Essay: Starbucks SWOT analysis

Strengths
The Starbucks Company distributes its products through many alternative channels to reach its customers. The company’s products are distributed through domestic and international distributor channels, as well as coffee shops. The domestic distribution channel distributes the products through the grocery stores, wholesale stores, independent retailers and internet retailers. Internationally, the company distributes its products to over 6 different continents. Starbucks ships directly to grocery stores and specialty stores through its joint ventures in Asia, also through its subsidiaries in North and South America, Europe, and Africa. Starbucks also sells to foreign distributors, who in turn distribute the fresh coffee to grocery stores, independent retailers and specialty stores. Additionally, in some countries and territories across Asia, South America, Africa, the Middle East and Australia. In addition, Starbucks receives royalties from licensees, who manufacture and distribute its products outside the US. Distribution through coffee shops is pursued under three retail formats: concept store, factory stores and warehouse stores. Furthermore, e-commerce promotes and sells the company’s products providing convenient alternative shopping experiences. Presence in multiple distribution channels is an advantage as it enables the company to quickly adapt to the changing customer preferences. Also, the addressable market increases as the company will be able to better serve the varied preferences of the customers. Starbucks is optimally positioned across several formats facilitating such flexibility and large customer base.
Starbucks has positioned each of its product categories to successfully cater to the lifestyle requirements of different age groups. The company targets the white collar, blue collar class, the rich and the poor, the young as well as the old. Those who don’t even like coffee can find something to enjoy. Substantially all its products appeal to the broader range of five to 90 year old consumers, with an exclusive selection for teas, snacks and other non-coffee items. The company offers multiple products for men, women and children. Since the introduction of Starbucks, Pike Place Market Seattle,WA, the company has expanded its product offerings for different customers.
Weakness
The company excessively depends on few customers for majority of its revenues. The five largest customers of Starbucks accounted for 10.5%, 11.3%, and 14.6% of the total net sales in FY2017, FY2016 and FY2015. No other customer accounted for more than 10% of net trade receivables at December 31, 2017 and 2016. Even though the company has long-term relationships with many of its customers, the absence of any contractual obligations with its customers can be a potential drawback to the company. Furthermore, consolidation, contractions and closings in the retail industry might result in loss of customers or the company’s inability to collect accounts receivable of major customers. Therefore, excessive dependence on few customers could significantly affect the company’s margins and limit its bargaining power.
Opportunities
Starbucks products are sold in over 170 countries and territories in the world. The company operates in Europe, Canada, South America and Central America, Japan, China and Hong Kong, Malaysia and Singapore, India, Israel and South Korea, among others, through subsidiaries and joint ventures. The company also sells to foreign distributors, who distribute its products to stores and specialty retail stores in certain countries and territories across Asia, South America, Africa, the Middle East and Australia. In FY2017, Starbucks continued to focus on improving its international operations by increasing its shelf space and customer base, as well as by increasing its product offerings within each country. The company also focused on expanding its international retail distribution channel by opening 39 additional company-owned stores internationally and 41 more company-owned domestic stores. Additionally, as part of its ongoing efforts to enhance its growth in key markets, the company expanded its direct distribution by transitioning its international distributors in Israel and South Korea to joint ventures.
Threats
Increasing manpower costs could have an adverse effect on the company’s margins. It implemented several initiatives to expand its presence, which requires increasing its employee base. However, increasing manpower costs could impact its stability and operational efficiency. The tight labor markets, government mandated increases in minimum wages and a higher proportion of full-time employees could result in an increase in labor costs. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). As of January 2018, the minimum wage rate in the US was US$7.5 per hour. The minimum wage rate in 29 states and the District of Columbia is more than the federal rate. These wages range from US$11 in Massachusetts, US$8.25 in Florida, US$8.25 per hour in Illinois, US$9.25 per hour in Michigan, US$9.25 per hour in Maryland, US$10.1 per hour in Hawaii and Connecticut and US$10.5 in California. The minimum wage in the District of Columbia reached US$12.5 per hour.
Starbucks operates in a highly competitive industry. In the specialty coffees, teas and food category’s, it competes with Costa Coffee, McDonalds, Dunkin Donuts, Café Coffee Day, Independent Fast food chains & bakeries. In the tea lifestyle Tazo, Twinings, Dilmah. Starbucks also competes with numerous manufacturers, importers and distributors of coffee’s and tea’s for the limited shelf space available for the display of such products to the consumer. The company faces stiff competition from these companies based on style, price, quality, comfort, and brand recognition, among others. Therefore, intense competition could lead to pricing pressures and, in turn, reduce Starbucks’ margins.
2019-3-16-1552765988