Building a Sustainable Supply Chain at Starbucks - Case Study Example

Strategic Analysis of Starbucks Name Course Tutor Course Date Word count: 2999 Words Executive Summary Based on the analysis, Starbucks needs to consider all the aspects discussed and they need to ensure that their company massive brands as well as their large capital ought to carry them and help them in future in case they are faced with a turbulent future. In relation to the PESTLE analysis, despite the fact that they operate under a stable environment they need to lower the cost and at the same time increase value. This will be of great benefit to them since they are likely to experience an increase the customer babes and they will gain the loyalty of the consumers. 1.0 Introduction This report sets out to explore Starbucks Corporation. Therefore, the main purpose of this report is to discuss the manner in which strategies that have been adopted by Starbucks Corporation have contributed greatly to its success over the years. The report will offer a brief background of Starbucks Corporation. This will be followed a discussion of the organization through various tools such as the SWOT analysis, PESTLE analysis, Porter’s five forces model and BOWMAN’S strategic clock. There will also be a conclusion to sum up the ideas discussed in the previous section as well as a recommendations section and this section will be informed greatly by what has been discussed as the competitive strategies that is the SWOT analysis, PESTLE analysis, Porter’s five forces model and BOWMAN’S strategic clock. 2.0 Company background Starbucks Corporation was founded in 1971, it is an American Company, and it is a premier roaster, retailer and marketer of specialty coffee all over the globe. As of November 2016, the corporation operated in about 23,768 locations all over the globe. When evaluated with others in the industry, the corporation is termed as a major representative of the second wave coffee. The company distinguishes itself from its competitors through the quality of its coffee, taste as well as the customer experience and it is taking a leading role in popularizing the darkly roasters coffee (Starbucks Company Profile 2014). Starbucks locations mainly serve its customers with cold and hot drinks, micro-ground instant coffee, and whole-bean coffee. There also exist some products of Starbucks, which are sold in grocery stores such as the Starbucks brand coffee, bottled cold coffee drinks and ice cream (Shultz 1997). The company opened its first stores outside North America in Tokyo in 1996 and with time, its overseas properties as of now constitute about a third of their stores. Between the year 1987 and 2007, the company majored on opening an average of about two locations. The company has also experienced a change in leadership after the resignation of Howard Schultz as the CEO and Kevin Johnson replaced him. With time, the company has automated some of its operations and currently makes use of automated espresso machines and this move enhances security and efficiency in its stores (Baertlein 2015). Starbucks also faces a lot of competition from companies such as Nestle SA, Caribou coffee company, Dunkin brand group and the Costa coffee just to mention a few of them. 3.0 Swot analysis This part of the report will entail the internal analysis of Starbucks Corporation with the aim of exploring the strategies that have been adopted by Starbucks Corporation and consequently have contributed greatly to its success over the years. Irrespective of the fact that a number of tools can be used to undertake the internal analysis of Starbucks such as, the balanced score card, the SWOT analysis, and the value chain analysis, the tool that is most appropriate in this case is the SWOT Analysis. The table below shows the SWOT analysis of Starbucks Corporation Strengths Weaknesses Quality, ethicality and profitability Efficiency coupled with reinvestment strategy Good employee relations (Quelch 2006). Lack of unique products High prices Opportunities Threats New products coupled with co-branding Global expansion Fierce competition Specific market Imitation Strengths Since Starbucks seems to making huge profits, it must be those things that it always does right (Michelli 2007). Additionally, its profits seem to be growing year in year out. Below is an analysis of a number of strengths of Starbucks Quality, ethicality and profitability Over the years, Starbucks has established itself as a provider of premium coffee and it has done so despite its wide presence all over the world as compared to other fast food chains. Starbucks products are of high quality, environmentally friendly and they are consistent irrespective of the locations, and this means that one can enjoy the same coffee despite being in different locations (Michelli 2007). This enables Starbucks to charge its employees high prices. This makes Starbucks attain large profits and make it better