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Foundations of Business Strategy
Darden School of Business – University of Virginia
Irene Cláudia Mendes Martins 1
To: Howard Schultz, chairman, president and executive officer
From:
Subject: Executive Summary: Starbucks Competitive Position Analysis
Introduction
Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees,
along with handcrafted coffee and tea beverages and various fresh food items, through its
company-operated retail stores.
The company has three segments: United States (US), International, and Global Consumer
Products Group (CPG). The United States and International segments both include company-
operated retail stores and certain components of specialty operations. The CPG segment
includes packaged coffee and tea, Starbucks VIA Ready Brew, and other branded products sold
worldwide through channels, such as grocery stores, warehouse clubs, convenience stores, and
US foodservice accounts. CPG operates a portion of its business through licensing
arrangements and a joint venture with a consumer products business partner.
Starbucks is standing as one of the most recognized and respected brands in the world. To
achieve this goal, they are continuing the disciplined expansion of their global store base. In
addition, by leveraging the experience gained through their traditional store model, they continue
to offer consumers new coffee products in a variety of forms, across new categories, and
through diverse channels. Starbucks Global Responsibility strategy and commitments related to
coffee and the communities they do business in, as well as their focus on being an employer of
choice, are also key complements to their business strategies.
Competitors Analysis
Due to its vertical integration, diversification and success, Starbucks now has many
competitors.
Direct Competition:
Starbucks has had to face many competitors in the image of Seattle's Best Coffee or Pasqua,
but many other brands appeared in the meantime. However, his biggest competitor is Peet's,
introduced himself on the stock exchange in 2001 and now distributed in supermarkets.
United States: Starbucks must deal with regional chains like Peet's or The Coffee Bean &
Tea Leaf.
In Canada: Tim Hortons and Second Cup.

In France, the only direct competitor is Starbucks Coffee Colombus. Created in 1994, the first
French channel "espresso bars" which has thirty stores in France and very little abroad
Non-direct competition:
First, the regional chains like Dunkin 'Donuts, and most recently, Burger King and
McDonald's, the latter wishing to engage in different types mocha coffee, cappuccino, latte, and
cold drinks, fruit juices, smoothies, all these products offered at lower prices. These stores were
repositioned by providing specialty coffee and espresso-based drinks at competitive prices,
often playing on an image more accessible and down-to-earth than that of Starbucks.
"Within an industry, strategic groups together
organizations with similar strategic characteristics,
following similar strategies or rely on the same
competitive factors."
There are 2 different strategic groups: internationally and regionally:

SWOT Analysis
PESTLE (Environment) Analysis:
The PESTLE analysis will be used to identify and understand the important factors Starbucks
must consider in all areas of the business.

Michael Porter’s five forces
Competition
• Tully’s Coffee, Gloria Jean’s, Caribou Coffee etc.

• Competition nowhere in terms of volume of operations
• Competitors selling similar products, incl. specialty coffees & high quality food
Threat of new entrants
• Controlled access of distribution channels
• Innovation & product differentiation
Bargaining power of buyers
• More options due to no. of competitors
• Large variety of products
Bargaining power of suppliers
• Over crowding of market
• Rise in prices of coffee beans
• Choose suppliers based on quality, social, environmental & economic issues
Threat from substitutes
• Tea
• Soft drinks
• Juices
Starbucks’ Corporate Capabilities
Starbucks has numerous capabilities but the ones that allow them to stand apart from the
other specialty coffee companies are their market leadership, superior real estate locations, and
their supply chain operations.
Their superior retail locations give them powerful capabilities over their competitors. They
have stores that are exposed to areas with much higher foot traffic and better local demographic
compositions. However, Starbucks’ strongest capabilities are in their supply chain operations.

These operations are superior to competitors in the specialty coffee industry for a few primary
reasons:
• Starbucks transportation rates are the best in the industry;
• Both their bakery distribution model, coupled with their sophisticated forecasting process,
enable them to accurately identify where coffee is needed and when. This allows them to
make appropriate and on-time deliveries;
• Their complex manufacturing and distribution process allows them to maintain strong
inventory turns as compared to competitors in the specialty coffee industry;
• Their ability to protect the integrity of their coffee beans from the detrimental effects of
oxygen and time through a closed loop system of packaging.
Key Competences
The global strategy of Starbucks is to provide costumers with more than a cup of coffee:
Core competences help to provide firms with a ‘competitive advantage'. They are used to
achieve a strategic advantage through activities, skills or know-how, and basically a general
expertise in the development of the product. This advantage will provide value to customers.
For Starbucks, these competences include the knowledge of where the finest coffee
beans are grown, the knowledge of how best to prepare them in order to make the best

