Starbucks : A Global Coffee Company

Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas.

* Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time.

Starbucks has created a competitive advantage with their product quality by setting themselves apart from their competitors. “The Company has stayed with the upper-scale of the coffee market, competing on comfort rather than convenience, which is the case with its closest competitors, McDonald’s and Dunkin Donuts” (Mourdoukoutas, Panos). Consumers believe they are receiving a better product and experience when they purchase from a Starbucks as opposed to another large food service company that may sell coffee.

Starbucks is one if not the largest growing coffee shops in America. It has started a war on coffee. Starbucks has taken its franchise and expanded all over the world and really placing a Starbucks in just about every corner. It went back to its hometown and opened up a café. It happened right after Dunkin Donuts which was an England franchise and began advancing west and it now in three locations in Southern California. Dunkin Donuts opened up its store on Santa Monica boulevard in Los Angeles there was a mass of people lined up outside. McDonald’s, Dunkin Donuts and Starbucks have been fighting for the position for serval years and the battle is escalating fast.

Locally, Starbucks operates in a monopolistic competition market. As stated in The Micro Economy Today this market structure is define as,” A market in which many firms produce similar goods or services but each maintains some independent control of its own price.” (page 238, Schiller). Indeed, coffee lovers have a variety of options as to where they get their caffeine fix. Due to a large amount of substitute for coffee and beverages Starbucks cannot price their goods higher than others. If they raise their prices too high, consumers will simply turn to other suppliers and Starbucks will suffer a loss in profits. In addition to having an abundance of substitutes another characteristic of having a monopolistic competition is low barriers to entry. The cost to enter the coffee market is relatively low and people who desire to enter the market cannot be kept out. New entrants threaten

Starbucks—This $21 billion Seattle-based company sells has over 9,000 outlets world-wide. Selling everything from coffee to CDs, Starbucks is in the business of the “coffee experience,” and they’re always looking to partner with those companies that will best complement their customers’ desires for a high quality coffee drinking

Starbucks faces competition from variety of small-scale specialty coffee chains, such as Caribou Coffee, Peet’s Coffee and Tea, Dunkin Donuts, and thousands of independent specialty coffee shops. Each of them applies different strategies to differentiate itself from Starbucks; some of them deliver highly personalized service.

This drives the demand of the product , shifting the demand curve to right. Buyers expectation strongly affects the consumption . Expectation of technology for a consumer , wifi, card, mobile , e-commerce adds up to the demand. With increase in technology by the company the demand increases leading the demand curve to move to right. (http://www.forbes.com/sites/rahimkanani/2012/05/24/chief-digital-officer-for-starbucks-on-technology-change-and-community/)

One reason is because of intangible barriers to entry such as Starbucks pose a threat to new businesses. Existing brands have a performance and cost advantage, they are knowledgeable on how to lower costs and improve performance. Consumers are already familiarized with these well-established brands. For new entrants, there will be strong competition for market share. Starbucks has multiple distribution channels, which allows them to reach a wider market. New entrants must consider whether they can compete and deliver a unique service like how Starbucks does. If they choose to sell coffee beans in the supermarkets as well there will be high slotting fees and most shelf space is dominated by existing brands like Starbucks, and Coffee bean. And they would need to hire managements that are experienced in

Starbucks Coffee Corporation is not only of the leading companies that retails and markets coffee globally but one of the top companies overall in the world. There are approximately 7,300 coffee shops and kiosks in the United States and approximately 3,000 shops in 34 other countries. Starbucks products include coffee, coffee drinks, pastries, sandwiches, ice cream, espresso machines, coffee brewers and drink ware. Starbucks is a public trading company on the stock exchange, $87.00 per share, approximately $6.37 billion in sales and 115,000 employees globally.

In terms of competition and the forces, which could limit the success of Starbucks it is important they stay ahead or even with other companies concerning innovative products. Many more micro companies are coming up with new products with a similar quality and a lower price/cost. It is important that Starbucks continues to search for innovative products to continually satisfy their customers. At the same time “rivalry” amongst Starbucks and smaller providers of coffee will continue to increase as the demand for coffee continues. The buyers bargaining power is significant as they can determine the cost, type of product, quantity and ultimately

Starbucks has successfully created a sense of brand loyalty with a consumer base even though there is inflation within their price structures. As an example of monopolistic competitive firm, Starbucks understands how that market structure works, thus giving them substantial profits in the past few years. Starbucks has managed to maintain its success even during unprofitable times with its other branches through customer loyalty, quality private goods, and knowing the labor market. Monopolistic competition also provides consumers with the greatest benefit of all: diversity in the world of coffee.

Every day millions of people all over the world walk into Starbucks for their java shot, but it is more than the overpriced coffee that brings people in day after day to their Starbucks stores across the world. Starbucks offers a setting and an environment created by the friendly and helpful staff. They are always around to provide excellent customer service. Managers at Starbucks put tremendous attention into hiring good “people people.” Their hiring and training process is designed to provide a customer-centric experience. People buy Starbucks for what it represents and the status symbol that comes along with it. It has been one of the fastest-growing brands in annual BusinessWeek surveys of the top 100 global brands. Starbucks '

Globalization is the process of interaction and integration between the people, companies, and the governments of different nations. Coffee is the second largest commodity in the world. Globalization has had an immense impact on various goods none being as big as its impact on the coffee industry. In the 1970 coffee beans went for three dollars a pound, but since that 1970 it has gradually decreased due to the increase in the production of coffee. Even though demand has increased, it was met with over production. Which in 2000 coffee prices reached a historic low, impacting farmers all around the world. This crisis came from very poor quality Vietnamese coffee flooding the market, causing the balance between supply and demand to be dramatically altered. The poor quality coffee beans forced Arabica farmers to lower their prices. In the long run this caused a lower quality in coffee beans, lower customer expectation, and low interest in coffee. Most importantly families of Coffee growers saw their incomes diminish to half what is was or worst. Farmer families struggled to have enough money to live on, some families decided to give up on growing Coffee beans and other gave up on farming completely. The Coffee bean industry still hasn’t recovered from these events, and it’s estimated that the industry has lost hundreds of millions of dollars in revenues due to low production.

"[A]s [their] coffee becomes more widely available, the inherent contradictions between increasing sales and preserving brand integrity have intensified." Starbucks decides on the right strategic partner through an extensive screening