Company: Starbucks 
CEO: Laxman Narasimhan
Year founded : 1971
 Headquarter : Seattle, USA
Number  of Employees (FY2023): 381,000
Type: Public
Ticker Symbol:  SBUX
Market Cap (Apr 2024): $98.33 Billion
Annual Revenue (FY2023): $35.97 Billion 
Profit (Net income) (FY2023): $4.12 Billion

Products & Services:   Coffee | Handcrafted Beverages | Fresh food | Non-food items | Packaged goods | Mugs and accessories | Gifts | 
Competitors: Costa Coffee | McDonalds McCafe | Dunkin Donuts | Café Coffee Day | Tim Hortons | Costa | Panera Bread |
  

Did you know?

There are 87,000 possible drink combinations at Starbucks.

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An Overview of Starbucks

Starbucks is the world’s largest American coffeehouse chain that operates 18,253 company operated and 17,295 licensed stores worldwide. It was founded in Seattle, Washington in 1971.

With the invigorating vision of Howard Schultz (current Executive Chairman), it became more than a coffeehouse, a third place between work and home. Laxman Narasimhan is the new CEO of Starbucks.

SWOT analysis of Starbucks

The SWOT analysis of Starbucks is as follows:

Starbucks Strengths – Internal Strategic Factors

1. Strong brand image

Starbucks Corporation is the most popular and strongest brand in the food and beverage industry. Its size, volume, and the number of loyal customers have kept growing over time. It has  a brand value of $14.05 Billion as per 2022 Interbrand ranking. 

2. Strong financial performance

With an annual revenue of $32.25 billion and profit of $3.28 Billion in fiscal year 2022, Starbucks has a strong financial position in the market.

3. Growth in stores

It increased its number of stores from 1,886 to 35,711 between 1998 and 2022. Currently, Starbucks operates two types of stores i.e. company operated and licensed stores. It has 18,253 company operated stores and 17,458 licensed stores globally. Company operated stores generate ~82% of the total revenue. 

4. Extensive international supply chain

Starbucks is known to have an extensive global network of suppliers. Starbucks sources its coffee beans from three coffee producing regions, Latin-America, Africa, and Asia-Pacific. 

5. Acquisitions

Company has acquired top 6 companies including Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, Torrefazione Italia Coffee, and Ethos Water. These acquisitions have proven quite successful for Starbucks.

6. Moderate diversification

Starbucks has also diversified its business operations by introducing innovative merchandises and food items. One such example is the addition of ice cubes made of Coffee which results in a stronger Coffee flavor.

7. Quality, Taste and Standardization

Due to its premium blends and delicious coffees, Starbucks has extended globally. It offers excellent quality and consistently standardized products in all the locations.

8. Efficiency, Strategic Planning, and Reinvestment Strategy

Starbucks reinvests its profits in expanding its business in different locations. Its efficient operations and well-planned strategic decisions have produced many advantages for the company.

9. Employee treatment

It treats its employees very well which eventually translates into happier employees serving customers well. Starbucks has been listed as one of the best companies to work for. Recently, Forbes has ranked Starbucks in the following categories:

• World’s Top Companies for Women (#14)
• Canada’s Best Employers for Diversity (#36)

10. Strong Loyalty Program

Starbucks has a great reward program that keeps customers addicted to its coffee. For every $1, you get 3 stars ($1 = 3 stars). When you collect 150 stars, you get a free drink (150 stars = 1 free drink). In addition, reward members get the convenience of mobile payment, pre-order, free birthday drinks, etc.

11. Increase starting wage for baristas

The coffee giant has increased the minimum starting wages of all its baristas to $15/hour in 2022.  Moreover, Starbucks plans to have an average salary wage of $17/ hour for its baristas, according to a company statement. Starbucks’ tenured workers will receive up to a 5% wage increase with two or more years of service.
The hourly wages were increased throughout the pandemic due to labor shortages. 

