A Fortune 500 company, Starbucks share prices reached its peak in 2006 and declined unexpectedly in 2008. Although its business has picked up in 2011 with an increase in operating profits, Starbucks has lost its market leader position to Costa, a chain coffee shop business owned by Whitbread plc. Starbucks’ strategic issues are its decrease in market share, negative brand perception that was invoked by its competitors and its devalued Starbucks’ Experience that was its competitive advantage. A situational analysis of Starbucks was conducted to indicate possible opportunities and threats. Internal analysis and competitor analysis was conducted simultaneously to identify Starbucks distinctive capabilities and weaknesses against competitors. Strategic options such as Market Penetration, Product Development and Market development were assessed for their suitability, acceptability and feasibility. Strategic choices that unravel three issues that Starbucks is challenged with are presented in the report.

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STARBUCKS UK
Strategic Management
Report
By Navneet Madan

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Contents
Introduction..........................................................................................................................3
Background ..........................................................................................................................3
Company Analysis ...............................................................................................................3
External Analysis .................................................................................................................4
Industry Value and Growth..................................................................................................4
Porter’s Five Forces and PESTLE Analysis ........................................................................6
UK Consumers’ Brand Perception of Starbucks and Its Competitors ...............................11
Internal Analysis and Competitor Analysis .......................................................................13
Competitive Analysis and Distinctive Position against Competitors ................................16
Concluding Internal and External Analysis .......................................................................18
Competitive Advantage: ....................................................................................................19
Strategic Options................................................................................................................20
Strategic Directions............................................................................................................21
Suitability, Acceptability and Feasibility...........................................................................23
Strategic Method:...............................................................................................................26
Conclusion .........................................................................................................................26
Recommendation ...............................................................................................................27
Reflection...........................................................................................................................27
APPENDIX........................................................................................................................28
APPENDIX 1.....................................................................................................................28
APPENDIX 2:....................................................................................................................29
Bibliography.......................................................................................................................30
Executive Summary

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A Fortune 500 company, Starbucks share prices reached its peak in 2006 and declined
unexpectedly in 2008. Although its business has picked up in 2011 with an increase in
operating profits, Starbucks has lost its market leader position to Costa, a chain coffee shop
business owned by Whitbread plc. Starbucks’ strategic issues are its decrease in marketshare,
negative brand perception that was invoked by its competitors and its devalued Starbucks’
Experience that was its competitive advantage. A situational analysis of Starbucks was
conducted to indicate possible opportunities and threats. Internal analysis and competitor
analysis was conducted simultaneously to identify Starbucks distinctive capabilities and
weaknesses against competitors. Strategic options such as Market Penetration, Product
Development and Market development were assessed for their suitability, acceptability and
feasibility. Strategic choices that unravel three issues that Starbucks is challenged with are
presented in the report.
Please note that this report contains 3209 words. Figures, captions and in-text referencing are
excluded from the word count.

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Introduction
Background
Starbucks started in 1971 as a small shop but today its diversified business sells everything
from freshly brewed coffees, bakery, tea and coffee consumer products and merchandises
such as mugs and accessories(Starbucks, 2011). Globalization driven, it is one of the fastest
growing businesses today namely 261 on the Fortune 500(Grant, 2010). Its mission statement
is (Starbucks, 2011)
Company Analysis
Reached its peak in 2006(Grant, 2010) it had a stock increase of 26.7% per year over the
period of 1996/2006. There is a high correlation stating that Starbucks brand image
contributes 88.5% to its high stock price(Perera et al., 2009). However, case study analysis
conducted for the first assignment shows frontal attack of Starbucks(Baines et al., 2008) by
major fast food chains including McDonalds and Dunkin Donut after which its stock price
declined(Grant, 2010). A market leader in the coffee industry in 2006 in UK its share prices
decreased unexpectedly and consumer’s cafe survey in 2008 claimed it had poor quality and
was overpriced(Hickman, 2008). Starbucks marketshare fell in 2009(item1), then its overall
market share increased again but in UK it’s a different case. UK market hasn’t been kind,
with Costa claiming market leader leaving Starbucks behind(Mintel, 2011b).

