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Five Forces: Moderate

The document analyzes Starbucks using Porter's five forces framework. It finds that: 1) the threat of new entrants and substitutes is moderate to high due to low barriers to entry and many alternatives, but Starbucks has mitigated these threats through brand loyalty and quality; 2) bargaining power of buyers and suppliers is moderate to low due to Starbucks' size and diverse supplier network; 3) competitive rivalry is moderate to high due to many competitors fighting for market share in the mature coffee industry. Overall, Starbucks has been able to moderate the five competitive forces through premium products, excellent service, and strong supply chain management.

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Indians Are Randi
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74 views2 pages

Five Forces: Moderate

The document analyzes Starbucks using Porter's five forces framework. It finds that: 1) the threat of new entrants and substitutes is moderate to high due to low barriers to entry and many alternatives, but Starbucks has mitigated these threats through brand loyalty and quality; 2) bargaining power of buyers and suppliers is moderate to low due to Starbucks' size and diverse supplier network; 3) competitive rivalry is moderate to high due to many competitors fighting for market share in the mature coffee industry. Overall, Starbucks has been able to moderate the five competitive forces through premium products, excellent service, and strong supply chain management.

Uploaded by

Indians Are Randi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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five forces Status Descriptions

The threat of new entrants for Starbucks is moderate. The barriers are not
very high because the initial investment to start a coffee brand is not high
either. Similarly, the level of saturation in the industry is moderately high due
to this new entrants can compete with brands like Starbucks at local level
easily. However, their possibility of market coverage remains low to
moderate. Starbucks has got a large market share based on its infrastructure,
efficiency and product quality. Still, having a lower switching cost, the new
brands can attract customers using lower prices. Due to this reason, the threat
Threat of new Moderate of new entrants remains. However, Starbucks can mitigate to a large extent by
entrants building brand image, market share and other factors like brand loyalty. Some
other important factors that helps to provide Starbucks brand a competitive
edge is its access to raw materials and suppliers. Because of its size, scope
and ability to pay, Starbucks has access to better quality coffee and a larger
number of suppliers globally. All these factors act to moderate the level of
threat posed by the new entrants. The threat has increased to some level due
to the entry of McDonalds in this line through McCafe, Maxwell House and
Folgers.

There are number of substitute’s product available to compete with Starbucks


coffee company ranging from juices to tea and alcoholic as well as non-
alcoholic beverages. There are pubs and restaurants that provide both good
ambience and quality products. The increasing trend of homemade products
that the consumers can make at home are another threat of substitute to
Threat of Starbucks. Beside this switching costs are negligible. These all factors make
Moderate
Substitutes to High substitute products a moderate to big threat. However, there are some factors
that moderate this threat to some extent. Apart from the premium quality
coffee, excellent customer service and a great ambience is the major point that
distinguishes the Starbuck from others. Starbucks also sells premium
packaged coffee and coffee makers. Premium quality and brand loyalty which
moderates the threat of substitutes to some extent
The bargaining power of buyers in case of Starbucks is moderate to low.
Because the size of individual purchases is small so single buyers do not hold
enough influence in sales. Apart from it the company brand has a diverse
Bargaining customer base. Customer of Starbuck are quality sensitive and willing to pay
Moderate higher prices for premium quality products. Still, the prices they cannot set
power of buyers to low
excessively high because customers are observing for such trends and would
start switching after one pick prices. Moreover, the product mix of Starbucks is
diverse. Based on all these factors the power of buyers remains low
According to Starbucks suppliers policy eligible suppliers must be located
within the United States or Canada, its territories or possessions, and the
owners must be U.S. or Canadian citizens and 51% owned and operated by a
women, minority, veteran, person with disability, LGBTQ, or a socio-
economically disadvantaged small business. So because of this Suppliers can
exert only low to moderate pressure on Starbucks. The brand has its own
supplier diversity policy that it uses to select the suppliers. Ethical sourcing is
another major policy at Starbucks and it does not deal with the country or
Bargaining company that employs child labor for coffee production and harvesting. The
power of low to brand sources Coffee ethically from several parts of the world. It has also
suppliers moderate started direct channel with the coffee farmer that has helped it gain higher
control over its supply chain which is helping to avoid long supply chain cost.
Starbucks has developed great relationships with both tea and cocoa farming
communities to educate them, about better cocoa farming practices and to help
them derive maximum profits from it. This has helped in reducing the
mediators and the suppliers. Moreover, the number of suppliers is high and
Starbucks has plenty of room to exercise choice. Therefore bargaining power
of supplier for Starbucks Company is low to moderate

The intensity of competitive rivalry in the industry is moderate to high. The


reason for this is because of the monopolistic competition in the industry and
the number of firms competing for market share is high. The entry and exit
barriers are small because of the not so huge investment in this sector. The
main factor that contributes the competition for Starbucks is its market share.
Competitive It has the highest market share (39.8% of total market share of US as per Feb
rivalry Moderat end 2020) followed by Dunkin and McCafe. The coffee industry has matured
e to high
and growth rate has moderated as a high number of players are competing for
market share. As it is universe that, there is always space in any industry for
new players, which adds the intensity of competition to Starbucks. Based on
all these factors the intensity of competition against Starbucks remains
moderate to high.

This analysis shows that Starbucks has been able to moderate the competitive threat against it
based on premium quality of its products as well as quality of customer service. Apart from it,
the global coffee brand has excellently managed its supply chain which has reduced their
bargaining position. The Porter’s five forces analysis of Starbucks shows that the brand has
remained strong against competitive threats by virtue of its core competencies. Overall, the
strength of the five forces discussed as a part of this analysis is moderate. Starbucks has
acquired some excellent competencies and built a strong brand that gives it a competitive
advantage in the industry and moderates these forces.

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