Starbucks Value Chain Analysis

Industry overview

•Starbucks primarily operates and competes in the retail coffee and snacks store industry.

•Starbucks dominates the industry with a market share of 42.4%, Dunkin Brands with 25.5% and other competitors like McDonalds, Costa Coffee, Tim Horton’s etc. taking the rest.

•This industry is in a mature stage with a medium level concentration.

•Starbucks and Dunkin Brands make up almost 70% of the market share, giving them considerable market power in determining industry trends. Market share of the leading coffee chains in the US in 2014

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Market share of ground coffee in the United States in 2016, by leading brands

Market share of single-cup coffee in the United States in 2016, by leading brands

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Industry overview-cont.

Bargaining power of suppliers: Low

•The main inputs into the value chain of Starbucks is coffee beans and premium Arabica coffee grown in select regions which are standard inputs, which makes the cost of switching between substitute suppliers, moderately low.

•Starbucks, with its size and scale, has the power to take advantage of its suppliers but it maintains a Fair trade certified coffee under its coffee and farmer equity (C.A.F.E) program, which gives its suppliers a fair partnership status, which yields them some moderately low power.

•The suppliers in the industry also pose a low threat of competing against Starbucks by forward vertical integration, which lowers their power.

•Starbucks also forms a highly important part of the suppliers business, due to its size and scope, which makes the power of the suppliers lower.

Threat of substitution: High

•There are many reasonable substitute beverages to coffee, which are mainly tea, fruit juices, soda’s, energy drinks etc. Bars and Pubs with non/alcoholic beverages could also substitute for the social experience of

•Starbucks is increasingly dependent on the success of CAP and EMEA operating segments in order to achieve their growth targets.

•Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities.

Risk factors-Cont.

•Starbucks’ financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside their control, such as real estate costs, adverse outcomes of litigation, labor discord, war, terrorism, political instability, boycotts, social unrest and natural disasters, including health pandemics.

•Interruption of Starbucks’ supply chain could affect their ability to produce or deliver their products.

•Failure to meet market expectations for Starbucks’ financial performance will likely adversely affect the market price and volatility of stock.

•The loss of key personnel or difficulties recruiting and retaining qualified personnel. Competitive Advantage Analysis

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