Introduction
The Starbucks’ company was founded in 1971 in Seattle, Washington at the Pike Place Market and was founded as a single coffee shop. The name of the company is inspired of the book Moby Dick and should remind the costumers at the old times of coffee trading over the seas, therefore also a Greek siren is the logo of the company. In 1981 the today CEO of the company Howard Schultz visited the first time a Starbucks store. One year later he joined the group.
After a trip to Italy Schultz was inspired by the typical Italian cafes, which are kind of a gap between work and home, a 2nd home where you go after work to relax and communicate with other people, and this place Starbucks should represent. With this concept they brought the company to international success, today there are more than 17. 000 Starbucks coffee shops all around the globe in 60 countries. They sell coffee, pastry, sandwiches, beverages and a lot of more stuff around coffee. In the United States of America they also sell ice cream and other products in supermarkets and grocery stores.
Further Starbucks own the coffee shop company Seattle’s Best Coffee, which operates in 20 states of the U. S. A and has more than 500 stores. Another brand of the Starbucks Company is Torrefazione Italis, a coffee roaster company. Moreover, the own La Boulange a French bakery brand, the tea producer Tazo Tea and the beverage producer Evolution Fresh. In the whole company included its subsidiaries work more than 150. 000 employees all around the globe.
Its mission is to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. (Starbucks) Concerning coffee they mean: coffee from high quality, produced fair trade. Partners: they call each other partners, what means that they are all equal in the company with the same passion for the job. Customers: Also if it is only for a few moments, Starbuck employees laugh with their customers, share moments with them and connect with them. Stores: The Starbucks stores are a hideaway for their customers, a place without worries, where you meet friends and you have fun.
Neighborhood: Every Starbucks store should communicate with the environment around it. Shareholders: Every shareholder from Starbucks “endure and thrive” (starbucks. com) from the company. Their goal is to invest back in the country and to create more jobs; Schultz said that you cannot build a sustainable enterprise with the single goal of having profit.
The company’s approach to social responsibility and its code of ethics Starbucks guarantees that their coffee, cacao is all produced fair. Every farmer gets fair loans. They ensure that every farmer, who is producing coffee or cacao beans which are going to be used at Starbucks, gets a fair loan, has fair and human working conditions and that they protect the right of the workers and want to provide them adequate living conditions. Another thing is that they try to aware the rain forest. So Starbucks tries to fight against the global climate change. They also try to avoid waste and to protect the water quality in the countries where their coffee is produced.
The degree of competition in the market it operates in, Starbucks’ marketing strategy, its target markets and competitors In the last few year the degree of competition in the coffee shop market increased a lot, while in the 1990s Starbucks had kind of a monopole as the only coffee shop chain, while nowadays there are more and more competitors. Like Tim Hortons a Canadian chain providing coffee and cakes with more of 3000 locations worldwide or McCafe. Also if Starbucks is until today the worldwide leading brand in this kind of segment, it is not that easier anymore. For example McCafe: McCafes are coffee shops included into McDonalds restaurant or also alone standing.
They provide as same as the Starbucks coffee shops a wide range of bakery, hot and cold beverages and snacks. The only difference between them is the price, McCafe is focused like McDonalds on cost leadership, so they try that the prices are as small as possible, while Starbucks believes in differentiation, they want a high quality and want their clear position is a brand. The target marked of Starbucks was at first well-educated, moneyed with an age about 25 up to 44 years. In the years of operations this target marked changed, so nowadays the market are younger customers with less income.
The target market also depends on the region, where the Starbucks coffee shop is. So for example Hispanics are one of the most important costumers in the south of California. Their main marketing strategy is to create an image which should attract all the costumers. A Starbucks coffee shop should be the third place in the life of their customers. So the desire to provide a friendly ambiance in the shops and the possibility for their costumers to built up a social network in the shop. Another important thing is that every costumer’s requirement is satisfied with Starbucks and recommends Starbucks to their friends, family members.
