Risks to Starbucks’ Global Growth
Every day millions of people all over the world walk into Starbucks for their java shot, but it is more than the overpriced coffee that brings people in day after day to their Starbucks stores across the world. Starbucks offers a setting and an environment created by the friendly and helpful staff. They are always around to provide excellent customer service. Managers at Starbucks put tremendous attention into hiring good “people people.” Their hiring and training process is designed to provide a customer-centric experience. People buy Starbucks for what it represents and the status symbol that comes along with it. It has been one of the fastest-growing brands in annual BusinessWeek surveys of the top 100 global brands. Starbucks' popularity has persisted even in an economic downturn - an undeniably impressive feat as other retailers are struggling, said Greg Schroeder, a research analyst with Fulcrum Global Partners LLC. "It's a phenomenal growth story - regionally, nationally and now the final stage is to become a global consumer brand," he said. Starbucks had outlined a seven part strategy for growth in its 1991 prospectus at time of IPO - and by-and-large has stuck to it since. Highest quality coffee, customer service, store design and atmosphere have been reason that Starbucks has become a global brand with 17,244 stores worldwide. The coffee chain is expanding into other countries at a time when American cities are becoming saturated. The crowding of stores so close to each other in the US has cut sales at existing outlets. The tepid performance of US stores has led to closing of some stores though the plans for international expansion are growing. The US coffee giant has big plan overseas, but where it assumes more risk, and foreign outlets’ narrowing profits margins. This paper discusses various risk factors and performs SWOT analysis to evaluate Starbucks’ penetration in global markets. It also outlines steps which will help Starbucks develop the same iconic image it has in the US.
Starbucks has significant strengths in coffee business. It is the current market leader with over 17000 stores worldwide. It has no debt and uses internal cash flow for expansion. Also since all of its stores are company-owned, it is able to maintain the image and quality. It also spends very less amount on advertising and marketing, and relies primarily on the word of mouth. Starbucks also has strong brand recognition by consumers. It is known for its high quality products and its consumer friendly environment.
Starbucks primary weakness stems from the pricing of its coffee in comparison to its competitors. Since Starbucks makes 75% of its profit from coffee (unlike the McDonalds and Dunkin’ Donuts which make most profit from food), it is exposed to rising coffee-bean costs and stepped-up competition from lower-priced competitors.
There are plenty of opportunities which exist for Starbucks in the international markets. In countries with growing economies, such as the BRIC nations (Brazil, Russia, India and China), there are growing upper and middle classes that want to spend money on specialty coffee. Some of these countries are traditionally “Tea Drinkers” that are expanding their tastes to include coffee.
The next part is to evaluate the current and future threats Starbucks is facing. In the event of another economic downturn, coffee may be something that some customers will not find it as a need. Though the current economy has somewhat improved but there are still people without jobs and incomes and may curb their spending on coffee. The other threat comes from the competition it faces with other coffee retailers and McDonalds. Some of them sell coffee at cheaper prices and try to imitate the “Starbucks” environment. Also globally McDonalds can open McCafes at their existing stores without much additional investment, while Starbucks would have to invest...
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