Pestle Analysis of Starbuck in Ukk

PESTLE stands for

1. Political – The current and potential influences from political pressures
2. Economic – The local, national and world economy impact
3. Social – The ways in which changes in society affect us
4. Technological – How new and emerging technology affects our business
5. Legal – How local, national and world legislation affects us
6. Environmental – The local, national and world environmental issues

The PESTLE analysis will be used to identify and understand the important factorsStarbucks must consider in all areas of the business.

Political

Taxation policy – high taxation imposed on farmers in those countries producing thecoffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainlyultimately passed on to the consumer. Recently (June 13, 2003)

Tanzania’s Minister of Finance harmonized and rationalized local government taxation to boost rural productivity of the coffee bean. Tax was lowered for these ‘small holder’ farmers andthis saving will have been passed on to purchasers of coffee like Starbucks.

1. Deregulation – A decade ago, the USA pulled out of the ICA (international CoffeeAgreement) that set export quotas for producing nations and kept the price of coffeefairly stable. Coffee quotas and price controls ended. Since the deregulation farmershave suffered and their earnings have dropped. Many have struggled to make a livingso have given up.
2. International trade regulations/tariffs – Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country’sgovernment imposes a tariff it not only results in an efficiency loss for Starbucks butlarge income transfers can become inconsistent with equity. This extra charge can turna bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.
3. Government stability – Starbucks should thoroughly investigate the political stabilityof any country they plan to expand to. Changes in government can lead to changes intaxation and legislation. The forthcoming American elections may have an effect onStarbucks as new legislation or new or existing government may bring in taxes. Also,those countries in political turmoil or civil war (e. g.
4. Zimbabwe at present) should beapproached with great caution when considering new ventures. * International stability – The international economy must be brought intoconsideration as it can affect Starbucks’ sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market. If the worldmarket is in a slump it is not usually the ideal time for a business to look at grandexpansion.
5. Employment law – A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers. This saving would in turn be passed on to the purchaser.

Economic

1. Interest rates – A rise in interest rates means investment and expansion plans are putoff resulting in falling sales for Starbucks and their suppliers. Also mortgagerepayments rise so consumers have less disposable income to spend on luxury products such as coffee. Low interest rates should have the opposite effect.
2. Economic Growth – If growth is low in the nation of location of Starbucks thensales may also fall. Consumer incomes tend to fall in periods of negative growthleaving less disposable income. Consumer confidence in products can also fall if theeconomic ‘mood’ is low
3. Inflation rates – Inflation is a condition of increasing prices. It is measured using theRetail Price Index (RPI) in the UK. Business costs will rise for Starbucks throughinflation, as will shoe-leather costs as they shop around for new ‘best prices’ of materials, menu costs will rise as Starbucks have to create new price lists. Also,uncertainty is created when making decisions not least because inflation redistributesmoney from lenders to borrowers. A firm that borrows L1000 during an inflation period will pay back less in ‘real terms’ as the value of this money will decline over the period.
4. Competitors pricing – Competitive pricing from competitors can start a price war for Starbucks that can drive down profits and profit margins as they attempt to increase,or at least maintain, their share of the market. * Globalisation – Globalisation of the coffee market has meant farmers of the beannow earn less money than they used to. This can result in a decrease of people willingto do it for a living, which will mean a decrease in coffee produced, resulting in adrop in Starbucks supply levels and probably profits.
5. Exchange rates – Starbucks are affected by exchange rates when dealing withinternational trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ or L when importing the goods to their country. This saving can be passed along to the customer. Exchange rates are forever changing throughout the world in today’s market.

Social

1. Population demographics – Population demographics are a very important factor for Starbucks as they identify what parts of the population they need to aim their productsat or which parts of the population they need to encourage to visit their stores morethan they presently do. Looking at the table in the case study demonstrating the percentage of the age groups that drink coffee or speciality coffee it can be seen thatthe age groups that Starbucks should be aiming their marketing at are the people between 35 and 54. They should consider targeting the 18-24 age group as they drink the least amount comparatively and by encouraging this segment to choose Starbuckscoffee now, there is a chance they may continue to drink it long into the future.
2. Income distribution – Where income is distributed is another factor that Starbucksshould look at as this also demonstrates the ideal place to aim their marketing or tolocate their stores. Coffee is more of a luxury product so it is those people/places withthe most amount of disposable income to spend that should be targeted the mostintensely.
3. Attitude to work – Starbucks would not want to locate to an area where the local population have a poor attitude to work. Recruitment would be difficult, trainingarduous, and staff turnover would be high. Attitudes to work are important in other ways. A large number of workers in large cities now go out for their lunch rather thanuse an internal canteen. Starbucks can use this to their advantage and promote theshop as a place where people can meet up and so it will mean that they will get alarger amount of people in their stores at this time of the day.
4. Standard of education/skills – When Starbucks are deciding upon new premises theymust look at the standards of education and skills locally. They must be sure there are people who live there with sufficient skills to ensure successful operation of the business, or at least the potential to learn that comes with a good education.
5. Working conditions/safety – Those people with the most disposable income, e. g. young single professionals etc, will be accustomed to high standards. Starbucks mustensure it’s shops are clean and comfortable, service is of the highest order and healthand safety issues are fully addressed
6. Location – Transport needs to the premises must be considered for both staff andcustomers. Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not to visit.
7. Age distribution – Research shows the average age of the population is getting older and birth rates are stagnating. Starbucks is presently aiming it’s product at young people but maybe these views will change in the long-term as the market proportionfor young people diminishes. The most profitable way forward may be to widen their target market despite the risk of alienating present customers.
8. Health consciousness – Good health and foodstuffs associated with healthy living are important I today’s market place, as this is a trend that is occurring at the momentin western societies. Starbucks can use this information when deciding the additional products to sell, as well as coffee, as a large number of their customers are looking for healthy alternatives to cakes and biscuits, which have been associated with coffee inthe past.

