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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 1 Industry and Competitor analysis for Starbucks Industry Description; Industry Structure; Company position within the supply chain; Porter’s 5-Forces; Key Competitors & their Key Factors for Success Leader: Muna Al Khatib Lock, Owen Mitenko, Kryslin Repovs, Grace University of Guelph Gordon S. Lang School of Business and Economics Professor Rodenburg MGMT*1000 (0101)F23 14 October 2023

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 2 Industry Description: Starbucks operates within the highly competitive retail coffee and snacks industry, a segment of the broader food industry. This industry is characterized by the sale of coffee, tea, and related food and beverage products to consumers. There’s a wide range of competitors in this industry, from international coffeehouse chains like Starbucks to local coffee shops, convenience stores, and fast-food outlets that serve coffee and snack items. Starbucks has emerged as one of the industry leaders, known for its premium quality coffee, diverse menu offerings, and inviting café ambience. Direct suppliers to Starbucks primarily include international coffee bean producers, tea suppliers, dairy providers, and food distributors. Starbucks collaborates with coffee farmers worldwide, often through fair trade practices and partnerships, to ensure a sustainable supply chain. Moreover, they rely on suppliers for an array of ingredients, from baked goods to syrups, ensuring that they maintain Starbucks' standards for taste and quality. Buyers in Starbucks' context are the millions of customers who visit their coffeehouses daily, that includes coffee lovers, professionals, students, and even those searching for a cozy place to socialize or work. With locations in numerous countries, Starbucks caters to a global clientele. Starbucks has cultivated strong brand loyalty and customer engagement, resulting in a dedicated and recurring clientele. Industry Structure: Starbucks operates within the retail coffee and snacks industry, a field that exhibits a nuanced industry structure positioned between "perfect competition" and "monopolistic competition" as shown in Exhibit A. This distinctive placement results from several key observations. In a "perfect competition" market, a large number of firms offer identical products, and none holds market power. Starbucks, however, sets itself apart with a unique experience and a differentiated menu, therefore the company's brand and product diversity distinguish it from the pure "perfect competition" concept. On the other hand, Starbucks cannot be classified entirely as monopolistic competition as it competes within a densely populated coffee shop market, where each player offers a distinct value proposition. The first reason leading to Starbucks' precise position is the company's diverse product offerings. This advantage sets it apart from competitors, aligning it with the product differentiation aspect of monopolistic competition. Secondly, Starbucks has successfully cultivated a strong brand identity which is relative to the unique branding element in monopolistic competition. Thirdly, the coffee shop industry is highly competitive with a multitude of players. Starbucks competes with both large chains and smaller coffee shops, further justifying its close classification as monopolistic competition while also having elements of a perfect competition where the market is heavily saturated. Lastly, while

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 3 Starbucks does not have complete control over prices, it can influence them due to its strong brand and loyal customer base, unlike a true perfect competition where firms don’t hold any market power. In summary, Starbucks' industry structure straddles the line between "perfect competition" and "monopolistic competition" due to its combination of product diversity, brand strength, and competitive dynamics. Supply Chain: Throughout Exhibit B, the supply chain of the coffee and snack shop industries are listed and there are five primary elements that illustrate the stages involved in delivering the final products to consumers. To begin, the initial ingredients encompassing direct suppliers consists of coffee beans, tea leaves, fruits, vegetables, and syrups. Secondly, we have the manufacturing and processing aspect, which involves coffee bean producers, bakeries, bread manufacturers, and a variety of equipment providers. Next in line is the distribution segment, comprising wholesale distributors like Sysco and Gordon Food Services, in addition to regional warehouses represented by BC Foods and Costco. Fourthly, we have the retail coffee and snack establishments, which encompass Starbucks, the primary focus of our analysts within the coffee and snack shop sector. Additionally, it includes Tim Hortons and Second Cup Coffee Co. Finally, we arrive at the consumers, primarily composed of mature individuals, particularly a higher proportion of women compared to men, and those with elevated income levels. Porter’s 5 Forces: When it comes to the coffee and snack food industry, the availability of substitute threats is very high due to the fact that there are many options available. One of the main problems is tea and matcha, if people start buying more tea because of a sickness, this will result in the coffee sold to decrease during these times, especially in flu season. The competitive rivalry in this industry is at an all time high. Many coffee shops are always in competition with each other purely just from the tastes of all of their coffees. For instance, Starbucks and Tim Hortons are direct competitors as they both specialize in the sale of coffee and snacks. Nevertheless, consumer preferences for these establishments

