The effects of the environment on a

Business
IBTEC Business Unit 1: learning outcome C

By: NOORA MAJID ALSUWAIDI

Gems Metropole School Motor, City Dubai
Introduction
This report examines the effect of the environment on Starbucks, a business who is
trading in the EU with 2,509 successful stores in Europe. This report will also mention
different techniques to measure the environment of a country which could affect
Starbucks, this is at the request of the Economic Development Unit for the reason of
publication, brochures, and guides. This report will also examine each technique, for
example PESTEL, SWOT and porter five forces, and access them carefully to decide
which one is the most beneficial to Starbucks and the business competitive future. By
analyzing the different techniques, the author will be able to clearly emphasis to the
EDU which one of the strategies is the most useful for Starbucks by looking at the
different external environmental factors and how each business may choose different
strategies in correlation to the dynamic of their business. The purpose of this report is to
reveal how one of these strategies could help Starbucks and its ability to grow and react
to changes in the environment effectively to be published in a guide or brochure for the
public to be more aware of the different strategies to analyzing external environment.

Main Body
Starbucks is the largest coffee-chain originated in the USA. Opening 31,000 stores, it
has become a large international well-known company and brand, offering a wide range
of unique products, they have successfully created an environment which gives people
the mentality that its more than just coffee by offering people their unique and attracting
environment. Founded in 1971, the business has been a public venture with the ability
to generate 26.5 billion dollars in 2019.1

PESTEL is an analysis tool used to better understand the market and help business
with decision making by accessing the effects of external factors and the differences

1 Detailed PESTEL Analysis of Starbucks | EdrawMax Online. (n.d.). Edrawsoft. Retrieved

November 4, 2021
between each factor and their effect on a business dynamic, it also reveals the
difference in business dynamic in different countries despite being on business.
External factors include political, economic, technological, environmental, and legal and
how changes in any of these factors could massively affect a business, despite it being
out of their control.

Political factors within the EU can affect business operating in it, for example Starbucks.
The EU is 27 countries in Europe that operates as one economic unit in the world
economy. This was to try and prevent warfare between European countries to try and
prevent any damage that could destroy the economy in European countries. An
example is WW2. This practice was to try and create more freedom in the movement of
goods, services, capital, and people. One way they created coherency is by establishing
a common currency which is the euro.2

The main European Institutions are the European Council, the European Commission,
the Council of the European Union, and the European Parliament. Not only do they
ensure peace between European countries, but it also ensures the security of European
citizens.

Starbucks has been successful in European countries due to its renowned reputation for
creating experience rather than just a product. Starbucks have been doing exceptionally
well in countries seen as travel destinations in Europe like France. Because Starbucks
is in countries with lots of tourist, they automatically receive more profits and sales
because tourist have more spendable income and have come to countries in Europe to
have a wonderful experience, and therefore Starbucks plays a role in creating that
experience. As a result, the EU has positively impacted Starbucks and boosted their
brand.

2 European Union (EU). (2020, November 24). Investopedia. Retrieved November 11, 2021,
E
The most prime economical factor that affected Starbucks was the continuous global
recession. Starbucks had an intense growth plan, opening stores continuously, however
since America's faced its worst recession in 80 years, the business "closed 650 global
locations" in a year. This was majorly due to the way people began to view the business
as a luxury product. This forced Starbucks to begin to think of ways to convince and
retain their customers.3

This is further supported by the massive economical hit that occurred due to COVID 19,
which has led to one obvious impact which was closing of most business and
organizations worldwide, Starbucks had to shut its doors to customers, which has not
only led to a major loss to the international business but also a disruption to the supply
chains as the business was in a state of panic. 4 This had a domino effect in all sectors
because as the EU struggled and went into a technical recession, all other industries
started to close, this led to more unemployment and therefore people had less
spendable income to invest back in Starbucks by buying their luxury beverages. This
suggests that if the economy of any country is declining, all factors and all sectors
operating within the country will struggle, this could take a long time to boost back.
However, that depends on the country itself and its wealth.

