Starbucks Case Analysis - Essay Example

?Starbucks Case Analysis PART Introduction Starbucks is a vibrant international organization that offers a variety of products in the market, with its core business being the production and sale of coffee-based products. The company’s products are quite varied and include Frappuccino, double shot products, chilled cup coffees, canned and bottled coffees, coffee ice creams, fresh brewed coffee, customer CDs, and books. The company has an international market and features in countries including China, USA, UK, Europe and Canada. The company’s initial mission was to be the World’s premier purveyor of finest coffee without compromising its core principles. Currently, the company’s mission is to inspire and nurture the human spirit - one person, one cup, and one neighborhood at a time (Shah and Thompson, nd). The company’s vision is to open 300 net new stores locally and internationally. The company strategically intends to position itself as the undisputed coffee authority with a global presence(Shah and Thompson, nd). PART 2.External Analysis Like every other organization, Starbucks has its strengths and weaknesses. The strengths of any organization propel it toward greater success while its weaknesses pose a challenge to its continued success and existence. Yet again, every business organization exists in an environment what impacts its activities either positively or negatively. A strengths, weaknesses, opportunities and threats (SWOT) analysis will be applied in analyzing the position of Starbucks relative to its competitors and success. Strengths Starbucks as a company has a long history having been founded in 1971(Shah and Thompson, nd). The company has undergone significant growth over the years establishing itself as a preferred band across geographical and territorial borders. Having been in operation with a history of success and a good reputation, the company is bound to achieve more success as it can easily capture a greater market share. The company’s success history has been overseen by a dedicated management team. Under the leadership of Howard Schultz, the management team has seen the company achieve significant growth in various lines of business. Orin Smith, Jim Donald and other directors of the company had a wealth of experience in their various specialties their weaknesses not withstanding. Currently, Howard Schultz remains the CEO of the company, his dedication and brilliant management and leadership skills bound to make the company retain its success path. Starbucks endevours to be a great place to work(Shah and Thompson, nd). In this respect, it has taken several measures to ensure employee motivation, satisfaction, and dedication. The company’s employees are knowledgeable about the company’s products and services and are free to communicate their ideas and feelings to management without the fear of facing reprisals. Some of the benefits that the company’s employees enjoy include healthcare coverage, opportunity to own stock, and good work environments. Furthermore, the employees are trained on various aspects in respect of the company’s products and services. Their contributions to the company are well recognized as the company has a recognition program. The situation that the company is in as a result of these measures is healthy considering that motivated and satisfied employees are never easy to lose. The company’s turnover rate is significantly low which means that it benefits a lot in terms of high reputation as a good employer, provides high quality service due to its highly experienced workforce and suffers low hiring and training costs. The company has a strong and loyal customer base across different countries. The company is bound to glide in success with such a level of trust from its huge customer base. The company has instituted a number of measures to ensure that its customers are served wherever they are by opening several stores in various locations and through its franchises. Starbucks has a strong mission and is guided by principles that are valuable universally. These principles and values guide its activities, vision and employee behavior. Furthermore, the company has put in place several strategies to ensure that its operations are guided toward success. Among these strategies include the purchasing strategy, best practice strategy and corporate social responsibility strategy. Through these strategies, the company invests in its stakeholders and community which again boosts its reputation as a good company. Weaknesses The company has a few weaknesses. One of its major weaknesses is its lowered passion in respect of customer experience and coffee experience currently(Shah and Thompson, nd). Its competitors could easily take advantage of this and capture a share of its market by offering better customer service. While the company positively impacts lives through its corporate social responsibility activities, the amounts of money that the company spends is high and could negatively impact its performance if unchecked. The company’s operating costs in general are high which also lowers its profitability. Opportunities Given the company’s position as a leader in the coffee industry and with its innovative staff, the company has the opportunity to introduce more products in the market with high potential for success. The company partners with severalcompany’s including Pepsi, Kraft Foods, and Unilever gives it good ground for venturing into new markets(Shah and Thompson, nd). Threats The business environment continues to change with time. With the global economic crisis