SWOT Analysis of Starbucks (6 Key Strengths in 2018)

Ovidijus Jurevicius | June 5, 2018

SWOT analysis of Starbucks Corporation

This Starbucks SWOT analysis reveals how the largest coffee chain in the world uses its competitive advantages to continue growing so successfully all over the world.

It identifies all the key strengths, weaknesses, opportunities and threats that affect the company the most. If you want to find out more about the SWOT of Starbucks, you’re in the right place.

For more information on how to do a SWOT analysis please refer to our article.

Keep reading.

Company Background

Key Facts
Name Starbucks Corporation
Founded March 31, 1971
Logo
Industries served Restaurants (Coffeehouses)
Geographic areas served Worldwide (27,339 coffeehouses in 75 countries)
Headquarters Seattle, Washington, United States
Current CEO Kevin R. Johnson
Revenue (US$) 22.387 billion (2017) 5% increase over 21.316 billion (2016)
Profit (US$) 2.885 billion (2017) 2.4% increase over 2.818 billion (2016)
Employees 277,000 (2017)
Main Competitors Caribou Coffee Company, Costa Coffee, Dunkin' Brands Group, Inc., Green Mountain Coffee Roasters, McDonald's Corporation, Nestlé S.A. and many other restaurant chains and coffeehouses.

Starbucks Corporation’s business overview from the company’s financial report:

“Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 75 countries. We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of high-quality food items, including snack offerings, through company-operated stores.

We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice accounts. In addition to our flagship Starbucks Coffee brand, we sell goods and services under the following brands: Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh and Ethos.

Our objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world.

To achieve this, we are continuing the disciplined expansion of our global store base, adding stores in both existing, developed markets such as the U.S., and in newer, higher growth markets such as China, as well as optimizing the mix of company-operated and licensed stores in each market.

In addition, by leveraging the experience gained through our traditional store model, we continue to offer consumers new coffee and other products in a variety of forms, across new categories, diverse channels and alternative store formats.

We also believe our Starbucks Global Responsibility strategy, commitments related to ethically sourcing high-quality coffee, contributing positively to the communities we do business in and being an employer of choice are contributors to our objective.

Starbucks® company-operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off-highway locations.

We are continuing the expansion of our various store formats, including Drive Thru and express stores, to provide a greater degree of access and convenience for our customers.”[1]

You can find more information about the business in Starbucks' official website or Wikipedia’s article.

Starbucks SWOT analysis

Strengths

1. Operating efficiency and strong growth leading to superior financial performance.

2017 marked continuing Starbucks growth both financially and physically. The company had yet another great financial year. The company’s revenue grew by 5% and 2,254 new stores were opened. Starbucks’ operating profit margin remained above 18% and its cash flow generated US$4.174 billion, despite the company’s enormous expansion.

Figure 1. Starbucks’ consolidated revenue 2011-2017

Starbucks' revenue grew from US$11.7 billion in 2011 to US$222.4 billion in 2017.

Source: Starbucks financial report[1]

Figure 2. Starbucks’ operating profit margin 2012-2017

Starbucks' operating profit grew from 15% in 2012 to 18.5% in 2015.

Source: Starbucks financial report[1]

Figure 3. Starbucks store count 2011-2017

The number of Starbucks stores grew from 17,003 in 2011 to 27,339 in 2017.

Source: Starbucks financial report[1]

Starbucks’ balance sheet has remained strong. In 2017, debt-to-asset ratio remained the same, cash reserves increased by US$333.5 million, while the company’s net profits increased from US$2.818 billion to US$2.885 billion. Overall, Starbucks’ financial position has never been stronger.

What does this mean for the company? Despite its huge growth, growing the operating profit margin while also increasing its net profits means that Starbucks is managing its operations very efficiently.

In addition, the company’s healthy financial numbers provide confidence for investors and allow the company to engage in speculative investments that wouldn’t otherwise be feasible.

