External environment analysis of Starbucks

Introduction

External environment analysis of Starbucks will be conducted in this report by applying PESTEL, SWOT etc frameworks. Starbucks is an American restaurant that has business in 80 countries of the world (Statista, 2020). It has 346,000 employees globally (Macrotrends LLC: 1, 2020). The revenue of the company was $26.509 billion in 2019 which has reduced to $24.062 billion because of the pandemic COVID-19 (Macrotrends LLC: 2, 2020). The research will be conducted on Starbucks to know the impact of different factors on their operations. SWOT analysis will be done to identify the strengths, weaknesses, opportunities and threats of Starbucks, and PESTLE will be conducted to identify the impacts of external factors on the company. Different types of leadership will be discussed to recommend suitable leadership for Starbucks, and the effectiveness of the organizational culture of the company will also be evaluated.

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SWOT Analysis of Starbucks:

Sarsby (2016) has stated that SWOT identifies the strengths, weaknesses, threats and opportunities of companies. By conducting SWOT, Starbucks will be capable to utilize its strengths and available opportunities furthermore prevent weaknesses and threats after finding out them.

Strengths: Starbucks has service in 80 countries of the world with 31,000 stores among these 992 outlets are established in the UK and the great presence of the company makes its image stronger in the UK (Statista, 2020). The value of the company is $30 billion, and the premium quality of Starbucks products has helped the company to enhance this value which is higher than their competitors (GOBankingRates, 2020).

Opportunities: The Company will be able to attract new customers by inventing new products with health benefits because customers want to explore new healthy foods. Starbucks can become a partner of major firms in order to enhance its market share in the UK.

Weakness: Starbucks is greatly dependent on its key input, which is coffee beans; therefore they increase the price of its product if the price of coffee beans price rises (Fortune, 2020). As a result, budget-conscious people start to avoid Starbucks to control their spending.

Threats: Starbucks face tough competition in the UK market, and the competitors are MC Donald’s, Dunkin Donuts, Costa, Pret A Manger and others (Whatcompetitors, 2020). Products can be imitated by both new and old companies in the UK, which will reduce the demand for Starbucks.

PESTLE Analysis of Starbucks:

Perera (2017) has revealed that PESTLE analysis evaluates the impact of the external environment, such as political, economic, social, technological, legal and ecological, on companies’ operations. Starbucks will be able to find out the influence of these external environments and take significant steps to minimize negative impacts.

Political Environment: Brexit is a political issue that has an influence on Starbucks. Because of Brexit, the pre-tax profit has fallen 61%, which is £13.4 million (BBC, 2020). Growth in new UK stores has fallen 1% from 3.8% in 2018. These statistics refers to the great negative impact of Brexit (BBC, 2020).

Economic Environment: COVID-19 pandemic has slowed down the growth rate of Starbucks in the UK, and the growth is 0.9% (Financial Times, 2020). It is forecasted that the financial impact of the pandemic will last for the final quarter of 2020 because people will avoid going out without an emergency to save themselves from COVID-19 (Reuters, 2020).

Social Environment: Increasing health awareness among people affected the sales of Starbucks; therefore, it has reduced the use of sugar by about 25% in indulgent beverages and added lighter food options with less sugar and less calory many other healthy practices (Starbucks Corporation ; 1, 2020).

Technological Environment: Technological advancement in the UK encourage Starbucks to adopt digital steps to enhance sales. It has utilized advanced technology in the UK and developed its Starbucks® UK app through which people can give online orders and pay (Starbucks Corporation; 2, 2020). It will help them to stay ahead of the competitors who have not developed their mobile apps.

Legal Environment: Starbucks have to maintain all the rules and regulations of the UK to prevent government interference in its business. Therefore, they maintain all regulations and paid £13.7 million in corporate tax in 2017, which is an effective tax rate of 25.3% (Insider Inc, 2020).

Ecological Environment: UK government is emphasizing taking eco-friendly steps to reduce environmental pollution. Therefore, Starbucks is expanding plant-based and environment-friendly options, using reusable packaging and doing other activities to save the environment (Starbucks Corporation, 2020).

