The presentation gives overview of specialty coffee market and highlights Starbucks position in the category and its business strategy with Porter's five forces analysis.

1. SPECIALTY COFFEE MARKET
ALOK SINGH

2. Company
 Founded in 1971, International coffeehouse chain
based in Seattle, Washington.
 16,120 stores in 49 countries; around 11,000 in US.
 Menu Items: Drip brewed coffee, espresso-based hot drinks, other hold and cold
drinks, snacks and other items such as mugs and coffee beans.
 Coffee beans and other products at grocery stores.
 In 2003, company made the fortune 500.

3. Facts
 In 1996, began to highlight small quantities of exceptional coffees with Starbucks
limited edition program.
 In 2004, offered the best single-origin coffees with a rare 100% Kona coffee.
 In 2010, the program evolved into Starbucks Reserve.
 In 2015, Founded Reserve Roastery and Tasting room with special/limited
availability coffees.

4. Single origin coffee
 Beans from a specific reason in a country where elevation, soil and temperature
have an impact on coffee’s flavor.
 Emulating wine-buying for selling single origin coffees in grocery –stores.
 Premium price: $11.99 for 10 ounce bag compared to $8.99 for other blends of
coffee in grocery stores.
 Effort to reach high end/premium customers.

5. Reserve Roastery and Tasting Room
 A 20 million Coffee Shop.(NY Times)
 A kind of mini Disneyland for Starbucks fans.
 15,000 square foot store devoted to beverage innovation and excellence.
 Seattle, Washington first of multi-city plan with Asia introduction stated in 2016.

6. Reserve Roastery and Tasting Room
 Roastery to catalyze growth of Starbucks Reserve Coffee expansion.
 Freshest, fastest and most innovative whole bean coffee experience in
marketplace.
 Customer can sign up for monthly subscription to receive small batch coffee
straight from the roastery
 Beans are fresher than those purchased in regular stores.
 One month subscription is $24 (1 bag – 8.8 ounce) and 1 year is $288.

7. Market Analysis
 Specialty coffee is fastest growing business and most appealing to younger adults.
 25-34 age group accounted for 25% of total specialty coffee and 10% of regular
coffee orders.
 65% of total consumers are more likely to have annual household income $100K and
70% are more like to have an post graduate degree.
 Latte drinkers average income $75,000. Cappuccino and Espresso, $60,000.
 Specialty coffee represent 37% of the US coffee cups and are considered the highest
quality in the world.
 Total US coffee market is estimated at $30-32billion(2012) with specialty coffee
comprising approximately 37% of market share but almost 50% of value share.

8. Starbucks Strategy
 Creating brand community and segmentation at super-premium level.
 To change the brand perception among consumers who due to crazy amount of
locations and huge availability of coffees, thinks Starbucks creates “dumbed-
down” coffees but not the premium.
 Targeting premium/high-end customers with the offering.
 company also generates almost half of its total sales from Adults (25-40) who also
accounts 25% overall sales of specialty coffee.
 Also, Choosing places strategically. In case of Seattle, it has high concentration of
young adults( age 25-34) and median household income($68,000)

9. Starbucks Strategy
 Attracting white collar customers and corporate groups.
 Creating bar, lounges set up to attract companies for corporate meetings,
business call possibilities.
 Growing demand for rare coffees in grocery stores with premium price as much as
$45 for less than a pound.
 New and amazing customer experience.
 Company is also buying beans farms to strengthen supply chain.
 Survey indicates that only 25% of total consumed cups of coffee from coffee shop
which creates opportunity to generate revenue from home-coffee market.

10. Porter’s Five Forces
 Buyers Power(Moderate)
 Many different buyers with different tastes and product ranges. No single buyer can
demand price concession.
 SBUX Offers vertically differentiated products with a diverse consumer base.
 SBUX’s specialty is on the beverage side where customers are more likely to remain
loyal compare to food or any other categories.
 Newer entrants and competitors claim to offer premium roast coffee with lower price
which gives buyers slightly more bargaining power than they had in past.

11. Porter’s Five Forces
 Supplier Power(Low)
 Single-origin coffees come from single farm or small collective, typically hard to reach.
 Production is limited and often available only at specific times of the year.
 Current value chain is commodity system.(Buy low and sell high)
 Company is also buying farm to seed coffee beans and strengthening supply chain.
 SBUX accounts for large percentage of an individual supplier sales which gives company the
ability to dictate the price of coffee beans. Similarly, very little bargaining power for paper and
plastic products such as cups, napkins, lids etc.
 More bargaining power for suppliers of automated coffee machines , latte and espresso
machines as there are many suppliers for these equipment.

12. Porter’s Five Forces
 Competitive Rivalry(Low to Moderate)
 Primary competitors are Dunkin’ Donuts and McDonald's.
 Costa, Blue Bottle, Stumptown and other small local shops.
 Peet’s coffee and Caribou Coffee which has 415 stores in United States.
 Competition from other mom and pop coffee shops who offer coffee at comparatively
lower price.
 Excellent services and high quality of coffee gives SBUX advantage over competitors.

13. Porter’s Five Forces
 Substitute Products(Low to Moderate)
 Tea, Juice, soft drinks, water and energy drinks.
 Pubs and bars can be highlighted as substitute places to be socialized outside of home
and work environment.
 Threat of new entrants(Low)
 Emotionally positioned in customer’s mind as third place alongside home and work,
which reduces customer susceptibility to visiting competitor stores.
 Tech barrier also exists given the success of SBUX ‘s mobile presence.
 SBUX has large market share and strong brand identities within the industry.

14. References
 https://news.starbucks.com/news/starbucks-reserve-roastery-and-tasting-room
 http://smallbusiness.chron.com/starbucks-target-audience-10553.html
 http://www.scaa.org/PDF/resources/facts-and-figures.pdf
 http://www.bloomberg.com/bw/articles/2014-02-13/to-stop-the-coffee-
apocalypse-starbucks-buys-a-farm
 http://www.seattle.gov/economicdevelopment/business-owners/economic-
indicators/income-distribution
 http://www.sbdcnet.org/small-business-research-reports/coffee-shop
 http://www.sbdcnet.org/small-business-research-reports/coffee-shop