Starbucks, the largest coffee-company and coffeehouse in the world, which started 1971 in Seattle, Washington, reports large growths in revenues from year to year. Starbucks that made on the Fortune magazine as one of the best companies to work for possessing multiple strengths; like any other organization, must take into account its possible internal weaknesses and external threats, and also be open to new opportunities in order to achieve successfully its business objectives.
The world’s most famous and the greatest retail coffee store and coffeehouse Starbucks, which first opened in Pikes Place store in Seattle, from the very beginning differentiated as having a close relationship with customers. The company became Starbucks Corporation only in August 1987, when it was acquired by Howard Schultz. Jerry Baldwin, Zev Siegel and Gordon Bowker started the company, believing that they would build a clientele, which appreciated the best coffees and teas. Starbucks became an immediate success with sales beyond expectations. By the 1980s, the company had four stores in Seattle, having been profitable ever since it first opened its doors (Shah et al, 2006). Today, with its 24.54% return on investment (ROI) and a 29.16% return on equity (ROE), Starbuck Corporation leaves behind its one of the main competitors, Green Mountain Coffee Inc., whose ROI is 12.55%, and ROE is 17.38% (Chen, 2013). The company’s revenue in 2012 was %13.29 billion with %1.38 billion in profit (Jurevicius, 2012). Starbuck has always taken a strategy directed towards improving the quality of its products and services for their customer satisfaction (Our Starbucks Mission Statement, n.d.). In order to examine existing and/or develop other possible strategic options, it is necessary to perform the company’s SWOT analysis that includes examining internal strengths and weaknesses, as well as external opportunities and threats.
Starbucks is the largest coffee chain in the world, having around 20,000 coffeehouses, operating in more than 60 countries. Besides, the company’s profitability has been increasing for the past few years. Today it is 14%. As stated above, Starbucks also sells high quality products that differentiate it from its competitors, making this experience one of its strongest advantages (Jurevicius, 2012). The company delivers to its customers, fresh-roasted, whole-bean coffee; premium music; friendly employees and cozy atmosphere (Shah et al, 2006). The company attempts to create close relationships with its customers by making personal interactions. For instance, creating a welcoming environment and knowing a customer’s name ensured lasting positive connections between the business and its loyal consumers (Michelli, 2007). Additionally, Starbucks possesses strong brand reputation associated with both the quality of coffee and excellent customer service. Its brand is valued at $4 billion, making it the most valuable brand in the coffeehouse segment (Jurevicius, 2012). Finally, the company provides its employees with a wide range of benefits including the higher pay rate than its competitors are offering, and employee community activities that serve as team-building methods (Michelli, 2007).
Because the coffee in Starbucks is of high quality, the price for it is correspondingly high. The company’s profitability and the price for its coffee depend largely on prices of coffee beans that are commodities and thus cannot be controlled by Starbucks. Besides, offering great coffee influences customer experience. For instance, McCafe premium coffee was better evaluated by the customers in terms of its lower price in comparison to Starbucks. Another weakness is the negative publicity over the corporate tax evasions (Jurevicius, 2012). For example, Starbucks along with Apple, Hewlett-Packard and other global companies was blamed by agencies like IRS (Internal Revenue Service) for avoiding billions in taxes, according to the Forbes magazine (Wood, 2013).
Starbucks does not grow coffee beans itself, that is why it has to purchase them from suppliers. Most of them are located in South America, Africa or Arabia. The company needs to extend its supplier network for it to ensure critical supplies for operations in Asia and reduce dependence of good or bad African harvests. The corporation also has an opportunity to expand to emerging economies like China and India, where Starbucks has a yet modest number of coffeehouses (Jurevicius, 2012). To increase product offerings such as Natural Fusions, ground flavored coffee, introduced in 2010, would be another opportunity for Starbucks. The firm previously introduced beverages such as wine and beer. The company could expand by offering some popular cocktails like Mojito and martini, and adding new products to reach a broader customer group. Finally, Starbucks is selling some of its products like via instant coffee through other retailers such as Target and Wal-Mart (VIA Ready Brew Instant Coffee, n.d.). The company should form more of such partnerships, offering its coffee in the larger number of supermarkets.
