Starbucks did not use a co-branding strategy as their own brand was already strong. The company took advantage of this strong brand image when negotiating with local companies. Starbucks tried to minimize its holding and investment due to concurrent extensive international expansion outside of Spain, by investing only 18 percent into the new alliance. Investment did increase however, prior to fiscal year 2003 to a 50 percent holding with VIPS, after El Moli Vell exited the joint venture. But in September 2009, Starbucks simultaneously sold its 50 percent ownership interests to VIPS, and converted the joint venture to a licensing agreement.
This change of strategy in Spain coincided with many contractionary measures made by Starbucks around the world. In the USA, Starbucks cut costs through layoffs and the closure of 600 under-performing shops. In Australia, all but 14 stores were closed as the company nearly exited the market entirely. A further 800 store closures were made around the world, mainly due to a strategy based on the rapid growth and saturation of each individual market, with a business model that required huge financial resources and the sale of a premium quality product at a premium price. The world economy was facing a downturn and traditional Starbucks customers were visiting its stores less frequently or switching to the value-focused products of its competitors, who were attempting to enter the specialty coffee market.
Political and Legal Factors
Probably the most important starting point in considering setting up a business in a foreign country is to assess the political and legal factors and how they differ from the company’s home market. The overall stability of the country and such factors as tariffs, employment laws, and health and safety standards all must be considered.
Spain has been developing its political stability since the death of Francisco Franco in 1975. Spain gradually began its transition to democracy which has expanded Spanish diplomatic and security relations with the West. Spain has been an active member of NATO since 1982 and the European Union since 1986. Spain’s EU membership represents an important part of its foreign policy and supports the efforts of European political mechanisms.
At this stage, Spain has politically stability. Thus, it is a country which doesn’t have any significant history of expropriation or interference with foreign investor’s fundamental ownership rights.
Taxation Policy
Taxation from the perspective of income tax and taxes on businesses will be discussed in Economic Factors. It should be noted, however, that taxes imposed on farmers (from which the bean is sourced) can have a great impact on the costs of the business.
Given that most of the countries who supply the beans have less political stability, taxes are known to fluctuate. Tariffs imposed on these countries hold the same implication. The concern is that Starbucks needs to ensure that their beans are “free trade” since this is where much of the willingness to pay comes from.
According to Starbucks executives, their chief concern with fair trade coffee was finding top quality beans. Starbucks had little evidence that fair trade coffee met its quality standards. Starbucks was beginning to move toward purchasing more of their coffee through direct relationships with exporters or farmers and negotiated a price based on quality. The company was willing to pay higher prices for great quality beans and had developed long-term contracts with many of its suppliers.
The tax and tariffs of some of the countries Starbucks sources from and Spain are listed below:
Because Starbucks is able to purchase their beans from a number of sources they have a flexible policy thus giving them a certain amount of protection when one country or the next changes its policy. Having said that, the move to Spain doesn’t mean a need for a change in strategy as the American Starbucks (or any other Starbucks for that matter) needs to source beans as well. Further, they have vertically integrated with farmers in China to develop their own high quality beans. Whether or not Starbucks will grow this strategy into other areas is yet to be seen.
As a part of the European Union, Spain can freely trade between any of the other countries in the union. To take advantage of this, Starbucks is able to source the best prices for any of its supplies such as cups, napkins, bags, sugar and stir sticks.
Employment Law
There are no significant differences between U.S. and Spanish labor laws. Certainly there are some minor factors such as minimum wage, but there are no laws that would have a noteworthy impact on the business or the business model.
Health and Safety Regulations
Spain is responsible for 20% of all workplace accidents in the EU. Last year alone an average of five people per day died as the result of a workplace incident. While this figure is disheartening, the U.S. has higher standards which they readily implement in Spain. The change is to ensure that those working in Spain have a true understanding of the importance of following safety procedures particularly due to the number of young, part-time workers Starbucks employs. Following the Royal Decree 604/06 which came into effect in June of 2006, new preventative measures are to be followed to prevent workplace accidents. This should be to Starbucks’ advantage since the trend is a movement closer to the American model.
Economic Factors
The economic factors are abundantly important to consider as they give us insight as to consumer purchasing power and spending patterns. They also provide us with an important sense of the monetary value of investing and operating a business in any given country.
