Porter’s Five Forces analytical framework developed by Michael Porter (1979) represents five individual forces that shape the overall extent of competition in the industry. Starbucks Porter’s Five Forces are represented in figure below:
Porters Five Forces
Threat of new entrants in international coffee chain industry is low. The following factors reduce the threat of new entrants for Starbuck’s industry within Porter’s Five Forces.
1. Market saturation. Coffee chain market is highly saturated and more so in developed countries. Market saturation implies an increase of a market share for a specific coffee house at the expense of a competitor. New entrants into the coffee house chain business find such a reality discouraging to enter the business and achieve long-term growth.
2. Access to distribution channels. New market entrants are going to face significant issues to access distribution channels because potentially attractive locations for coffee stores are already occupied by coffee chains, restaurants and retail outlets. It took Starbucks 36 years to reach its current status that comprises total more than 33800 company operated and licensed stores. Similarly, other major players such as Costa, Caribou Coffee,McDonald’s, Dunkin Donuts, Pret-a-Manger have secured thousands of advantageous locations during the decades of operations.
3. Economies of scale. Establishing coffee house chains requires massive capital investments. It can prove to be highly challenging to secure investment to establish new business in this industry unless the business plan is based on previously untapped value proposition.
Bargaining power of Starbucks buyers is significant. The following considerations need to be taken into account in this regard:
1. Abundance of choice. Customers can choose from a wide range of established coffee chains as well as local specialty coffee houses. In other words, Starbucks buyers derive considerable bargaining power from the abundance of competition and choice. If Starbucks or any other market player starts to compromise on the quality of products or services, customer will be quick to depart for a competitor, which has been the case in the past.
2. Absence of customer switching cost. Customer switching costs to a competitor is an important factor within Porter’s Five Forces analysis for Starbucks. The ability of customer to switch to a competitor without expenses incurred increases their bargaining power. This is the case for coffee chain customers because there is no ecosystem in this industry that makes it difficult to customers to switch between coffee chains.
3. Product differentiation. Coffee houses attempt to differentiate their product and service value offerings to suit the needs and aspirations of their target customer segment in an attempt to reduce customer bargaining power. In other words, if customers cannot find the quality products and services offered by a specific coffee house elsewhere, their bargaining power will be reduced. Starbucks in particular has succeeded in differentiating its business by positioning its stores as ‘third place’ away from work and home, where customers can have quality time alone or with friends and family members.
Bargaining power of Starbucks suppliers is insubstantial. Supplier bargaining power depends on the following:
1. Importance of volume to suppliers. Starbucks works with many suppliers around the globe and the importance of business with Starbucks for any individual supplier is paramount because of the volume order. Such a situation decreases the supplier bargaining power in relation to the Seattle-based coffee chain.
2. Supplier switching costs. Supplier switching costs for the world’s largest coffee retailer are not huge. Starbucks is able to substitute suppliers usually without significant costs for the business. This factor further decreases supplier bargaining power.
3. Differentiation of products provided by suppliers. Generally, coffee is the highest traded commodity after oil across the world. Coffee is also the most exported agricultural commodity globally. At the same time, it is important to note that high-altitude arabica coffee of the quality sought by Starbucks tends to trade on a negotiated basis at a premium above the “C” coffee commodity price and it is a differentiated product. Ability to supply differentiated product increases supplier bargaining power.
Starbucks Corporation Report contains a full analysis of Starbucks Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Starbucks. Moreover, the report contains analyses of Starbucks leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Starbucks marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review