Starbucks is a global leader in the coffee industry, with a reputation for high-quality products and a commitment to sustainability. But what are the strengths, weaknesses, opportunities, and threats facing Starbucks today, and how can the company leverage this information to stay ahead of the competition?
In this blog post, we will conduct a comprehensive SWOT analysis of Starbucks. We will explore the company’s strengths, such as its strong brand image and extensive distribution network, as well as its weaknesses, such as its high operational costs. We will also examine the opportunities and threats facing the company, including changing consumer preferences and increasing competition from both domestic and international players.
By the end of this post, you will have a better understanding of the factors that are shaping Starbucks’ success, as well as the challenges the company faces in the years ahead. Whether you’re a potential investor, a student of business, or simply interested in the strategies of successful companies, this SWOT analysis is sure to provide valuable insights into one of the most innovative and respected coffee companies in the world. So let’s dive in and explore the SWOT analysis of Starbucks.
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Starbucks is the world’s largest American coffeehouse chain and operates 18,253 company-operated and 17,295 licensed stores worldwide. It was founded in Seattle, Washington, in 1971.
With the refreshing vision of Howard Schultz (current Executive Chairman), it became more than a coffeehouse; it became a third place between work and home. Laxman Narasimhan is the new CEO of Starbucks.
SWOT analysis of Starbucks
The SWOT analysis of Starbucks is as follows:
Starbucks Strengths: Internal Strategic Factors
- strong brand image
Starbucks Corporation is the most popular and potent brand in the food and beverage industry. Its size, volume, and number of loyal customers have continued to grow. It has a brand value of $14.05 billion as per the 2022 Interbrand ranking.
- strong financial performance
With an annual revenue of $32.25 billion and a profit of $3.28 billion in fiscal year 2022, Starbucks has a solid financial position in the market.
- Growth in stores
It increased its stores from 1,886 to 35,711 between 1998 and 2022. Currently, Starbucks operates two types of stores: company-operated and licensed stores. It has 18,253 company-operated stores and 17,458 licensed stores globally. Company-operated stores generate 82% of the total revenue.
- an extensive international supply chain
Starbucks is known to have an extensive global network of suppliers. Starbucks sources coffee beans from three coffee-producing regions: Latin America, Africa, and the Asia-Pacific.
The company has acquired six top companies, including Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, Torrefazione Italia Coffee, and Ethos Water. These acquisitions have proven quite successful for Starbucks.
- Moderate diversification
Starbucks has also diversified its business operations by introducing innovative merchandise and food items. One such example is the addition of ice cubes made of coffee, which results in a more robust coffee flavor.
- Quality, Taste, and Standardization
Due to its premium blends and delicious coffees, Starbucks has expanded globally. It offers excellent quality and consistently standardized products in all locations.
- Efficiency, Strategic Planning, and Reinvestment Strategy
Starbucks reinvests its profits into expanding its business in different locations. Its efficient operations and well-planned strategic decisions have produced many advantages for the company.
- Employee treatment
It treats its employees well, eventually leading to happier employees serving customers well. Starbucks has been consistently listed as one of Fortune’s Top 100 Places to Work.
- A Strong Loyalty Program
Starbucks has a great reward program that keeps customers addicted to its coffee. For every $1, you get three stars ($1 = 3 stars). You get a free drink when you collect 150 stars (150 stars = one free drink). In addition, reward members get the convenience of mobile payment, pre-ordering, free birthday drinks, etc.
- Increase the starting wage for baristas.
The coffee giant has increased the minimum starting wage of all its baristas to $15 an hour in 2022. Moreover, according to a company statement, Starbucks plans to have an average salary wage of $17 an hour for its baristas. Starbucks’ tenured workers will receive up to a 5% wage increase with two or more years of service.
Hourly wages were increased throughout the pandemic due to labor shortages.
- Gender-neutral restrooms
Starbucks has introduced gender-neutral restrooms to protect the lesbian, gay, bisexual, and transgender (LGBT) community against discrimination. It is in response to anti-LGBTQ bills that discriminate against transgender people.
Starbucks Weaknesses: Internal Strategic Factors
- High prices
For many middle-class and working-class consumers, Starbucks’ offerings are more costly than those of McDonald’s and other coffee outlets. Its high prices reduce affordability for consumers.
- Imitability of products
Starbucks doesn’t own the most unique products on the market. This makes the imitability of products relatively easy for other companies. Other coffee shops and food chains like McDonald’s, McCafe, and Dunkin Donuts offer almost the same products.
- generalized standards for most products
Some of its product offerings must be aligned with other markets’ cultural standards. For example, its crafted beverages do not align with consumer preferences in some areas.
- European tax avoidance
Due to its tax avoidance in the UK, it faced several controversies and criticisms. Reuters’ investigation found that it didn’t pay tax on its £1.3 billion of sales in the three years before 2012.
- Procurement Practises
Many social and environmental activists criticized the company for its 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.
- Recall of Products
Over the years, Starbucks has recalled a lot of in-demand products. This can negatively affect the company’s brand image and lead to the loss of its customer base.
In March 2016, Starbucks recalled two products. One was the sausage, egg, and cheddar breakfast sandwich, and the other was the 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 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 almonds with traces of undeclared cashew nuts.
No warning label highlighted the presence of cashew nuts. This could be potentially life-threatening for people with cashew allergies.