Technological

1. IT development – Starbucks is always looking to develop and improve its Internetfacilities. Starbucks launched its first-generation e-commerce Web site in 1998. In late1999, Starbucks decided the site needed a major upgrade to enable new functionalityand prepare for long-term growth. To achieve these goals, Starbucks upgraded toMicrosoft Commerce Server 2000, one of the key Microsoft . NET Enterprise Servers. As a result, scalability and performance have improved, and the company now has thetools it needs to profile and target customers, analyse site data, and deliver newfeatures to the market in the shortest time possible.
2. New materials and processes – Developments in the technology of coffee makingmachines and the computers that Starbucks use to run their cash registers will enabletheir staff to work more quickly and efficiently. This will result in customers beingserved quicker and create the potential to serve more customers in a day. This will prevent customers from having to wait around for long periods thus improvingcustomer relations along with increasing the customer base.
3. Software upgrades – In the short-term, Starbucks must identify the most efficientsoftware upgrades to use to keep up with the competition. This applies to theimproving the accessibility of their website (www. starbucks. com) and also improvingthe speed and quality of the service provided on the shop floor.
4. Research and Development activity – As a multi-national business empire, Starbuckshas the budget and the resources to have a cutting-edge R+D department. The websiteis very accessible, the facilities are state of the art but more importantly new ideas areconsistently being tried in terms of a constantly updating menu.
5. Rate of technological change – The rate of technological change in the current worldmarket is high, much higher than, say, thirty years ago. Much of this is down to theInternet and the speed with which information can be communicated around theglobe. Starbucks will need to invest heavily just to stand still in their ever expandingand developing market, and even more so to try to stay ahead of competitors. Legal:
6. Trade and product restrictions – Starbucks need to be aware of the trade laws in thevarious countries they occupy and do business with. They need to ensure they are notin violation of e. g. , religious laws. Also, certain countries impose a tariff that has to be paid when goods are imported/exported so this must be taken into account.
7. Employment law – Each country has varying employment laws. Some may have aSabbath day, some may have a limit on the number of hours an employee may work per week, all will have varying levels of minimum wage. Starbucks should consider these factors when deciding on relocation.
8. Health and Safety regulations – Starbucks may find these regulations are not asstringent or well enforced in certain countries. It would be wise though to enforce auniversally high standard of health and safety throughout all it’s shops to maintain agood global image and ensure all laws are abided by. Also, by not maintaining highstandards they will be liable for a large amount of civil cases as it is a legalrequirement for them to enable that their staff and customers are safe when they are intheir stores.
9. Monopolies commission – If Starbucks consider expanding their operations further to control an even larger percentage of the market than they already have they willhave to consider the possibility of breaking monopolies legislation as they may have ashare of the market that is too large. This would mean that they would have unfair advantage over other companies in the same market. This would mean that they could benefit from economies of scale and would also be able to charge prices that were notcompetitive in the market and get away with it due to the lack of competition. TheCompetition Commission are in place to try and prevent these situations occurring[e. g. CC (back then the MMC) block BskyB attempted takeover of Manchester Unitedin 1999].
10. Land use – Starbucks may have to abide by local planning regulations when buildingshops or altering purchased sites, as certain areas of land may be protected or unsuitable. All matters would be addressed by the local government.

Environmental

1. Pollution problems – Starbucks customers create a lot of waste as they often leavethe shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
2. Planning permissions – Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.
3. Work disposal – Starbucks need to carefully consider the methods in which they ispose of their waste as there are strict laws in most countries to ensure a firm tradingin their country disposes of the waste that is created in their business in a specific andefficient way. If they do not follow these laws they may find themselves beingsanctioned, which not only affects them financially but also tarnishes the reputation of the brand name, as most of the waste created will bear the logo of Starbucks.
4. Environmental pressure groups – Starbucks should be aware of the physical andinfluential power of groups such as Greenpeace and Friends of the Earth. Anyviolation of animal or environmental rights by a company is usually followed by aswift and attention-drawing protest from one of the groups. Brand image andcustomer bases are often irreconcilably tarnished due to the actions of these groups.