A Swot Analysis of Starbucks

Introduction Starbucks is a famous coffeehouse. Until the mid-1980s it was only a provider of coffee to fine restaurants. Thereafter Howard Schultz, director of retail operations and marketing, was impressed of the popularity of coffee in Milan while he was in Europe . His idea was born. He wanted to bring the coffee bar culture to the Americans. So Starbucks started to realise his idea and so created a new trend. The clue is not only to sell coffee, but to sell an experience. Today Starbucks has got about 20 million customers each week in about 5500 coffeehouses all over the world . While haunting to increase sales more and more, Starbucks has got a special growth strategy. They open a lot of stores in a very short period of time, expanding numerous food offerings and also getting into new segments, for example supermarkets. They develop new products like bottled coffee or Starbucks-flavoured ice cream. In addition to that, Starbucks tests new coffeehouse concepts, for example with live music. Since a few years, Starbucks opens more and more stores outside America. The important question is, if Starbucks’ growth rate will continue within next years because on the one hand critics say that Starbucks grows too fast and is loosing the focus while on the other hand some critics compare Starbucks’ coffee with Mc Donald’s? hamburger and believe that they will grow up more and more as the dominant player on this market . With the help of the SWOT analysis and the BCG matrix the situation of Starbucks can be analyzed after finding out, why people pay more money for a coffee, than in other coffeehouses. What has suddenly made people across the world willing to pay three to four times more for a cup of coffee than they used to? Starbucks has created a new trend. They do not just sell coffee, they sell an experience. To drink coffee at Starbucks is different from drinking coffee in another coffeehouse according to a Starbucks executive who said, that â€Å"Starbucks is not in the business of filling bellies but in the business of filling souls† . They recognised that they were getting into a new niche, which did not exist before. While having great success, Starbucks grows rapidly to have an advantage according to a bunch of competitors who also entered this new niche. With the high-quality coffee, Starbucks creates besides a new brand a new lifestyle which is known all over the world. Furthermore, they offer a lot of different flavours which differs from other coffeehouses. But coffee is not the only reason why people are willing to pay a lot more there than in other coffeehouses. The mission statement declares that the employees’ job is not only to sell coffee. They should enthusiastically satisfy every customer to give him the special feeling and experience at Starbucks . All in all Starbucks recognised a new niche and satisfied the customers with their special flavoured and high quality coffee. To get an idea of Starbucks’ success, it is necessary to take a close look at the company by using the SWOT analysis and the BCG matrix. A SWOT analysis of Starbucks Strengths The company has a strong presence in the United States of America and a good reputation for creativity and coffee. Starbucks has started a real trend and many people enjoy drinking a Starbucks coffee. However, it is not just coffee but rather an experience Starbucks sells. Starbucks operates in more than 5,500 stores worldwide. This presence provides a wide and strong customer base. It is a global brand and is widely known. Starbucks built up a reputation for fine products and the name is a common brand label and this gives Starbucks a competitive advantage because people connect coffee with Starbucks. Every week more than 20 million customers visit Starbucks to get a coffee once or twice a day. In the last years the company could tripled their earnings. Another strength is that Starbucks has a strategy they follow. These strong principles include that Starbucks looks after their employees and threat each of them with respect. They create a nice and friendly environment that they also reflect outwards. Starbucks offers different flavours through its position as a disciplined innovator and introduces diverse products. They also pay attention to the high standards and want to offer the best quality. Starbucks decided to push into supermarkets because the majority of people bought their coffee in stores before. Therefore Starbucks came to the conclusion to make a deal with the Kraft company. This deal combines Starbucks experience in producing premium coffee with Kraft’s knowledge of marketing, selling and distributing. That was a good step for Starbucks to reach a new channel and to get the entry to 25,000 supermarkets. It makes sense that the company wants to reach the people at home and to include more people into the Starbucks lifestyle. Beyond stores, Starbucks sells its beans to hotels, several airlines and airports. Starbucks sells gourmet coffee, beans as well as gifts and related goods. (Starbucks also signed a deal to operate coffee shops within Waterstones bookshop superstores. Also the homepage of Starbucks has become successful and a ‘lifestyle portal’, where the company sells a variety of products like tea, coffee making equipment, compact discs and collectibles to satisfy their customers needs with different products. Weaknesses One of Starbucks` weakness is that their primary product is just coffee. They are therefore dependent on this main product line. Starbucks is however testing to launch food offerings like sandwiches and chips in combination with coffee. Its goal is not only to expand more and more in its offerings but also to reach further target groups . A problem is that Starbucks has a slow ability to diversify into other sectors which could be fatal because the company believes in being successful not only because it is selling coffee but rather it is selling an experience . This makes them different from other competitors who might only sell coffee. â€Å"Coffee Lifestyle† may vary from time to time due to the fact that the global coffee market is a very competitive sector . Another weakness are high prices of its products. People pay up to $3. 