Starbucks, the world’s largest coffeehouse, is renowned for roasting, marketing, and retailing specialty coffee and coffee beverages through 30,000 outlets.
But how does Starbucks manage its weaknesses and enhance its strengths? Keep reading and find out what I discovered in an exhaustive Starbucks SWOT analysis.
What is Starbucks SWOT Analysis In 2022?
Starbucks’ SWOT analysis highlights the role of the company’s strengths in asserting its market leadership and fueling growth in 2022. Further, the analysis reveals inbuilt weaknesses that may hamper growth. Also, the analysis uncovers the opportunities and threats that abound in changing economic circumstances that Starbucks must be alive to survive and thrive.
If you wish to understand in detail Starbucks’ strengths, weaknesses, opportunities, and threats, read on for useful information!
What are Starbucks’ Strengths?
Starbucks’ speedy growth can be attributed to its investment in internal structures and strategies that have been the bedrock of its success, which can be summed up as its strength.
Listed below are Starbucks’ main strengths:
- Strong brand image
- Expansion in outlet footprint
- Robust financial health
- Effective loyalty program
- Ultimate coffeehouse experience
- Contented and motivated employees
- Strategic partnerships and acquisitions
1. Strong Brand Image
Starbucks is one of the world’s top 5 most beloved and recognizable brands for changing the way we drink our coffee.
The company elevated a simple beverage into a premium product and made mere consumption of it an exquisite experience, focusing on the person rather than the product.
By cultivating a youthful, exciting, modern, artistic, and innovative personality, Starbucks has cast its product as the choice for the young and sophisticated.
In this manner, the company has been able to grow the value of its brand to $13 billion, which makes it attractive to investors.
2. Expansion in Outlet Footprint
Since its establishment, and especially following the years of its revolution, Starbucks has expanded gradually but surely.
The company’s first expansion occurred at home, first to Chicago, then Canada, then throughout the US.
Subsequently, the company ventured to Japan, then Mexico, and Starbucks now has over 30,000 coffee shops in 80 countries around the world.
This strength directly reflects Starbucks’s market share, operational costs, and profitability.
3. Robust Financial Health
Over the years, Starbucks has maintained excellent financial health.
Its financial health has placed it in an excellent position to pay for its existence and fund growth.
In the final quarter of 2021, Starbucks’ revenue was $8.1 billion, a 31% increase compared to 2020.
For the entire year of 2021, the revenue was $29 billion, representing an increase of 24% from 2020.
Starbucks maintained a GAAP operating margin of 16.8%, up from 6.6% the previous year, and a non-GAAP margin of 18.1%, up from 9.1%.
As just noted, this has enabled the company to invest in its expansion and its partners.
4. Effective Loyalty Program
The Starbucks loyalty program has over 19.3 million members at the moment and accounts for nearly 50% of total sales.
In times of suppressed business activity, the coffeehouse has been able to fall back on this membership to avoid catastrophic loss.
Starbucks attracts members to this program by offering reward points, free drinks and food items, free birthday treats annually, and a host of other benefits.
The innovative use of the Formations Offers Optimization Platform has enabled the automation of personalized customer offers in real-time, which greatly enhances customer experience and increases customer loyalty.
5. Ultimate Coffee House Experience
Starbucks staff is courteous, prompt, and committed to pleasing the customer. Customers report that Starbucks shops are good places to relax, work and study, due to its third-place atmosphere.
Another of Starbucks’ charms is the consistency of its offerings. Customers who rarely drink Starbucks coffee in the US will drink nothing but a Starbucks abroad, since they know exactly what to expect.
However, their innovative personalized offers create the ultimate customer experience, more in tune with the millennial and Gen Z generations.
6. Contented and Motivated Employees
Starbucks thinks of its employees as partners rather than merely employees.
In fact, a study by Aon shows that Starbucks employees are treated better than most in the retail industry, being thrice as more valuable as any other retailer.
For over 30 years, Starbucks has led the way in improving the conditions of its workers, being the first to offer comprehensive employee compensation due to income tax demands and full health care benefits changes.
Starbucks employees also get access to tuition-free education at three or four-year colleges, as well as access to an accrued sick leave scheme.
Under this scheme, an employee earns a day for sick leave for several days worked, which can be used for themselves or their family. The employees are, in turn, expected to put in their best.
7. Strategic Partnerships and Acquisitions
Starbucks has entered into several alliances with strategic partners, both at home and internationally over the years.
The aim has been to expand the reach of its market, improve the company’s profitability and enhance the product’s image.
What are Starbucks’ Weaknesses?
Weaknesses in the company usually arise from inadequacies of its internal structures and the effects of its policies.
These may be intended or unintended but should be dealt with for the company to be healthy.
Listed below are Starbucks’ weaknesses:
- High prices
- The generalized standards of Starbucks’ products
- Easily Imitated products
- Product recalls
1. High Prices
Starbucks coffee has gained a reputation for being premium and expensive and costs about 38% more than its competitors.