12. Gender Neutral Restrooms

Starbucks has introduced gender-neutral restrooms to protect Lesbian, gay, bisexual, and transgender (LGBT) community against discrimination. It is in response to Anti-LGBTQ bills that discriminate against specially transgender people. 

Starbucks Weaknesses – Internal Strategic Factors

1. High prices

For many middle tiers and working consumers, Starbucks’ offerings are more costly than McDonald’s and other coffee outlets. Its high prices reduce affordability for the consumers.

2. Imitability of products

Starbucks doesn’t own the most unique products in the market. This makes the imitability of products quite easy for other companies. Other coffee shops and food chains like McDonalds McCafe  and Dunkin Donuts offer almost the same products.

3. Generalized standards for most products

Some of its product offerings are not aligned with the cultural standards of other markets. For example, in some areas, its crafted beverages do not associate with the consumer preferences.

4. European Tax avoidance

Due to its tax avoidance in the UK, it faced several controversies and criticisms. Reuters’ investigation found out that it didn’t pay tax on its £1.3 billion of sales in three years prior to 2012.

5. Procurement Practices

Many social and environmental activists criticized the company for their unethical procurement practices. They claimed that it procures coffee beans from impoverished third world farmers. It has also been accused of violating “Fair Coffee Trade” principles.

6. Recall of Products

Over the years Starbucks has recalled a lot of in-demand products. This can negatively affect the brand image of the company and lead to the loss of customer base.

In March 2016, Starbucks recalled two products. One was the sausage, egg, and cheddar breakfast sandwich and the other was cheese and fruit bistro box. The reason for recalling these products was the threat of contamination and allergens.

During routine testing, it was revealed that the facility that manufactured the breakfast sandwiches had the presence of Listeria Monocytogenes on the contact surface.

The 250 stores in Arkansas, Texas, and Oklahoma that showcased these sandwiches had to remove them. The cheese and fruit bistro box was recalled because it contained the almonds found in the box contained traces of undeclared cashew nuts.

There was no warning label that highlighted the presence of cashew nuts. This could be potentially life-threatening for people with cashew allergies.

7. Worst holiday drink

According to a poll carried out by Mashed, more than 21% of coffee lovers absolutely hate Starbucks’ “Iced Latte.” Starbucks premiered it as a festive Christmas holiday drink. But sadly, the drink turned out to be a downer. A lot of people said that Starbucks’ iced latte leaned too much on the sweet side, absolutely not worth the steep price.

Starbucks Opportunities – External Strategic Factors

1. Expansion in developing markets

Starbucks has coffeehouses mainly in the US. Global expansion in emerging economies such as India, China and few regions of Africa can give a great opportunity to the company.

2. Business diversification and Products Specifications

It can further diversify its business operations to improve overall revenue growth opportunities. Besides, developing products as per the customer preferences in the specific target market is also a profitable opportunity.

3. Introducing new products

As the company is quite popular, introducing new products and holiday flavors (Peppermint Mocha, Eggnog Latte, Gingerbread Loaf) under its name would be profitable and welcomed in the markets.

4. Partnerships or alliances with other firms

Co-branding always benefits. Starbucks has the opportunity to develop partnerships and alliances with major firms. This would strengthen its presence and market share.

5. Exploit Latest Coffee Trends and Technologies

Although Starbucks is at the forefront of cutting-edge coffee technology, there is still room for expansion. From best foam technology to snap-chilling, back to black, and RSI-reducing gizmos, there are endless possibilities offered by the latest coffee trends and technologies.

6. Adopt Price Differentiation

Some coffee houses are growing their customer base rapidly by offering regular and premium coffee to cater to different classes. Starbucks can offer regular coffee that is priced lower to capture the middle-class while serving its expensive variety as premium. 

7. Strengthen Online Channels

The pandemic has discouraged in-store consumption with more coffee drinkers opting for take-away. Starbucks can strengthen its online sales channels to attract more customers to pick their coffee curbside or in pickup locations.  

