Competitive Analysis Of Starbucks

5.1) Industry overview and Starbucks competitors

Starbucks competes and operates in the retail coffee and snacks industry, which mainly consists of establishments that prepare and provide coffee, nonalcoholic beverages, snacks, donuts, juices, sodas, frozen yogurt, smoothies, etc. Purchases can be consumed inside the stores, delivered or taken to go. This industry is characterized by an elastic demand that forces customers during economic slump to purchase low-priced products instead of expensive coffee due to budget constraints. The annualized average growth rate of the retail coffee and snacks store industry is 4.3% from 2010 till 2015, arriving approximately to $38 billion industry revenues in the US. There is potential for this industry

• Starbucks has loyalty schemes that makes customers bonded to their products.

• Anyways, Starbucks provides a high availability of differentiated products with a diverse consumer base which lowers the risk of costumers’ power.

• Being leaders in the industry, Starbucks are able to price their goods in relation to their rivals and dominate the market price elasticity and competitive pricing.

Bargaining Power of Suppliers (Low Pressure)

• Since Starbucks has a policy of diversifying its supply chain, there exists a high variety of suppliers. Hence, the impact of suppliers on Starbucks is low.

• The main inputs of Starbucks’ value chain are standard. They consist of coffee beans and Arabica coffee grown. As a result, the switching cost is low.

• Due to its size and scope, Starbucks is a very important part of the suppliers business and consequently making them rely on big brands and having a lower bargaining power.

From Porter 's five forces analysis, we can arrive in a conclusion that the profitability in retail coffee & snacks is moderate.

5.4) Starbucks’ Competitive Strategy & Competitive

Starbucks’ competitive advantage consists in both low cost production strategy and differentiation strategy. As mentioned in competitive strategy, differentiation is the key to Starbucks’ culture. They have been able to increase the consumer 's willingness to pay by slightly increasing opportunity costs and moreover by generating a bigger profitability percentage. But since the demand in the industry is very elastic, Starbucks had to engage also in Low Cost Strategy. To lower the costs as much as possible, they developed vertically by making long term contracts with various suppliers and also by having their own programs that provided them with coffee beans. Finally, Starbucks has integrated well with the development of technology and they continue to make investments to support their growth. One visible example is the mobile application “Starbucks App” for smartphones. I believe that what would help Starbucks in the future to maintain its’ position is not creating new products any more but investing on online content and interactivity. By increasing their customers’ loyalty in using programs such as Starbucks Rewards and Starbucks Cards, they will be able to maintain a sustainable value added since customer 's willingness to pay is the main driver of this industry.