External Factors And PEST Analysis: Starbucks

External Environmental Analysis of Starbucks and the Coffee Industry Harold Brown Strategic Management March 3, 2011

Starbucks desire as the leader in the specialty coffee industry is to be acknowledged for its responsibility to coffee farmers and their families to improve their well-being. The corporation’s primary stakeholders are broad organizations such as, coffee trade associations, suppliers, and groups with interest in sustainable coffee production. Including non-profit groups focused on human rights, social justice, and environmental issues. Other stakeholders include governmental agencies such as, U. S. AID (Starbucks Corporation, 2010).

Ethical Sourcing – Starbucks believes that their growth is strongly dependent on success of farmers. Addressing environmental impact of coffee they adopted a approach to sourcing that also ensured fair pay and working conditions, economic transparency and sound resource management. Starbucks launched C.A.F.E (Coffee and Farmer program) in 2004 encouraging comprehensive sustainable coffee growing techniques certified through third party partners. Thereby they continue to work with Fairtrade and other organizations to purchase certified coffee that helps to protect the environment and enhance livelihood of farmers. This program was started by them in the year 2004 with 14.5 % of their total purchase as green certified coffee and kept increasing year by year. They have target to source 100% coffee by the year 2015 from their program C.A.F.E. In the year 2014, 96% of total coffee purchased was through such farms and mills evaluated by Starbuck’s C.A.F.E programs and certified by third party organizations like SCS Global

Starbucks opening up in different countries provides the opportunity for these countries to invest in their corporation but also not paying them the right amount of money.

Even so, just two weeks earlier Howard Schultz announced that the company will be expanding internationally. The plan is to open more than 1500 stores in Germany, France, and Britain over a 3-year span (Forbes, 2008). It is estimated that this expansion will boost revenue by more than 20 percent (MSN Money, 2008). In spite of Starbucks’ struggle among its love-hate relationship between customers and protesters, one thing that Starbucks

Being headquartered in the United States, Seattle, apparently statistics has shown that approximately 85% of its revenue is generated from its domestic US market. However, being an international brand with wide global presence and ranging operations, they should look into earning higher

Starbucks is one of the most profitable companies of United Kingdom. Due to its high market share and increasing growth rate, internal and external factors impacts Starbucks both positively as well as negatively. Some of the impacts of internal and external factors are as follows;

Starbucks forms licensing agreements with the majority of their foreign retail stores to collaborate and develop international partnerships with brands that have a solid position in the overseas market. Starbucks has 698 company-operated stores and 1743 licensed stores in 39 countries in Europe, Middle East, and Africa (EMEA) regions. In the China/Asia Pacific (CAP) regions, Starbucks spans across 15 countries consisting of 2542 company-operated stores and 3201 licensed stores. China alone has 2000 stores and Starbucks projects a growth of 500 additional retail stores per year over the next five years. The acquisition of Teavana Holding, Inc. in 2012 has become a prosperous venture capital investment and Starbucks strategy is to extend Teavana into Europe and China/Asia Pacific markets. Starbucks plans to enter their most intimidating market, Italy in 2017. Will the Italian coffee market be a challenge for Starbucks Corporation or prove a positive economic venture for the company?

Now Starbucks total coffee supplier, the retail market in the United States because it is user-friendly, because it organized a music and book events and Wi-Fi connection, all outlets like a home or office (Ferguson, 2002) popular . Unlike other popular food industry, such as McDonald's has been providing marketing authorization and super stores, generating large revenues through its presence in the store. Revenue generated by the company is basically through the entire bean coffee is 76 percent, followed by equipment that is 18%, through food and drink is quite insignificant 3%

Starbucks had ranked the top of the coffee house chains by number of stores worldwide in 2013 (Statista, 2014). As a result, the “Starbucks on Every Corner” strategy is an extreme success and this had proved that even though there are stores every corner except for 48 Sub-Saharan African countries, Central Asian and Eastern European, Starbucks Corporation is having a good operating and maintaining company skills (Statista, 2014). For instance, if the international sales department and coffee production department do not work in collaboration between each other, Starbucks who own so many stores worldwide would definitely suffer as a whole

Starbucks also constantly introduce new and promising supply strategic strategy along with ethical environmental goals such as C.A.F.E. Practices. Those strategic moves allow them to gain control of their own coffee suppliers which will drives its business to grow tremendously in the international market for the next few years to come. Strong business model is also a key factor which allows Starbucks to take the right steps to ensure their long term goals are successful, as they own a multinational business model which allows them to have a widespread of products that can be customized to suit national requirements. Nevertheless, having such robust business model, Starbucks ought to have continuous improvements and continue building its goals and expectations else their business will be in a downfall situation; therefore, it is important for them to set their objective and strategies clearly and react decisively for any challengers they may face in the dynamic

One of the opportunities presented to Starbucks is the growth in coffee market. In the United States, specialty coffee sector accounts for approximately 15% of the total retail coffee market which is equivalent to $21billion. In 2005, the retail coffee market was valued to be around $23billion and specialty coffee accounted for nearly 45% of the market and was still expected to grow. Starbuck has a 40% market share in the specialty coffee sector which provides an indication that anticipatory growth in the following category will provide Starbucks with opportunity to expand and grow in the US. Furthermore, Starbucks has the opportunity for major expansion in to Asia Markets such as China. Starbucks plan to focus on

Starbucks sees its success sustainability in constant development of its products to bring new experiences and ideas to loyal customers of their cozy “coffee-empire,” (Appendix B). High quality of a product that will appeal to coffee lovers around the world is Stabucks’s main consideration.

In recent occurrence for Starbucks, the company business has gained exceptional growth. Howard Schultz who is the chairman and CEO of Starbucks stated that “Starbucks Q3 fiscal 2015 stands as among the strongest and most remarkable quarters in our over 23 years as a public company.” (Starbucks Corporation 2015, 1) Starbucks “net revenue $4.9 billion in Q3 FY15, which is an increase of 18% over Q3 FY14.” (Starbucks Corporation 2015, 1) Part of the increase revenue for the company was due to global expansion in the China/Asia Pacific area. Within a year time frame, Japan opened “1,592 new stores.” The impact sales from Japan help “increase the company income about 22% to $938.6 million in Q3 FY15.” (Starbucks Corporation 2015, 1) Safe to

Starbucks’ retail entry model in the United States does not have the same strategy as their international model. In the states Starbucks holds great control as a corporation, but in international territory, country partnerships, cultural, government laws and politics play a very important role in Starbucks’ entry strategy. Starbucks has set it sights globally since the coffee market has come close to saturation in the U.S. which will give them the opportunity to continue to expand without fierce competition. Starbucks has looked to countries like India and other emerging markets with great growth potential to set down new roots. Starbucks recognizes India as a great choice to expand business internationally but also recognizes the complexity in the same market after several attempts to enter without success.