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Item 1 Starbucks Stock Price from 2006 to April 2011 (YahooFinance, 2011)
While Starbucks has closed many of its outlets, possibly because of its flawed location-
cluster strategy(Grant, 2010), Costa has been expanding.(Keynote, 2010b; Mintel,
2011b). The research will address Starbucks’ issues in regards to its market share, brand
perception and devalued Starbucks’ Experience.
External Analysis
Industry Value and Growth
In 2010, the coffee shop market grew to £1.2 million, but UK industry is at a mature
growth stage(Kotler, 2003)(FIGURE1) where growth is evident but slower than the
previous years(Mintel, 2011b). Mintel forecasts positive growth till 2015, but UK is
expected to face another round of recession(Mintel, 2011b) hence, a slower growth till
2012 (FIGURE2).

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Figure 1 Industry Life Cycle: UK Coffee Retailing Market (Grant, 2010)
Figure 2 Coffee Shops Growth Rate (Source: Mintel,2010a)
While half of consumers who drink coffee visit coffee shops, this figure has remained
unchanged for years supporting that it is certainly in the mature stage (Mintel, 2011b). As
Johnson describes, at the mature stage we should expect “low growth, standard products
higher entry barriers, higher marketshare and lowest cost” is the key to success(Johnson,
Scholes, & Whittington, 2008). Mintel provides the best and the worst case forecasts
(FIGURE3) of value of coffee shops from an expected £1.22 to £1.84(best case) or
Total Index % £mat Index %
£m annual
change
2010 prices annual
change
2005 665 55 na 778 64 na
2006 834 68 25.4 950 78 22.2
2007 1,035 85 24.1 1,142 94 20.2
2008 1,155 95 11.6 1,223 100 7.1
2009 1,195 98 3.5 1,232 101 0.7
2010 (est) 1,218 100 1.9 1,218 100 -1.1
2011 (fore) 1,269 104 4.2 1,231 101 1.0
2012 (fore) 1,315 108 3.6 1,238 102 0.6
2013 (fore) 1,376 113 4.7 1,257 103 1.6
2014 (fore) 1,437 118 4.4 1,273 105 1.3
2015 (fore) 1,505 124 4.8 1,294 106 1.7
UK Coffee
Retailing

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£1.14(worst case). It is depicted that the market will grow to a value of £1.51 billion in
2015.
Figure 3 Coffee Shop Industry Value Forecast for UK (Mintel, 2011b)
Porter’s Five Forces and PESTLE Analysis
The environmental analysis is described below (FIGURE4) and (FIGURE5)

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Figure 4 SOURCES OF INFO (Grant, 2010;Keynote, 2010a, 2010b, 2010c; Mintel, 2011b;
Porter, 2004)

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Figure 5 PESTLE ANALYSIS
A tea drinking nation, UK has also experienced tea price rises which have set the highest
record this year(Mintel, 2011b). However, tea suppliers have differentiated their products
Political
1. Relationship with coffee producing
nations(Grant,2010)
2. Higher VAT tax in UK(Mintel,2010b)
3. Fair Trade
Coffee(GaleAmericanIndustryOverview
s, 2006)
Economic
1. Price Volatility of coffee which
dependson demand and
supply.(Grant,2010)
2. Shock in fall of GDP may stir up double
dip recession(Mintel,2010b)
3. Lower disposable
income(Keynote,2010b)
4. Lower supply and higher demand of
coffee leads to expected increase in
prices of coffee
due(emergingmarketsmonitor,2011)
Social and Demographics
1. UK’s consumption of coffee is lower
than other developed nationsbut it
has shown most growth than
many(Keynote,2010a)
2. Infrequent consumption in a tea
nation(Mintel,2011)
3. Busier Lifestyles increase preference
for seated coffee bars(Mintel,2011)
4. Social Media
Recommendations(Datamonitor360,20
11)
5. Consumers still indulge on regular
treats even though confidence is
fragile due to GDP(Mintel,2011b)
6. Lifestyles are becoming busier so there
is room for growth for
coffee(Mintel,2010a)
7. Increase in working women
population(Mintel,2011b)
8. Increase in UK ageing
population(Keynote,2010c)
Technological
1. Significance of Facebook or Social
Media Marketing (Mintel,2011)
2. Geo-fencing technology marketing
(Mintel,2011)
3. In-store WiFi Digital Content
Network(Charles,2011)
Legal
High coffee trade
regulations(Grant,2010)
Environmental
1. Increase in price of coffee due to bad
weather conditionsand diseases in
coffee producing nation
Brazil.(EMERGINGMARKETSMONITOR,
2011)

