Starbucks External Analysis

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SWOT -Opportunities
One of the opportunities presented to Starbucks is the growth in coffee market. In the United States, specialty coffee sector accounts for approximately 15% of the total retail coffee market which is equivalent to $21billion. In 2005, the retail coffee market was valued to be around $23billion and specialty coffee accounted for nearly 45% of the market and was still expected to grow. Starbuck has a 40% market share in the specialty coffee sector which provides an indication that anticipatory growth in the following category will provide Starbucks with opportunity to expand and grow in the US. Furthermore, Starbucks has the opportunity for major expansion in to Asia Markets such as China. Starbucks plan to focus on current markets such as Beijing and Shanghai along with expansion in to new cities.

One of the threats that present itself to Starbucks is raising dairy cost. Dairy prices have been on the rise and have significantly affected Starbucks profit margins. Milk and other dairy products represent a total of 4-5% sales in Starbucks, and continual increase in prices that lower the company's profit. Further threats Starbucks will face is the Slowing US retail sales. The company faces long-term concerns regarding its US store growth potential. If the current growth rate is sustained, the North American retail division will saturate within 5 years. This proves to be a big issue for Starbucks given the fact that domestic retail has been the source of 75% of the company's revenue and profit growth. Sales and growth of its domestic retail will be stagnant and decline over the next 3-5 years before reaching saturation point. Another threat to Starbucks is that Seattle's Best Coffee is using Starbucks consumer education to create consumer awareness of its gourmet coffee, behind expanding nationally. The next threat is in regards to the rising costs in coffee beans and furthermore farmers are growing more profitable crops, hence Starbucks has lower profit margin and exist a scarcity of coffee supplier.

Porter's Approach to Industry Analysis

Threat of New Entrance
Though the threat of new companies entering the picture is possible, Only few companies have the financial capability and human resource not to mention the willingness to go head on with Starbucks. Over the years, Starbucks has forced a number of its competitors out the business, for example, Boston's Coffee Connection chain, which Starbucks acquired in 1994, and forced Brother's Gourmet Coffee to ceases any expansion plans due to the fact that its potential market was already crowded by Starbucks (Tran, 2003).Apart from being the industry leader, Starbucks has managed to secure exclusive right for the Narino Supremo Bean crop, which purportedly is one the best coffees in the world(UW); this ultimately enables Starbucks to raise the entry barrier for quality coffee that much higher, thus making it harder for any would be competitors entering the market. In addition to the following, big players in the coffee industry enjoy economies of scale from its huge international chain of outlets as well as strong customer loyalty. With all the following factors, the threat of new entrance is low.

Threat of Substitute
The threat of substitute is relatively high because of convenience stores and supermarket's offering of premium coffee product that is virtually available anywhere and anytime that comes in a variety of brand. Starbucks prides itself by offering quality coffee but where it comes down to convenience. Starbucks loses out despite arduous effort to establish its outlet at every corner (Tran, 2003). Furthermore Tea is also a substitute for coffee and though Starbucks does offer tea, it specialty still remains in quality gourmet coffee. Lastly, switching cost is low thus customer will switch to those who can fulfill their coffee demands.

Bargaining Power of Supplier
The bargaining power of supplier is relatively low in the...
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