Component 2

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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 1 Industry and Competitor analysis for Starbucks Industry Description; Industry Structure; Company position within the supply chain; Porter’s 5-Forces; Key Competitors & their Key Factors for Success Leader: Muna Al Khatib Lock, Owen Mitenko, Kryslin Repovs, Grace University of Guelph Gordon S. Lang School of Business and Economics Professor Rodenburg MGMT*1000 (0101)F23 14 October 2023

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 2 Industry Description: Starbucks operates within the highly competitive retail coffee and snacks industry, a segment of the broader food industry. This industry is characterized by the sale of coffee, tea, and related food and beverage products to consumers. There’s a wide range of competitors in this industry, from international coffeehouse chains like Starbucks to local coffee shops, convenience stores, and fast-food outlets that serve coffee and snack items. Starbucks has emerged as one of the industry leaders, known for its premium quality coffee, diverse menu offerings, and inviting café ambience. Direct suppliers to Starbucks primarily include international coffee bean producers, tea suppliers, dairy providers, and food distributors. Starbucks collaborates with coffee farmers worldwide, often through fair trade practices and partnerships, to ensure a sustainable supply chain. Moreover, they rely on suppliers for an array of ingredients, from baked goods to syrups, ensuring that they maintain Starbucks' standards for taste and quality. Buyers in Starbucks' context are the millions of customers who visit their coffeehouses daily, that includes coffee lovers, professionals, students, and even those searching for a cozy place to socialize or work. With locations in numerous countries, Starbucks caters to a global clientele. Starbucks has cultivated strong brand loyalty and customer engagement, resulting in a dedicated and recurring clientele. Industry Structure: Starbucks operates within the retail coffee and snacks industry, a field that exhibits a nuanced industry structure positioned between "perfect competition" and "monopolistic competition" as shown in Exhibit A. This distinctive placement results from several key observations. In a "perfect competition" market, a large number of firms offer identical products, and none holds market power. Starbucks, however, sets itself apart with a unique experience and a differentiated menu, therefore the company's brand and product diversity distinguish it from the pure "perfect competition" concept. On the other hand, Starbucks cannot be classified entirely as monopolistic competition as it competes within a densely populated coffee shop market, where each player offers a distinct value proposition. The first reason leading to Starbucks' precise position is the company's diverse product offerings. This advantage sets it apart from competitors, aligning it with the product differentiation aspect of monopolistic competition. Secondly, Starbucks has successfully cultivated a strong brand identity which is relative to the unique branding element in monopolistic competition. Thirdly, the coffee shop industry is highly competitive with a multitude of players. Starbucks competes with both large chains and smaller coffee shops, further justifying its close classification as monopolistic competition while also having elements of a perfect competition where the market is heavily saturated. Lastly, while

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 3 Starbucks does not have complete control over prices, it can influence them due to its strong brand and loyal customer base, unlike a true perfect competition where firms don’t hold any market power. In summary, Starbucks' industry structure straddles the line between "perfect competition" and "monopolistic competition" due to its combination of product diversity, brand strength, and competitive dynamics. Supply Chain: Throughout Exhibit B, the supply chain of the coffee and snack shop industries are listed and there are five primary elements that illustrate the stages involved in delivering the final products to consumers. To begin, the initial ingredients encompassing direct suppliers consists of coffee beans, tea leaves, fruits, vegetables, and syrups. Secondly, we have the manufacturing and processing aspect, which involves coffee bean producers, bakeries, bread manufacturers, and a variety of equipment providers. Next in line is the distribution segment, comprising wholesale distributors like Sysco and Gordon Food Services, in addition to regional warehouses represented by BC Foods and Costco. Fourthly, we have the retail coffee and snack establishments, which encompass Starbucks, the primary focus of our analysts within the coffee and snack shop sector. Additionally, it includes Tim Hortons and Second Cup Coffee Co. Finally, we arrive at the consumers, primarily composed of mature individuals, particularly a higher proportion of women compared to men, and those with elevated income levels. Porter’s 5 Forces: When it comes to the coffee and snack food industry, the availability of substitute threats is very high due to the fact that there are many options available. One of the main problems is tea and matcha, if people start buying more tea because of a sickness, this will result in the coffee sold to decrease during these times, especially in flu season. The competitive rivalry in this industry is at an all time high. Many coffee shops are always in competition with each other purely just from the tastes of all of their coffees. For instance, Starbucks and Tim Hortons are direct competitors as they both specialize in the sale of coffee and snacks. Nevertheless, consumer preferences for these establishments

