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Starbucks Coffee, is an American global coffee company and
coffeehouse chain based in Seattle, Washington opened by three partners who met
while they were students at the University of San Francisco. Starbucks is the
largest coffeehouse company in the world ahead of UK rival Costa Coffee, with
20,737 stores in 63 countries and territories, including 11,910 in the United
States, 1,496 in China, 1,442 in Canada, 1,052 in Japan and 772 in the United
Kingdom.
Porter's Five Forces Model
Buyer Power
Starbucks is not susceptible to powerful buyers. The
power of buyers is low, because no individual buyer represents a large fraction
of sales revenues or purchases in large volumes. Also there are few substitutes
for premium coffee.In addition customer enjoy the friendly atmosphere,
excellent customer service, and speedy order fulfillment that Starbucks offers.
Most customers are loyal to Starbucks due to the high customer satisfaction
that they offer and the high quality of their product. The only credible threat
that buyers pose is that of switching to another brand. Because price
elasticity is high, Starbucks makes sure their prices are optimal and to offer
high quality product and services that differentiate from the rest.
Supplier Power
The power of supplier in this industry is low, because
coffee is a commodity product and buyers are free to choose between many
suppliers. For Starbucks in particular the case is different, Starbucks
suppliers seem to possess a considerable amount of power. Starbucks use high
quality coffee beans which can only be grow in certain areas of the world, like
Brazil, Ethiopia and Costa Rica. Starbucks is very dependent on these high
quality beans. Also the fact that all Starbucks supplier need to follow Starbucks
Social Responsibility Standards, and that Starbuck encourage diversity in their
suppliers by seeking out women and minority owned business to do business with,
is something that can lead Starbucks to lose good opportunities and bargain. In
order to reduce the supplier power Starbucks negotitate fixed long price
purchase contracts, and maintain a close relationship with their supplier. When
it comes to technoloy the power is less, currently T-Mobile loses Starbucks and
AT&T becomes Wi-Fi hotspot gian for the company, offering only $4 for a two
hours Wi-Fi session, compared to $6 per hours which T-Mobile was offering.
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Threat of Substitute Products
Even though there are lot of substitutes as regular coffee,
fruit juices, colas and sodas, none of these products offer the experience and
atmosphere provided by the specialty retailer. In general the threat of
substitute products is low.
Threat of New Entrants
There is a great deal of risk of entry by potential
competitors due to the low start up costs. Company as Procter and Gamble are
currently a potential threat to Starbucks as they have the infrastructure to
distribute prepackaged coffee to reailers. By mid August of 2010 Procter and
Gamble will be entering the market teaming up with Dunking Donuts to distribute
prepackaged coffee to around 40,000 retail outlets nationwide. Starbucks's
physical positioning reduces the number of favorable locations available for
new entrants, also Starbucks have established a differentiated brand with a
wide variety of unique coffee flavors, which has led to brand loyal customers,
and also increase customers switching costs.
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Rivalry Among Existing Competitors
The number of competitors is large but only a few firms dominate the industry. One of Starbucks larger competitors is Caribou Coffee. But unlike Starbucks Caribou Coffee aims to expand into smaller communities rather than high pupulation areas. In fiscal year 2009 Starbucks reported total revenues of $2534.70 million compared to its nearest competitors Caribou COffee who reported revenues of $262.54. It is easy to see that Starbucks holds a dominant position in the specialty coffee industry.
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References:
www.starbucks.com/
http://en.wikipedia.org/wiki/Starbucks
