Michael Porter 's Five Forces Of Competition For Starbucks

30 3.2.6. Five Forces Analysis ......................................................................................................................... 31 Diagram 3: Five Competitive Forces in the Coffee Industry .................................................................. 32 3.2.6.1. Threat of New Entrants .................................................................................................................. 32

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

2. The company operates in many spaces within the coffee business, recognizing the need for hybridized distribution

(Threat of Substitution: The threat of substitutes in the food retail market generally is high as similar foods can be found in big supermarkets, discounters, convenience stores etc. It worth noting that, to a certain extent, products with famous brand and low price acted as a barrier and helped Kwik Save achieve distinctive growth. However, this advantage disappeared when Kwik Save lost its price superiority.

“We are not in the coffee business, serving people. We are in the people business, serving coffee”, Howard Schultz’s philosophy has shaped and continues shape Starbucks, the world’s number one specialty coffee retailer with over 21,000 outlets in more than 65 countries nowadays (Starbucks, 2011). Starbucks was founded in 1971 and Howard Schultz joined Starbucks in 1982. In 1987, Howard acquired Starbucks and changed the name to Starbucks Corporation.

Threats of substitutes are also studied and managers can understand how readily available and cost comparable are substitutes and capitalize on their strengths to improve their customer base.

Starbucks Corporation first started in 1971 by Gordon Bowker, Jerry Balswin, and Zen Siegl. Starbucks then went public in June 1992. The first coffee shop was located in Seattle. In addition to selling high quality coffee beans, Starbucks offers teas, hot chocolate, an assortment of specialty coffee drinks, merchandise and a limited menu selection of food items. One of Starbucks’ biggest competitors is Dunkin’ Donuts. All Starbucks stores offer their customers a relaxing and clean atmosphere to enjoy their coffee as well as free Wi-Fi. In 2014 Starbucks had 21,366 stores worldwide, which is an increase of 1,599 stores from the previous year. Starbucks has prime locations in heavily occupied areas. Being located in high populated areas gives them an advantage in the market. Starbucks’ ability to obtain prime locations allows them to have an upper-hand on their competitors in the coffee industry. The Starbucks Corporation has developed buyer power over the years. This allows them to keep costs down because now they have lasting relationships with suppliers, growers, and exporters. Having these relationships help protect Starbucks from sudden price jumps.

Barriers to entry for coffee retailers are low, hence increasing the threat of new entrants. Equipment, facilities, furniture, etc. can be leased by new coffee retailers, thus, reducing initial capital expenditure and upfront investment. Since the industry is high fragmented at the bottom levels, new players can create and compete in niche areas within the market. However, small players may not be able to compete with the major players in the industry who have successfully achieved economies of scale and high degree of operational efficiency. Furthermore, consumers may have a strong association and preference for a brand such as Starbucks and may be reluctant to switch to another new brand of coffee.

Product diversifying is beneficial to a fast-growing company; however, it brings many challenges and weakness to the organization’s economy. A top competitor of Starbucks is Costa Express, which only sells coffee. Costa Express innovated self-serve coffee bars are located in food courts, convenience stores, and leisure locations, cutting unwanted liabilities like payroll. Starbucks has stopped being innovated due to the loss of their focus on selling the best quality coffee. Their facilities are crowded with new merchandise and food, becoming the future convenient store. Moreover, the strategy of Starbucks is to have their locations in high-traffic areas, giving them great visibility for their customers.

The customers have a significant bargaining power in the chocolatier market since they have ample options to choose from when purchasing a product. The low switching cost for changing companies results in the buyers’ making choices depending on the best offer, often to the disadvantage of premium-end brands such as Thorntons that cannot reduce their prices as much as their super-market competitors do.

Competitive Rivalry: The main competitors are Coffee Mate, Cuisine art, and Kitchen Aid. Kitchen Aid is the current leader controlling roughly 53% of the market. Competitors use the TV and the internet to market their product to a wide range of customers.

For this extra credit assignment, I’ll be doing a Porter’s analysis of a well-known brand, Starbucks. And also talk about how there is a future competitive environment of the coffee industry. How other high-end coffee/tea drinks are growing in the market, and how there are so many café’s selling similar drinks. Starbucks is an American global company based in Seattle, Washington. They are the largest coffeehouse company in the world with 20,373 stores in 63 countries and territories. Since 1987, Starbucks has opened an average of two stores per day. In 2013, the company generated revenues of $14.0 billion. They are best known for their hot and cold beverages, and whole-bean coffee. Most of Starbucks stores sell pre-packaged food items such

Moving to the "threat of substitute products or services ", Mr. Porter pointed out that high threat of substitute could put a limit on the price an in industry can charge for its products and services. He believes this threat is triggered when substitutes offer "an attractive price-performance trade-off to the industry’s product" or by a lower switching cost for the buyer.

This paper addresses the use of Porter’s Five Forces model and how it can benefit Broadway Cafe by identifying and analyzing the effect of these forces on its business. The benefits include improved decision making, faster time to market, better productivity, improved competitive advantage, more profits and greater customer satisfaction. It also helps in achieving operational excellence.

This Michael Porter 's five force analysis of Starbucks coffee shows the intensity of the five strengths of the firm, and the bases of these powers. Starbucks coffee 's prosperity shows its viability in tending to these outside elements in its industrial surroundings. However, this five forces investigation highlights current industry conditions that force present and developing concerns significant to Starbucks Coffee 's business. Following are the five forces of Michael Porter 's model. These five forces have different intensities or powers on the basis of the market position of Starbucks.