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Starbucks Analysis: Who are Starbucks Competitors?

Updated on March 24, 2012

How does Starbucks keep beating their coffee competitors?

An analysis of Starbucks and comparison of their growth to competitors like McDonalds and Dunkin Donuts...

Today, Starbucks is the world's number one specialty coffee retailer and its target market is any person of any age. The store offers juices and cocoa for children, creamy blended drinks for those who don't particularly like coffee, and a number of different types of brewed coffee. Most of Starbuck's revenue is from beverage sales.

While most of Starbucks revenue comes from sales of these various beverages, over the years they have expanded their food menu and continue to refine their product offerings to the changing tastes of their customers. The stores now sell specialty breakfast foods such as scones and muffins as well as a variety of beverages and coffee. Howard Schultz said in his vision of Starbucks that "you get more than the finest coffee when you get great people, first-rate music, a comfortable and upbeat meeting place, and sound advice on brewing excellent coffee at home."

Revenue and Sales Analysis for Starbucks

Strategic analysis of Starbucks Coffee Company

Starbucks' Current Position

Nearly two and half decades of phenomenal growth has finally subsided and left the Starbucks Corporation in a precarious situation. As of July 2008 the company has had a decline in customer traffic for the first time ever and their stock price has lost nearly half of its value since 2006. This is all a new experience for Starbucks, which had been serving over 50 million customers a week at its peak, and for 15 consecutive years had at least 5% year over year sales growth in stores that had been open for more than a year. The loss of sales has forced the company to make difficult decisions in order to remain profitable. One of these difficult decisions was the announcement to close 1000 company-owned stores globally during the 2010 fiscal year. They also announced that they were going to be opening fewer than 100 stores in the U.S. and 200 internationally. This is a drastic reduction compared to the 1700 new stores opened in the U.S. in 2007 alone, and far cry from the aggressive expansion that made Starbucks most successful coffee chain in the world.

Although the current economic conditions have hurt many businesses, Starbucks has been especially affected because most consumers view Starbucks as a luxury item. However, the current economic conditions and tighter consumer discretionary spending are not the only reason for Starbucks recent trouble. As you can see in the following graph, Starbucks has been outperformed over the last 2 years not only by S&P 500 and Nasdaq, but also the S&P Consumer Discretionary (exchange traded fund made up of multiple companies, including Starbucks, that largely rely on discretionary consumer spending)

The National Coffee Association estimates that the US coffee market will exceed $29 billion in (Morningstar). McDonalds and Starbucks are two well-positioned companys that could take advantage of this, but the markets the two competitors target are very different. The former aims at the cheaper coffee to go, whereas the latter aims at providing a premium experience for a luxury price. McDonald's larger retail footprint may overlap more with Starbucks' core markets, but their bleak dissimilarities are reflective of the general differences between their core customers.

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