Starbucks' competitive challenges: Porter's Five Forces analysis

Starbucks

Problems Identified

Cheaper rival products

One of the problems faced by Starbucks is the cheap products offered by its competitors. For instance, the company faces the problem of Mcdonald\'s attacking its $4 coffee compared by the significantly cheaper $1 coffee.

Poor performance

The other problem that Starbucks faces is its poor performance. In particular, the company had to shut down several stores due to underperformance (David and David, 2016).

Strategic Analysis

Porter\'s Five Forces Analysis

Competitive rivalry or competition -- High

The competitive force or rivalry is high. To begin with, there are several firms that compete with Starbucks. These include Mcdonald\'s, Dunkin\' Donuts, Peet\'s Coffee and Tea, Caribou Coffee, and Krispy Kreme Doughnuts. In addition, the competitive force is high owing to low switching costs as the consumers can easily shift to the other brands. For instance, the consumers can shift and get $1 coffee from Mcdonald\'s rather than $4 for Starbucks (Greenspan, 2015). Therefore, competition ought to be amongst the top priorities for Starbucks.

2. Bargaining power of buyers -- High

Starbucks faces a high bargaining power of consumers. To begin with, as mentioned above, consumers can easily shift from Starbucks to other coffee brands simply because such rival products are cheaper and economical. In addition, the consumers can easily substitute coffee for other beverages such as ice tea, smoothies, and other drinks. Therefore, the consumers have high bargaining power and this ought to be a top priority for Starbucks.

3. Bargaining power of suppliers -- Low

There is low bargaining power for suppliers. According to David and David (2016), Starbucks buys only two percent of the overall supply of coffee produced in the world. This implies that, the large general supply of coffee decreases the impact of an individual supplier on the company. In addition, the policy implemented by Starbucks is the diversification of its supply chain, which decreases the influence of a sole supplier, hence their bargaining power is low.

4. Threat of substitutes or substitution -- High

Starbucks faces a high threat of substitution. As pointed out, the company\'s clientele can substitute to other drinks and beverages with much ease. More so, the consumers can access other products from grocery stores and restaurants. Secondly, the consumers incur very minimal costs in shifting to these substitutes as they can get hold of substitute products at a lower cost. More so, the substitutes, such as coffee from other brands, is much cheaper compared to the offerings from Starbucks (David and David, 2016).

5. Threat of new entrants or new entry -- Medium

The threat of new entrants is medium in the sense that they have substantial but not strong impact on the business operations of Starbucks. On one hand, the new entrant can rival against Starbucks\' operations owing to the moderate costs of undertaking business and the development of the supply chain. On the other hand, these entrants find it challenging to offer serious competition against established and renowned brands such as Starbucks. This is because it takes significant time and money to develop a strong brand. Therefore, the force of new entrants is medium (Greenspan, 2015).

SWOT Analysis

Strengths

1. Renowned brand

Starbucks is known for its quality coffee. The company has been largely acknowledged by consumers for its good coffee.

2. Ethical operations

The company is passionate about ensuring that it sources the finest coffee beans in an ethical manner, then roasting them with great care and taking the initiative in social responsibility through enhancing the lives of the people growing the coffee beans

Weaknesses

1. Underperforming stores

The company had to shut down about 600 stores that did not perform to its expectations in the United States. This has a negative light on the company\'s operations.

Opportunities

1. Organic Coffee

The company can make the most of the recent trend for consumer requests for organic coffees. Through ensuring a better quality coffee, the company will be able to increase its consumer base.

2. Prospects for growth

Statistics indicates that Starbucks by itself purchases only 2% of the coffee produced globally. There has been a steady increase in coffee sales, which indicates that the company can seize the prospect of increasing its revenues.

3. International Expansion

Starbucks anticipates to open roughly 65 new licensed stores in the U.S. and about 325 globally.

Threats

1. Cheaper rivals\' products

The company faces the threats encompassing measures from Mcdonald\'s through its offer of $1 and less coffee, and also the rival company attempting to attract all Starbucks\' consumers.