- The worst holiday drink
According to a Mashed poll, more than 21% of coffee drinkers abhor Starbucks’ “Iced Latte.” Starbucks premiered it as a festive Christmas holiday drink. But sadly, the glass turned out to be a downer. Many people said that Starbucks’ iced latte leaned too much on the sweet side and was not worth the steep price.
Starbucks Opportunities: External Strategic Factors
- Expansion in developing markets
Starbucks has coffeehouses mainly in the US. Global expansion in emerging economies such as India, China, and a few regions of Africa can provide an excellent opportunity for the company.
- Business diversification and product specifications
It can further diversify its business operations to improve overall revenue growth opportunities. Besides, developing products as per customer preferences in a specific target market is also a profitable opportunity.
- Introducing new products
As the company is quite popular, introducing new products and holiday flavors (Peppermint Mocha, Eggnog Latte, and Gingerbread Loaf) would be profitable and welcomed in the markets.
- 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.
- Exploit the latest coffee trends and technologies.
Although Starbucks is at the forefront of cutting-edge coffee technology, there is still room for expansion. The most recent coffee trends and technologies offer countless possibilities, from the best foam technology to snap-chilling, back-to-black, and RSI-reducing gadgets.
- Adopt price differentiation.
Some coffee houses are growing their customer base rapidly by offering regular and premium coffee to cater to different classes. Starbucks can provide regular coffee priced lower to capture the middle class while serving its expensive variety as a premium.
- Strengthen online channels.
The pandemic has discouraged in-store consumption, with more coffee drinkers opting for takeout. Starbucks can strengthen its online sales channels to attract customers to pick up their coffee curbside or at pickup locations.
- Coffee Delivery Service
Customers rely on Uber Eats, Grubhub, Doordash, and Postmates for Starbucks coffee delivery. Starbucks can start its coffee delivery service for a better customer experience.
- Coffee Subscription
Panera Bread has already started a coffee subscription service. Starbucks can also try a new coffee subscription business model to expand its customer base.
Starbucks Threats: External Strategic Factors
- Competition with low-cost coffee sellers
Many coffeehouses offer products at an affordable rate. This can threaten the future stability of Starbucks, which offers higher prices.
- Competition with big outlets
Aggressive competition with multinational companies like Dunkin Donuts and McDonald’s can also threaten its market position.
Both new and seasoned rivals are capable of copying products.
- Third-party delivery suppliers (unions) strike
Starbucks’ supply chain consists of many third-party contractors and stakeholders, which makes it challenging to manage the entire chain effectively. In 2019, Starbucks coffee houses in the Midwest grappled with shortages after employees of a significant supplier went on strike.
- Independent coffeehouse movements
There are many sociocultural threats to Starbucks. These sociocultural movements support small, independent, and local coffeehouses and oppose the expansion of large multinational chains.
- Controversy over the California warning rule
A California judge ruled in March 2018 that Starbucks and other companies must provide warning labels on all their coffee products. This was about preventing violations from chemical use that may cause cancer.
- Philadelphia arrests
In April 2018, two African-American men were arrested at Starbucks, which caused quite a controversy on social media. Starbucks employees refused to let them use the restroom because they hadn’t purchased anything. Kevin Johnson, the CEO, eventually apologized to both men.
It is expected that the pandemic will continue to have a significant impact on Starbucks’s financial performance due to reduced customer traffic and store hours.
For example, Starbucks temporarily closed an estimated 2,000 stores in China due to the coronavirus outbreak. Considering Starbucks has 4123 stores in China, almost half were closed during the pandemic’s peak.
- Change in customer behavior
Experts predict the pandemic will continue changing customer behavior and tightening discretionary spending. In addition, the decline in the restaurant industry and other macroeconomic factors can adversely affect Starbucks’ development plans and operations.
- Rising Prices of Raw Coffee Beans
The price of raw coffee beans—Arabica, the world’s most-produced coffee (representing over 60% of the world’s production)—has increased drastically during the pandemic due to concerns over its availability, hoarding, and supply chain disruption. Any additional dollar channeled to purchase raw coffee beans at an increased price reduces Starbucks’ profitability.
- Negotiation with Buffalo workers in favor of unionizing
In December 2021, Starbucks set up meetings to negotiate with its Buffalo workers, who voted for unionization. The company said they would discuss things with the voters in good faith, reaching a mutual understanding. However, Starbucks clarified in a letter sent to its US workers that it would not support the idea of unionizing.
- Starbucks was put on the spot for dietary racism.
Dietary racism involves compelling BIPOC communities (Black, Indigenous, and People of Color) to eat unhealthy foods by offering limited food options at cheaper costs. According to a publicity stunt by Switch4Good, the prank effectively called out Starbucks for its tactics.
Starbucks must bring some improvements and advancements to keep its market position stable and robust.
For this, a few recommendations are given below:
- Introduce diversification in product and service offerings. This will help strengthen their position.
- Bring innovation and technological advancements to the company to deal with the rising competition and imitation.
- Resolve the issues with the social activists that oppose international market players.
- Reduce the prices of the products to attract more customers and increase affordability for all classes of consumers.
- Implement creative marketing campaigns, promotional activities, and branding strategies.
- Contribute to community development, participate in corporate social responsibility (CSR), and practice sustainability.