The title of being the largest chain of coffeehouses in the world belongs to Starbucks. It has more than 34000 stores in 80 countries. It might not be credited for pioneering the second wave of coffee culture that began in the 1960s with the establishment of Peet’s Coffee and Tea in 1966 but it was instrumental in pushing further the movement when it was founded in 1971 and expanded across the United States and the rest of the world beginning in the 1990s. However, despite its established dominance and reputation, newer chains of coffeehouses and even smaller stores with limited market scope are threatening its global market share and industry position. There are still opportunities for further expansion. This article analyzes the internal and external business situations of Starbucks using the SWOT Framework.
A Situational Analysis of Starbucks Based on the SWOT Framework: Strengths, Weaknesses, Opportunities, and Threats
Starbucks has more than 34000 stores in 80 countries. It uses a mixture of a company-owned model and a franchising business model to expand and maintain its global presence while upholding quality standards. The strong financial standing of the company and its access to capital have enabled it to invest in expansion and marketing. Its brand reputation has also enabled it to utilize a premium pricing strategy to maximize its earnings potential.
Below are the specific strengths of Starbucks Corporation:
• Strong Branding and Capable Marketing: The company is a global brand. It has maximized the benefits of integrated marketing communication through its multifaceted promotion strategy to create and maintain brand awareness. This strong branding is supplemented further by its CSR strategy which has helped it construct a positive corporate image while also promoting the interest of its stakeholders.
• Focus on Product Offering and Experience: Another strength of Starbucks is its product strategy which focuses on offering a range of products and providing its customers with excellent in-store experiences. The company offers a variety of coffee and tea beverages, other food items, and even merchandise. It has also invested in value-added services to elevate the in-store experiences of its customers.
• Strong Business Management Capabilities: It also has demonstrated management and leadership capabilities. The company exemplified coherence across its marketing mix. Its product strategy complements its pricing strategy and promotion strategy. It has dealt with its supply chain issues through process optimization, vertical integration, relationship management, and corporate social responsibility.
• Financial Standing and Growth Record: Starbucks has had periods of unfavorable financial performance but its overall financial standing remains advantageous. Its access to capital via the stock market and other financial markets has allowed it to invest in expansion and innovative pursuits. The proven growth record of the company enables it to finance the same pursuits while attracting more investors.
Others might consider its global presence as a demonstration of its strengths and as a source of its competitive advantage but the company has also faced problems as regards overexpansion. Starbucks also faces tough competition in the greater restaurant market. Remember that it is a premium chain of coffeehouses. This means that its products are limited and its brand experiences threats of substitutes from fast-food companies, casual dining and fine dining companies, and even processed food products or off-the-shelf food items.
Below are the specific weaknesses of Starbucks Corporation:
• Drawbacks of a Premium Pricing Strategy: Remember that the company utilizes a premium pricing strategy. Its coffee products are more expensive than alternatives. Its food products are also more expensive than both alternatives and substitutes. This is a weakness because it raises the bargaining power of buyers and also opens opportunities for new entrants with more affordable pricing schemes.
• Coffee Products Dominating Its Products: The company might have diversified its menu over the years but it is still a coffeehouse. It also retails coffee products in its stores and different third-party retailers. The dependence on coffee products creates specific problems. These include vulnerability to threats of substitutes and exposure to risks associated with fluctuations in the supply and prices of coffee beans.
• Overexpansion Has Affected Sustainability: Another weakness of Starbucks is its global presence and operations which have exposed it to various risks. The company has faced problems due to overexpansion. For example, due to the 2007-2008 Financial Crisis, it was forced to close 600 underperforming stores. The Global Supply Chain Disruption of 2021 also resulted in temporary supply shortages.
Starbucks has a strong presence in the United States and also dominates markets in specific countries in the Middle East and Africa and Asia and the Pacific regions. There are also opportunities to expand further to developing countries. In addition, considering its established brand, proven business management capabilities, and global presence, there is an opportunity for it to expand its menu or diversify further its product offerings.
Below are the specific opportunities for Starbucks Corporation:
• Market Expansion and Business Diversification: Emerging markets in developing countries in South America, Southeast Asia, and Africa present an opportunity for Starbucks to expand further its global presence. The company can ride the wave of growing economies. It can also diversify its business further either by expanding its menu or venturing into other restaurant concepts.
• Enhancing Online Ordering and Delivery: The company can also tap into the growing market segment composed of consumers who prefer ordering food products. Take note that companies like McDonald’s Corporation have invested heavily in their online distribution channel to mitigate the limited capacity and reach of their stores while addressing the growing demand for online deliveries.
• Acquisition of Relevant Businesses and Brands: It can also pursue acquisitions as part of its business expansion strategy. The company has been acquiring companies in the past to improve its value chain. Examples include the retail chain of brewed and packaged loose-leaf tea Teavana and bottled drinks manufacturer Evolution Fresh. It can further acquire other food and beverage manufacturers or restaurant chains.
• Expansion of the Starbucks Rewards Program: Another opportunity for Starbucks comes from its existing Starbucks Rewards Program. This is a dedicated loyalty program that has also become a revenue-generating activity due to its bank-like mechanism. The company can enhance this program further by adding more features and benefits that would attract more customers and enhance their experience.
Remember that the company operates in a competitive environment. The specific market for coffeehouses is expanding due to the expansion of incumbents and the arrival of new entrants. Established chains of coffeehouses compete against the traditional and innovative business models and value propositions of newer coffeehouses. Companies like McDonald’s Corporation and Dunkin have also been focusing on providing coffeehouse experiences.
Below are the specific threats to Starbucks Corporation:
• Increasing Competition from Alternatives: Starbucks competes with other established coffeehouses like Tim Hortons and even companies that pivoted to similar restaurant concepts like Dunkin. It also competes with smaller coffeehouses due to the growing accessibility of relevant supplies like regional coffee beans and tea leaves. This raises the bargaining power of buyers and the bargaining power of suppliers.
Changes in Preference and Market Trends: The evolving preference of consumers and changing market trends threaten older restaurant concepts while also forcing incumbents to invest in pursuits to keep them relevant. Consumers are becoming more interested in healthier and sustainable options. Emerging market trends include personalized experiences, online deliveries, and further elevated in-store experiences.
Impacts of Different Macroeconomic Factors: Another threat to Starbucks comes from the fact that it operates in the greater consumer discretionary sector. This means that its sales and earnings potential are dependent on the economic condition and other factors that affect the economic health of its markets. Its profits are dependent on the inflation rate, foreign exchange rates, and even employment rate.