External Analysis Of Starbucks Corporation's Environment Essay.

Group preparation - Collect information about both the organisation, the industry in which the organisation exists and the most important aspects of its external environment. Construct strategic tools that will lead to the analysis performed in your individual report. This task is your research and is not graded. However without the research you will not be able to successfully complete the individual task

• Produce an individual assignment in the form of a consultant’s report viewed from the perspective of your selected organisation. You will produce a focussed strategic analysis of an identified and critical aspect of the external environment. Demonstrate the implication of this analysis for the strategic marketing position of the organisation.
• The purpose of this assignment is to give you the opportunity to demonstrate understanding of the established environment and emerging events as well as the application of your analysis.

Overview of Starbucks Corporation

The company Starbucks Corporation is the premier roaster, retailer and marketer of coffee in the world. In addition, the company is also engaged in tea selling and has a range of licensed stores, grocery and foodservice accounts (Starbucks Corporation, 2018). The company had started as an American coffee company and coffeehouse chain, which was founded in Seattle in the year 1971. Back then the company would operate through a single store at Seattle’s Pike Place Market, as a roaster and retailer of whole bean and ground coffee, tea and spices. Currently, the company operates through approximately 28,000 stores in about 76 countries (Starbucks Corporation, 2019). The company is engaged in offering more than 30 blends and single-origin premium coffees. Some of the most popular handcrafted beverages that are offered by the company are the cold brewed coffee range of coffees, Frappuccino blended beverages, Starbucks Refreshers beverages, Evolution Fresh cold pressed juices and others. As per the recent consolidated financial statements as on September 30, 2018, the company earned a whopping net revenue of $ 24719.5 million.

The external analysis of an organisation refers to the evaluation of the macro environment or the external factors of the company which directly affects the operations and growth of the company. A number of tools and techniques have been devised to examine the external factors. A glimpse of the external analysis of the environment of Starbucks, through a range of tools is provided as follows:

Political

Political factors refer to the impact of the government policies of a region on the operations of the entity. It is significant to note that the regional integration is a current trend adopted by the multinational companies, including the Starbucks in order to expand the business beyond America. As the company is operating in around 76 countries, it is required to balance its operations as per the different policies of the government of different country. Recently the company was in news because of its plan to hire about 10000 refugees in their company in the coming five years, which was opposed to the President Trump's executive orders banning all refugees from entering the US (Taylor, 2017). Being the major player in the industry, over the years, the company has been in news for a number of reasons. Some of them are also on the lines of the violation of wage rate and hours laws. The company has also failed to settle the two pending lawsuits in the case of improper pays to employees. The company was punished for the same and was additionally required to pay $18 million in instalments as the settlement fees for the said lawsuit (Dorn, Messner, and Wänke, 2016).

External Analysis of Starbucks Corporation

Economic factors such as exchange rates, level of inflation, gross domestic product, unemployment levels, interest rates, credit availability deeply influence the business operations of an enterprise. As the company Starbucks is majorly engaged in the importing and exporting operations in the different countries, it is required to abide by the import export laws and incidental statutes. The company was recently in news because of its tie up with the internet commerce giant “Alibaba” in China. However, the slowest real gross domestic product of China over the last two decades has raised questions on the vitality of the said partnership and the growth prospects of the company Starbucks in China (Retail Insight, 2019). As per the industry price curve, it is found that the consumption of coffee commodity decreases while the prices of coffee increase (Rastogi, and Trivedi, 2016). The demand is increased while the prices of coffee are decreased. Therefore it can be stated that the company has a risk of losing customers due to often fluctuations in the coffee prices.

Social

Social factors refer to the ones that shape the consumer demands of the products or services of an entity. These include population growth rates, demographics, age distribution, job market trends and others. Coffee culture among youth is one of the major trends of the last 2 decades, which makes coffee to be regarded as the fuel for the people. The company has very well capitalised on the opportunity, by the introduction of the various flavours on the lines of the local taste and preferences. Starbucks has consistently been engaged in introduction of new products, flavours and best quality of services in order to attract a large number of consumers (Li, 2018). In addition, the company is addressing a various number of social issues, the recent one was in the wake of the US opioid epidemic. While approximately 3700 workers urged the company to place needle-disposal boxes in high-risk public bathrooms, the company has recently planned to install needle-disposal boxes in some of its stores (Brown, 2019).

Technological factors represent the entity’s inclination towards innovative products and efficient use of technology in its operations. The company Starbucks has consistently adopting new technology to refine its operations. The government of America is also investing a high amount in the technology to make the work easy for the people. The company’s Android and Apple app is an evidence of the same that enables the users to interact with the company in an efficient manner. In addition, new innovative practices helps the company in preparation of the coffee by making the process easier and faster (Rothaermel, 2016). New technology also reduces the labour cost and save the time due to which the company has the opportunity to increase the supply.