that hit the US and the rest of the world, there are high chances that the profitability of the company will remain low as it feels the effects of the crisis. Yet again, there are several businesses that have been established providing products almost similar to Starbucks’ coffee products. There are chances that businesses offering tea and other alternative beverages may capture part of the company’s current market share leading to lower profitability. One major competitor to Starbucks is McDonalds which also offers coffee and other beverages to customers. PART 3.Internal Analysis Critical Success Factors The beverage food industry is greatly dynamic with quality being fundamental to success. Apart from quality, customers expect timely service and no delays. Yet again, customers demand that the service that they receive remains friendly. In other words, the service staff should be friendly and the environment welcoming. Place to be is yet another critical success factor in the food industry. This is because most people prefer to purchase food products from places which are clean, attractive and properly kept. A beverage such as coffee is taken by people across all ages which means that coffee shops should be designed and operated such that all age groups are generally accommodated. Customers demand a lot in terms of flexibility when it comes to preparing products such as coffee drinks. While some customers prefer strong coffee, others prefer weaker concentrations. Different cultures have different preferences in so far as food and drink is concerned. In order for a food or drink company to succeed therefore, it must be adaptable to locality. What this means is that while hot coffee may sell in one place due to the coldness of the place, this might not be the case in hotter areas or during summer. Similarly, chilled coffee may not sell in extremely cold areas or when the weather is chilly. Starbucks as a company has excelled in most of the critical success areas outlined above. The staff employed by the company mostly provide high quality services and are highly efficient. The customers also have a wide range of products and services to choose from which significantly increases their level of satisfaction. The company’s marketing department has seen its products achieve success in new markets. The company’s management has put strategies in place to ensure that the brands offered by Starbucks are qualitative and standardized which reduces chances of dissatisfaction. The company has however failed in maintaining high level of customer service. Bowman’s Strategy Clock is a tool used to analyse a company’s position relative to competitors (Bowman and Faulkner, 1997). In view of Bowman’s Strategy Clock, it is realized that the company offers high added value at medium price focusing on mainly on quality. The company therefore survives on differentiating its products from those of competition. The company’s brands are clearly different from those of its competitors indicating that the company occupies the differentiation position. The company offers superior products, has several strategic alliances, good reputation, a long history of success and good financial and capital bases. The company in this respect has strong ground for success and mainly needs to improve its customer service element. In consideration of the Ansoff model, the company has established several products many of which have been successful. The company has mainly relied on developing new products and venturing in new markets. Its diversification agenda has however worked against it going by the number of stores that it seeks to shut due to poor performance. PART 3.Current ‘Issues and Challenges’ Diagnosis Starbucks currently faces lowered passion in respect of customer experience and coffee experience currently. This means that the original vision of the organization has been lost leading to poor performance. The previous CEO instead of striking a balance between customer service and efficiency, leaned more toward achieving the latter. The company’s costs also shot as a result of various factors including overspending on CRS and opening numerous stores some of which were underperforming. The challenging business environment has affected several businesses grossly. Starbuck’s performance on the global scene may be threatened by the prevailing situation owing to the fact that customer spending power may be greatly reduced. Furthermore, new entrants in the market can easily capture a significant share of Starbucks’ market. There are several organizations that offer alternative beverage products in the market. These pose a significant threat to the success of the company as it may end up losing some of its customers as a result. The business has to come up with strategies to overcome the effects of the recent economic crisis. Furthermore, it needs to quickly withdraw resources from redundant stores and channel them in improving productivity. Part 4: GENERATION OF STRATEGIC OPTIONS Starbucks as a company needs to adopt various strategies to overcome its current challenges. The organization has achieved fast growth and could be said to be on the decline stage. The organization needs to be rejuvenated so as to continue growing in terms of performance and profitability. The customer has a presence in over 50 countries and has several products and brands to its name. Due to non-performance, the management of the organization has deemed it fit to close some stores in various parts of the country (Adamy, 2008).One of the causes of this situation is the company’s earlier strategy to locate some stores