Starbucks is a globally recognized company that specializes in the production and sales of premium roast coffee and other special beverages. It is currently the largest coffeehouse in the world whereby it is known not only for selling high-quality coffee. It also provides a sophisticated lifestyle, which is as a result of its enticing aroma, comfortable seats, trendy music, and a welcoming atmosphere.
This company began with an idea from three good friends who had a strong passion for gourmet coffee. They developed this idea and opened their first store in 1971 in Washington, which served the world’s finest, fresh-roasted whole-bean coffee, and towards the end of 1970s, it gained momentum within Washington. Starbucks began to experience real success in the 1980s, when Howard Schultz became the new head marketer. However, the concept of Starbucks becoming a place to socialize and relax between the periods of work and home was established.
Implied Corporate, Business, Functional Strategies
The strategies implemented by Starbucks at the corporate level are the reduction in price by producing new products of coffee using cheaper beans or using special discount promotion in order to increase sales.
At the functional level, advertisements are developed through the internet, especially the Facebook, where consumers conveniently have more access to Starbucks’ details. This helps in market penetration and development, which increases sales and reduces the company’s weaknesses.
At the business level, Starbucks effectively pursues the focus-based strategy in conjunction with the cost leadership or differentiation-based strategy. However, in order to increase its strength, Starbucks needs to improve on its focus strategy because other competitors are attempting to specialize in the coffee business.
Starbucks Mission, Vision, Values
The current Chief Executive Officer, Howard Schultz, designed the culture and mission of Starbucks after a trip to Italy, where he discovered the espresso culture and fell in love with it. He discovered the potential to create the same culture in Seattle. Since then, Starbuck’s goal was to build an experienced way of serving coffee. This goal made it possible for the coffeehouse to branch out and be accepted globally (Cheema, Dahlin, Grewal, Jagpal and Roux 1-2).
The company’s mission statement “to inspire and nurture the human spirit: one person, one cup and one neighborhood at a time” is achieved using the following principles:
- “Our Coffee.” Starbuck is always passionate about ethically sourcing the finest coffee beans, roasting them with great care and improving the lives of those who grow them. The company’s belief is that it has always been and will continue been about the quality.
- “Our Partners.” Starbucks believe it is not just a job: it is its passion, and that is why it is called partners. The organization embraces diversity in creating a place where everyone can be real. Treating each other with dignity and respect is its watchword.
- “Our Customers.” The business always tries to fully engage, connect and laugh with, and also aims at improving the lives of their customers even if the time is limited.
- “Our Store.” Starbucks’ store is a haven and relief from the worries outside where customers feel the sense of belonging, always full of humanity.
- “Our Neighbors.” Starbucks takes serious responsibility in making sure it is a good neighbor because every store is part of a community.
- “Our Shareholders.” The corporation is committed to ensuring that its shareholders also enjoy the success they require (Starbucks Coffee Company 2011).
The Company’s Business Model
Starbucks has adopted the five-force model as discussed below for its business functionalities whereby it analyzes the forces that operate among its competing sellers. It describes the rivalry that exists among its competing sellers, the threats from substitute products and services, as well as potential new entrants, the influence from suppliers, and also the power of buyers of its products.
The Company’s Key Objectives for Measuring Its Performance
A measurement model is designed for clarification the integration between external and internal performances of the company. It is very difficult for an organization to be productive without the internal and external performance factors. Therefore, it is important to have a performance measurement model for assessing activities such as delivery time and new products introduction, the project lifecycle, increasing number of new and repeated customers, market value of the organization and customers’ attrition rate. Starbucks uses the balance scoreboard for measuring its performance, which results in obtaining the specific level of project outcomes of the company. The five-step procedure is applied to measure the immediate and intermediate result of its accomplishments, and the ultimate results of its accomplishment in the market. Additionally, these levels of results define the company’s key objectives (Lakshminarasimhan).
However, this business model has been effective in the Starbucks business process because it focuses on the effects of competition from other companies that provide similar products and services, and uses the resources and capabilities to take advantage of their weaknesses.
External Environment Analysis
The five-force model of competition illustrates the five major sources of competition faced by Starbucks and the interaction between them. These forces, which have different levels of influence on the competition faced by Starbucks, are discussed below:
- The rivalry that exists among the competitive sellers in the industry.
- The threat of drink-alternatives to coffee, such as colas, juice and tea that are prepared and sold both at home and in the retail market.
- The threat that arises from emerging companies which sell similar products.
- The power of suppliers as a threat comes from the operations of the suppliers like coffee and diary vendors.
- The threat from the power of buyers has little influence on Starbucks.
Nevertheless, the interaction among these five-forces is illustrated in Figure 1 below. It shows how each force influences competition among competing sellers in the market (Cook 5-10).
Starbucks’ major competitors are specialty coffee shops and quick restaurants. This company believes that its customers choose retailers primarily based on services provided, price, convenience and product satisfaction. In recent times, the corporation has experienced a significant direct competition from large quick-service restaurants in the US, which have greater marketing and operational resources more than Starbucks actually has. The organization also faces competitions from other international companies in the coffee-beverage market.
