Porter’s Five Forces of Starbucks 

Starbucks is the world’s largest retail coffee chain brand with special expertise in premium coffee. Many believe that Starbucks has launched the coffee culture due to the dynamic experience and the diversified portfolio the company offers. Today, we’ll discuss Porter’s five forces of Starbucks; it focuses on the bargaining power of buyers and suppliers; the threat of new entrants and substitutes; and competitive rivalry in the coffee chain industry.

Porter’s five forces of Starbucks analyze the competitive landscape of the retail coffee chain brand by focusing on the competitive rivalry; bargaining power of buyers and suppliers; and the threat of new entrants and substitute products. Starbucks Porter’s force analysis is as follows;

Porter’s Five Forces of Starbucks 

Let’s discuss Porter’s five forces of Starbucks and they’re as follows;

Threat of New Entrants in Starbucks

The threat of new entrants in Starbucks Porter’s five force analysis is as follows;

I-Easy Entry & Low Capital Requirement

When we talk about launching a coffee shop or store, it requires a limited capital investment. You can easily rent a place for roundabout 3000 USD depending on the traffic-crowded area and the inflation rate. Some of the other things you need to start the coffee shop are as follows;

• Furniture
• Cocoa powder
• Straws
• Napkin
• Cups
• Container
• Grinder
• Espresso machine
• Milk
• Coffee beans

The threat of new entrants is very high because the low capital investment is required. Hundreds of new young entrepreneurs enter the retail coffee shop business every month, but only a few of them survive the economic conditions.

II-Recognized Brands

Leading brands like Espresso, Dunkin Donuts, and McDonald’s are operating business in the retail coffee chain industry. They invest a significant amount of resources in branding and marketing and they offer cost-efficient coffee service. Their market presence and low-cost service are decreasing the demand for premium coffee from Starbucks.

III-R&D Investment

The research and development expense of the retail coffee business is low compared to other brands, but the market research expense is very high. The food analyst of the company gathers data to study market trends and spending patterns of customers. Re-innovating and integrating products and services would help the company to increase its market share.

Bargaining Power of Suppliers in Starbucks

The bargaining power of suppliers in Starbucks Porter’s five forces analysis is as follows; 

I-Variety of Suppliers

Starbucks has been collaborating and coordinating with coffee bean suppliers and farmers across the world. The supply chain plays a key role in the overall business of the company due to the great volume of orders the company receives. Under such a competitive environment, the bargaining power of suppliers is low in the coffee business.

II-No Supplier Switching Cost

The taste of coffee is almost the same, and the cost of switching suppliers is not as high as the retail coffee chain brand Starbucks. The company could easily find another coffee supplier without having any impact on the business operations. It is because of the low bargaining power of the company.

III-Product Differentiation

After oil and gas, coffee is the 2nd highest traded commodity in the world. If suppliers are offering differentiated products, then they would have more bargaining power. For instance, the quality of arabica coffee is very high, and their suppliers sell it at a premium price.

Bargaining Power of Buyers in Starbucks

The bargaining power of buyers in Starbucks Porter’s five forces analysis is as follows;

I-Differentiation

In order to attract the attention of customers, the objective of coffee chain stores is to differentiate their products in terms of value, taste, or service. The differentiation factor helps them to decrease the bargaining power of customers because they won’t the similar service anywhere else. Starbucks has successfully differentiated its coffee service and established a position of premium coffee. Its stores are the 3rd place after home and work, where customers would have a quality time and enjoy coffee.

II-No Switching Cost

The brand switching cost may not be important to the customer, but it is highly significant to the retail coffee chain brand Starbucks. Customers could easily switch to another brand without incurring any cost or expense, and it gives them bargaining power in this regard.

III-Great Choice

When it comes to buying coffee, customers have a variety of choices. There are various brands offering more or less similar coffee, and Starbucks has to fight off a plethora of competition to persuade customers to choose its brand. However, if Starbucks and other brands are compromising on quality, then customers have the option to switch to other quality-providing brands.

Threat of Substitute Products in Starbucks

I-Substitute Brands

Starbucks is operating its business in the food and beverage industry, and the retail coffee chain brand has competed with other multinational chain brands, hotels, and restaurants. Due to the global economic recession, customers have decreased their spending budget and they prefer cost-effective substitute products.

II-Low Switching Cost

The brand switching cost is very low and almost none to customers because customers want to try out something new and different. But the brand switching has a great impact on the company’s business. The other competitive brands would offer a great experience to the customers to make them repeat customers.

III-Marketing Strategy

Starbucks invest a significant amount of capital resource in marketing and advertisement for the promotion of its products and services. The brand is operating its coffee business in the global market and the company has established a position of premium brand. For instance, the company offers a unique service of printing customer’s names on the cups.

Competitive Rivalry with Starbucks

I-High Competition

Dunkin Donuts and McDonald’s are the cost-effective competitors of Starbucks, and they pose significant competition to the brand. They have a worldwide network of outlets and established a large database of customers, and their market presence decreased the market share of Starbucks significantly.

II-Differentiating Points

Starbucks has been trying to differentiate its products and services with features like Free Wi-Fi and customers’ names on the cups in order to gain a competitive edge. It is a great strategy for the company to justify its premium price range with top-quality taste and service.

Conclusion: Porter’s Five Forces of Starbucks 

After an in-depth study of Porter’s five forces of Starbucks; we have realized that Starbucks is the world’s leading food and beverage brand with a specialty in premium coffee. If you are learning about Starbucks Porter’s five force analysis; then you should keep in mind the abovementioned bargaining power suppliers and buyers; threat of new entrants and substitutes, and competitive rivalry.