recognized as among the best and welcoming coffee chains. Reinvestment strategy and efficiency Since Starbucks makes huge of profits, Starbucks sets aside some part of the profits and make use of it in expanding their business to other locations all over the globe (ploughing back the profits for business expansion). This is evident with the ever-increasing stores that are managed by Starbucks and some, which operate under their brand name. The organization also seems to have a well-planned strategy to augment its growth and it seems to be working well for it. Good employee relations Starbucks acknowledges the fact that, employees play an essential role when it comes to the success of an organization. Starbucks treats its employees very well and based on these, it has also been listed among the best places in which one can work. By doing so, the employees always strive to offer the best and this translates into a satisfied customer (Quelch 2006). Weaknesses Weaknesses usually affect the organization and more so in a negative manner and this may at times even push the customers away from the organization (Michelli 2007). Below are some of the major weaknesses of Starbucks; and the company need to deal with them to attract more customers and maintain a competitive advantage over their core competitors in the industry. High prices Despite the fact that the high price was termed as strength in the above section, it is also viewed as a major weakness for the company. The high prices of Starbucks products usually deter a great number of people who may wish to make Starbucks their preferred choice of brand. Despite the fact that the high prices are mainly because of the quality, great customer service and the ethical values adopted by the company, there are those individuals who do not have money to spend on just one cup of coffee. Lack of totally unique products The coffee industry is very common and there exist no way in which a company can totally make unique products. A great number of the coffee shops that are available offer the same products and they only lose out due to the big name that Starbucks has been able to establish for itself over the years (Quelch 2006). Opportunities Starbucks also has a number of opportunities that it can adapt so to be very competitive in the industry and offer continuance to its success story. Global expansion Starbucks need to expand its operations and focus on other areas where it has a low presence. A great number of its stores are based in the US and thus it can move to other areas such as the Central Europe, India and other regions in Africa. Introduction of new and diversified products coupled with co-branding The great number of Starbucks products can be welcomed greatly in the supermarkets and this is something that has already being tried out. By selling its branded products in stores as opposed to selling them only in its stores, Starbucks would maximize their value and enhance their reputation. Through these, it can also team up with other companies and engage in co-branding. Threats Starbucks also faces a number of threats that it needs to address and more so to enhance its growth and retain its position as the leading coffeehouse chain all over the globe. Fierce competition Starbucks faces stiff completion from other players in the industry with the major ones being the Dunkin Donuts and McDonald. However, these companies do not pride themselves on their teas and coffees and they usually offer the consumers similar qualities but at a lower price as compared to Starbucks. No one can really tell what the consumer will like in the future (Review 2007). Specific market The success of Starbucks currently can be greatly attributed to the popularity of the products it sells in today’s society. In instances when a consumer decides to make a total shift and move away from the coffee, tea and the convenient snacks, Starbucks would really have a hard time trying to stay afloat (Reavis 2004). 4.0 PESTLE Analysis In analysis, the external environment of Starbucks the PESTLE analysis tool will be used. The PESTLE analysis usually categories a number of the environmental influence which include; the legal, political, economic, technological, and environmental and the social factors. Through the use of the tool, it is a useful tool since it offers an organization to scan the general environmentally and to anticipate on what needs to be done to achieve success in the environment. Political The main political factors are related to the sourcing of the raw materials. These aspects have gained a lot of attention and mostly from politicians in both west and from the countries where the raw materials are sourced. Therefore, Starbucks tries to adhere to the environmental and social norms and it offers great importance to the fair trade practices. Starbucks also ensure that it follows the law and regulations. There are also political pressures from its home country. Economic