¶ … Starbucks Situational Analysis

ENVIRONMENT

Important environmental factors relating to a firm include economic, cultural and social values, current values and trends, political and legal factors, and environmental threats or opportunities. These elements may impact or otherwise threaten a firm's success or opportunities for improving a firm's situation. With respect to the economic situation, both the United States and foreign economies are presently facing some degree of economic uncertainty. In addition to dealing with the recent downturn in the dot-com/high- technology industry, the United States is also experiencing a general economic downturn that has resulted in nearly every single large corporation eliminating and/or otherwise reducing its workforce. Likewise, the United States is still recovering with the emotional and financial impacts and ramifications caused by the September 11, 2001 terrorist attacks.

The United States is not alone in experiencing economic uncertainty right now. Asia, Europe, and Latin America have all had financial difficulties of one form or another during the past few years. In addition, Asia, Europe, and Latin America have traditionally been (and still are to some degree) dependent upon the United States for at least a portion of their economic stability and support. However, with the United States reeling from the September 11, 2001 terrorist attacks, the dot-com downturn, the Enron scandal, sending military troops to Afghanistan, and other events, foreign countries are not exactly in an ideal position to expect and/or look to the United States to re-ignite their economies.

In addition to economic factors, current trends in cultural and social values may affect the industry, firm, or marketing strategy. Evidence indicates that coffee growers in developing countries (where Starbucks and most of their competitors purchase their coffee beans) generally receive only 30-50 cents per pound of coffee, while middle men pocket the rest of the $1-2 per pound paid by companies such as Starbucks. In addition to the economic disparity of this situation, such fact does not bode well for Starbucks and other gourmet and specialty coffee retailers who pride themselves on being socially conscious, socially responsible, and on taking care of their employees by adequately compensating them for their labor.

Current or pending federal, local, or state legislation may change or impact an industry, firm, or marketing strategy. In recent years, Starbucks and other gourmet and specialty coffee retailers have faced increasing pressure to begin and continue purchasing Fair Trade Certified coffee and marketing it in their retail outlets and on their internet sites. Under an agreement reached with a fair trade organization, Starbucks and other proprietors of gourmet and specialty coffees will buy Fair Trade coffee from certified importers who ensure that they have paid coffee farmers a fair and reasonable price for their coffee beans. In addition to ensuring that a greater portion of the money goes into the pocket of the individual coffee farmers, such an agreement will enable Starbucks and other gourmet and specialty coffee retailers to improve the quality of coffee and the quality of life for individuals residing in developing countries.

Lastly, threats or opportunities in the environment may influence an industry, firm, or marketing strategy. The main environmental threat which may affect the gourmet and specialty coffee industry, firm, or marketing strategy is the depletion of rain forests which occurs when coffee growers raze the rain forest in order to establish higher-yielding coffee bean plantations. Although depleting and destroying the rain forests in countries such as Cuba and Guatemala will enable coffee growers to reap the benefits of higher-yielding coffee bean plantations, this is a temporary effect, as the nutrients found in the soil of the rain forests are crucial to ensuring that the land remains fertile for growing crops. In addition, rainforests are vital breeding grounds for birds and other animals, animals that are essential to maintaining the ecological and environmental balance. Destroying the rain forests has and will continue to lead to these rare animals becoming depleted in numbers and eventually becoming extinct.

B. INDUSTRY

Factors relevant to conducting a thorough examination and evaluation of a particular industry include rivalry among existing competitors, threat of new entrants, and threat of substitute products. In addition, buyers and suppliers must be viewed as competitors since they may threaten the profitability of an industry or firm. Starbucks primary industry is gourmet or specialty coffee, i.e., cappuccinos, iced coffees, lattes, etc. However, in recent years, Starbucks has expanded its offerings to include a line of ice cream for supermarkets, a joint venture with Pepsi Cola to market is highly popular Frappuccino, and t-shirts, coffee...