Importance of CSR and how Starbucks is addressing the issue:

Unit, Star & SmartWay (2015) have found in their research when companies operate their business in ethical and sustainable ways and handle its environmental and social impacts is called Corporate Social Responsibility (CSR). CSR helps companies to increase their brand awareness and recognition, improve their public image, save costs, stay ahead of competitors, enhance customer engagement, etcetera. All the positive aspects of CSR encouraged Starbucks to make their CSR policies to attract more customers and achieve outstanding growth in the business through controlling costs. CSR initiatives of Starbucks have been evaluated below:

Starbucks supports the local community: Employees and customers of Starbucks have spent more than 3 million hours providing community services over the last seven years (Starbucks Corporation: 3, 2020). Community store program helps non-profit organizations in order to provide education and training for young people to achieve poverty education. Because of this program, many people have become capable of educating themselves and learning different types of work through which they earn and live their life. Customers’ respect for Starbucks has increased more for the community program, and they have become more loyal. As a result, they maintain purchases from Starbucks to help them contribute to local community development which increases the profit level of the company.

The company hire youth and provide career and education opportunities: Starbucks hired 10,000 youth from 2015 to 2017 and expanded their goal and committed to hiring 100,000 opportunity youth within 2020 (Starbucks Corporation: 4, 2020). Among them, 75,000 were hired in 2019 and 25,000 will be hired, which refers to the great contribution of Starbucks in empowering opportunity youth (Starbucks Corporation: 4, 2020). The company provide health insurance, career development, leadership support, mentoring opportunities and much more support to the opportunity youth. Therefore, the opportunity youth have become capable of maintaining a standard life after getting so many opportunities from Starbucks, and it encourages them to give their best performance to the company. As a result, the company can deliver the best services to their customers and maintain repeatable sales.

Starbucks focuses on developing green buildings to save the environment: The company became partnered with USBGC in 2001 to develop LED for their retail program, and 75% of stores Starbucks is LEED certified (Starbucks Corporation: 5, 2020). These buildings generate less construction waste and less water, about 60% and energy, about 30% in lighting (Starbucks Corporation: 5, 2020). As a result, they contribute more to making the environment greener, and it encourages others to adopt sustainable planning, which reduces pollution and natural resource consumption. This greener building makes customers satisfied because most of the customers are also concerned about the environment; therefore, they visit these LEED-certified stores more than other restaurants, and Starbucks generate higher revenue.

It emphasizes empowering girls and women: Starbucks hire women and girls worker to produce cocoa, tea and coffee to empower them and support their family. It has a new goal of empowering 250,000 women and girls in origin communities by 2025 (Starbucks Corporation: 6, 2020). These programmes help women and girl access finance, make homes healthy, break barriers to their education and promote sanitization and clear water for them. As a result, customers are becoming more interested in Starbucks and buying more to contribute to empowering women and girls to help them lead better life.

Similarities and Dissimilarities of different leadership approaches and suitable leadership for Starbucks:

This section has critically analysed the similarities and differences among leadership styles. The section has also advised appropriate leadership styles for Starbucks.

Servant Leadership:

Servant leadership refers to the approach where leaders share power, put the needs of employees first and help them to perform in their best way (Foti et al., 2017). Employees of Starbucks will feel valued if they conduct servant leadership because their leaders will support them properly which will enhance employee satisfaction. It is quite similar to transformational leadership because both leaders encourage their followers to give their best (Foti et al., 2017). On the other hand, it is different from charismatic leadership because charismatic leadership is encouraging employees through the outstanding personality of leaders, and employees try to work like the leaders.

Charismatic leadership:

Charismatic leadership is the approach where leaders have excellent personality and communication style that encourages employees to admire the leaders and follow those (Tal & Gordon, 2016). Employees of Starbucks will become more loyal because the leaders will motivate and inspire employees to be a better performer. Leaders of Starbucks will be capable of making employees realize that their work and talent matter a lot to the company. Charismatic leadership is totally different from coach-style leadership because coach-style leadership understand employees’ nature to motivate them, whereas charismatic leaders inspire employees to follow those (Tal & Gordon, 2016). The similarity of charismatic leaders with the leadership approach is that it also aims to ensure better performance from employees (Amanchukwu, Stanley, G & Ololube, 2015).

Transformational leadership:

In this leadership approach, leaders will encourage and motivate their employees to innovate and create change within their company to ensure success (Schedlitzki, & Edwards, 2017). Starbucks will be capable of reducing employee turnover by adopting transformational leadership because this leadership will make employees feel that their leaders are with them to provide support. Transformational leadership is different from charismatic and coach-style leadership because it encourages employees to innovate and create change in the company, whereas other leadership do not (Schedlitzki & Edwards, 2017).

Coach-style leadership:

In the coach leadership style, leaders understand and emphasize individual and specific motivations, which helps the leaders to foster employee engagement in an excellent way (Nawaz & Khan, 2016). Coach-style leadership will create a positive work environment at Starbucks because leaders will provide constructive feedback to the employees, and employees will be encouraged to face different types of challenges. Coach-style leadership is totally different from servant, transformational and charismatic leadership because none leadership of these try to motivate employees individually. For that reason, it brings the best result (Nawaz & Khan, 2016).

