Starbucks Coffee’s Five Forces Analysis (Porter’s Model)

Starbucks Coffee Five Forces Analysis Porter’s model, competition, bargaining power buyers, suppliers, threat, substitution, new entrants
A Starbucks café at Beijing Capital International Airport. A Five Forces analysis of Starbucks Coffee (Porter’s model) reveals that competition, customers and substitutes are major concerns. However, all the five forces are external industry factors that impact Starbucks. (Photo: Public Domain)

Starbucks Coffee Company’s success is based on its effectiveness in addressing the negative impacts of the five forces in its industry environment. These external factors are outlined in Michael Porter’s Five Forces model. Starbucks must suitable respond to these five forces to maintain its market position. This analysis of Starbucks Coffee indicates the intensities of the five forces on the firm, and the bases of these forces. Starbucks Coffee’s success indicates its effectiveness in addressing these external factors in its industry environment. However, this Five Forces analysis highlights current industry conditions that impose current and emerging concerns relevant to Starbucks Coffee’s business.

This Five Forces analysis (based on Porter’s model) of external factors in Starbucks Coffee’s industry environment reveals the most significant issues facing the company. Success potential is based on how Starbucks positions its business to address or overcome these five forces.

Overview: Starbucks Coffee’s Five Forces Analysis

Starbucks Coffee faces the influence of the five forces, as outlined in Porter’s model. These five forces have varying intensities or strengths based on Starbucks’ position, as follows:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (strong force)
  3. Bargaining power of suppliers (weak force)
  4. Threat of substitutes or substitution (strong force)
  5. Threat of new entrants or new entry (moderate force)

Starbucks Coffee has a variety of challenges linked to these five forces. Only the bargaining power of suppliers presents the least concern for the company. Based on this five forces analysis, Starbucks must ensure effective measures to prioritize competitive rivalry, the bargaining power of customers, and the threat of substitution.

Competitive Rivalry or Competition with Starbucks Coffee (Strong Force)

Starbucks Coffee faces the strong force of competitive rivalry or competition. In the Five Forces analysis model, this force pertains to the influence of competitors on each other. In Starbucks Coffee’s case, the following external factors contribute to the strong force of competition:

  • Large number of firms (strong force)
  • Low switching cost (strong force)
  • Variety of firms (moderate force)

This part of the Five Forces analysis shows that competition is among the most important of Starbucks Coffee’s concerns. The company faces a large number of competitors, which have different sizes, specialties and strategies. For example, Starbucks faces the competitive force of McDonald’s and Dunkin Donuts, as well as other specialty coffee companies. The strong force of competition is also due to the low switching cost, which means that it is easy for customers to shift from Starbucks to other brands. Thus, based on this component of the Five Forces analysis, competition should be among Starbucks Coffee’s top-priority challenges.

Bargaining Power of Starbucks Coffee’s Customers/Buyers (Strong Force)

Starbucks Coffee experiences the strong force or bargaining power of buyers or customers. In the Five Forces analysis model, this force is based on the effect that individual and grouped customers have on business. In Starbucks Coffee’s case, the following external factors contribute to the strong bargaining power of customers:

  • Low switching cost (strong force)
  • Substitute availability (strong force)
  • Small size of individual buyers (weak force)

In this component of the Five Forces analysis model, the bargaining power of buyers is also among the most significant forces affecting Starbucks Coffee’s business. Customers can easily shift from Starbucks to other brands because it is affordable to do so. Customers can also stay away from Starbucks if they want to, because there are many substitutes, such as instant beverages and drinks from restaurants. These strong factors overshadow the fact that individual purchases are small compared to Starbucks Coffee’s total revenues. Thus, this aspect of the Five Forces analysis model shows that the bargaining power of customers should also be among Starbucks Coffee’s top-priority challenges.

Bargaining Power of Starbucks Coffee’s Suppliers (Weak Force)

Starbucks Coffee faces the weak force or bargaining power of suppliers. In the Five Forces analysis model, this force refers to the influence that suppliers have. In Starbucks Coffee’s case, the following external factors contribute to the weak force or bargaining power of suppliers:

  • High variety of suppliers (weak force)
  • Large overall supply (weak force)
  • Moderate size of individual suppliers (moderate force)

This part of the Five Forces analysis model shows that suppliers do not have much impact on Starbucks. The large overall supply lessens the effect of any single supplier on the company. Also, Starbucks has a policy for diversifying its supply chain. This policy reduces the influence of suppliers on the business even though each supplier has a moderate size compared to the Starbucks supply chain. Thus, based on this aspect of the Five Forces analysis model, Starbucks Coffee does not need to prioritize the concerns or demands of suppliers.

Threat of Substitution or Substitutes to Starbucks Products (Strong Force)

Starbucks Coffee also experiences the strong force of the threat of substitutes or substitution. In the Five Forces analysis model, this force pertains to the impact of substitute goods or services. In Starbucks Coffee’s case, the following external factors contribute to the strong force of the threat of substitution:

  • Availability of substitutes (strong force)
  • Low switching cost (strong force)
  • Low cost of substitutes (strong force)

This component of the Five Forces analysis model indicates that substitutes have strong potential to negatively impact Starbucks Coffee’s business. Starbucks customers can easily shift to substitutes because there are many substitutes, such as beverages from restaurants, and instant and bottled beverages and other goods from grocery stores. The cost of shifting to substitutes is low because Starbucks customers do not need to spend for the shifting process. In addition, many of these substitutes cost less than Starbucks products. Thus, based on this part of the Five Forces analysis, Starbucks must consider the threat of substitutes as among its top-priority concerns.

Threat of New Entrants or New Entry (Moderate Force)

Starbucks faces the moderate force of the threat of new entrants or new entry. In the Five Forces analysis model, this force refers to the potential effect of new players in the industry. In Starbucks Coffee’s case, the following external factors contribute to the moderate force of the threat of new entrants:

  • Moderate cost of doing business (moderate force)
  • Moderate supply chain cost (moderate force)
  • High cost of brand development (weak force)

This part of the Five Forces analysis model shows that new entrants have significant but not strong effect on Starbucks Coffee’s business. New entrants can compete against Starbucks because of the moderate costs of doing business and supply chain development. However, new entrants find it difficult to compete against established brands like Starbucks because it is very costly to develop a strong brand. Thus, this component of the Five Forces analysis indicates that the threat of new entrants should be a secondary priority in Starbucks Coffee’s strategies.

References
  • Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review88(5), 28-29.
  • Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review24(1), 32-45.
  • Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change15(5), 213-229.
  • Karagiannopoulos, G. D., Georgopoulos, N., & Nikolopoulos, K. (2005). Fathoming Porter’s five forces model in the internet era. info7(6), 66-76.
  • Koehn, N. F. (2002). Howard Schultz and Starbucks Coffee Company. Harvard Business School.
  • Maybury, M. T., & Belardo, S. (1992, January). Five forces. In System Sciences, 1992. Proceedings of the Twenty-Fifth Hawaii International Conference on (Vol. 4, pp. 579-588). IEEE.
  • Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.
  • Starbucks Coffee Company (2015). Company Information – Starbucks Coffee Company.
  • Starbucks Coffee Company (2015). Supplier Diversity Program.
Tags:


COPYRIGHT NOTICE:
This article may not be reproduced, distributed, or mirrored without written permission from Panmore Institute and its author/s. Copyright by Panmore Institute - All rights reserved. Small parts of this article may be quoted or paraphrased for research purposes, as long as the article is properly cited and referenced together with its URL/link.