Porter’s Five Forces represents theoretical framework that is used for industry analysis and strategy development. Specifically, the five forces shaping competition within the industry consist of the intensity of rivalry among the competitors, the risk of entry of new competitors, the bargaining power of buyers, bargaining power of suppliers and the threat of substitute products and services.
The nature of the relationships among these forces is best presented in the following figure.
Starbucks Coffee Company is a global coffee company and a coffeehouse chain headquartered in Washington, the US and the company has generated a consolidated revenues of $14.9 billion during 2013 with more than 200,000 partners, referred to as employees (Starbucks Annual Report, 2013).
Rivalry among existing competitors is high within the industry Starbucks operates in with major competitors like Costa, McDonald’s, Caribou Coffee, and Dunkin Donuts and thousands of small local coffee shops and cafes.
Starbucks customers possess large amount of bargaining power because there is no and minimal switching cost for customers, and there is an abundance of offers available for them.
The threat of substitute products and services for Starbucks is substantial. Specifically, substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy drinks, whereas pubs and bars can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work environments.
Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas. Moreover, the issues associated with African coffee producers being treated unfairly by multinational companies are being resolved with the efforts of various non-government organisations, and this is contributing to the increasing bargaining power of suppliers.
However, the threat of new entrants to the industry to compete with Starbucks is low, because the market is highly saturated and substantial amount of financial resources associated with buildings and properties are required in order to enter into the industry.