Starbucks Corporation, an American company, founded in 1971 in Seattle, WA, is a premier roaster, marketer and retailer of specialty coffee around the world. Starbucks has about 254,000 employees. In the US Starbucks employs 170,000 staff in company-operated stores and support facilities. More than 84,000 employees work outside the US in its stores and other licensed to third parties stores. The company has over 25,000 stores in 75 countries with combined revenue of more than $21 billion. It is the largest roaster and retailer of specialty coffee in the world. Their product mix includes roasted and handcrafted premium priced coffees, tea, a variety of fresh food items and other beverages (Starbucks Coffee Company 2015). They sell their products in company-operated stores as well as franchised stores around the world. The company’s operations are organized into four geographical zones; Americas (which comprises of the United States, Canada, and Latin America), Europe, Middle East and Africa (EMEA), China/Asia Pacific and finally Channel Development. Starbucks also markets its products mix in brand names including Starbucks Coffee, Teavana, Tazo, Seattle’s Best Coffee, and Starbucks VIA, Evolution Fresh, La Boulange and Ethos (Starbucks Corporation Pg 5).
1.1 Starbucks PESTLE Analysis
PESTLE analysis is an analytical tool used for strategic business planning, marketing planning, business and product development, and research reports. Companies use this concept to keep track of the environment they operate in. The concept identifies the macro-environment factors that affect the business strategic planning process. These macro-environment factors affect an organisation’s operations for a long time and usually are out of control of management (Murray et al Pg 88). Organisations that continually analyse the macro-environmental factors and respond accordingly are able to differentiate from competition and create a competitive advantage.
PESTLE is a mnemonic that denotes P for Political, E for Economic, for Social, T for Technology, L for Legal and E for E for Environmental. The results for PESTLE analysis are used to identify threats and weaknesses under the Strength, Weaknesses, and Opportunity and Threats (SWOT) analysis.
Key macro-environmental factors affecting Starbucks
Starbuck is the largest and most successful coffeehouse chain in the world operating 25,000 stores both directly and under franchise agreements. The brand has gained global recognition because of excellent and quality leadership, focus on ethics and excellent supply chain management. Starbucks has an excellent customer service and an appealing environment that contributes to its competitive advantage (Starbucks Coffee Company, 2018). However, there are external factors affecting the way the company operates and are as illustrated in the above diagram.
1.2 Political factors
These factors largely explain the way the government is influencing operations of Starbucks as it runs the economy. This can include the government’s policy on taxation, foreign trade policy, labour laws, and environmental legislation, political stability/instability, and trade restrictions. Besides, the government has a profound impact on infrastructure, health regulation and education system. Starbucks sources its supplies from various countries, and political disruptions in these countries can have a significant effect on its operations. Similarly, the company has opened stores in over 75 countries, and political stability in these countries has ensured continued sales and profitability. As more governments continue to improve infrastructure, it provides stability of supplies without disruption and opens up more opportunities for the company to set up stores. Bureaucratic red tape, especially in the developing countries, concerning acquiring the necessary approvals to opening stores, makes it difficult for the company to expand geographically.
There is an imperative need to adhere to the laws and regulations in the countries where it operates stores and sources its supplies is necessitated by the increased activism and improved political awareness, especially in the developing countries. Another political factor is the increased scrutiny the company faces in the United States has an added regulatory pressure.
The safe drinking water and toxic act require businesses to provide warning labels on their packing when exposing consumers to harmful chemicals like acrylamide, which are considered dangerous to the human body. This act is a significant threat to coffee sellers and could negatively influence Starbuck’s profitability in the future.
Republican tax law reduced a federal tax rate from 35% to 21% in the United States. This reduction provides an opportunity for businesses in the US to improve their sales and margins. The corporate tax rate reduction is a great incentive for companies to invest in the US. Reduced tax rates could attract potential competitors into the Coffee selling business. Thus, Starbucks has to position itself to maximise the gains on the tax rate reduction, gain strength and face possible added competition.
1.3 Economic factors
Economic factors have a significant impact on the way Starbucks conducts its business. These factors include interest rates, exchange rates, the law on imports economic growth, the rate of inflation, disposable incomes of the consumers and businesses. These factors create pressures on companies. Economic factors can further be broken into micro-economic and macro-economic. Micro-economic factors involve factors of resource availability and usage that influence businesses and individuals. Macroeconomic factors deal with the management of demand in a given economy. The various mechanisms used by the government include interest rate control, taxation policy, and government expenditure (Yuksel Pg 52).
