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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Analysing Starbucks's macro environment in USA, company's home market, we will try to identify individual factors and see if they present new opportunities or pose a potential threat.

Political Starbucks performance may be affected by the level of relationship between USA and countries that produce coffee beans along with the countries where Starbucks operate. Another example for an impact of political factor is “Skip Starbucks Saturday” boycott- a national boycott that took place on August 24, 2013 “to pressure the coffee giant to amend its current policy, which allows customer to carry loaded guns into Starbucks stores where permitted by state law” .Even though Starbucks insisted “they are neutral when it comes to the issue of gun control in America and only comply with the local laws  in the communities they serve the incident marked a political turn. (Horovitz 2013)

Economical These factors have a direct impact on Starbucks revenue. Customer buying power is a reflection on overall economic situation in the country. According to Starbucks's Financial Statement their total revenue increased 5% to $22.4 billions in 2017 compared to $21.3 billion in 2016 (Annual Report 2017). The economic factors that affect Starbucks may be inflation rate, import law, exchange rates and interest rates.The economic environment creates pressure on every business as it is not always stable. Economic situation affects the customers' purchasing power and thus the brand's sales and profitability. As a result of the economic crisis in 2008, Howard Schulz started doing what everybody in the USA -cut costs and closed non-profit locations. Then he did something that no one else did, toured the whole country and met with Starbucks customers to find out how Starbucks could better serve their clients. It was a unique behaviour, a man traverses the country to receive feedback from people buying his products. This is a prime example of above-average thinking and acting. Something like that went beyond any market or customer expectations. It eclipsed all other behaviours, and Starbucks then recorded a robust growth reflected in the stock market.

Now that the economic recession has ended, the economy has returned to the right track, consumer confidence and spendings has increased. All this means better sales and profits for Starbucks.(Cardone, 2011)

Social Starbucks called these factors "Starbucks Shared Planet." They are committed to doing everything that is best for people and for the entire planet. Therefore, for example, they uses reusable cups, try to be responsible for the development of the community in which they have achieved their goal. Thanks to the use of environmental, socially and economically responsible Conservation International guidelines, Starbucks has the opportunity to buy coffee under the "Starbucks Shared Planet". Starbucks cooperates with international Fair trade labelling companies ,African Wildlife Foundation to promote ecological coffee responsible for environmental protection. They work with organisations such as CERES, green American construction coffee, earth institute, save children, sustainable food laboratory, Mercy Corps, international youth foundations, Ashoka youth enterprises. Americans are addicted to coffee. Starbucks is like religion. Every morning, they go to the cafe for their portion of caramel latte, for which they pay with a smart phone, and then traverse the city, holding cups with a characteristic logo in their hands. Coffee became such a natural part of the morning for them that it is hard to even imagine their lives without it. Social and cultural factors have a significant impact on the profitability of each company. Demographic data and other changing social factors can affect companies. In the US, a large part of the population is ageing and retiring, and working professionals are a large part of the Starbucks customer segment. Americans running to work or meetings treat coffee as an essential energy drink.(Starbucks, Social Impact)

Technological The key to the company's success, as claimed by Howard Schultz, was the investment in digital technology. The focus was on finding technological solutions that will improve customer service. A Mobile Loyalty Program was created - in the USA, and has 10.4 million users - thanks to which they can pay for drinks using the application, take advantage of discounts and bonuses. Responding to the needs of customers, the company encourages the use of smartphones (Harris 2015). Starbucks is constantly improving existing cafes to meet the expectations of customers. They introduced innovative Vacuum- Press technology, which makes it possible to prepare coffee at the right temperature of brewing. Starbucks also uses the GIS system- spatial information system used to implement Starbucks mission- which allows collecting data and conducting analysis. Authorised system users can access sales data of Starbucks products as well as demographic, transport and weather data (Wheeler 2014).  

