SWOT Analysis of Starbucks (2020)

Company: Starbucks
CEO : Kevin Johnson
Year founded : 1971
Headquarter : Seattle, USA
Number of Employees (Sept 2019): 346,000
Type: Public
Ticker Symbol: SBUX
Market Cap (Feb 2020): $ 99.59 Billion
Annual Revenue (Sept 2019) : $ 26.51 Billion
Profit (Net income) (Sept 2019): $ 3.60 Billion

Products & Services: Coffee | Handcrafted Beverages | Fresh food | Non-food items | Packaged goods | Mugs and accessories | Gifts |

Competitors: Costa Coffee | McDonalds McCafe | Dunkin Donuts | Café Coffee Day | Tim Hortons | Costa

Did you know?
There are 87,000 possible drink combinations at Starbucks.

An Overview of Starbucks

Starbucks is the world’s largest American coffeehouse chain that operates in 31,256 stores worldwide. It was founded in Seattle, Washington in 1971.

With the invigorating vision of Howard Schultz (current Executive Chairman), it became more than a coffeehouse, a third place between work and home. Kevin Johnson is the current CEO of Starbucks.

SWOT analysis of Starbucks

The SWOT analysis of Starbucks is as follows:

Starbucks Strengths – Internal Strategic Factors

  1. Strong brand image – Starbucks Corporation is the most popular and strongest brand in the food and beverage industry. Its size, volume, and the number of loyal customers have kept growing over time. It has a brand value of $11.7 Billion as per 2019 Interbrand ranking.
  2. Strong financial performance – With an annual revenue of $26.5 billion and profit of $3.6 Billion in 2019, Starbucks has a strong financial position in the market.
  3. Growth in stores: It increased its number of stores from 1,886 to 31,256 between 1998 and 2019.
  4. Extensive international supply chain – Starbucks is known to have an extensive global network of suppliers. Starbucks sources its coffee beans from three coffee producing regions, Latin-America, Africa, and Asia-Pacific.
  5. Acquisitions – Company has acquired top 6 companies including Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, Torrefazione Italia Coffee, and Ethos Water. These acquisitions have proven quite successful for Starbucks.
  6. Moderate diversification – Starbucks has also diversified its business operations by introducing innovative merchandises and food items. One such example is the addition ofice cubes made of Coffee which results in a stronger Coffee flavor.
  7. Quality, Taste and Standardization – Due to its premium blends and delicious coffees, Starbucks has extended globally. It offers excellent quality and consistently standardized products in all the locations.
  8. Efficiency, Strategic Planning, and Reinvestment Strategy – Starbucks reinvests its profits in expanding its business in different locations. Its efficient operations and well-planned strategic decisions have produced many advantages for the company.
  9. Employee treatment –It treats its employees very well which eventually translates into happier employees serving customers well. Starbucks has been consistently listed as one of the Fortune’s Top 100 Places to Work for.
  10. Gender Neutral Restrooms – Starbucks has introduced gender-neutral restrooms to protect Lesbian, gay, bisexual, and transgender (LGBT) community against discrimination. It is in response to Anti-LGBTQ bills that discriminate against specially transgender people.

Starbucks Weaknesses – Internal Strategic Factors

  1. High prices – For many middle tiers and working consumers, Starbucks’ offerings are more costly than McDonald’s and other coffee outlets. Its high prices reduce affordabilityfor the consumers.
  2. Imitability of products – Starbucks doesn’t own the most unique products in the market. This makes the imitability of products quite easy for other companies. Other coffee shops and food chains like McDonalds McCafe and Dunkin Donuts offer almost the same products.
  3. Generalized standards for most products – Some of its product offerings are not aligned with the cultural standards of other markets. For example, in some areas, its crafted beverages do not associate with the consumer preferences.
  4. European Tax avoidance – Due to its tax avoidance in the UK, it faced several controversies and criticisms. Reuters’ investigation found out that it didn’t pay tax on its £1.3 billion of sales in three years prior to 2012.
  5. Procurement Practices – Many social and environmental activists criticized the company for their unethical procurement practices. They claimed that it procures coffee beans from impoverished third world farmers. It has also been accused of violating “Fair Coffee Trade” principles.
  6. Recall of Products – Over the years Starbucks has recalled a lot of in-demand products. This can negatively affect the brand image of the company and lead to the loss of customer base.

