Question

Case 5: Starbucks

  1.  What are some of the challenges associated with Starbucks’ aggressive international growth strategy?

  2.  Could an unanticipated change in coffee consumption patterns disrupt Starbucks in the same way that it paved the way for the company’s growth in the 1980s and 1990s?

  3.  To what extent do lower-priced competitors like McDonald’s and Dunkin’ Donuts present a threat to Starbucks’ premium-priced coffee?

Answer 1

Starbucks

1. Talking about the aggressive growth strategy of Starbucks, we know that Starbucks is an international player dealing in the coffee industry for a long time now. Following are considered to be the challenges.

• Higher price for the products

   Starbucks has been leveraging its consumer loyalty and lack of elasticity among its consumers by continuously passing on increases in costs, due to wages and coffee prices, to its customers. As a result of that, in the period between 2014-2016 we have seen four price hikes on its products, two of which were in 2016 alone.

• High wages for the employees

Starbucks pays high wages to its employees, as a result they incur huge expenses just on that which makes them financially struggle.

• Rise in price of coffee beans

2. An unanticipated change in coffee consumption patterns can have a positive or negative impact for Starbucks. During the 80s and 90s, they didn't had any big competition in the premium coffee industry, but that is not the case now. There exists a huge competition with almost look-a-like products offered by different companies. So it is difficult to grow in such a condition in the long run.   

3. People are changing day by day and their tastes and preferences also changes accordingly. As a result of that, the working class people may find an alternative for Starbucks and it will reduce a huge income share of theirs. The consumers will go for the low priced products offered by the competitors to satisfy their needs.