2. Fast growing store network in China.

Currently, Starbucks has 2,936 restaurants in China, which is more than the company’s key rivals have combined, including Dunkin’ Donuts’ 37 restaurant [2], Costa Coffee’s 409 restaurants[3] and McDonald’s 2,600 restaurant.[4]

The number of Starbucks locations has grown significantly over the past few years. In 2011, the company had only 570 coffeehouses in China. Since then it grew its presence by 2,366 locations or 515% in just 6 years.

Figure 5. Number of Starbucks locations in China 2011-2017
2011 2012 2013 2014 2015 2016 2017
Number of locations 570 700 1,017 1,367 1,811 2,382 2,936
Growth over previous year - 22.8% 45.2% 34.4% 32.5% 31.5% 23.3%

Source: Starbucks’ financial report[1]

China will become the major Starbucks market in the future and is the second fastest growing Starbucks market behind the U.S. already. Most importantly, Starbucks is well positioned to compete in China.

For years Starbucks has been strengthening its tea offerings, which is the favorite Chinese drink. The company currently owns 2 tea brands, Tazo and Teavana, and serves brewed tea, single-serve tea, packed tea and other related tea products.

Therefore, unlike its rivals, Starbucks is better prepared to satisfy Chinese tastes and to attract Chinese customers to its coffeehouses.

3. The combination of a premium menu, huge range of coffee and quality customer service provides the best customer experience in the industry

Unlike other coffee chains, Starbucks is well-known for its quality and excellent customer experience. That’s why the company can charge premium prices and still become the largest coffeehouse chain in the world. To provide the best customer experience Starbucks has to excel at many things, including:

  • quality of its coffee and tea;
  • menu choices;
  • quality of its customer service;
  • location and quality of its stores.

Starbucks has always been focused on the quality of its coffee.[5] The company applies strict standards to coffee purchasing, roasting, packaging and distribution.

It buys only Arabica beans that are grown at high altitudes. The company tastes each batch of coffee beans at least 3 times before approval. Few of the company’s rivals go through such lengthy quality assurance checks for their coffee ingredients.

Starbucks also provides the most extensive coffee menu in the industry. The company offers more than 50 drinks in each coffeehouse and in total has more than 249 drinks in its product range.[6] By comparison, McDonald’s McCafé, Dunkin’ Donuts and Costa Coffee each offer only more than 20 different drinks.

Starbucks’ high level of customer service, the quality of its stores and their locations are also the pieces that help deliver a competitive advantage in terms of customer experience. The Customer Service Board rates Starbucks at 61st place based on positive customer reviews, while McDonald’s is at 600th place only.[7]

In addition, Starbucks’ convenient store locations add to the coffee chain’s appeal as customers can seemingly find a Starbucks on almost every corner. In 2017, the company operated 13,930 stores in the U.S. and 13,409 stores internationally, making it the largest coffee chain in the world.

Starbucks’ main competitors, McDonald’s, Dunkin’ Donuts and Costa Coffee operated a total of 37,241, 12,258 and 3,532 locations in 2017, respectively. Therefore, except McDonald’s, which actually is more of a fast food chain than coffee selling chain, all other major competitors operate considerably smaller store networks.

Figure 5. Number of stores operating in 2017 and growth over previous year
2017 Starbucks McDonald’s Dunkin’ Donuts Costa Coffee
Stores 27,339 37,241 12,536 3,532
Growth over previous year 9% 1% 2.3% 7.8%

Source: The respective companies’ financial reports[1][8][2][3]

Starbucks ability to excel at all of the factors mentioned allows the chain to provide the best customer experience in the industry and to charge premium prices, an advantage that no other rival can match.

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Published: June 5, 2018
Format: PDF + PowerPoint
Pages: 25
Words: 5,300
Charts/tables: 15
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Table of contents

  • Company Overview
  • SWOT Analysis
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Summary
  • Sources

Sources

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About Ovidijus Jurevicius

Ovidijus is the founder of SM Insight and the lead writer since 2013. His interest and studies in strategic management turned into SM Insight project, the No.1 source on the subject online.

He's been using his knowledge on strategic management and swot analysis to analyze the businesses for the last 5 years. His work is published in many publications, including three books.