Political Factors

Legal

Legal factors such as employment laws, environment laws, and other local and national statues and regulations deeply affect the growth of a company. In addition, health and safety considerations, consumer laws, marketing laws, competition and the others laws have a major say in the operations which are designed in the best interest of the stakeholders (Wheelen, Hunger, Hoffman, and Bamford, 2017). The above must be essentially considered to keep the brand image of the company intact, because the company uses coffee and farmer’s equity practices for the growth. Recently, a lawsuit has been filed against the company Starbucks Korea for the infringement of a patent by the IT company The Real Marketing (ETNews, 2019).

Environmental

There are many policies as formulated by the government in order to protect the environment with the economic growth of country. The major policy of the government is to protect the environment from damage. It is the responsibilities of the company to follow the policies so that the environment will not affected. The company Starbucks is stated to use the best practices such as calculation of gas emission, employing bio-degradable practices and others in order to protect the environment (Racz, et. al, 2018). Recently, the company is planning to launch Starbucks FoodShare. This is a national initiative of the company to provide nourishing, ready-to-eat meals to people in need (Nudds, 2019). With the programme, the entity plans to combat hunger, and divert food surplus from landfills, thereby minimizing the company’s environmental footprint.

The threat of new entrants

On evaluation of the industry, it can be stated that the threat of new entrants is moderate because there is moderate cost required to enter the market. The cost of entering the coffee house market as the small café is low but the cost of operating the café is high (Burns, and Dewhurst, 2016). It is difficult for the new companies to enter the market due to brand image of the existing companies in the market. Existing companies such as Nestle, Starbucks and the many others have significant brand image leading to difficulties for the new entrants to compete these companies.

The threat of Competitors

The company Starbucks faces high threat of competitors due to a large number of multinational and local companies in the industry. There are large numbers of small and big companies in the industry which use the different strategies in order to grab the high market. For instance, the competition from local start-ups is stated to be catching up with Starbucks at a fast pace. One of these start-ups is Luckin Coffee in China is stated to be giving nightmares to coffee frontier Starbucks (Mourdoukoutas, 2019). The similar small companies also offer the similar nature of products to the consumer in the low prices to attract them. Increasing threat of competitors increases the risk of losing the customers (Ethiraj, Gambardella, and Helfat, 2018).

Economic Factors

The threat of Substitute

It has been determined from the analysis that the threat of substitutes is high as per the taste of consumers. Drinking of beverages, instant beverage powders such as tea and juices are the main substitute products which can be used by the consumers in order to satisfy their demand. There are many people who prefer to drink healthy options instead of coffee. It can be said that the company has high threat of substitute products which directly affects the demand of the consumer towards the product of Starbucks (Lasserre, 2017).

The bargaining power of buyers is also high due to large number of competitors in the market. It has been seen that there are many companies offers the similar nature of product with the different strategy and low prices in order to attract the consumers. Cost leadership strategy of the companies attracts the consumers towards the lower prices. The bargaining power of consumer is high due to low cost of switching the company.

Bargaining power of Suppliers

It has been analysed that the negotiation power of suppliers is low due to large number of competitors in the market. The large numbers of suppliers are attracted towards the industry due to high profitability. The raw material of the companies that is the coffee beans is also easily available in the market due to which there are many suppliers work in this industry in order to supply the ingredients of coffee. It has been seen that the switching cost of the suppliers is also low due to high competition between the suppliers. Thus, the bargaining power of suppliers is low (Morden, 2016). 

Opportunity

It has been seen that the company has the opportunity to expand the business over the online platforms, due to increasing inclination of youth towards social sites (Wang, and Chen, 2016).

 It can also expand the networks of suppliers in order to collect the services.

The company has the opportunity to expand the business in those countries where it have the small business with the help of its high brand image.

The company can also target the retailers like that of McDonald’s and Burger king as the new product and consumer segment in order to gain more business opportunities (Ferreira, and Ferreira, 2018).

The company can significantly expand the business into the network of retail stores selling snacks or instant beverages in the United States as to gain the market share.

Social Factors

Threat

The company faces a high threat from its competitors in terms of the varied business strategies. Increase in the prices of dairy products increases the threat for its profitability.

The company also faces the tough challenges from the local stores which provides the services at low cost and low quality.

The substitute products are also the major threats for the company which increase the risk of losing customer.

The company also faces the challenges due to its global supply chain network in the terms of external factors.

Cost Leadership strategy

It is significant to note that the company offers high prices for its products to the consumer but the competitors offers low prices in order to attain the customer. The company is recommended to adopt the moderate and cost effective prices strategy for its local coffee products so that varied range of consumers can afford the products of the company.

