Incorporate relevant support from all the sources that have contributed to your learning in this class. This will include articles listed in the syllabus as well as those discovered during your individual (and team) research conducted to complete each segment of the Strategic Analysis.
External Factor Evaluation (EFE) Matrix
According to David, David, and David (2020), an EFE matrix provides an empirical assessment of how well a firm is handling external factors overall, including the firm’s effectiveness at capitalizing on opportunities and minimizing threats. Through thorough research and assessment, we have recognized multiple opportunities and threats that have been assigned weights and ranks.
The lowest rating that has been identified during the research of opportunities is the steady forecast for revenue growth/consumption growth. This specific opportunity is important because it provides a means by which to strategize for the future. "In rapidly changing market situations, not enough attention is paid to the forecasting process on the part of managers of enterprises, which negatively affects the final results of their activities" (Sobon, et al, 2021). What this means for Starbucks is that they are not readily prepared for any upcoming trends or changes that may take place in the market. The recommendation is to invest in more comprehensive forecasting to ensure they can be ahead of any changes.
Of the ratings shown under opportunities, there were three categories identified that rated a 4, which indicates a superior response. These categories are coffee subscriptions, faster service, and self-service machines. These indicate that the company is doing a far superior job compared to others in their industry at addressing these factors. Research has shown that Circle K increased its foot traffic by 200% with a coffee subscription, an added 70% increase in food sales, and a 90-95% subscription renewal rate. The recommendation for Starbucks is to begin offering different levels of subscriptions for different price ranges of customers.
Of the threats that were identified, only one scored a rating of 1. The executive officer changeover has consistently happened, with Chief Executive Howard Shultz retiring and coming out of retirement multiple times. This poses and threat due to the accumulated cost of turnover in severance pay, as well as a lack of being able to achieve any performance targets. The recommendation is to put into place bylaws that bar any previously retired administrative management from coming back to their previous positions without substantial proof that it will be of benefit to the company.
Competitive Profile Matrix (CPM)
An assessment of the company's primary internal strengths and weaknesses with those of the company's significant competitors in the industry is done with the help of a tool known as the Competitive Profile Matrix (CPM). I have established that Dunkin' Donuts and McDonalds McCafé are two of the most significant competitors in the industry. The matrix suggests that
3 compared to its competitors, Starbucks maintains a higher level of market competitiveness. In conclusion, according to the matrix, Starbucks, with a weighted score of 3.17, is more competitive in the market than Dunkin Donuts, which has a weighted score of 2.88, and McCafé, which has a weighted average score of 2.58.
Price competitiveness and quality are the performance criteria to examine in price and product designs. Starbucks has a weighted average of 0.32 for price competitiveness because it sells expensive goods and hence cannot serve the people, causing low-price competitiveness. Starbucks' pricing strategy for maximizing profits is based on a combination of the target market and a premium branding strategy. Starbucks' product quality has a weighted average of 0.30, which corresponds to its brand equity, which competitors cannot match. "The Starbucks Experience" is an informative approach that emphasizes the principles of quality control as a competitive advantage for Starbucks, where customers pay for both a product of high quality and an experience. Moreover, Starbucks customers are willing to spend a premium for premium coffee beans of superior quality to enjoy them.
Starbucks' consumer loyalty, which has a weighted average of 0.4, is one of its most vital qualities, giving it an advantage over its competitors. Despite its expensive goods, "The Starbucks Experience" becomes a significant aspect that contributes to customer loyalty. The Starbucks experience provides not only high-quality products but also a friendly atmosphere that encourages guests to interact and learn while consuming Starbucks' exceptional goods. Starbucks revamped its business model to attract high-income, high-spending, and relatively healthy professionals. The layout of Starbucks' physical cafes provides consumer satisfaction exclusive to the firm.
With an average weighted score of 0.3 in the customer service category, Starbucks maintains a competitive advantage over its rivals. Starbucks provides its consumers with various rewards and souvenirs (Team, 2022). Today, Starbucks has become a symbol of social class, as evidenced by the desire to collect Starbucks cards and other merchandise. In addition, Starbucks regularly solicits client feedback, including, but not limited to, direct feedback at the counter or through Starbucks Customer Connections, questionnaires on their Corporate Social Responsibility, which provides the foundation for improving their operations. Starbucks also offers a quality table that illustrates client expectations and the company's responses. It indicates that the company grows to meet all consumers' needs, whereas the competitors provide the lowest acceptable quality of items at a low price.
