2. Porter’s Five Forces is a model named after Michael E. Porter
that takes into consideration five market forces that play out
on any given company or industry. The five forces are: power
of buyers; power of suppliers; threat of substitutes; threat of
new entrants; and industry jockeying.
This model examines these forces thereby helping to
determine a given company’s strengths and weaknesses.
Porter’s Five Forces is also a way to view the potential risks to
which any given company may be exposed.
Porter’s is a valuable yet somewhat subjective tool. It is a
starting point meant to encourage further discussion.
What is Porter’s Five Forces?
3. Please note there is no official method to score the model.
This method is simply a way to further categorize companies.
Each market force is scored on a scale of 1 – 5 with 1
representing the lowest threat and 5 representing the highest
All five forces are totaled for a final score. The lowest possible
score is 5 and the highest possible score is 25.
implies a lower threat rating.
implies a medium threat rating.
implies a higher threat rating.
4. Power of Buyers
The buyers are consumers like you and me.
There are zero switching costs when it comes
to SBUX and restaurants in general.
SBUX does have a modicum of pricing power;
they’ve demonstrated this many times.
SBUX’s specialty is on the beverage side, this
is where consumers are more likely to remain
loyal. Food not so much.
Throughput and the in-store experience are
crucial. More drive-thrus are a good example.
Coffee’s addictive nature can at times result
in “less than rational” consumer decisions.
Score – 4
5. Power of Suppliers
Suppliers provide the commodities and
materials for what SBUX sells.
Coffee is the primary input cost, “high
altitude arabica” runs at a premium.
Fixed-price and price-to-be-fixed contracts;
SBUX operates farmer support centers in 6
countries to aid best practices, etc.
Dairy, paper, plastic are major inputs;
relationships with providers are strong,
diverse. From the 10-K: “the risk of non-
delivery of these items is remote.”
Given SBUX’s scale and status diversity with
suppliers is strong; suppliers benefit from the
Score – 2
6. Threat of Substitutes
There are substitutes for all of these. Let’s
break down this threat into three main
categories: coffee; tea; and food.
Tea: Tazo and Teavana are powerful indeed,
but there are plenty of substitutes. – 5
Food (including juice): Think about how far
Starbucks has made it without ever really
nailing the food part. I’m skeptical it will ever
be truly known for its food. – 5
Coffee: This is its bread and butter. As a
coffee-lover & SBUX loyalist. I don’t think the
threat here is as great, but it certainly still
exists. Particularly in channel dev. – 3
Score – 4
7. Threat of New Entrants
Does this industry offer up attractive market
Restaurant concepts come and go and there
is always someone claiming to do it better.
Would the company fare as well without
Schultz and Alstead at the helm?
There are tremendous economic barriers to
reach the scale SBUX has reached.
Today I would also argue the tech barrier
exists given the success of SBUX’s mobile
How does a competitor come in today and
Score – 2
8. Industry Jockeying
Market leading position for SBUX a huge
advantage at this stage.
SBUX’s focus on coffee a plus, however still
opportunities in food and tea.
Café cultures, single serve market are
examples of opportunities in the market.
Starbucks has led the way in ecommerce,
mobile and social media presence.
Sales growing faster than SG&A; SG&A as a %
of sales down 440 bps since 2009.
SBUX must continue to innovate, try new
things. LA store offering burgers is an
Score – 3
9. Power of Buyers – 4
Power of Suppliers – 2
Threat of Substitutes – 4
Threat of New Entrants – 2
Industry Jockeying – 3