Differentiation strategy

The company has the high threat of its competitors due to the similar nature of products offered by the companies. Although, the company offers the various type of flavours of coffee to the consumer but it has to adopt the differentiation strategy in order to develop the changes in service scheme. The company is recommended to adopt healthy options for the diet conscious customers. Further, the company must develop the products in the terms of packaging, taste, quantity, and flavours in order to attract the large number of consumers. The company has to innovate the new flavours twice or thrice in a year after the test.

Conclusion

As per the discussions conducted in the previous parts, it can be stated that a number of factors contribute towards efficient functioning of an enterprise. The work analysed the external environment of the company Starbucks. As per the PESTLE Analysis, it is found that varied political, social, environmental, technological and legal factors affect the business operations severely, as seen from the various instances in case of Starbucks. Further, it is observed that the company has high threats of competitors, and low cost to enter in the industry it operates with the aid of the porters five forces analysis. The company has many opportunities to expand the business in different sectors with the cost leadership strategy and differentiation strategy. The company is suggested to adopt the cost effective and product differentiation strategy.

References

Burns, P. and Dewhurst, J. eds. (2016) Small business and entrepreneurship. Macmillan International Higher Education.

Technological Factors

Brown, D. (2019) Starbucks plans to install needle-disposal boxes in some bathrooms [online] Available from: https://www.usatoday.com/story/money/2019/01/10/starbucks-plans-install-needle-disposal-boxes-certain-locations/2531078002/ [Accessed on 16/2/19].

Dorn, M., Messner, C. and Wänke, M. (2016) Partitioning the choice task makes Starbucks coffee taste better. Journal of Marketing Behavior, 1(3-4), pp.363-384.

Doz, Y.L. (2017) Strategic management in multinational companies. In International Business (pp. 229-248). Routledge.

ET News (2019) The Real Marketing Files a Patent Lawsuit against Starbucks Korea for Infringement [online] Available from: https://english.etnews.com/20190215200001 [Accessed on 16/2/19].

Ethiraj, S.K., Gambardella, A. and Helfat, C.E., (2018) Theory in strategic management. Strategic Management Journal, 39(6), pp.1529-1529.

Ferreira, J. and Ferreira, C. (2018). Challenges and opportunities of new retail horizons in emerging markets: The case of a rising coffee culture in China. Business Horizons, 61(5), pp.783-796.

Lasserre, P. (2017) Global strategic management. Macmillan International Higher Education.

Li, C.Y., (2018). Consumer behavior in switching between membership cards and mobile applications: The case of Starbucks. Computers in Human Behavior, 84, pp.171-184.

Morden, T. (2016). Principles of strategic management. UK: Routledge.

Mourdoukoutas, P. (2019) Starbucks Worst Nightmare In China Is Coming True [online] Available from: https://www.forbes.com/sites/panosmourdoukoutas/2019/01/21/starbucks-worst-nightmare-in-china-is-coming-true/#5ba4842817ec [Accessed on 16/02/19].

Nudds, K. (2019) Starbucks Canada commits to rescuing 100 per cent of food available for donation [online] Available from: https://www.foodincanada.com/food-in-canada/starbucks-canada-commits-to-rescuing-100-per-cent-of-food-available-for-donation-141140/ [Accessed on 16/02/19].

Racz, L., Fozer, D., Nagy, T., Toth, A.J., Haaz, E., Tarjani, J.A., Andre, A., Selim, A., Valentinyi, N., Mika, L.T. and Deak, C. (2018). Extensive comparison of biodiesel production alternatives with life cycle, PESTLE and multi-criteria decision analyses. Clean Technologies and Environmental Policy, pp.1-12.

Rastogi, N., and Trivedi, M. K. (2016). PESTLE technique–a tool to identify external risks in construction projects. International Research Journal of Engineering and Technology (IRJET), 3(1), 384-388.

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Rothaermel, F. T. (2016) Competitive advantage in technology intensive industries. In Technological innovation: Generating economic results (pp. 233-256). Emerald Group Publishing Limited.

Starbucks Corporation (2018) 2018-Annual Report [online] Available from: https://s22.q4cdn.com/869488222/files/doc_financials/annual/2018/2018-Annual-Report.pdf [Accessed on 16/2/19].

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Taylor, K. (2017) Starbucks has become a target of Trump-loving conservatives - and that's great news for the brand [online] Available from: https://www.businessinsider.in/Starbucks-has-become-a-target-of-Trump-loving-conservatives-and-thats-great-news-for-the-brand/articleshow/56994177.cms [Accessed 16/2/19].

Wang, C.C. and Chen, M.J. (2016) The next step of mobile meal ordering in Dante Coffee: Toward the way of service innovation. Management Review, 35(2), pp.95-96.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E. (2017) Strategic management and business policy. pearson.