Porter’s Five Forces analysis Bargaining Power of Suppliers: The power of them is really low when we think about coffee. Starbucks is one of the worldwide largest buyers of coffee, so they have a huge range of suppliers and can also influence the prices of coffee. Bargaining Power of Customers: The power of Themis Medium. For sure there is a huge range of choices between different coffee shops (McCafe, Tim Hortons) but as a part of Starbucks marketing strategy, their customers visit Starbucks coffee shops for the environment, and if it is somebody ones a Starbucks customer, the will not change to another coffeeshop.
Starbucks does not want to consider itself as a normal store. It has a different position like the other coffee companies, which is the main reason for the customers to visit Starbucks. Threat of new entrants: It is not so high among completely new entrants, but it is really high among existing fast food companies. More and more companies for example like McDonalds decided to open also coffee shops and so a lot of new entrants entered the market. Threat of Substitutes: The threat of Substitutes is really high. For their consumers are a lot of other possibilities.
Like instead of coffee to go to have other drinks, like the more and more common “bubble tea”. Also in the snack segment there is a huge rivalry. Instead of higher priced cakes, muffins, bagels, brownies and sandwiches of Starbucks, the consumers have Competitive Rivalry within an Industry: Really high, there are a lot of competitors like McCafe, Tim Hortons which providing almost the same products for lower prices. The menu of a McCafe and a Starbucks coffee shop is almost the same, the only difference are the prices.
Starbucks’ degree of involvement in the foreign markets. Starbucks was founded in Seattle in the United States which is until today the main market of the Starbucks coffee shops. 1996 Starbucks expanded the first time in a foreign country; it was Japan, later Singapore and the Philippines. The Asian Pacific market was in that time really important for the company, because young people there love the western lifestyle and so there started a big hype about the Starbuck stores. At this time the worldwide success of Starbucks began. Until 2000 they had more than 3000 coffee shops around the globe. Until this time they opened every day a new store.
Very controversial in Europe is that Starbucks uses his power and influence to open stores at prime locations in the capitals of Europe. With this stores where they make a lot of profit they financier other stores which are less profitable. So they could expand really fast. Critics said that it is unfair against other small competitors which have no chance against the Starbucks Company. Today there are exactly 17. 651 stores, which are operating all around the planet on all six continents. Until today the US are the main market of the company with more than 13.
000 stores, followed by Canada, Japan, the United Kingdome, China, South Korea and Mexico. In 2003 Starbucks stopped operating in Israel and closed all 6 stores there, because of the difficult environment to make business. In 2012 Starbucks announced that they are going to close all European stores which are not profitable enough. One strategy of Starbucks to be more in common at different countries is to sell different products in every country which are belonging to their consumers’ tastes. For example in the United Kingdome they have a larger vary of tees like in the United States, and in Asia they sell more products with the use of rice.
PESTEL analysis Politics
Starbucks focuses a lot on Corporate Social Responsibility. It acts responsibly in its production countries. Farmers get tax reduction, which the purchasers have to pay later on. Moreover, Starbucks is depended on international trade regulations and tariffs concerning import and exports. Especially in the trade segment of coffee beans good planning is essential to avoid losses and penalties because of regulations or tariffs. Although Starbucks strategy seems to be producer friendly and based on social aspects, Starbucks is known for tax invasion globally.
They use Switzerland to get tax advantages. Economy: In the beginning the economic background for Starbucks was supporting and had a low level of competition, which was one of the reasons for Starbucks rapid growth. Prices were appropriated and there were nearly no imitations on the market. But the market situation changed rapidly in the last years. Competition increased, imitations increased and a strong price war began. Starbucks is slowly struggling in the price war. They had losses and were forced to close stores. If Starbucks wants to continue being successful they have to find a new strategy.
Social: Starbucks is highly aware of its stakeholder value. They continuously try to improve their employee value. Fair working conditions, a high range of diversity and a good value chain increase the circumstances of working. Meanwhile in the production areas they try continuously to improve the living standards of its employees and their families. Technology: Over the years Starbucks improved its technology standards with introducing new innovations to its stores. Very popular is the free available Internet in every store. In 1998 they opened the first-generation e-commerce website.
