energy consumption regulations, environmental protection laws and the attitude that has been developed towards the environment. The legal factors are affecting a company usually include the regulations that are set to control the processes of a company. Some of the regulations that are usually set by the governments including taxes may deter the company from investing in the company. Legal aspects required within a given region serve as a key factor that the corporation needs to understand and comply with. Companies may choose to avoid investing in the country due to the tariff rates set by the company [Bel14]. Porter’s 5-forces analysis Porter’s five force analysis is a corporation’s competitive analysis that was developed by Michael E. Porter of the Harvard Business School in 1979. The framework was developed to assess and evaluate the position of the corporation as compared by its competitive strength. The competitive forces developed by Porter are based on the market and the market forces that determine the attractiveness of the market to other corporations. High competitive markets would reduce the attractiveness of such markets as it lowers the profits that are enjoyed by such markets. The analysis draws upon industrial organization economics that are used to derive the five forces used in the analysis [Por08]. The theory is used to determine the sectors of the business where power lies. It provides for the strengths and the competitive position of the industry being examined. Strengths in the different departments of an organization are identified, and ironing out the possible weaknesses is provided by the theory to help the organization avoid mistakes in the future. The theory is used not only to analyze the performance of the organization, but also the potential for growth and expansion for new products and services that are been introduced into a given market. The five forced developed by Porter in the theory are the bargaining power of the suppliers, the threats of new entrants, the bargaining power of the buyers, the threat of substitutes for products and services provided by the organization and rivalry that may exist among the existing competitors [Mic13]. The bargaining power of the suppliers is determined by the number of suppliers of a given product or service in an economy. The greater the number, the less the bargaining power and vise verse for a smaller number of suppliers in the economy. The assessment of the bargaining power of the suppliers by Porter in the five force analysis is used to determine the ease of the suppliers to drive the price of commodities up. Three main drivers determine the bargaining power of the suppliers namely; the size and strength of the suppliers, the uniqueness of the product or service being provided by the suppliers and the cost of switching from one supplier to another. A unique product is likely to have fewer suppliers in an economy and thus, the strength of the suppliers is increased in the economy. The suppliers, therefore, have the power to determine the prices as it is costly for the buyers to switch from one supplier to another. However, the product or service in an economy with more suppliers makes it hard for them to control the prices as it is easy for the buyers to switch to other suppliers when the prices of one supplier are higher than the others [Mic082]. The bargaining power of the buyers or consumers in an economy is determined by the variety of a product or service available to them. It is hard for consumers to determine the purchasing prices of products and services if they exceed the suppliers in the economy. It is, therefore, demand-driven power and the more the demand, the less the bargaining power of the consumers and the less the demand, the more the bargaining power of the consumers. The assessment of the bargaining power of the consumers in the five force analysis determines the ease of the buyers to drive the prices of commodities down. The market drivers, in this case, are the cost of a buyer switching to other suppliers, the number of buyers in the economy and the importance of the buyer to the organization. The threat of new entrants in the market determines the power and control of organizations in the economy. Where it is hard for new organizations to start their operations in a given market, and then there is a lower threat of new entrants, and thus the already established organization retain their power and control in the market. Markets that are perceived to be profitable for a given product or service usually attract new entrants, which in most cases erode the profitability of the organization. The porter’s five forces determine that the key drivers that determine the threat of new entrants in the market are the time and cost of entry into the new market, the economies of scale, cost advantages, technology protection, the knowledge that is possessed by specialists and the barriers for entry into the new market [Por03]. The availability of close substitutes in an economy usually determines the probability the consumers will switch to alternatives available to them. The ease of substitution is a determinant of the competitiveness and power controlled by a given organization in the market. In a case where there are no close substitutes, then the organization enjoys power and control in the market since there is no competition that they face in supplying the products and services in the organization. However, in a case where close substitutes exists for given products and services, it is easy for