Strategic Management of Starbucks - Case Study Example

Starbucks Table of Contents 1) Abstract 2 2) Methodology 2 3) Starbucks 2 4) Analysis of resources and capabilities of Starbucks 3 5) External Environment Analysis 4 6) Internal Environment Analysis 8 7) Recommendation 9 8) Conclusion 10 References 11 Bibliography 13 1) Abstract This report is all about Starbucks which is one of the largest specialty coffee chains in the world. The US based company is renowned for its unique atmosphere and high class quality of coffee. There are several political, economic and other factors that have great impact over the company’s performance. This report includes the analysis of various environmental factors and the industry in which the company operates. Huge experience and excellent brand image are the company’s two major strengths. Other strengths, weaknesses, threats and opportunities are properly analysed in this report. Based on this analysis some specific recommendations are made in this report. 2) Methodology The project was started with a proper plan and based on this plan entire work is done. The data that are collected are secondary in nature. This is mainly because secondary data are much easier to gather. They require lesser time and money as compared to primary data. All the data that are used in this report are collected from various secondary sources like company websites, online articles, books etc. These data are then qualitatively analyzed in order to achieve the desired results. Recommendations are made on the basis of the findings of the analysis. 3) Starbucks Starbucks started its journey in the year 1971. It was founded by Jerry Baldwin, Gordon Bowker and Zev Siegl. Prior to the period of 1971 they were involved in roasting and selling ground coffee, whole bean, tea and spices. There was only one store in the pike place market of Seattle. Today there are almost 16,706 stores throughout the world. Among these stores 8,850 are directly operated by the company and rests are licensed stores. These stores are located in over 50 countries in the world (Starbucks, n.d.). More than 120,000 people are working in the company. Starbucks employees are called partners of their company. Starbucks is mainly renowned for offering premium class coffee. In addition to coffee, the company also offers handcrafted beverages and fresh foods like baked pastries, salads, sandwich etc. Starbucks is found to be committed to running business responsibly. There are three areas that are mainly focused by the company in the process of fulfilling the responsibilities. These three are ethical sourcing, community involvement and environmental stewardship. The company’s headquarter is located in Seattle (CNN Money, n.d.). 4) Analysis of resources and capabilities of Starbucks Starbucks has sufficient resources in order to retain its present success. It is a financially healthy organization. According to the recent annual report of the company, its revenue in 2009 was 9.8 billion dollars (Starbucks-a, n.d.). However it is almost 1 billion dollar lower than the previous year’s figure. Such decline in revenue might be the result of recent global financial turmoil. Starbucks reach to its customers through its huge number of stores throughout the world. It is found from the company’s annual report that the total number of Starbucks stores has declined from 16,680 to 16,635 (Starbucks-a, n.d.). However it is expected that this slight decrease in number of stores will not affect the overall capacity of the company. As far as human resources are concerned, there are 142,000 Starbucks employees throughout the world (Starbucks-a, n.d.). These employees play significant role in creating the famous and unique atmosphere in all the Starbucks stores. The quality of the coffee and the in-store atmosphere are the two main competitive advantages of Starbucks. Main product of Starbucks is coffee which is not an innovative or new product as such. However the company markets its product in a different way. Starbucks market their coffee as ‘premium coffee’ (Jackson, 2006). The word ‘premium’ is used to define the quality of the coffee that is offered by Starbucks. Moreover the company charges premium price which is much higher than the other coffee that is offered in other specialty coffee shop. Generally Starbucks charge $3 for a cup of coffee (Beam, n.d.). This price is much higher than the average market price. Important fact is that customers have accepted this unique concept of premium price for premium quality. Starbucks is such an organisation that realised the importance of club-like atmosphere in a coffee shop where people can have a cup of premium quality coffee with beautiful music, magazine, wireless internet etc. It is a unique experience, a different lifestyle. It is often said that “people do not buy coffee at Starbucks; rather they buy the unique Starbucks experience”. Such unique atmosphere and premium quality have helped Starbucks to gain competitive advantages. 5) External Environment Analysis 5.1) PEST Analysis Since Starbucks is a US based company, PEST analysis is conducted focusing on the US market. There are several political parties that can influence any decision of the company regarding recruitment, job cuts, opening and closing of stores, salaries etc. Moreover there is union in the organization. This union is called Starbucks Workers Union which has great influence over the decisions regarding working hours, wage, recruitment etc. (Starbucks Union, n.d.). As far as economy of US is concerned it is heavily affected by the recent recession. In 2009 the real GDP growth rate of the country was -2.4% (Central Intelligence Agency, n.d.). Purchasing power of most of the Americans has declined and this has resulted in decrease in overall demand of almost all the products and services. Such situation has affected the business of Starbucks also and it is reflected by the total revenue of the company. As far as society is concerned most of the people in US are found to be in the age group of 15-64 years. 