PESTLE Analysis of Starbucks

Starbucks started off as a small coffee shop in 1971. The founders consisted of Gerald Baldwin, Gordon Bowker and Ziev Siegl who exchanged their ideas and launched their first outlet at the Pike Place Market in Seattle. In the early 1980s Howard Schultz joined Starbucks and has later felt the need that Starbucks needed to market themselves. He wanted to create a brand image that would attract customers and help them to differentiate their coffee outlet from other competitors. Schultz visited Italy and was ‘impressed with their popularity and culture.’ He thought it would be a good idea to bring the espresso bars, lattes and mochas to Seattle. Throughout the years Schultz has managed to differentiate Starbucks, creating a very strong brand image in the most unique way in American’s minds, gaining its competitive advantage through the comforting physical environment that they adapt encouraging the lounging experience. Schultz successfully embedded the fact that their outlets are now a ‘third place’ for people (which came in between home and work). Doing this, Starbucks now has successfully moved out of Seattle and go global having more than 6000 outlets around the world (in approx. 30 countries).

PESTLE Analysis of Starbucks

PESTLE Analysis of Starbucks Coffee Company

PESTLE analysis stands for Political, Economical, Social, Technological, Legal and Environmental analysis. PESTLE analysis provide macro-environmental factors that a company has to tale into consideration. It is useful as strategic tool for understanding market growth or decline, business position and direction for operations.

Political Factors:

  • High taxation imposed on farmers in those countries producing the coffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the consumer.
  • Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country’s government imposes a tariff it not only results in an efficiency loss for Starbucks but large income transfers can become inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.
  • Starbucks should thoroughly investigate the political stability of any country they plan to expand to. Changes in government can lead to changes in taxation and legislation. The American elections may have an effect on Starbucks as new legislation or new or existing government may bring in taxes. Also, those countries in political turmoil or civil war (e.g. Syria, Yemen at present) should be approached with great caution when considering new ventures.
  • The international economy must be brought into consideration as it can affect Starbucks’ sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market.
  • A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers. This saving would in turn be passed on to the purchaser.

Economic  Factors:

  • A rise in interest rates means investment and expansion plans are put off resulting in falling sales for Starbucks and their suppliers. Also mortgage repayments rise so consumers have less disposable income to spend on luxury products such as coffee. Low interest rates will have the opposite effect of it.
  • If growth is low in the nation of location of Starbucks then sales may also fall. Consumer incomes tend to fall in periods of negative growth leaving less disposable income. Consumer confidence in products can also fall if the economic situation is bad.
  • Competitive pricing from competitors can start a price war for Starbucks that can drive down profits and profit margins as they attempt to increase, or at least maintain, their share of the market.
  • Globalization of the coffee market has meant farmers of the bean now earn less money than they used to. This can result in a decrease of people willing to do it for a living, which will mean a decrease in coffee produced, resulting in a drop in Starbucks supply levels and probably profits.
  • Starbucks are affected by exchange rates when dealing with international trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ or £ when importing the goods to their country. This saving can be passed along to the customer. Exchange rates are forever changing throughout the world in today’s market.

Social  Factors:

  • Where income is distributed is another factor that Starbucks should look at as this also demonstrates the ideal place to aim their marketing or to locate their stores. Coffee is more of a luxury product so it is those people/places with the most amount of disposable income to spend that should be targeted the most intensely.
  • Starbucks would not want to locate to an area where the local population have a poor attitude to work. Recruitment would be difficult, training arduous, and staff turnover would be high. Attitudes to work are important in other ways.
  • Transport needs to the premises must be considered for both staff and customers. Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not to visit.
  • Research shows the average age of the population is getting older and birth rates are stagnating. Starbucks is presently aiming it’s product at young people but maybe these views will change in the long-term as the market proportion for young people diminishes. The most profitable way forward may be to widen their target market despite the risk of alienating present customers.

Technological  Factors:

  • Developments in the technology of coffee making machines and the computers that Starbucks use to run their cash registers will enable their staff to work more quickly and efficiently. This will result in customers being served quicker and create the potential to serve more customers in a day.
  • In the short-term, Starbucks must identify the most efficient software upgrades to use to keep up with the competition. This applies to the improving the accessibility of their website (www.starbucks.com) and also improving the speed and quality of the service provided on the shop floor.
  • As a multi-national business empire, Starbucks has the budget and the resources to have a cutting-edge R&D department. The website is very accessible, the facilities are state of the art but more importantly new ideas are consistently being tried in terms of a constantly updating menu.
  • The rate of technological change in the current world market is high, much higher than, say, thirty years ago. Much of this is down to the Internet and the speed with which information can be communicated around the globe. Starbucks will need to invest heavily just to stand still in their ever expanding and developing market, and even more so to try to stay ahead of competitors.

Legal  Factors:  

  • Starbucks need to be aware of the trade laws in the various countries they occupy and do business with. They need to ensure they are not in violation of e.g., religious laws. Also, certain countries impose a tariff that has to be paid when goods are imported/exported so this must be taken into account.
  • Each country has varying employment laws. Some may have a holy day, some may have a limit on the number of hours an employee may work per week, and all will have varying levels of minimum wage. Starbucks should consider these factors when deciding on relocation.
  • Starbucks may have to abide by local planning regulations when building shops or altering purchased sites, as certain areas of land may be protected or unsuitable. All matters would be addressed by the local government.

Environmental  Factors:  

  • Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
  • Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.
  • Starbucks need to carefully consider the methods in which they dispose of their waste as there are strict laws in most countries to ensure a firm trading in their country disposes of the waste that is created in their business in a specific and efficient way.
  • Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth.

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