8. Coffee Delivery Service

Currently, customers rely on Uber Eats, Grubhub, Doordash and Postmates for its Starbucks coffee delivery. Starbucks can start its own coffee delivery service for better customer experience.

9. Coffee Subscription

Panera bread has already started coffee subscription service. Starbucks can also try new coffee subscription business model to expand its customer base.  

Starbucks Threats – External Strategic Factors

1. Competition with low-cost coffee sellers

Many coffeehouses offer products at an affordable rate. This can threaten the future’s stability of Starbucks which offers higher prices.

2. Competition with big outlets

Aggressive competition with multinational companies like Dunkin Donuts and McDonald’s can also pose a threat to its market position.

3. Imitation

Products can be imitated by both new and old rivals.

4. Third-party Delivery Suppliers (union) Strike

Starbucks’ supply chain consists of many third-party contractors and stakeholders, which makes it difficult to manage the entire chain effectively. In 2019, Starbucks coffee houses in the Mid-West grappled with shortages after employees of a major supplier went on strike.

5. Independent coffeehouse movements

There are many sociocultural threats for Starbucks. These sociocultural movements support small independent and local coffeehouse and oppose the expansion of large multinational chains.

6. Controversy on California warning rule

A California judge ruled Starbucks and other companies in March 2018 to provide warning labels on all their coffee products. This was about preventing a violation from chemical use that may cause cancer.

7. Philadelphia arrests

April 2018, two African-American men were arrested at Starbucks that caused quite a controversy on social media against Starbucks. Starbucks employees refused them to use the restroom because they didn’t purchase anything. The CEO Kevin Johnson issued an apology to both men eventually.

8. Coronavirus

It is expected that pandemic will continue to have significant impact on Starbucks financials performance due to reduced customer traffic and store hours.

For example, Starbucks had to temporarily close estimated 2000 stores in China due to the outbreak of coronavirus. Considering Starbucks has 4123 stores in China, and almost half the stores were closed during the peak of the pandemic.  

9. Change in customer behavior

Experts predict the pandemic will continue changing customer behavior and tightening discretionary spending. In addition, the decline in the restaurant industry and other macroeconomic factors can adversely affect Starbucks’ development plans and operations.

10. Rising Prices of Raw Coffee Beans

The price of raw coffee beans – Arabica, the world’s most-produced coffee (representing over 60% of the world’s production), has increased drastically during the pandemic due to concerns over its availability, hoarding, and supply chain disruption. Any additional dollar channeled to purchase raw coffee beans at an increased price reduces Starbucks’ profitability.  

11. Negotiation with Buffalo workers in favor of unionizing

In December 2021, Starbucks set meetings to negotiate with its Buffalo workers that voted for unionizing. The company stated that they would talk things out with the voters in good faith, reaching a mutual understanding. However, Starbucks made its stance clear in a letter sent to its US workers that it will not back the idea of unionizing. 

12. Starbucks put on the spot for dietary racism

Dietary racism involves compelling BIPOC communities (Black, Indigenous, and People of Color) to eat unhealthy foods, offering limited food options at cheaper costs. According to a publicity stunt by Switch4Good, the prank effectively called out Starbucks on its tactics.

Recommendations

Starbucks needs to bring some improvements and advancements in the company to keep its market position stable and strong.

For this, few recommendations are given below:

1. Introduce diversification in products and services offerings. This will help strengthen their position.
2. Bring innovation and technological advancements in the company to deal with the rising competition and imitation.
3. Resolve the issues with the social activists that oppose international market players.
4. Reduce prices of the products to attract more customers and increase the affordability for all classes of consumers.
5. Implement creative marketing campaigns, promotional activities, and branding strategies.
6. Contribute to community development, participate in Corporate Social Responsibility (CSR), and sustainability practices.