S
Starbucks has been successful at reading the change in customer preference. With
constant trends affecting customer choice and preference, for example a healthier

3Maze, J. (2020, August 5). A look at Starbucks’ U.S. comeback strategy. Restaurant Business.
Retrieved November 1, 2021

4 Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
Analysis. Retrieved November 1, 2021
lifestyle. Business-like fast-food industries had to adapt to the change by adding product
that may be healthier, drifting away from some businesses beliefs. However, Starbucks
was able to adapt to the change early on, with fresh juice options and offering natural
energy drinks, which has given a major boost to Starbucks as they entered the trend
early on.5 This is because they attract as much customers as possible when there the
most interested and most welling to invest which places Starbucks in a massive
advantage to earn the trust and build better relationships and reputation of the brand.

However, Starbucks has received major controversy about their prices, seen by most
customers as expensive. Starbuck's has been pressured to reduce their prices by
pressure groups and activists, however they claimed that reducing prices would reduce
quality and therefore have offered a solution by giving cheaper options with lower
quality and more expensive options with higher quality, however the problem is
continuous as customers expect more from Starbucks and their changes should be in
Favour of the wellbeing of their customers opinions and feedback.

Talking about feedback, Starbucks has launched a campaign called "Starbuck's shared
planet" this was launched to tackle any customer complaints and lower the amount of
hate and controversy the business gets. It is highly effective to create better reputation
for the business, because instead of ignoring the hate negative comments they answer
the question and complains which not only builds relationships with people and
customers but also reveals to the community that they care about their customer which
increases customer recognition used to build a solid foundation with their customers. 6

T
Starbucks used modern technology to attract as much customers as possible, this is by
introducing free wife in 2010, this was an immense success for the business as this
began the trend of sipping coffee and working in a coffee shop, which impacted other

5 Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
Analysis. Retrieved November 1, 2021
6 Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE

Analysis. Retrieved November 1, 2021

businesses and the way they operate. 7 By envisioning the progress in technology and
its affected industries, Starbucks was successful at analyzing it and putting it into place
in the EU and worldwide, which places Starbucks in a massive advantage and boosts
its reputation as an innovative and useful business, with the goal of pleasing customers.

Starbuck has been quick to understand technology factors and have adapted to the
change of technology, this is done by enabling an online app to help customers find the
nearest Starbucks shops and by allowing them to even order online and get home
delivery. This prevents any reasons or restrictions customers may have and therefore
makes it as convenient as possible and as easy as possible so that customers can
order any time with no limitations or situations where they might not be able to get their
product, this maximizes the amount of orders and profit Starbucks receives and has led
to Starbucks have greater advantage and productivity than businesses with no online
program.8

E
Another PESTEL factor is the environmental factor. Within the EU especially, they have
implemented climate policies and strategies. The EU has also taken the leading role in
international negotiations on climate change and has put this into place through the EU
emission trading systems etc. This means fir a business such as Starbucks to operate
in the EU it is vital for them to respect and obey these policies as Europe may be
sterner with businesses that break these rules. The EU has also changed the attitudes
of the European citizens as 8 out of 10 believe that the planet is in danger, therefore for
Starbucks to operate within the EU they not only have to please the government by

7Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
Analysis. Retrieved November 1, 2021

8Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
Analysis. Retrieved November 1, 2021
obeying the rules and regulations but also satisfy the customer when getting into the
market in Europe.

As years have gone by concerns have risen in countries and citizens within the country
about the wellbeing of the environment, especially in the EU where the environment is
more of a priority. they have noticed the negative changes and have tried to reduce the
human impacts on it by placing criticize on large business as some people may find that
large businesses and their industry makes the most impact. more activist and pressure
groups would target Starbucks to make a change, therefore before they lose any
customers and the reputation of their brand, one way they have tried to reduce protest
and boycott is by replaced their paper cups with biodegradable cups that can be
recycled and can be less harmful to the environment while still usable and used the just
like other cups, this reduces the sole use cups and encourage a more permanent
solution. This effort, has led Starbucks to be 9th in using renewable energy out of 500
top companies.
9

