2. Identify the critical factors for the firm to succeed in its business.
1. Starbucks is a worldwide coffee retailer. The company sells coffee from its own network of company owned coffee shops, other retail stores licensed to sell Starbucks, and a very limited number of franchised locations. The coffee industry is a massive worldwide business. It is worth $100 billion and coffee is the second most valuable commodity in the world. Coffee beans are grown in over 50 countries, and over 67% of the world’s coffee is produced by the American continents. (Source 1)
Coffee has a fairly volatile price, in large part due to the unpredictability of surplus harvests or limiting weather (Source 3). For example, Brazil’s recent drought has limited the world’s short-term coffee supply and caused prices to increase (Source 4). Coffee prices are also expected to continue rising as the effects of climate change limit global production (Source 5).
The market for coffee is intensely competitive, as coffee is generally homogeneous. Different participants in the market will generally try to target different segments in order to compete effectively. For example, McDonalds and Dunkin Donuts provide fast low-cost coffee to coffee drinkers on the go, while Starbucks offers high-quality coffee drinks and a personalized in-store experience. The coffee shop business is quite competitive. Coffee shops make up the fastest growing segment of the restaurant industry. Coffee shops have an average annual growth rate of 7%. (Source 2) Starbucks itself is the third-largest restaurant chain in the United States. Starbucks maintains substantial bargaining power over its suppliers, as the company represents a large portion of the suppliers’ business. Starbucks uses this bargaining power to make long-term agreements with its suppliers on prices. Starbucks also diversifies its supply-chain risk by dealing with numerous suppliers from around the world.
2. There are a number of critical factors that determine Starbucks’ success. First, the company must be able to successfully manage the cost of its coffee beans. Starbucks manages the price volatility of coffee through its relationships with its suppliers. The company generally agrees on future prices with suppliers to mitigate this risk. Starbucks also depends on the demand for the “Starbucks Experience.” The atmosphere of Starbucks’ restaurants attracts customers to come purchase their coffee and stay in the shop for a period of time. If consumers did not value the in-store experience, they could