In Spain prices have been on the increase, rising with standard inflation. Unfortunately for consumers, income levels have remained stable. Thus, the purchasing power has been on the decline. Thrifty coffee drinkers might need to think twice before spending four euro on a fancy Starbucks. It’s not simply the fact that there are cheaper coffees out there; it’s that every item a consumer needs to buy is causing the average Spaniard to dig a little deeper into their pocket leaving less money for the extras.
Knowing this, Starbucks opened stores in the more resilient areas, namely those areas where people have high disposable income. Densely populated white-collar areas and tourist spots are the only option for a Starbucks shop. If you go anywhere in Spain, or in middle-American for that matter, you won’t find a Starbucks in a one-horse town. The shops are positioned strategically where people not only have the money to spend on designer coffee, but they also have more pride in the brand image. Starbucks has thus managed to flourish in these areas.
Starbucks U.S. has also done well with its mini-Starbucks café presence located in grocery stores and airports. In the U.S. where shoppers tend to load up on a week to two-weeks of groceries at a time it makes sense. In Spain the same isn’t true. Consumers tend to frequently go to small supermarkets so the strategy might best be avoided in a Spanish market. Setting up in Spanish airports, however, is something Starbucks should consider. Though this might be a more difficult area to enter because of government restrictions and pre-existing agreements with other coffee shops, Starbucks could tap into a host of jet-lagged tourists.
Unemployment – Consumption Threat
When Starbucks first entered the Spanish market, the economic conditions were certainly more prosperous. Since the global economic downturn Spain, along with many other countries, was hit with practically unprecedented amounts of unemployment. At present time, the unemployment rate has skyrocketed to 21.3%; youth are the most impacted with unemployment rates of a whopping 40%.
These shockingly high rates pose a very obvious consumption threat. This is especially true given that Starbucks’ consumer base is comprised by many young people. On the other hand, young people who are employed tend to have more disposable income given that they have fewer bills to pay.
This unemployment also has implication on government spending and all over monetary policy. In noting the need to restore public finances the government of Spain has cut spending elsewhere as will be discussed later.
Interest Rates
Interest rates in Spain as specified by the Central Bank are 1.25%. Recently the Spanish government has been reasonably successful in its fiscal and macroeconomic reform efforts. This low rate should encourage investment and expansion plans which in turn ought to help the unemployment rates and the Spanish economy as a whole.
Consumers with debt such as mortgages will have more peace of mind and more disposable income due to this reform.
Tax rates
Personal tax rates have a clear impact on disposable income of consumers. Spain’s income tax bands start at 24% and rise to 43%. Further, the Spanish government promotes savings vis-à-vis giving a tax break of 19% for the first 6,0000 Euro stashed away and an additional 21% on anything over and above that amount. With the high tax rates and the incitement to squirrel away money, trying out that new Mocha Coconut Frappucino Blended Coffee might not be top priority for the average consumer.
Spain Corporate Tax (Impuesto de Sociedades).
The standard tax rate imposed on businesses is 30%. A non-resident company, such as Starbucks is taxed on both income and gains of a brand carrying on a trade in Spain.
Inflation Rates
Commodity price inflation has been in the news and Starbucks isn’t shielded from the effects. Rising costs have been absorbed by the company as menu prices need to remain relatively stable. Certainly if Starbucks’ costs increase considerably they’ll have to be passed on to the consumer who is already paying a hefty amount for a designer coffee.
Starbucks however makes use of the successful holiday season and increasing popularity of its instant coffee product. That is, people still want to buy around the holiday season and if the Christmas budget is cut back, opting for a Starbucks gift card is taking less money from the consumer’s pocket, but bringing more into Starbucks. In terms of the coffee to-go packets, these appeal to the consumer who wants a Starbucks but doesn’t want to spend the money when it can be made at home. (It also appeals to those who simply spend more time at home for other reasons.)
Since inflation is well witnessed, consumers likely won’t be overly impacted by a slight upward shift in Starbucks’ prices. Increasing them too much, however, will run the risk of sticker shock.
Exchange Rates
One of the most primary economic factors from a business, rather than consumer point of view, is the exchange rate. Because Starbucks’ suppliers are from various locations internationally, many of which have political and economic instability, the exchange rates can vary greatly. Of course this impacts Starbucks worldwide, not simply in Spain. To counter-act this, Starbucks sources beans from a number of suppliers allowing a more flexible strategy.
