Porter's Model - Starbucks
Case Study: Starbucks
• Analyze Starbuck’s industry environment using Porter’s Five Forces Model. Is it attractive or unattractive overall? Which of the five forces is the most important threat to Starbucks and why?
Industry Definition – this is an industry of specialty coffee retailing.
Threat of Entry
Cost Advantages – Yes (since profit margins can be improved based on the point at which the business defines the transfer of the good to the customer – for e.g. for a retail store creating the entire coffee drinking experience, that would increase the overall profit margin as compared to selling the coffee powder to the supermarket or a grocery store – this flexibility of investment versus return presents a high cost advantage. Also cost advantages can be created through expertise in getting good deals on business essentials such as retail space lowering lease costs, supplier long-term contracts that lower the cost of procuring coffee beans…etc).
Government Policy – Not a factor (though price confirmations and, to that extent, availability depends on political and regulatory environments, it is still not a major enough factor with regards to coffee and its retailing since it operates under near-to-free market conditions.)
Economies of Scale – Moderate (this is pretty much dependant on the business model of whether it is an one-store establishment or a targeted chain for regional, national, and eventually international presence. A network of coffee outlets would result in the business being a high volume buyer of coffee eligible for price discounts from the suppliers but still it is not significant enough to prevent small start-ups from entering the market since they can possibly provide more focused, customized service and unique character, thereby charging a premium on their value-additions that could not be otherwise obtained in a standardized chain of outlets run by the big players.)
Capital Requirements – Moderate (this
• Analyze Starbuck’s industry environment using Porter’s Five Forces Model. Is it attractive or unattractive overall? Which of the five forces is the most important threat to Starbucks and why?
Industry Definition – this is an industry of specialty coffee retailing.
Threat of Entry
Cost Advantages – Yes (since profit margins can be improved based on the point at which the business defines the transfer of the good to the customer – for e.g. for a retail store creating the entire coffee drinking experience, that would increase the overall profit margin as compared to selling the coffee powder to the supermarket or a grocery store – this flexibility of investment versus return presents a high cost advantage. Also cost advantages can be created through expertise in getting good deals on business essentials such as retail space lowering lease costs, supplier long-term contracts that lower the cost of procuring coffee beans…etc).
Government Policy – Not a factor (though price confirmations and, to that extent, availability depends on political and regulatory environments, it is still not a major enough factor with regards to coffee and its retailing since it operates under near-to-free market conditions.)
Economies of Scale – Moderate (this is pretty much dependant on the business model of whether it is an one-store establishment or a targeted chain for regional, national, and eventually international presence. A network of coffee outlets would result in the business being a high volume buyer of coffee eligible for price discounts from the suppliers but still it is not significant enough to prevent small start-ups from entering the market since they can possibly provide more focused, customized service and unique character, thereby charging a premium on their value-additions that could not be otherwise obtained in a standardized chain of outlets run by the big players.)
Capital Requirements – Moderate (this