Their new store system with computers and machineries allows a quick production of goods and services. Customers are organized better in stores; the products can be sold easier. In the end they reached a higher level of efficiency. Environment: Also in the environmental sector Starbucks tries to fulfill its code of conduct. They recycle their coffee cups and compose used coffee. Moreover, they achieved to reduce energy consumption up to 25% over the last years and they want to improve. Their new goal is to purchase renewable energy to a level of 50% of its energy. Also water savings should decrease over the next years.
Legal: In combination with the companies goals, the CEO of Starbucks decided to cut his own salary from 1,2 million to 10. 000$ a years. Instead he wants to invest the money in a better health insurance for its employees. It costs Starbucks 250 million more per year to achieve this ambitious goal.
Porter’s generic strategies
Starbucks’ products and operations position Starbucks target segment is the upper income class. As a result, Starbucks focuses on differentiation strategy. Unique, high quality products justify higher prices. Their coffee is high quality and not comparable with other competitors.
Especially in the US, Arabic coffee quality is a rare good. Moreover they invented innovative coffee specials like the Frappuccino section, Smoothies or flavors. With this strategy of differentiation, Starbucks was a long time able to benefit from its first mover advantage. Starbucks was able to create itself an image that was automatically connected to quality and exclusivity. Another fact is, that the company was innovative and used a market that was nearly empty of competitors in that target segment. Moreover, with intelligent marketing strategies they were able to justify their prices and achieved a high level of customer loyalty.
SWOT analysis Strengths
Though its significant struggles and losses, Starbucks remains market leader in the coffee market. Their strict ethical mission statement is idol for many companies. A lot of their strong ethical values are implemented in reality. Moreover, Starbucks is still identified with high quality coffee and products. Costumers are treated friendly and on a personal level (their first name is written on the coffee cups). Another strength is the company’s size. It is spread all over the world, in 40 countries and it has 13. 000 employees worldwide. For a very long time Starbucks was first mover in the upper income class segment.
Weaknesses: A very important fact is that Starbucks lost the first mover advantage of which it was benefitting for a long time. Competition grew rapidly and the price war brought the strategy of differentiation to struggle. Competitors like McDonalds offer high quality coffee and other coffee products for cheaper prices. On the other hand, Starbucks many stores turned out to become a problem. Supply was higher than demand and costumers were flooded with Starbucks stores, especially in bigger cities. The costs for all these stores exceeded their revenues and made them not profitable anymore.
Starbucks had losses worldwide. Although they were trying to create new product innovations they failed and the hype that it created some years ago started to decrease. It was not that trendy and hip anymore. It definitely needs to invent new innovations. Opportunities: The opportunity of entering new markets exists in countries like India, Pakistan and Bangladesh and in the Pacific Rim area. The demand in these areas is high and offers a high potential. If Starbucks closes unprofitable stores in other countries, it could open stores in the new countries instead. Another opportunity is the focus of fair trade.
If Starbuck enters new markets with its fair trade (chocolate, sugar etc), it might have a chance to increase profit and improve its image at the same time. In addition, there are opportunities of cooperation with other companies. Starbucks would get the change to get new costumers and benefit from the other company. It would maybe stabilize the company. Threats: The danger of losing the cost war remains. If Starbucks is not able to justify its differentiation strategy, it will get massive problems. Competitors have to little prices and an increasing product quality.
And competition is still growing; the threat of new entrants in the market is very high. Moreover, Starbucks image of its strong ethical values was attacked very often. It seemed that these values were often mistreated and especially coffee producers were exploited instead of supported. Moreover, Starbucks way of tax evasion contradicted its ethical values. For decision making it means following things: Starbucks needs to get back to profitability. It can achieve that by closing non-profitable stores worldwide. In countries like India and Bangladesh the potential for success is higher than in other countries.