82% of all the Americans live in the urban areas. Population growth rate in the country is found to be as low as 0.977%. However 99% people in the country are officially educated (Central Intelligence Agency, n.d.). Such society is certainly favourable for the businesses like Starbucks. America is one of those countries where technology is an important part of daily life. Each and every organization in the country is heavy user of advanced technologies. Organizations like Starbucks always have the opportunity of using high end technologies to improve their services. 5.2) Competitor Analysis Starbucks face tough competition from Dunkin Donuts, Panera Bread and McDonalds (Pitek, 2009). However any specialty coffee shop or quick service restaurant can be considered as a competitor of Starbucks. In the US marker the company faces heavy competition from Dunkin Donuts and McDonalds. Different players have different ways of gaining competitive advantages. It is true that McDonalds is a main competitor of Starbucks, but Starbucks’s offerings are entirely different from that of McDonalds. Starbucks offer a lifetime experience that changes customers’ way of viewing their lifestyles. It offers premium quality coffee at a premium price. On the other hand McDonalds is a quick service restaurant that is very popular throughout the world. It has redefined the world of snacks and burger. Starbucks also offer snacks, but that is not its main offering. Dunkin Donut, however deals with coffee and it is famous for that. The company was established almost 21 years before the set up of Starbucks. Dunkin faced tough competition after the arrival of Starbucks and forced to modify its offerings. For instance it came up with frozen coffee and debit coffee card after they were introduced by Starbucks (DiCarlo, 2004). 5.3) Porter’s Five Forces Analysis According to Michael Porter, the five forces that influence the structure of an industry are buyers’ bargaining power, suppliers’ bargaining power, competition among the rivals, threat of new entrants and threat of substitutes (Ehmke, C. Fulton, J. Akridge, J. n.d.). As far as specialty coffee industry is concerned buyers have strong bargaining power as they have several options. There is large number of specialty coffee shops and quick service restaurants where people can come and spend quality time. In order to attract more and more customer each of these shops need to have some uniqueness in their offerings. Starbucks is renowned for its unique coffee and in-store atmosphere. As long as such uniqueness is maintained customers are expected to stick with the brand. Suppliers are having medium bargaining power as the industry deals with specialty coffee. Companies like Starbucks depend heavily on their suppliers who supply all the inputs like coffee, milk, equipments etc. It is very important to have high quality raw materials at a cost that can be afforded by the company. Moreover these materials should be supplied in time. As a result suppliers have significant amount of bargaining power. However, being a globally renowned brand, Starbucks also has some power with which it can negotiate with its suppliers regarding price, quality and time. The US market is full of specialty coffee shops and quick service restaurants. As a result competition is found to be intense in nature. Each and every player is trying to improve their offerings in order to attract more and more customers. Threat of new entrants is found to be moderate to high. This is mainly because it is not very difficult to start a specialty coffee shop or a quick service restaurant in US. However it requires lot of efforts to become a globally renowned chain of coffee shop that offers premium class coffee along with various other services. Threat of substituent is found to be low as it is very difficult to come up with product that will replace coffee. Over the past century world has seen several new drinks and beverages, but none of them has been able to replace coffee and its taste. As a result Starbucks and other companies should be very little worried about the threat of substituent. 6) Internal Environment Analysis 6.1) SWOT Analysis Strengths Major strength of Starbucks is its unique atmosphere which is found at each and every store of it. Most of the customers visit Starbucks stores either because of this atmosphere or because of excellent quality of Starbucks coffee which is another major strength of the company. Starbucks is a huge brand throughout the world. Moreover the company has huge experience in the specialty coffee industry as it is in the business for almost three decades. In addition to this Starbucks has excellent relationship with its suppliers who are mainly responsible for the premium quality of the coffee. This is also a major strength of the company. Starbucks not only offers coffee, but it offers handcrafted beverages and fresh foods like baked pastries, salads, sandwich etc. Such a wide range of offerings keeps the company much ahead of its competitors. Weaknesses Starbucks is found to be heavily dependent on the US market. Most of its stores are located in this