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Coffee plays a main role in the multicultural of society. “According to Joe Tenebruso reports, the average coffee drinker has 2.7 cups per day, there are 150 million daily drinkers in the United States.” (Joe Tenebruso, 2017).
With the middle class has been rising and people have been changing their dietary habit, coffee is becoming more and more popular. and an account of surging income levels and changing eating and drinking habits of consumers, coffee shops /cafes is anticipated to witness robust growth in the coming years.
There is ample room for opportunity, but where there’s opportunity, there are also threats. While the coffee industry is booming, the coffee shops are also fact to the different challenges, including adjustment of development strategy, competition in the market, improve competitive advantage, and potential threat, etc. Based on the analyses of the industry, specific recommendations for competitors can then be created.
In this regard, the most significant forces for Starbucks Coffee Company’s strategic consideration are competitive rivalry, the bargaining power of customers, and the threat of substitutes.
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Still, the other forces also influence the company’s business performance. Starbucks Coffee uses the broad differentiation generic strategy, in this generic strategy, the goal is to make the company different from other competitors, it is such difference that makes Starbucks stand out. The company’s emphasis on specialty coffee easily differentiates Starbucks cafes from many other establishments that offer coffee, Starbucks Coffee’s broad differentiation generic strategy ensures that the firm maintains competitive advantage through specialty products and ingredients.
This generic strategy translates to various policies and programs to keep the firm differentiated. A challenge in applying this generic strategy is that Starbucks must always innovate. Starbucks needs to keep improving and innovating ahead of competitors to maintain its growth based on this generic strategy.
In this component of the business, the bargaining power of buyers is among the most significant forces affecting the company. Starbucks Corporation’s marketing mix or 4Ps, provide support for brand strengthening to partially address the bargaining power of consumers. It has a marketing mix that supports the firm’s industry position as the leading coffeehouse chain in the world. Such changes in the marketing mix emphasize the company’s need to evolve its various business operations to maintain effectiveness against growing competition. This component of the marketing mix focuses on what the business offers to customers Starbucks Corporation continues to innovate its product mix to capture more of the food and beverage market.
The company adds or modifies product lines, with the aim of expanding its market reach and growing its market share. The following are the main categories of Starbucks products: Coffee, Tea, Baked goods, Frappuccino, Smoothies, Other foods and beverages, Merchandise: mugs, instant coffee, etc. Starbucks Coffee Company’s product mix is a result of years of business innovation. For example, the company added the Frappuccino line after it acquired The Coffee Connection in 1994.The business also has an ongoing product innovation process that aims to offer new products to attract and keep more customers, especially because the business must attract a diverse population of customers in the international market. Thus, this part of Starbucks’ marketing mix involves beverages, foods, and merchandise that are carefully selected or designed to satisfy the needs and preferences of target consumers worldwide.
Also, this component of the marketing mix determines the venues at which customers can access the products. Starbucks offers most of its products at cafes or coffeehouses. However, there are various other places or channels of distribution available for these products. In this case, the following are the main venues or places that Starbucks Corporation uses to reach its target customers: Coffeehouses/Cafes, Retailers, Mobile apps, Initially, Starbucks sold its products through coffeehouses. Eventually, the company offered some of its products through its online store. This approach served as a major integration of e-commerce into the company’s strategies. The strategic change reflects the company’s shift to focus on in-store experience in brick-and-mortar coffeehouses.
Nonetheless, some of Starbucks’ merchandise items are available through retailers. On the other hand, mobile apps allow customers to conveniently place their orders online so they could easily get their food and drinks at the company’s coffeehouses. This part of Starbucks’ marketing mix shows how the firm adapts to changing times, technologies, and market conditions. And Starbucks uses a premium pricing strategy. In the marketing mix context, this pricing strategy takes advantage of the behavioral tendency of people to purchase more expensive products on the basis of the perceived correlation between high price and high value. The company’s coffee products are more expensive than most competing products, such as McDonald’s Premium Roast. Through this pricing strategy, Starbucks maintains its high-end specialty image. Still, the company strives to develop and actually provide high quality products and satisfactory customer experience in its coffeehouses. This part of the marketing mix directly relates to Starbucks Corporation’s generic competitive strategy, in helping the business maintain its premium brand image.
The moderate size of individual suppliers is an external factor that imposes a moderate force on Starbucks. Another consideration is the company’s policy of diversifying its supply chain as a way of addressing the trends identified in the PESTEL analysis of Starbucks Coffee Company. Such policy weakens suppliers’ power. As a result, suppliers’ bargaining power is a minor strategic issue in managing the business.
