Essay: Starbucks evaluation, SWOT & PESTEL

Introduction:
Starbucks Corporation is an American coffee company and coffeehouse chain. The chain was founded in Seattle,Washington in 1971, it operates 23,450 locations worldwide, including 12,937 in the United States, 2,118 in China, 1,430 in Canada, 1,158 in Japan and 869 in the United Kingdom (Differences reflect growth since December 17, 2015)
Starbucks locations serve hot and cold drinks, whole-bean coffee, micro ground instant coffee known as VIA, espresso, caffe latte, full-leaf teas, Evolution Fresh juices, Frappuccino beverages,pastries, and snacks; some offerings (including their Pumpkin Spice Latte) are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drink ware including mugs and tumblers; select “Starbucks Evenings” locations offer beer, wine, and appetizers. Starbucks-brand coffee, ice cream and bottled cold coffee drinks are also sold at grocery stores.
Starbucks first became profitable in Seattle in the early 1980s, and despite an initial economic downturn with its expansion into the Midwest and British Columbia in the late 1980s, the company experienced revitalized prosperity with its entry into California in the early 1990s. The first Starbucks location outside North America opened in Tokyo in 1996; overseas properties now constitute almost one third of its stores. The company had opened an average of two new locations daily between 1987 and 2007.
Founding:
The first Starbucks opened in Seattle, Washington, on March 30, 1971, by three partners who met while they were students at the University of San Francisco: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. The three were inspired to sell high-quality coffee beans and equipment by coffee roasting entrepreneurAlfred Peet after he taught them his style of roasting beans. The company took the name of the chief mate in the book Moby-Dick: Starbuck, after considering “Cargo House” and “Pequod”. Bowker recalls that Terry Heckler, with whom Bowker owned an advertising agency, thought words beginning with were powerful. The founders brainstormed a list of words beginning. Someone pulled out an old mining map of the Cascade Range and saw a mining town named “Starbo,”which immediately put Bowker in mind of the character “Starbuck.” Bowker said, ” Moby-Dick didn’t have anything to do with Starbucks directly; it was only coincidental that the sound seemed to make sense.”
The Starbucks store at 1912 Pike Place. This is the second location of the original Starbucks, which was at 2000 Western Avenue from 1971 to 1976. The first Starbucks cafe was located at 2000 Western Avenue from 1971–1976. This cafe was later moved to 1912 Pike Place Market; never to be relocated again. During this time, the company only sold roasted whole coffee beans and did not yet brew coffee to sell. The only brewed coffee served in the store were free samples. During their first year of operation, they purchased green coffee beans from Peet’s, then began buying directly from growers.
Sale and Expansion:
→In 1984, the original owners of Starbucks, led by Jerry Baldwin, purchased Peet’s. During the 1980s, total sales of coffee in the US were falling, but sales of specialty coffee increased, forming 10% of the market in 1989, compared with 3% in 1983. By 1986 the company operated six stores in Seattle[19] and had only just begun to sell espresso coffee.
→In 1987, the original owners sold the Starbucks chain to former employee Howard Schultz, who rebranded his Il Giornale coffee outlets as Starbucks and quickly began to expand. In the same year, Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois. By 1989, 46 stores existed across the Northwest and Midwest and annually, Starbucks was roasting over 2,000,000 pounds (907,185 kg) of coffee.
→At the time of its initial public offering (IPO) on the stock market in June 1992, Starbucks had 140 outlets, with a revenue of US$73.5 million, up from US$1.3 million in 1987. The company’s market value was US$271 million by this time. The 12% portion of the company that was sold raised around US$25 million for the company, which facilitated a doubling of the number of stores over the next two years. By September 1992, Starbucks’ share price had risen by 70% to over 100 times the earnings per share of the previous year.
→In July 2013, over 10% of in-store purchases were made on customer’s mobile devices using the Starbucks app.[23] The company once again utilized the mobile platform when it launched the “Tweet-a-Coffee” promotion in October 2013. On this occasion, the promotion also involved Twitter and customers were able to purchase a US$5 gift card for a friend by entering both “@tweetacoffee” and the friend’s handle in a tweet. Research firm Keyhole monitored the progress of the campaign and a December 6, 2013 media article reported that the firm had found that 27,000 people had participated and US$180,000 of purchases were made to date.
Expansion to New Markets and Products
The first Starbucks location outside North America opened in Tokyo, Japan, in 1996. Starbucks entered the U.K. market in 1998 with the $83 million USD acquisition of the then 56-outlet, UK-based Seattle Coffee Company, re-branding all the stores as Starbucks. In September 2002, Starbucks opened its first store in Latin America, at Mexico City. Currently there are over 500 locations in Mexico.
In 1999, Starbucks experimented with eateries in the San Francisco Bay area through a restaurant chain called Circadia. These restaurants were soon “outed” as Starbucks establishments and converted to Starbucks cafes.
→In October 2002, Starbucks established a coffee trading company in Lausanne, Switzerland to handle purchases of green coffee. All other coffee-related business continued to be managed from Seattle.
