After creating a name for themselves and undergoing vast expansion in the past 20 years, Starbucks has hit somewhat of a standstill. At the turn of a global recession, they must find a way to still successfully supply coffee at over $3.00 a cup. The strategic issue in this case is Starbucks ability to maintain a high level of demand and innovation in a world where so many close and valuable alternatives exist.
A Porter’s five forces analysis was utilized to interpret Coke’s industry level competitive environment:
Threat of New Entrants- Starbucks has a pretty high threat due to the small amount of capital needed to produce their product. With a cup of coffee costing only $0.10, a coffee shop requires a fairly small amount of startup capital.
Threat of substitute products and services- With coffee being their main product, Starbucks customers are trying to maintain a caffeine buzz. This can also be maintained, however, through energy drinks, energy shots, energy bars, tea, etc. giving Starbucks a high threat of substitutes.
Rivalry among competitors- With such a simple product, the rivalry among competitors is quite high. Creating the same Starbucks atmosphere can be difficult for competitors, but many competitors can make a quality cup of coffee. This forces all firms to be innovative and creative to capture the target market.
Bargaining power of suppliers- The suppliers have little buying power as there are many sources of coffee and Starbucks is not overly dependent on and of their suppliers.
Bargaining power of buyers- The buyers have a moderate to high bargaining power. It is very simple for buyers to go to a different coffee shop or none at all. Many customers switching establishments would a force Starbucks response.
With such a high profit margin on their products, Starbucks has hit the jackpot in terms of markets. However, they continually strive hard to convince customers that their product is worth the over 300% markup that they are charging. Especially with so many other caffeine choices, Starbucks needs to continue to offer a wide array of options as well as entering markets where specialty coffee isn’t as popular as in the United States.
In order to maintain market…