existing competitors: Moderate. The fixed expenses related
to Starbucks are high, as well as the retreat barriers because of the expenses
of assets and resources they have obtained. The switching costs to buyers are
low since there are many other coffee options, and the prices of Starbucks are
the highest. The increase of competition in Iceland from direct competitors is
rising from Dunkin Donuts with promotions on social media and opening 16 stores
all throughout the country. With Iceland’s lack of big commercial chains like
Starbucks and McDonald’s, smaller businesses have had a chance to blossom (Te
& Kaffi, Mokka, Stofan Cafe).
Bargaining power of
suppliers: Low. With its scale of company, Starbucks certainly has a
competitive edge in comparison with other rivals in the market. Though Starbucks
is able to buy its input goods from any supplier, the company spent 26% more
than the market price for all of its coffee in fiscal year 2014 report. Starbucks’
suppliers are comparatively limited, despite of the huge amount of goods required
from the company. Consequently, substitutes are accessible if Starbucks searches
for a new price range because of the high competitiveness of the market.
Furthermore, with the disadvantages of isolated placements and low retail
abilities, suppliers can not forwardly take actions by themselves. Basically,
Starbucks possesses all the power in the connections it has with its suppliers.
Bargaining power of buyers: Low. The price ranges of Starbucks’
beverages is determined based on the price elasticity of its customers and the
present prices at other competing businesses. With the concept of higher
quality is based upon perception, the products of Starbucks are able to sell at
a higher price range. Therefore, it is not possible to negotiate the prices as
the consumers have no bargaining power with Starbucks.
Threat of new
entrants: Low to Moderate. The threat of newcomers for Starbucks in
Iceland is moderate. Newcomers in Iceland can challenge brands like Starbucks
at a local level. Although, it is undoubtly difficult for small businesses to
compete against strong brands like Starbucks; therefore, their chance of being
successful stays low to moderate. Still, it gets lessened to an abundant extent
by several elements such as market share, brand loyalty and brand image. It is also
worth mentioning that Starbucks has an advantage with its own network of suppliers
and high quality materials. With all aspects considered such as corporation’s
size and potential to purchase, it is no doubt that Starbucks has access to
better quality coffee and an enormous amount of suppliers worldwide. All these
elements act to moderate the amount of threat caused by the newcomers. Nevertheless, Starbucks does not neglect the possibility
of rivals coming into the picture and has taken adaptation into action. For
example, the firm had purchased new machines that brew one cup of coffee individually
for the coffee quality purpose, as well as providing cheaper options for their
coffee size choices. This renovating action can be viewed as a message Starbucks
is sending out to other existing rivals in order to preserve its tremendous
market share, as well as restraining others from considering compete.
· Threat of substitute products or services: Moderate.
The risk of consumers substituting away from Starbucks for direct rivals in
Iceland such as Te & Kaffi and Mokka is a genuine concern. As they all
honour themselves on customer service, specialty beverages, they are very hard
to differentiate. The available drinks section is diversed varying from energy
drinks to smoothies or juice. Although, this is not a big concern because Starbucks
also provides a huge range of these drinks in its serving menus. While the
greater part of coffee drinkers do not replace coffee, the most direct
replacement is tea, which is available in any Starbucks’ stores under its own
Teavana® Tea brand as well. This can be considered as an ideal example of how
Starbucks has successfully hedged against the risk of replacements with the
variety of drinks it provides.