       

Environmental The main efforts made by Starbucks to provide the best environment are: the use of more efficient fuel, the calculation of gas emissions by their company, the use of biodegradable materials, partnership with international protection and the fund for environmental protection. Despite this environmental protection organisations accuse Starbucks of having a negative impact on the environment, water waste, and the use of paper cups that can not be recycled. Such reports undoubtedly have a poor impact on the reputation of such a well-known brand. The company does what it can to show its best side and tries to get involved in environmental protection.The corporation financed the creation of the online game Planet Green Game, which expands knowledge about global warming. Starbucks has also decided to launch the campaign "Starbucks's Grounds for Your Garden", which is about transferring used coffee beans to gardeners. These seeds can be used for soil fertilisation, which is also the most ecological way to dispose them. A good example of environmental policy at Starbucks is selling coffee in thermal mugs brought by customers. Many cities in the United States have banned the use of all styrofoam containers. In New York it is forbidden to sell coffee in a styrofoam cup. In San Francisco - one of the most progressive cities in terms of waste utilisation in the US - by 2020, plastic bottles are to disappear. And cities like Seattle, Los Angeles and Portland, Oregon are to follow San Francisco example.The Starbucks Corporation will be forced to find solutions to replace plastics in their cafes for biodegradable materials.(Starbucks,Environment)

Legal The list of legal factors includes issues related to health and safety, the meaning of consumer law, and human rights. A special program of business ethics and compliance was adopted, which focuses on employee training in terms of ethics. This reduces the risk of legal problems and helps the company create a better image. Starbucks emphasises non-discrimination and equal treatment of all employees. In 2011, Starbucks agreed to pay $75,000 compensation for a worker suffering from dwarfism, who was dismissed after the probationary period due to insufficient height. The employee asked for a stool or ladder that would allow her to work normally behind the bar. The manager of the Starbucks in El Paso refused and, instead, dismissed the employee. This was inconsistent with the US Disability Act, which requires employers to make reasonable efforts to enable disabled workers to work in normal conditions (EEOC 2011). The majority of Starbucks employees are employed on the basis of the "At Will employees" law, which means that they can be dismissed at any time without giving any reason, this is an extremely important element of disciplining the employees. In addition, most employees are employed on 1/3 or 1/4 time. Starbucks, accused of too low payment of employees, decided to start the Starbucks College Achievement Plan. Cafe employees can complete their studies at the University of Arizona, and Starbucks covers the full cost of their bachelor's degree (Starbucks, College Plan) Macro environmental analysis for Starbucks in UK

PESTLE analysis has enabled the comprehensive evaluation for UK business environment for Starbuck.

Political UK has one of the most stable political environment, where the government has launched various round of pro-business policies and legislations, such as reducing red-tapes and reduce corporate tax from 30% to 20% within years (Baffes et al 2006). On top of that, UK has public policies on attracting the foreign capitals and multinational corporate, leading further incentives for Starbuck to operate in China (Lunn, et al 2011)

UK is a part of European Union, and this may provide Starbuck the seamless access for the much bigger European market; however, the referendum has provided the challenges over the uncertainty of the future relationship, and thus a bit political challenges (Kolk et al 2012).

Overall, the UK political position is still attractive to Starbuck to play.

Economical The UK economy has experienced strong recovery since finanical crisis. According to ONS (2017), UK economy has achieved just under 2% growth, and making the UK one of the best performing economies in developed world since 2008. On top of that, this has combined with rising economy, higher job creation and lower unemployment rate, to therefore lead the benefits for higher spending powers (Neilson and Pritchard, 2009). This is extremely beneficial for discretional spending such as coffee beverages to incentivise the purchase.

However, there are two major headwinds for the economic impacts:

First, since the UK Brexit referendum, the sterling has fallen by more than 10% against the US dollar. This has therefore made the sourcing of coffee beans much more expensive (Ferreira, et al 2007). This could add up the cost for businesses such as Starbuck on leading the challenge and diminishing of margins.

Second, the economic challenges in the UK have also associated with high inflation. The Bank of England has claimed that inflation is going to be peaked around 3%. This could significantly add up the cost of living for residents, and thus diminish the discretional spending powers to the UK consumers (Adams and Ghaly, 2007).

Thus this has seen the mixed economic impact for Starbuck and Coffee industry in the UK.