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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 4 vary depending on factors such as age, income levels, geographic location, and other personal considerations. The industry faces a moderate level of threat from potential new entrants, as the existing barriers to entry do not pose substantial deterrence to competitors seeking market entry. Nevertheless, the industry exhibits a moderate degree of market saturation characterized by a monopolistic competition structure as well. Despite the competitive nature of the industry, the prospects for new entrants to achieve success are reasonably promising. In the porters 5 forces, the buyers are the customers of the force. At the expense of industry profitability, strong buyer power can lower prices, pit rivals against each other, and demand higher quality or service. Buyer power refers to a customer’s ability to reduce prices, improve quality, or “generally play industry participants off one another.” Price sensitivity is a major component to buyer power which refers to how sensitive a buyer is to the cost of a particular item. Bargaining power, the second major component to buyer power refers to how much leverage a buyer has on a product's overall price. In addition, due to the high variety and high number of suppliers around the world, the power of suppliers is actually relatively weak from Starbucks’ perspective. Coffee beans are grown mainly in Latin America like Brazil, Colombia, Costa Rica, and Uruguay but also in many African and Asian countries like Ethiopia, Kenya, Vietnam, and Indonesia. Coffee beans are a very accessible resource worldwide, and they are a major import for North American countries because there is not the proper climate to grow them Direct Competitors: This part of the report explains the Share of Market of our Direct Competitors as shown in Exhibit D. McDonald's is a globally recognized fast-food chain founded in 1940 in San Bernardino, California, known for its iconic golden arches logo and a diverse menu. Dunkin' Donuts, established in 1950 in Quincy, Massachusetts, specializes in coffee and donuts, with a strong American presence. Tim Hortons, a Canadian coffee and snack restaurant founded in 1964, is known for high-quality coffee and iconic items like Timbits. Peet's Coffee, a small American coffee and tea specialty company founded in 1966, offers a wide range of high-quality beverages and a comfortable atmosphere. Tully's Coffee, established in 1992 in Seattle, Washington, emphasizes sustainability and coffee farmer support while providing a relaxed environment for customers.

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 5 McDonald's key factors for success include global recognition, efficient operations, a diverse menu, and expansive global presence. Dunkin' Donuts' strengths lie in its iconic slogan, quality coffee, and donuts. Tim Hortons boasts convenience, strong Canadian identity, community engagement, and a diverse menu. Peet's Coffee differentiates itself with high-quality coffee, distinctive roasting, a calm atmosphere, and a commitment to sustainability. Tully's Coffee focuses on strong customer service, high-quality ingredients, and coffee roasting expertise. On the negative side, McDonald's faced controversies related to false advertising, tainted meat in China, and racism allegations. Dunkin' Donuts had issues with rodent infestations, cybersecurity breaches, and accusations of using fake ingredients. Tim Hortons encountered employee controversies and lawsuits. Peet's Coffee was sued for allegedly copying Nespresso's coffee pod design. Tully's Coffee filed for bankruptcy in 2012 but has since recovered. Appendix 1. 1. How can your company strategically position itself for market dominance within the current industry landscape? Begin by analyzing each of Porter's Five Forces, assessing the ideal level (Low, Medium, or High) for each force to achieve a monopoly, and outlining potential steps your company could take to influence these forces in that direction. Starbucks' threat of new entrants is a high level of monopoly due to the difficulty of new entrants entering. A potential step Starbucks can take includes continuing to expand to establish an extensive network of stores. The bargaining power of suppliers for Starbucks is a weak monopoly, Starbucks relies on a network of coffee bean suppliers, giving them some bargaining power. A potential step that could help is to Negotiate long-term contracts with key suppliers to secure stable pricing and supply. Starbucks experiences the strong force of bargaining power of buyers or customers. One opportunity for Starbucks is to enhance and expand customer loyalty programs to increase retention rates and reduce the likelihood of customers switching to competitors. In addition, competitive rivalry for Starbucks is high for their monopoly. Starbucks should consider strategic acquisitions or partnerships to either eliminate or assimilate competitors. Lastly, the threat of substitutes for Starbucks continues to stay very high because of the many products people can pick from. Starbucks should Promote Starbucks-branded home brewing equipment and products to capture a larger share of the at-home coffee market.

