Overview of the analysis
1. Industry identification
2. Analysis of the above industry
Porters 5 forces
PEST analysis
3. Evaluation of industry attractiveness
4. Identification of Resources, Capabilities and Core Competencies
of Starbucks: Using four criteria of comp. advantage
5. Identification of Core competencies: Using value chain analysis
6. Core competency identification using the above analyses
7. Evaluation of new ventures w.r.t core competencies identified
8. Recommendation
1. Industry identification
The industry being analysed is the
Coffee-bar/Coffee-recreation
industry.
This industry includes bars serving
basic coffee and/or specialty coffee,
regional & national players, etc
The industry revolves around the
entire social experience around
coffee rather than just coffee as a
product
2. Industry Analysis: Porters 5
forces
Jockeying for Position: Low
Parameter
Contribution to
power
Reason
Fixed Cost
Low
A player may choose to compete within city
limits with a one store establishment with the
biggies of the industry, hence low fixed costs
Number of
Competitors
High
Owing to low setup costs and availability of a
large number of suppliers, number of
competitors is high
Industry Growth
High
People have become more health conscious
and migrating to healthier
refreshment/beverage options
Exit Barriers
Low
Low fixed costs hence low exit barriers
Capacity Expansion
Low
A player may choose to expand as per its
convenience
Rivals Personality
Low
Rivals may choose to compete uniquely with
their own theme/personality. The consumers
perception may vary accordingly
Threat of new entrants: High
Parameter
Contributi
on to
power
Reason
Economies of scale
Low
Product Differentiation
Low to
Medium
Availability of a large number of suppliers from different
regions, experimentation can be done in house with
blends and spices
Capital Requirements
Low
Low when compared to heavy scale industries like
metals, automobiles
Switching costs
Low
Low CapEx hence Low switching costs
Access to Distribution channels
Low
A one store establishment can equip everything in house
without resorting to long distribution channels from
roasting to drying to serving
Cost Disadvantages
independent of scale
Medium
A player may choose to opt for basic or specialty beans.
No prior set up is necessary owing to availability of a
large number of suppliers
Government Policy
Low
The establishments are just like any other retail outlets,
hence no stringent govt. policies
Expected Retaliation
Low
Because of relatively weak barriers to entry, there are
very thin chances of a price cut or other potential threats
on account of a new entry
Suppliers Power: Medium
Suppliers: Coffee bean farmers, millers, exporters; Real-estate brokers/managers
Process/equipment manufacturers; Merchandise manufacturers
Parameter
Contribut
ion to
power
Reason
Concentration of
suppliers
Low
Multiple suppliers available
Product
differentiation;
Criticality of
suppliers goods to
industry
High
Inputs are highly specific to the products; key to
determining the quality of output
Importance of
industry to the
supplier groups
Low
The suppliers of coffee beans will always have a market to
sell to directly to consumers around the world even if the
coffee bar industry dies out. For real estate and equipment
manufacturers, this is a small and insignificant industry
that is being catered to.
Presence of
substitutes for
suppliers
High
Coffee bean suppliers can supply to direct consumers,
groceries, supermarkets, restaurants, etc; For real estate
and equipment manufacturers, this is a small and
insignificant industry that is being catered to.
Threat of forward
Low
Requires extremely expansive network across
Buyers Power: High
Parameter
Contribution
to power
Reason
Switching costs;
Low
Customers can as easily walk in to any other coffee bar
Product differentiation
Low
Multiple firms offer the same kind of products and experiences
Price sensitivity
Medium
Although basic coffee bar customers might be a little price
sensitive, specialty coffee bar customers have a wide price
range they are open to
Threat of backward
integration
Low
Requires extremely expansive network across geographies to
suppliers, highly capital intensive
Threat of Substitutes: Low to Medium
bstitutes: Beers bars, Juice bars, Lounges, Breweries, Recreational restaurants,
Snackeries, Eateries
Parameter
Contribution
to power
Reason
Lifestyle choices
Low to
Medium
Shift to a healthier lifestyle can cause buyers to shift to juice
bars, etc;
Or lesser weight to health can cause alcohol joints to increase
however this will take a long time to take effect
Price/Performance
ratio advantage
Low to
Medium
Since these are all affordable luxuries rather than necessities,
price isnt too important a factor in determining customers
choices; ALSO performance is not quantifiable because it is the
2. Industry Analysis: PEST Analysis
Factor
Opportunities
Threat
Political/Legal
Decreasing import tariffs in
countries, formation of greater
number of bi/multilateral free trade
agreements
Strict import restrictions
may curb growth across
geographies
Economic
Greater disposable income, greater
spending on away from home
experiences, inclination to
affordable luxuries like specialty
coffee
Margins may suffer when
there are too many such
outlets
Social
Serves as a social catalyst to
peoples busy lives, coffee bars
offer a place where people can
meet and relax, adoption of a
healthier life style, migration from
alcoholic drinks to beverages like
tea, coffee; consumers more
knowledgeable about coffee
Opening of too many of such
avenues will result in low
explorations towards other
modes of eating out,
saturation among the
masses
Technological
Wider expansion of social media
leading to greater reach and
publicity; proprietary technologies
gaining importance in operations
Greater interactions through
online messaging services
rather than personal one to
one interactions
3. Evaluation of Industry
attractiveness
Porters 5 Forces: Industry is attractive because degree of competitive
rivalry is low, threat of substitutes is low to medium, suppliers power is
medium. Even though threat of new entrants is high, the industry growth is
very high, so there is a huge scope for growth without difficult price wars.