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to increase value and charge a higher price, by offering specialty tea for different
moods(Mintel, 2011b).Energy drinks have gained importance since they are better energy
boosters than coffee itself(Mintel, 2011b). Energy drinks are popular with the young, who
are also users of coffee shops(Keynote, 2010b). Buyers who are ABC1 social
grade(Mintel, 2011b) are 50% of the population and are numerous(FIGURE5)(NRS,
2011). UK’s lower disposable income(Keynote, 2009), variety of differentiated coffee
products(Mintel, 2011a; Porter, 1979), and consumer needs that can be fulfilled by non-
speciality coffee shops has increased buyer power(Keynote, 2010c).
Figure 6 ABC1 SOCIALGRADE IS COFFEE SHOPCONSUMERS(Mintel, 2011b; NRS,
2011)
Supplier power is elevated by Fair-trade coffee where beans are made from growers who
receive more than the market price(GaleAmericanIndustryOverviews, 2006) since prices
depend on demand and supply causing small farmers to sometimes get deficient
amounts(GaleAmericanIndustryOverviews, 2006). Starbucks has integrated backwards to
collaborate with coffee farmers in order to source the finest coffee available. Due to large
amounts required - Starbucks, Costa and Cafe Nero still buy from independent farmers
who have unions backing them(Porter, 1979), hence suppliers have medium power.

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Prices of the coffee depend on environmental factors such as weather conditions, coffee
producing nation’s economy, and given that bad weather conditions and diseases have
struck main coffee producing nation, Brazil, prices are as high as
ever(Emergingmarketsmonitor, 2011). Current coffee shops are unable to absorb the price
increase due to VAT increase and extremely high coffee prices(Mintel, 2011b), this is
unlikely to attract new small entrants. Ability to buy in bulk, increase in capital
requirements, and access to target market specific locations will discourage small
entrants. Conversely, non-specialty shops as Pret-A-Manger, EAT and
McDonalds(Keynote, 2010a, 2010b; Mintel, 2011b) are amongst indirect competitors
who want a piece of the low growth and there is fear that coffee shops are losing their
unique selling point(USP)(Mintel, 2011b). Direct competitors as Costa, Cafe Nero and
Coffee Nation are extremely competitive and are expansion minded(Porter, 1979).
Although the product has high differentiation there is variety of differentiated options
available and combined with lower disposable income this contributes to medium buyer
power. These competitors are also very innovative with their menus and have changed
menus in the two years to follow consumer increasing unmet needs(Mintel, 2011b).

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Figure 7 Market Share, Intense Competition (Mintel, 2011c)
The intensity of competition is high where Costa presents strong rates of sales and
operating profit and shown in Figure7 Costa has higher market share. UK is a tea drinking
nation, and increase in ageing population does not have a positive effect on coffee shop
visitation(Keynote, 2010b). Growth in number of working women and expected busier
lifestyles in the next years will unquestionably have a positive effect since women prefer
seated coffee bars than they prefer restaurants and pubs(Keynote, 2010a).
UK Consumers’ Brand Perception of Starbucks and Its Competitors
Although consumers believe in the quality of Starbucks coffee, a high expectation of
value for money due to lower disposable income has lead consumers to perceive
Starbucks to be overpriced (picture2). Although CSR is not effectively conducted by
Operator
Market share
by turnover
(%)
Turnover (%)
% change in
share yr/yr
Total store
numbers
Costa Coffee 37.6 462 29.8 1175
Starbucks 32.4 398 6.7 731
Caffe Nero 14.3 176 10 440
Caffe Ritazza 2.5 n/a n/a 109
Coffee
Republic
1.5 19 11.8 83
AMT Coffee 1.5 19 26.7 59
Café
Thorntons
0.9 12 9.1 42
Puccino's 0.8 10 -33.3 38
Esquires 0.7 9 12.5 33
Soho Coffee
Company
0.4 5 25 19
Boston Tea
Party
0.4 5 25 9
Coffee#1 0.3 4 33.3 15
Caffe Fratelli 0.3 4 33.3 12
Morelli's
Cappuccino
Bars
0.2 n/a n/a 7
Gloria Jeans
UK
0.1 n/a n/a 2
Others 6 n/a n/a 399

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Costa(Mintel, 2011b), consumers’ are unaware, and therefore perceive Costa higher,
hence a better market share.
Picture 1 (Mintel, 2011b)
Picture 2(Mintel, 2011b)

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Picture 3 (Mintel, 2011b)
The key success factors for this industry is strong relationship with coffee suppliers(Grant,
2010), strong brand loyalty(Clark, 2009), positive brand perception, fast paced innovation for
new product creation and location which is ability to secure new distribution channels where
competitors haven’t been located in. They should also have a unique selling point that isn’t
easily imitated. Most importantly, “quick coffee on the go” will certainly benefit due to
increase in number of working women who are about to have busier lifestyles(Keynote,
2010a; Mintel, 2011b).
Internal Analysis and Competitor Analysis

