What is \"5 Forces\" of Starbucks base on facts in this case study? 1. Threat of
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What is "5 Forces" of Starbucks base on facts in this case study?1. Threat of new entrants ? 2. Bargaining power of buyers? 3. Bargainning poerw of supply ? 4. Threat of Substitutes ? 5. Rivalry among existing competitors? Specialty Coffee Brewing at Starbucks In 2013, Starbucks was the undisputed world leader in specialty coffee retail, with over $13 billion in annual revenues (see Exhibit 1). Starbucks had nearly 200,000 employees, and over 17,000 Starbucks- branded cafes in forty countries (about 9,000 of those were owned and operated by Starbucks itself while the remaining 8,000 were operated by licensees and franchisees). In addition, Starbucks owned the Seattle's Best Coffee, Torrefazione Italia, Teavana's Heaven of Tea brands, and more. The company had grown remarkably fast over its short life, and was still exceptionally profit with a 17.6% return on assets in 2012 (compared to 6.8% at Peet's Coffee and Tea, 10.9% at Green Mountain Coffee, 16% at McDonald's, and 3.4% at Dunkin Donuts). However, its growth had not always been smooth-in fact, Starbucks had shuttered about 900 stores during 2008 and 2009. As its domestic market appeared to be approaching saturation, Starbucks began to focus on growing its international locations, and diversifying into other product lines where its now iconic brand could create value. THE HISTORY OF STARBUCKS In 1971, three Seattle entrepreneurs, Jerry Baldwin, Zev Siegl, and Gordon Bowher, started selling whole- bean coffee in Seattle's Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick. By 1982, the business had grown to a bustling business of fi e stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of U.S. operations for Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Through selling to Starbucks, Schultz was introduced to the three founders who recruited him to bring marketing savvy to the loosely run company. Schultz, 29 years old and recently married, was eager to leave New York, so he moved to Seattle and joined Starbucks as manager of retail sales and marketing. One year later, Schultz visited Italy for the first time on a buying trip. As he strolled through the piazzas of Milan one evening, he was inspired by a vision Coffee is an integral part of the romantic culture in Italy Italians start their day at an espresso bar, and return with their friends later. There were 200,000 coffee bars in Italy, and 1,500 in Milan alone. Schultz believed that given the chance, Americans would pay good money for a premium cup of coffee and a stylish, romantic place to enjoy it. Enthusiastic about his idea, Schultz rushed back to tell the Starbucks owners of his plan for a national chain of Starbucks cafes stylized on the Italian coffee bar. The owners, however, were less enthusiastic, and said that they did not want to be in the restaurant business. Undaunted, Schultz wrote a business plan, videotaped dozens of Italian coffee bars and began to look for investors. By April 1986 he had opened his first coffee bar, Il Giornale
Explanation / Answer
“Threat of new Entrants is Moderate”
In case of Starbucks threat of new entrant is not very high. Barrier to entry and initial investment are not that high. But the level up to which coffee industry is saturated is high. New entrant can compete on local level only. Starbucks rely on infrastructure, quality and ambience for attracting the customers. Customer’s brand loyalty is high.
“Threat of substitute is Moderate to High”
Number of substitute is very large for coffee. Juices, tea, alcohol and non alcoholic beverages are substitute. Switching cost is also negligible. Premium quality and brand loyalty is somewhat decreasing the threat to substitute.
“ Bargaining Power of Buyers: Low”
Size of individual purchases are very low, therefore a single customer can’t influence. Most of the customer are quality sensitive and are wiling to pay higher from their pockets to get premium quality.
“Bargaining power of supplier: low”
Starbucks has diversity policy to select its suppliers. Sourcing from different parts of world and growing directly with the farmers helped in gaining control of supply chain. Number of supplier is also very high and Starbucks can choose it’s suppliers accordingly.
“Rivalry among existing competitors: Moderate to High”
Competition is monopolistic in coffee industry. Number of firms competing is very high. Starbucks still have major market share followed by Dunkin and McCafe. Industry has matured and growth rate is moderate due to higher number of players in market.
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