Competitive Advantage Reflection
For years, Starbucks had a unique business model that no other company could replicate. It was the best of the best in all four primary business areas: beverage (product), store atmosphere, service, and overall company culture. Many companies were able to excel in one area, but not the other, still falling below Starbucks' total package. However, over the years, some companies have been able to heavily strengthen one piece of the Starbucks business model and creep up to the coffee powerhouse.
Dunkin and McDonalds McCafe have found ways to close in on Starbucks consumer base and overall market coverage. Dunkin is the most similar to Starbucks in the competitive realm. The largest distinguisher between Dunkin and McDonaldS and Starbucks, is the price. Their drinks are less expensive, making them more accessible. However, quality and experience are expensed.
To maintain a competitive advantage and strengthen available opportunities to create a larger market gap again, Starbucks needs to continue to enhance certain business practices and consider continuing product expansion. The company is known for its excellent customer experience. From the time the customer interacts with the brand, which could be virtually or in-person, the sales experience begins. Starbucks is ahead of the technological curve in the coffee industry. The company created a mobile ordering app in 2009, which was well ahead of any mobile payment options in that industry. Now, Starbucks has 31.2 million users on the app. Customers use the app to place orders ahead of time to skip the line, can customize every bit of a beverage, and earn reward points while doing so. The majority of Starbucks competitors do not have a unique application. Because of this, Starbucks should continue to capitalize on this application by building out the opportunity for order ahead in the app, the ability to connect with and learn about the consumer, the option for feedback, etc. This makes the consumer feel powerful while also unique in their relationship with Starbucks. Most companies cannot provide this level of personalization.
Starbucks is also known nationally for its in-person experience. All stores have their own unique feel to blend into the community they are located in, acting as a “third home” to the consumer. This allows the major chain to feel quaint and unique. Many coffeehouses at the same level as Starbucks are franchised and also in a chain, and do not have the opportunity to create a unique space per location, therefore, feel stale and just like any other shop. Studies have shown that the personalization per store with décor, music, and menu choices keeps consumers coming back. Starbucks needs to continue to curate individual store locations and find creative ways to take this one step further. This could include adding more unique menu items, recruiting local designers to build out the storefront, etc.
Starbucks coffee is known across the world, but not all consumers drink coffee. Substitute options are one of Starbucks largest threats. In many competitors/alternate choices, multiple products are available to those who don't just prefer coffee. These include juice, soda, tea, energy drinks, and food options, like meals, snacks, and more. Consumers may go to the competition due to it seeming like a "one-stop shop" with multiple options for all preferences, rather than just the typical coffeehouse drinker. To combat this, Starbucks has pivoted and seen how the introduction of new drinks and food has benefitted the company. These include the introduction of Teavana, protein boxes, etc. In 2019, "food accounted for 20% of Starbucks sales" (Kader, 2020). Continuing to add more food options that are appealing to all demographics, and potentially unique to the location as mentioned above, will benefit Starbucks and allow for a more general consumer attraction. Our team would personally recommend that Starbucks adds a carbonated beverage option to the menu across all stores to replicate soda or a sparkling water option as soda is always popular in the US specifically, and sparkling water has become a fad over recent years.