15 for a caffe latte. One supposes that people buy this product only because they think that it is a premium product . But it is especially the brand name which tempts customers to buy the product without taking the high prices into consideration. As already mentioned before, the customer is not only buying the product, he is buying it with an experience. Another weakness of Starbucks is that they are simply relying on the philosophy that coffee is just an experience. There exists no doubt a good marketing strategy but it is questionable if this is helpful to maintain over time on the market with the strategy of only focusing on one product. â€Å"We are not in business of filling bellies; we’re in the business of filling souls† says one Starbucks executive. That shows another very good and appealing philosophy of Starbucks. This makes the product and its uniqueness but it is only a question of time when people are saturated of this experience. You have to point out that Starbucks itself tries hard to achieve this effect by the people through a competent public relationship. Opportunities Starbucks has a widespread presence and practices in about 1. 415 stores and just last year they build up 400 new stores. The company has seen opportunities to open further stores all over the world due to the heavy demand and space to expand. For example Indiana in the US has only one Starbucks. Furthermore, Starbucks has the opportunity to expand its global operations. The company is now expanding rapidly and in 2003 the number of stores has increased in 24 international markets compared to 1996 when they had only 11 stores outside the United States. Starbucks also tests new food which represents that food might be the next step they want to go. With this the company would have the chance to offer food that could be successful as its coffee. They test everything from doughnuts to Greek pasta salads. Starbucks also teamed up with PepsiCo to adopt the brand on Frappuccino drinks and a newDoubleShot expresso drink. Beyond this Starbucks ice cream is nowadays a leading brand of coffee ice cream after Starbucks established a joint venture with Breyer’s. In addition, Starbucks invested in Cafe Starbucks, a European-style family bistro, where the costumer has a wide choice from huckleberry-pancakes too oven-roasted seared sirloin. Alongside, Starbucks is testing Circadia, a new food venture, where the customers have Internet access and listen to live music. Starbucks has always been able to offer new coffee experiences as well as creating new products or opening new kinds of stores. Threats One of the biggest threats of Starbucks is its grand expansion all over the world. When launching a new product numerous customers are visiting the company’s stores world wide each week. It is especially Starbucks growth strategy which stands for a threat for the company. Starbucks especially concentrates on store growth. Almost 85 per cent of sales are generated through its stores. Although they have great success, Starbucks always finds new places for further expansion on the local as well as on the national market with being aware of the fact that the local as well as the national market may be saturated of its product. The creation of new retail channels also shows that Starbucks is not concerned about peoples` rejection or about failing to be successful. Apart from their strong presence in kiosks, several airlines, hotels and the co-operation with Waterstones’ bookshop superstores, Starbucks enters 25,000 supermarkets to sell their products next to their strong competitors like Nestle and Kraft. They also offer coffee, tea and its equipment on its website to be internationally present for a wider target group. To intensify its presence they are not deterred by joining with other companies to have its logo to be seen everywhere. Several ideas should achieve various people. They are full of ideas only of the fact of not wanting to stop their expansion. However, the international growth is remarkable. While having only 11 coffee-houses in 1996 outside North-America, they now launch their products into 24 international markets. The great success of Starbucks has also brought negative consequences for the company because many competitors try to imitate them. These are companies like Caribou Coffee, Costa Coffee, and Coffee Republic. However, it is very hard to maintain on the global coffee market which is a very competitive sector. These days one speaks about an increasingly over caffeinated marketplace. So Starbucks must compete against the offers of restaurants, coffee shops and street carts. A major competitor with substantially greater financial, marketing and operating resources than Starbucks could enter the market at any time and compete directly against the company. Starbucks must be aware of competition on all levels and maintain its operational performance if it is to retain status as the world’s leading specialty coffee retailer. Finally you could say that Starbucks is more concerned about the fact that there are still plenty of local places as well as internationally places which is not taken over by them. Instead of being worried about the fact that their rapid expansion could also lead to a rapid decrease and failure in several markets. The whole marketing strategy of Starbucks may cause to a loss of the main focus through stretching its resources by further expansion. Main focus should be first put on the product itself and not on international expansion in this way. Why not ensure the popularity of the product itself than making it something normal due to the fact that it is present almost everywhere. It can be seen undoubtedly that Starbucks has the potential for development in many different ways but it has to have its growth under control. This may be a challenge for Starbucks. BCG Matrix The BCG matrix is an instrument, developed in the early 1970? s by the Boston Consulting Group to analyze the product portfolio of a company or a business unit. The matrix is based on the product life circle. The matrix is mainly used in the strategic marketing sector. The matrix shows in a coordinate plan the positions of different strategic business units. The interesting categories are on the one side the business growth rate on the y-axis and the market share on the x-axis. The method brings cognitions in three relevant areas: ?Analysis of the strategic position of a company. ?Determine the capital in the several business units with a view on the whole company and therefore the cash flow in the company. ?Every quadrant responds to a norm strategy which could be used as a guideline to verbalize strategic activities in the company . It is also necessary to look after the whole portfolio especially on the statistical financial compensation. The products in the portfolio should be based upon on another and finance one another. To create a long-term value a company should