Usually, the customers don’t mind, as they can afford to pay for the experience.
Over three years leading to 2021, Starbucks has increased its prices three times without any noticeable dip in sales.
However, some analysts argue that while morning sales are hardly affected, fewer people buy Starbucks coffee in the afternoon when they’re more price alert.
High prices also jeopardize profit margins if raw materials and other production costs increase.
Further, high prices also hamper Starbucks’ expansion into the emerging markets, where the market may not be large enough for such high prices.
2. The Generalized Standards of Starbucks Products
Many customers who claim they don’t consume Starbucks give a similar reason: the beverages contain high calories and sugar.
Although Starbucks products contain sweetened items to enhance the brand and improve the flavor, most people currently prefer products with fewer chemicals.
Standardization on using similar products means that Starbucks misses out on the opportunity to culturally enrich its experiences or provide healthier options, which would undoubtedly win the company more customers.
3. Easily Imitated Products
Imitation is rife in the food industry because most of the products offered by companies like Starbucks are easy to copy.
The motivation for such imitation may be the ready market that demands Starbucks’ products but is locked out by the high pricing.
The imitation ranges from preparing products using Starbucks’ formula, to passing off fakes as real Starbucks.
This is especially prevalent in India and China, where Starbucks fights to put out one imitation after the other.
4. Product Recalls
In May 2019, Starbucks was forced to recall 263,000 of its coffee presses made from recycled material for product defects.
The coffee presses could injure users seriously and have already injured a few in the US and Canada.
Such recalls destroy both business and goodwill. Additionally, it makes it the center of attention for all the wrong reasons.
These situations also lay the company open to suits arising from the recalled products.
What are Starbucks Opportunities?
There are external strategic factors in the food and beverage industry and economic change that Starbucks can take advantage of if it’s prepared to do so.
The world is in constant flux, and economic, social, cultural, and even political changes are with it.
These are opportunities any business should be ready to exploit.
These opportunities for Starbucks are as follows:
- Emerging markets
- Changing coffee trends and technology
- Strengthening online channels
- Introducing new products
1. Emerging Markets
The regions of America, Asia, and Africa offer the fastest-growing markets in the world at the moment.
Their populations are enormous, and most of them come from decades of economic stagnancy.
Political and economic institutions are finally stabilizing, and globalization is spreading cultural trends worldwide.
Young economically empowered people outside the western world can now afford the classy taste and experience of products like Starbucks. Overall, this is an opportunity begging to be taken.
2. New Coffee Trends and Technology
As the demographic that takes Starbucks coffee has changed, so too must the products and customer experience it provides.
The trend is towards ready-to-drink coffee among young buyers and instant coffee, and the demand for sugared coffee still holds.
The novelty of a Starbucks is wearing thin among the Chinese, and they resort to ready availability.
Therefore, Starbucks must grab these opportunities and change its offering to account for these new trends.
3. Strengthening Online Channels
The march towards e-commerce is unrelenting, as studies show that more and more transactions are happening online and that businesses that make the transition quickly are reaping the rewards.
Starbucks is already effectively using social media to engage with customers, and should now consider moving more into the online space, setting up infrastructure to enable orders to be placed ahead and make deliveries.
What are Starbucks’ Threats?
Starbucks faces threats in its business that result from external factors, to which it cannot adequately respond.
These threats are as follows:
- Competition from big and small coffee sellers
- Third-party supplier bottlenecks
- Price upsets on raw coffee beans
1. Competition From Smaller and Bigger Dealers
Starbucks faces competition from large companies like McDonald’s, Dunkin Donuts, Peet’s Coffee, and many others.
Such companies present a credible threat because they have the means to compete vigorously, and every inch they steal away sets them on the path to dominance.
On the other hand, small competitors are nimble and more in tune with the local environment and are formidable opponents with the ability to cause localized damage.
2. Third-Party Supplier Bottlenecks
While Starbucks treats its workers well, there’s no guarantee that its suppliers will control its workers.
Starbucks once had to close several of its outlets in the Midwest because of a delay in deliveries when the unionized workers of one of their suppliers struck.
Therefore, while third-party suppliers may increase efficiency, they’re also a threat, since they’re an aspect of the production process out of control and total management.
3. Price Upsets of Raw Coffee Beans
Starbucks’ primary raw material is the coffee bean, mostly the Arabica coffee bean, forming 60% of all coffee.
As the plant grows in South America and Africa, its availability is relatively volatile, subject to the weather and political upheavals.
The price, therefore, is equally volatile, and the effects of this can range from reduced profit margins to stopped production for lack of raw materials.
Starbucks’ SWOT analysis details areas of strength and opportunity and areas of weakness and threats. The analysis gives insight into the business’s market position and how the company can grow beyond it.