Starbucks in the Coffee Industry

Industry Size and Growth Trends

Starbucks plays a significant part within the coffee industry as coffee is the second most desired item that can be purchased throughout the world, and the coffee industry is valued at over $100 billion (Menke, 2018). In addition, about 500 billion cups of coffee are drunk every year throughout the world (Menke, 2018). Coffee is increasingly popular within the United States.

For example, currently, about 54% of Americans who are 18 years of age or older drink about 3.1 cups per day (Gibson, 2019). In addition, Americans also spend about $40 billion on coffee every year (Gibson, 2019).

Maturity of the Industry

Starbucks is facing major brand maturity. The company has limited options to create growth in 2019. Starbucks is committing to small efforts, such as a digital initiative, which expects to grow the company about one to two percent (Ogg, 2018). Unfortunately, this is not enough to entice investors. Multiple wall street analysts have noticed this and devalued the company’s target price (Ogg, 2018).

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External Economic Factors and their Effect on the Industry

Being one of the largest coffee purchasers in the world, Starbucks benefits tremendously from the low price of coffee. Different factors, including foreign exchange rates, have reduced the cost of coffee to the lowest in five years (Weener, 2018).

However, the stock price of Starbucks is still struggling. The stepping down of the Starbucks CEO and CFO within a short time has probably scared a lot of shareholders. On the positive side, valuations for Brazil and Vietnam have gone down, and these are two of the largest coffee producers in the world, which means cheaper coffee for Starbucks (Weener, 2018).

Seasonality

Starbucks is a very seasonal company that benefits greatly from the holiday season. During the cold winter, Starbucks takes advantage of its delicious and warm products and backs it up with branding (Debter, 2019). For example, the introduction of the red cups in the winter of 2016 was very controversial, but it ended up being successful (Debter, 2016).

Revenue in the quarter of December increased by a whopping 12% to $5.37 Billion (Debter, 2016). Christmas also surged Starbucks gift card sales, totalling $1.9 Billion between the US and Canada (Debter, 2016).

Technological Factors

Starbucks has grown and utilized technology tremendously most recently. The rise of their mobile phone integration through the Starbucks mobile application has allowed the consumer to purchase coffee more conveniently, resulting in increased sales. Coffee farmers are also using new farming technologies which improves Starbucks supply chain efficiency.

However, the rise in home-use coffee makers can be a threat to the company, especially if this method may be cheaper than buying a beverage from Starbucks.

Regulatory, Political, and Legal Concerns

The main political factor Starbucks faces is their sourcing of raw materials (PESTLE Analysis Contributor, 2015). To stay out of trouble from politicians, the company needs to adhere to the social and environmental norms of the countries they buy their coffee from (PESTLE Analysis Contributor, 2015).

They also need to follow the laws and regulations of these countries, especially with activism and increased political awareness in developing areas (PESTLE Analysis Contributor, 2015). The company also needs to monitor political stability and regulatory pressures within the U.S. (PESTLE Analysis Contributor, 2015).

Competitive Environment and Changes in the Competitive Environment

Starbucks is always competing with others to stay on top. To stay above rivals like McDonalds and Dunkin Donuts, Starbucks uses several strategies, such as product innovation, listening to the consumer, and giving a focus on food (Trefis Team & Great Speculations, 2016). Additions such as the pumpkin spice latte have kept the company fresh always changing for the better.

As time goes on, the consumer’s preferences will also change meaning starbucks needs to follow suite. An example of this is Starbucks addition of soy milk and non dairy products to satisfy their customers’ dietary restrictions and preferences. Although mainly known for their refreshments, Starbucks food sales account for a surprising 20% of their revenue (Trefis Team et al., 2016). To diversity into food and drinks was successful move for Starbucks to make extra revenue and stay above the competition.

Key Challenge(s) Facing the Industry

There are many issues that face the global coffee industry, such as climate change and driving market forces. Climate change and weather have much to do with the growth for coffee trees and beans. For example, if it rains too much, then coffee beans might mold and grow fungus, but if it rains too little and there is a drought, coffee trees cannot grow.

There is a coffee bean borer beetle that lays its eggs in the coffee beans, which costs Brazil about $300 million per year in harvest lost (DRWakefield, 2014). In addition, coffee, like oil, is a tradable commodity, and this has an impact on a coffee grower’s livelihood. For example, a coffee grower can get a different price for their harvest each day of the week (DRWakefield, 2014). These price changes can affect coffee from end to end.

Steps to Meet One Key Challenge

There are many ways to try to create a one key challenge, such as increasing processed flexibility and existing assets. Another way would be to educate coffee producers. This includes helping them manage their goods and finances to create a financially-healthy production.

Due to the price fluctuation of coffee, some coffee producers might not pass down this business to another generation because it is simply too expensive to operate. Raising prices through some effort may be needed so it goes to the coffee producers in helping them through their operations.