One of the major studies that affected the way Starbucks responded to environmental
change was when results showed that 81% of greenhouses gases comes from electric
stores while 18% comes from roasting coffee beans. This shocking statistic has led to
Starbucks using fuel-effective tools used reduce the amount of greenhouse gas
emission. To continue to reduce this number Starbucks has cleverly placed a strategy
that was a success which was giving a 10% discount to customers who brought their
own reusable cups, this not has reduced the variable cost of the business altogether but
has instilled values to customers teaching them useful habits to support the businesses
changes.10

9 Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
Analysis. Retrieved November 1, 2021
10 Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE

Analysis. Retrieved November 1, 2021

L

The last PESTEL factor is laws and regulations that Starbucks will have to comply with.
Each country has its own laws and rules for foreign businesses to operate within the
country however since the EU covers 27 countries their regulations and laws may be
similar however within the EU each country also has a set of more individual laws that
could vary if a business builds a relationship with them. This will be further explained in
the next few paragraphs.

Trade laws and import taxes is vital for a business-like Starbucks, as they source their
resources such as their beans from 24 countries, 6 of which located in the African
region. To ensure the business does not face any unwanted and illegal problems, which
could lead to capital loss and unnecessary court issues, the business will have to
maintain their relationship with each of the countries politicians to get a license easier
and have more relax restrictions and regulations as this could benefit Starbucks in the
long term as they will not run into as much trouble and could be fined a large sum.11

Starbucks has faced major tax problems from the EU in 2015. The EU has sued
Starbucks due to illegal tax deals between Netherlands, Luxembourg, and Starbucks.
The EU therefore demanded a payment of 25.7 million euros in unpaid tax. The EU
stood its ground as it claims Starbucks has tried to reduce overall tax through intra-
group transactions in low tax jurisdictions.

It is vital for Starbucks to be following policies to prevent unwanted negative attention,

one of the main political factors would be where Starbucks gets their resources and raw
materials from. This could impact the business as it could attract politicians and mass
media. Therefore, to ensure Starbucks practices fair trade, they will have to ensure they
monitor their sourcing strategies and make sure their up to societies norms. Starbuck
also understood the legal requirement and protocols to operate within the EU which

Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
11

Analysis. Retrieved November 1, 2021

prevented Starbucks from receiving any possible lawsuits which could slow down a
businesses’ growth and ultimately in Starbucks' case slow down their aggressive growth
plan. This meant that they could keep good and healthy relationships with the
government to ease regulations, giving them a vaster opportunity to thrive in that
country. For example, if Starbucks had more relaxed rules set by the government
compared to Costa, they would be able to have more chances to succeed by improving
factors of their Brand like marketing or promoting without facing government issues.
This is a massive advantage that Starbucks could have and could make them dominate
the European country they might operate in as it gives free reigns.

Starbucks, however, could be placed at a massive disadvantage due to external political

reasons, such as the bureaucratic red tape which has also been published by the EU if
any business wants to operate in it. this prevents Starbucks from decision –making and
taken any major action without restrictions. This therefore implies that coffee industries
like Starbucks will have a harder time with expansion and will be placed in a
disadvantage as local competitors with good connection to the business is more likely to
supported and favored. The PESTEL not only reveals factors which Starbucks and any
other business will have to consider but also limitations they may face. The more
Starbucks understands the impacts of their external factors, the better prepared they
can be into making better decisions for the well-being of the business.

Different countries have different health and safety protocols and regulations where
every business and company in the country is expected to maintain to ensure citizens
and consumers are served food or drinks that are hygienic and not harmful in extreme
measures. The EU has clearly stated and placed laws that Starbucks must follow to
operate within the European countries. Therefore, their expected to follow the farmer
equity protocol which increases the productivity and overall growth of coffee beans
which is beneficial for both the environment and people. Another way which could
directly affect customers health and mood in society is caffeine and Starbucks have
ensured that caffeine levels are low to avoid any major side effects on customers which
could cause them to be reported to as this could threaten the health and safety law. 12

