Starbucks Strategy and Internal Initiatives to Return to Profitable Growth - Essay Example

Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth Starbucks began as a small enterprise when Jerry Baldwin, Gordon Bawker and Zev Siegel opened it in the year 1971. Starbucks started out by selling tea, coffee and spice in Pike’s market area of Seattle, Washington. In 1987, Howard Schultz bought out the Il Giornalle coffee company and changed it to Starbucks corporation. Howard Schultz began to move the company to a new position where it would be a dominant leader in the retail and roaster of brand specialty drinks. On top of this, Schultz added cold coffee drinks, coffee related equipment and accessories, a compact disc line, espresso beverages, and food into the menu in various retail stores. Starbucks also seeks to make the company a comfortable and a great place to work. This maintains employee satisfaction at Starbucks, which is done via offering its staff competitive wages, as well as benefits packages that include an option on stocks. Starbucks has been faced with many challenges that have seen its strategy evolve. Starbucks has been faced with many challenges that have seen its strategy evolve. Q. 1) What was Howard Schultz’s original strategic vision for Starbucks? Is his 2010 strategic vision for Starbucks different from the one he had in the 1980s? How many times has his strategic vision changed? Is his present strategic vision likely to undergo further evolution? Howard Schultz’s original plan for Starbucks involved the creation of an Italian style “espresso bar” retail chain, which would also sell coffee related equipment and the coffee beans, as well as expand the corporation out of Pacific Northwest, inclusive of Chicago (Shah & Thompson, 2010). Schultz envisioned the use of top quality dark roasted coffee beans. Customers could come to the bar to pursue a perfect cup of coffee, getting a worthwhile experience out of it. He also aimed to create a company that would make employees proud of it. Schultz revised the strategy in the 1990’s to add food items into the menu at Starbucks. This led to the growth of new channels of distribution for Starbucks’ products. Additionally, the vision also included the expansions of Starbucks Corporation into foreign markets and institute global branding (Shah & Thompson, 2010). The Starbucks logo was also changed to green from brown in order to symbolize Il Giornale merger with Starbucks, which created the espresso bar and the retail coffee bean store. These stores have become the signature of Starbucks Corporation. His strategic vision evolved as the situation with Starbucks changed with the emergence of new opportunities. This indicates that his strategy will evolve again as more opportunities and threats come up. Q. 2) Has Starbuck’s strategy evolved as the strategic vision has evolved? Starbuck’s strategy has evolved when compared to their initial vision statement. This has been occasioned by the changing goals of the company as competition heats up and new opportunities arise. All companies have goals but these goals could move towards another aim point, which, in essence, causes a change of strategy (Shah & Thompson, 2010). Q. 3) Which competitive approach is Starbucks employing? Starbucks is employing focused differentiation as its competitive approach (Shah & Thompson, 2010). Starbucks aims at serving its niche customers better compared to its rival competitors, by focusing on the special, distinctive and unique needs of their customers. Starbucks has the unique capability to serve the target buyer segment’s capabilities because it is large enough to accrue profit while also offering potential for good growth (Shah & Thompson, 2010). Additionally, it is difficult or costly to for other multi-segmented competitors to satisfy the niche member’s specialized needs. Starbucks, however, has the capabilities and resources to execute this. Finally, very few rival competitors have specialized in the niche that Starbucks has. Q. 4) What are the key policies, practices, business principles, and procedures that underlie how Howard Schultz and Starbucks’ management have implemented and executed the company’s strategy? The key policies can be divided into five groups. The first one is store expansion, where Starbucks has used the hub city approach (Shah & Thompson, 2010). After a demographic area is chosen, they begin opening stores in cities that then serve as their hubs. When they have approximately twenty stores in the hub city, Starbucks begin to expand into the surrounding areas. This creates buzz, as well as brand recognition in areas with a lot of foot traffic before then moving to areas with less foot traffic. The second is international expansion, where Starbucks has licensed companies with good reputations and retail knowledge in that area (Shah & Thompson, 2010). Starbucks then receives royalties on sales, while the licensed company was required to adhere to detailed procedures of operation. Employees also go, through rigorous training, to learn customer relations and daily practices (Shah & Thompson, 2010). This is because customer service is integral to Starbucks. The baristas at Starbucks are trained in beverage preparation, retail skills, customer service, coffee knowledge and coffee history. Starbucks also practices ethical business principles by buying fair trade certified products that ensure farmers earn a fair amount. They also practice CSR and also reduce, reuse, and recycle products, as well as only buying from companies that are committed to sustainability (Shah & Thompson, 2010). Finally, coffee recipes are instituted only after