Social The analysis has seen a strongly favoured social implication for Starbuck:

First, the UK has seen the growing population, underpinning by the combined high birth rate and growing immigrants. This has therefore created the much higher populations, and size of the consumer to benefit coffee businesses such as Starbuck (Borrella et al 2015)

Second, the social trend has seen there is a growing appetite for coffee. According to Global coffee insight (2017), the UK has seen one of the highest consumption for coffee. On average, more than 5kg of the coffee beans, or more than 100 cups of coffees are consumed per UK consumer. The growing population of coffee has further proven the business trend for coffee industry (Reinstein and Song 2012)

Lastly, the social trend has a growing focus for internet discipline. This has seen that Strabukc has growingly invested in areas such as online advertising, online distribution and so on to meet the social trend (Neilson, et al 2009)

Thus the positive and influential social trend is going to benefit Starbuck for more consumption

Technological The technology has played the key role for the coffee industry including Starbuck, mainly in the areas of product innovation and operations.

From the production technique, the improved technology has provided benefits for new products and continuous improved favours. The new products such as Flat White, Frappuccino as well as others have been continuously developed and innovated; from the favour perspective, technology is the key to drive the continuous improvement for the tastes (Persson, et al 2006; Starbuck UK website 2017). This has enabled business to take advantage of technology on leading continuous improvement of products and prices.

From the operational perspective, technology is the key to lead the success for operations in all aspects. For sourcing, improved technology could drive more effective sourcing, to drive lower priced and higher quality of coffee beans; on top of that, the improved technology has promoted more optimized retail layout, online distributions as well as others (Nilsen 2010). Furthermore, technology has enabled the global cooperation and coordination to lead the profitable and effective growth for the business. All of these have seen technology is the key to maximize the value for production and operations (Giannoumis, et al 2014)

Thus technology is the key factors for product innovation, improvement and more effective and efficient operations to lead the success.

Legal The UK has some of the highest level of the legal standard in all the areas to deliver the mixed impacts.

As mentioned, the transforming legal requirements to reduce the red tapes, as well as reduction of lower corporate tax rates have promoted the UK become more attractive to global business (Somerville and Goodman 2010). However, the country has also had some of the highest standards of consumer protection, as well as employee protections to ensure business is managing the business in disciplined manner (König et al 2015)

As a result, this has seen that Starbuck may hire the specialist consultant to adviser and coordinate the legal compliance with Starbuck.

Environmental This factor has played the key role for coffee industry: the UK consumers have gained the continuously development for ethical standard and this has seen the growing needs for business (McEwen, et al 2012). As a result, there is significant demand for environmental friendly coffee industry, such as rainforest protected coffee beans, to lead the impacts.

As a result, Starbuck has sourced the more ethical standard coffee beans, and to lead the impact and value creation.

Thus the review has seen that UK coffee industry has played the mixed outcome due to the different influencing factors. The PESTLE analysis has played the pivotal role for evaluating the coffee industry for business, and this has outlined the combined opportunities and challenges for Starbuck (MacKinnon et al 2015)

Comparison of US and UK markets

Conclusion and recommendation for future development

Political environment plays a very important role in success of an establishment and Starbucks has been growing its network all over the world with more than 24,000 Stores across 75 different markets (Starbucks Coffee Company, 2018). Thus, it is clear that Starbucks adepts to the changing political environment with regards to different countries. Maintaining the most stable environment is UK, where the Government has helped Starbucks launching diverse turns of pro-business legislation and politics, reducing corporate taxes and red-tapes. On the other hand, the political environment in USA is affected to an extent as there are two lawsuits pending on Starbucks in California for employees being denied overtime, whereby Starbucks denying all the liabilities is settling the case for $18 million (ORANGE COUNTY REGISTER, 2006). Furthermore, UK government has maintained a strict environment not allowing any unlawful activities to take place whereas, this is not the scenario in USA, where Starbucks had to struggle with customers entering the stores with loaded guns which was insecure for the employees as well as the other customers.