Recommended leadership approach for Starbucks: From the above evaluation, it is found that Coach-style leadership will the suitable leadership for Starbucks because it emphasizes on motivate employees individually after understanding their nature that other leaders do not. Leaders share their expectations with their team, which encourages employees to meet their leaders’ expectations (Lord et al, 2020). Leaders of Starbucks target, As a result, the personal performance of Starbucks employees will be proactive and work hard, which will make the company more successful by ensuring the best services for customers.

Organizational culture of Starbucks:

Alvesson & Sveningsson (2015) stated in their research that organizational culture makes sure that the purpose of an organization’s members is aligned with the organization’s purpose, and it drives employees’ thinking to make them loyal, proactive and good performers. An organization become capable of achieving its goals because of its culture. The organizational culture of Starbucks assists the company in fulfilling its purposes by ensuring the best output from its employees. The importance of the process of the company’s organizational culture are evaluated beneath:

Starbucks ensures effective communication and encourages their employees for their performance: All the store employees of Starbucks are called partners, which helps all the workers to communicate with one another with no trouble (Starbucks Corporation: 7, 2020). The manager, store manager and assistant manager make a management group, and they have meetings twice in a week to prevent communication problems. Even the company provide training to new staff to improve their communication skills; therefore, employees can solve different problems through communicating with one another effectively, and they deliver the best services to the customers. Starbucks provides thanks cars to their employees to show their value in the company and take care of them with competitive compensation packages. As a result, employees stay loyal to their company and become self-motivated to achieve the goals of Starbucks.

The company has a division of labour: In Starbucks, the employee has a clear division that maintains the discipline of their work, and they can fulfil their responsibilities properly. For instance, some employees are devoted to taking orders only, some make coffee only, and some count inventory only (Starbucks Corporation: 7, 2020). It makes employees’ work easy, and they can operate their work in a better way, and it brings the maximum output from employees’ effort. As a result, customers do not need to wait a long time, and they get organized services that enhance customers’ gratification toward Starbucks.

Leaders of the company do not consider themselves different from employees: The leaders of Starbucks fulfil their responsibilities of planning, controlling, leading and managing work within the company, but they think of themselves as ordinary employees (Starbucks Corporation: 7, 2020). For instance, while visiting abroad, leaders work cooperatively on coffee cleaning and other work without underestimating the work (Starbucks Corporation: 7, 2020). Therefore, leaders have good relations with the employees, and employees stay motivated because of the excellent nature of their leaders and work hard by following the instructions of their leaders. As a result, Starbucks get the best outcome and stay on the number one choice of their customers.

Starbucks has a culture of inclusion and diversity: Starbucks has a culture of belonging inclusion and diversity because they believe that each and every person brings a distinct experience. Employees of the company are diverse in race, gender, distinct, sexual orientation, age, religion, life experiences, ideas and cultural backgrounds (Starbucks Corporation: 8, 2020). The inclusion of diverse experiences foster innovation, creative ideas and economic growth, which is one of the key reason for the success of Starbucks.

Exceptional customer services: Providing exceptional customer service is one of the key organizational cultures of Starbucks that drive its success. Starbucks listens to its customers to serve services according to their preferences and collects feedback from them in many ways. For instance, in 2008 Starbucks asked their customers to inform their requests and concerns to make their services better, and the result of the step was 300 ideas from customers, which were implemented across all the Starbucks outlets (Quality Logo Products Blog, 2020). It is noted that paying heed to customers’ preferences has made Starbucks different from their competitors and achieve success.

Conclusion:

Starbucks has created its demand across the UK and the country where it operates and generates higher revenue in its business, but the Brexit issue and COVID-19 are affecting the profit level of the company. The company should focus on arranging suppliers from Asian countries to reduce the cost of importing vegetables, fruits and other raw materials to reduce import costs from Europe with higher tariffs. By increasing online services, Starbucks will be able to increase its sales and earn a higher profit than competitors. The company will be able to make its employees more proactive and good performers by adopting coach-style leadership in the company.

References:

Alvesson, M., & Sveningsson, S. (2015). Changing organizational culture: Cultural change work in progress. Routledge.

