In the Saudi Arabian culture, the tea denotes a hospitality. Therefore, it is largely offered when people have guests over. In the Arab culture a cup of tea serves a very significant purpose of business etiquette because of the social nature of the drink. KSA is home to various local hotels and five-star hotels for avid tea-drinkers and consumers of caffeinated drinks. Starbucks KSA, became the pioneer of a tea-house or a tea-themed restaurant in the country, that provides the customers with drink which was purely home-made unlike tea-bags in water served by many lobbies of expensive restaurants. There are many established coffee-centric cafés but only Starbucks KSA proves to be one of the high-end café that specializes in several blends of teas, coffees and lattes, Frappuccino and mochas. It gives its customers a concept (value) that was previously missing from country, a place where one can spend hours reading a book or newspaper, catching up on life with friends and family while enjoying their home-made cup of tea. Being the first restaurant or café, which offers all-day breakfast in the country. Starbucks KSA changed the vibe and the culture of country. The distinctive services such as wide variety of caffeinated drinks and breakfast, soothing music, and a pleasing ambiance are just some of the features that provide a sense of home away from home – making it beyond just another Café. The following report aims at discussing and diving deep in the external assessment strategies for Starbucks. The first section of the report provides a brief overview of the company itself, followed by the vision and mission statement of the company. The next part of report discusses the company structure and analyzes the external environment using different strategic techniques.
Introduction
In our country, people consume tea or coffee to start their mornings. It is what leads to a get together, it is a snack, a deal breaker and so much more. We are the people who will have a light chit chat or a multimillion-dollar deals while having our snacks and teas. It is what bonds people together and is consumed in all sorts of events at levels social classes. Starbucks globally introduced a concept (value) to its customer that was not previously present in the country as such. A high-end café that particularize in developing multiple blends of caffeinated drinks. A place where people come with family and friends to have their favorite type of drinks while relaxing in a pleasant ambiance. In the country of its origination Starbucks is the go to place for meeting with business associates for a discussion over a quick cup of coffee, meeting friends or work on your laptop in solitude. Starbucks offers multiple blends of coffees and teas. It caters to the coffee and tea enthusiast who knows exactly how and what they want. Moreover, it offers a vast variety of breakfast, lunch and dinner with exceptional quality and service due to which it retains its customers.”
Success of the company is attributable to the gap that existed in the marketplace where they were not many specialized cafes and more preference was being given to coffee shops and due to the careful planning that went into designing the right menu with right ingredients, the right place for the customers and intelligent training for the staff. This is a brand that was established for coffee lovers and readers, so far it has been highly successful in its market. Starbucks now serves customers in multiple outlets in Saudi Arabia.
Corporate Mission:
“to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”
Values
- Creating a culture of warmth and belonging, where everyone is welcome.
- Acting with courage, challenging the status quo and finding new ways to grow our company and each other.
- Being present, connecting with transparency, dignity and respect.
- Delivering our very best in all we do, holding ourselves accountable for results.
The corporate mission statements and values are exactly copied from the Starbucks website to reflect the accurate of date in this report.
PESTLE Analysis
PESTLE analysis addresses all the crucial challenges Starbucks will confront in a prevailing macro environment beside market competition. Through the conduction of PESTLE analysis, we identified the external factors that are considered to be uncontrollable as compare to internal factors that are controllable for Starbucks, as highlighted in Table 1.
| PESTLE Analysis Categories | Factors |
|
Political |
· The reduction is GST can help in providing better pricing to the customers with a sustainable margin.
· High increase in import duties on necessary items for the restaurant can affect the quality as they will be forced to look for local vendors.
|
|
Economical |
· Going to a café is a luxury so any negative impact on the economy can directly impact the industry.
· The rise in inflation can impact the supply and demand cycle as well as the prices of the ingredients. · The disposable income is another factor that can affect the industry. |
|
Social |
· The industry solely depends upon social interactions, be it among the youth or the elderly.
· The restaurant is also directly impacted by the business activity in the country. · Some people cannot afford the luxury of going to the café, so a large portion of the market remains untapped. |
|
Technological |
· Latest software can help with providing data that can be correlated with social media to attain valuable insights about customer behavior and choices.
· CCTV cameras and off location monitoring can help improving the overall efficiency of the restaurant. It also helps in resolving customer disputes, theft etc. · Digital payments can revolutionize the payment methods and is going to be the main source of payments in a few years. · Restaurant management and accounting software can ease the process. · Modern technology can enhance and efficiency while preparing the orders in the restaurant. |
|
Legal |
· Regulatory authorities frequent visit of different areas of restaurant on regular basis makes it a necessity to operate according to the defined standards.