cup of coffee and also the knowledge of how best to approach a foreign market as, of all
their industry competitors, they are the most successfully globalised.
Next, Starbucks’ steadfast support to its employees is another one of their core
competencies. They were the first company to offer stock otions to part-time employees. In
addition to this, they have outstanding customer service which is the result of educating its
workforce by providing at least 24 hours of training for each new employee. The training
includes teaching them about the history of coffee, customer service, retail skills and “brewing
the perfect cup”. It is very evident that they care for their employees. Because of this, Starbucks
has one of the lowest employee turnover rates in the industry. Lastly, it’s drive to be
everywhere is definitely of one their core competencies. This has worked very well for
Starbucks and has penetrated a wide variety of market and locations.
Competitive Life Cycle
Strategic Recommendations
Increase International Expansion
The first and most pressing action which Starbucks should take is to reduce their US
expansion efforts. In the US, the specialty coffee industry has entered the mature stage. One of
the qualities inherent to the mature stage of the industry lifecycle is overcapacity. Any significant

expansion efforts in an environment where overcapacity is present will be met with failure. By
reducing their expansion efforts in the US, Starbucks can redirect the capital saved into their
international expansion efforts. For example, Starbucks currently operates roughly 16,000 stores
with 10,000 in the US and 6000 internationally.
Rewards Program
Howard Shultz has referred to a strategy he calls “segmentation,” as being one of the
initiatives he will use to reach new consumer segments. However, if Starbucks pursues their
“segmentation” strategy they risk degrading the most significant competitive advantage they
possess: their brand image. By selling a discounted specialty coffee at Starbucks’ locations, the
overall brand's image could be degraded and an un-winnable price war with McDonalds and
Dunkin' Donuts becomes more likely. Starbucks should concentrate on creating more elaborate
discounting techniques to employ with their most frequent customers. This both eliminates the
potential degradation of the Starbucks’ brand and increases the bond customers will experience
with Starbucks. Additionally, a rewards program will encourage customers to visit Starbucks
more often and will dissuade them from visiting competitor stores, such as McDonald's and
Dunkin' Donuts, which seem unlikely to offer reward programs.
Rent Out Meeting Space and Install Free Wireless Internet
Next, Starbucks should create a more business and technology friendly atmosphere in its
stores. With the advent of the Internet and the ever increasing array of electronic products
capable of accessing it, there has been an increasing shift in consumer's work locations from
office buildings to home offices. These meeting spaces should be accompanied with the addition
of free wireless Internet access throughout every Starbucks store and printers accessible to the
customers, which are color capable and reasonably priced. The meeting space should be
offered at a per hour rate while the printers should charge per copy.
CD Burning
In addition to free wireless Internet access, Starbucks could equip stores with a CD burning
device to allow customers to burn copies of the online albums they purchase within Starbucks at
a small fee.
Increase Connection with Customer
One way in which Starbucks has always differentiated itself from its competition has been
through the emotional connection formed with its customers. Starbucks could implement digital
picture frames in all store locations and upload local customer photos and perhaps even
customer supplied family photos, which are appropriate in nature, upon request. Currently, the
majority of Starbucks stores have latte machines that are positioned in such a way as to block

the baristas from viewing the customers and vice versa when the barista is in the act of making
the latte. These latte machines should be lowered so as to give the baristas a demonstration
kitchen of sorts.
Continually Improve the Coffee
Given the specialty coffee market’s transition into the mature stage of the industry lifecycle, it
is important to maintain a reputation for the highest quality coffee in the industry. To ensure the
quality of their coffee, Starbucks should continually analyze their brewing systems and practices
and consider renovations.
Becoming More Environmentally Friendly
Although many efforts are being made at Starbucks to enhance their image as being
environmentally friendly, as is true for all modern corporations, they still have much room to
improve, thus, further differentiating themselves.

BIBLIOGRAPHY
www.starbucks.com
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual
http://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_strategic_analysis_tools_nov07.pdf.pdf
http://www.slideshare.net/ezendu/strategic-analysis-6365371
http://www.slideshare.net/avinav2712/starbucks-1085483
http://www.academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag-catching-the-starbucks-
fever.html

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