Competitors Prices
The threat of a price war would be a consideration given the economic climate if, in fact, Starbucks had a competitor in Spain. Fortunately for Starbucks, they’ve really carved out a niche that doesn’t quite fit the model of other coffee shops. Neither McCafe nor Dunkin Donuts fit the bill of high-end and local coffee shops don’t attract the same consumers at Starbucks.
Social/Cultural Factors
Spain has a culture well known for socializing “en la calle” (on the street) spending time out with family and friends. They’re also big coffee drinkers, rated second after Switzerland in the Euro-zone. Sweden and France rank in at a respectful third and fourth. In fact, 63% of Spanish people above the age of 15 drink at least 1 cup of coffee every day. The average person in Spain consumes 3.6 cups a day during the week and 2.7 cups a day on the weekend.
Sipping on coffee is truly seen to be a social pastime as 78% of Spanish consumers have coffee with friends, colleagues or relatives. Starbucks has been able to tap into the Spanish coffee culture by creating an ambiance and comfortable environment which appeals to folks who want t o spend time chatting with others over a steaming cup of coffee. The shops have a chic, comfortable setting which usually consists of couches, interesting newspapers and magazines, relaxing yet upbeat music and an inevitable aroma of rich coffee. It also offers a variety of coffees, specialty teas, frozen coffees, pastries and a slew of merchandise.
The Starbucks environment is inviting and appeals to many tastes. The high standards in stores are imperative to uphold; this is what the customer pays for and what the customer expects.
Health Consciousness
Starbucks does not necessarily need to make changes in its menu to cater to the Spaniards. However, health consciousness is a rising trend in Spain as well as in America. Accordingly, Starbucks offers a fat-free selection and advertises skim-milk, soya milk or the standard partially-skim milk. Some of the pastries are low-fat and there tends to be a range of fruits to select from at most shops though offerings to vary by location.
Demographics
Research shows the average age of the Spanish population is getting older and birth rates are stagnating. Starbucks’ target market is comprised of young and middle-aged people. Although tapping into a broader market would be fortuitous, it’s not likely a very viable option. Rather, Starbucks should make sure that the population grows with Starbucks as a constant so that they ensure a “lifer” out of every current consumer.
Cervezas
Spaniards have a healthy appetite for “cervezas” (beer) as well as for their red wine. This culture of having an alcoholic beverage might pose a threat to consumers who want to socialize with friends. That is, most every bar serves coffee, but Starbucks doesn’t serve beer.
A Starbucks in Seattle was renovated to allow people to sit at the bar and actually serves regional wine and beer. This might be a viable option for Starbucks in Spain. Furthermore, it is estimated that 63% of coffee is consumed in the morning. Offering beer and wine might be a way to bring consumers in during the later part of the day.
On the flipside, offering these beverages might tarnish Starbucks’ squeaky-clean image and get away from the quiet yet bustling environment. Starbucks is not a bar, but a warm inviting environment where people can sit and engage one another or simply sit with a book. Offering alcohol would require more changes than simply a change to the menu.
Technological Factors
The rate of technological change that creates new technologies, new product and market opportunities is swift. Now used to the high- speed internet, where information can transfer within few seconds, consumers are used to a more and more rapid speed-to-market. They’re also more knowledgeable about global trends leading to customers knowing what they want.
In order to keep up with the competition, Starbucks would have to invest greatly in a growing market like Spain. In terms of technology, entering Spain would require top-notch coffee making machines. Also, they would need the computers to run their cash registers; these computers enable workers to work efficient and effectively. Customers waiting in the queue will see the modern equipment and know that their coffee is being served with state-of-the-art machine rather than an old-fashioned drip style.
Also, the company’s productivity can be increased with machines that do the job quickly thus allowing them to serve more customers in a day and making sure that they don’t miss out on customers who aren’t willing to wait too long as their speciality coffee is made. This technology is important regardless of the location and will service any location, so it’s arbitrary for the company from the perspective of globalizing. They need to be current in domestic shops as well as those abroad.
Moreover, Starbucks would need to undergo research and development in Spain to improve the accessibility of its websites. Hence, customers can share new ideas resulting in a constant update to the menu of Starbucks.
