Howard Schultz, the CEO of Starbucks, has successfully transformed the coffeemaker into “the third place between your home and your work”. Could this business edge be replicated or competed? This is the central theme of our competitive analysis of Starbucks. We break down its financial report and marketing strategy to find the answer.
The Story: It Does Not Sell Coffee, It Sells Experiences. But, Who Doesn’t Know?
If the strategy is just “branding” the coffeemaker into a hangout place, everyone could copy it.
It sounds smart when you heard Starbucks relies on economic experience as its business edge. This approach shifts the business paradigm from selling the goods to selling the whole experience. To be honest, what’s special about it?
In its purest form, the economic experience switches from selling goods to renting the space (and selling goods also).
Starbucks rents its spacious – uniquely crafted space to the visitor. Starbucks also sells coffee so they could hang out with friends, talk about their new boss, new hot chicks in the office, movies, or any topic.
The Instagram Economic
It is fun to hang out with friends in a well-designed bar or coffee shop. It is always a great experience, especially when we are tired of our hustle. But, could it deliver growth for the coffee shop business? Not yet. It needs a more robust and solid catalyst. That is the social media – mostly Instagram.
This is the Instagram economy. When a girl wears a Gucci shirt, Adidas sneaker, and newest generation iPhone and hangs out in the most expensive coffee shop in the town, she will proud of herself when she uploads all of this stuff on Instagram.
This will ignite more people to do the same. You’re welcome Starbucks.
The Semi Real Estate Company: Lite Up The Atmosphere.
Competitive Analysis of Starbucks in its Capital Expenditure
Because it is more about the location than the coffee (the coffee should be good too but doesn’t have to be perfect) so it needs a high amount of capital to build that kind of place. According to its official filing, in 2021, Starbucks spent about $1.4 Billion in CAPEX. Much higher than Chipotle Mexican Grill with $442 Million. Among restaurant rivals, only Mcdonald’s has a bigger number with $2 Billion. Starbucks ever achieved that level in 2019, when it launches its flagship store: The Reserve Roastery in Chicago.
If that number could not illustrate how difficult to compete with Starbucks, let the Reserve Roastery tells you. This 35,000-square feet building has five floors connected with a curved escalator. It has an ultra-modern interior design and is finished with a rooftop bar at the top.
When Starbucks calls a third place between your work and your home, none will reject this offer
A Cup of Coffee at a Time.
Economies of Scale in Competitive Analysis of Starbucks
The tailored space – the well-designed building brings that experience, but the coffee could not be ignored. The space may be the most important thing since it is the center of the experience, but as you guess, the coffee can’t be absent.
To live up to the brand, the perfect ambient between your home and your workplace, Starbucks needs to collect the best coffee around the world. And it is an expensive business, especially when the supply is not abundant. To get prioritized, Starbucks buys the coffee at a premium price, securing the supply. These activities create high barriers for competitors or even new potential entrants to compete with Starbucks.
The Final Word.
Conclusion on Competitive Analysis of Starbucks
As you can see, it is about CAPEX. To tailor the space, to deliver the experience, to serve the best coffee from the world. Starbucks muscle is not about branding only, it is raw power, the deep pocket, the economies of scale, and the vertically integrated business.
For investors: https://investingdeck.com/fundamental-analysis-of-starbucks-reckless-buyback/