Starbucks SWOT Analysis

SWOT Analysis of Starbucks (2022)

Table of Contents

What is a swot analysis?

A swot analysis is a tool used for strategic planning  by organizations and to assess their competitive position. Apart from assessing internal and external factors, SWOT analysis also focuses on the current and future potential of the organization.

It identifies a company's core strengths, weaknesses, opportunities and threats so that managers can get a fact based analysis of the firm's position and make strategic decisions. In this swot analysis of Starbucks, we will look at the strengths, weaknesses, opportuntiies and threats to identify the company's current position and its future potential. 

Starbucks: An introduction

Company NameStarbucks (SBUX)
Industry servedPremium coffee
Markets served84
Largest marketsUS and China
Founded1971
Net Revenue 2021$29.1 Billion
Net Operating Income 2021$4.9 Billion
Employees (2021)383,000
CompetitorsMcCafe, Costa, Dunkin Donuts, Barista, Cafe Coffee Day.
Global store locations33,833 (October 2021)

Starbucks (NASDAQ: SBUX), founded in 1971, is the world's largest coffee brand and the world's leading premier retailer of specialty coffee. The company operates across 84 markets in the world. It serves its customers across various markets through both company operated and licensed stores.

The company operated stores are the main source of its revenues, having accounted for around 85% of its total net revenues in 2021. The company has continued to expand its global presence by increasing the number of stores operational worldwide. As of October 2021, the number of Starbucks stores operational worldwide was higher than 33,000. The company is well known worldwide for its premium coffee and great customer experience.

These are the most critical factors that have driven higher brand awareness and popularity of the coffee brand. Starbucks never invested a large fortune in marketing and promotions. Its focus instead remained on quality and customer service which helped it generate higher recognition. The company experienced solid growth in its net revenues in 2021. 

Strengths

Brand Equity:

Starbucks is a well recognized brand worldwide known for its product quality, customer experience and an excellent work culture. The company enjoys strong brand equity driven by its focus on customer satisfaction. Brand equity can be a critical driver of success for businesses and across every industry sector strong brand equity translates into higher sales and profitability. Starbucks is also enjoying stronger success worldwide driven by strong brand equity.

Financial performance:

Starbucks is financially a strong brand and has continued to experience improvement in its profitability over the past several years. In 2021, the company experienced around 24% growth in its net sales. Its total net revenues grew to $29.1 billion in 2021 compared to $23.5 billion in 2020. In fiscal 2021, its net income and operating margin also improved compared to the previous year. The company returned $2.1 billion to its shareholders through dividends in fiscal 2021. 

Product quality:

One of the most critical drivers of the company's success is its focus on product quality. The company sources best quality coffee from various corners of the world and serves premium roasted coffee of different varieties to its customers worldwide. Its focus on quality and favor has continued to drive higher sales and profitability. Quality has always remained a central focus for the company and instead of investing millions to drive sales, the company invested in superior quality to build a larger customer base.

Supply chain management:

Another critical driver of the success of the company across the several markets where it operates is its excellent supply chain management. It carefully selects its suppliers and sources and roasts high quality arabica coffee. Without excellent supply chain management, it would have been impossible to offer the highly differentiated and superior quality of coffee products it offers. Apart from managing the quality of products, its supply chain managment practices have also helped the company manage expenses.

Ethical business:

One of the core pillars of the organizational culture of Starbucks is its focus on ethics throughout its business operations. The company has maintained a strong work culture which focuses on ethics in business managment and operations. Starbucks also follows ethical practices in sourcing and supply chain management. Due to its focus on ethics, the company has maintained a strong social image.

Global presence:

Starbucks has maintained a stroong global presence and serves millions of customers across 84 markets. The number of Starbucks stores worldwide was 33,833 in 2021. Its main source of revenues are the company operated stores.

There were 17,133 company operated stores operational worldwide in October 2021 and 16,700 licensed stores. Its largest markets are the US and China. There were 8,947 company stores operational in the US in 2021 and 5,358 in China. The other major markets of Starbucks include Canada, Japan and the UK.

Weaknesses

Higher prices:

Starbucks is a premier retailer of coffee products. Its products are priced much higher compared to the other coffee brands around the globe. As a result, its customers are mainly limited to the affluent class.

Higher prices of products also drive customer expectations higher. However, when it comes to expanding the customer base, the company's prospects in various countries with lower per capita income are limited.

Imitable products:

The main differentiating factor for Starbucks is the quality of its products which sets it apart from the competition. However, the company also charges comparatively much higher prices than its competitors. Apart from the quality, the variety of products is not difficult to imitate for most rivals. As a result, the price sensitive customers tend to gravitate towards brands offering similar products at lower prices.

Opportunities

Diversification:

The main focus of Starbucks menu is coffee and teas. However, the company can further diversify its menu to include more edible products and attract more customers. Diversifying its menu can help the company grow its customer base and boost sales. 

Emerging markets:

Starbucks can find faster growth through expansion in emerging markets including India and Mexico. While the company entered the Indian market late, it has also been relatively slow to penetrate the market. Whie emerging markets hold great growth potential, the company can adapt its menu to the local taste to grow sales faster in these regions.

Pricing changes:

Starbucks is a premier retailer of coffee products. However, its premium prices also limit its growth prospects in several markets including the emerging markets. With slight pricing changes and by introducing more of competitively priced products, the company can grow its customer base faster across several markets and the emerging markets particularly. 

Digital marketing and sales:

It is the era of digital marketing and sales. Companies across the QSR sector have experienced growth in sales through online channels which is because consumers are shopping more through the online channels. Starbucks can invest more in digital marketing and growing its digital marketing and sales capabilities. Higher customer engagement along the digital channels can lead to higher sales and faster growth.

Threats

Supply chain challenges:

Starbucks has acquired a special position in the coffee industry and the history of coffee driven by its special focus on supply chain management. However, managing a supply chain and sourcing special and high quality arabica coffee is easier said than done. Starbucks supply chain management is also fraught with challenges and apart from its supply chain management practices, the company has to maintain a focus on supply chain innovation to sustain its sources of raw materials.

Increasing costs of raw material and operations:

The costs of raw materials and business operations for Starbucks have continued to grow year over year. Its product and distribution costs are a substantial part of its operating expenses. The largest category of its operating expenses are the store operating expenses. In 2021, the store operating expenses were 41.1% of its net revenues while its product and distribution costs were 30.1% of its net revenues. These costs have continued to grow and increased the operating expenses of Starbucks over the past several years.

Competitive threat:

While Starbucks is in a strong competitive position, the company continues to face growing competitive pressure from various other brands in the global market including coffee brands and the other QSR brands that also serve coffee products. There are several more brands in the market including McCafe, Costa, and Dunkin Donuts that also serve coffee products at more competitive prices compared to Starbucks. 

A few last words about Starbucks:

Starbucks is the coffee brand of choice for millions of coffee lovers globally. The company experienced solid improvement in its financial performance in 2021 compared to the previous year. Its 2021 net revenues jumped to $29.1 billion from $23.5 billion in 2020 or YoY growth of 24%. The premium coffee brand has continued to improve its position in the global market through its focus on quality and customer experience and by increasing the number of stores gloablly.

In 2021, the number of Starbucks stores globally reached 33,833. The company generates a substantial part of its revenues from the company owned stores and by sales of beverages. Beverages accounted for 74% of its total net revenues in 2021. The above swot analysis shows that the company is in a strong competitive position and poised for faster growth in the future. It must focus on strengthening its digital capabilities to respond to changing market dynamics and consumer preferences.