Starbucks Corporation, founded in Seattle, Washington in 1971, is a roaster and retailer of specialty coffee offering a diverse product mix including handcrafted coffee and tea beverages, packaged and freshly prepared foods, and other related retail items. Starbucks services over 70 million customers per week (Humanity 2017) across more than 27,000 stores in 75 countries throughout North America, Asia, Europe, Africa, Latin America, and the Middle East. In 2017, Starbucks reported total revenue of $22.4 billion, representing a 7% growth over 2016 and generating $2.9 billion in net income (Starbucks Corp 2018).
Industry Overview and Analysis
Starbucks primarily operates in the ‘coffee and snack shops’ and ‘specialty food stores’ industries, which represent a combined $50 billion in annual sales (IBIS World 2017). The coffee and snack shop industry, being one of the most pliable industries within the food-service sector, has shown positive growth year-over-year since 2012 due to its ability to quickly adjust to the ever-changing demand of consumer preferences and emerging trends. The adaptable nature of this industry subcategory allows for flexibility in areas such as affordability and convince, which are most likely to adjust during times of economic change. The specialty food stores industry is expected to continue to increase until 2022 as the consumer demand for specialty and premium items continue to rise. Starbucks is currently dominating the industry capturing nearly 40% of the market share with Dunkin’ Brands following behind with almost 22% (Statistic 2016).
Factors Impacting the Industry
The coffee and snack shops and specialty food stores industries are highly sensitive to many factors including pricing and ability of specialty products, current trends, and market demographics, with the main driver being discretionary income.
The positive upward economic outlook in the U.S. has boosted consumer confidence and spending creating positive growth in both the coffee and snack shops and specialty food stores industries. In addition, a growing presence and demand in Asian markets has been established. As Western culture becomes a more acceptable standard in China, and the status-conscious middle class population continues to grow in their support of luxury consumption, Starbucks has positioned themselves in high-traffic areas in an effort to capitalize on the growing demand for gourmet beverages. This strategic maneuvering has allowed Starbucks to report a increase in sales of 7% within the Chinese market, according to their Full Year Fiscal 2017 Results.
Social responsibility has shown to be increasingly critical to the general acceptance of larger corporations, including Starbucks, whose mission is to “inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Studies show that companies that have an active interest in socially conscious practices are more likely to see a positive impact on the bottom-line (Palmer 2012).