Analysis of Starbucks Corporation
Starbucks Corporation has been a major contender on the coffee market since opening its first store in 1971 – Pikes Place in Seattle, WA. The company grew exponentially into what is now a household name. Lead by creator and manager Howard Schultz the company was indefatigable. Overtime the company’s dynamic has changed and so has the base that it started with causing it to lose the luster it once has. The following is a SWOT analyze: an in depth discussion of the strengths, weaknesses, opportunities and threats that Starbucks Corporation faces.
Starbucks is a very successful company with a Return on Assets of 20.16% on October 1, 2017, compared to the industry’s return on assets of 8.3% in 2017. (Russel, n.d.; S &P Global, 2018). This is a major difference that helps to show how Starbucks controls the industry. Competitors like McDonald’s only have a return on assets of 16.02% on December, 31, 2017, and Dunkin’ Brands Group has a return on assets of 9.82% on December 30,2017. (Russel, n.d.) although both companies have a higher return on assets than the industry, Starbucks’ percentage is much larger. Starbucks has a current ratio of 1.25 on October 1, 2017, while the industry had a current ratio of 0.9 in 2017. McDonald’s had a current ratio of 1.85 and Dunkin’ Brands Group had a current ratio of 2.79, meaning both McDonald’s and Dunkin’ Brands Group had more current assets than current liabilities in 2017. (Russel, n.d.) where as Starbucks had more current liabilities than current assets. Starbucks had a debt to equity of 0.72 in October of 2017, when the industry had a debt to equity of .358. Starbucks’ competitor, McDonald’s, had a debt to equity that could not be calculated because its equity was less than zero. Dunkin’ Brands Group had a debt to equity of 364.05 in October of 2017. (Russel, n.d.). Starbucks was not the top company when it comes to debt to equity ratio, but they are the largest and most profitable coffee and tea company in the industry.
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Starbucks is one of the largest coffee distribution companies amongst us today. As stated on businessinsider.com, “Now, Dunkin’ is becoming more like the slightly-more-upscale starbucks with a major rebrand, starting with a name change” (Tyler J. 2018). Day by day, Starbucks popularity continues to expand and due to Starbucks high ranking status, most people would have never assume that Starbucks could be attacked by new third ranking coffee companies. As of today, there are other coffee companies that are ameliorating the quality of their products and services, such as Dunkin Donuts and McDonald’s McCafe. There are many ways the production of coffee, affordable prices, and impressive customer service from these third ranked companies could cause a negative impact on Starbucks.
To start, the expense of Starbucks coffee tends to be far more pricey than the other retailing companies. There are other coffee retailers that are offering their product for a much lower price which seems to be the same quality or better than Starbucks’. According to Porter’s Generic Strategy, “A firm could have lower costs than rivals. Having lower costs allows a firm more options to compete as it allows for the possibility of lower prices or similar prices as competitors put a higher margin.” (Mosley Jr. D. & Gillis W., 2013). From experience, Starbucks makes their customers coffee and food directly after their purchase. With this being said, customers usually have to sit and wait, for minutes, until the completion of their orders. Starbucks’ speed of production also ties in with their customer service and satisfaction. The coffee market is intensively competitive, so those who satisfy their customers by meeting their expectations could cause Starbucks to be in a rude awakening for a keen competition.
Starbuck’s is starting to become condemned due to their expensive prices. Other coffee companies are stealing their consumers because they are producing the same product at a reasonable price, with a more versatile menu. This could cause Starbucks to have a decrease in point of sale, which then leads to a drop in net income, investments, and supply of products. This matter acts as a domino effect because the shrink in income will cause a decline in employees’ salaries and will result in less employees. Another threat that Starbucks faces is a lost of customers due to their slow speed of service. “In the US, Starbucks faces direct competition from large competitors in the quick-service restaurant sector and ready to drink coffee beverage market” (Starbucks Corporation SWOT Analysis, 2018). Starbucks slow service could come from them having only one cash register, no drive thru, frozen foods that are not ready, and lack of scheduled workers. However, these impacts could possibly harm Starbucks clientele as well as the sales they make per day. There are ways that Starbucks could continue to grow from this issue and stay on top of the game in the coffee industry.
Notably, Starbucks Corporation faces ongoing challenges such as losing loyal customers to competition because of cost as well as delayed service. Namely, Starbucks is losing customers to competitors because of prices. Additionally, artisan coffee shops are appearing to cater to coffee connoisseurs in both the national and international market. (Cheng, 2018) Customers that do not patron coffee stores are buying gourmet coffee makers this leaves Starbucks out of the equation. The introduction of such shops are driving competition for Starbucks in the wrong direction. By introducing speciality shops of their own Starbucks will cater to a wider demographic of consumers, but it will not alienate its current, loyal customers. Artisan coffee is a specialized art and it is wise for the Starbucks Corporation to devote themselves to a wider audience. Moreover, it is recommended that Starbucks continue to expand their market internationally. Furthermore, there is virtually a starbucks on every street corner – leading to market saturation. The problem with market saturation is it takes business away from underperforming stores. (Mourdoukoutas, 2018) To resolve this issue, Starbucks Corporation should close its lowest 10% performing stores. For the remaining stores, it is instrumental that retaining and remodeling of the atmosphere occurs.
Patrons are frustrated by lengthy waits, to combat the issue the corporation has began mobile pay and ordering (Cheng, 2018). Patrons now have the option to order ahead of arriving to avoid the line. However, the influx of ordering online has created a new problem – crowded pick up stations. Discovering ways to satisfy both order in customers and dine in customers at the busiest time of the day is paramount, as when customers come in to see a long line and a crowded “pick up” station they leave believing they will not be served promptly. ( Taylor, 2017) It is important to note these are customers that have not ordered yet. To dissipate this a ?…“ rule should be implemented: a third of the baristas prepare order beverages, a third supply walk in customers, while the remaining attend to the overall duties of the store – this is contingent upon the size of the store and demand.
For decades, Starbucks had no competition in the coffee market. With the introduction of McCafe and Dunkin Donuts, the competitors have quickly gained grown on established Starbucks. Likewise, through the years Dunkin Donuts and McCafe has rebranded itself to appeal to its demographic market, while also earning new customers. The same cannot be said for Starbucks. If Starbucks intends to remain on the market, the company must invest in advertising and a new personal brand. Similarly, overseas, as Starbucks Corporation continues to expand locals are not enticed by the mediocre brand. To engage an overseas market the company must introduce an exciting agenda that is new to the oversea market. To start, the company must create a vision and involve the community of customers that have come to love Starbucks, while also engaging new customers. (Devault, 2018) For example, customers would be pleased to engage in online advertisement conducted through Instagram. Not only does displaying the vision for the company on social media entice new customers, but it allows loyal customers to feel like a part of the process. Additionally, allowing non-members to use the Starbucks application would greatly improve the image. Some feel that Starbucks is a luxury and exclusive entity. The culture today is inclusive, Starbucks corporation must rebrand as the culture rapidly changes.
Recent changes in the political and cultural climate should not have an impact on one’s happy place – their coffee house. However, this is untrue for Starbucks as the Corporation was forced to shut down all stores for a mandatory training after an incident in Philadelphia relating to a bathroom policy. (Swan, 2018) Customers prefer patroning businesses that do not have to close down to “retrain” staff on policies and customer service, businesses like Dunkin Donut. In order to maintain and satisfy the customer base, Starbucks should revert to Howard Schultz management style.