- Threat of New Entrants: Moderate to Low.
Entry in the industry would require considerable investment to achieve proper market penetration, and since the industry is already dominated by some large players such as Starbucks, it makes it a relatively unattractive industry to enter.
- Bargaining Power of Buyers: Low.
There are many buyers in the industry; hence no single buyer has the power to demand any price concessions. Starbucks itself had more than 3 billion visits by customers in 2013 (Starbucks Corporation, 2014).
- Bargaining Power of Suppliers: Medium.
Starbucks sources its main ingredient: Coffee beans from select farmers in Latin America and Africa. It would make it difficult for them to move to another location and maintain the same quality as coffee beans from these places are known to be the best. However, none of the suppliers are big enough to bargain with a giant like Starbucks. Despite this, Starbucks maintains its Fair Trade policy [Appendix1] to source coffee beans responsibly.
- Competitive Rivalry in the industry: Moderate to High.
The industry is a pseudo oligopoly; the largest players control most of the market, with Starbucks leading the way. However, the rivalry is heating up, with Dunkin and Starbucks at the center of the battle and the likes of Costa Coffee waiting to pick up the pieces.
- Threat of Substitutes: High.
With changing customer preferences or traditional habits (in countries such as China or India, where tea is a preferred beverage) the industry faces a big threat of substitute products. Moreover, the industry is as much about coffee as it is about the ambience, quality and option of food available and value added services such as Wi-Fi internet services. Even if customers do not switch beverages, it would be easy for them to change the café they prefer to have coffee in. For example, some customers may prefer a Dunkin Donut with their coffee rather than a sweet condiment being offered by Starbuck.