Financial Ratio Analysis
Financial ratios provide great insight into a company’s overall financial health and success. It allows you to create a strategy based on the current state of various aspects of the company to best prepare for future decisions. To evaluate Starbucks’ progress, the team viewed data from both 2019 and 2021. 2020 was omitted due to the pandemic year halting normal sales practices and revenues across all industries, but especially those like Starbucks in the food industry. In 2019, Starbucks’ current ratio was .92 and increased in 2021 to 1.36. This is a very important ratio as it depicts how capable a company is of paying off its debt, often in a short time. To receive any loans, or often trust in the market, a bank or stakeholders will review this ratio and its progress. The higher the ratio, the better; showing here positive growth for Starbucks. The quick ratio is very similar regarding debt and current financial health. However, it depicts if the company has enough assets or cash to cover all debts. The ratio must be greater than 1 to show this and therefore show that the company will still be standing when paying out all dues. Starbucks in 2019 was not in a great state here as the quick ratio was at 0.67, meaning all debts would not be paid if needed. However, over two years, a big jump was made to 1.14, where Starbucks is now in great health. This could be because of an increase in sales and inventory, increased marketing, etc. One can also “delay any purchases that would require massive cash payments” (Thorne, 2012). Another interesting ratio when reviewing the past three years of sales is the operating profit margin percentage. This shows external reviewers “how much profit a company makes on a dollar of sales after paying all variable costs, but before tax” (Hayes, 2022). Starbucks shows positive growth from 2019 to 2021, increasing by 1%. This may not seem substantial but is impressive due to the pandemic and the recovery efforts that came with it.
Strategically, the direction of the ratios mentioned above indicates that Starbucks has made the correct decisions to survive the pandemic, and is currently in a very good position, with increased turnover, less inventory, and maintaining, slightly increasing profit margins.
Strategically, Starbucks is looking at solidifying its brand and value by becoming more socially active, with initiatives such as; a commitment to provide easier access to re-useable cups by 2025, debuting new partner waste and recycling app, designed to help partners understand and navigate the stores recycling guidelines. By themselves, these seem to be “social” initiatives to market their awareness of environmental issues, but they also lead Starbucks into a circular economy where they produce minimal waste and reuse byproducts, and in the long term reduce their overall costs. Moving to a circular economy will also help Starbucks use the ancillary products more efficiently, thereby increasing its overall utilization factor.
To increase its financial ratios such as the quick ratio, which is on a steady increase, Starbucks also needs to be more conservative in its expansion plans, to date most of its expansion plans have been around luxury items, such as the failed Princi brand. They need to consider the more middle-class markets to build a more economically stable base, similar to car companies with middle-class and luxury brands.
Both the move to a circular economy and entering more stable markets with help Starbucks with its stability and growth plan.
Internal Factor Evaluation (IFE) Matrix
According to David, David, and David (2020), the IFE Matrix is a comprehensive evaluation of the firm's effectiveness in implementing current strategies based on its strengths and weaknesses. Through research, we have identified several strengths and weaknesses as well as ranked them and assigned weights.
The ratings are from 1 to 4, with 4 being a superior response and 1 being a poor response. Of the identified strengths, six have been ranked 4, indicating that the response to the current strategies is superior. This includes the response to operational efficiency, ethical business practices, and long-term strategic planning. The implications of being high in categories such as these are important. “If a firm possesses many highly-rated strengths, this is likely the result of effective strategies” (David, et al, 2020).
The weaknesses identified are those that reflect the difficulties the firm has or is encountering in growing and gaining profits. Of those identified, only two ranked a 2, with none ranking 1. The most difficult to create strategies for is the volatility of the supply costs. This is not something that the firm can directly determine based on its needs but instead must rely on other strategies to ensure that it can still obtain supplies within a reasonable cost range. In response to the pandemic (the second category that ranked 2), Starbucks, like many companies, was forced to raise its prices due to the disruption of the supply chain and therefore rising costs. One implication of this was that in February of 2022, the market shares of Starbucks fell 4.7% and 16% in January. Chief Executive Officer Kevin Johnson stated, “We experienced higher-than-expected inflationary pressures, increased costs due to Omicron, and a tight labor market.”
What strategies do you think would allow the firm to capitalize on its major strengths?
Starbucks possesses a solid market position, superior supply chain management, brand recognition, a high-quality product offering, and committed customers (Liu et al. 2022). For instance, the siren in the Starbucks logo is recognizable, and it is no longer necessary to include the words "Starbucks Coffee" to identify the brand. In addition, the customer base and loyalty are extensive, as the company is established and spread internationally. In addition, Starbucks demonstrates tacit knowledge through its treatment of employees. Each Starbucks employee is a "partner." The organization offers healthcare benefits, educational opportunities, and publicly traded stock. For many people, Starbucks is their first professional job. With these opportunities and benefits, the company has fostered a culture in which the partners develop positive habits that can be applied to other aspects of their lives (City, 2021). If Starbucks maintained or enhanced these strengths, it would be more profitable than its competitors. Starbucks needs as well to improve its consumer loyalty programs. This will increase its sales and maintain a good number of loyal consumers in its portfolio.