consumers to change from one supplier to another thus reducing the power and control of an organization. The key determinants of the threat of close substitutes in the porter’s five force analysis are the performance of the close substitutes for the commodities and the cost of change from one organization to another. Finally, the competitive rivalry mostly refers to the number of competitors who are capable of gaining power over others in the market. The attractiveness of the markets is usually determined by the competitive rivalry that exists in a market. Many competitors offering undifferentiated commodities in the market will reduce the attractiveness of the market as the performance of the markets, and power control will reduce thus reducing the profits that the organizations enjoy. Conversely, where there are fewer competitors in the market selling differentiated products, then the market attractiveness is likely to be high as they enjoy more power and control as well as profits. According to the porter’s five force analysis, the key drivers of the competitive rivalry in a market are the number of competitors in the organization, the quality differences, switching costs and the customer loyalty enjoyed by each organization in the economy. Connecting the PESTEL model and porter’s 5-forces analysis The PESTEL model and porter’s five force analysis provide the organizations with an opportunity to analyze both the macroeconomic and microeconomic components of the business. The components of the business PESTEL analysis provides the business with an overview of the opportunities that the business can take and the problems that they need to solve to improve the performance of the business. The PESTEL analysis is based on providing the means to improve the performance of the organization strategically. Threats in business analysis are mainly the negative issues that face the company from outside the business premises and they encompass the political, economical, Socio- cultural, technological, and environmental and the legal environment of the company. Both the PESTEL analysis and the porter’s five forces analysis thus work conveniently together to help the management identify the different types of threats that a company uses and how they can be best solved. All the aspects of the PESTEL analysis have their effect on the threats provided for by the 5-forces business analysis. Each of the aspects is a determinant of the amount of competition that businesses face. Both the political and legal aspects of the PESTEL analysis provide for laws that control all the stakeholders of the company to protect the suppliers, buyers, and the business entity. The bargaining power of the suppliers and the bargaining power of the buyers are limited to a given level to ensure that no one suffers negatively from the actions of the others. The governments are usually set a price floor and price ceilings to determine the maximum and minimum prices that can be set for different commodities in the organization. This works to protect the buyers from being overcharged by the suppliers and the suppliers from suffering losses for low prices when demand for commodities is reduced. The technological advancement of business allows them to stay ahead of the rest and reduce the competition that they face from rivalries. The economic and environmental conditions help to provide the business with the means to cab threat faced by close substitutes and those of new entrants by understanding the demographics of those living around the business promises, the wants, resource utilization, key competencies and their capabilities. Mission and objectives of Starbucks Corporation going forward Starbucks Corporation’s mission is one that seeks to ensure that the organization becomes a worldwide recognized and respected brand and one whose values and guiding principles could make the employees take pride in. The vision can be easily achieved if the organization takes to consider the options that are provided to it by the PESTEL analysis and Porter’s five force competitive model. The vision statement of the organization is one that clearly defines the future and dreams that the organization wishes to achieve. They however, need to consider the options provided to them in the analysis so that they can easily achieve their expectations. There are two major objectives that Starbucks Corporation seeks to achieve. The first is for the organization to enjoy growth and ensure that the employees feel valued. Secondly, it is to pay and provide opportunities to their employees for personal growth and development to ensure that they become loyal to the organization. Employee’s benefits will motivate the employees and thus they will provide better services to their customers which in turn increase customer satisfaction and customer loyalty in the long run. The Porter’s five forces analysis and the PESTEL analysis provide options that are available to the organization to ensure that remain competitive and increase the satisfaction the organization provides its customers and employees. REFERENCES RDu: , (Duane, Michael, & Robert, 2008, p. 5), STA13: , (Starbucks Corporation, 2014, pp. 19-20), Bru08: , (Bruce, 2008, p. 331), Mar13: , (Markus, 2013, p. 62), Ray12: , (Ray, Graham, & Phil, 2012, p. 1), Rut10: , (Ruth, 2010, p. 2), Bel14: , (Belal, 2014, p. 6), Bel14: , (Belal, 2014, p. 8), Por08: , (Porter M. E., 2008, p. 6), Mic13: , (Michael P. , 2013, p. 2), Mic082: , (Michael M. P., 2008, p. 29), Por03: , (Porter & Ketels, 2003, pp. 38-39), Read More