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 4 vary depending on factors such as age, income levels, geographic location, and other personal considerations. The industry faces a moderate level of threat from potential new entrants, as the existing barriers to entry do not pose substantial deterrence to competitors seeking market entry. Nevertheless, the industry exhibits a moderate degree of market saturation characterized by a monopolistic competition structure as well. Despite the competitive nature of the industry, the prospects for new entrants to achieve success are reasonably promising. In the porters 5 forces, the buyers are the customers of the force. At the expense of industry profitability, strong buyer power can lower prices, pit rivals against each other, and demand higher quality or service. Buyer power refers to a customer’s ability to reduce prices, improve quality, or “generally play industry participants off one another.” Price sensitivity is a major component to buyer power which refers to how sensitive a buyer is to the cost of a particular item. Bargaining power, the second major component to buyer power refers to how much leverage a buyer has on a product's overall price. In addition, due to the high variety and high number of suppliers around the world, the power of suppliers is actually relatively weak from Starbucks’ perspective. Coffee beans are grown mainly in Latin America like Brazil, Colombia, Costa Rica, and Uruguay but also in many African and Asian countries like Ethiopia, Kenya, Vietnam, and Indonesia. Coffee beans are a very accessible resource worldwide, and they are a major import for North American countries because there is not the proper climate to grow them Direct Competitors: This part of the report explains the Share of Market of our Direct Competitors as shown in Exhibit D. McDonald's is a globally recognized fast-food chain founded in 1940 in San Bernardino, California, known for its iconic golden arches logo and a diverse menu. Dunkin' Donuts, established in 1950 in Quincy, Massachusetts, specializes in coffee and donuts, with a strong American presence. Tim Hortons, a Canadian coffee and snack restaurant founded in 1964, is known for high-quality coffee and iconic items like Timbits. Peet's Coffee, a small American coffee and tea specialty company founded in 1966, offers a wide range of high-quality beverages and a comfortable atmosphere. Tully's Coffee, established in 1992 in Seattle, Washington, emphasizes sustainability and coffee farmer support while providing a relaxed environment for customers.

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 5 McDonald's key factors for success include global recognition, efficient operations, a diverse menu, and expansive global presence. Dunkin' Donuts' strengths lie in its iconic slogan, quality coffee, and donuts. Tim Hortons boasts convenience, strong Canadian identity, community engagement, and a diverse menu. Peet's Coffee differentiates itself with high-quality coffee, distinctive roasting, a calm atmosphere, and a commitment to sustainability. Tully's Coffee focuses on strong customer service, high-quality ingredients, and coffee roasting expertise. On the negative side, McDonald's faced controversies related to false advertising, tainted meat in China, and racism allegations. Dunkin' Donuts had issues with rodent infestations, cybersecurity breaches, and accusations of using fake ingredients. Tim Hortons encountered employee controversies and lawsuits. Peet's Coffee was sued for allegedly copying Nespresso's coffee pod design. Tully's Coffee filed for bankruptcy in 2012 but has since recovered. Appendix 1. 1. How can your company strategically position itself for market dominance within the current industry landscape? Begin by analyzing each of Porter's Five Forces, assessing the ideal level (Low, Medium, or High) for each force to achieve a monopoly, and outlining potential steps your company could take to influence these forces in that direction. Starbucks' threat of new entrants is a high level of monopoly due to the difficulty of new entrants entering. A potential step Starbucks can take includes continuing to expand to establish an extensive network of stores. The bargaining power of suppliers for Starbucks is a weak monopoly, Starbucks relies on a network of coffee bean suppliers, giving them some bargaining power. A potential step that could help is to Negotiate long-term contracts with key suppliers to secure stable pricing and supply. Starbucks experiences the strong force of bargaining power of buyers or customers. One opportunity for Starbucks is to enhance and expand customer loyalty programs to increase retention rates and reduce the likelihood of customers switching to competitors. In addition, competitive rivalry for Starbucks is high for their monopoly. Starbucks should consider strategic acquisitions or partnerships to either eliminate or assimilate competitors. Lastly, the threat of substitutes for Starbucks continues to stay very high because of the many products people can pick from. Starbucks should Promote Starbucks-branded home brewing equipment and products to capture a larger share of the at-home coffee market.

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