Shaw, A. A. (2020, November 29). PESTLE Analysis of Starbucks. SWOT & PESTLE
12

Analysis. Retrieved November 1, 2021

Evaluation
The PESTEL analysis in Starbucks help to highlight and reveal factors that can affect
the expansion of the business. However, Starbucks also has threats and opportunities
too. Depending on the businesses change in scenario, they correlate that to improve
their product and its demand. To function and succeed in a competitive market,
Starbucks will have to weigh out their risk factors and generate solutions and strategies
to solve them. From the information above it has revealed that it is vital for Starbucks;
being a large business to understand it competition in a critical level before making any
decisions that can shift the direction of the business.13

SWOT
Swot is used by many businesses to strategies further plans by using effective planning
techniques and understanding their position in the market by understanding their
Strength, weaknesses, opportunity, and threat, this therefore gives a business better
understanding of internal factors and what their business is missing, or which sectors
their doing well in to sway any future investment or time and their external factors by
looking at their competitive market how they operation. This can impact the business
decisions and is the base in forming a strong plan that can direct any business to
success.

One of their internal strategic factors is their strengths, one of Starbuck's strengths is
strong financial performance. Starbucks was able to maintain their profits and prevent
any debt with a revenue of 26.5 billion dollar and a profit of 3.6 billion dollar in the year
of 2019 making it have a positive and superior position in the market, which ensures its
safety and success. Another strength of Starbucks it had a unique aggressive growth
plan which worked in their favors, maximizing convivence and putting a specific positive

13 Detailed PESTEL Analysis of Starbucks | EdrawMax Online. (n.d.). Edrawsoft. Retrieved

November 4, 2021
brand image to their customers. From 1,886 to 31,256 stores from the year 1998 to
2019. 14

Another one of their internal strategic factors is their weaknesses, despite Starbucks
being as successful as they are, they need to face and constantly solve their flaws to
grow and compete to be the best in their industry or else they may fall behind and not
be able to challenge other innovative businesses. One of the constant challenges they
face is their prices. Starbucks has constantly kept their unreasonable prices to prevent
any reduction in their quality but this has been a challenge as their drinks could be more
expensive than meals in Mac Donald and other coffee or beverage store, this prevent
some people from different regions or circumstances from getting the coffee, for
example people who may be in a poverty dense area. Its soaring prices reduces
affordability from potential customers. Another weakness is Starbuck's procurement
practices which has increased environmental and social activist to prevent Starbuck's
growth and potential boycott. This is because some people believe Starbucks gets their
beans from third party farmers in cheaper countries to reduce labor and resource
expenses, however this goes against the "fair coffee trade" principles.15

One external strategic factor is the opportunities Starbucks has. This is to assess any
changes, goals, and room to develop and become better. One of their opportunities is in
the holiday seasons, Starbucks can use the holiday season to their advantage as
people are more likely to spend on luxury items like coffee. Starbucks has created
temporary produces that only comes out in the holidays like peppermint mocha,
pumpkin spice latte, eggnog latte and gingerbread loaf. Starbucks has also ensured that
these produces stay for a limited time only even if people constantly want it to maximize
their profits by encouraging customers to buy as much as they can before they stop
selling it. Another opportunity Starbucks has is being able to adapt to different price

Gupta, S. K. (2021, August 31). Starbucks SWOT 2020 | SWOT Analysis of Starbucks.
14

Business Strategy Hub. Retrieved November 10, 2021

Gupta, S. K. (2021, August 31). Starbucks SWOT 2020 | SWOT Analysis of Starbucks.
15

Business Strategy Hub. Retrieved November 10, 2021

differences. Starbucks has noticed the rising problems when it comes to their prices and
therefore instead of decreasing all their prices, they have given customers choices with
regular prices and premium prices to serve all class differences and therefore target
most of society, preventing any reasons why customers may not buy from their store. 16