Moreover, Starbucks should think about its cost structure. Maybe lowering the prices would increase profitability, especially in highly competitive countries. Another argument therefore is also that the upper income class would not be the only target segment anymore. Another target group would bring more profitability. In addition Starbucks needs to get back to innovations. It can only keep its trendy image if it really invents new products and services. To improve its image it should moreover rethink its company values and be honest about values and not lying. Otherwise they could lose costumers’ loyalty.
Value Chain Analysis
Primary activities are the inbound and out-bound logistics, production progress, marketing and sales. Inbound logistics can be improved by having a good relationship with the suppliers. The quality will be good and if the working relations last for years it can come to price reductions for costumers’ loyalty. It adds also value to the stakeholder value. Starbucks is not a new company anymore so it should maybe able to start reducing costs there. Costs for production progress can be reduced by a standardized production progress, which is very important.
In some cases it might be profitable to produce in low cost countries but only if the quality remains the same. An improvement in production progress might help to reduce costs but is only value adding when for example production progress in developing countries helps the employees to have better living standards. If Starbucks continues to produce its coffee in developing countries it should be aware that this might add some value to its company. But if they mistreat their employees as some negative news said, they will struggle to add more value. Outbound logistics are an organizational thing.
Starbucks has to have a good organization to reduce cost. But this is especially difficult with it many stores. I think it would help Starbucks to reduce the number of stores to be able to get a stricter organization so that in the end they can reduce costs in the out-bound logistics. Another point is the Marketing. Starbucks has to invest more in getting better Marketing. If they promote their brand better, this will add some value to the company. In the sales section they pretty much succeeded in reducing costs. I think their special technique for people to line up is perfect and it optimizes the efficiency.
I would continue with this strategy and maybe find a way to even improve it. Cost reduction can be immense. The secondary activities are the company’s infrastructure, the human resources, technologies and acquisitions. In my opinion Starbucks should change its companies’ infrastructure to reduce costs. As already mentioned Starbucks stores has to be reduced. Moreover a better organization structure for the primary activities would improve the whole value chain. In addition, technologies are one of the most important aspects. Innovations and research should be the main focus for the next years.
If Starbucks wants to keep its level of quality it continuously needs innovations and new technologies. It would add massive value to the company. It would not save costs here, it would be contra productive.
Product and market
Matrix through the last few years Starbuck recently changed its strategy for a product market growth one: Sources: (Intensive Growth Strategies: Ansoff’s Product-Market Expansion Grid)
- Market penetration: it consists in improving a product and increasing market share in those the company is already working in. Starbuck here expands it sales and shops in hotels, airport and schools. For example, a Starbuck coffee shop will maybe be opened in the new vocational high school in Monaco, which is currently under construction.
- New product development: create new product in their current markets. When you are going into a Starbuck coffee shop, they are not only selling coffee but cakes, salads, sandwiches for example.
- Market development: the objective here is to implant the company in new markets which are different from the existing one. As we saw before, a majority of people over the world can eat in a Starbuck coffee shop. This company just has few borders. Howard Schultz revealed in an interview for The Bloomberg Television special “Asia’s Business” that Starbucks’ aim is to triple outlets by 2015 in China. (Bloomberg, 2012)
- Diversification: The goal is to develop new products, in new markets which are very attractive. As a diversification, Starbuck is selling a book about its history in every shop, we can buy Starbucks’ mug and even clothes (mostly t-shirts).
Starbucks’ organizational structure
The organization is a common one: There are first of all headquarters, followed by managers aggregated in different regions, and then a manager for each Starbucks’ stores. Under those last persons, who we can call the assistants: they replace the chief when he isn’t available. They have a power of authority over employees of the store they are working in. (SCHREINER). They structure is now based on customers’ desire, as explained before. The matrix clearly shows that the company wants to expand itself on other geographic areas. Schultz declared they will focus on The United States with a “four divisions’ organization” (The Organizational Structure of Starbucks, 2008). To be sure that every employee will know how to perfectly do the different coffee recipes, the company provides training for everyone.