Starbucks sources its coffee from various countries and needs to be aware of the different import laws. Moreover, fluctuating inflation rates could affect the purchasing power of consumers’ disposable incomes. The demand and supply curve affect the prices of coffee, and thus Starbucks has to settle on a pricing policy that takes into account these market movements. An increase in the demand for coffee causes the prices of coffee to increase, for both the raw materials and the drink. An increase in the price of coffee substitutes such as water, juice, and tea causes an increased demand for coffee and a decline in the prices of alternatives caused a decreased coffee demand.
The economic situation affects the purchasing ability of the customers and in turn affect the firms’ sales and profitability. This situation also affects the prices of raw materials and labour. Starbucks was stricken by the economic crisis of 2008 and 2009, as more of its customers could not afford the premium price coffee. The result was a 28% reduction in net revenues as compared to the year 2007, and the company had to close at least 900 stores and lay off 6,700 employees, directly because of the crisis.
A growing economy creates business opportunities for US businesses including Starbucks. The growing economy implies that more people will have additional disposable income and thus more spending that will boost the sales of the company.
Currency exchange rate fluctuations are another economic factor that Starbuck has to consider in its policies. A rise in USD leads to lower revenues from overseas, as the income from overseas has to be converted into USD. In 2015, a strong USD resulted in a decline of 2% of the total revenues.
China’s economy provides an enormous opportunity for Starbucks. The forecast shows that China’s GDP will grow by $13.2 trillion in 2018 and its expanding middle class will hit 600 million by 2021. This growth will create an enormous pool of clients who can afford the Starbucks premium priced products.
The sustained economic growth of developing countries provides an opportunity for Starbucks to grow its revenue base. Labour costs in these developing countries are on the rise which increases the company is spending on the raw materials (Clegg Pg 59).
1.4 Social Factors
These factors are also known as socio-cultural factors, focus on the social environment, and identify emerging trends. Social factors focus on demographic factors, norms, customs and values of the community in which a firm operates. The population trends include health consciousness, lifestyle attitudes, income distribution, and cultural barriers (Starbucks Coffee Company, 2018).
These factors have an impact on the profitability of a business. A large segment of the Starbucks customers in the US is composed of professional customers. Besides, as the large proportion of the population in the US is aging, retiring professionals will form a significant segment of the market for the company. This demographic means that Starbucks has to adjust its products range and shift clientele focus to millennials.
Millennials provide an attractive market for coffee retailers like Starbucks, and it must work on how best to retain this group of the population. Millennials behaviour and attitude is the critical driver in the coffee industry (Jeffs Pg 93).
Starbucks provides access to healthcare to its staff, free college education, and even stock options. The company has continued to contribute to social causes including support for same-sex marriages, gun control, race, and ethnic income inequalities and support for military veterans.
Starbucks must address these factors in its microenvironment; the elements include a growing coffee culture, increased health consciousness by the clients, and the ever increasing middle class. The factors also present an opportunity for the company to grow its sales and profitability as it addresses the increasing demand for specialty coffee as the coffee culture deepens among the growing middle class. In response to the growing middle class, Starbucks has rolled out a programme called Starbucks Reserve Roastery, and the idea is to have a premium priced coffee for high-end coffee stores where a cup of coffee will retail at $12. The company plans to open three high-end super-premium café by the end of 2018.
1.5 Technological Factors
These factors consider the rate of technological innovation and development that could affect a market or industry. These factors include the level of innovation, automation, changes in mobile and digital technology, research, and development. These factors could affect the management of Starbucks, as there may be new ways of producing roast coffee, new ways of distributing goods, and new ways of communicating with the target market (Lemus E. et al Pg 23). Starbucks has continued to use new and innovative ways to improve service delivery in their stores.
Technology provided an opportunity for the company to increase sales, customer loyalty, and improve on service delivery. Starbucks introduced its “value card” which allows its customers a convenient payment method. The company collaborated with Google to provide faster Wi-Fi in their shops that enable their customers to access new and information when connected in the store. The company developed a mobile application that allows its customers to order, pay, earn rewards and find stores. Sales via the use contributed to 6% of total sales in Q-4 2016.
These technological advancements continue to provide opportunities for Starbucks to improve its mobile applications and improve its revenues. The company also can improve its supply chain efficiencies through the technologies employed by coffee farmers.