Pest Analysis: Ample opportunities available due to shifting lifestyle choices,
consumer awareness about coffee & quality, rising need for outside-thehome social recreation
2500
Specialty and Ready-to-drink are in the growth phase still.
The others have gone past growth and maturity to reach decline.
2000
1500
1000
500
0
1990
1994
1998
Ground
regular
Ground
Decaf
Ground
Secialty
Instant
Regular
Instant Decaf
Whole bean
Ready to
drink
4. Four criteria of sustainable comp.
advantage
(the ones highlighted in red satisfy all four criteria and can be called core competencies)
Resource
Capability
Valuab Rar Costl Nonle?
e?
y to
substitut
imita able?
te?
Proprietary
computer software
Signature roasting curves
One-way valve
technology; Closed
loop system
Freshness ensured; high
shelf life
Transportation Rate
Sound forecasting
model
Complex bakery
distribution model
Operational excellence;
integrated supply chain
Fully integrated
manufacturing &
distribution process
Relationship with realestate
managers/brokers &
street-sniffers
Best retail locations; Store
clustering
Shelf-life policy
Close-relationships
with exporters
Ability to serve high-quality fresh
coffee, variety of blends;
Perceptions of product quality
4. Four criteria of sustainable comp.
advantage
(the ones highlighted in red satisfy all four criteria and can be called core competencies)
Resource
Capability
Valuab Rar
Costl
Nonle?
e?
y to
substitu
imitat table?
e?
Vision &
Leadership in the
form of Howard
Schultz
Social capital
Quality
recruitment
procedures
Company
policies :
hospitality,
production,
education
Company values:
Passion, Integrity,
Competitive
Spirit, Respect,
Entrepreneurial
spirit
Very positive reputation
amongst suppliers preferred
customer; Partnerships with
different companies
Unique brand image and
reputation amongst the
general population: Signature
Starbucks lifestyle
Premium social experience,
consistent customer service
Training procedures
Flat organizational
structure
Excellent customer service
5. Value Chain Analysis
(the ones highlighted in red are unique and can be called core competencies)
Support
function\Val
ue-adding
function
Sourcing
Operations
Distribution
Marketing
Service
Procureme
nt from the
best
sources,
Excellent
reputatio
n
amongst
exporters,
Stringent
three-level
quality
checks
Signature
roasting
curves,
open-valve
technology,
closed loop
system
Transportation
Rate, Sound
forecasting
model,
Complex
bakery
distribution
model, Fully
integrated
manufacturin
g&
distribution
process
Brand equity,
Premium
quality image
Starbuckscoffee-social
experience
stemming from
brand image,
Great people,
First-rate music,
Comfortable &
upbeat meeting
place, Sound
advice on
brewing
Company
Policies,
Values
Policies: Hospitality, Production , Education
Values: Passion, Integrity, Competitive Spirit, Respect, Entrepreneurial
spirit
Human
Resources
Motivated, Passionate, Involved, Educated employees
Social
Capital
Financial
Excellent relationships & reputations amongst suppliers, distributors
and customers
Rated as BUY consistently, Highest market cap.; Highest net margin; P/E ratio
projected to be approximately 30 for year 1998
6. Core competencies identified
Proprietary technology: Patented roasting curves,
open-valve technology, closed loop system
Social Capital: Positive reputation amongst
suppliers, real-estate agents
Brand Image: Passion for quality coffee, Signature
Starbucks lifestyle
Common company values & spirit : Consistent,
premium social experience & service
7. Evaluation of new ventures w.r.t
core competencies identified
Business
Venture
Performa
nce of
venture
Proprietar
y
Technolog
ies
Social
Capital
Brand
Image:
Signature
Starbucks
lifestyle &
passion
for
quality
coffee
Company
values,
spirit:
Consisten
t,
premium
social
Starbuck
s
experienc
e
Verdict
Contract
with
Dreyers
Ice-Cream
Continue
Bottled
Frappuccin
o with
Pepsi Co.
Continue
Penetrating
the grocery
market
Discontin
ue
Introductio
n of
Discontin
ue
7. Evaluation of new ventures w.r.t
core competencies identified
Business
Venture
Performa
nce of
venture
Proprietar
y
Technolog
ies
Social
Capital
Brand
Image:
Signature
Starbucks
lifestyle &
passion
for
quality
coffee
Company
values,
spirit:
Consisten
t,
premium
social
Starbuck
s
experienc
e
Verdict
Introductio
n of
Doppio
Coffee
carts
Discontin
ue
Mail-order
business
Barnes &
Nobles
bookstores
Continue
Red-Hook
Breweries
Continue
8. Recommendation
Starbucks should continue with its ideas of
bottled Frappuccino, Starbucks ice-cream,
collaboration with Barnes& Nobles and Red
Hook Breweries as they are aligned with
almost all of Starbucks core competencies.
The others should be discontinued even if
they might be performing well because
they are not aligned with the core
competencies that the company stands for.