The intensity of this competition increased as businesses try to improve their position in the market by reducing prices, increase market efforts or introduce new products or substitutes. On 26 February, 2008, Starbucks closed its operations for several hours in order to train their employees, and Dunkin Donuts took advantage of the opportunity and gained new customers.
However, food choices, restaurant ambience, and pricing form the diversities among competitors and customers may choose based on preference. Some offer bakery-caf? menu while others offer a full menu and the prices on them vary among competitors as well. Starbucks experienced a high substitution threat because new products could be the start of the next consumer trend, creating initial high demand for them. Highly caffeinated drinks, such as Red Bull and Monster, have proven this capability, whereby some former coffee drinkers now prefer to obtain caffeine from those energy drinks or from soda, rather than getting it from coffee products. Research shows that more than 77 percent of adults over 18 years consume coffee on occasional or daily basis. This fact recently made Starbucks introduce a 99-cent cup of coffee in order to help them compete with other lower-priced competitors and with the sagging economy. The main competitors in this industry are:
- McDonalds. The two brothers named Mac and Dick McDonalds opened their first restaurants in 1940 in San Bernardino, California. On 31 December, 2007, they had about 31,377 McDonalds restaurants in 118 countries, which are serving about 54 million people every day as the world’s largest fast food chain restaurant. This company first upgraded their coffee in 2006 to compete with other companies. McDonalds has a larger demographic than Starbucks where by caters to families with senior citizens, children, teenagers, and adults with its well-established menu offerings, while Starbucks is considered to be a luxury for the affluent. The advantage it has over Starbucks is its significantly large amount of traffic.
- Dunkin Donuts. The first Dunking Donuts was opened in Quincy, Massachusetts, by William Rosenberg in 1950. Presently, there are more than 13,000 Dunkin Donuts in almost 50 countries worldwide with sales of $6.4 billion in 2006. They were initially known for their doughnuts and coffee, and after some years, they introduced new products, such as bagels, breakfast sandwiches and muffins. In order to compete with specialty coffeehouses, they extended their coffee offerings to include lattes, coffees, tea, flavored hot chocolates and coolattas.
- Panera Bread. Panera Bread was founded in 1981 by Louis Kane and Ron Shaich. It was originally named Au Bon Pain Co., Inc., and changed to Panera Bread Company in 1998. It presently has more than 1,160 bakery-cafes in 40 states in the United States and its headquarters is in Richmond Heights, Missouri. Its product lines include artisan and specialty bread, baked goods, coffee, espresso drinks, salads, gourmet pizzas, made-to-order sandwiches and custom roasted coffees. The closest competitor to Starbucks is Panera’s ambience of casual dining which also provides Wi-Fi connectivity to customers. Its pricing is set so that customers will perceive the great value of high-quality food at reasonable prices that will hopefully encourage customers to repeatedly patronize them.
Industry Driving Forces
Industry driving forces are operational in the coffee industry and may affect the market as a whole. Starbucks’ retail strategy, which is focused on maintaining loyalty and repeating business among the targeted markets, includes hiring and training of knowledgeable counter servers. The latter provide customers with the opportunity to enjoy a relaxing atmosphere. Besides. they educate customers about their specialty coffee drinks and other associated products. Starbucks supports its strategies with retail mix just like other companies:
Stores are located in the most highly visible places, and hubs are created in centralized cities or regional centers for expansion into neighboring markets.
Merchandise assortment, which is based on sales distribution, includes coffee beverages, food items, whole-bean coffee and other coffee-related equipment.
The partnership treatment it offers to its employees due to their training, benefits, empowerment schemes, and growth opportunities motivates them to always improve on their productivity.
Industry Key Success Factors
In every industry, the key success factors illustrate the elements of its organizational activities that determine its future success. These core factors are following:
- Customer service: Its excellent customer services are adopted as a very important source of competitive edge base on increasing the amount of coffee shops.
- Social responsibility: In the past several years, the industry tried to increase its impact of corporate social responsibilities by increasing its level of engagement in the fair trade, employee treatment, carbon emission policies, and recycling policies, which are seen as notable success factors.
- Shop design: Coffee shops are usually positions as a third place apart from their workplaces and homes, where they can spend most of their time in relevant atmosphere with music and interior design.
- Quality of products: The quality and freshness of its products, which fuels the level its customers’ expectations, has been an extremely significant factor in the coffee industry.
- Customer loyalty reward programs. The level of attractiveness of its loyalty programs that offer discounts and other advantages to customers impacts the level of their behavior (Botten).
Overall Analysis of the Industry
Based on the data obtained about the industry, we can say that it is after its customer’s satisfaction, which aims at providing a favorable environment for people to rest while providing high-end quality coffee drinks at affordable prices.
The present strategies employed by Starbucks are very effective as reflected in the results for the fiscal year 2012. The statistical results obtained for the period show that the strategies put in place by Starbucks are vital but could also be improved by always aiming higher and setting effective and long-term goals.
