Starbucks is a well-known coffee giant that continues to grow and thrive in an increasingly competitive industry. Amid challenges like new and old competition, supply chain issues, the pandemic, and much more, the company has continued to prosper. When you take a look at how it operates today, you can hardly say that Starbucks’ success comes easy.
How does Starbucks manage this, though? And what challenges exactly does it face? These are questions that I’m going to answer for you today in this Starbucks SWOT analysis.
Whether you’re learning more about the company to invest in it, want to see what you’re up against before starting your own little cafe, or just want to learn more about one of the biggest companies in the world, this Starbucks SWOT analysis is the right corner of the internet for you.
Bottom Line Up Front
Starbucks has been experiencing massive competition from franchises that offer more or less the same coffee drinks for less money. It faces issues with its supply chain because the company is dependent on just a few sources for all of its raw coffee – not to mention all of the other challenges brought on by the pandemic.
Still, the company powers through because of its loyal customer base.
This is in part due to Starbucks being able to maintain its quality across different stores and locations and the positive customer experience you get at Starbucks. Not only this, but the company also treats its employees well – something that has allowed it to have a lower turnover rate than usual for the industry.
This plays a huge part in the way customers are treated in store. When the employees serving the customers are happy, the customers leave your store happy, and this is something that giants like Starbucks and Costco understand.
Starbucks could, however, benefit from lowering their product prices, diversifying what they sell, and sourcing their coffee from more places to make them less susceptible to changes in the coffee market.
Starbucks Company Overview
It might come as a surprise, but Starbucks didn’t start as the coffee seller it is today. When the first Starbucks store opened near the Pike Place Market in Seattle in 1971, it was supposed to sell coffee beans and coffee-making equipment. The three founders – Jerry Baldwin, Gordon Bowker, and Zev Siegl – were all so set on the idea that when one of their senior employees proposed a new vision for Starbucks, he was quickly shut down.
But that employee – named Howard Schultz – believed enough in his idea to leave the company and start his own brand. The idea was to basically turn Starbucks from a chain of stores that sold coffee and coffee equipment into a chain of cafes inspired by similar establishments in Italy.
Over time, Starbucks stayed the same and Schultz’s new stores – Il Giornale – did well enough that when Starbucks went on sale, Schultz swooped in with investor backing and bought the whole company. He merged everything under the Starbucks brand, and from then on, the company has known no bounds.
Under his leadership, Starbucks has become the world’s largest coffee chain with over 34,000 stores worldwide and a presence in 84 countries over the world. Not only this, but Starbucks is worth $95.87 Billion, with a revenue of $29.06 Billion in 2021, and over 383,000 employees – and it keeps growing.
See also: Starbucks Mission Statement Explained
Starbucks Revenue Model and Financial Performance
Starbucks earns most of its money from food and beverages – well, mainly beverages. It’s come a long way from its humble beginnings, and it shows in the range of products it offers. You can get coffee and coffee-based drinks, teas, cold drinks like lemonades, Starbucks Refreshers, and juices, ready-to-drink beverages, and much more in both Starbucks shops and in other participating locations. Starbucks also sells breakfast items and has a food menu, in addition to branded merchandise and apparel.
A lot of its revenue also comes from partnered deals with companies like Nestle, but even that is related to the international sale of branded beverages.
Starbucks has managed to consistently stay profitable and has continued to expand globally even amid challenges like the Pandemic, employee shortages, and much more in the last two years.
It also continues to give back to the community with the help of training initiatives for farmers, grants, and programs to fund college education for eligible employees. Even when arabica bean prices tanked globally in 2020, Starbucks was there to help farmers with training and grants to keep their farms running.
Revenue and profit tanked in 2020 for Starbucks, and it only made $23.52B in revenue and $928M in profits, but things have started to look up since then. Even amid changing consumer behavior, a looming recession, and a lot of other challenges, Starbucks made a recovery and earned $29 Billion in revenue and a net profit of over $4 Billion.
Over the years, Starbucks has managed to acquire a number of different companies. These companies include Teavana, Evolution Fresh, Seattle’s Best Coffee, and Ethos Water.
Starbucks SWOT Analysis
Now that we know a bit about Starbucks as a company, let’s talk about the strengths, weaknesses, opportunities, and threats for this coffee giant in the industry.
One of the most notable things about Starbucks is the way its brand has become a cultural phenomenon. Going to Starbucks for a morning coffee before work, or stopping by for a quick drink during lunch on a busy day is something a lot of people are used to, and they often fail to appreciate how the company has managed to become a part of people’s lives like this.
