In the last few decades, Starbucks Corporation has been the most prosperous coffee chain. The corporation has been using its aggressive expansion tactics to reduce much of its competition. This corporation has concentrated on creating a network of stores throughout America, while at the same time opening new locations throughout the world. By being the frontrunner in the retail coffee market, this corporation is in a position to sell its product for a premium price, and hence increase its profitability. Despite Starbuck’s success, it faces some threats including the threat of substitute products, consumers’ willingness to switch, and relative price and performance.
The threat of Substitute Products
Of late, there has been a serious competition where a number of corporations are developing coffee products, which rival the products offered by the Starbuck. For instance, companies like Coffee Bean have essentially become its competitor through offering substitute products (Scott eta al, 28). In addition, there are other beverages apart from tea and coffee, which customers prefer. These beverages include smoothies, fruit juice, soda, alcoholic drink, and water. Moreover, other companies like Burger King, McDonalds, and others offer other “quick‐grab” foods such as snack food, burgers, burritos, and others that Starbuck does not offer, and that a number of Starbuck’s customers prefer.
Consumers’ willingness to switch
This is the other threat that Starbuck faces. Coffee is just a fad, and customers will eventually grow out of it. The presence of other beverages in the market might lead to Starbucks’ customers switching to these beverages. If this is the case, the corporation’s only hope is essentially to expand its business to the other industries, and this will possibly give it some security from the instabilities in the coffee market.
Relative price and performance
The volatility of coffee price is still a risk factor. The movement as well as direction of coffee price would affect its operating costs as well as margins. The price of coffee could increase due to various factors such as instability in local political environment and poor crop yield because of poor weather conditions, which could influence coffee prices by causing the price to skyrocket. In addition, there is a dramatic decrease in Starbucks’ growth, which may be the financial evidence that its performance is declining.
Scott, Ken, André Rouleau, Julie Lebreton, and Patrick Huard. Starbuck. United States: Films Christal, 2011.