As mentioned in the Starbucks case, “roasting is close to an art form at Starbucks.” It shows how serious Starbucks is on producing a cup of coffee and it takes Starbucks to the leading position in the specialty coffee cafe industry. Starbucks even roast the coffee beans itself to keep the quality. Starbucks breaks the traditional that only Japanese and Europeans will buy high-quality coffee beans but also American does. Coffee beans are the base and the “soul” of a cup of coffee. Starbucks did a great job on winning customers’ hearts in the specialty coffee cafe industry by offering a cup of high-quality coffee. In order to win the customers’ hearts and hold a leading position in the specialty coffee cafe industry, a cafe must offers high-quality coffee. Coffee is the main product offers in the specialty coffee cafe. Altogether, it is hard for new entrants to make an impact.įirst of all, to be success in the specialty coffee cafe industry, a cafe should offer high-quality coffee. Newly entered coffee producers are seriously lacking in cost advantages.With more funding resources and bargaining power with suppliers, Starbucks can negotiate favorable interest rates and have higher profit margins from bringing the cost down compared with new players. Moreover, economies of scales are barriers for new entrants. Starbucks, on the other hand, have established a strong fashionable image and made their coffee as a part of customers’ routine, making it an unattractive market for new entrants. However, it is difficult for them to develop a strong band and compete against established bands like Starbucks unless they develop unique coffee or products, trends and new business attacking customers and grows exponentially like Starbucks do over 21,100 locations. In the aspect of government control, there is no big barriers.New entrances can serve a coffee or cake pops easily because of the moderate costs of doing business and supply chain development. In the case of Starbucks, the threat of new entrants is moderate as there are numerous entry barriers in coffee chain industry. Besides, Starbucks works directly with farmers and collaborators so that people living on the fringes of poverty receive income from coffee sales, this not only compensate for the cost of planting but also support their families.Under Starbucks' global sourcing strategy, Starbucks’ suppliers do not have strong bargaining power. About 50% of the coffee beans come from Latin America, 35% from the Pacific Rim, and 15% from East Africa.Starbucks usually works directly with suppliers and provides training to them, so Starbucks and suppliersalways had a close relationship.Starbucks is an important customer for suppliers.40% of the Starbucks contract is about 3-5 years. In this case, the bargaining power of suppliers is low.Starbucks's main suppliers are coffee bean suppliers and milk suppliers, and the quality of coffee beans is very important for Starbucks coffee. In the specialty coffee cafe industry, the bargaining power of suppliers is totally cost and quality driven. Starbucks even purchases the entire yield to keep the cost and supply of Narino Supremo bean (one of the high-end coffee beans) stable. Therefore, single suppliers do not have much impact on those leading cafes. The large supply and the diversification of supply chain make them having plenty of rooms to exercise coffee bean choices. Nevertheless, some leading cafes in the industry like Starbucks, they purchase a large amount of coffee beans from plenty of suppliers.
The bargaining power of suppliers who are selling low-quality coffee beans are low.
The lower the selling price of the coffee beans, the more buyers are willing to buy its beans. However, on the other hand, if the suppliers are selling low-quality coffee beans, it is totally the competition on the selling price. For suppliers who are selling high-quality coffee beans, the bargaining power is relatively high as the specialty coffee cafe industry has to stick on using high-quality coffee beans if they would like to maintain the quality of their coffee. In the specialty coffee cafe industry, the bargaining power of suppliers is cost and quality driven. (Refer to course material - Topic 2 External Environment and Industry Evolution) The bargaining power of supplies directly influences the gain or loss of the buyers. The bargaining power of buyers and suppliers are two sides of the same coin.