Starbucks Porter's five Forces Analysis & Porter's Value Chain

1. MUHAMMAD ILHAM
P74155
Starbucks
Porter’s Five Forces Analysis & Porter's Value Chain

2. Company Background
Starbucks started in 1971 when three academics: English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker, opened a store called Starbucks Coffee, Tea, and Spice in Seattle. These three partners shared a love for fine coffees and exotic teas and believed they could build a clientele in Seattle much like that in the San Francisco. Starbucks Coffee Company is a global coffee company and a coffeehouse chain headquartered in Washington, the US and the company has generated a consolidated revenues of $14.9 billion during 2013 with more than 200,000 partners, referred to as employees (Starbucks Annual Report, 2013).

3. Starbucks Porter’s Five Forces Analysis
Porter’s Five Forces represents theoretical framework that is used for industry analysis and strategy development. Specifically, the five forces shaping competition within the industry consist of the intensity of rivalry among the competitors, the risk of entry of new competitors, the bargaining power of buyers, bargaining power of suppliers and the threat of substitute products and services.

4. Starbucks Porter’s Five Forces Analysis
The nature of the relationships among these forces is best presented in the following figure :

5. Starbucks Porter’s Five Forces Analysis
 Rivalry among existing competitors
Rivalry among existing competitors is high within the industry Starbucks operates in with major competitors like Costa, McDonald’s, Caribou Coffee, and Dunkin Donuts and thousands of small local coffee shops and cafes.
 Starbucks Bergaining Power of Suppliers
Starbucks customers possess large amount of bargaining power because there is no and minimal switching cost for customers, and there is an abundance of offers available for them.

6. Starbucks Porter’s Five Forces Analysis
The Threat from Substitutes
The threat of substitute products and services for Starbucks is substantial. Specifically, substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy drinks, whereas pubs and bars can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work environments.

7. Starbucks Porter’s Five Forces Analysis
Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas. Moreover, the issues associated with African coffee producers being treated unfairly by multinational companies are being resolved with the efforts of various non-government organisations, and this is contributing to the increasing bargaining power of suppliers.
Starbucks Bargaining Power of Buyers

8. Starbucks Porter’s Five Forces Analysis
The Threat of New Entrants to the industry to compete with Starbucks
However, the threat of new entrants to the industry to compete with Starbucks is low, because the market is highly saturated and substantial amount of financial resources associated with buildings and properties are required in order to enter into the industry

9. Starbucks Porter's Value Chain Analysis
Value chain analysis allows the firms to understand the parts of its operations that create value and those that do not. Understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create the value.
Business’s inbound logistics, operations, marketing and sales, outbound logistics, and service are considered as primary activities in value-chain as they are involved in value creation in a direct manner. Support activities in value creation, on the other hand, include infrastructure, human resources management, and procurement.

10. Starbucks Porter's Value Chain Analysis
Figure in value-chain analysis the business activities :

11. Starbucks Porter's Value Chain Analysis
As it is seen from the figure above in value-chain analysis the business activities are divided into two categories: primary activities and support activities. The primary activities directly deal with the creation of products or services, whereas, support activities can be used to obtain or increase competitive edge in the marketplace.

12. Starbucks Porter's Value Chain Analysis
PRIMARY ACTIVITIES
INBOUND LOGISTICS
Starbucks inbound logistics involve company agents choosing coffee beans producers mainly in African continent, communication the standards related to the quality of coffee beans, establishing strategic relationships with suppliers and organising the supply-chain management.

13. Starbucks Porter's Value Chain Analysis
OPERATIONS
Starbucks operations are conducted in more than 50 countries in two ways: direct operation of the stores by the company and licensing. Currently there are 8870 company-operated stores globally, whereas 8139 stores operate on the basis of license.
OUTBOUND LOGISTICS
The outbound logistics for Starbucks has traditionally involved selling its products through its stores without any intermediates. However, starting from recent a range of Starbucks products such as 3-in-1 coffees in sachets are being sold through a set of leading supermarkets.

14. Starbucks Porter's Value Chain Analysis
MARKETING AND SALES
Starbucks does not heavily invest in marketing relying instead on the word-of-mouth achieved through the high quality of products and high level of customer services. However, occasional marketing activities initiated by the company involve sampling of new products that are usually conducted within areas nearby the stores.
SERVICE
Providing superior level of customer services is one of the main objectives of Starbucks and it is driven from the mission statement of the company. The company staffs are encouraged to go greater lengths in order to ensure high level of customer satisfaction.

15. Starbucks Porter's Value Chain Analysis
 SUPPORT ACTIVITIES
INFRASTRUCTURE
Starbucks infrastructure includes a range of general support activities such as “management, planning, finance, accounting, legal support and government relations that are required to support the work of the entire value-chain”.
HUMAN RESOURCE MANAGEMENT
The workforce is duly perceived to be the most valuable resource by Starbucks. Accordingly, a wide range of training and development programs are available for them and they are motivated by both, tangible and intangible incentives. Specifically, in UK Starbucks staff is entitled to free drinks during the shift.

16. Starbucks Porter's Value Chain Analysis
TECHNOLOGY DEVELOPMENT
Starbucks relies on technology for cost-saving purposes, as well as, ensuring the consistency of the quality of products and offering a high level of customer experience in general. For instance, with the introduction of computerised coffee roasters the consistent taste of Starbucks coffee was ensured and this has contributed to the level of customer retention for the company.
PROCUREMENT
This involves purchasing items that are needed for the production of final products or offering services. For Starbucks it would be coffee beans and raw food items, as well as fixed assets such as buildings, machinery etc.

17. References
1.Clark, T. (2007) Starbucked : A Double Tall Tale of Caffeine, Commerce and Culture, Little, Brown and Company, New York.
2.Garza, George, (2010). “The history of Starbucks.” Catalogs.com. Catalogs.com, n.d. Web. 7 Jun 2010.
3.Hoovers (2010); Starbucks Corporation, Company Description.
4.Porter M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance, N. York: The Free Press.