Starbucks Situation Analysis
Starbucks, a leader in the specialty coffee industry, has recently decided to test the
feasibility of a new product. Known for its ability to maintain customer loyalty through a
rich environment and excellent coffee, Starbucks is trying to attack the instant coffee
market through its product, Via. Before analyzing the product itself and its potential
success, we must first look at the macro and micro environments.
The first aspect of the surrounding environment we must look at is the market
climate. The past year and a half has seen trying times for many businesses and
individuals. While the U.S. economy is recuperating, unemployment is still at 10%: a
5.3% increase since 2007 (Yandle, 2009). The average household income has dropped
from $145,000 to $138,000 in the same time period. Interest rates are extremely low but
look to increase by 50 basis points within the next year. The inflation rate is at 1% and
doesn’t look to move for a while. With the diminished average household income and
high unemployment rate, consumer spending is expected to be low for 2010. This
means low retail sales and purchases of non-commodities. Stronger government
regulations seem to be inevitable, in hopes of rebuilding suffering businesses. All in all,
many changes are to come from this economic state.
Besides looking at the climate, we should also look at the company itself and the
industry it is a part of. Starbucks Corporation is a retailer in specialty coffee that also
sells complementary food items, cold espresso drinks/related cold coffee drinks, and
beverage related accessories (Mergent, 2010). Starbucks is part of the Hot Drinks
subsection of Consumer Packaged Goods Industry. This part of the industry saw
revenues of $52.7 billion in 2005 and is expected to increase to $59 billion by the end of
2010 (Marketline, 2010). They are also part of the Food and Drink Specialist subsection
of the Retailing Industry. This part of the industry saw revenues of over $20 billion last
year and is expected to increase by 3% next year. The publicly traded Starbucks Corp.
has a market share of approximately 58% in this subsection. Over the past three years,
they have had sales of $9.744 billion, $10.383 billion, and $9.4115 billion (OneSource
Global, 2010). They have also had net incomes of $390 million, $315.5 million, and
$672.6 million over the same span.
In order to fully answer our decision on feasibility of the new product, we must
look at the SIC and NAICS classification codes assigned to the industry. The major
codes regarding the Starbucks and its subsection involve the use of coffee beans
(Mergent, 2010). The primary SIC code and description for the Hot Drinks subsection is
2095-Roasted coffee. The primary NAICS code and description for this subsection is
311920-Coffee and Tea Manufacturing.
We must also have knowledge of the collaborators. Starbucks’ suppliers are
independent farmers ranging from Indonesia to Central America (Starbucks.com, 2010).
They have long standing relationships with suppliers, and in many cases provide financial
support for the communities housing them. While facilitating and distributing most of
their products, Starbucks does also rely on other retailers for their sales. Target and
Costco are the few mediums in which Starbucks has chosen to try their new product, Via.
Separately, Starbucks and the Concord Music Group have a 50-50 joint venture with the
name StarCon, LLC.
Another part of the environment to look at is the competitors. These players in
the market will determine which decisions Starbucks will make in the present and future.
Major competitors include the Panera Bread Company and the Einstein Noah
Restaurant Group, Inc (OneSource Global, 2010). The Panera Bread Company most...
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