· Some of the laws that must be complied with are: |
Internal and External Factors
The external and internal factors of Starbucks KSA are addressed in the section below.
Internal Factors
This report is predominantly based on the external assessment of Starbuck in Saudi Arabia. However, the give a detailed overview of the business environment internal factors must also be considered in order to be weighed against key external factors that are posing serious challenges for the company. Internal factors will reflect how the company is faring against challenges from within. Moreover, internal factors help in analyzing the space matrix as well.
Labor costs and payroll:
As a restaurant owner one should be sure of the total number of employees and their pay. One needs to be sure that you do not make your employees work extra then required because if such a situation arises then it would result in a greater cost which would then be compulsory to be handed over to their employees.
Employee turnover rate:
Generally, restaurant owners do not consider employee turnover rate as a major issue but if you take profits into consideration it can be taken as a threat. The employee turnover can in return cost a huge amount to a restaurant. The reason for this cost would be that every time when you would hire a new employee you will have to spend both time and money in his/her training. Hence there are certain things which can be done in order to deal with employee retention. One can appreciate their employees and give them extra pay and other incentives or benefits.
Waiting time after placing an order:
This category discusses high wait times, which refers to the time a customer has to wait to be served. Wait time affects the restaurant’s profit. When a customer sits down on a table before being served is known as dead time because up until this point the restaurant is not gaining any profit due to this act. Also if too much time passes before their order arrives it tends to delay that customers next visit. Furthermore, in case there isn’t enough staff to deal with the customers it causes anger among them. All these reasons are termed as poor customer service.
Accounting and finance issues:
A good accounting system is necessary to track the restaurant’s expenses, supplier’s invoices, payroll and much more. If accounting and finance issues are not dealt with properly such as looking for mistakes in invoices or double checking for order bills, it may lead to issues at the bottom line. Hence it is necessary to have a reliable person for such matters who can manage the cash inflow and outflow properly.
Every restaurant should make its customer feel valued because this will benefit them as well because it would mean they have loyal customers who would turn out to be a good worth of mouth for other customers and well as for retaining customers (Jalilvand et al., 2017). Many restaurants have loyalty reward programs which are beneficial for increasing customer retention rate (Hwang., 2019). As it’s said ‘To retain a customer is cheaper than acquiring a new one’ (Kumar., 2010).
Website (up-to-date):
The online web is best for attracting potential customers. For restaurants if their website is not up to date or isn’t mobile-friendly then they may lose customers or business. Nonetheless, make your contact number readily available, location should be up to date and the menu should be correctly formatted and visible on the website along with price rate so that you don’t lose your customers and this will also help gain profit.
Leadership role, style and management:
The one who leads the people is considered as an essential internal factor. The leadership style of a restaurant manager or CEO will impact the overall culture. This culture in turn helps to achieve the mission and work according to the vision. Lastly, the culture implemented by the leader would lead to valuing employees and have a positive/negative nature.
Effectiveness level of communication:
Effective communication means to have the work well understood. There should not be any communication gap between the staff members irrespective of their level. This would help create a family-friendliness environment. The leader is an essential part in making communication effective.
Financial, physical and human resources</strong>:
Financial resources would include funds, investments and other sources of income. Physical resources refer to the restaurant’s location, its equipment and the facilities provided by them. Lastly, human resources mean to have good employees to deal with customers, volunteers and target audiences.
Strategic risks:
The risks may become an obstacle in reaching the goals present in the restaurant’s business plan. These risks may occur due to a number of factors such as technological evolution or changes in customer demand. Such factors can become a threat and alter the customers’ choices.
External Factors
Technological concerns:
The use of technology in the restaurant industry has increased over the years. So much so that Starbucks is known as one of the top companies that responds to innovation. Now digital methods are used to attract, build and keep customers (Wrigley & Starker., 2019). Both the buyer and the seller tend to benefit from the use of technology and lead to new changes (Heide & Weiss., 1995). For example, if we relate it to the current pandemic situation we can say that those who had a good hand over tech proved to still gain profit while others suffered loss.
Inflation:
A consumer’s purchasing power is linked to the inflation rate. A lower inflation rate will increase the consumers purchasing power, then the consumer will be willing to spend more. This is a positive factor for a restaurant. However, if the prices in a country increase drastically then it will reduce the consumer’s spending and lower the restaurants profits which in turn would also reduce the economy.
