Analysis of Starbucks Coffee Company - Case Study Example

Scholarly paper on Starbucks Table of Contents Introduction to the company 3 Entrepreneurial and ownership characteristics 3 Start-up issues 4 Business model development 4 Strategic planning 5 SWOT analysis 5 Strengths 5 Weakness 5 Opportunities 6 Threats 6 Marketing strategies, channels and public relations 6 Web presence 7 Global opportunities 7 Conclusion 7 Reference List 9 Introduction to the company Starbucks Corporation had started its operation in 1971 in Seattle, Washington. Starbucks is renowned all over the world for its superior quality coffee and is one the best places to have coffee. The company has more than 21,000 stores spread across 62 countries. Majority of the consumers of Starbucks products belong to nations of the US, the UK, Japan, Canada, China, Thailand, Germany, South Korea and Mexico. Starbucks is a public company and operates in the restaurant business sector. The products of the company include whole bean coffee, varieties of instant coffee, hot and cold beverages, full leaf tea and a range of snacks. The company also sells packaged food products and consumer durable items such as, coffee mugs and tumblers. Starbucks also sells music and books through its brand, Hear Music. The strategies of Starbucks are diversified in order to meet various needs of its consumers spread across the globe. Many of the company’s products are seen to be seasonal and are changed to suit the local needs. The company has been reconstructing its operations by shutting down non-profitable outlets and opening new ones in the emerging markets. The coffee industry has become saturated in many of the western nations, which has been forcing the company to adopt innovative strategies for attracting consumers (Gaudio, 2003). Entrepreneurial and ownership characteristics Howard Schultz is the CEO of Starbucks. Schultz has contributed immensely towards growth of the company by way of rapidly expansion. The company is led by a team of administrators who believe that innovation, change and superior customer services play a vital role in achieving success in the restaurant sector. The company follows a servant leadership style by giving greater priority to needs of consumers and the society. The goal of the company is to meet requirements of the consumers primarily. Post hurricane Katrina, which had caused huge damage to the city of New Orleans, the company had postponed its leadership conference to be held for the employees and devoted the time towards activities such as, cleaning the city, providing shelter to people and distributing food products. It also participated in numerous construction activities simultaneously. The dedication of the company towards social growth gets reflected through such activities (Koehn, 2001). The company also invests sufficient time towards training its employees. Starbucks gives high importance to the aspect of delivering high quality services to customers. This requires educating employees regarding aspects such as, behavioural conduct, speech and hospitality. The administrators and management teams of the company have, therefore, devised suitable training programmes for enhancing organisational performance. Another significant quality of ownership at Starbucks is that the company encourages employees to be innovative. The company has a special team of strategic managers who consistently come up with improved techniques and tools for increasing customer satisfaction, delivering better services, developing new products and devising improved marketing strategies. The management also supports employee participation in providing valuable advices for improving company performance (Michelli, 2006). Start-up issues One of the primary start-up issues faced by Starbucks was to find a suitable market. Revenue generation is important for all types of firms who are at the start up stage of their business. It is also a challenge for them to develop suitable products to fulfil the market needs. Starbucks had faced the problem of meeting the working capital needs during the initial stage of development. Starbucks sales had increased rapidly within a short period. When sales increase, it becomes essential for the organization to expand the level of working capital so as to acquire greater stock of raw materials and raise the level of production. The company also required greater space for storing goods. The company had soon come up with proper resource management programmes to manage cash flow efficiently. Another major issue faced by Starbucks was obtaining talented employees as the business began to grow. One of the strategies of Starbucks was to deliver high quality services. This required recruitment of hire highly skilled professionals, which was not easily available. The company needed to train its employees, which had further increased the cost of operations (Sweet, 2008). Business model development The success of Starbucks is considered inspirational for many other firms. Over years, the company has been successful in developing itself as a global coffee brand. The company’s business model incorporates three main aspects. Firstly, Starbucks focuses upon providing high quality services in order to be able to create brand loyal customers. Starbucks gives high importance to consumers’ needs and consider them to play a valuable part of business growth. Secondly, the company treats its employees as partners in business. The company spends adequate time and energy to speak with its employees, fulfil their needs and provide them with an appropriate space to work. The company also encourages the participation of employees in addressing different organizational issues. Thirdly, the company relies greatly on web and word-of-mouth marketing to promote brand building. Starbucks is one the few companies, which spends very less on advertisements and promotional ventures, but has still achieved very high success (DeMooij, 2004). Strategic planning Starbucks analyses the demographic factors of its store location and accordingly develops suitable supply chain and operational plans. This provides leverage advantages to the organization. Employees are hired and trained through hubs, which are set up by the company, beside its store locations. The company follows licensing and partnership strategies to develop its business in new regions. Starbucks gives tremendous importance to customer feedback. This has helped to develop many innovative products, which were greatly appreciated by the customers. Increasing popularity had led the company to improvise its product line overtime. Since the days of being a small coffee retailer, Starbucks had developed tie ups with numerous established companies. This allowed Starbucks to have a wide spread business network. The company is also seen to focus upon strong product designs in order to attract consumers. Advanced technology is adopted by the firm in processing, roasting and packaging of its products. Quality control is also a significant aspect that is given very high importance in the production process. Starbucks adheres to vertical integration in its supply chain. The company believes in establishing strong connections with suppliers. The company also ensures that its activities have the least impact upon the environment, thereby advocating the concept of sustainable development (Verhoef, et al., 2009). SWOT analysis Strengths