Starbucks SWOT Analysis to Increase Annual Sales
Starbucks is the largest coffeehouse operating not only in America but also over the whole world. Founded in 1971 but later acquired by Howard Schultz in 1987, the corporation specializes in brewing of top quality Arabica coffee, and some few other drinks. Since the acquisition by Schultz in 1987, Starbucks has quickly developed over the years, becoming the biggest speciality of its kind in the world, and joining the list of Forbes 500. It is headquartered in Seattle, Washington and currently operates some seventeen thousand stores, which are distributed in over fifty countries in the world, mainly in the USA, Canada and the United Kingdom (Marie 2009).
Currently, Starbucks has felt the pinch of the global economic crisis, which led to a period of recession. Howard Schultz took again as the CEO at this moment, and in a bid to reverse the trend of falling share prices, implemented various strategies. Schultz’s dream seems sturdy, and he is looking forward to growing the multinational company to reach an annual turnover of US$ 23 billion. This should happen in a period of just five years. The question that lingers in everyone’s mind is whether this is possible.
The market size is extremely large. Coffee ranks as one of the favourite drinks for many people, and the coffee market is only second to petroleum in the world. This is why there is a wide market base. In addition, Starbucks has a wide product mix that includes some other forms of drinks. The market has also been growing been growing due to expansion efforts, and also the customized services that are offered. Additionally, there is a sizeable market security because the industry is shielded from sharp changes in financial conditions, since the average spending per session is quite low. The return of Schultz is also bringing a turnaround.
Starbucks growth was phenomenal, rising to be a multinational company within a short time. However, this growth can turn out to be its undoing. As the company expanded, customer expectations are growing hard to meet. There are also other complains associated with their services, like security in the cafes and in their wireless networks. The automation of coffee-making machines has made work easier but compromised on quality, to the disgust of their customers.
Despite all these firms competing to curve a niche in the market, there is a whole range of opportunities in this sector. There is increased consumption of coffee in the in all social ranks. Various things, among them to adopt a healthy lifestyle as opposed to taking alcohol, fuel this. There is also some increased awareness that has made people appreciate taking coffee more. In additional, there has been a rapid growth in the culture where people can sit and have a chat in a coffee bar. This is the reason the market is still attracting new entrants every year. Besides, the high turnover that is experienced by Starbuck is a clear indicator that there is a room for more growth.
Currently, there exist some external elements from the environment, which may be a source of trouble for Starbucks. There is a growing competition in this industry, but Starbucks still maintains a wide margin between them and their closest rivals. Sporadic growth had ensured its retention of the top position, when other small and upcoming companies are marketing aggressively to cut a niche in the market. However, it has had to close down some non-performing shops. The main source of competition for Starbucks includes restaurants, specialty coffee shops, doughnuts shops, supermarkets, convenience stores and others that sell hot coffee and specialty coffee drinks. The main competitors facing Starbucks today include Caribou Coffee, Tully’s Coffee, Gloria Jean’s, McDonald’s Premium roast, Burger King and Dunkin’s donuts. Additionally, the current recession triggered by the global financial crisis is adversely affecting its profitability.
From the SWOT analysis above, it is evident that there an appreciable hope for Starbucks, as they launch new products that will most certainly attract new customers. However, the ambitious dream to get sales to US$ 23 billion in five years cannot materialise. The current sales today stand at ten billion, and therefore this would mean more than double these sales. Basing on the time they have taken to get this far, it would require a near miracle to double this in five years.
The ongoing efforts to increase its product base are strong, but not sufficient for the expected growth. Additionally, the stiff competition means that even the competitors will have grown to match up. Can the coffee market expand to meet this expectation? Absolutely not. Starbucks needs to keep expanding and growing, in order that revenues will keep growing. However, there is a high cost, which is associated in expansion, in terms of quality of services. Additionally, the expansion expected to launch soon involve lesser economies than the United States. The prospects for 23 Billion dollar revenue will thus be elusive.
Starbucks is performing well as a multinational firm. However, in order to rejuvenate the initial growth that they experienced, there would be a need for a complete change in strategies and product line. The company can still maintain the status quo via the existing advantage of a strong-brand name, global presence and the different products, which they are launching every now and then. Currently, recession, competition and wide market seems to be the limiting factors.
Helm, B. Saving Starbuck’s Soul: Chairman Howard Schultz is on a mission to take the company back to its roots! Oh, yeah– he also wants to triple sales in five years. Business Week. New York: April 09, 2007, Issue 4029, p. 56, retrieved at 04/19/2010, from: http://www.businessweek.com/magazine/content/07_15/b4029070.htm
Marie, B. Starbucks. California: ABC-CLIO, 2009.
Steverman, B. Is a Turnaround Brewing for Starbucks? Business Week (Online) New York: Jul 22, 2009, retrieved at 04/19/2010 from: http://www.businessweek.com/investor/content/jul2009/pi20090722_611028.htm