What strategies would allow the firm to improve on its major weaknesses?
Starbucks has aggressively expanded into EMEA countries such as Saudi Arabia, but sales have not met projections. Starbucks views the prevalence of tea consumption in Arabian culture as an untapped market opportunity. The best solution to increase its profits, they must broaden its portfolio's adaptability by incorporating different cultures. Similarly, Starbucks will find it challenging to expand into regions such as the United Kingdom, where Costa Coffee already has a loyal customer base. Like the United States, Canada and Australia have substantial brand loyalty for Tim Hortons and Gloria Jeans, respectively.
Proposed Strategies Developed from SWOT Matrix
Below you will find the strategies that have been developed from the SWOT Matrix analysis of Starbucks Coffee Company. This can be used to continue to stay relevant and competitive in a thriving industry.
Strength-Opportunity (SO) Strategies
Strength-Threat (ST) Strategies
Weakness-Opportunity (WO) Strategies
Weakness-Threat (WT) Strategies
Boston Consulting Group (BCG) Matrix
Below is a Boston Consulting Group (BCG) Matrix for Starbucks Coffee Company's operating segments. The revenues listed are in the billions.
Starbucks Coffee Company's main division segments are its handcrafted beverages, food, and others (which include its merchandise and grab-and-go options). The main competitors within the same category/industry are McDonald’s McCafe and Dunkin Donuts. While handcrafted beverages and others remain in good standing as a star in the BCG, food falls under question marks. This signifies that it may need some work to bring it up to the level of other divisions to ensure adequate revenue.
Internal-External (IE) Matrix
By analyzing the Internal-External (IE) Matrix above, we can see that there are a few divisions that are performing well. The American division and CAP are doing well. The EMEA (Europe, Middle East, and Africa) region is performing poorly. Looking at where it falls on the graphical representation, it would be advisable to develop specific strategies to either improve these sectors significantly or to drop them completely, as they may be using more resources than the revenue they are bringing in.
Space Matrix, Grand Matrix, and Quantitative Strategic Planning Matrix
In this paper we will look at Starbucks Corporations overall Space, Grand, QSP Matrices analysis and provide a summary of the data collected.
Below you will find a Strategic Position and Action Evaluation Matrix (SPACE Matrix) for Starbucks Coffee Company with two of their competitors, McDonald's and Maxwell House.
Based on the space matrix and previous matrices and reviewing the 2021 Starbucks 10-K and other financial documents, Starbucks is clearly in the aggressive quadrant and competing well against its competition considering its smaller product mix, and more targeted market. It has a very strong financial position (FP) due to a low D/E ratio, and high current ratio, and a high inventory turnover. Starbucks stability position is reflective of the covid pandemic, and the rising inflation pressures, as well as a low barrier to entry for the competition, and a higher barrier to entry for Starbucks into established coffee cultures and markets.
Starbucks competitive position is very good, they are higher than the coffee suppliers like Maxwell House, and on the heels of larger corporations like McDonalds. As a note, they have no single worldwide competitor with a product mix close to theirs, so McDonalds, even though a fast food restaurant chain, is considered a competitor with their McCafé offerings. So with a smaller product mix, Starbucks is in a very competitive position relative to McDonalds. Its Industry position (IP) is quite high, and it is considered the leader in the coffee industry.
With Starbucks being in the aggressive quadrant, there are a few recommendations to consider. Starbucks should accelerate its growth plans in the markets in which they lead, the USA, Canada, and China to maintain and expand its lead over the competition. This recommendation is based on the relative lack of barriers to entry into their core coffee business, and competitive pressures from the competition.
Starbucks should also consider increasing its product mix and quality and remarketing/repositioning stores as a defensive act to not lose market share to competitors that offer equal quality coffee products, but a greater mix of other food-related products. This should include local food offerings in markets that they are struggling with such as EMEA.
