PESTLE Analysis of Starbucks

Starbucks PESTEL Analysis

Starbucks is the leading Coffee house chain in the world with its more than 22,000 stores running worldwide. While it is the largest Coffee brand globally, it is also the most successful one. The secret of Starbucks’ success lies in excellent quality and great leadership. It has created the brand image of an ethical brand that has gained global recognition. Its focus has remained on quality as well as ethics. Apart from that Starbucks has also succeeded through excellent supply chain management.  It sources its coffee ethically from diverse sources globally.

However, Starbucks is also known for excellent customer service and a pleasant environment. All these factors differentiate it from its competitors.  There are also several other factors in the external environment of Starbucks. These factors can be political, economic, technological, legal, or even social in nature. This PESTEL Analysis explains these factors and how they impact the business of Starbucks.

Political:

The political factors globally have a deep impact on businesses and their profitability. Politics affects several things from taxes to the business environment. It determines how business friendly the environment of a nation is. There is a deep link between economic and political stability. The more politically stable a nation is the more stable is its economic environment. Businesses can flourish in such an environment. Moreover, the stability of the political environment also affects the stability of the supply chain.

Political disruption can result in disruption of the supply chain and it can influence the day to day operations plus sales and profitability.  The suppliers of Starbucks are scattered over the globe in several parts of the world. Since the brand operates in the global environment, it has to deal with political pressures. Its business is affected by the political condition of the various nations where its stores or supply chain are located.

Economic:

Economic environment creates pressures on any business. Especially, the ones dealing in the global environment have to deal with bigger pressures. The economic environment is not always stable across the globe. In various nations there can be a situation of rapid fluctuation.  The world has recently been through a situation of economic turmoil. It has affected most global brands deeply.

Now, the economic recession is over but several nations are still dealing with economic instability. Economic situation affects the purchasing ability of the customers and in this way affects a brand’s sales and profitability.  It also affects the cost of raw material and labor costs. All these factors are importantly related to the profitability of Starbucks.  Better the economic situation, the higher is the profitability of the brand. Now, since the world economy is back on track, consumer confidence has been boosted and spending has risen. All of this me ans better sales and profits for Starbucks.

Social:

Socio-cultural factors have an important impact on the profitability of any business. Changing demographics and other social factors can impact the businesses. In US, a large part of the population is aging and retiring. Professional consumers form a large part of Starbucks’ customer segment.  Retiring professionals are going to affect its customer base. Apart from it there are several other social factors too that affect the business and profitability of Starbucks.

A lot depends on consumers’ preference too. Changing consumers’ preference can also affect the sales of coffee and the business of Starbucks. Apart from that the popularity of coffee is not even across all the societies. There are several things including marketing whose effectiveness depends on the society and culture. Now, Starbucks would need to focus upon the millenial generation and its preferences. Its true that Starbucks products sell at premium prices but its taste and quality as well as variety are also matchless.

Technological:

It is an era of technology and technological factors affect the profitability of any business. Technology is everywhere and enables performance across all the functions whether it is finance, marketing, supply chain or even HR. Starbucks has made very good use of information technology all across the company to drive performance. It has focused on digital innovation to drive business. In 2015, it launched its Mobile Order and Pay feature.

In this regard it has also partnered with The NewYork Times, Spotify and transportation app Lyft. Across the entire business, it has invested in technology in the other areas too to improve its capabilities and performance. In the recent years, it increased its investment in marketing and whether traditional methods or digital marketing, it is investing millions to improve its brand presence.

Environmental:

Across the globe, people and governments are favoring the brands that favor the environment. The more environmentally responsible a brand is the higher is its popularity and the better is its brand image.  Such brands are also able to obtain higher loyalty from their customers. Starbucks has also made significant investment in environmental initiatives.

It is working to bring all its stores to LEED building standards and to approach their design and maintenance in a manner that is inclusive of its environmental efficiency goals. It is also working to shrink its environmental footprint by increasing recycling and by reducing the waste related to cups and other types of packaging. Its focus is also on water and energy conservation. Another important area where its environmental initiatives are focused is climate change. It is helping farmers mitigate the effect of climate change on agriculture.  Overall, it has invested significantly in environmental responsibility and social responsibility.

Legal:

Legal compliance is an important requirement for businesses. However, the situation is more complex for the ones operating in the global environment. Such companies are faced with different laws in different nations. From the tax rates to the labor laws and other types of laws, all of them differ across nations. Starbucks is especially cautious regarding ethics and legal compliance.

It has enacted a special business ethics and compliance program that focuses on training the employees at compliance and ethics. Throughout the globe where its business operates the company is focused on remaining compliant with law. Apart from it, the focus is also on non-discrimination and equal treatment of all the employees. While it reduces the chances of legal hassles, it also helps the business operate fairly and create a better brand image.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.