15. 14 | P a g e
Figure 8 Capabilies (Grant,2010)
Since Starbucks has continuously raised consumer expectations for years(Mintel, 2011b), it
has become the benchmarking point for all coffee companies including Costa. Extensive
training of Baristas to be friendly, their ability to make coffee and develop relationship with
consumers is now just a Threshold resource(Johnson, et al., 2008). Starbucks has successfully
associated corporate social responsibility, high quality and inspiring to its brand name
(picture1, 2, and 3). Nevertheless, it’s extremely overpriced coffee constitutes to consumers’
perception that it cares only about profits not excluding the fact that it supports huge causes
and charities(Starbucks,2011). Starbucks high quality is no longer an excuse to charge
extremely high prices, as quality is established by all competitors including Costa (Mintel,
2011b), espresso machines(Grant, 2010) and instant coffees. For example: exactly the pattern
Resources
Tangible
• Net loss in UK
£52,106,000 for 2009
(Mintel,2011b)
• Total Physical Assets:
$5672.6 million
(Grant,2010)
Intangible
•Technology:It’s R& D. Continuous
Innovation(Datamonitor,2010)
•Reputation:High Brand
awareness,reached bonding stage.
ButUK customers have negative
perception thatits coffeeis
overpriced.(Mintel,2011b)
•Culture:Organisational culture : a
shared planetand a harmonistic
environmentforemployees.(Grant,
2010 Starbucks,2011)
Human Resource
•Baristas are extensively trained
service forcoffee(Grant,2011)
•“It is not unusualto have a chat with
Baristas”(Starbucks,2011)
•Increased motivation with benefits:
fullhealth coverage(Starbucks,2011)
•Equity through Bean Stock
programme(Starbucks,2011)
Distinctive Capabilities
•Glocalised, strategy, a community coffee shop
•Continuous innovation
•Financial strength evident from total asset .
Strategy
Industry Key Success
Factors
• Location(Keynote,2010b)
• Financial capability
• Market share
• Differentiation, medium
Pricing Strategy and
quality(Mintel,2010b)
• Quickcoffee on the go
• Fast pacedinnovation
• Brandawareness, loyalty
andBrand
perception(Mintel,2010)
Competitive
Advantage
The Starbucks
experience
Is it still valued?

16. 15 | P a g e
faced in U.S where McDonalds coffee was rated to taste better than Starbucks. Similarly, UK
agency Tangible tested 157 samples and concluded that 7 out of 10 consumers prefer Costa’s
Mocha Italia beans over Starbucks(Mintel, 2011b). As shown in Item2, tastes for all strategic
groups are similar.
Item 2 Sources:(Keynote, 2010a, 2010b; Mintel, 2011b)
Although criticised on quality, the core strength behind Starbucks’ brand is still the quality of
its products due to its ability to continuously innovate. Starbucks’s strong R&D capability in
researching on food, beverages and equipment is an inimitable strategic capability due to it
being a first mover at the gourmet coffee shop market(Grant, 2010). In addition, Starbucks
also has intangibles such as established relationships with Kraft foods(Datamonitor, 2010),
Yahoo for in-house digital networking connectivity(Charles, 2011), 02 to take advantage of
geo-fencing marketing abilities(Mintel, 2011b).
An advocacy brand that attracts repeat consumers, it creates a strong brand with a healthy use
of social media marketing(Woodward, 2011). Through recommendation of fans it creates
strong bonds with a consumer which further translates into profits(Woodward, 2011).
Although it lags behind Costa, its mission to be a community coffee shop and its contribution

17. 16 | P a g e
to the community, can help create interpersonal relationships between the consumers and the
local Starbucks indicating a good practice.
Competitive Analysis and Distinctive Position against Competitors
Figure 9 Source: (Porter, 2004)
Although Starbucks tries to target lower income individuals by decreasing prices of cheaper
drinks by £0.25 and increasing prices of its higher prices by £0.25(Mintel, 2011b), which
shows that it would like to have a broader target, it still holds a differentiation focus since
main targets for coffee shops are ABC1 social grade segment as described above. Shown in
Figure9, when compared to its close competitor Costa, Starbucks has core competences such
DIFFERENTIATION
FOCUS
STRATEGIC ADVANTAGE
DIFFERENTIATION OVERALL COST LEADERSHIP
COST LEADERSHIP
FOCUS
Differentiation Positioning Low Cost Positioning