In the past, the profitability of Starbucks has been dented by economic recession. It can be greatly affected by these if the consumers make a decision to look for cheaper alternatives. Since the consumers cannot do away with coffee completely, Starbucks needs to seek for an opportunity in this area. The company deals with the ever-rising operational and labor costs. Social Starbucks seems to be in a position where it can also offer cheaper products but this may lead to compromise on the quality of its products. This is one of the major challenges that are faced by a great number of start-ups. In this respect, Starbucks needs to expand its consumer’s base and the best way to achieve this is to include and take note of the buyers form the middle income and the lower classes. Another aspect that need to the considered by Starbucks is the green and ethical stance taken by consumers with time (Lee 2007). They are likely to fret due to the environmental and social costs of brand. Therefore, Starbucks needs to be well aware of this trend and ensure that it addresses any arising issues. Additionally, Starbucks needs to acknowledge the fact that the baby boomers are retiring and thus the spending made by the older group of consumers will ultimately decrease. This necessitates the need to tap into the Millennial and the Gen X consumers. Technological In regard to technological advancements, Starbucks seems to be better positioned and it can benefit greatly from the advancements. A good way in which it has made use of these is by collaborating with Apple to offer its consumers with an application based in discount coupons. Starbucks has also introduced Wi-Fi capabilities in its stores in a bid to lure customers. Starbucks also need to keep up with technological advancements to meet the needs of its consumers in the most effective manner and within a short period (Lee 2007). Legal In relation to the legal aspects, Starbucks needs to ensure that it adheres to all set laws and regulations both in its home country and also in the countries where it sources its raw materials. At the same time, Starbucks needs to stay alert for the introduction of caffeine production as well as the policies and regulations of consumption offered by the health authorities. Environmental A great number of the business practices of Starbucks are of great concern to activities and other international advocacy groups. Consumers have also expressed a number of issues that the company needs to address. The company therefore needs to takes such concerns into consideration to attain the trust of the consumers. Starbucks also needs to take note and take measures towards reducing global warming and various environmental issues and this ought to be done on a global level (Lee 2007). 5.0 Porter’s five forces model The porters five forces model is used in this case to analyze the level of competition in an industry level. Based on Porter (1998), the model entails five main aspects and they include threats of new entrants, bargaining power of the suppliers, bargaining power of the consumers, industry rivalry and threat of substitutes. Threat of Substitution The threats of substitution at Starbucks Corporation can be said to be very high. The following factors contribute greatly to the strong force of substitution at Starbucks and they include the low costs of the substitutes, availability of substitutes and the low switching costs. Therefore, it would be effective to conclude that, substitutes have a strong and a negative impact on Starbucks Corporation. The customers of Starbucks can easily switch to their substitutes since they are available even at lower costs. The threat of substitution at Starbucks is very high and therefore Starbucks needs to put measures in place and treat the issues with top priority for it to retain its position in the market (Porter 1998). The bargaining power of the buyers Starbucks Corporation also faces strong bargaining power of the customers and buyers. There are three main factors that contribute greatly to the bargaining power of the customers and this includes the availability of substitutes, the low switching costs and small size of the individual buyers. The bargaining power of the buyers is one of the major forces having a toil on the business of Starbucks. The customers can easily shift from one brand to another since it is affordable for them. Additionally, incase customers decide to stay away from purchasing product from Starbucks they can easily do so since there is a wide range of substitutes to choose from. All this shows that a major area of concern that the management of Starbucks needs to consider is the bargaining of power of the buyers since when not handled well it can be great challenge for the organization (Porter 1998). The bargaining power of the suppliers This force while evaluated in terms of Starbucks can be said to be a weak one. This force is mainly related to the influence