country. This is a major weakness of the company because if tomorrow anything wrong happens in US, the company will struggle to survive. Starbucks is mainly renowned for its coffee. In other words the company is too much dependent on coffee business. This is another major weakness of the company. Opportunities Starbucks has the opportunity to focus more on the developing countries like India where there is no Starbucks stores. Developing countries like South Africa, Brazil should also be given more importance by the company. Starbucks is mainly into the roasting of coffee. As a result it has the opportunity of integrating vertically. The company can invest in producing coffee. Threats Intense competition and powerful competitors are the main threat for Starbucks. There are several local players who offer or try to offer the same services that are offered by Starbucks. In addition to this there are competitors like McDonalds and Dunkin. 6.2) Value Chain Analysis The value chain of Starbucks starts with the supply of raw materials like coffee beans, milk, and various equipments. Apart from coffee and milk there are other food products that are also supplied by the suppliers. Once these inputs are received they are processed by Starbucks. For instance coffee beans are properly roasted. Finally these processed products reach to the Starbucks stores where customers are served with best quality coffee and other food products. 7) Recommendation Starbucks should give more importance to the emerging countries in Asia, Africa and Latin America. Countries like India and South Africa should be chosen for opening new Starbucks stores. Economies of these countries are growing at a high rate. Today, people of these countries have more money to spend and their spending capacity is increasing day by day. Moreover they are very much aware of the brand name of Starbucks. As a result it can be expected that people in these countries will welcome any decisions regarding the opening of Starbucks stores. Initially the company can start with licensed stores in these countries. Once it has clear understanding about the consumers’ tastes and various environmental factors, it can start running its own stores. Starbucks should vertically integrate. The company can start producing coffee. This will certainly reduce the extent of dependency of the company on its suppliers. Starbucks can form strategic partnerships with some of its important suppliers. Since Starbucks is a financially strong organization, it can start new businesses. For instance, the company can start a fast food retail chain like McDonald or KFC. If this can be done successfully, then the company will be financially stronger and far ahead of its competitors. 8) Conclusion Starbucks is one of most successful companies in the world. It is a US based company that has adopted some extremely effective strategies and implemented them more effectively. It is a financially sound organization that has presence in most of the important markets in the world. Several macro-environmental factors that are likely to have great impact over the business of Starbucks are political factors, economic factors, technological and social factors. Starbucks should capitalize on various opportunities that it has in order to retain its success in the long run. It should work on its weaknesses and try to convert them into strengths. References Beam, A. No Date, A bitter-tasting jolt for Starbucks, Opinion, [Online] Available at: http://www.nytimes.com/2008/07/08/opinion/08iht-edbeam.1.14330491.html?_r=1 [Accessed on April 15, 2010]. CNN Money, No Date, Starbucks, [Online] Available at: http://money.cnn.com/magazines/fortune/bestcompanies/2008/snapshots/7.html [Accessed on April 15, 2010]. Central Intelligence Agency, No Date, United States, World Fact Book, [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html [Accessed on April 15, 2010]. DiCarlo, L. 2004, Dunkin' Donuts Vs. Starbucks, Forbes, [Online] Available at: http://www.forbes.com/2004/03/22/cx_ld_0322mondaymatchup.html [Accessed on April 15, 2010]. Ehmke, C. Fulton, J. Akridge, J. No Date, Industry Analysis: The Five Forces, Purdue Extension, [Online] Available at: http://www.ces.purdue.edu/extmedia/ec/ec-722.pdf [Accessed on April 15, 2010]. Jackson, J. B. 2006, First, Best, Or Different: What Every Entrepreneur Needs to Know about Niche Marketing, Dog Ear Publishing Pitek, M. 2009, Trends, Economics & Institutions, [Online] Available at: http://www.rh.edu/~stodder/BE/starbucks%20final.doc [Accessed on April 15, 2010]. Starbucks, No Date, Our Stores, Company Profile, [Online] Available at: http://assets.starbucks.com/assets/company-profile-feb10.pdf [Accessed on April 15, 2010]. Starbucks, No Date, Fiscal 2009 Financial Highlights, Starbucks Corporation Fiscal 2009 Annual Report, [Online] Available at: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjczNTB8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 [Accessed on April 15, 2010]. Starbucks Union, No Date, About Starbucks Union, [Online] Available at: http://www.starbucksunion.org/about [Accessed on April 15, 2010]. Bibliography Bussing-Burks, M. 2009, Starbucks, ABC-CLIO Michelli, J. A. 2007, The Starbucks experience: 5 principles for turning ordinary into extraordinary, McGraw-Hill Professional Moore, J. 2006, Tribal knowledge: business wisdom brewed from the grounds of Starbucks corporate culture, Kaplan Publishing Read, O. P. 2008, The Starbucks¸ BiblioBazaar, LLC Schultz, H. & Yang, D. J. 1997, Pour your heart into it: how Starbucks built a company one cup at a time, Hyperion Read More