Starbucks launched its website in 1998 and since then scalability and performance have improved. The company now has the tools it needs to profile and target customers, analyze site data, and deliver new features to the market in the shortest time possible. The various activities associated with Starbucks website are promoting its social responsibility activities, job postings, selling merchandise, brand awareness, various community based events, awareness and so on. It is very clear that Starbucks relied reasonably on its website in order to run business effectively and to reach its target customer base.
At this point Starbucks has a strong brand image in Spain, but without the internet the success wouldn’t have been near what it is today. Although Starbucks has had a presence in the country for 10 years, they are still continuing to grow. Thus, they need to continually improve their website to get more hits and continue to grow and maintain their brand.
In the short-term, Starbucks must identify the most efficient software upgrades to use to keep up with the competition. This applies to the improving the accessibility of their website (, ). This is a critical factor to run their website properly in Spain. Furthermore, they should utilize all four spoken languages in Spain to make the site more accessible for all and to show Spain that they recognize their culture.
Starbucks needs to utilize popular internet communication channels such as social networking sites like Facebook, Twitter and Spanish social networking sites like Tuenti. The advantage is that many young people go on these websites creating additional brand awareness. The critical aspect here is that the content and look should be distinct from its home country’s web pages which suit Spanish culture. As an added measure, not only do these sites help with the community focus strategy and can be tailored to each community, they provide Starbucks from the US more insight as to what Spaniards want.
Another important factor Starbucks needs to consider when considering technology is the growth and popularity of capsule system coffee machine in Spain. With the help of these machines customer can brew high quality coffee at home. According to one study completed by Expansion.com, at least 10% of Spanish households have this special coffee brewing machine which could be a threat to Starbucks business. However Starbucks is known for providing elite coffee environment to its customer hence the threat imposed by this factor is ambiguous. People go to Starbucks to enjoy a special environment which is difficult to create at home. Moreover this is an opportunity to launch an entire product range of machines and coffee on go.
The rate of technological change in the current world market is high, much higher than, say, thirty years ago. Much of this is due to the Internet and the speed with which information can be communicated around the globe. Starbucks will need to invest heavily just to stand still in their ever expanding and developing market of Spain, and even more so to try to stay ahead of competitors.
Environmental Factors
Whether considering entering the Spanish specialty coffee market or sustaining its position in the Spanish market, Starbucks needs to be aware of various environmental factors which might affect its business. These factors include capsule system coffee machines, and research and development section and factors related to the company itself.
Micro Environmental Factors
The micro environmental factors are the forces close to the company that affect its ability to serve its customers. The factors are also known as the internal environmental factors such as the company itself, marketing intermediaries, its suppliers, customers ,competitors and publics which are within or close to the company that have an impact of the organization strategy.
Strategic issues that will challenge Starbucks in the future are related to their tight control and lack of flexibility, organizational structure, and diversification. First, Starbucks is vertically integrated as they buy and roast the beans, ship them to the stores, produce, and sell the coffee. They may face difficulties or have to raise the price of their coffee if the cost of raw beans increases, or there is a decrease in available labor.
The second issue is that they are centralized around controlling all steps of the distribution process, entering into joint ventures which may lead to quality control issues in locations. Another issue is the ability for growth. Starbucks will continue to grow in their core business, but the more they spread into international and joint ventures they will face increased quality control problems.
All these micro environmental factors are important and critical to success o Starbucks in Spain. They need to evaluate their resources and ability to utilize those resources in a new market like Spain.
Macro Environmental Factors
The macro environmental factors are the larger societal forces that affect the microenvironment. The factors are also known as external environmental factors such as demographics, economic, natural, technological, political and cultural which are the larger forces beyond the company's control.
Company Internal Environment
The company itself refers to the functional areas inside a company that have an impact on the marketing department’s plans. The American Starbucks structure consists of the top management departments, finance departments, research and development departments, purchasing department, manufacturing department and accounting department. The manufacturing department is in charging of producing the finest quality of coffee beans through the supplying coffee beans by the purchasing department. All of the departments are inter-related. The finance departments are in charge of sourcing funds and generating the funds for the researching tasks. The top management reviews the daily functions of Starbucks’ company and the accounting department is responsible to submit the financial statement to the top management for reviewing and reporting the profits of Starbucks made. Overall, the company has a very typical North American hierarchy.
