5 Forces for Starbucks

Topics: Retailing, Coffee, Substitute good Pages: 2 (543 words) Published: March 16, 2008
Industry Definition: The industry analyzed is specialty coffee retailing in North America. Threat of New Entrants:
1.Economies of Scale are low. The price of opening a new store does not gain substantial economies of scale when a firm already has many stores. Variable prices such as Aribica beans, cups, whipped cream, etc. will benefit from some economy of scale, but not enough to deter new entrants. 2.Capital Requirements are low. Property and inventory costs are not substantial enough to deter new entrants. 3.Product Differentiation is medium. Although there are over 3,485 competitors, only a few are large players. They have succeeded by selling an ‘experience' as opposed to simply specialty coffee. In this way they have differentiated a seemingly identical product. 4.Switching Costs are low. There are no costs to consumers in switching specialty coffee retailers. A small indirect cost may be an emotional attachment to a specific brand. Net Conclusion: Threat of new entrants is high. The relatively low entry barriers of this industry would make it attractive to new entrants. Bargaining Power of Suppliers:

1.Supplier concentration relative to buyers is large. There are many exporters competing for the business of few buyers. 2.Supplier products are not differentiated. Coffee is a commodity product. 3.Supplier products do not have high switching costs. Buyers are free to choose between many suppliers and most do in order to diversify their product offerings and hedge. Net Conclusion: The bargaining power of suppliers in this industry is low. Bargaining Power of Buyers:

1.Buyer concentration relative to suppliers is large. With 10,000 buyers per shop, single buyers or buyer groups do not have considerable buying power relative to firms in the industry. 2.Supplier products are highly differentiated. Customers are buying ‘experiences' and not coffee, some are fiercely loyal to a particular specialty coffee retailer. Net Conclusion: The bargaining power...
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