Evaluating the Strategies of Starbucks Coffee - Case Study Example

Starbucks coffee Name Date Course Introduction Starbucks is a successful company that was established in 1971 (Garthwaite, Busse & Brown, 1). The company started on a humble background with a single location. Originally, the company was involved in selling only ground coffee and coffee beans. The company has however experienced a lot of growth and development and it current has about 17,000 retail stores in 50 countries. This is due to the growth strategies that were put in place by the company. The leadership of the company also played an essential role in promoting its growth and development. The company has also expanded its range of products for the purposes of ensuring that it satisfied the customers. The quality of the products of the company is also unique which plays an essential role in enhancing its competitive advantage. This is considering that the number of competitors has been on the increase (Garthwaite, Busse & Brown 1). The paper critically discusses the strategies and environment of the company. Current strategies of starbucks The current strategy of the company is for the purposes of ensuring that it is able to deal with the competition in the market. The company has procured new equipment at a cost of $ 11,000 (Garthwaite, Busse & Brown, 14). This is for the purposes of ensuring that it is able to control the coffee flavour as well as its brewing temperature. On the other hand, the willingness of the customers to pay the premium prices is due to the use of this strategy. Technology is also one of the concepts that have been introduced as a strategy to enhance the competitiveness of the company. The company has also diversified its operations as one of the strategies to deal with competition. The company has entered into a foray of music and it has been able to produce an award winning album that sold over 32 million copies. This strategy was also in line with the use of technology at the company. The company is also involved in book publishing and movie production. This diversification strategy has enabled the company to earn more revenue. Selling through mass distribution channels is also one of the strategies of the company. This has played an important role in increasing the revenue of the company. The strategy of expanding away from the coffee shop is an important strategy for the company that has enabled it to achieve its growth strategy. The company ended its deal with one of its distribution company in order to expand on its strategy of moving away from the coffee shop. The development of a new product brand is also one of the strategies that have enabled the company to gain competitive advantage. The company launched VIA which is a water soluble coffee offered in single serve packages. This category of coffee accounted for $ 700 million sales in the United States of America. The price of VIA was $ 1 per 3 oz(85g) stick (Garthwaite, Busse & Brown, 11). The company also makes deals with the other companies for the purposes of promoting the sales of its new products. The company made a deal with Green Mountain Coffee Roasters which increased the share price of the company by 9.9%. The company has also signed agreements to sell coffee is subways restaurants and 7,000 burger king locations. Expanding the retail stores is also a strategy that is being used by the company. In 2007, the company had a target of opening 40,000 locations worldwide. Internal analysis of starbucks Strength Weaknesses The company is financially stable as it generates huge revenues every year. The company was able to generate $ 20 billion in 2009 (Garthwaite, Busse & Brown, 10). The company has a good brand image and it is also popular with most of the customers. The quality of the products of the company is high and the company is known for producing different brands. The company has an experienced leader which has played an important role in the development of the strategies. The company is using high quality equipment and technology. The company has 17,000 retail stores worldwide. The company usually incurs a high operating cost of about 580 million (Garthwaite, Busse & Brown, 8). Some of the strategies that are put forward from by the company receive little support from the employees. The company is facing underperformance in some of the retail stores. The majority of support and popularity of the company is based in the United States of America. Opportunities Threats The company has an opportunity to exploit new markets in different countries. The company has the opportunity to make acquisitions in order to expand its market share. The company has an opportunity of diversifying its operations in order to generate more income. The company has an opportunity of introducing new products in the market in order to generate more revenue. The competition in the industry is on the increase and the company is facing stiff competition. McDonald is one of the strongest competitors to the company. The number of small retail stores is on the increase threatening the market share of the company. Expansion in some of the countries may be difficult due to laws and regulations. Inflation is on the increase in some of the countries which affects the growth of business. External analysis of starbucks PEST analysis Political The number of retail stores of the company in the United States of America is high. It is also the headquarters of the company. The political situation in the country is stable. The presence of a stable political environment has promoted the growth and expansion of the company . On the other hand, it is also important to note that the stable political environment has seen the company opening a high number of retail stores in the country. Economical The United States of America has enjoyed a stable economic environment for a long period of time. A stable economic environment encouraged the growth and expansion of businesses. Starbucks coffee has a presence in 500,000 hotel rooms due to the presence of a stable economy in the United States of America which promotes the growth and development of businesses (Garthwaite, Busse & Brown, 13). Social The social environment in the United States of America is positive and it has also promoted the growth and development of the business. Most of the people usually socialize while taking the products of the company. The company has been able to attract customers who visit the take coffee during the socialization moments. Technological The level of technological use in the United States of America is high. The company was initially lagging behind in terms of the use of technological use. The company until 2008 did not have internet connectivity despite the high demand for technology concepts by the customers. The case register dog the company was still operating using MS-DOS (Garthwaite, Busse & Brown, 6). However, the company has since improved on its use of technology and it has employed the use of recent technology. Porter five forces analysis Threat of new entrants The industry is very lucrative and profitable which attracts a lot of interest. The threat of new entrants is also high since the business does not require much capital and the barriers to new entrants are minimal. The number of small retail stores is already on the increase and it is providing a lot of competition to the company. By the year 2006, there were 24,000 coffee specialty establishments (Garthwaite, Busse & Brown, 7). Threats of substitute products The threats of substitute products are low in the market despite the presence of various substitute products. The quality of the products is usually high and it usually introduces new brads in order to improve on its quality. This plays an important role in eliminating the threat of substitute products. The number of people taking coffee is also high as compared to the substitute products. Bargaining powers of customers The bargaining power of the customers is low which gives the company an advantage in terms of setting the prices of its products. However, the company is usually considerate of the customers and is usually sets affordable but competitive prices. Most of the products of the company cost $ 1. Bargaining powers of suppliers The bargaining powers of the suppliers are much higher as compared to the company. This is because the company relies on different varieties of coffee from different parts o the world. The company usually imports the finest coffee from different countries including South America and Africa. The quest for quality gives the suppliers a higher bargaining power. Intensity of rivalry The intensity of rivalry in the industry is quite high. McDonald’s is the main rival of the company and the company also occupies a huge market share. Research indicates that 60% o the customers would prefer to purchase the products of McDonald if it were cheap (Garthwaite, Busse & Brown, 7). VRIO framework The products of the company are valuable to the customers and it has some health benefits to the customers. On the other hand, it is important to note that the value of the products of the company has contributes to an increase in the number of customers. The products that are offered by the company are of rare due to the unique quality. Most of the products can only be found at the company. The products of the company are difficult to imitate which makes the company more competitive. In terms of nonsubstitutability, the company the products of the company are difficult to substitute although some substitutes exist in the market. The combination of value, rarity and difficulties in making imitations give the company a competitive advantage. Conclusion In conclusion, it is evident that the company has good strategies which have contributed to its success. It is also apparent that it has a competitive advantage due to its good brand image in the market. The company is however facing a lot of competition and therefore measures should be put in place to ensure that it remains on course. Work Cited Garthwaite, Craig, Busse Meghan & Brown, Jennifer. Starbucks: A story of growth. Kellogg School of Management. 2012. Read More