18. 17 | P a g e
as fast paced innovation, its marketing capability but lowered due to negative brand
perception (picture1,2&3), and its extension line of coffee on the go will be valuable for the
emerging working women who have busier lifestyles.
Figure 10 Competitive Grid (Aaker,2005)Source ofinformation provided in Appendix1
Figure 11 Porter'sValue Chain AnalysisSource ofInfo: (Datamonitor, 2010; Grant, 2010; Starbucks, 2011; Woodward, 2011)
Key SuccessFactors Starbucks Costa CaféNero
•Location(Keynote,2010b) 3.274087933 5 1.87090739
•Marketshare 4.308510638 5 1.901595745
•Differentiation, medium PricingStrategy and quality(Mintel,2010b) 3 5 2.5
•Quick coffee onthe go 5 0 0
•Fastpaced innovation 5 4 1
•Brand awareness, loyalty and Brand perception(Mintel,2010 ) 4 5 2
Critical SuccessFactors
•Financial capability 5 5 2
• Strong in Social
Media
•Strong brand
awareness
•High customer
advocacy
HumanResource:ensures highestworking standardsfor all types of employees, excellent healthbenefits
Technology & Development: Innovation capability on foodservice, coffee and taste
innovation
Firm Infrastructure: Flat infrastructure that supports harmonious organisational culture
•Ensures fixed-
price due to
relationship
with suppliers
•No non
delivery risk
• It controls
purchasing,
roasting `and
packaging.
•Many product
recalls from
customers
INBOUND
LOGISTICS
OPERATION
OUTBOUND
LOGISTICS
MARKETING
& SALES
PRODUCT
& SERVICES
• Community coffee
shop
•Comfortable “back to
nature” environment
•Diversified product
list
•Well-trained baristas
• Ensures
Baristas are
well-trained,
excellent
systemto
accommodate a
full capacity
shop
1 = Least capable 5= Most

19. 18 | P a g e
Concluding Internal and External Analysis
As shown in the value chain(Figure10), Starbucks’ rare and inimitable capabilities include
marketing, continuous innovation, human-resource(culture), financial strength and
relationship with suppliers. Weaknesses include operation (product recalls)(Datamonitor,
2010), negative brand perception, market share, taste and accessibility(picture 1,2&3), and
it’s Starbuck experience does not give high value for money like the price charged. Major
threats include future high coffee prices, ageing population, energy drink popularity and
entrance of more non-speciality shops. Opportunities include working women with busier
lifestyles, significance of social media marketing, value for money trend, and importance of
localisation.

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Figure 12 SWOT MATRIX (Johnson et al., 2008) Reasons for values are justified in the Appendix 2.
Competitive Advantage:
Starbuck’s core competencies is its brand awareness, its relationship with suppliers,
relationship with big companies (Pepsi-Cola and Kraft)(Grant, 2010) and its proficiency in
social media marketing to create higher customer advocacy(Gallaugher and Ransbotham,
2010).
Opportunity/Threat O1 O2 O3 O4 O5 T1 T2 T3 T4
Strength/weakness Increase in
working
women with
busier
lifestyles
Use of
technology:
Social Media
and Geo-
fencing
Value for
money
trend
Importance
of
Localisation
Expected
future
growth for
UK market
Higher
coffee
prices and
demand
volatility
Ageing
population
Energy
drink
popularity
Penetration
ofnon-
specialty to
sell coffee + -
Strength 1: Marketing
capability
3 4 5 4 5 0 3 3 4 31 0
Strength 3:
Innovation Capability
Strength 4:
human-resource(culture)
Strength 5:
Relationshipwith coffee
suppliers
W1: operation (product
recalls)
W2: Starbucks experience:
not high value for money.
-3 4 -5 -4 -4 0 -4 -3 -4 9 -45
W3: Negative brand
perception
-3 5 -4 -3 -3 0 0 -2 -3 21 -29
W4: Lower market share
than competitor
3 3 4 3 3 -3 -2 -3 -3 16 -26
W5: Taste ofproduct and
Accessibility ofStarbucks
Store
-2 0 0 -3 -2 -2 0 -2 -4 0 -15
15 24 22 17 22 3 7 5 11
-10 0 -11 -14 -13 -13 -8 -13 -19
-2
4 3 4 2 5 -4 2
3 5 4 3 3 -4 0 -3
2 4
2 0 2 5 2 0 2 0 3
0 0 3 0 4
Strength 2:High Financial
Capability: Total Assets
-2 0 -2 -4
18 -9
26 -4
16 0
10 0
0 -17
Environmental Impact
Scores
-2 0 -3-4 0
3 0 0 0