In addition, Starbucks continues developing and expanding its sales in alternative outlets such as foodservice and non-traditional retail sites such as Barnes & Noble and Chapters bookstores, Holland America cruise lines, Seattle Kingdome, and United Airlines.
In terms of competitors, Starbucks faces competition from numerous sources. First, Starbucks competes with franchise operators, local and regional coffeehouses, and specialty coffee retailers like Dietrich's Coffee, Coffee Bean, and Tea, Gloria Jean, Peet's, Seattle's Best, etc. Next, Starbucks faces competition from companies such as Kraft, Don Francisco's, Nestle, Proctor & Gamble, and others who sell their gourmet and specialty coffees at retail outlets like supermarkets. Although Starbucks has managed to establish and maintain its position as the nation's leading specialty coffee retailer and roaster, the fact is that the market for coffee is relatively saturated, particularly in the United States where a single block often contains 4-5 different coffeehouses. The relative strengths of Starbucks competitors are their environment (i.e., smaller coffeehouses generally feel more intimate and are less crowded) and their prices (i.e., smaller coffeehouses are generally lower priced than Starbucks). However, these strengths are also the greatest weaknesses of Starbucks competitors, for such companies often do not have the financial backing to enter into foreign or other new markets.

Given that the economy is somewhat unstable right now and the fact that the United States is rather saturated with coffeehouses, it does not appear that there is much of a threat of new competitors entering the industry. Even if new competitors decide to enter the market, they would face stiff (and most likely insurmountable) competition from Starbucks, Dietrich's Coffee (which has a joint marketing deal with Sports Chalet and other outlets), and also from large corporations such as Kraft, Nestle, and Proctor & Gamble who sell their products through supermarkets. In addition, competitors entering the gourmet and specialty coffee market would face economic barriers to entry since in order to become competitive and gain a significant market share, such companies would most likely have to offer their products at a price which is lower than Starbucks. Lastly, competitors entering the gourmet and specialty coffee market would have to decide whether the current economic situation (i.e., borderline recession) is and would be favorable to enter and survive in.

Soda is the main substitute product for coffee, offering the same (if not higher) level of caffeine and sugar that is found in a cup of coffee. The advantages that soda makers such as Coca-Cola and Pepsi have is that the market for their product is greater than the market for coffee. For instance, an individual may purchase Coca-Cola or Pepsi nearly everywhere, from fast food chains, gas stations, grocery stores, restaurants, sporting events, to vending machines. Due to the fact that gourmet and specialty coffee like the type offered by Starbucks is mainly intended to be served hot, its channels of distribution are somewhat more limited, though some vending machines do offer Frappuchinos (iced coffee). The main disadvantage of soda is that individuals who purchase soda often do not have the same experience as individuals who go to Starbucks, i.e., individuals who consume soda often purchase it and leave the premises whereas individuals who purchase Starbucks coffee often linger in the coffeehouse, interacting with co-workers, family, friends, or loved ones.

Tea is another main substitute product for coffee. Like soda, tea offers consumers an amount of caffeine and sugar that is comparable to what is found in coffee. In addition, tea has the historical or traditional notions of the Victorian era associated with it and consumers who are interested in having a traditional experience may desire to consume tea at a teahouse, something Starbucks and other gourmet and specialty coffee retailers cannot quite replicate. Likewise, tea is generally less costly than Starbucks and other gourmet and specialty coffees, though when purchased at a Victorian teahouse, the costs are generally comparable. The main disadvantage of tea is that unlike soda, not every individual finds tea appealing.

C. FIRM

In evaluating a selected company, it is essential to analyze the firm itself in relation to the industry as a whole and industry averages and also internally in terms of both cognitive and qualitative data. Key areas of concern include the firm's objectives, constraints, management philosophy, financial condition, and the organizational structure and culture. The firm's objectives and management philosophy of Starbucks is best illustrated by its mission statement, i.e., to "establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow." In furtherance of this…