Starbucks should also look to expand its involvement in the Global Coffee Alliance with Nestle as this will expand its global reach. Starbucks has expanded its social responsibility with increased investment in its partners, Starbucks refers to its employees as partners, by advancing social and racial equality, and focusing on partner retention. It has integrated social responsibility as the core of its purpose and “our reason for being.” They have also expanded environmental sustainability programs by declaring a bold aspiration to become planet positive by 2050. Starbucks needs to expand this program worldwide, beyond the markets that they lead to truly show that they truly are committed.
Grand Strategy Matrix
The Grand Strategy Matrix has four quadrants that hold different strategies within them. As we see the quadrants are split up as such, rapid market growth, strong competitive position, slow market growth, and weak competitive position. The first quadrant that runs along the axis of rapid market growth and a strong competitive position involves the strategies of market penetration, product development, horizontal integration, and diversification. This means that Starbucks is in a great standing point within their industry which means they will continue to grow.
Quantitative Strategic Planning Matrix (QSPM)
Below you will find the Quantitative Strategic Planning Matrix for Starbucks Coffee Company that analyzes the two proposed recommendations.
There were multiple strategies developed from the SWOT analysis that could be pursued. The two that were chosen as the best options were as follows:
1. Grow market share and the company as a whole.
2. Maintain market share and the current status of the company
Europe, Middle East, and Africa (EMEA) market are not currently performing at industry standards. The belief behind why this is occurring is due to regional differences in tastes and preferences and not enough products that cater to the local culture and customers. There is the potential for growth in these markets by developing products that are specific to these regions that will appeal to the customers and their desires. The brand equity is currently performing at a high level and can be used to the company's advantage to continue growing the market share and promoting the company in a positive light, as well as pushing more of the ethical business values that the company shares within its mission and vision. Growing the market share would also be profitable for a long-term reinvestment strategy that is multi-faceted per specific region.
Maintaining the current position of the company regarding the market share would continue to be profitable at a steady rate but not provide the chance for embracing changes that may occur within the industry. The issue with this specific strategy is that it will not continue to grow the company to be as profitable as it can be within the industry. With product recalls, higher prices than competitors, and nearly identical products to competitors, maintaining the current position will not allow the company to diversify and set itself apart. Further, unionization may pose a threat if the company does not grow and diversify to include and embrace these changes.
Marketing Expenses, Perceptual Map, and Organizational Chart Analysis
In this paper, we will look at Starbucks Corporation's overall Marketing Expenses, Perceptual Map, and Organizational Chart Analysis and provide a summary of the data collected.
Marketing Expenses versus Rival Firms
A 10K is a detailed report filed annually by a public company that describes the financial performance from the last year. The SEC, or US Securities and Exchange Commission, requires all companies to complete this report. It is a more detailed report than just the annual report that is sent to shareholders – the 10K breaks down each area of the company.
For example, when looking at the 10K, one can examine categories like marketing and advertising expenditures. Starbucks spent $305 million in 2021 advertising its product and brand. Their strongest competitors, Dunkin Donuts and Peet's Coffee posed around the same investment. Dunkin put forth $316 million towards advertising funds, with many of those dollars straight from franchises. In addition, Peet’s grew a whopping 27% in the marketing area taking their total to $320 million. A goal of Dunkin Donuts is to increase coffee and overall beverage sales. The company plans to do this through continued new product launches and a heavy push behind marketing and advertising with slogans like "America runs on Dunkin" and "What are you drinkin?”. Peet's Coffee has a lower market share than both Dunkin and Starbucks, so to keep up the company decided it was necessary to make a substantial increase to the marketing budget to allow for a similar presence as its' top competitors. Since the three companies are spending similar ad money as of 2021, Starbucks needs to continue to build relationships with consumers in their communities to attract the most attention. The coffee market is so diluted that to stick out, there has to be something special about the cup of coffee or brand. Starbucks has established such a large affinity with its consumers to this point due to tactical traditional advertising spending that feels unique, heartwarming, and welcoming. It does not need to increase ad spending to keep its large market share because the company is easily a household name internationally. Starbucks needs to continue to spend consistently within the ad space, and transcend that feel into all shop environments, to keep Starbucks superior.
Market Share (USA)
Total Shop Locations
Peet’s Coffee (under JABS Beverages)
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November 30, 2022
November 30, 2022