Even after a lot factors affecting the company's statistics, Starbucks reflects an optimistic growth in both the countries and stating an overall revenue of $21.3 Billion in 2016 highlighting an increment of 5% in 2017 to $22.4 Billion (Statista, 2018). All the Major factors that affect the economy of business has affected drastically to the company in some or the other year such as inflation, logistical laws, currency exchange rates and interest born by the company but still Starbucks has show's an increment every year. Even since 2008 crises across the globe, UK Starbucks reflected an increment of 2% every year. Whereas, in USA Howard Schulz executive Chairman of Starbucks went across stores in different cities interacting with customers to know the feedback which would help Starbucks improve their quality and services. He has also launched a plan to employ more than 100,000 unemployed people aged 16 to 24 to work with Starbucks by the end of 2018 (Rupert Neate, 2010). Similarly, the rising economy in the UK since 2008 has created higher job Opportunities and lowered unemployment rate benefiting the employees with higher spending power (Neilson and Pritchard, 2009). In contrast to this UK Starbucks has faced bigger challenges biggest one being, The Brexit which has reduced pound value by more than 10% against US dollar affecting the procurement of coffee beans already expensive in both the countries as dollar is the 1st currency to be accepted worldwide and for USA as it had to purchase coffee across the world even in its crises at a higher price. Additionally, the challenges related to inflation rate were also faced in UK which hyped to 3% as claimed by the bank of England which remarkably affected the living cost of an individual and reducing their spending power. The Growing Population across both countries have been benefiting the coffee business of Starbucks. Speaking about Technology, it is needed all sectors of the management for innovation, operations as well as, overall control of the business in terms of monitoring. In both the countries Starbucks has been using the technology very effectively in terms of their billing machines to being cash less and accepting all types to cards worldwide. Additionally, Starbucks has also been very effective in terms maintaining health of the customers as well as their works. They have a keen eye on the quality of raw materials by their quality control department and also the cleanness of their stores for their employees.

As the coffee market in the USA and UK is already quite saturated (Hooker 2017), the competition has become rather regional or even city concentrated with a significant amount of independent cafe chains like Intelligentsia or Blue Bottle Coffee appearing to compete with established brands. Constantly growing demand in cafes will result with moving towards vastly diversified, fragmented and competitive global cafe market.

Based on the above-mentioned micro and macro analysis of Starbucks, we would like to identify three recommendations for further development:

Focus on its international segment, especially on the emerging markets with growing middle class population.

In order to achieve success, Starbucks needs to adapt locally to new markets to satisfy the needs of customers, adapt to their lifestyle and tastes, exactly as in the case of entering the Chinese market, where by a thorough market research and establishing long-term relationships with the  community Starbucks has become “less a foreign brand transplanted to China and more a seed from a Western tree that has been carefully planted and patiently nurtured within”(Zakkour 2017)

Further development of technology that facilitates payment, which will attract more customers, increase efficiency and reduce service time.

The Starbucks strategy is quite simple: increase the perception of a high-quality product and adapt the stores to the lifestyle of consumers. A typical Starbucks customer in the US stops 18 times a month at their stores, much more often than at any other cafe.

Even more amazing is that Starbucks generates this impressive growth of the products offered, practically without marketing, spending only 1% of its annual revenue on advertising, where other sellers usually spend 10% (Allison 2006).

Wall Street critics believe that the American market will soon be saturated, while Howard Schultz emphasises that "Those who talk about saturation, of course, do not understand our business strategy” (Ignatius 2010)

The company has already demonstrated its ability to connect to culture and neighbourhood and will continue to do so. Expansion in the worst case, will slow down, forcing the company to adapt, and the company knows how to do it. (Thompson, Arsel 2004)

The most important thing that Starbucks must remember is that no brand develops in a vacuum. Each brand is rooted in popular culture. This is the difference between an ad and branding.  “Advertising grabs their minds; branding grabs their hearts. “ says Rob Frankel, brand consultant (Frankel 2000)

Starbucks has in the past demonstrated its strength and ability to sustain growth even during recessions. Starbucks is a People Store and it is indeed a growing market. As Howard Schultz said: "We are not in the coffee business, we serve people. We are in the business of people, we serve coffee” ( Gallo 2011)

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