→In April 2003, Starbucks completed the purchase of Seattle’s Best Coffee and Torrefazione Italia from AFC Enterprises for $72m. The deal only gained 150 stores for Starbucks, but according to the Seattle Post-Intelligencer the wholesale business was more significant. In September 2006, rival Diedrich Coffeeannounced that it would sell most of its company-owned retail stores to Starbucks. This sale included the company-owned locations of the Oregon-based Coffee People chain.
→In 2007, the company opened its first store in Russia, ten years after first registering a trademark there.
→In March 2008 they purchased the manufacturer of the Clover Brewing System. They began testing the “fresh-pressed” coffee system at several Starbucks locations in Seattle, California, New York and Boston.
→In May 2008, a loyalty program was introduced for registered users of the Starbucks Card (previously simply a gift card) offering perks such as free Wi-Fi Internet access, no charge for soy milk & flavored syrups, and free refills on brewed drip coffee, iced coffee or tea. In 2009, Starbucks began beta testing its mobile app for the Starbucks card, a stored value system in which consumers access pre-paid funds to purchase products at Starbucks. Starbucks released its complete mobile platform on January 11, 2011.
→On November 14, 2012, Starbucks announced the purchase of Teavana for US$620 million in cash and the deal was formally closed on December 31, 2012.
→On February 1, 2013, Starbucks opened its first store in Ho Chi Minh City, Vietnam, and this was followed by an announcement in late August 2013 that the retailer will be opening its inaugural store inColombia. The Colombian announcement was delivered at a press conference in Bogota, where the company’s CEO explained, “Starbucks has always admired and respected Colombia’s distinguished coffee tradition.”
→In August 2014, Starbucks opened their first store in Williamsburg, Brooklyn. This location will be one of 30 Starbucks stores that will serve beer and wine.
→In September 2014, it was revealed that Starbucks would acquire the remaining 60.5 percent stake in Starbuck Coffee Japan that it does not already own, at a price of $913.5 million.
→In August 2015, Starbucks announced that it will enter Cambodia, its 16th market in the China/Asia Pacific region. The first location will open in the capital city of Phnom Penh by the end of 2015.
Graph showing the growth in the number of Starbucks stores between 1971 and 2011
In early 2008, Starbucks started a community website, My Starbucks Idea, designed to collect suggestions and feedback from customers. Other users comment and vote on suggestions. Journalist Jack Schofield noted that “My Starbucks seems to be all sweetness and light at the moment, which I don’t think is possible without quite a lot of censorship”. The website is powered by Salesforce.com software.
Corporate governance
Howard Schultz, CEO of Starbucks
Starbucks’ chairman, Howard Schultz, has talked about making sure growth does not dilute the company’s culture and the common goal of the company’s leadership to act like a small company. Howard Schultz served as the company’s CEO until 2000. Orin C. Smithwas President and CEO of Starbucks from 2001 to 2005.
In January 2008, Schultz resumed his roles as President and CEO after an eight-year hiatus, replacing Jim Donald, who took the posts in 2005 but was asked to step down after sales slowed in 2007. Schultz aims to restore what he calls the “distinctive Starbucks experience” in the face of rapid expansion. Analysts believe that Schultz must determine how to contend with higher materials prices and enhanced competition from lower-price fast food chains, including McDonald’s and Dunkin’ Donuts. Starbucks announced it would discontinue the warm breakfast sandwich products they originally intended to launch nationwide in 2008 and refocus on coffee, but they reformulated the sandwiches to deal with complaints and kept the product line.
As of January 2015, the chief operating officer of Starbucks was Troy Alstead, though at that time he announced he was taking an extended leave of absence of undetermined length. Subsequently, Kevin Johnson was appointed to succeed Alstead as president and COO.
In October 2015, Starbucks hired its first Chief Technology Officer, Gerri Martin – Flickinger, to lead their technology team. Starbucks maintains control of production processes by communicating with farmers to secure beans, roasting its own beans, and managing distribution to all retail locations. Additionally, Starbucks’ Coffee and Farmer Equity Practices require suppliers to inform Starbucks what portion of wholesale prices paid reaches farmers.
SWOT Analysis
STRENGTHS AND WEAKNESSES
→Starbucks Corporation owns an extensive brand portfolio. At the same time, all brands belonging to Starbucks portfolio including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos are popular non-alcoholic drinks and beverages of premium class.
→Starbucks is able to apply its competitive advantage and extensive experience in the promotion and sales towards each product within its portfolio thanks to the shared features of these products associated with high quality for a premium price.
→Starbucks revenues and consolidated operating income amounted to USD 16.4 and USD 3.1 billion respectively during the fiscal year of 2014. The company’s current solid financial position can play an instrumental role in terms of engaging in R&D and withstanding the periods of economic difficulties such as the global economic and financial crisis of 2007 – 2009.
→Despite the presence of the business in 65 countries, revenues generated from Americas operating segment accounted for approximately 73% of total revenues for the fiscal year 2014.
