Starbucks Case Analysis

CONTENTS

Introduction page 1

PESTEL analysis page 1

Five forces analysis page 4

Competitor analysis page 6

Resource Audit page 6

Value system analysis page 7

Core competences page 8

Stakeholders page 8

SWOT analysis page 8

Future strategic options page 9

Recommended option page 12

Critical review page 12

References & Bibliography page 13

Introduction:

This is a strategic report on Starbucks.

First of all I will explain the external environment of Starbucks using PESTEL analysis, Porter's five forces analysis and competitor analysis. Next will be an analysis of Starbucks' strategic capabilities. These will be determined using a resource audit, a value system analysis, the identification of possible core competences and the identification of important stakeholders. After this I will present a SWOT analysis of Starbucks before discussing three possible strategic options open to the company. Using the information I generate I will decide upon the most suitable option and then critically evaluate all the models and techniques used.

Howard Schultz bought a Seattle coffee company in 1987 then transformed the six coffee stores into a national, publicly owned company with more than 25, 000 employees and over 1,300 stores. By 2002 these figures had risen to 5,689 stores in 28 countries. He is the man behind, and CEO of, Starbucks.

PESTLE Analysis:

PESTLE analysis is a tool that can aid organisations making strategies by helping them understand the external environment in which they operate now and will operate in the future. It is a method of examining the many different external factors affecting an organisation - the outside influences on success or failure.

PESTLE stands for:

Political - The current and potential influences from political pressures

Economic - The local, national and world economy impact

Social - The ways in which changes in society affect us

Technological - How new and emerging technology affects our business

Legal - How local, national and world legislation affects us

Environmental - The local, national and world environmental issues

The PESTLE analysis will be used to identify and understand the important factors Starbucks must consider in all areas of the business.

Political:

* Taxation policy - high taxation imposed on farmers in those countries producing the coffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the consumer. Recently (June 13, 2003) Tanzania's Minister of Finance harmonized and rationalized local government taxation to boost rural productivity of the coffee bean. Tax was lowered for these 'small holder' farmers and this saving will have been passed on to purchasers of coffee like Starbucks.

* Deregulation - A decade ago, the USA pulled out of the ICA (international Coffee Agreement) that set export quotas for producing nations and kept the price of coffee fairly stable. Coffee quotas and price controls ended. Since the deregulation farmers have suffered and their earnings have dropped. Many have struggled to make a living so have given up.

* International trade regulations/tariffs - Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country's government imposes a tariff it not only results in an efficiency loss for Starbucks but large income transfers can become inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.

* Government stability - Starbucks should thoroughly investigate the political stability of any country they plan to expand to. Changes in government can lead to changes in taxation and legislation. The forthcoming American elections may have an effect on Starbucks as new legislation or new or existing government may bring in taxes. Also, those countries in political turmoil or civil war (e.g. Zimbabwe at present) should be approached with great caution when considering new ventures.

* International stability - The international economy must be brought into consideration as it can affect Starbucks' sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market. If the world market is in a slump it is not usually the ideal time for a business to look at grand expansion.

* Employment law - A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers. This saving would in turn be passed on to the purchaser.

Economic:

* Interest rates - A rise in interest rates means investment and expansion plans are put off resulting in falling sales for Starbucks and their suppliers. Also mortgage repayments rise so consumers have less disposable income to spend on luxury products such as coffee. Low interest rates should have the opposite effect.

* Economic Growth - If growth is low in the nation of location of Starbucks then sales may also fall. Consumer incomes tend to fall in periods of negative growth leaving less disposable income. Consumer confidence in products can also fall if the economic 'mood' is low

* Inflation rates - Inflation is a condition of increasing prices. It is measured using the Retail Price Index (RPI) in the UK. Business costs will rise for Starbucks through inflation, as will shoe-leather costs as they shop around for new 'best prices' of materials, menu costs will rise