Strong brand image is one of the key factors behind success of the company. Brand image equipped with adequate financial strength have acted as contributing factors in the company’s growth. Proper resource management had enabled the company to overcome economic downturn of the recent past. Weakness Rising prices of coffee beans has been a major issue for the company. Economic volatility has caused an increase in prices of commodities in many nations. This raised the value of imports for the company, which triggered the rise in that of production cost. The premium image of the company restricts it from providing discounts and low priced products. This has led to the loss of many price sensitive customers. Opportunities The company’s current strategy has been to expand into the emerging nations of Asia. Economic development is this region has provided adequate scope to the company to expand. However, to explore the Asian markets, the company must develop exotic varieties of coffee at cheaper prices. Threats Smaller coffee retailers have been successful at capturing considerable market share offering similar products at lower prices. Another significant threat to growth of Starbucks is the consistent rise in prices of other necessary commodities. This lowers the disposable income of consumers, inducing low spending on luxury products (Thompson and Arsel, 2004). Marketing strategies, channels and public relations Starbucks has entered into joint ventures with Pepsi, Kraft and Unilever. Starbucks is identified in the market as one of the superior most coffee retailer. Such a strong brand value helps the company to gain customer attention easily. Being in the upscale coffee market, Starbucks competes with other firms in comfort rather than convenience. The products of the company are viewed as luxury items, which reduces competitive advantage due to the already existing cheaper coffee sellers. Promotional activities are primarily undertaken through social media platforms such as, Twitter, You Tube and Facebook. The company’s website and the My Starbucks Idea Website help in gathering customer feedback and developing new product ideas. Customer engagement is a valuable concept followed by Starbucks. It banks upon the idea that happy customers will share their ideas with others (MacDonald, 2007). The inbound logistics of the company involves the purchasing of coffee beans from the African continents. Strategic relationship with suppliers and organizing adequate supply chain, therefore, becomes essential. Starbucks also gives special importance to the process of inspecting and storing coffee beans. The company’s products are sold through its own retail outlets, supermarkets, major restaurants, airports and airlines. It also provides home delivery facilities (Verhoef, et al., 2009). Web presence Starbucks greatly relies upon its online presence for promoting the products. The website of the company is easy to use without any flash player content, making it convenient to access from computer PCs, mobile phones and tablets. Colourful video content and well designed pages renders the website attractive to consumers. The company website provides adequate space to the consumers to share their experiences. This helps the organization to establish a personal touch with them. Starbucks is seen to depend upon website promotions on a greater scale as compared with its competitors. The website also presents details regarding different company products, new recipes, latest company events and other corporate information. Starbucks hardly adopts marketing of its products over other mediums such as, newspaper and television advertisements. The company mainly utilizes the web to communicate, develop public relations and promote its products. It is one of the few companies to have achieved high success through such a strategy (Gallaugher and Ransbotham, 2010). Global opportunities Starbucks outlets are high in number in North America, Europe, Australia and Western Asia. The company has saturated the coffee industry of many western nations such as, in the US, by opening clustered shops. However, presence of the company has been low the Middle East and many Asian countries. One of the future strategies of Starbucks is to expand into emerging markets of the east. In many nations of Asia, consumers are price sensitive and desire to pay less for luxury items. It is, hence, strategically important for Starbucks to develop low priced variants of its products. The raw materials used by Starbucks are procured from different nations of the world. The company has its supply chain spread over nineteen countries. The global resource strategy of the company helps to effectively reach out to a larger number of consumers as well as acquire diversified suppliers. The span of operation of Starbucks is well-integrated than its close competitors such as, Caribou Coffee and McDonald’s (Simon, 2009). Conclusion Starbucks is undoubtedly one of the best coffee suppliers of the world. The superior quality products and services of the company render it one of the most preferred brands amongst coffee lovers. Even so, one of the primary disadvantages observed to be faced by the company is its high priced products that attract less of price sensitive consumers. The lower segment of the coffee industry is dominated by other brands such as, McDonald’s and Barista. Starbucks has emerged as one of the niche coffee producers, providing high quality and high priced coffee. The strategic expansion of the company in developing countries is expected to entail greater market opportunities and higher profits. It is, however, necessary that Starbucks considers reducing its cost of operations. Developing countries are generally characterized by low priced products. Therefore, it is advisable that Starbucks enters these markets with low priced products. Another strategic recommendation for the company would be to improve its ice cream business, which is currently not generating sufficient profits. Reference List DeMooij, M., 2004. Consumer behaviour and culture: Consequences for global marketing and advertising. California: Sage Publications. Gallaugher, J. and Ransbotham, S., 2010. Social media and customer dialog management at Starbucks. MIS Quarterly Executive, 9(4), pp. 197-212. Gaudio, R. P., 2003. Coffeetalk: Starbucks™ and the commercialization of casual conversation. Language in Society, 32(05), pp. 659-691. Koehn, N., 2001. Howard Shultz and Starbucks coffee company. Harvard: Harvard School of Business. MacDonald, K., 2007. Globalising justice within coffee supply chains? Fair Trade, Starbucks and the transformation of supply chain governance. Third World Quarterly, 28(4), pp. 793-812. Michelli, J. A., 2006. Starbucks experience. New Delhi: Tata McGraw-Hill Education. Simon, B., 2009. Everything but the coffee: Learning about America from Starbucks. California: University of California Press. Sweet, L., 2008. The gospel according to Starbucks: Living with a grande passion. New York: Random House LLC. Thompson, C. J. and Arsel, Z., 2004. The Starbucks brandscape and consumers’(anticorporate) experiences of glocalization. Journal of Consumer Research, 31(3), 631-642. Verhoef, P. C., Lemon, K. N., Parasuraman, A., Roggeveen, A., Tsiros, M. and Schlesinger, L. A., 2009. Customer experience creation: Determinants, dynamics and management strategies. Journal of Retailing, 85(1), pp. 31-41. Read More