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It’s “Starbucks Experience” is rare, inimitable but not as valuable as in 2006 either(Barney,
1995). Shown in SWOT Matrix, Starbucks’ main issue is its diluted Starbucks Experience
that doesn’t express value for money which should improve to create a sustainable
differentiation-based advantage(Berns et al., 2009). It should utilise its strength such as
marketing capability, innovative capability and financial resources to create more intangible
value. As Robert Grant described, differentiation advantage can be created through
“branding, advertising, design, service quality and new product development”(Grant, 2010).
Strategic Options
Figure 13 Strategic Options Approach Followed. Developed from (Johnson et al,2008)
Strategic options
Base
Differentiation
Focused
Strategic Directions:
Market Penetration
Market Development
Product Development
Strategic Method
Organic Development
Alliances:Licensing
and Franching

22. 21 | P a g e
Strategic Directions
Already an industry standard, Starbucks’ strategic lock in(Johnson et al., 2008) and its strong
strategic capabilities will contribute to better strategic options. Starbuck’s bases of
competitive strategy is differentiation focus(Johnson et al., 2008). Strategic direction is
shown in the figure12 below.
Figure 14 Ansoff Matrix (Johnson et al., 2008) Source of info (Starbucks, 2011, Aaker, 2005)
“Market penetration is where an organisation gains marketshare”(Johnson et al.,
2008). Therefore, in order to increase marketshare Starbucks must also continue
advertising to gain more consumers and revitalize its brand to hold current consumers.
According to WPP, when a brand reaches the Bonding stage, it has emotional benefits
and is willing to pay much higher. Although Starbucks has reached that stage in US

23. 22 | P a g e
and with some segments in UK(Clark, 2011), it needs to gather more consumers who
are at the Bonding stage that will be willing to pay high and increase its marketshare.
Figure 15 WPP Branding (Datamonitor360, 2006)
Starbucks should also develop new products targeted to the emerging working
women who are expected to have busier lifestyles, hence, a low calorie coffee drink
on the go. Apart from this, due to the growing popularity of energy drinks, Starbucks
has already created an energy boosting coffee drink(Starbucks, 2011). Its current
strategy of “one community at a time” is excellent to increase marketshare because
consumers have to find Starbucks’ more accessible than Costa as shown in
(picture1,2,3) and as stated earlier location is also a KSF. The suitability of the
strategies are accessed in TOWS Matrix(Figure13)

24. 23 | P a g e
Figure 16 TOWS MATRIX (Johnson et al., 2008) Source of information (Grant, 2010, Gallaugher and Ransbotham, 2010,
Datamonitor, 2010)
Suitability, Acceptability and Feasibility
“Suitability” is whether a strategy is addressing the key issues of the company in this case:
low marketshare(Mintel, 2011, YahooFinance, 2011), negative corporate brand
perception(Mintel, 2011) and less valued Starbucks’ experience(Mintel, 2011).
“Suitability” for Market Penetration options provided above is that it is advantageous for
Starbucks to become a Market Leader. By becoming a Market Leader, it can exploit
opportunities such as maintaining its current high pricing strategy therefore, a superior
product than competitors(Lynch, 2006). Moreover, it is in shareholders’ interest for
TOWS MODELDEL
Strength
•MarketingCapability
•Innovation Capability
•Financial Capability
•HumanResource Capability
Weakness
•The Starbuck’s Experience
•Negativebrandperception
•Lower market share
Opportunities
•Use of Technologyand Social
Media
•Valuefor Money Trend
•Expected Future Growth in UK
1. Use social media to target
appropriatepromotionsto
different types of consumers
2. Createinnovativeand
sophisticatedproductsthat
shows value of money and
targets growing segments
1. Utilizesocial media to
change negativeperception
of consumers
2. Increase value and extrinsic
offerings to consumers that
brings Starbucks’s Experience
to a whole other level from
other coffee shops
Threats
•Penetrationof non-specialty
coffee shops
•Energy Drink Popularity
•Coffee Price Volatility
1. Advertise and create a
stronger brand, for
consumers to differentiate
between true coffee shops
andnon-specialty stores.
2. Emphasizeon coffee energy
boostingabilities,or create
coffee drinks that boost
energy
3. EmphasizeTea sales as UK is
a tea drinking nation.
1. Add more value to Starbuck’s
experience and differentiate
from non specialty stores.
2. Associateenergy boosting
statementwith coffee drinks
andemphasize on its
amazingabilities.
3. Emphasize on tea, “Tazo”
brandin UK, as a separate
brand. Change cost
structure, to absorb certain
high supplier prices.

