The major competitors of Starbucks are McCafe of Macdonald’s and Dunkin Donuts Coffee. McCafe is currently operating the strategy of low cost leadership (Burritt, 2007). While on the other hand, Dunkin Donuts is operating at low cost differentiation strategy where customer can choose a coffee from menu (Dicarlo, 2004). The strength of Starbucks is in its wide range of coffee with high quality. In order to compete the mounting pressure from competitors Starbucks introduced Wi-Fi, Starbucks digital network from where customers can access Wall Street Journal and iTunes, the Starbucks introduced these services free of cost for its customers while normally these services are paid (Miller, 2010). The differentiation strategy of Starbucks is providing the Starbucks with a glorified image among the customers. That is the only way Starbucks can save and improve its image in the close competition with McDonald’s and Dunkin Donuts.
Analysis of Strategy
Porter Five forces Model
In order to have a closer insight into the coffee industry we can use Porter Five forces model (Thompson, Strickland, & Gamble, 2007).
The major threat which coffee industry is facing till today is the rise in prices of coffee at the end of suppliers. In the year 2010 the price of most sold brand of coffee the Arabica raised to 77% and created problems for all the players in the industry (Murphy, 2011).The other biggest threat is the competition among large and small specialists of coffee makers. The three big operators, i.e. Starbucks, McDonald’s and Dunkin Donuts and many smaller coffee chains are competing for their share in the industry. The leadership of Starbucks in the industry is continuously threatened by MacDonald’s which is competing with Starbucks head to head especially in Europe (Liu, 2009). The third biggest threat is the power of buyers. With expansion of every competitor, consumers have a choice to go anywhere and can switch at any time. This power of buyers is forcing the operators to market extensively and follows a low cost and consistent strategy (Han, 2009). The entry barriers in the coffee industry are quite soft and potential of new entrants is very high, that is the fourth biggest threat. The threat of substitutes in the coffee industry is quite weak as consumers like coffee because of its taste and taste cannot be substituted. The calories which coffee provides to consumers can be replaced but its taste cannot be replaced. From the Porter’s five forces we can say that the potential of growth and profit is still high in the industry. The growth rate for the coffee industry is increasing and it has strong potential for competition and attractiveness (Lingle, 2007).
Starbucks Strategic position and Choice
In this section we will examine the strategies of Starbucks by applying SWAT, SWOT, PESTL and Value chain Analysis.