External Environment Analysis of Starbucks
Starbucks Corporation is an international coffee and coffee house chain based in Seattle, Washington, United States. It opened as a single small store opened in 1971 and became a coffee giant at the end of the millennium. Starbucks has led a coffee revolution in the United States and beyond. The store was opened by 3 men: Jerry Baldwin, Zev Siegl and Gordon Browker.
Starbucks locations serve hot and cold beverages, whole-bean coffee, full-leaf teas, pastries, and snacks. Most stores also sell packaged food items, hot and cold sandwiches.
Starbucks is the leading and most major name in promoting coffee throughout the world. They have expanded continuously and it has resulted in their growth and popularity. Starbucks revenue is generated both from company-operated retail stores and from specialty operations.
Michael Porters 5 Forces:
According to Porter’s, ‘’Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack’’.
The five forces that affect the company in any industry include the competition, the suppliers, the customers, the threat of new entrants and the threat of substitutes. The porters five forces analysis for Starbucks in UK is given below:
Rivalry among established companies:
The coffee industry is fragmented. None is dominant in the industry. Today, Starbucks have over 21,536 stores in 64 countries. Starbucks’ competitors for coffee beverage sales are quick-service restaurants and specialty coffee shops, such as Nestle, Costa,
Dunkin’ Donuts. In 2010, Costa coffee took over Starbucks and gained the biggest market share in England. The other challenge Starbucks face is posed by Nestle coffee. Differentiated from Starbucks, Nestle uses the low price to attract customers, whose price is one fifth of Starbucks’.
Threat of New Entrant:
The innovation and product differentiation can be brought in by new entrants.
Threat of Substitutes:
There are many substitutes, offering similar services and also taking a share of the market available to Starbucks. Starbucks’ biggest potential competitors are the fast-food leading corporations like McDonald and KFC. Both of them have the economic scale as they opened up stores in all over the world and had much more distribution centers. It is easy for them to launch into the coffee industry and take market share from Starbucks.
Bargaining Power of Suppliers:
Starbucks is dominant in doing business with its providers. The number of the coffee bean providers is large, so Starbucks can be strict with the quality of the coffee beans and lower the coffee bean prices.
Bargaining Power of Buyers:
Consumers choosing Starbucks isn’t on the basis of the price but the comfortable environment, high quality of product and its service.
Starbucks was negatively impacted by the external environment factors .Starbucks has had much market power in the gourmet coffee industry. They have attracted customers. In the current economic state, their prices have caught up to them causing their demand to decrease. People do not want to spend their limited income on premium coffees that they can get from any of their competitors, like Dunkin’ Donuts, Nestle, McDonalds and Panera Bread. Starbucks has been forced with the changing times and the economy to drive down their prices to compete in the industry.
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Porter, M. E., (2008) ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, pp.2-4, Available at: https://services.hbsp.harvard.edu/authorization-service/proxy/content/27620110/31777830/47f6f22bf9ee48a87f080b9136781e76,(accessed: 1/04/15)
UK Essays. November 2013. Internal And External Market Analysis For Starbucks Marketing Essay. [online]. Available from: http://www.ukessays.com/essays/marketing/internal-and-external-market-analysis-for-starbucks-marketing-essay.php?cref=1 [Accessed 1 April 2015].