25. 24 | P a g e
Starbucks’ to exploit its brand awareness to create a positive perception and also to exploit its
Tazo brand by advertising it in order to gain more market share in a tea drinking nation.
“Suitability” for Product Development option is to exploit the changing population(Johnson
et al,2008) and demands of customers within the market. Starbucks’ already has an energy
boosting coffee hence, not a suitable choice(Starbucks, 2011). However, Starbucks’ can
utilize emotional advertising on social media to target specifically working women to
purchase their coffee on the go.
“Suitability” for market development option is to exploit opportunities in other communities,
since access is clearly a KSF for this industry. The market in Central London is becoming
mature(Keynote, 2010) and saturated with coffee shops, and moreover, competitors are
expanding to other locations, hence Starbuck’s has to exploit core competences in new
locations(Johnson et al., 2008) and not allow competitors to gain first mover advantage in
certain locations(Lynch, 2006).
“Acceptability”
Mission of shareholders: The annual shareholder report of Starbucks states (Lynch,2006)
“The Company’s retail goal is to become the leading retailer and brand of coffee in each of
its target markets by selling the finest quality coffee and related products, and by providing
each customer a unique Starbucks Experience”.(Starbucks, 2011).
Market Penetration: To gain marketshare to have advantage and become market
leader(Johnson et al., 2008)
1. Increasing the market share to become a market leader through advertising
2. Increasing the “Starbucks Experience” value

26. 25 | P a g e
As Starbucks’ high pricing strategy requires for it to be in a position to exploit superior
advantages than competitors, it is required for Starbucks’ to become a market leader and
exploit its current resources to create a more valuable Starbucks experience. The statement
provided in the shareholders’ annual report supports this and this strategy is advantageous as
it will increase share prices if consumers believe Starbucks is a superior brand. As this option
is a must for Starbucks’ to secure a superior position, the risk is lower than the return.
Acceptability for Product Development: Clearly Starbucks’ is a highly diversified business
and this has always been its goal(Starbucks, 2011), if it had to innovate new products for
existing customers to take advantage of the changes in demand, it would certainly be
accepted by the Shareholders(Grant, 2010). The risk is higher than market penetration but the
return is higher as well, since it allows Starbucks to exploit the increasing demand in UK
market effectively.
Acceptability for Market Development: As stated in the Shareholders’ annual report above,
Starbucks’ wants to become a market leader in each of its target market, in order to become a
market leader in the UK, it is required for Starbucks’ to penetrate new locations in UK. Since
this is a KSF, if it does not expand to other locations in every community, it will be at a
disadvantage; hence the return is higher than the risk.
Feasibility:
Market Development: To increase marketshare and change negative to positive perceptions
by advertising, Starbucks’ has to make full use of its financial capability and marketing
capability. As seen in its total assets, Starbucks has high financial capability(Grant, 2010). Its
marketing capability has always been one of its core strength(Starbucks, 2011); hence it is
feasible for Starbucks to advertise to gain marketshare. On the other hand, to increase

27. 26 | P a g e
intangible services, it has to make full use of its financial and innovative capability to provide
more services in store, in order to increase the value of Starbucks’ experience.
Product Development: Starbucks’ has excellent innovative capabilities on food and
beverages due to its highly advanced R&D(Datamonitor, 2010, Euromonitor, 2010),
however, this requires high financial capability which Starbucks clearly has. It is also
required for Starbucks to utilize its marketing capabilities to market the products effectively
to the emerging targets in order to exploit the situation fully.
Market Development: This requires financial capability and distribution capability(Johnson
et al., 2008), Since Starbucks’ has had more than 700 outlets in UK (Mintel, 2011)and 17,009
worldwide(Starbucks, 2011), it certainly has capability to build in new locations.
Strategic Method:
The strategic method utilised will be organic development(Johnson et al., 2008) for market
penetration and product development since Starbucks’ has the marketing and innovation
capability and direct involvement may help gain competitive advantage(Johnson et al., 2008).
The benefit of developing its marketing and innovation capability is higher than acquiring
any other firm. However, for fast action to compete with Costa, Starbucks should exploit
contractual strategic alliance(Johnson et al., 2008) such as licensing as it has done in the past
since number of stores and accessibility can directly increase its marketshare.
Conclusion
 The main issues that Starbucks face is its loss of market leader position due to lower
market share, negative brand perception, and devalued Starbucks’ Experience.