The Starbucks brand is so strong that Interbrand places a value of $13 Billion on it!
This strong brand identity is one of Starbucks’ biggest strengths and what keeps customers coming back for more. Well, that, and the high-quality drinks and great customer service.
Diversified Products List
It’s unlikely that you’ve never been to a Starbucks, but if you haven’t, their menu can seem overwhelming. Why? Because of just how many drinks and products they offer. They come up with new stuff every season, and the drinks that become popular earn a place on their regular menu.
But their cafe menus aren’t the only place where their product list is long. In addition to the coffee, tea, beverages, and food offered at Starbucks stores, the company sells things like its own coffee beans and tea and its own line of branded beverages sold in retail stores worldwide. You can also find merchandise like mugs, tumblers, and tote bags in their stores.
Rapid Growth and Expansion
Starbucks was never one to stay satisfied with just one store or a few locations. Ever since Howard Schultz took over in 1987, the company has been rapidly expanding. In fact, it had gone from just 20 locations in the US to 100 locations in the four years following Schultz’s takeover of the brand.
It has continued this rapid growth since, which is why Starbucks is the biggest company in the caffeinated beverage industry today. In 2022, the company has over 34,000 stores in 84 countries around the world.
This rapid growth is one of the biggest reasons for the company’s success today.
Starbucks products aren’t just diversified; they’re also new, fresh, and innovative. Their drinks and beverages always offer something new and fresh to the consumer, which is something that always keeps them ahead of the game, especially seeing how their basic menu items are easy for competitors to imitate and sell at prices lower than what Starbucks sells them for.
With changing customer patterns and the challenges the company is facing today, its fancy lattes and unique drinks might be the difference between survival and death for the company.
Positive Employee Experience
You already know that Starbucks treats its customers well, but did you know that it maintains the same attitude towards its employees? With wages from baristas being as high as $12 per hour, and with programs like their Starbucks College Achievement Plan and others providing employees with the chance to go to college on Starbucks’ dime.
It plans on staying on this trend with plans to increase the minimum wage to $15 in the next 2 to 3 years, with employees in more than half of all Starbucks locations in the US already earning this amount in 2022.
Quality and Taste Standardization – Even on Scale
Another one of Starbucks’ notable strengths is its ability to stay consistent with the quality of its products even across thousands of stores all over the world. No matter where you go, you can be sure to find the same taste of coffee that you love.
The systems they have developed to ensure that their drinks stay consistent throughout all locations are a great asset to the company, especially when they keep coming up with new products every season. Something that is essential for their business model to work.
Inclusive Policies Like Gender Neutral Bathrooms
Starbucks is committed to its customers, and it keeps proving it with things like medical coverage for all gender-affirming care for their trans employees, gender-neutral bathrooms in all of its locations, ethically sourced products, and more. In the wake of Roe v Wade being overturned, Starbucks has committed to covering the travel expenses for employees seeking abortions in different states.
These moves only solidify Starbucks’ brand image and place it as a company that its customers want to support and do business with.
Starbucks offers a pretty solid rewards program to its customers that keeps them coming back for more. For every $1 that a customer spends, they get three stars. Once they have 150 stars, they get a free drink.
To avail this offer, customers have to install the Starbucks mobile app, which they can use for more than just rewards. For instance, you can use the app to place your order before going to get it – essentially cutting down the time you spend waiting in line by a significant amount. You also get things like free drinks and exclusive deals and discounts.
Seasonal Products and Drinks
Everyone looks forward to things like the Starbucks Pumpkin Spice drinks, the Caramel Brulée Latte, and more. In countries other than the US, Starbucks offers some holiday drinks that appeal to their culture, like the Fudge Brownie Hot Chocolate in Europe.
These drinks and seasonal offerings are something that sets Starbucks apart from the rest, and perhaps the fact that these drinks aren’t available all year adds to their appeal to the masses.
This appeal and the uniqueness of these drinks – coupled with how innovative they are, and the fact that they’re either returning fan favorites or something interesting that customers want to try – is a major strength for Starbucks.
Responds Quickly to Customer Preferences
Whatever the customer demands, Starbucks is ready to provide. We saw Starbucks adjust its offerings to what its customers wanted when it started offering non-dairy alternatives to milk in its drinks. We also saw this when Starbucks started adding vegan options to its menu. Even today, it is quick to respond to consumer demand and whip up menu items that it knows its customers would love to see.