have a portfolio of products that includes fast growing products which need a high input of money and slowly growing products which are creating a high amount of cash. The BCG matrix has two dimensions: relative market share and market growth rate. The idea behind this matrix is: if a product has a high market share or the market of the product is growing fast than it is an advantage for the company. Analysis of Starbucks using the BCG Matrix Cash cows: Benefits from the generation of cash should be high. Because of the low-growth rate capital expenditures which are necessary should be hold low. Often cash cows are the stars of yesterday and build the base of a company . One of Starbucks’ cash cows is their coffee ice cream. This is a relatively risk free investment that doesn’t absorb great amounts of cash. Through the partnership with Breyers, Starbucks doesn’t need to spend money on the production process. With Breyer? experience and the Starbucks name the ice cream was sure to succeed on the market. With it now being one of the market leaders on the coffee ice cream market, Starbucks can â€Å"milk† it and benefit from the sales, knowing that there is not a high cost factor. Another, but quite small cash cow is their bottled Frappuccino drink. Once again Starbucks took on a similar strategy by working with an already established beverage manufactur er. The investments are once again a lot lower than their sales, giving them a high profit margin. Stars: Stars use a high amount of cash. These are leader in the business and hence they should create a high amount of cash. Stars are often in balance with the net cash-flow. The company should do their best to hold the market share on stars because stars will become cash-cows if the market-share is held by the company . Starbucks’ biggest star is the coffee sold and consumed in their coffee shops (stores). With an incredible 85% of sales coming from their stores it is their biggest source of cash intake . Although competitors offering similar products have emerged, the market growth still looks promising. Some states like Alabama and Mississippi don’t have any Starbucks stores meaning that there is still a large market to expand onto. The people living in these states have not been able to enjoy a cup of Starbucks coffee. The revenues from their coffee sales should therefore be used to invest in new stores making it possible to sell their coffee. Another one of their stars is the packaged coffee sold in supermarkets. With the help of Kraft Starbucks has gained quick access to the packaged coffee market. Thus they have been able to quickly increase their market share on a rapidly growing market . Unlike their other joint ventures with PepsiCo and Breyers, Starbucks has done more than just put their name on the product. As they are still roasting and packaging their own coffee they need to invest a lot to further establish their position on the market. Dogs: Dogs are discontinued models of the company. A company should minimize, better avoid the number of dogs. Dogs have to make cash, otherwise they are divested . Starbucks? dog is the sandwiches sold in their stores. Although they experiment with different foods in their stores, they do not make a lot of profit from food sales. Furthermore it can be said that the sandwich market is not growing and Starbucks do not have a high market share. However, this SBU should not be divested immediately as it may help them to draw in further customers who know that they will be able to grab a sandwich to go with their coffee. Question marks: Question marks are the newcomer of the products. The have a high growth-potential. They have the worst cash features of all, because they have a high demand of cash but perform low outcomes because of their low market-share. If the market-share is unchanged are question marks using a high amount of cash. The management has to decide to invest in the product or to give it up. Starbuck’s further attempts to boost their growth such as selling coffee to airlines and hotels can be classified as question marks. At the moment the demand for premium coffee to be sold in airports and hotels might be high, but so far only Marriott, Sheraton and Westin have deals with Starbucks meaning that there are a lot of hotels not selling their coffee . If they want to expand on this market they will need to invest a lot of money into new deals with other hotels. It will take time before they can increase their market share and make a profit. Cafe Starbucks and Circadia, two new store concepts are also question marks. At the moment they are only experimenting to see how customers will react to a different kind of Starbucks experience. Setting up a chain of these new concepts will require a lot of money and time before they can establish themselves on the market. If they succeed in competing with other cafes of a similar style this SBU could be another profitable SBU in the future After positioning Starbucks? products on the BCG matrix it can be said that they have a stable source of revenue. With the majority of their sales coming from the coffee sold in their stores and two profitable, if on a smaller scale, joint ventures they have enough money to invest in other new products or stores to ensure that they will be as successful in the future. Besides investing this money in new stores enabling them to serve an even larger market, it can be invested in their coffee sold in supermarkets. Rapid growth of the premium coffee segment indicates that it won’t be long before a number of competitors force their way onto the market. Investing into this SBU will enable it to develop into a cash cow in the future. Regarding the sandwiches sold in their stores they need to reconsider if this is something they should continue to invest in the future. The prospects for the future look promising as they have two strong stars and other smaller products that can carry the company in the future. Looking at Starbucks as a whole it can be seen as a star. Although there are a number of â€Å"copycats† trying to move in on their market share, there is still the potential for the company to grow. Up until now not all states have their own Starbucks store, an indication that the market is still growing. Although they have tripled their sales and profits over the last 5 years, they need this money to invest in new stores in states such as Alabama and Mississippi and their new store concepts such as Cafe Starbucks . If they are able to expand successfully and the market ceases to grow they will eventually turn into a cash cow.