Upon entering Spain Starbucks needed to carefully decide the composition of the structure in the Spanish division. They also needed to consider what the appropriate division of American and Spanish management. They wanted to maintain the brand and “essence” of Starbucks while managing to adapt the business enough to be successful in the new market. Thus a delicate balance of consistency and change was necessary. This applies not only to the business model, but to everything about the shops. They had to consider which people would be the right mélange to plan the offerings, pick the right staff, and design the stores.
Other Environmental Factors
In line with being socially and environmentally conscious, Starbucks had to consider its packaging and disposal. Given that Spain is becoming more environmentally conscious, this is a bigger concern today than when Starbucks first arrived in the country.
The packaging consisting of the cup, the sleeves, stir sticks, bags, napkins and any other possible items must be recyclable or environmental friendly (made from recycled products) in order to reduce the pollution problems. Besides that, Starbucks has to consider the efficient way of disposing their waste since there are strict laws applicable to country keeping it clean for the environment. If the company is not abiding to laws, which not only can tarnish the reputation the brand name of Starbucks but also sanction would be imposed financially.
Moreover, an environmental pressure group (discussed below) is playing a vital role of influencing the organization. Starbucks should be the physical and influential power of groups such as Greenpeace and Friends of the Earth. Any abuse of animal or environmental rights by a company is always followed rapidly and attention-drawing dissent from one of the groups. Subsequently, brand name and customer are often irreconcilably tarnished by the actions of these groups. However since Starbucks is an American company and already practicing highest standards of health and safety this should not be a big issue while operating in Spain.
Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth. Any violation of animal or environmental rights by a company is usually followed by a swift and attention-drawing protest from one of the groups in Spain. Brand image and customer bases are often irreconcilably tarnished due to the actions of these groups. Also, Spanish people are quite aware of fair trade products so Starbucks would need to trade coffee fairly as they do in USA because it is an integral part of company’s strategy and people often relate themselves as part of a community who believes in ethics and fair business. One such way of sending this message to consumers, in addition to using recycled materials and displaying “free trade” images around the store, is that they use as many natural materials in the construction as possible. The overall feel in any Starbucks is the same which not only serves to protect the integrity of the brand, but also to send the message that the store is eco-friendly.
Conclusion
It is clear that the market potential in Spain is yet to be exploited by Starbucks. Consumption of coffee is increasing even though the Spanish market has been known for years to hold some of the worst coffee to be found in Europe. Starbucks’ new generation of specialty coffee stores are slowly beginning to bring about a growing demand for better coffee. It is the youth in Spain who are recognizing the quality of coffee available, which is something their parents had never seen. To some degree, the market is shifting toward demanding better quality coffee. It is expected that this shift will become a trend in Spain, as it has done in other markets. Therefore future growth may not be in the short term but in the long term, as these currently young consumers progress through life knowing that better quality coffee exists and exposing their children to the same expectation.
The Starbucks Coffee Company shifted its strategic direction, probably in 2008, but these changes in strategy are only starting to be seen now, at the start of 2011. The company is diversifying its product line to move closer to the Starbucks experience that is no longer restricted by only the sale of coffee. Starbucks released products for customers to enjoy at home, and tried to extend its product line to those who are price sensitive, partly in reaction to the economic downturn affecting sales, but also in response to competitors entering the specialty coffee market.
It is not only expected, but recommended, that Starbucks continue to pursue it dominant position in social media and take advantage of the new mobile phone push-advertising concept.
In Spain, Starbucks should take advantage of the untapped market for coffee consumers and pursue a similar strategy to that at its inception – expansion into urban, high income regions of Spain that still do not have a Starbucks store.
APPENDIX
Starbucks Core Competencies
Reliability
In its broadest sense, reliability means that the company delivers on its promises about the delivery service provision, problem resolution and pricing. For Starbucks, reliability plays an important role. Starbucks will provide their services at the time they promise to do so. For instance, everyone can use the wireless (Wi-Fi) to access to the internet no matter in which branch.
Additionally, Starbucks will insist on error-free records. For example, each bill of Starbucks customers is free of error and will not over charge for any transaction.