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 6 2. What are the implications of a monopoly industry structure, and how do these implications differ for various stakeholders, including the company, other supply chain participants, and customers? Please provide your perspective on whether a monopoly is beneficial or detrimental for each of these groups. Additionally, outline the conditions that would need to be met for the opposite viewpoint to hold true for each stakeholder group. A monopoly industry structure carries significant implications for various stakeholders, other supply chain participants, and customers. For Starbucks, being the monopolist would bring immense power and profits, but it could lead to reduced innovation. In terms of other supply chain participants, a monopoly might potentially squeeze margins for suppliers. For customers, a monopoly typically means higher prices and reduced choices. However, if Starbucks could maintain quality and innovation, customers might still benefit from a consistent experience. For monopoly to be beneficial for Starbucks, it would need to maintain quality and innovation. For other supply chain participants, they'd need fair negotiations and adequate profits. Customers would benefit if prices remained reasonable, and quality and choices weren't compromised. Detrimental scenarios would involve exploitation and higher prices for customers, while suppliers face reduced profits. Thus, the key is balancing the power of a monopoly to ensure that it doesn't stifle competition, innovation, or harm stakeholders. 3. Considering the Share of Market (SOM) analysis, what insights can we draw about your company's market position, including its ranking compared to competitors (1st, 2nd, 3rd, etc.)? Additionally, please elucidate the reasons behind your company's specific standing in the marketplace. Based on the share of market analysis that has been completed, Starbucks is the number 1 ranked company in its industry compared to its competitors. Starbucks has a 54.70% market share, so it holds the majority stake in the coffee industry. Mcdonalds is a close second with a 39.26% market share in the industry, and no other company has more than a 3% market share. Starbucks is in a great position within the coffee industry, and they likely will only continue to become more profitable, and more relevant as time goes on. Starbucks is such a highly respected, and successful company for a variety of reasons, including the high quality of ingredients, high quality products sold, and a very diverse menu. Some other reasons customers are so loyal to Starbucks are because of the inviting, social atmosphere it provides for people to work and socialize, the corporate social responsibility of the company, its high-quality customer service level, and its smart usage of technology.

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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 7 Starbucks is a company like no other, and there is a reason it is such a highly respected, profitable company year after year. Starbucks will remain at the top of its industry if they continue operating in the successful manner they have been. Exhibit A. Industry Structure *This exhibit shows where Starbucks lies on an industry structure continuum Exhibit B. Supply Chain *This exhibit shows the supply chain of the Coffee and Snack Shop Industry