Starbucks is a huge company, and I’m sure you can’t imagine anything bringing the coffee giant down. Still, I bet people thought the same about Blockbuster, Blackberry, Kodak, and others who once were at the top of their games but eventually got lazy and lost to the competition.
Things like complacency and a lack of innovation can be the death of a company. And while Starbucks might not be guilty of these things, it has its weaknesses. Let’s see what they are.
Dependence on Coffee Beans
Starbucks is first and foremost known for its coffee and caffeinated beverages, something that is likely to remain the case no matter what other products it comes up with unless they decide to go for a major rebrand. This, unfortunately, makes the company too dependent on global coffee prices, something that is volatile and subject to change.
Coffee prices are in peril, especially because of recent climate change-related issues, and the global coffee trade has already been suffering due to the Pandemic.
Huge Chunk of Revenue Coming from a Single Source
We just talked about how most of the materials for Starbucks’ main product is coffee and the volatile position it puts them in, and the same can be said about the percentage of their total revenue that comes from coffee sales alone. While coffee and coffee-based drinks are unlikely to go out of demand any time soon, depending too much on a single item while not focusing enough on the others isn’t wise.
It can be argued though that it doesn’t make sense for Starbucks to focus much on anything else because of how its whole brand is based on coffee, but it is still a weakness in the company that they need to possibly look out for.
Standardized Beverages for International Customers
Part of the fun when you’re traveling somewhere is the opportunity to try unique new dishes and local beverages. Almost every country and region in the world has different cuisines and things they like – some countries like their food extra spicy, while others are known for the simplicity of their dishes.
It makes sense then that people in different parts of the world like different types of drinks, and that they might not even drink their coffee the same way. Given this, maybe Starbucks drinks are too standardized, and Starbucks needs to allow for some customization.
The company does offer unique beverages on holidays in different parts of the world, but there is still room for improvement in the regular menu on this front.
Is Starbucks Coffee Really Unique?
Unless you’re a coffee fanatic, it might not make much of a difference to you where you get your coffee. After all, there’s not too big of a difference between a basic latte sold by one cafe and the other.
This is a really big hole in Stabucks’ otherwise flawlessly executed product differentiation plan – the fact that some of the recipes and drinks that it offers are easy for others to reproduce and sell.
High Consumer Prices
Some say Starbucks is worth the price. After all, you’re getting premium-quality beverages and drinks. But there is a bigger chunk of the public that feels like Starbucks coffee is generally out of reach for them or that they at least cannot afford regular drinks there.
With the pandemic having made a dent in most people’s disposable incomes, and the recession making people change their spending habits, Starbucks may end up losing customers hoping to cut down on their day-to-day spending. Those customers are probably opting for cheaper options or making their coffee at home now.
All is not lost though when it comes to Starbucks. In fact, the company is thriving, and it has a lot of opportunities to expand further and maintain its winning streak.
Coffee Subscription Service
Subscription services have been growing in popularity recently, with services from things like watches to snacks to jewelry and lifestyle gadgets popping up everywhere. Snacks and beverage-based subscription boxes in particular are doing quite well.
These boxes give their subscribers the chance to taste snacks and items from anywhere around the world on a regular basis. The items in the boxes are picked out by experts, and the customers are basically given a different experience every month or week based on their likes and preferences.
Starbucks is already positioned as an expert in all things coffee, and if it launched a similar subscription box service for coffee and snack fans, it could be huge.
Online Food Delivery Platform
While it was no surprise that foot traffic decreased dramatically in Starbucks stores in 2020, it was definitely surprising when the company didn’t respond by providing customers with a solid home delivery and online ordering alternative. Even today, customers need to rely on third-party apps to get their coffee fix at home.
Starbucks could improve customer retention and sales just by giving its customers the option to have their coffee delivered directly from them instead of having to go through a third-party delivery platform to do it.
Low-Cost Starbucks Products
Another great avenue for growth and attracting new clients is introducing a line of low-cost Starbucks products that are sold alongside Starbucks’ existing menu. These products will be affordable for the part of the public who currently do not feel like they can enjoy Starbucks every day and greatly improve sales.
In the era of online trends and viral drinks like Dalgona coffee, Starbucks can make huge money by hopping on to coffee trends that keep popping up here and there. Recently, this has included dry-aged coffee, which Starbucks does sell, and nitro cold brews.
I feel like even though Starbucks tries to stay innovative and keep coming up with new drinks, it focuses more on coming up with new items than it does on capitalizing on trends that already exist in the market and are already in demand.