This component of the Five Forces analysis indicates that substitutes have strong potential to negatively impact and most vulnerable Starbucks Coffee’s business. The high availability of substitutes makes it easy for consumers to buy these substitutes instead of Starbucks products.
The moderate cost of doing business is associated with the variability of the actual cost of establishing and maintaining operations in the coffeehouse industry. For example, small coffeehouses do not have enough resources to develop their brands.
This coffee company was founded in 2017.When it comes to artisanal coffee houses, the name that immediately comes to mind for most here in the U.S. is Starbucks. The coffee chain, founded in 1971, has a ubiquitous presence in North America and has expanded to almost every corner of the world.
There are not many competitors out there who can openly challenge Starbucks' global dominance, but a new upstart is certainly trying its luck in the nascent Chinese market. Its name is Luckin Coffee and, considering it was only founded in 2017 in Beijing, it has managed to scale up its presence in that country in a very short timeframe. Though it's been in operation for just two years, “Luckin has grown its total store count in China from just 624 as of June 30, 2018, to 3,680 as of Sept. 30, 2019. That's a stunning fivefold store increase in just 15 months. Those thousands of stores have raised Luckin's average monthly transacting customers nearly nine-fold from 1.2 million to 9.3 million over the same 15-month period.” (Royston Yang,2019)
Luckin coffee use the differentiation generic strategy, Taking the opposite approach of Starbucks’ high-end strategy, Luckin offers a cashier-less environment and competes predominantly on speed and low prices to raise brand awareness. Luckin has also embraced digital commerce, with an online customer experience consisting almost exclusively of in-app purchase and delivery. So-called ‘new retail’ was coined by the founder of multinational conglomerate Alibaba Group, Jack Ma, and characterises a shift from physical stores toward e-commerce. Luckin has sought to capitalise on this phenomenon by targeting convenience-driven consumers with digitally enhanced coffee shop experiences. Instead of competing in an oversaturated market, Luckin is carving out a separate slice of coffee consumers by focusing its efforts on digital retail.
Some parts are same with Starbucks coffee, another success factor for Luckin is its delivery model. Luckin circumvents the long queues found in traditional chains, and its outlets are tiny booths which take online orders for pickup and delivery. A “Goldman Sachs report” (Goldman report ,2018) indicates that nearly 70% of Luckin customers are below 30 years old, compared to about half of Starbucks customers. As a result, Luckin has lowered its delivery time from an average of 30 to 18 minutes and boosted customer satisfaction. The company adds or modifies product lines, with the aim of expanding its market reach and growing its market share Luckin also launched Luckin Tea stores nationwide in July 2019, with 28 products in five different categories.
In order to reduce upfront capital expenditures and maintain an asset-light model, Luckin has introduced its retail-partnership model. This is somewhat similar to a franchise model wherein the partner is in charge of store rental, renovation, staffing, and daily operations while Luckin provides its branding, technology, and products, and assists in the supply chain. There's no initial upfront fee for the partner, and revenue sharing is tiered, effectively encouraging partners to scale up their revenue before any revenue is shared.
This component of the Five Forces analysis indicates that substitutes have strong potential to negatively impact and most vulnerable Luckin Coffee’s business. The high availability of substitutes makes it easy for consumers to buy these substitutes instead of Luckin products.
Luckin’s expansion comes as Starbucks’ global rivals, like Canadian chain Tim Hortons, are also pushing hard in China. Tim Hortons plans to open 1,500 outlets in China over the next 10 years, while smaller local chains are also popping up fast. small coffeehouses do not have enough resources to develop their brands.
I would like to recommend continuation and majorization both companies current strategic. In general, addressing the external business environment based on the results of this Porter’s Five Forces analysis, strategic goal must focus on maximizing the strengths and related competencies of the coffeehouse business. For example, the company can implement strategies to make its brand even stronger. This recommendation is intended to address the strong force of competitive rivalry, the strong bargaining power of buyers, and the strong threat of substitution. Specific to the force of competition, a recommendation is to boost Corporation’s competitive advantages.
For instance, the company can improve the diversity of its supply chain as a way of increasing resource access and production stability. It is also recommended that increase its marketing aggressiveness to attract and retain more customers. It’s clear to see that people find convenience, location proximity, and good quality product the most important factors of their coffee decisions. in addition to improving the customer experience, which has always been the primary focus area of the company, the future innovation focus areas increasingly need to be around the product offering. Efficiency would be the bedrock for coffee shop to continue to gain success internationally and also in existing markets.
Industry Analysis Coffee Shop. (2022, May 22). Retrieved from https://studymoose.com/industry-analysis-coffee-shop-essay
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