SWOT

Starbucks SWOT Analysis

StarbucksStarbucks Corporation is an American coffee company and coffeehouse chain. It was founded in 1971 as a coffee-bean roaster and retailer. In 1987, the original owners sold the Starbucks chain to former employee Howard Schultz, who rebranded his Il Giornale coffee outlets as Starbucks and then began an aggressive expansion campaign. By 1989, 46 stores were established across the US and a small part of Western Canada. When Starbucks initially went public, its revenue was approximate $73 million. In just a few years, the company’s stock rose by 70%.

As of November 2016, it operates 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204 (+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan and 872 in South Korea (bumping United Kingdom from 5th place).

Starbucks employed approximately 254,000 people worldwide as of October 2, 2016.

Strengths

Strong Brand: Starbucks is a well-recognized brand throughout much of the world, and likely the most recognizable brand in the coffeehouse business. The Starbucks logo is easily identifiable, and attracts both new and repeat customers. Stores are typically in the most prime locations around the globe, with high traffic and visibility. As we mentioned above, the company has a wide geographic presence, with locations in 68 countries. Its strong market position, diversified products, and brand recognition has allowed the company to have a leg up on most competitors and has given it the opportunity to further expand its business.

Excellent Finances: The company, thanks to those impressive comps and an effective leveraging of fixed overhead costs, like rent and labor, maintains robust free cash flow and a first-rate balance sheet. This supports product development and aggressive unit expansion, both at home and abroad. It also enables Starbucks to pay a modest dividend, with the yield typically hovering around the 1.5% area. The company is valued at more than $4 Billion which is a key strength when compared to its competitors

Weaknesses

High priced products: The high price of Starbucks products is a major weakness of the brand. While its products are premium in quality, they are higher priced than most competitors. This is an important factor since Starbucks loses a large number of customers for its high prices. The products it sells are also imitated easily by the competitors who sell them at lower prices. These are the two major weaknesses of Starbucks. Only if Starbucks could bring the prices of its products lower, it could attract customers in larger numbers. Its quality rich coffee and excellent service come at a price that is not affordable for all. As a result, consumers started to leave Starbucks and shifted to Dunkin’ Donuts and McCafé (they’re relatively cheap). Starbucks’ premium prices can prevent the company’s development in developing countries and lose the competition to Dunkin’ and McCafé.

Slow Expansion in Europe: The Europe, Middle East, and Africa segment only contributed 6% to revenues in fiscal 2015. This may be a bit surprising to some, as European customers in particular have comparable wealth to those in North America, and the continent has a wide subset of the population with high levels of disposable income. Sales to China/Asia Pacific are more than double that of Europe. Part of the problem may be the coffee culture in Europe. Coffee drinkers in Italy or France, for example, may not take Starbucks seriously as a seller of coffee, just as they may not take American wines as seriously as French or Italian wines. The American cultural habit of sitting in a Starbucks may also not be as appealing to a European who wants to sit at a nice, local coffee shop. The negative image of a large American corporation selling coffee has likely turned some Europeans away.

Opportunities

Product Diversity: There are opportunities to further diversify the food and beverage range, including cross-selling some of its retail products like its ice cream available in U.S. grocery stores and putting it in the coffee houses for sundaes or ice cream cones. There has been some discussion about adding beer and wine to encourage visits to Starbucks in the evening and make it more of a social gathering spot. Product diversification might also include a range of coffee makers to compete with Keurig or other pod coffee makers as well as other strategic partnerships to offer more music, book, and other types of entertainment products.

Expansion in the Emerging Markets: Starbucks has a significant opportunity before it in the form of the large and untapped emerging markets. Markets like India and China can prove important sources of customers and revenue. However, Starbucks should also try to align its products as per the cultural standards of these markets. Diversifying its product line can also help the brand grow and improve its brand value. Currently, the brand is mainly known for its premium quality coffee. It can add other products including beverages and snacks to its product line to provide its customers with variety.  Its assortment of products is limited. The company has an opportunity to expand its supplier network and expand the range of suppliers from whom it sources in order to diversify its sources of inputs and not be at the mercy of whimsical suppliers. Further, this would also help the company in becoming less sensitive to the prices of coffee beans and make it resilient against supply chain risks.

Threats

Competition: The specialty coffee business remains highly competitive on the price, quality, service, and convenience. In the U.S., large companies in the quick-service restaurant sector have been increasing efforts to sell high-quality specialty coffee beverages. McDonald’s has been making a big push into the coffee business in recent quarters, and this could become a big challenge for Starbucks. Another major competitor is Dunkin’ Brands Group, which has been in the coffee business for a long time. This company has long had a strong presence in the eastern portion of the U.S, and is expanding in the western part of the country. The rival brands make the same products available at lower costs. It increases the competitive threat for Starbucks. The company also faces intense competition from local coffeehouses and specialty stores that give the company a run for its money as far as niche consumer segments are concerned. In other words, the company faces a tough challenge from local stores that are patronized by a loyal clientele, which is not enamored of big brands. The market for packaged coffee, tea, single-serve packs, and ready-to-drink beverages has been heating up, as well.

Coffee Price Variability: The cost of raw materials and ingredients are rising, along with volatile exchange rates, can also threaten Starbucks regarding profitability and may force the company to raise prices, which could lead to more customer migration to the competition. Since Starbucks cannot necessarily control these prices on raw materials, they have to find other ways to make their business efficient so as to offset the rising material costs.

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