Marketing isn’t anything that Starbucks really struggles with. It has a strong brand identity and a solid client base, but that won’t be the case forever. In fact, customer behavior is changing, and with the average person in the US not having as much disposable income anymore, Starbucks needs to find a way to retain customers.
In the face of these changing behaviors, it might be a good idea for Starbucks to partner with similar companies for some joint marketing ventures. It has already done so in the past, but there is untapped potential here.
Developing Markets Like India
Starbucks has a presence in 84 countries in the world, but that doesn’t mean there aren’t other countries and markets that Starbucks isn’t yet participating in. This includes markets like India, where Starbucks can potentially serve billions of customers if it takes the step to expand there. That is billions of dollars in revenue that Starbucks is currently missing out on.
The Volatility of Coffee Bean Prices
The thing about Starbucks is that it uses the best coffee beans the world has to offer. This is why it imports Arabica coffee beans from growers in Brazil and other Asian Pacific countries.
The issue is that Starbucks is too dependent on these coffee beans, and its annual profits heavily depend on what it’s paying for this coffee.
Given that factors like global warming, import bans, and other pandemic and recession-related factors are likely to influence coffee prices, Starbucks is in a pretty vulnerable position.
Competition from Other Brands
A lot of brands like McCafe, Dunking Doughnuts, and Panera are positioned as direct competitors to Starbucks, and they have one crucial advantage over the coffee giant. Most of the coffee products these companies offer are priced cheaper than Starbucks’ own menu items and drinks, which might drive a lot of its customers to these establishments instead in the future.
Starbucks needs to start pricing its products more competitively or introduce new lower-priced products in order to shake this competition off.
See also: Starbucks Competitors Analysis
Change in Consumer Behavior
The pandemic wreaked havoc on countless lives, and it changed the way people thought about things like employment and money forever. Even now, it has left a lot of people with less money than they had before, and the global recession hasn’t helped either.
Now, people have less money to spend, and they’re unwilling to spend as much on Starbucks. This has presented a real challenge for the company.
Local Coffee Shops
More and more customers are opting to go support local stores and small businesses instead of giant corporations like Starbucks. This is being done on the consumer’s end to support local businesses and their own communities but presents a real challenge for Starbucks.
Question: What are Starbucks’ weaknesses?
Answer: Starbucks is too dependent on global coffee prices for its profits, most of its products are easy to imitate for its competition, and its prices are too high for a lot of people.
Question: Is Starbucks a successful company?
Answer: Yes. Starbucks is one of the biggest companies in the world and the world’s biggest coffee seller. In the year 2021, it generated $29.06 Billion in revenue and over $4 Billion in profit. The company itself is worth $95.87 Billion.
Question: How did the pandemic affect Starbucks?
Answer: Foot traffic decreased in almost all Starbucks stores, with more than half of them having to be shut down in 2020. Operations in China were especially affected, and people were less willing to spend money on Starbucks when they started losing jobs and struggling financially.
Starbucks also started to facilitate mobile orders and pickups at their locations to make it easier for customers to get their drinks.
Question: What country does Starbucks make most of its sales in?
Answer: Starbucks makes most of its sales in the US. It makes sense because it also has most of its stores here – there are over 15,335 Starbucks stores in the US, more than in any other country. The second most stores are in China, where there are only 5,358 stores.
What Is Starbucks’ Competitive Strategy?
Product differentiation, good customer service, ethically sourced materials, community ties, and constant innovation keep Starbucks competitive.
The Starbucks business model is based on something called product differentiation. It means that the main way Starbucks makes money is through coming up with innovative and new products that make it stand out from the competition. It offers customers drinks and combinations that other establishments and the competition can’t, which is the main reason people keep coming back for more.
It also attracts customers because of its reputation as a responsible and ethical company. Steps like banning plastic straws in all of its stores, sourcing all of their ingredients from ethical and sustainable sources, and much more.
Starbucks also makes a point to support the communities it is involved in, with steps like training programs for the farmers it works with and sponsoring college education for a lot of its employees. This in turn solidifies Starbucks’ image with its customer base and encourages people to support the company.
The most important reason Starbucks stays ahead, however, is the way it constantly innovates its products and is receptive to what its customers want. Every season, Starbucks comes out with new drinks, the most popular ones of which earn a spot on the permanent menu.
All of these things are keeping Starbucks ahead of the competition, even when it feels like it’s not thinking about its competition at all!
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