SWOT on "SWOT Starbucks"

SWOT 6 pages (1698 words) Sources: 6

[EXCERPT] . . . .

SWOT Starbucks

Starbucks SWOT

Starbucks is faced with a multitude of challenges from outside its own environment. These threats can include increasing prices in the commodities and other resources, changing economic conditions within the global environment or any other challenges presented by the external environment.

In order for the coffee-based beverages store to succeed within the international setting, it is necessary for it to identify all of the threats which could impact it. After identification, it is necessary for the organization to devise strategies which best respond to these threats and which as such increase the company's chances of international success.

At the current level, the threats facing Starbucks can be organized into four specific categories, as follows:

Capital markets

New entrants

World wide economic conditions, and Ethical concerns.

The lines below address each and every of these categories and provide more in depth information regarding the specifics of these threats and they can impact the company in the near and long-term future.

a) Capital markets

The threat of the capital markets refers to the dependence of Starbucks on investors. In other words, Starbucks is a publicly traded organization, traded on the NASDAQ market under the SBUX name and it is also listed on the NASDAQ 100 list. This list is virtually a record of the 100 most successful non-financial companies and its strength testifies to the financial positions of the component entities, as well as providing standards of comparison for other entities (NASDAQ, 2011).

The Starbucks stock is traded for a current value of $44.19, having registered a slow increase comparative to the previous period. The current dividend rate is of $0.13 per share quarterly and the company makes estimated annual payments in February, May, August and December, for a total of $0.52 per share per year (Starbucks Investor, 2011). In other words, the earnings per share in 2009 were of $0.52, having revealed an increase comparative to the 2008 $0.43 earnings per share. In 2011 however, the estimations look more optimistic; while the year has yet to come to an end and allow accurate computations, the financial specialists at Starbucks estimate annual earnings per share in the amount of $1.24 (Starbucks 2010 Annual Report).

In 2010, the company's total assets were of $6,385.9 million, and its total shareholder equity was of $3,674.7 million. These figures had evolved since 2006, when the company's assets were of $4,428.9 million and its equity was of $2,228.5 million (Starbucks 2010 Annual Report), but the large portion of equity is maintained through time. Throughout its existence then, Starbucks has always been dependent on its investors and problems in the capital markets could easily reflect problems in the financing options of the company.

In case such a threat materializes, the company would be able to use its assets and liquidities to refinance its operations. Its position within the market would however be negatively impacted in the immediate term, but the company possesses sufficient resources, expertise and connections in order to overcome such a threat. The recovery would however be slow and gradual and this is due to the company's dependency on investors.

b) New entrants

Starbucks operates within the retail industry, in the specific segment of the restaurants industry. At the general level of the retail industry, the competition is intense and the threat of new entrants is highly challenging.

The retail industry is characterized by relatively simple-to-attain gains and chances of positive results starting with the first year of operations. The actual specifics differ from one segment to the other, but the retail industry is highly competitive among both long-term established companies as well as new agents.

In recent years however -- namely the last decade -- a trend is observed that retailers unite their forces and create large size companies. This supports their competitive positions, but also changes the structure of the industry and raises additional barriers for new entrants.

"One trend that started over a decade ago has been a decreasing number of independent retailers. Walk through any mall and you'll notice that a majority of them are chain stores. While the barriers to start up a store are not impossible to overcome, the ability to establish favorable supply contracts, leases and be competitive is becoming virtually impossible. Their vertical structure and centralized buying gives chain stores a competitive advantage over independent retailers" (Investopedia, 2011).

This trend is also observed within the coffee industry segment, and Starbucks contributes to raising these new barriers. It is a large size company which has created economies of scale and competes based on these advantages (lower costs for commodities, better negotiated contracts with purveyors, wider market share and so on). Starbucks is as such a global presence which faces limited competition from new entrants. These new entrants can pose competition within small, local economies, where they can compete on niche markets and serve specific needs. The threat they as such pose for Starbucks is rather limited, but it is recommended for the firm to remain alert to any change in the local and international marketplace.

c) World wide economic conditions

The global economy is currently facing the worst crisis since the Great Depression of the 1930s decade (1929-1933 in the United States, but further on in the 1930s decade for other countries). The threats raised by this condition are complex and, among other, they include the following:

Decreased purchase powers of buyers, which could materialize in decreases in the demand for the Starbucks coffee-based products. Starbucks was the organization which popularized coffee drinking outside the home. Before the emergence of Starbucks, people would drink their coffee within the household, but Starbucks made it fashionable to drink the coffee in the coffee shop or in the street (Ferrell, Hirt and Ferrell, 2006). The internationalized economic crisis might force people to go back to buying the coffee beans and preparing the beverage within the household. Such a situation would materialize in tremendous losses for the American-based company.

Changing consumer demographics. The current economic conditions would not only impact coffee consumption volumes, but also trends. It is possible for the consumer demographics to shift as people are impacted by the crisis in various stances. For instance, the people in the low income categories would reveal a decreased volume of discretionary income and would modify their consumption patters to drink the coffee inside the home, to drink less coffee or to purchase cheaper beverages. People in the higher income categories might be less impacted by the crisis and they would continue to purchase from Starbucks. This means that they would become the target customers of the company and Starbucks would have to redesign its market approach strategy. Currently, the organization has not reshaped its marketing efforts to respond to the new economic conditions.

Finally, the last threat pegged to the global economic conditions is that the company faces the dangers of increasing commodity prices. Due to international trade agreements as well as new economic circumstances (increasing price of oil, increasing operational costs, increasing taxes etc.), the prices to purchasing items such as sugar, coffee beans, machineries and other commodities increase. Such a situation materializes in higher operational costs for Starbucks, which would in turn generate lower profits, possibly coupled with increases in retail prices, and the adjacent customer dissatisfaction.

d) Ethical concerns

The forces of globalization and market liberalization have created a context in which economic agents compete relentlessly for the higher market shares, for the best purveyors or for the best staff members. But today, they are unable to win a competitive battle based alone on the quality of their products and/or services.

Nowadays, the economic agents have to create and consolidate competitive advantages and points of differences. These can be difficult to create, but they have the advantage of improving the brand and the position of the… READ MORE

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