Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world. The first Starbucks store was opened in Seattle in 1971. The current CEO, Howard Schultz, joined the company in 1982 and decided bringing the Italian coffee-drinking culture to the United States. In 1992, the company went public. In 1996, with the home market becoming increasingly saturated, Starbucks opened the first outlet in the Far East. Ever since, the company has pursued a relentless international expansion. By 2012, Starbucks had achieved a global reach of 18,066 stores in 62 countries. With revenues grew on average 30 per cent per year, Starbucks experienced substantial growth from $160 million in 1993 to $10 billion in 2009. In 2007, Starbucks had a presence in 56 countries through approximately 17,000 stores. However, Starbucks’ relentless march had been slowed by increasingly intense competition and rising coffee bean prices between 2007 and 2009. After 2007, demand for Starbucks’ products was badly hit by the global economic recession. At the end of fiscal 2009, nearly all of the approximately 800 US Company-operated stores, 61 stores in Australia and 41 Company-operated stores in other International markets had been closed. Approximately 70 per cent of the stores that were closed had been open for fewer than 3 years. In the third quarter of 2009, The company achieved the first profit since the first quarter of 2008 by the self-save closure. Finally, CEO Schultz made Starbucks backed to the growth trend. But as the criticism the company had received on a number of fronts, he needed to decide again how to approach international markets.
The 5 forces approach is used in this part and the aim of this analysis is determining the attractiveness of the industry and understanding factors driving past, current and forecast industry profitability. Barriers to Entry: A cup of coffee could be served from many kinds of sources, such as independent operated coffee shops, quick-service restaurant, specialty coffee shops, and international retailers. Considering different types of independent operated coffee shops, the barriers of this industry is not that high. However, being one of recognized and respected band in this industry needs standard quality and high level of capital to support. In this case, the barriers to entry are medium. Bargaining Power of Suppliers: The coffee beans are mainly plant in Latin America, East Africa and South Asia. Exporters collect coffee beans which are already roasted from farmers and trade with retailers all over the world. Although there are plenty of suppliers in the industry, with the increasing consumption globally and the decreasing production in the large coffee producing countries, the average wholesale price for coffee had increased twofold between 2001 and 2010. The suppliers still keep strong power on bargaining. Bargaining Power of Buyers: The customer have lots of choices even though there will be a variety of request on flavor for different people. They also have low switching cost because of many competitors and brands in the market. Product differences are small and price sensitivity is high. All of these reasons give consumers strong bargaining power. Threat of Substitutes: There are a number of substitutes in the market to buyers. Juice, Tea and other beverages could be another choice for people. There are also many kinds of coffee related products recognized by different making process. In some regions which coffee drinking is not the main habit in daily life. For example in China, Tea obtains considerate market shares in beverage market. Competitive Rivalry: Coffee industry possesses intense competition. The differentiation of products between different entities is low and easy to replicate. Worldwide demand of coffee is growing. More than 500 billion cups of coffee were being consumed yearly. Meanwhile, hundreds of...
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