Another external strategic factor is the threats Starbucks must face. As the market
expands it increases companies challenge Starbucks to rise, this could be by more
innovative ideas or even copying Starbucks to normalize the brand. one of Starbucks
threats are competing with big outlets, despite Starbucks being a coffee industry,
companies like McDonald and Dunkin Donuts has been attracting customer by offering
equivalent products and more. Big outlets also have massive revenue and constant
competition and innovation occurs. This can be a massive threat to the business as any
mistake financial or that can affect the customers perception of the business can cause
Starbucks to fail and lose customers and be outcompeted. Another threat Starbucks
faces is the rising prices of their coffee beans. Starbucks depends heavily on the supply
of their coffee beans however due to the Corona virus, Arabian coffee, the worlds most
produced coffee, has dramatically raised their prices as their value increased, this is
because of the concerns rising about their availability, increasing in hoarding and
disruption of supply chains. Starbucks will have to deal with these changes trying to do
anything else could ruin their product taste and therefore reputation. Therefore,
Starbucks will have less profitable income as their cost rises.

Porter's five forces

Porter's five forces is another analyzing tool used to monitor the threat levels of
competitors in the market. This can be used to assess the impact of their competitors on
the business growth and can adapt to changes and competitor decisions to help
business like Starbucks to react and be able to continuously compete. Ways they try to

16 Gupta, S. K. (2021, August 31). Starbucks SWOT 2020 | SWOT Analysis of Starbucks.
Business Strategy Hub. Retrieved November 10, 2021
accomplish this is by measuring and observing industry rivalry which looks at the threat
of new entrants, supplier bargaining power, the threat of substitutes from other
competitors and customer bargaining power. The most important forces when it comes
to Starbucks is bargaining power of customers and threat of substitutes and competitive
rivalry.

Recommendation: Starbucks can apply a few strategies to make their brand even
stronger. These recommendations are for the purpose to solve their strong competitive
rivalry, strong customer bargaining power and the strong threat of substitutes.
Starbucks can improve and increase their market aggressiveness to maintain and retain
their customers. For example, for Starbucks to get an advantage over their competitors
in regards to solve their strong competitive rivalry, the business can maintain their
production stability and their flexible access to resources by allowing an investing more
on a diverse supply chain.

The threat of new entrants is the number of entries barriers in the industry and the
amount of new business competing in each industry. For Starbucks, this threat is
considered moderate. This is because stores with large chains require intense
investment and therefore developing economies of scale, brand and brand loyalty takes
time. It is hard for new entrants to attract customers in the coffee industry because
Starbucks has dominated the market and has made customers like and get used to
Starbucks produce taste. This is great for Starbucks as Europe has the highest coffee
consumption in the world with around 34%, making Europe one of the best places for
Starbucks to operate and with few new entrants Starbucks can easily dominate without
the threat of being overtaken. However, single outlets can easily be started with medium
investment, and they can attract customers and adjust to their liking in each area, which
explains why the threat of new entrants is moderate.

The bargaining power of suppliers in Starbucks is low because of the sole reason
that the coffee beans required by Starbucks is available worldwide, therefore in restricts
the ability of suppliers to bargain for higher prices as Starbucks could easily switch to a
different supplier. Starbucks has supply chains with many supplies to have enough
resources for all their shops worldwide. However, the only type of coffee bean that is
supplied at a premium is the Arabian coffee beans. This prevents Starbucks from being
charged too high as coffee beans are available everywhere and therefore reduces its
costs, which increase their potential profit, if they continue selling their products. This
also prevents Starbucks from being defrauded and forced to continue an unhealthy
supplier and business relationship. This therefore places Starbucks in a superior role to
select the supplier that is most beneficial to the business overall success.

The bargaining power of buyers however is high. Starbucks is facing increasingly

intense competition which gives customer more choice and there more informed and
more aware of their choices. Therefore, if Starbucks decided to raise their price slightly
customers could easily walk away and go to their competitors store or some customers
that are not sensitive about the price might stay due to the way Starbucks has created a
unique environment. Starbucks also has competition in the EU such as Costa coffee,
mc café in Macdonald which both has more outlets in Europe and therefore can
maximize the number of customers, if other factors are taken care off and managed.
This is even more apparent in Germany where Mc café has grown tremendously
outweighing Starbucks, placing it in huge competition and forcing them to please their
customers to form some sort of loyalty with them, to prevent losing them to coffee shops
like Mc café which gives more product choice through their famous fast food and now
their beverages, leaving Starbucks possibly beaten. As the EU develops, Customers
have more choice and will eventually be harder to please and have higher control.
Starbucks will have to be innovative to succeed and stand out with a USP.