Responsiveness
Responsiveness emphasizes attentiveness and promptness in dealing with customer request, questions complaints and problem. Starbucks does provide a “comment card” on their web site that allows customers to give constant feedback about their experiences or concerns them may have. This is used as a means of improving the business where necessary and gives prompt service to their customers when they have a problem.
Starbucks will never be too busy to respond to customer requests. Through the customer service doing a good responsiveness, the customer will have a good relationship with Starbucks. For example, some customer wanted to drink Starbucks coffee in the morning, they can write an e-mail or call the customer service, if Starbucks see that lots of customer have this request, Starbucks will provide a prompt responsiveness to their customers. However, if they cannot manage it, they must communicate with the customer promptly too.
Assurance
Starbucks has been recognized for exceeding expectations by the quality of their products, competency of their skills and knowledge to perform the service and consistently courteous with customers. This is what will create their loyal customers due to the knowledge of employees and their ability to convey trust. Firstly, Starbucks having high quality coffee variations made up from high quality coffee beans as its core competency to maintain a certain type of standard. These provide a quality brand image for Starbucks and have a good reputation to their customers. Secondly, every employee for Starbucks such as professional coffee bartenders complete up to 24 hours of training before entering their assigned store. This training gives them knowledge to answer any questions about coffee or the Company, and the knowledge to arrange sample tastings and demonstrations with any of the equipment in the store. Thus skilled employees in Starbucks who treat customers with respect and make customers feel that they can trust the firms exemplify assurance.
Thirdly, Starbucks Barista (employees) is willing to assist all guests/customers in the Starbucks in a friendly, courteous and helpful manner. The behavior of politeness and friendliness of employees to customer will instill confidence in customers.
Empathy
It is vital for a company to caring, individualized attention to customers. For Starbucks, they are focus on approachability and ease of contact, listening to customers and making the effort to know customers and their needs. For access, coffee aficionados can also find Starbucks coffee in a variety of places, including urban and suburban areas, as well as many rural communities worldwide. It is conveniently located to all their customers.
For communication, Starbucks drives one of their five principles which are “embrace resistance”. As long as it's a customer complaint, Starbucks tries to listen and respond positively, not defensively.
Besides, Starbucks is embracing a highly streamlined approach in communicating to and understanding their customer with this online initiative maximizing on a CRM tool (customer relationship management) such as through MyStarbucksIdea.com to better understand customers needs, desires and complaints.
Porter´s Five Analysis
Threat of Entry
Porter divides the potential threat of entry in two groups, the barriers of entry described as advantages of incumbents over new competitors, and the expected retaliation, which means basically how is expected that former companies act against new competitors.
Barriers of entry in the coffee retailing industry are low according to Porter, whereas new competitors should not fear the expected retaliation from incumbents given that these are mainly small companies with no relevant resources.
Therefore, it can be concluded that in this industry the threat of entry is high. In order to defend its position, Starbucks should try to build some barriers of entry (e.g. gaining presence, strategic alliances with key agents of the supply chain, investment in new technologies) and be prepared for an aggressive reaction to competitors trying to compete in the same segments.
Bargain Power of Suppliers (BPOS)
Suppliers affect directly their clients businesses given that they provide the input necessary to produce the product/service. Therefore, “Powerful suppliers, including suppliers of labor, can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices”.
Prices in the coffee retailing industry rely directly on the prices of coffee beans. Such a direct reliance represents a risk for any industry. Thus, an eventual worldwide shortage in the production of coffee would raise the price of retail coffee. It would seem logical to argue then that BPOS in coffee retailing industry is high.
Nevertheless, one of the conditions that Porter claims to be important in order to consider a supplier group powerful is their level of concentration. According to Oxfam, “70% of the world´s supply is provided by smallholders cultivating less than 10 hectares in 80 countries in Africa, Asia and Latin America”.
Even if the industry is not concentrated, companies like Starbucks, when possible, are recommended to build defensive tools against the potential risks (e.g. backward integration, long-term contracts with supplier, and/or not rely in few suppliers.
Bargain Power of Buyers (BPOB)
“The flip side of powerful suppliers”. Mainly, it is high when there are few buyers, there are a lot of competitors and/or the products are standardized.
According to the last “Spain Economic Yearbook” published by La Caixa (2010), there are 7 hospitality outlets in Spain per 1000 people.