This evidences the financial status of Starbucks, which is a result of some marketing decisions that have been put in place as discussed below:
- Total revenue increased in fiscal year 2012 with 14% to $13.3billion in comparison to the $11.7billion in 2011. This change was primarily based on the 7%-increase in the worldwide comparable store sales.
- The consolidated operating income increased to $2 billion in fiscal year 2012 from $1.7 billion in 2011, and the operating margin also raised from 14.8% in 2011 to 15% in 2012. This was caused by the increase in sales leverage and the absence of charges in fiscal year 2012.
- The cash flow from operations also grown from $1.6 billion in fiscal year 2011 to $1.8 billion in 2012. Additionally, the capital expenditures increased from $532 billion in 2011 to $856 billion in 2012.
- Starbucks’ EPS for fiscal 2011, which was $1.62 billion, raised to $1.79 billion in 2012, which was based on the improved sales leverage, partially offset by the impact of higher commodity costs in fiscal year 2012 and the gain recorded in the fourth quarter of 2012 (Starbucks Corporation 2012).
Company’s Competitively Important Resources and Capabilities
The resources and capabilities of Starbucks are classified into tangible and intangible ones. The tangible resources and capabilities are following:
- Retail Store. Starting from the 1990s, this company has been rapidly expanding by building numerous amounts of stores around the world. However, because of its sophisticated location strategy, it has been able to occupy premium locations. Nonetheless, this became the corporation’s main resource in expanding its reach or at least for maintaining its leading position in the market.
- Manpower. Starbucks has accumulated thousands of employees who serve as a strong resource team. Starbucks employees tend to offer more capabilities to the company based on their potentials.
The intangible resources and capabilities of Starbucks include its continuing growth in the product equity, the new experience concept with the display of innovative products, and its cozy atmosphere, with the internet connectivity, promotion, seasonal themes, etc.
Is the Company Able to Seize the Market Opportunities and Nullify External Threats?
Based on the resources and capabilities of Starbucks, it has been able to seize the market opportunities and improve on those resources and capabilities in order to nullify external threats.
Starbuck can compete on all grounds with its competitors in accordance with its cost structure and the value it places on its customers. This company values its buyers and sets high standards for retaining them and capturing new consumers as well, which makes it more competitive in the market.
Starbucks has proven to be the an innovative company by introducing the automatic espresso machines and prepaid cards, which result in less transaction time that makes it possible to generate higher revenues and greater convenience for the customers. Other innovations in this organization are the provision of wireless internet services, online pre-order services.
- The extremely flexible nature and efficient organization of Starbucks allows it to set up new stores within shorter periods of time.
- The strong financial performance of this company with the net earning up to 22 percent in 2006 makes it almost debt-free. This makes it possible for the enterprise to develop new products and also invest in the new markets and fight the competition.
Starbucks’ unprecedented treatment to the employees that included health insurance and stock options benefits were seen as the reason for its market penetration, which made employees become more dissatisfied and felt underappreciated. This caused the danger of the negative service impairment and high cost due to the high employee turnover rate.
- Its dependence on its home market that is the US. The 17 percent of revenue internationally generated in 2006 by the company only accounted for less than a quarter of its 12,440 stores worldwide. This shows that Starbucks has not yet truly transformed itself into a global organization.
- This company also relies on a narrow product mix. More than three quarters of its retail sales are from beverages. Despite its creativity regarding the beverage innovation, it still relies on one product group, which makes it more vulnerable in terms of the consumer changes.
The company’s increase in the international presence by opening new stores abroad is considered as a great opportunity and potential for 20,000 non-US-based stores.
- It is easier for Starbucks to capture additional consumers’ shares of wallet than it will be for the new market entrants and smaller competitors.
The company’s business model does not seem to be invulnerable to competition, and more businesses are becoming attracted to the upscale coffee market, such as McDonald’s, which is its biggest threat probably.
- Its consumers’ willingness may change due to the environmental conscience public opinion because Starbucks always has the intention of appearing as a caring company.
Are the Company’s Cost Structure and Customer Value Proposition Competitive?
The cost structure and customer value proposition put in place by Starbucks is very competitive as a result of measuring the value system based on the value chain as discussed below:
- The impact on the internal organizational occurrence due to the global calamities, increasing unemployment, recession, or increased workload.
- Its impact on the functional inputs because of the changes in the internal organization (as in step one) such as funding, technological support and employee attrition.
- The action items that are driven by the functional inputs (as in step 2) mark the starting point of the measuring process. In this step, the various parameters like the amount of money spent on overall production are measured.
- This organization starts measuring the outcomes based on the inputs (as in step 3 above). The data collected is being analyzed and also quality audit, customer satisfaction, end products and deliverables and post sales services are assessed.
However, the three levels of project outcomes measured in this step are: immediate, intermediate and ultimate results (Lakshminarasimhan).
In conclusion, Starbucks has been a worldwide purveyor of the finest coffee and has established itself as the most employee-valued company while still retaining its uncompromising standards and values for its customers. The company’s global recognition is based on the strategies put in place and the models used in its business processes.
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