Starbucks PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social, technological, environmental and legal factors. Starbucks PESTEL analysis involves an analysis of potential impact of these factors on the bottom line and long-term growth prospects.
Political Factors in Starbucks PESTEL Analysis
Starbucks sales are affected by a wide range of political factors, directly and indirectly. The patterns of sourcing raw materials have evolved into a significant political factor that affects the business in a direct manner. Specifically, nowadays it has become compulsory for Starbucks and other global businesses to engage in sourcing of raw materials complying to environmental and social norms that are becoming stricter. Neglecting such norms intentionally or unintentionally are likely to cause political pressure on the business.
Starbucks performance can also be affected by the level of relationships between the USA and countries that produce coffee beans, as well as, countries where Starbucks operates. Additional political factors affecting the business include political stability in the country, the impact of home market lobby groups and a wide range of non-government organizations.
Labour Union Issues
Labour unionisation can be mentioned as a stark political factor within PESTEL analysis of Starbucks. The coffee chain has ongoing issues with unionisation of its workforce for many years, but this problem escalated last year with increasing numbers of employees willing to join unions. This was one of the main reasons for the return of Howard Schultz as CEO for the third time. The world’s largest coffeehouse chain strongly opposes unionisation of its workforce and occasionally engages in contradictory practices to express its opposition. For example, in May 2022 the company announced a pay raise for all non-unionized workers and in August 2022 Starbucks sent formal complain to National Labour Relations Board (NLRB) questioning the fairness of the activities of the labour agency.
Tax Policies
Government attitude towards the business is another significant political factor effecting companies. Tax scandal faced by Starbucks in the UK can be mentioned to illustrate the impact of such a factor. Once it was revealed that Starbucks paid no corporation tax for 15 years since its launch in the country until 2014, Public Accounts Committee of the UK Government launched an investigation and questions were raised in the Parliament damaging the brand image. Although, according to Starbucks management, the company broke no rules, the UK Government made the company to pay GBP 20 million, an obligation that was completed by the company by December 2014.[1] Then again in was revealed in 2022 that the global coffeehouse chain paid corporation tax of only GBP 5 million on GBP 95 million gross profit[2].
Gun Policy
“Skip Starbucks Saturday” boycott can be referred to as another example for an impact of a political factor. Initiated by Gun Control Advocacy Group, the boycott appealed to people to avoid visiting Starbucks stores in the US on Saturday August 2013 due to the gun policy of the company. It has been noted that “Starbucks is a unique company with regard to its gun policy in that it allows customers to carry loaded weapons in stores where permitted by state law rather than imposing a blanket gun-free zone policy”[3]. Moreover, it has been argued that Starbucks “has now been used as a symbol of the gun rights debate by both sides of issue”[4], marking a political turn of the incident.
Political Lobbying
Although external political factors are beyond the control of the company, Starbucks engages in political lobbying activities in cooperation with firms such as K&L Gates and Monument Policy Group to contribute to the formation of political environment favourable for its business in the US. The Figure 1 below illustrates variations in Starbucks lobbying budget.
Figure 1 The amount of political lobbying by Starbucks[5]
Economic Factors in Starbucks PESTEL Analysis
The impact of economic factors on Starbucks revenues is usually direct and paramount. Consumer buying power as a reflection of overall economic situation in the country is one of the most significant economic factors that determine Starbucks profitability. The economic crisis of 2007 – 2009 had derailed the consumer spending power to a significant extent, noticeably deceasing Starbucks revenues. Specifically, by March 2008, Starbucks revenues decreased by 28 per cent compared to the previous period and the company had to close about 900 stores and lay off 6,700 employees as a direct consequence of the crisis.
Currency Exchange Rate
Currency exchange rate is another important economic factor Starbucks has to deal with. In simple terms, as USD increases in value revenues generated in foreign markets in local currencies buy fewer USD, thus diminishing the total profits. For the world’s largest coffeehouse chain effect of exchange rate changes on cash and cash equivalents amounted to 86.2 million, 64.7 million and (49.0) million for 2021, 2020 and 2019 respectively.[6] Moreover, the volume of Starbucks revenues is subject to interest rates, levels of inflation, unemployment rate and a range of other economic factors.
Changes in the cost of raw materials
Starbucks uses only Arabica coffee beans and accordingly the price of coffee beverages offered by Seattle-based international coffee chain is directly impacted by the changes in Arabica coffee beans prices. As illustrated in Figure 2 below, Arabica coffee beans prices have been volatile for the past four years and consistently increasing for the past two years. This tendency has negative implications on Starbucks prices and consequently on the profitability of the business. Along with Arabica coffee beans the global coffeehouse chain profitability depends on the prices of sugar, wheat, milk and a wide range of other raw materials.
Figure 2 Changes in the price of 1kg Arabica coffee[7]
Cost of labour
Cost of human resources is one of the main economic factors within PESTLE analysis for Starbucks. The world’s largest coffeehouse chain employs approximately 383.000 people worldwide, including approximately 245.000 people in the US[8]. Any changes in the cost of labour in the US or any other major markets for Starbucks is going to have direct and massive impact on the bottom line of the company.
Starbucks Corporation Report contains a full version of Starbucks PESTEL analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Starbucks. Moreover, the report contains analyses of Starbucks business strategy, leadership, organizational structure and organizational culture. The report also comprises discussions of Starbucks marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Neville, S. (2014) Independent, Available at: http://www.independent.co.uk/news/business/news/starbucks-completes-20-million-tax-payment-as-coffee-chain-seeks-to-put-scandal-behind-9896360.html
[2] Neate, R. (2022) “Starbucks pays just £5m UK corporation tax on £95m gross profit” The Guardian, Available at: https://www.theguardian.com/business/2022/mar/30/starbucks-uk-corporation-tax-profit-administrative-expenses-royalties
[3]Barkoukis, L. (2013) Townhall, Available at: http://townhall.com/tipsheet/leahbarkoukis/2013/08/23/skip-starbucks-saturday-guncontrol-group-protesting-coffee-giants-gun-policy-this-weekend-n1672120
[4]Winograd, D. (2013) Huffington Post, Available at: http://www.huffingtonpost.com/2013/08/23/skip-starbucks-saturday_n_3800127.html
[5] Open Secrets (2022) Available at: https://www.opensecrets.org/federal-lobbying/clients/summary?id=D000037780
[6] Annual Report 2021, Starbucks Corporation
[7] Coffee Arabica Price (2022), YCharts, Available at: https://ycharts.com/indicators/world_coffee_arabica_price
[8] Annual Report 2021, Starbucks Corporation