This way it enables them to learn Starbucks’ culture and to share it with customers. (organizational culture: the starbucks case). An Ethics and Compliance program, available on the official website www. starbucks. com assists Starbucks’ mission and helps to protect the its culture and the reputation. Partners are then able to take decision about ethics at work. The Ethical standard distributed to every Starbucks in the world explains how the employees must behave between each other. They must see themselves as partners than individual workers.
This system let the possibility to blur the vertical hierarchy between managers and baristas for example. Thereby, Equality is advocated. This ethical behavior is also relevant for suppliers. The company is aware of how difficult it can be to crop certain product. Thus they pay attention on the fair value. (SCHREINER) Starbucks has also engaged itself in environmental responsibilities. By using recyclable cups, composting, and apply recycling programs as much as possible. Those initiatives are friendly but hard to implant in an organization.
Despite this difficulty, Starbuck still struggles against the opinions about recycling and tries to establish these practices in every Starbucks’ store all over the world. (recycling and reducing waste).
Its Human Resource Management
One of the most important objectives for Starbucks is to enroll the best suitable persons in the company as it is a significant point for the well development of the growth strategy. By being heedful to employees, it provides a competitive advantage which is achievable by rewarding them and being thankful, even more during the crisis we are going through.
People dedicate most of their time to the company they are working in, because they don’t want to lose their jobs in such difficult economic situations. Thereby, they often do extra-work they are not suppose to do, and managers usually forget to recognize these efforts. As an issue, the employees will leave the company which is what Starbuck wants to avoid. It can be a very complicated task to hire someone in those kinds of businesses as certain qualifications are highly required.
By offering the same advantages to every employee, without basing rewards on the hierarchy, the company gains on recognition which placed Starbucks as one of the most awarded company for its Human Resources Policies. (Starbucks HR policies and practicies)
Recent changes in the company
Starbucks’ Board of Directors have aligned with the modern trend of corporate sustainability: they made their business environmentally friendlier, they introduced a line of fair trade products. We can call it undoubtedly an evolutionary change, but it is not a core change as it did not upset their asset governance and the relationship with stakeholders.
It only introduced new suppliers and a new way of performing the In 2008 Starbucks introduced a website, were costumers could insert their comments, reviews and advice about the company, and a fidelity card giving gift and free services, such as free wifi Internet access and no charge for supplementary request (for example soy milk and flavored syrups. In the last two years the company made a lot other changes about the service, such as the “trenta”, a largest cup size, the “Verismo”, a consumer-grade single serve coffee machine and a little change in the logo previous shape, removing the Starbucks word mark around the siren.
All of those changes can be considered planned because are deliberate and not unexpected and on the second hand can be considered evolutionary because they are not drastic or happening suddenly to respond to a particular economic situation. In 2010 Starbucks extended till South Africa, Hungary and Central America, moreover it made an alliance with one of the Asia’s largest coffee plantation, the Tata Coffee. Furthermore, after purchasing Tazo (a tea brand), Howard Schultz has decided to spend 620 million dollars in a new tea company called Teavana which ensure the service of a premium loose leaf tea.
His aim is to expand this brand all over the world as he had already done with Starbucks by opening shops and in addition, to sell this tea in supermarkets. It will enable him to face the competition of other companies. (Starbucks buys luxury tea company Teavana for $620m, 2012).
Control and evaluation of performance
After a year of slower sales, leaded by Jim Donald, the new CEO Howard Schultz, is taking the company high again by refocusing the brand on coffee, in fact he stopped the launch of warm breakfast sandwich products.
He is well facing the price growth and the struggle with his competitors. Schultz’s model of expanding Starbucks is very similar to McDonald’s, with only few dissimilarities, one of the major is that Starbucks does not franchise but owns closely its stores. Because in Mr Schultz’s opinion to build a strong brand around franchises can become very hard and not always possible. Another difference is the Starbucks reached the success without the help of national advertising. Howard Schultz’ s philosophy follows a few key points: the business cannot expects to stay stable otherwise can be considered dead. Give maximum importance to consumer. Product line extensions are not the same as innovations innovations always change the situations in the market encourage and praise creative thinking. Innovation can modify the business and the working place.
