Starbucks Situation Analysis

Topics: Coffee, Unemployment, Household income in the United States Pages: 6 (946 words) Published: October 11, 2010
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 (, 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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