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Porter’s Five Forces Analysis of Starbucks

Starbucks Coffee faces the strong force of competitive rivalry in the five-force analysis model, this force pertains to the influence of competitors on each other of competition.

  • Large number of firms.
  • Low switching cost.
  • Variety of firms.

The company is facing a large number of competitors which different size, specialties and strategies For example Starbucks faces the competitive force of McDonald’s and Dunkin Donuts, as well as other specially coffee companies the strong force of competition is also due to the low switching cost means that it is easy for customer to shift from Starbucks to other brands.

Thus based on this component of the Five Forces competition should be among Starbucks Coffee’s top priority challenges.

Bargaining Power of Starbucks Coffee:

The force is based on the effect that individual and grouped customers have on business. In Starbucks Coffee case the following external factor contribute to the strong bargaining power of customers:

  • Low switching cost.
  • Small size of individual buyers (weak force)
  • Substitute availability (strong force)

The bargaining power of buyers is more significant forces affecting Starbucks Coffee business. Customer can easily shift from Starbucks to other brands because it is affordable to do so. Customer can also stay away from Starbucks if they want to because there are many substitutes such as instant beverages and drinks from coffee shop, Subway beverage, Costa Coffee and other Coffee Brands. These strong factors overshadow the fact that individual purchases are small compared to Starbucks Coffee revenues.

As the Starbucks Coffee’s top priority should be the analysis model of bargaining power of customers.

The Bargaining Power of Starbucks Coffee Suppliers:

In Starbucks Coffee the following external factors contribute to the weak force or bargaining power of suppliers.

  • High Varity of suppliers (weak force)
  • Moderate size of individual suppliers (moderate force)
  • Large overall supply (weak force)

The bargaining power of suppliers does not have much impact on Starbucks. The large overall supply lessens the effect of any single supplier or the company. Also Starbucks has a policy for diversifying its supply chain. This policy reduces the influence of suppliers on the business even through each supplier has a moderate size compared to the Starbucks supply chain.

By analysis model of porter forces Starbucks Coffee does not need to prioritize the concerns or demand of suppliers.

Threat of Substitutes to Starbucks Products;

The treat of substitutes force pertains to the impact of substitute goes or services. In Starbucks the following external factors contribute to the strong of the threat of substitution:

  • Availability of substitutes.
  • Low cost of substitutes.
  • Low switching cost.

Porter Five force analysis model indicates that substitutes have strong potential to negative impact Starbucks Coffee’s business Starbucks customers can easily shift to substitutes because there are many substitutes such as beverages from restaurants, bottled beverages and other good from grocery stores.

As Starbucks has Partnered with several firms to extend its brand into new categories” For example it joined with PepsiCo to sump the Starbucks brand on bottled Frappuccino drinks Marked in a joint venture with Brayers, Starbucks ice cream is now the leading brand of coffee ice cream. Moreover at the same time it is trying to squeeze more business out of its regular coffee shop, Starbucks is also examining new store concepts. In Seattle, it is testing Cafe Starbucks; A Europeans style family bistro with a menu featuring everything from huckleberry pancakes to oven roasted seared sirloin and Mediterranean chicken breast on focaccia. Whereas Starbucks is also testing Circadian in San Francisco a kind of bohemian coffee house concept with tatters rug, high speed Internet access and live music as well as coffee specialties.

The cost of shifting to substitutes is low because Starbucks customers do not need to spend for the shifting process; In addition many of these substitutes cost less than Starbucks products. They must consider the threat of substitutes as among its priority concerns.

Threats of New Entry:

This force refers to the potential effect of new players in the industry In Starbucks Coffee case the following external factor contribute to the moderate force of the threat of new entrants:

  • High cost of brand development. (Weak force)
  • Moderate cost of doing business (moderate force)
  • Moderate supply chain cost (moderate force)

The new entrants have significant but not strong effect on Starbucks Coffee’s business. New entrants can compete against Starbucks because of the moderate costs of doing business and supply chain development however new entrances find it difficult to compete against established brands like Starbucks because it is very costly to develop a strong brand.

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