BBC (2020). Starbucks says Brexit vote hit UK profits. [Online] Retrieved from: https://www.bbc.com/news/business-39586848 [Assessed on: 16 August 2020]

Denison, S., (2020). How Much Is Starbucks Worth? GOBankingRates [Online] Retrieved from: https://www.gobankingrates.com/money/business/how-much-is-starbucks-worth/ [Assessed on: 15 August 2020]

Lock, S., (2020). Number of Starbucks locations worldwide 2003-2019. Statista [Online] Retrieved from: https://www.statista.com/statistics/266465/number-of-starbucks-stores-worldwide/#:~:text=A%20growing%2C%20global%20brand,its%20reach%20to%20different%20locations. [Assessed on: 15 August 2020]

Mertes, A., (2020). Building a Community: Why Starbucks Gets Customer Service Right. Quality Logo Products Blog. [Online] Retrieved from: https://www.qualitylogoproducts.com/blog/building-community-starbucks-gets-customer-service-right/ [Assessed on: 18 August 2020]

Macrotrends LLC: 2, (2020). Starbucks Revenue 2006-2020. [Online] Retrieved from: https://www.macrotrends.net/stocks/charts/SBUX/starbucks/revenue [Assessed on: 14 August 2020]

Macrotrends LLC: 1, (2020). Starbucks: Number of Employees 2006-2020. Retrieved from: https://www.macrotrends.net/stocks/charts/SBUX/starbucks/number-of-employees [Assessed on: 14 August 2020]

Nawaz, Z. A. K. D. A., & Khan_ PhD, I. (2016). Leadership theories and styles: A literature review. Leadership.

Perera, R. (2017). The PESTLE analysis. Nerdynaut.

Russell, G., (2020). Coronavirus: Starbucks reports first quarterly loss in seven years – as it happened. Financial Times [Online] Retrieved from: https://www.ft.com/content/4c876c5a-a03a-3f57-8a04-c364b12ad4b7 [Assessed on: 16 August 2020]

Reuters, 2020. Starbucks sees sales impact from coronavirus stretching into end of 2020. [Online] Retrieved from: https://uk.reuters.com/article/health-coronavirus-starbucks/starbucks-sees-sales-impact-from-coronavirus-stretching-into-end-of-2020-idUKL3N2BW0PH [Assessed on: 16 August 2020]

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Sleby-Green, M., (2020). Starbucks’ EU unit paid just 2.8% in UK tax last year. Insider Inc. [Online] Retrieved from: https://www.businessinsider.com/the-european-division-of-starbucks-paid-28-uk-tax-last-year-2018-9#:~:text=The%20coffee%20company%20pushed%20back,effective%20tax%20rate%20of%2025.3%25. [Assessed on: 16 August 2020]

Starbucks Corporation: 3, (2020). Starbucks Accelerates Path toward One Million Community Service Hours in 2013 Through 3rd Annual Global Month of Service. [Online] Retrieved from: https://stories.starbucks.com/stories/2013/starbucks-accelerates-path-toward-one-million-community-service-hours-in-20/ [Assessed on: 17 August 2020]

Starbucks Corporation: 4, (2020). Opportunity for Youth. [Online] Retrieved from: https://www.starbucks.com/responsibility/community/opportunity-youth [Assessed on: 17 August 2020]

Starbucks Corporation: 5, (2020). Goals & Progress: Green Building. [Online] Retrieved from: https://www.starbucks.com/responsibility/global-report/environmental-stewardship/green-building#:~:text=Inside%20our%20LEED%20certified%20stores,water%20and%20energy%20to%20operate. [Assessed on: 17 August 2020]

Starbucks Corporation: 6, (2020). The Starbucks Foundation’s 2019 Origin Grants to Empower Women and Girls. [Online] Retrieved from: https://stories.starbucks.com/stories/2019/the-starbucks-foundations-origin-grants-to-empower-women-and-girls/ [Assessed on: 17 August 2020]

Starbucks Corporation: 7, (2020). Organizational culture. [Online] Retrieved from: https://starbuckswebsite.wordpress.com/organizational-culture-3/ [Assessed on: 18 August 2020]

Starbucks Corporation: 8, (2020). Diversity & Inclusion at Starbucks. [Online] Retrieved from: https://www.starbucks.com/responsibility/community/diversity-and-inclusion [Assessed on: 18 August 2020]

Sarsby, A. (2016). SWOT analysis. Lulu. com.

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Whatcompetitors (2020). TOP 11 STARBUCKS COMPETITORS IN 2020. [Online] Retrieved from: https://whatcompetitors.com/starbucks/ [Assessed on: 15 August 2020]

Warnick, J., (2020). 5 things to know about Starbucks new environmental sustainability commitment. Starbucks Corporation [Online] Retrieved from: https://stories.starbucks.com/stories/2020/5-things-to-know-about-starbucks-new-environmental-sustainability-commitment/#:~:text=Starbucks%20identified%20key%20areas%20in,for%20ways%20to%20better%20manage [Assessed on: 16 August 2020]