Strengths

Starbucks is the first name that comes to mind when one thinks of specialty retail coffee. This close relationship between the company’s brand and the consumers’ perceptions of the specialty retail coffee enables the company to charge premium prices despite increasing competition. As the world’s largest specialty retail coffee chain, Starbucks has the power to extract favorable trade terms from its suppliers. The company has been praised for its efforts to improve the well being of coffee planters by paying fair prices and setting examples of fair trade for other customers of commodities goods.

Leadership is also one of the company’s greatest strengths. Howard Shultz has been with the company since its humble beginnings and has guided the company through both good and bad times. The leadership has stayed ahead of the competition and has taken numerous actions that were risky yet have proven beneficial in the end. These include offering products such as breakfast and lunch sandwiches. The company’s retail sales mix in 2005 was 77 percent beverages, 15 percent food items, 4 percent whole bean coffees, and 4 percent coffee making equipment and accessories. By ensuring a wide range of products, the company increases the probability that customers will also make it a lunch destination in addition to morning coffee. In addition, the company has licensing deals with retailers to sell Starbucks branded coffee beans as well as with Pepsi to sell bottled coffee in retail store and super markets which allows it to reach greater number of customers as well as increase brand awareness.

The company has loyal employees who enjoy their work because they believe the company treats them fairly and cares about them. This job satisfaction translates to better service to the customers. Starbucks was named by Fortune Magazine as one of the “100 Best Companies to Work For” in 1998, 1999, 2000, 2002, 2003,2004, and 2005 (Shah, Thompson, & Hawk, 2006).

Weaknesses

In its quest to grow aggressively, the company has done a poor job of identifying store with profit potential. The company announced the closing of 600 stores in 2008 many of which had opened only two years earlier. Many of the candidates for closure were located close to other Starbucks stores. Weak sales along with falling share prices forced the company’s founder Howard Shultz to return as hands-on CEO in early 2008 (Bear, 2008).

The company has been taking huge debts to fund its expansion. The company’s current liabilities grew almost four fold from approximately $313.25 million 2000 to approximately $1.23 billion in 2005. Such a huge increase in current liabilities reduces company’s day to day liquidity and will have huge implications if the revenues suddenly fall by a considerable margin. The company may lower its debt leverage by opting for franchises instead of expanding through company owned- stores in the US. This strategy may not be feasible in international markets where Starbucks will have to establish its image first thus, it would want to maintain maximum control over its international operations.

Starbucks offers attractive employment benefits to its employees. Even though it increases employees dedication but it also raises the company’s labor force costs. This may hurt the company in the future because the retail coffee industry is becoming increasingly competitive and price has become one of the most commonly employed tools by Starbucks’ competitors.

Opportunities

Despite being the most recognizable brand in the specialty coffee industry, Starbucks had only 7 percent share of the coffee drinking market in the US and 1 percent globally as on 2006. Thus, huge expansion opportunities exist in emerging economies such as India and China and Starbucks has already taken the first steps. The company’s CEO Howard Shultz announced in late 2010 that Starbucks will open 500 new stores in the current fiscal year 400 of which will be outside the US. The company’s China chief, Jinlong Wang reported that China will be the company’s biggest growth market within the next two years (Reimer, 2010).

The company can take a note from the fashion industry that has set one of the best examples of catering to customers in different income categories without eroding the brand’s prestige. For example, Giorgio Armani sells premium products under the company’s flagship “Giorgio Armani” line. “Emporio Armani” is aimed at the middle income and relatively younger crowd. “Armani Exchange” is the most economical product line, primarily targeted at the casual wear market. Despite targeting greater number of market segments, Giorgio Armani has successfully protected its original prestige and consumers’ perceptions of the company. Starbucks has been feeling the pressure from McDonalds to offer better value to its customers and the company has started an experiment through its subsidiary, Seattle’s Best Coffee (Kowitt, 2010). Seattle’s Best Coffee offers its products at lower price points than the Starbucks and is currently going through limited nationwide experimentation. If the experiment proves encouraging, it will allow Starbucks to compete with McDonalds and other value coffee chains without lowering Starbucks products’ prices and hurting the brand’s prestige.