Porter’s 5 Forces Analysis of Starbucks

Porter’s 5 Forces Analysis of Starbucks: Summary & Recommendations

Summary

Porter’s Five Forces Analysis has revealed the aggressive competition that is being faced by Starbucks. These forces are the collective effect of acting external factors. Pursuant to external factors, the strongest forces are competitive rivalry, customers’ bargaining power, and the risk of substitutes. That said there are other forces that act externally and influence Starbucks’ business and its performance.

1. Competitive rivalry poses a competition threat – Strong Force
2. Buyers’ relative bargaining power– Strong Force
3. Suppliers’ relative bargaining power – Weak Force
4. Substitutes or substitutional threats – Strong Force
5. New entrants’ threats – Moderate Force

Recommendations

Starbucks must devise its policy according to Porter’s Five Forces Analysis. To address the external corporate environment, the company must focus to enhance its strengths and associated capabilities of its corporate. One example is that the organization can instrument strategies that would make the brand and business tougher. The underlying factors for this policy are consumer and buyers’ existential bargaining power, competitive rivalry, and substitutional durable threats. As demonstrated, the company must undergo improvement in its competitive advantages based on the prevalent business environment. By way of illustration, the business can make the supply chain more diverse and robust. It would lead to boosted resource access besides production solidity. Aggressive market policies are also recommended to intensify the company’s consumer base.

Competitive rivalry poses a competitive threat to Starbucks (Strong Force)

The upsurge in rivals has led to increased competitive rivalry among the food products provider and coffeehouse businesses. It is easy to see these forces influencing the business atmosphere. The Porter’s Five Forces analysis model revealed the subsequent external factors which subsidize the forces of competition for Starbucks.

• A Great number of firms (strong force)
• Moderate variability of organizations (moderate force)
• Low switching expenses (strong force)

Starbucks corporation is facing competitors of varied sizes. This intense number of firms gives rise to an intensely competitive business environment. These varied competitors use diverse strategies and specialties to gain a competitive advantage. This situation further tightens the competitive environment in the business market. Evidently, the Five Forces analysis reveals that the rising competition owes to the deployment of varied strategies by the rivals to gain competitive strength. Furthermore, low switching costs on the consumer’s side strengthens competition. As an example, consumers suffered minimal disadvantage while shifting from one specific provider to the other. Overall, it may be said that competition is the prevalent and significant challenge shown by Porter’s Five Forces analysis. Starbucks Corporation responded to these competitive disadvantages by pursuing generic strategies and rigorous growth.

Starbucks’s Customers/Buyers bargain strength (Strong Force)

The next important factor shown by Porter’s Five Forces analysis is that Starbucks experienced a strong force of bargaining power from customers or buyers. The force is shaped by the influences of distinct customers or group customers in the transnational corporate environment. The solid bargaining force of customers acting externally is contributed by the following factors:

• Low switching expenses (strong force)
• Elevated accessibility of substitutes (strong force)
• Trivial size of independent buyers (weak forces)

This section of Porter’s model is exposing that the buyers’ bargain strength is a momentous force influencing the company. Furthermore, customers can shift their brands due to low switching costs. Moreover, the availability of high substitutes makes the forces of bargaining power of buyers even stronger. However, it is worth mentioning the impact on the company’s resources by individual buyers. They have a weak influence on corporate revenue due to their trivial size. Having said that the company still faces strong forces of customers’ bargaining power. Obviously, this analysis revealed that addressing the customers’ bargaining power must be an imperative strategic challenge. Starbucks’ successive policy of 5Ps strengthens the brand to tackle these forces’ challenges.

Starbucks Coffee’s Suppliers’ bargaining strength (Weak Force)

Porter’s Five Forces analysis exposed the feeble force of bargaining power accessible to suppliers. The influence exerted by Starbucks’ suppliers exerts weak bargaining power on suppliers in the industry atmosphere. The external factors listed below put up to the fragile suppliers’ bargain strength:

• Individual suppliers’ moderate magnitude (moderate force)
• Suppliers’ diverse availability (weak force)
• Supply’s extensive availability (weak force)

This component has revealed that Starbucks faces a moderate force as an external element. The reason for the moderation of this force owes to the high quantity of available suppliers in the market. As a case in point, suppliers use multiple strategies to compete with each other in order to get more business. This scenario has permeated a weak or moderate force as an external element to affect Starbucks. Overall, it may be said that the effect of this section of Porter’s Five Forces analysis revealed the weak force of suppliers to bargain. Starbucks minimized the supplier’s force threat by implementing PESTLE analysis. The diversification in the company’s supply chain minimizes the supplier’s bargaining force to a trivial level.

Substitution or Substitutes’ threat to Starbucks Goods (Strong Force)

The corporation has faced a strong force of substitution prevalent in the business environment. This analysis model has identified the threat of substitutes in providing products or services. The external factors that allow a competitive business environment are given below:

• High accessibility of substitutes (strong force)
• Low cost for switching (strong force)
• Substitute products’ easy affordability (strong force)

The high penetration of rival industries poses a serious threat to the sales of Starbucks Corporation. The availability of alternative food, beverages and services made it easier for the customers to shift their preferences. This led to increased competitiveness in the market. Especially, the easy access and availability of substitutes for Starbucks products like ready-made beverages, beverages powders, and sauces along with other food products contribute to an increase in the threat of the bargaining force of substitutes. Many of the available substitutes are less costly as compared to Starbucks products. To further escalate the forces of substitution is the low switching cost that leads customers to switch their preferences. Therefore, increasing the forces of substitution. Porter’s analysis has revealed that the company is facing a threat of substitution or substitutes. Shrewd strategic management is required to address these external factors.

The threat of New Entrants or New Entry (Moderate Force)

This section of the Porter’s Five Force analysis brought the threat of new entrants to Starbucks’ market rivalry. The company faces a moderate force of this external threat. The external factors which donate to the modest threat of newcomers in this industrial business are given below:

• Ease in doing business due to low-cost (moderate force)
• Modest supply chain expenses (moderate force)
• Costly brand growth (weak force)

The first factor mentioned is the low cost of business operations. The cost of running a business is related to the actual total of establishing a business and the cost required to operate a business. These resources are variable for operating a single coffeehouse in contrast to the operation of a coffeehouse business chain which requires abundant resources. Consequently, small-scale business models need minimum supply requirements and bear a cheap supply chain. The high cost of brand development hinders small-scale coffeehouse operators competing against big industries like Starbucks. They lack the time and resources to compete with big industries. The external factors impose a moderate effect on new entrants on the company. In a nutshell, this danger of substitution poses a limited threat to the company’s global position and business efficiency.