The generation gap:
The generation gap means the choices of millennials; they tend to have different habits compared to the previous generations. To overcome this the restaurant should have good tactics to deal with their wants and needs. They may work on having quick service or food they can enjoy but not all restaurants achieve this.
Demand for healthy options:
Customers want good taste, good quality and low prices, but with the passing of time now customers even want good nutritious items on the menu, dishes which use healthy ingredients (Swinburn et al., 2015). To achieve this one can make use of organic elements, have vegetables centered on the side in the dish and look for ingredients that are locally sourced. All this will appeal to both the younger generation and the mature crowd.
Demand for mobile:
Research shows that a restaurant earns more profit if it has an online service available as well (Pantelidis, 2010; Zhang et al., 2010). Hence the restaurant application would act both as an ease and reliance for them. The customer would have access to the menu online and ordering food from them would just be a few clicks away (Zhang et al., 2010). Furthermore, this can prove to be very attractive towards the millennial generation.
Changes in consumers’ behavior:
The consumers’ preferences may change depending on quantity, quality, price, promotional deals and service time (Abdullah et al., 2013). A restaurant would need enough finances to work on these factors. However, the strategies that a restaurant makes should take such changing patterns into consideration.
Political concerns:
The political matters have a direct and deep impact on a restaurant. Whether it is terrorism, government rules and regulations or the public matter. One needs to predict his/her restaurant’s success according to a stable political condition. A stable political condition tends to be beneficial both in terms of the investments and long-term success of the restaurant.
Sociocultural:
The customs, traditions, values, social trends and expectations affect the social environment of the restaurant (Bhuian, 2000). These social practices can provide great financial opportunities for the restaurant. Furthermore, these values and practices can be linked to the restaurant’s responsibility towards its society.
Demographics:
Restaurants face many challenges and among those one is their comparison with other businesses (Markovic et al., 2011). They need to have enough knowledge of how people from different demographics should be targeted such as families, couples, friends and organization employees (Kim & Geistfeld., 2003). It is important to identify your target demographics because this will help you in avoiding the biggest mistake which all restaurants make that is ‘trying to please everyone’. This is not possible hence one should learn to prioritize their people and choices. This would also make it easy to work on strategies and plan accordingly.
Taxation concerns:
Tax reforms have a huge impact on the food industry as a whole. Though tax reforms fall under the political conditions umbrella but they have their own effect as well. The tax reform which affects your business is not in our hands but how you react and deal with it is what needs to be mastered.
External Factor Evaluation Matrix
Starbuck’s EFE matrix was constructed by considering the external factors that greatly influenced it, as illustrated in Table 2. For instance, the opportunities and threats with highest weights are those factors that have greatest impact on the restaurant with respect to the industry. According to the calculation, the total weighted score is 2 which is considered to be less than the average of industry that is 2.5, indicating that Starbucks is not taking advantage of its opportunities to overcome threats.
| Key External Factors | Weight | Rating | Weighted score |
| Technological concerns | 0.1 | 1 | 0.1 |
| Inflation | 0.2 | 2 | 0.4 |
| The generation gap | 0.05 | 3 | 0.15 |
| Demand for healthy options | 0.1 | 2 | 0.2 |
| Demand for mobile | 0.1 | 1 | 0.1 |
| Changes in consumers behavior | 0.15 | 3 | 0.45 |
| Political concerns | 0.1 | 1 | 0.1 |
| Sociocultural | 0.05 | 3 | 0.15 |
| Demographics | 0.05 | 3 | 0.15 |
| Taxation concerns | 0.1 | 2 | 0.2 |
| Total | 1 | 2 |
Table 2. External Factor Evaluation Matrix
International Factor Evaluation Matrix
The IFE Matrix below was calculated on the basis of an analysis of Starbucks’s own internal strengths and weaknesses. Like the EFE Matrix, factors with the highest weights are most important to the success of restaurant. According to the calculation, the overall weighted score is
2.88, which is considered to be greater than the average of industry that is 2.5, suggesting that Starbucks is taking advantage of its strengths and is trying to minimize its weaknesses.