→Such an extensive dependence of the business on home market marks a point of vulnerability in a way that recessions and economic difficulties in the US is going to have negative effects on the overall performance of the business to a significant extent.
→There is a consensus among customers and industry analysists that Starbucks coffees and other beverages and foods are more expensive compared to the products the majority of other coffee house chains.
OPPORTUNITIES AND THREAT
→The company has an opportunity to expand its supplier network and expand the range of suppliers from whom it sources in order to diversify its sources of inputs and not be at the mercy of whimsical suppliers.
→The company has a huge opportunity waiting for it as far as its expansion into the emerging markets is concerned. With a billion consumers likely to join the pool of those who want instant coffee and breakfast in China and India, the company can expand into these countries and other emerging markets, which represents a lucrative opportunity for the taking.
→Starbucks also has the opportunity to expand its product offerings to take on the full spectrum food and beverage retailers like McDonald’s and Burger King as the consumer segment which these retailers target is expanding leading to more business opportunities for Starbucks to take advantage of.
→The company can significantly expand its network of retail stores in the United States as part of its push towards greater market share and more consumer segments.
→This opportunity ties in with the other opportunities described above related to the expansion into newer markets, diversifying into newer consumer segments, and increasing its footprint across the US and globally.
→The company faces threats from the rising prices of coffee beans and is subject to supply chain risks related to fluctuations in the prices of this key input. Further, the increase in the prices of dairy products impacts the company adversely leading to another threat to its profitability.
→The company is beset with trademark and copyright infringements from lesser-known rivals who wish to piggyback on its success. As with other multinational retailers in the emerging markets, Starbucks has fought litigation against those misusing its brand and famous logo.
→The company faces intense competition from local coffeehouses and specialty stores that give the company a run for its money as far as niche consumer segments are concerned. In other words, the company faces a tough challenge from local stores that are patronized by a loyal clientele, which is not enamored of big brands.
→Starbucks has to expand into emerging markets as a necessity as the developed markets that it has traditionally relied on are saturated and given the fact that the ongoing recession has made the going tough for many retailers, it faces significant threats from this aspect.
PESTEL Analysis
Political Economic
→The main political factor is about sourcing the raw materials. This has gathered a lot of the attention from politicians in the West and from the source countries. For this reason, the company wants to adhere to social and environmental norms. It is willing to follow the sourcing strategies. It gives importance to fair trade practices.
→Another impact is the need to follow the laws and regulations in the countries from where Starbucks buys the raw materials. Activism and increased political awareness in developing countries have made his essential.
→The regulatory pressures within the home market in the US are also a factor. Multinationals based in the US are now subject to greater scrutiny of the business processes. The company must monitor political stability within the country as well. Some of the factors to consider are including Tax policy and Employment law.
→This has convinced buyers to shift to cheaper alternatives. As they did not quit buying coffee, Starbucks should seek an opportunity here.
→The ongoing global economic recession is the prime external economic driver for Starbucks. As I already mentioned, this factor dented the profitability of Starbucks.
→The company has to deal with rising labor and operational costs. The inflationary environment and falling profitability is causing a lot of stress.
→Some other economic factors which can affect Starbucks are local currency exchange rates and local economic environment in different markets.
Social-Cultural Technological
→As already stated, Starbucks can offer cheaper products but it might have to sacrifice the quality. This is the main socio-cultural challenge that the start-up faces.
→It will expand consumer base to include the buyers from the lower and the middle-income tiers.
→The “green” and “ethical chic” consumers are also concerning. They fret about social and environmental costs of the brands. Starbucks has to be aware of this trend.
→The baby boomer generation is retiring. This means spending by older consumers will decrease. Now, Starbucks will have to tap the Gen X and the Millennials as customers.
→Starbucks is in a good position to enjoy benefits of the emerging mobile wave. Its partnership with Apple to bring app based discount coupons is helping it ride the mobile wave easily.
→The company introduced Wi-Fi capabilities in its outlets already.  Internet is important to the consumers. They can now surf the web and do work while sipping Starbucks coffee. This is an added value to the brand. It enhances the overall consumer experience.
→Starbucks is also enabling mobile payments. They are testing this in pilot locations in the US.
→Some other technological factors to keep in mind are emergence of innovative technology, biotechnological developments and evelopments in agriculture.
Environment Legal
→Many Starbucks business practices concern activists and international advocacy groups. Even the consumers have expressed issues.
→The company should take these into account to continue holding consumers’ trust.
→Some of the other environmental factors Starbucks should worry about are:
i.Environmental rules and regulations
ii.Environmental disasters in countries which produce coffee beans
iii.Global warming and other environmental issues in a global level
Starbucks must ensure that it does not violate any laws and regulations in the home market and countries from where they buy raw materials.
It should also stay alert about introduction of caffeine production and consumption related policies and regulations by health authorities.
Others factors that might affect the company are:
a.Introduction of stricter customs and trade regulations
b.Licensing regulations related to the industry.
BCG Matrix