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 Its marketing capability and innovation capability are its core competences, however
as seen in the SWOT Matrix, its financial capability requires Strategic Stretch.
 Starbucks has the ability to become a market leader but it requires aggressive strategy
by utilising. Though it will face aggressive retaliation from Costa, Whitbread plc’
brand, Starbucks’ has sufficient resources to compete.
Recommendation
 All strategies provided above to become a market leader in UK must be followed and
all are suitable, acceptable and feasible.
 Although the industry analysis is produced for 2011, the research information is from
2010, and Starbucks’ have made fast paced decisions and followed most of the
strategic options provided above including use of Geo-fencing technology to target
customers(Mintel, 2011) and digital content network in store to increase Starbucks’
experience(Starbucks, 2011). It is also pursuing more opportunities to open more
community stores(Starbucks, 2011).
Reflection
 The research conducted provided a full understanding of the rationale behind utilising
Porter’s Five Forces before PESTLE, as it helps identify direct environmental factors
impacting the coffee industry and Starbucks specifically. Moreover, the learning map
has enhanced this research experience, by providing specific actions required to
identify specific strategic issues hence, an uncomplicated learning outcome.
 Overall, the research experience has posed quite a few difficulties as it is a new
concept for the researcher.

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APPENDIX
APPENDIX 1
Calculation of Marketshare for Competitive Grid. Information from marketshare table
provided in the report.
Costa’s most marketshare = (37.6/37.6)*5 = 5
Starbuck’s marketshare = (32.4/37.6)*5
Cafe Nero’s markshare =(14.3/37.6)*5
Differentiation, medium pricing: Checked the website for prices and made an assumption of
the differentiation level and their pricing strategy. Starbucks has as high differentiation as
Costa with extremely high pricing hence, it got lesser
Fast paced innovation: Checked the website and made an assumption. Starbucks has an
extremely vast line of product lines and has fast paced innovation, Costa’s product line is
much shorter.
Financial Capability is higher for Starbucks as it is a global business and Costa is support by
large Whitbread plc. Moreover, Cafe Nero is much smaller than the two.
Brand awareness and Brand Perception: Starbucks scored full in brand awareness but it has
negative brand perception, hence it scored lower than Costa.

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APPENDIX 2:
Marketing capability score: marketing/advertising can add value for all including increase in
working women and busier lifestyles because marketing capability allows advertising to be
specifically targetted at this group. Marketing can also help increase the value of the product.
Financial Assets can be depleted by higher coffee prices and penetration of non-specialty
shops if they do well.
Innovative capability: can help Starbucks innovate products and advertising can express its
innovation capability to differentiate its products.
Operation(product recalls): This can have an impact on further consumer purchase.
Negative brand perception: can have an effect on future purchase and does not help with
value of money trend.
Lower marketshare: can be further lowered by non specialty stores.
Taste and accessibility of the store: can be an impact on future purchase.
Strength/weakness Increase in
working
women with
busier
lifestyles
Use of
technology:
Social Media
and Geo-
fencing
Value for
money
trend
Importance
of
Localisation
Expected
future
growth for
UK market
Higher
coffee
prices and
demand
volatility
Ageing
population
Energy
drink
popularity
Penetration
of non-
specialty to
sell coffee + -
Strength 1: Marketing
capability
3 4 5 4 5 0 3 3 4 31 0
Strength 3:
Innovation Capability
Strength 4:
human-resource(culture)
Strength 5:
Relationship with coffee
suppliers
W1: operation (product
recalls)
W2: Starbucks experience:
not high value for money.
-3 4 -5 -4 -4 0 -4 -3 -4 9 -45
W3: Negative brand
perception
-3 5 -4 -3 -3 0 0 -2 -3 21 -29
W4: Lower market share
than competitor
3 3 4 3 3 -3 -2 -3 -3 16 -26
W5: Taste of product and
Accessibility of Starbucks
Store
-2 0 0 -3 -2 -2 0 -2 -4 0 -15
15 24 22 17 22 3 7 5 11
-10 0 -11 -14 -13 -13 -8 -13 -19
10 0
0 -17
Environmental Impact
Scores
-2 0 -3-4 0
3 0 0 0
18 -9
26 -4
16 0
Strength 2:High Financial
Capability: Total Assets
-2 0 -2 -4
0 0 3 0 4
2 4
2 0 2 5 2 0 2 0 3
-2
4 3 4 2 5 -4 2
3 5 4 3 3 -4 0 -3

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