that the suppliers have on a company. The suppliers of Starbucks do not have a great impact on Starbucks. The large base of suppliers lessens the impact that a single or few suppliers can have in the company. Additionally, due to their policy on the diversification of the supply chain, Starbucks is able to reduce the influence that the suppliers can have. Therefore, the power of suppliers is not an aspect that should be prioritized (Mankiw 2007). The intensity of the rivalry in the industry Starbucks faces strong rivalry and competition and its main competitors come in different strategies, sizes and specialties. The strong force in regard to competition can be related to the low switching cost in the industry that makes it easier for customers to switch among the competing brands (Mankiw 2007). The threat form new entrants In relation to new entrants in the market, Starbucks faces moderate force. The following factors contribute greatly to the moderate force when it comes to new entrants in the market and they include the high costs involved in brand development, the moderate supply chain costs as well as the moderate costs associated with doing business (Porter 2004). The new entrants can easily compete with the existing players due to the moderate costs associated with doing business. Nevertheless, the new entrants will also find it difficult to compete with the already established brands (Porter 1998). 6.0 BOWMAN’S strategic clock The strategic clock is used to review the various different ways of thinking when it comes to a competitive strategy, the core areas within which an organization can achieve a competitive advantage in their respective market (Johnson Scholes and Whittington 2008). Organizations can achieve a competitive advantage using three major strategies namely the focus, differentiation as well as the overall cost leadership (Johnson, Scholes and Whittington 2008). Starbucks can be said to be applying the between the broad differentiation strategy and a focused differentiation strategy. The product development at Starbucks is mainly guided by the positioning strategy. It is therefore imperative for the firm to differentiate itself from its competitors and more so in ways that are essential for its customer (Grant 2008). The key differentiation elements for Starbucks are their unique services and products and its ubiquity and experience. 7.0 Conclusion In conclusion, Starbucks competes with others based on the quality and the experience that it offers its customers. This enables Starbucks to charge high prices to the consumer as compared to its major competitors in the industry. An analysis of the five forces depicts that a clear understanding of it can enhance its competitiveness and thus enhances its future success in the industry. 8.0 Recommendations In relation to the SWOT analysis, Starbucks needs to consider all the aspects discussed and it needs to ensure that the company massive brands as well as its large capital ought to carry it and help it in the future in case is faced with a turbulent future. In relation to the PESTLE analysis, despite the fact that it operates under a stable environment; Starbucks needs to lower the costs and at the same time increase value. This will be of great benefit to the company since it is likely to experience an increase in customers and gain the loyalty of consumers. 9.0 References Baertlein, L 2015, ‘Peet’s rides coffee’s ‘third wave’ with stake in Intelligentsia’, Reuters, 30 October, viewed 4 May 2017, http://www.reuters.com/article/us-intelligentsiacoffee-m-a-peets-idUSKCN0SO24220151030 Grant, R 2008, Contemporary Strategy Analysis, Blackwell Publishing, Malden. Johnson, G., Scholes, K and Whittington, R 2008, Exploring Corporate Strategy: Text and Cases, Financial Times Prentice Hall, Harlow. Lee, H 2007, Starbucks Corporation: Building a Sustainable Supply Chain, Stanford Graduate Business School, Stanford. Mankiw, G 2007, Principles of Economics, Thomson South-Western, Mason. Michelli, J 2007, The Starbucks Experience: 5 Principles for Turning Ordinary into Extraordinary, McGraw-Hill, New York. Porter, M 1998, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, New York. Porter, M 2004, Competitive advantage: creating and sustaining superior performance, Free Press, New York. Quelch, Y 2006, Starbucks:Delivering Customer Service, Harvard Business School, Boston. Reavis, J 2004, Starbucks and Conservation International, Harvard Business School, Boston. Review, R. 2007, ‘Despite Growth, Starbucks Can't Dislodge Local Rivals’, The Wall Street Journal, 28 December, viewed 4 May 2017, http://blogs.wsj.com/informedreader/2007/12/28/starbucks-friend-of-the-mom-and-pop-coffee-shop/ Shultz, H 1997, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, Hyperion, New York. Starbucks Company Profile 2014, Starbucks Company Profile, viewed 4 May 2017, http://globalassets.starbucks.com/assets/233b9b746b384f8ca57882614f6cebdb.pdf Read More