Starbucks SWOT Analysis: A Tasty Coffee Stock

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

SWOT analysis – Strengths, Weaknesses, Opportunities and Threats – is a simple but powerful method to look at a company from multiple points of view. Starbucks (NASDAQ: SBUX) is one of the most remarkable growth stories in the consumer sector over the last years, and a SWOT analysis reveals that the company still has a lot of potential in the middle and long term.

Strengths

  • Starbucks owns the most recognizable brand in the specialty coffee business, and the Starbucks experience is an irreplaceable differentiating factor.
  • Howard Shultz, founder and chairman of Starbucks is the barista to the world. Shultz has practically invented specialized coffee as a mass product, his leadership and innovative vision are very valuable assets.
  • The company has a loyal customer base willing to pay premium prices for Starbucks products.
  • Store location is an important competitive factor, and Starbucks has secured its presence in many of the most desirable corners of the planet.
  • Starbucks is ahead of most competitors when it comes to financial strength and profitability.

Weaknesses

  • Starbucks products are more expensive than those offered by the competition, and customers could easily switch to lower priced alternatives in times of economic hardship.
  • Aggressive expansion can be risky, as it can lead to cannibalization and a watered down Starbucks experience.
  • Health implications of coffee consumption are a matter of debate, and many of the company´s products have high calories and fat content.

Opportunities

  • International expansion is still in its first stages, there is plenty of room for growth in emerging markets.
  • Revamped food offerings, juice, energy drinks and even potentially some alcoholic drinks are smart ways to leverage the brand and attract different kinds of customers. The acquisitions of Evolution Fresh and La Boulangerie fit quite well into this strategy.
  • The company has taken a two sided approach to the home brewing boom popularized by Green Mountain Coffee Roasters (NASDAQ: GMCR). On one hand it produces K-Cup coffee and tea packs for use in Green Mountain´s Keurig, but at the same time Starbucks is competing with its own premium brewing machine, Verisimo.
  • Introducing new products and different distribution venues is a strategy which Starbucks is implementing successfully, and it still offers many opportunities in the US and abroad.

 Threats

  • McDonald´s (NYSE: MCD) is successfully expanding its Mc Café stores on a global scale. The fast food giant has an unparalleled geographical presence and lower prices than Starbucks in addition to a globally recognized brand.
  • Dunkin' Brands (NASDAQ: DNKN) makes 60% system wide sales from coffee and other beverages, and the company is expanding beyond its core northeastern U.S. market. Dunkin Brands is another relevant competitor with lower prices than Starbucks.
  • High end competition is increasing too, with companies like Panera (NASDAQ: PNRA) growing strongly both on a total sales and comparable store sales basis. Panera offers high quality food and coffees for premium prices, and in that sense it goes after a similar customer group.
  • Starbucks is exposed to commodity price fluctuations and possible supply problems in coffee and other products.

Bottom Line

Competition is rising, both from lower priced alternatives and premium players. But Starbucks has enough differentiation power to sustain its market share and expand into different business lines and geographies. Overall, this cup of coffee is still quite tasty.

 


acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's, Panera Bread, and Starbucks and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters, and short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, McDonald's, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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