One of the biggest threats to Starbucks strategy is rising prices of dairy products and coffee beans, which the operations of the firm strongly depend on, and which it can be hardly to control or estimate (Jurevicius, 2012). Organization also is often involved in cases over illegal trademark use. For instance, Starbucks sued, and won the case of protecting its brand name in Russia in 2005 (Meland, 2005). Battles like these, however, are costly and damaging for the company. Besides all other threats, Starbucks is facing lower price coffee competition. Among its early nation-wide competitors are Kraft General Foods, Nestle and Procter & Gamble, which distribute their coffees through retail stores and supermarkets. The rival brands in specialty coffees include the most important competitors of Starbucks such as Green Mountain, Allegro, Brothers etc. (Shah et al, 2006). Competition forces Starbucks to lose its market share. Additionally, with intensifying rivalry, it would be difficult for the firm to operate and grow in the saturated markets (Jurevicius, 2012).
Being aware of its weaknesses and threats, Starbucks undeniable advantage includes efficient use of its strengths and opportunities. The firm’s profitability allows it to consider alternatives for success. For instance, Starbucks launched new alternative to paper cups by introducing Beta Cup that represents a cup for multiple uses. To reduce paper waste and help saving environment became the primary aim of this idea that represents Corporate Social Responsibility (CSR) of the company (Used Paper Cups Become New Again, n.d.). Following tea drinking trends among Americans, Starbucks also recently opened Teavana-branded tea house, selling tea only and no coffee. Cliff Burrows, the Starbucks group president, believes that acquiring Teavana will help it tap the growing market for tea of various flavors and varieties (A Nation Rediscovers its Old Drinking Habits, 2013). An alternative to consider for Starbucks is reorganizing its stores’ interior to avoid people waiting in long lines while getting a cup of coffee or tea. Creating a table-order-taking and delivery service would reduce the lines of waiting consumers as it would separate customers, who like enjoying their beverage in the restaurant, and those, who need a ‘to-go’ coffee.
Starbucks is one of the more experienced companies in how to treat employees well, creating productive relationships between the staff and customers. It became #73 on the Fortune 100 top best companies to work for in 2012 (100 Best Companies to Work For, 2012). This is a definite advantage, the corporation possesses. The decision of customer and employee orientation became the determinants of Starbucks’ success. Despite its weaknesses, the company needs to move on with its strategy of providing the highest quality coffee, creating a warm environment for customers and favorable conditions for employees, because this is, what defines Starbucks.
Being the largest coffee-company and coffeehouse worldwide, Starbucks maintains increasing revenues and follows trends among consumers. SWOT analysis showed that the company possesses multiple strengths and several weaknesses, having numerous opportunities and threats of mostly intense competition. The corporation applied several new ideas into business and yet has some other alternatives to consider.
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- Our Starbucks Mission Statement. (n.d.). Starbucks Coffee Company. Retrieved from http://www.starbucks.com/about-us/company-information/mission-statement
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- Used Paper Cups Become New Again. (n.d.). Starbucks Coffee Company. Retrieved from http://www.starbucks.com/blog/used-paper-cups-become-new-again/624
- VIA Ready Brew Instant Coffee. (n.d.). Starbucks Store. Retrieved from http://www.starbucksstore.com/coffee/starbucks-via-ready-brew,default,sc.html
- Wood, R. (2013, August 6). Excuse Me Apple, Google, Starbucks & H-P: IRS Wants To Tax Stateless Income. Forbes. Retrieved from http://www.forbes.com/sites/robertwood/2013/08/06/excuse-me-apple-google-starbucks-h-p-irs-wants-to-tax-stateless-income/