close to one another so that they shared customers or overlapped activities. While this may have worked in the short term, it was bound to fail in the long term. In consideration of Ansoff Growth Strategy matrix (Ansoff, 1957), the company can best venture into the market by adopting the market penetration strategy. This is so considering that the organization has several products and has ventured over short durations into several new markets with negative effects. The company needs to focus thus on its existing products and existing markets. The penetration strategy is applicable considering that it will help the company stabilize from its downward trend without having to spend much. The company will spend less considering that it will not open anymore new stores and in launching new products in new markets. In order to reduce costs, the company may opt to retrench some of its employees after shutting down some of its stores. Furthermore, it should consider spending less on CRS activities and on opening new non-functional branches. This way, the company will possibly lower its operational costs and save on moneys that would otherwise be locked in non-profitable investment. The company also needs to engage in vibrant marketing of its products so as to maintain customer attentionand loyalty as a popular brand. Without this, the company’s competitors may take advantage of the situation at hand and overtake it by introducing substitutes which are of lower cost. Evaluation of Strategic Options With the external environment posing challenges relating to low buyer power and high threats of new entrants, the company minimizes chances of loss by choosing the penetration strategy. Implementing the penetration strategy requires less resources compared to venturing into new markets and coming up with new products. With its current capital base and resources, the company is in a position to penetrate the market. This strategy is suitable considering that the other the diversification strategy has failed to work for the company and the penetration strategy is cheaper. With the penetration strategy, the company can be sure to achieve its former profit levels and even build upon it. Based on the 3Es, the company is bound to spend less by closing its redundant stores. Furthermore, the company’s efficiency will improve if the proposed changes are implemented. This will ensure that the company’s resources are well utilized and spent in alignment with the company’s core objectives. PART 6.Implementation of Strategic Option Market penetration strategy proves to be a viable venture for Starbucks given its strong and reputable history. The organization has a strong capital base which means it most probably can afford to venture into marketing its products vigorously. In order to implement this strategy, the organization should make use of different marketing and advertising avenues. The company may opt to advertise on radio, television, newspapers, online and using billboards thereby drawing more customers in its direction. Furthermore, the company may need to engage promotional strategies such as loyalty programs to ensure that customers are retained and new ones attracted to the companies products. The money saved by closing redundant stores should be used to fund promotional activities, advertising, training staff on customer service, and improving efficiency. PART 7.Conclusion Porters Five Forces model helps in establishing how best an organization can gain a favourable edge of its rivals according to Porter (2008). The model outlines five major forces that impact an organization including supplier power, threat of substitutes, threats of new entrants, buyer power, and degree of rivalry (Porter, 2008). With the effects of the economic crisis still being felt in many places, buyer power has generally reduced in respect of coffee products as potential consumers prefer to brew their coffee at home or in the office. However, given that the economic situation is improving, Starbucks is bound to continue making sales in the future. Starbucks enjoys strong brand identity compared to its rivals in the market. However, the food industry is widely open with very little barriers to new entrants. Generally, the cost of starting a coffee shop is low with no complex regulations or hard demands from authorities. This means that new entrants can easily get in the business without having to invest much. There are several alternatives to coffee in the market. These include tea, cocoa and soya. These are firmly gaining ground in many parts of the world as preferred beverages. Suppliers in the coffee industry determine to a great extent the price of coffee in the market. Suppliers (including farmers) have a lot of power in determining the price and availability of coffee in the market. In order for Starbucks to succeed in the market, it must establish a good relationship with its suppliers. It also needs to market its products vigorously so that the substitutes do not overcome its products. In order to prevent new entries from flooding the market, the company should offer high quality products at affordable rates. References Adamy, J. (July 2, 2008). "Starbucks to Shut 500 More Stores, Cut Jobs".The Wall Street Journal. Ansoff, I. (1957) Strategies for Diversification, Harvard Business Review, Vol. 35 Issue 5,Sep-Oct, pp. 113-124 Bowman, C. and Faulkner, D. (1997).Competitive and Corporate Strategy. Irwin. London. Porter, M. (2008) The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Shah A. and Thompson A. (nd).Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth.NP. Read More