In March 2016, Starbucks recalled two products. One was the sausage, egg, and cheddar breakfast sandwich and the other was cheese and fruit bistro box. The reason for recalling these products was the threat of contamination and allergens.

During routine testing, it was revealed that the facility that manufactured the breakfast sandwiches had the presence of Listeria Monocytogenes on the contact surface.

The 250 stores in Arkansas, Texas, and Oklahoma that showcased these sandwiches had to remove them. The cheese and fruit bistro box was recalled because it contained the almonds found in the box contained traces of undeclared cashew nuts.

There was no warning label that highlighted the presence of cashew nuts. This could be potentially life-threatening for people with cashew allergies.

Starbucks Opportunities – External Strategic Factors

  1. Expansion in developing markets – Starbucks has coffeehouses mainly in the US. Global expansion in a few areas like India, China and few regions of Africa can give a great opportunity to the company.
  2. Business diversification and Products Specifications – It can further diversify its business operations to improve overall revenue growth opportunities. Besides, developing products as per the customer preferences in the specific target market is also a profitable opportunity.
  3. Introducing new products – As the company is quite popular, introducing new products and holiday flavors (Peppermint Mocha, Eggnog Latte, Gingerbread Loaf) under its name would be profitable and welcomed in the markets.
  4. Partnerships or alliances with other firms – Co-branding always benefits. Starbucks has the opportunity to develop partnerships and alliances with major firms. This would strengthen its presence and market share.
  5. Gender Neutral Restrooms – Starbucks has introduced gender-neutral restrooms to protect Lesbian, gay, bisexual, and transgender (LGBT) community against discrimination. It is in response to Anti-LGBTQ bills that discriminate against specially transgender people.

Starbucks Threats – External Strategic Factors

  1. Competition with low-cost coffee sellers – Many coffeehouses offer products at an affordable rate. This can threaten the future’s stability of Starbucks which offers higher prices.
  2. Competition with big outlets – Aggressive competition with multinational companies like Dunkin Donuts and McDonald’s can also pose a threat to its market position.
  3. Imitation – Products can be imitated by both new and old rivals.
  4. Independent coffeehouse movements – There are many sociocultural threats for Starbucks. These sociocultural movements support small independent and local coffeehouse and oppose the expansion of large multinational chains.
  5. Controversy on California warning rule – A California judge ruled Starbucks and other companies in March 2018 to provide warning labels on all their coffee products. This was about preventing a violation from chemical use that may cause cancer.
  6. Philadelphia arrests – April 2018, two African-American men were arrested at Starbucks that caused quite a controversy on social media against Starbucks. Starbucks employees refused them to use the restroom because they didn’t purchase anything. The CEO Kevin Johnson issued an apology to both men eventually.
  7. Coronavirus – Starbucks has temporarily closed estimated 2000 stores in China due to the outbreak of coronavirus. Considering Starbucks has 4123 stores in China, and almost half the stores are closed, it will have negative impact on their financials in 2020.
SWOT analysis of Starbucks

Recommendations

Starbucks needs to bring some improvements and advancements in the company to keep its market position stable and strong.

For this, few recommendations are given below:

  1. Introduce diversification in products and services offerings. This will help strengthen their position.
  2. Bring innovation and technological advancements in the company to deal with the rising competition and imitation.
  3. Resolve the issues with the social activists that oppose international market players.
  4. Reduce prices of the products to attract more customers and increase the affordability for all classes of consumers.
  5. Implement creative marketing campaigns, promotional activities, and branding strategies.
  6. Contribute to community development, participate in Corporate Social Responsibility (CSR), and sustainability practices.