1.6 Environmental factors
In recent times, there has been an increased emphasis on impacts of businesses on the environment. This is because of diminishing resources, pollution, and increased attention on the ethical and sustainable management of companies. As corporate social responsibility (CSR) gains importance, environmental factors have received considerable attention. The factors under consideration include climate, recycling procedures, waste disposal, and carbon footprint. An organization that is more environmentally responsible improves its brand popularity and its image. The result is usually increased brand loyalty by the clients (Starbucks Coffee Company, 2018).
Starbucks continues to invest in environmentally friendly products. The company uses the biodegradable material to replace plastic bottles that are hazardous to the environment. The company has emphasised on the usage of kitchen equipment that reduces consumption of natural gas. Starbucks also has collaborated with Conservation International and the environmental defence fund to support activities aimed at conserving the environment. The company gives its clients a 10% discount for the return of reusable cups to the cafes.
The company established Coffee and Farmer Equity (CAFÉ) initiative that help the farmers grow the crop in an environmentally friendly way; there are also farmers support centers in Africa and the Caribbean that help farmers with resources and expertise on coffee production.
Starbucks has also focused on Leadership in Energy and Environmental Design (LEED) certification. This certification is a tool for making its operations more sustainable. The company has over 1,000 stores in over 20 countries. The company has other sustainable efforts including water and energy conservation with efficient LEED fixtures, renewable energy, recycling and use of environmentally friendly materials.
The company takes pride in its environmentally friendly policies it has embraced over the years. However, there are accusations of failing to keep to its plans as it continues to use plastic cups despite its green cup initiative. Similarly, Starbucks has received criticism over its continued use of plastic straws despite the existence of the paper straw alternative.
1.7 Legal factors
Legal factors include employment legislation, health and safety, product safety, advertising standards, copyright and intellectual property law, data protection law, consumer rights and laws. Complying with the laid out laws is essential for businesses and more so for companies operating in a global environment. This compliance is because such companies face different requirements in different countries and need to keep abreast to any changes in legislation and the possible impact on the operations of the business.
Recently, a California judge made a ruling requiring coffee beverages branded with cancer warnings. These rulings pose a significant threat to the operation of Coffee marketers like Starbucks.
Starbucks is the largest retailer of coffee and reacted beverages in the world faces macro-environmental factors that affect its daily activities and the way its management devise its strategies for long-term survival. The administration must possess in-depth knowledge of these factors and respond accordingly.
These macro-environment factors include political factors, economic factors, social factors, and technological factors, environmental and legal factors. Each element discussed regarding how Starbucks reacts to it. Political considerations regarding regional integration and improvement of infrastructure by various governments present an opportunity for Starbucks, and it responded by opening additional stores and improved efficiency because of quick movement of coffee, its raw materials. However, bureaucratic processes in developing countries pose a challenge concerning the opening of stores in these countries.
Economic factors play a crucial role as they influence the core business of Starbucks. Key highlights include the reduction of the corporate tax rates in the United States is a significant opportunity for the company to boost its sales. China’s economic and population growth present an enormous opportunity for Starbucks to improve its revenues and profitability. However, the ruling requiring that the packaging of the beverage read health warning is a significant threat to the core business of Starbucks and likely to result in reduced margins. The company is among the best regarding operating ethically about environmental protection and environmentally friendly production methods. Likewise, the adoption of modern technology has enabled the company to reduce queues in its stores and at the same time increase sales with the approval of mobile application order.
Recommendations proposed aim at ensuring that Starbucks respond to the current threats it faces in the market, take advantage of the opportunities presented by the macro-environmental factors and grow its bottom line, strengthen its competitive edge, grow its brand to new heights and increase loyalty.
Starbucks should emphasize international growth outside of the United States.The opportunity presented by China is enormous, and the company should continue to open additional stores there. Growth in the United States must focus on the untapped rural population away from saturated urban centers. The potential for alternative products including tea and fresh juice is worth additional investments. Consumer tastes and lifestyle changes provide an opportunity of for health-conscious beverage products, and that area is gaining in importance going forward.
The mobile application business consisted of only 6% of total transactions in Q4-2016 and, so a recommendation for further aggressive marketing, building to streamlining ease of use and payment process and improved data protection mechanisms that would help drive more customers, decrease wait time in stores and increase efficiency. Another recommendation is a proposal to integrate Starbucks loyalty program with the mobile application.
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