This high concentration levels in the supply side gives customers a high BPOP, creating therefore a more competitive industry. Companies need to offer a higher value to their customers, so that they will purchase in their business rather than in the competitor´s. Regarding Starbucks, the company will need to put great effort in differentiating and loyalty schemes to keep consumers satisfied and away from competitors.
Threat of Substitutes
As Porter says, “A substitute performs the same or a similar function as an industry’s product by a different means”. These can be divided into direct or indirect.
In the Starbucks case, direct substitutes would be mainly the traditional “cafeterias”, whereas indirect substitutes are products covering same needs but in a different market such as e.g. vending machines in offices, coffee in capsules or instant coffee.
As above, the industry is very competitive, so giving added value to your customers and differentiating your offering are essential to become less “replaceable”.
Rivalry among existing competitors
Porter relates the intensity of rivalry to the below main factors:
- Number of competitors
- Barriers of exit Market
- Leadership orientation of companies
- Familiarity between companies
As a result of the great number of competitors, the rivalry in the coffee retailing industry should be considered high. Nonetheless, is important to analyze whether companies “aim to meet the same needs”. Regarding this point, Starbucks is introducing a new way of having coffee, highly differentiated to the rest of competitors, which protect them from competing directly with these companies.
Economic Growth
As we witness from the graph that the growth has been positive for Spain in 2011 therefore we can predict that the sales may see some profit. Consumer incomes tend to fall in periods of positive growth leaving more disposable income. Consumer confidence in products can also be said to increase if the economic ‘mood’ is high
On a side note, the number of Spaniards out of work rose for a second consecutive month in February which added obstacles to government efforts to cut spending and restore public finances.
USA Coffee Statistics
- The average consumption in the United States is 3.1 cups of coffee per day.
- Specialty coffee sales are increasing by 20% per year and account for nearly 8% of the 18 billion dollar U.S. coffee market.
- 50% of the population, equivalent to 150 million Americans, drink espresso, cappuccino, latte, or iced/cold coffees.
- At the present time there are approximately 24,000 Coffee Shops across the country. Statistics show there will be approximately50,000+ Coffee Shops by the year 2011.
- The average Espresso Drive-thru Business sells approximately 200-300 Cups of Espresso and Coffee Based Drinks per day.
- Over 50% of Americans over 18 years of age drink coffee every day. This represents over 150 million daily drinkers. 30 million American adults drink specialty coffee beverages daily; which include a mocha, latte, espresso, café mocha, cappuccino, frozen/iced coffee beverages, etc.
- Men drink as much coffee as women; each consuming an average of 1.6 cups per day. Women seem to be more concerned about the price than men. Among coffee drinkers, the average consumption in the United States is 3.2 cups of coffee per day.
- Women indicated that drinking coffee is a good way to relax. Men indicated that coffee helps them get the job done.
Statistics Related to the Tax Rates in Spain
Personal tax rates will have an impact on the disposable income of the consumers.
Income in Spain is defined as:
- Wages and salaries, either as a salaried employee or as a businessperson
- Pension benefits
- Dividends, yields, interest and capital gains
- An employer’s pension contributions
- In-kind benefits
Spain personal Income Tax (IRPF)
Personal income tax rates in Spain are progressive to 43%.
The tax rate for savings income increases is 19% for the first EUR 6,000 and 21% on the excess.
With the current unemployment rate and the high tax rates, the consumers might be hesitant in spending on costly coffee.
Spain Corporate Tax (Impuesto de Sociedades).
This would govern as to how much Starbucks as a company would take home the profits.
Standard rate of corporation tax in Spain is 30%.
From 1 January 2010, there is a special reduced tax rate (20% on the first EUR 120,202.41 of taxable income) for small companies with fewer than 25 employees and revenue below EUR 5 million which maintain or create jobs.
Special tax rates are chargeable on portfolio investment funds (1%), on mutual insurance societies (25%), on co-operatives (except for capital gains) (20%), on non-profit institutions (10%) and on small companies.
Spanish resident companies are liable to corporation tax on all sources of income and capital gains, wherever arising. A company is treated as resident in Spain if it is incorporated in Spain has its registered office in Spain or its effective management is in Spain.
A non-resident company is taxed on income and gains of a branch carrying on a trade in Spain.
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