Starbucks porter's case study

MUHAMMAD ILHAM

P74155

Starbucks

Porter’s Five Forces Analysis & Porter's Value Chain

Company Background

Starbucks started in 1971 when three academics: English teacher Jerry

Baldwin, history teacher Zev Siegel, and writer Gordon Bowker,

opened a store called Starbucks Coffee, Tea, and Spice in Seattle.

These three partners shared a love for fine coffees and exotic teas and

believed they could build a clientele in Seattle much like that in the

San Francisco.

Starbucks Coffee Company is a global coffee company and a

coffeehouse chain headquartered in Washington, the US and the

company has generated a consolidated revenues of $14.9 billion

during 2013 with more than 200,000 partners, referred to as

employees (Starbucks Annual Report, 2013).

Starbucks Porter’s Five

Forces Analysis

Porter’s Five Forces represents theoretical framework that is

used for industry analysis and strategy development.

Specifically, the five forces shaping competition within the

industry consist of the intensity of rivalry among the

competitors, the risk of entry of new competitors, the bargaining

power of buyers, bargaining power of suppliers and the threat of

substitute products and services.


Forces Analysis

The nature of the relationships among these forces is best presented in

the following figure :


Forces Analysis

Rivalry among existing competitors

Rivalry among existing competitors is high within the industry

Starbucks operates in with major competitors like Costa,

McDonald’s, Caribou Coffee, and Dunkin Donuts and

thousands of small local coffee shops and cafes.

Starbucks Bergaining Power of Suppliers

Starbucks customers possess large amount of bargaining power

because there is no and minimal switching cost for customers,

and there is an abundance of offers available for them.


Forces Analysis

The Threat from Substitutes

The threat of substitute products and services for Starbucks is

substantial. Specifically, substitutes for Starbucks Coffee

include tea, juices, soft drinks, water and energy drinks, whereas

pubs and bars can be highlighted as substitute places for

customers to meet someone and spend their times outside of

home and work environments.


Forces Analysis

Starbucks suppliers have high bargaining power due to the fact

that the demand for coffee is high in global level and coffee

beans can be produced only in certain geographical areas.

Moreover, the issues associated with African coffee producers

being treated unfairly by multinational companies are being

resolved with the efforts of various non-government

organisations, and this is contributing to the increasing

bargaining power of suppliers.

Starbucks Bargaining Power of Buyers


Forces Analysis

The Threat of New Entrants to the industry to

compete with Starbucks

However, the threat of new entrants to the industry to compete

with Starbucks is low, because the market is highly saturated

and substantial amount of financial resources associated with

buildings and properties are required in order to enter into the

industry

Starbucks Porter's Value

Chain Analysis

Value chain analysis allows the firms to understand the parts of

its operations that create value and those that do not.

Understanding these issues is important because the firm earns

above-average returns only when the value it creates is greater

than the costs incurred to create the value.

Business’s inbound logistics, operations, marketing and sales,

outbound logistics, and service are considered as primary

activities in value-chain as they are involved in value creation in

a direct manner. Support activities in value creation, on the other

hand, include infrastructure, human resources management, and

procurement.


Chain Analysis

Figure in value-chain analysis the business activities :


Chain Analysis

As it is seen from the figure above in value-chain analysis the

business activities are divided into two categories: primary

activities and support activities. The primary activities directly

deal with the creation of products or services, whereas, support

activities can be used to obtain or increase competitive edge in

the marketplace.


Chain Analysis

PRIMARY ACTIVITIES

INBOUND LOGISTICS

Starbucks inbound logistics involve company agents choosing

coffee beans producers mainly in African continent,

communication the standards related to the quality of coffee

beans, establishing strategic relationships with suppliers and

organising the supply-chain management.


Chain Analysis

OPERATIONS Starbucks operations are conducted in more than 50 countries in

two ways: direct operation of the stores by the company and

licensing. Currently there are 8870 company-operated stores

globally, whereas 8139 stores operate on the basis of license.

OUTBOUND LOGISTICS

The outbound logistics for Starbucks has traditionally involved

selling its products through its stores without any intermediates.

However, starting from recent a range of Starbucks products

such as 3-in-1 coffees in sachets are being sold through a set of

leading supermarkets.


Chain Analysis

MARKETING AND SALES

Starbucks does not heavily invest in marketing relying instead on the

word-of-mouth achieved through the high quality of products and

high level of customer services. However, occasional marketing

activities initiated by the company involve sampling of new products

that are usually conducted within areas nearby the stores.

SERVICE

Providing superior level of customer services is one of the main

objectives of Starbucks and it is driven from the mission statement of

the company. The company staffs are encouraged to go greater lengths

in order to ensure high level of customer satisfaction.


Chain Analysis

SUPPORT ACTIVITIES INFRASTRUCTURE Starbucks infrastructure includes a range of general support

activities such as “management, planning, finance, accounting,

legal support and government relations that are required to support

the work of the entire value-chain”.

HUMAN RESOURCE MANAGEMENT

The workforce is duly perceived to be the most valuable resource

by Starbucks. Accordingly, a wide range of training and

development programs are available for them and they are

motivated by both, tangible and intangible incentives. Specifically,

in UK Starbucks staff is entitled to free drinks during the shift.


Chain Analysis

TECHNOLOGY DEVELOPMENT

Starbucks relies on technology for cost-saving purposes, as well as,

ensuring the consistency of the quality of products and offering a

high level of customer experience in general. For instance, with the

introduction of computerised coffee roasters the consistent taste of

Starbucks coffee was ensured and this has contributed to the level

of customer retention for the company.

PROCUREMENT

This involves purchasing items that are needed for the production

of final products or offering services. For Starbucks it would be

coffee beans and raw food items, as well as fixed assets such as

buildings, machinery etc.

References

1. Clark, T. (2007) Starbucked : A Double Tall Tale of Caffeine,

Commerce and Culture, Little, Brown and Company, New York.

2. Garza, George, (2010). “The history of Starbucks.” Catalogs.com.

Catalogs.com, n.d. Web. 7 Jun 2010.

3. Hoovers (2010); Starbucks Corporation, Company Description.

4. Porter M. (1985). Competitive Advantage: Creating and Sustaining

Superior Performance, N. York: The Free Press.