Starbucks Industry Case
Porter’s Five Forces Analysis of Starbucks
Although Starbucks may currently be considered the king of coffee, the company is continually mitigating the potential threats in its fierce competitive environment. With regard to Starbucks’ existing rivals, the company faces little competition in the upscale coffee shop industry with its biggest competitor being Panera Bread Company. The true threat from existing competition comes from other coffee beverage retailers such as Dunkin’ Donuts, Krispy Kreme, and McDonald’s “McCafe” shops. These lower-end coffee vendors threaten Starbucks’ continual success by offering a less expensive product.
Besides these major competitors, Starbucks also faces the threat of consumer substitution for its products. Many coffee drinkers now use pods and home coffee makers for convenience reasons, which may hurt in-store purchase metrics. This poses a big issue because the company’s global growth relies heavily upon increasing in-store sales. Substitutes for Starbucks products also include teas, juices, and energy drinks, while bars and other local coffee shops may provide something similar to the “Starbucks Experience.”
On the other hand, it would be difficult for potential new competitors to enter the coffee industry and compete on Starbucks’ level. The Starbucks brand is well-known and many barriers may preclude entrants from reaching similar worldwide success. Although few substantial ongoing costs would deter new entrants, entering the coffee industry and contending on a large scale with Starbucks would necessitate a large capital investment.
The bargaining power of Starbucks’ customers is relatively high. There is an abundance of competitors in the coffee industry to which customers could take their business if prices increased substantially, and switching costs are virtually nonexistent. However, because Starbucks follows a product differentiation strategy and evokes great brand image and loyalty, many Starbucks customers are not
Although Starbucks may currently be considered the king of coffee, the company is continually mitigating the potential threats in its fierce competitive environment. With regard to Starbucks’ existing rivals, the company faces little competition in the upscale coffee shop industry with its biggest competitor being Panera Bread Company. The true threat from existing competition comes from other coffee beverage retailers such as Dunkin’ Donuts, Krispy Kreme, and McDonald’s “McCafe” shops. These lower-end coffee vendors threaten Starbucks’ continual success by offering a less expensive product.
Besides these major competitors, Starbucks also faces the threat of consumer substitution for its products. Many coffee drinkers now use pods and home coffee makers for convenience reasons, which may hurt in-store purchase metrics. This poses a big issue because the company’s global growth relies heavily upon increasing in-store sales. Substitutes for Starbucks products also include teas, juices, and energy drinks, while bars and other local coffee shops may provide something similar to the “Starbucks Experience.”
On the other hand, it would be difficult for potential new competitors to enter the coffee industry and compete on Starbucks’ level. The Starbucks brand is well-known and many barriers may preclude entrants from reaching similar worldwide success. Although few substantial ongoing costs would deter new entrants, entering the coffee industry and contending on a large scale with Starbucks would necessitate a large capital investment.
The bargaining power of Starbucks’ customers is relatively high. There is an abundance of competitors in the coffee industry to which customers could take their business if prices increased substantially, and switching costs are virtually nonexistent. However, because Starbucks follows a product differentiation strategy and evokes great brand image and loyalty, many Starbucks customers are not