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 8 Exhibit C. Porter’s 5 Forces *This table showcases Porter’s 5 Forces and their levels for our company Threat of New Entry (High) - Offer a wide range of coffee product portfolio to customers, which further decrease product differentiation scope for new entrants - Low switching cost for customers enhances market opportunity for new players . Buyer Power (High) - Price sensitivity : Price sensitivity refers to how sensitive a buyer is to the cost of a particular item. Suppliers usually react to price sensitivity by lowering the prices of their products. - Bargaining power : Bargaining power refers to how much leverage a buyer has on a product's overall price. This usually occurs when there are fewer buyers than suppliers Supplier Power (Low) - Has the option to buy from different suppliers which puts the companies in the dominant position - Many companies produce their own coffee beans which are the major ingredients of the coffee Competitive Rivalry ( High) - The proliferation of coffee and snack shops worldwide - A diverse range of businesses in this industry - Low barriers to switching between different coffee and snack providers Availability of Substitute (Moderate) - High availability of substitute foods and beverages - Low switching costs between different businesses - High affordability of substitute products (change in income ) Exhibit D. Direct Competitors S.O.M. (Share of Market) *This table shows the Share of Market of our Direct Competitors Competitors Global Revenue (USD) - 2022 Share of Market Our Company - Starbucks $32.3 billion ($32.3 billion / $59.0442 billion) x 100 = 54.70% Mcdonalds $23.18 billion ($23.18 billion / $59.0442 billion) x 100 = 39.26%

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 9 Bibliography Douglas, B. (2022, May 26). Top Canadian Food & Beverage Distributors . Crew. https://www.crewmarketingpartners.com/insights/top-canadian-food-beverage-distributors/ Guy, T. C. (2023, February 28). What kind of espresso machine is used at Starbucks? . Cliff & Pebble. https://cliffandpebble.com/blogs/our-blog/what-kind-of-espresso-machine-is-used-at-starbu cks#:~:text=Starbucks%20has%20been%20using%20the,of%20their%20coffee%2Dmakin g%20process Jordan, K. (2022, June 9). Where does Starbucks get their food? . starbmag. https://starbmag.com/where-does-starbucks-get-their-food-2/ Reiff, N. (2022, December 5). 5 companies owned by Starbucks . Investopedia. https://www.investopedia.com/articles/markets/101415/top-6-companies-owned-starbucks. asp Thompson, R. (2023, June 29). Target market of a coffee shop: The five types of coffee drinkers . Scooter’s Coffee Franchise. https://franchising.scooterscoffee.com/target-market-of-a-coffee-shop/#:~:text=Target%2 0Market%20of%20Coffee%20Shops&text=Typically%2C%20coffee%20statistics%20have% 20shown,older%20adults%20consume%20the%20beverage Wills, J. (2021, October 25). Starbucks stock: Analyzing 4 key suppliers . Investopedia. https://www.investopedia.com/articles/markets/051316/starbucks-stock-analyzing-5-key-su ppliers-sbux.asp Dunkin Donuts $1.4 billion ($1.4 billion / $59.0442 billion) x 100 = 2.37% Tim Hortons $1.13 billion ($1.13 billion / $59.0442 billion) x 100 = 1.91% Peet’s Coffee $983 million ($0.983 billion / $59.0442 billion) x 100 = 1.7% Tully’s Coffee $36 million ($0.036 billion / $59.0442 billion) x 100 = 0.06% Total $59.0442 billion 100%

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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 10 Bailey, R. (2020, March 30). How Has McDonald's Been So Successful for So Long? | FranchiseDirect.com . Franchise Direct. Retrieved October 12, 2023, from https://www.franchisedirect.com/information/markettrendsfactsaboutfranchising/thesuccess ofmcdonalds/8/1111/ Brennan, S. (2023, February 6). 10 Most Famous Coffee Chains in the World (2023 Update) . Coffee Affection. Retrieved October 4, 2023, from https://coffeeaffection.com/most-famous-coffee-chains/ DALE, D. (2008, May 23). Tim Hortons in a new PR jam . Toronto Star. Retrieved October 12, 2023, from https://www.thestar.com/news/gta/tim-hortons-in-a-new-pr-jam/article_d8c442b3-3839-58 11-a34c-3bbda22641 Dunkin' Donuts Revenue: Annual, Quarterly, and Historic . (2023, July 21). Zippia. Retrieved October 4, 2023, from https://www.zippia.com/dunkin-donuts-careers-554008/revenue/ Gollom, M. (2014, September 2). ANALYSIS | 'It's genuinely beloved': Why Canadians continue to crush on Tim Hortons . CBC. Retrieved October 12, 2023, from https://www.cbc.ca/news/business/tim-hortons-why-the-coffee-giant-is-genuinely-beloved- by-canadians-1.274 Guide, s. (2022, November 9). Dunkin' Donuts: A Brief History – TheCommonsCafe . TheCommonsCafe. Retrieved October 12, 2023, from https://www.thecommonscafe.com/dunkin-donuts-a-brief-history/ Heasman, C. (2023, January 26). The Biggest Scandals To Ever Plague McDonald's . Mashed. Retrieved October 12, 2023, from