| Key Internal Factors | Weight | Rating | Weighted score |
| Labor costs and payroll | 0.08 | 2 | 0.16 |
| Employee turnover rate | 0.1 | 4 | 0.4 |
| Waiting time after placing an order | 0.13 | 2 | 0.26 |
| Accounting and finance issues | 0.1 | 1 | 0.1 |
| Customer retention | 0.08 | 3 | 0.24 |
| Website (up-to-date) | 0.05 | 2 | 0.1 |
| Leadership role, style and management | 0.12 | 4 | 0.48 |
| Effectiveness level of communication | 0.12 | 3 | 0.36 |
| Financial, physical and human resources | 0.1 | 3 | 0.3 |
| Strategic risks | 0.12 | 4 | 0.48 |
| Total | 1 | 2.88 |
Table 3. Internal Factor Evaluation Matrix
SWOT Analysis
Like every other restaurant, Starbucks aims to serve its customers with the delicious food and provide best customer service. However, it is very important to have deep insights of internal and external factors that can disturb or boost the mere existence of the business. Table 3 illustrates the strengths, weaknesses, opportunities and threats faced by Starbucks.
| Strengths
• Ambiance • Exceptional Staff • Value for money • Global Brand • Acquisitions • Diverse Product Offerings |
Weaknesses
• Volatile Supply Cost • High Product prices • Product recalls • Avoidance of taxes |
|
| Opportunities
• International Expansion • Brand extension to a bakery • Product diversifications • Price differentiations |
Strengths such as food quality and ambiance will highly contribute in development of fine dining in the international market. | Through the execution of opportunities, Starbucks plans to minimize its weaknesses such as weak online presence via enhancing the website appeal to other segments and making it more user friendly. |
| Threats
• Sustained level of Covid-19 in 2021 • Increasing rents • Proliferation of cafes • Product imitation • Lower and healthier alternatives |
Food quality, value for money and ambiance are considered to be strengths of the restaurant that plays a significant role in the avoidance of threats. | By reducing the weakness, Starbucks can overcome the threat from competitors and also sustain its market hold during pandemic. |
Table 3. SWOT Matrix
Space Matrix
In order to determine Space matrix, internal and external factors of Starbucks were considered for analyzation with aim of identifying the most suitable strategy. This analysis was conducted with reference to financial, stability, competitive and industry position of the restaurant. Figure 2 illustrates graph with average of each factor plotted across each axis and also the directional vector in fourth quadrant. In light of the analysis, Competitive strategy is most appropriate for Starbucks. This builds the findings of this restaurant being competitive but not stable in a high growth industry.
Porter Five Forces Analysis
With the assistance of porter five forces analysis, Starbucks can assess a measure of competitive strength within an industry, which is key component of strategic planning. Figure 2, displays each force that affects the respective industry and how they are driving down the profit margin of the restaurant.
Figure 2. Porter Five Force Analysis
Recommendations
Today how restaurants function is different from how they used to. The traditional marketing methods are long gone and new effective methods should be adopted. However, if we look at the growing competition and the high failure rate of many restaurants, we will understand that it is vital to have good effective strategies. This is the era of social media platforms hence ‘Go Social’ should be considered a necessity if you wish to succeed. Develop a website and make all that you have to offer easily accessible to your audience. Get involved in email marketing and invite food bloggers and influencers to visit and promote your business. On the other hand, once you are ready with your SWOT analysis you should make a new action plan with any corrections and improvements that may help you operate better. Also after completely studying yourself, you should look outside at other businesses as well. Look at the competition around you, look at the similarities and differences and the treats that you may face today and tomorrow. Make sure that your business evolves and you keep up with the current trends and demands. Operationalize your restaurant functions in such a way that it helps you retain current customers and attract new potential ones. Strategic planning is essential for any business as it will help you have a firm grasp in many areas. It will keep you in lobe of your own internal business and the outside world as well which would be filled with competition.
Conclusion
Conclusively, Starbucks lives up to expectation of most of their customer to provide a place with scrumptious snack meals and tangy aroma along with a cozy yet enticing atmosphere. This restaurant is popular among major segments due to its modern and retro vibe and a menu encompassing a wide range of food options. It is therefore crucial, more than ever, for the restaurant management to undergo strategic analysis, as mentioned in the case study, to have profound insights of both their company and the industry in which they are operating with the purpose of and ruling the food industries for years yet to come. Seeing so many food businesses shut down due to COVID-19, Starbucks is one of the few who not only survived through the pandemic, in fact adapted quite well to the new normal. They were quick to adjust to the new regulations as they expanded and boosted their drive-thru sales – being the main revenue generator during pandemic. Moreover, to support a sustainable business in this age of climate change, Starbucks is going green with their initiatives like greener cups and digitally traceable cups. Thus, all these tactics and planning timely executed, allowed them to operate well throughout, without having the need to downsize or fire any employee at all, even during the five-month total shut down during the first wave.