The threat of substitution in Starbucks is high. A survey conducted in Europe has

shown that 73% of Europeans believe that Starbucks is expensive. Therefore, there are
many substitutes for Starbuck's coffee, tea and food that can be bought at a cheaper
price. Customers can also buy these beverages from any other competitor and
convenient store because most of their products will taste similar from any other coffee
industry. However, due to their brand customers tend to be loyal and may also fall
addicted to their specific coffee as it has caffeine which could make someone fall
addicted. Customers can also make these beverages at home, and therefore seen as
not necessary or not as important. Starbucks must consider the way they operate in the
EU as customers from different countries may vary in spendable income and whether
they want to invest in Starbucks. Starbucks could still grow in countries like America;
however, it is vital for them to change their pricing strategy in order not to fall behind in
the EU as people in Europe might have different intentions and mindsets which
Starbucks will have to adjust too to attract customers in foreign countries.

Conclusion

In conclusion, this report has analyzed the overall environment of Starbucks by looking
at its threats, opportunities, advantages, disadvantages, internal factors, external factors
and how that can impact any business, especially a large business-like Starbucks. This
was at the request of the Economic Development Unit, to observe how the environment
affects Starbucks operating within the EU. This report has concluded from the evidence
that of the three different strategies (PESTEL, SWOT, and porters five forces) PESTEL
is the most suitable and most effective strategy for Starbucks to deal with its external
environment.

Being able to analyze and react to changes in an environment is vital for any business,
however for a large multi- billion company like Starbucks it is even more important for
them to analyze their environment. Starbucks was able to master this by understanding
the political, economic, environmental, social, technological, and legal factors that can
affect a business and its ability to gain control outside the business. This detail on the
eternal factors is not apparent in the other strategies like porter five force. PESTEL
gives Starbucks the ability to analyze and take into consideration every factor of the
environment that the business cannot control and therefore for a Billion-dollar business
they cannot risk deciding without thoroughly weighing the advantage and disadvantages
of these factors. SWOT and porters by forces mention the environment, however, fails
in going in depth and instead of focusing on the environment it also talks about the
internal factors which may not seem effective for smaller business but are vital for
Starbucks.

The business environment had a massive effect on Starbucks. People began to become
more healthier, and this was more apparent at the start of COVID-19 in 2019, this
placed Starbucks in a situation where they could no longer control their customer and
would have to adapt to their new preference. However, through the Economic
Development Unit, the author proved that Starbucks was able to react positively to the
change early on using PESTEL which placed it in a competitive advantage and
dominated the market at that time. The ability to react to external changes like societies'
consumer preferences and other environments has led to Starbucks' continuous
improvement and ability to compete and grow. They attracted as many consumers as
possible at their peak of interest which not only raised their revenue but also their
reputation which would last for years. They did this by introducing healthy options when
consumers were the most interested and willing to pay and this means their ability to
react quickly in a competitive market has led to its dominance. By focusing on the social
factors that could affect the business externally, Starbucks was able to adapt and
become innovative to out compete in an industry where competition is high and new
entrants constantly compete and grab every opportunity. Unlike other companies,
Starbuck also understood the legal requirement and protocols to operate within the EU
which prevented Starbucks from receiving any possible lawsuits which could slow down
a businesses’ growth and ultimately in Starbucks' case slow down their aggressive
growth plan. This meant that they could keep good and healthy relationships with the
government to ease regulations, giving them a vaster opportunity to thrive in that
country. For example, if Starbucks had more relaxed rules set by the government
compared to Costa, they would be able to have more chances to succeed by improving
factors of their Brand like marketing or promoting without facing government issues.
This is a massive advantage that Starbucks could have and could make them dominate
the European country they might operate in as it gives free reigns. This ability to
understand the external environment, which Starbucks cannot control, has led to their
success for decades which could explain how a single coffee shop dominated all other
coffee shops.

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