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.

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.

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. 

 The use of business intelligence software has allow Starbucks to plan, lead, control, organize employees, and supply link efficiently. Starbucks have differentiate from the rest of its competitors through its top line strategy not only by providing high quality products to its customers, but also by focusing on customer wants and needs through the use of customer relationship and database management systems. Going beyond the line and offering customers a place to escape the chaos of daily life.

References:

www.starbucks.com/

http://en.wikipedia.org/wiki/Starbucks

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