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 11 https://www.mashed.com/134913/the-biggest-scandals-to-ever-plague-mcdonalds/ Huddleston, J. (2022, March 14). The Untold Truth Of Peet's Coffee . Mashed. Retrieved October 12, 2023, from https://www.mashed.com/165155/the-untold-truth-of-peets-coffee/ Hunter, D. (2017, February 21). Tim Hortons . The Canadian Encyclopedia. Retrieved October 12, 2023, from https://www.thecanadianencyclopedia.ca/en/article/tim-hortons Kendall, E. (2023, September 28). McDonald's | History, Ray Kroc, & Facts . Britannica. Retrieved October 12, 2023, from https://www.britannica.com/topic/McDonalds McDonald (MCD) - Revenue . (n.d.). Companies Market Cap. Retrieved October 4, 2023, from https://companiesmarketcap.com/mcdonald/revenue/ Peet's Coffee Revenue: Annual, Quarterly, and Historic . (2023, July 21). Zippia. Retrieved October 4, 2023, from https://www.zippia.com/peet-s-coffee-careers-34520/revenue/ Nespresso files lawsuit against Peet's over coffee pod design . (2022, March 18). World Coffee Portal. Retrieved October 12, 2023, from https://www.worldcoffeeportal.com/Latest/News/2022/March/Nespresso-files-lawsuit-agains t-Peet-s-ov Scarrow, K. (2013, February 5). What's the secret to Dunkin's success? The Globe and Mail. Retrieved October 12, 2023, from https://www.theglobeandmail.com/report-on-business/small-business/sb-managing/whats-t he-secret-to-dunkins Sheldon, A. (2021, October 20). The 13 Biggest Scandals To Ever Hit Dunkin' . Mashed. Retrieved October 12,

Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 12 Thisen, C. (2023, June 21). Is Peet's Coffee Your Next Favorite? Espresso And Machine. Retrieved October 12, 2023, from https://espressoandmachine.com/peets-coffees-secrets-uncovered/ Tully’s Coffee Revenue: Annual, Quarterly, and Historic . (2023, July 21). Zippia. Retrieved October 12, 2023, from https://www.zippia.com/tc-global-careers-40493/revenue/ Adamkasi. (2022, November 24). Porter’s five forces of coffee industry . Porter Analysis. https://www.porteranalysis.com/porters-five-forces-of-coffee-industry/amp/ Coffee - worldwide: Statista market forecast . Statista. (n.d.). https://www.statista.com/outlook/cmo/hot-drinks/coffee/worldwide Greenspan, R. (2022, August 10). Starbucks five forces analysis (Porter’s Model) & Recommendations . Panmore Institute. https://panmore.com/starbucks-coffee-five-forces-analysis-porters-model Kagan, J. (n.d.). Price sensitivity: What it is, how prices affect buying behavior . Investopedia. https://www.investopedia.com/terms/p/price-sensitivity.asp#:~:text=Price%20sensitivity %20is%20the%20degree%20to%20which%20demand%20changes%20when,lower%2Dpri ced%20option%20is%20available .

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Running Head: INDUSTRY AND COMPETITOR ANALYSIS FOR STARBUCKS 13

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