all components have been tested. Computerized roasters assure consistency with trained personnel used to monitor the processes. Starbucks insists on exacting standards, with the bean color tested using a blood cell analyzer. Q. 5) What are the key policies, practices, business principles, and procedures that underlie how Howard Schultz and Starbucks’ management have implemented and executed the company’s strategy? Starbucks’ important values are included in the mission statement. The first is coffee, with Starbucks committed to having consumers get top-quality coffee via ethical sourcing (Shah & Thompson, 2010). This is done using C.A.F.E practices that specify product quality, fair price to the farmers, humane working conditions for its employees and suppliers, and environmentally responsible growing processes. They do not add any artificial flavor to their products and have farmer support centers that promote best practices in coffee production. An additional value is the employees, to whom they avail a health care plan, employee training and recognition, and stock purchase plans. Customers are another treasured value, with Starbucks valuing their connection with customers and uplifting their lives by the provision of well-made beverages (Shah & Thompson, 2010). The employees are also encouraged to take heroic measures for the happiness of the customer. Stores are yet another value, with Starbucks management’s goal being to create haven stores where clients meet with their colleagues and friends. They do this by creating an ambience with good music playing, leather couches, daily newspapers, and ensuring that the smell of coffee is not overpowered by anything else. Finally, Starbucks is committed to their neighborhoods as a value, striving to be a force of good. On top of being involved in CSR, they also use local craftsmen and materials. Q. 6) What is your evaluation of Starbucks social responsibility strategy? Is it sincere or just something the company does and talks about to create a good public image? Their CSR strategy consists of four main parts, first being the ethical sourcing of products. This is done using the C.A.F.E practices, buying from environmentally and socially responsible manufacturers, and buying products that are Fair Trade Certified (Shah & Thompson, 2010). Another is community involvement, where Starbucks has organizations that foster involvement of the community such as the Youth Action Grants, the Ethos Water Fund and the HIV medicine initiative in Africa. Another part of their CSR strategy is environmental stewardship, such as increasing recycling initiatives, giving discounts to customers who bring their own mugs, while also encouraging suppliers to eliminate unnecessary packaging. Finally, they offer loans to organizations, which, in turn, give loans to coffee farmers. As from 2015, Starbucks intend to give twenty million dollars to these organizations. Starbucks adds value to its products, by having a strong CSR campaign, especially if the clients know of their involvement in these activities (Shah & Thompson, 2010). Consumers feel that their cash is being spent on a good cause. By placing on the Best Corporate Citizens list ten times in a row up to 2010, its customers become more aware of their strategy. I believe that it is actually meant to increase their customer loyalty since coffee farmers in Ethiopia and Rwanda get minimum payments. Q. 7) What is your assessment of Starbucks’ financial performance during fiscal years 2005-2009? Overall, revenue has been growing by an average of 12% domestically and 20% internationally (Shah & Thompson, 2010). The amount of revenue decreased domestically in 2008, going negative in 2009, while it also went negative internationally in 2008. This can be explained by the economic downturn. Operating income also underwent fluctuations from 2005; essentially, it has decreased significantly since its peak in 2007. Internationally, these figures have remained steadier at a $106.28 million average, again attributable to the economic turmoil around the time. One reason for the adverse effects of the economic downturn on the company was the idea that the coffee they were using was foreign. Q. 8) What is your evaluation of Howard Schultz’s transformation agenda for Starbucks during 2008-2010 (see pages C-362 and C-363)? Has Schultz done a good job since his return as Starbucks’ CEO? Why or why not? The goal to open forty thousand stores globally as a long-term goal, as well as the rapid expansion, led to a decrease in client traffic for stores in the US, opening of new stores continued at 6 stores everyday worldwide, and increased emphasis on operations efficiency led to Starbucks becoming financially strained (Shah & Thompson, 2010). This, in turn, led to decreased emphasis on customer service. Customer service was one of Schultz’s central themes at Starbucks, and thus, his return and strategic initiatives helped return the company to its initially held values. This should see Starbucks return to profitability by slowing on expansions and focusing on strengthening core, investing and growing, and experience elevation. Before focusing on company growth, they require a strong employee base and customer experience. Schultz has done great via the creation of strategic initiatives aimed at putting the company back to where he believes it belongs. His vision involves becoming a coffee authority, inspiring and engaging its employees, delivering a sustainable economic model, creating platforms for innovative growth, ethical sourcing and environmental responsibility (Shah & Thompson, 2010). In 2008-2009, Starbucks had five quarters of deteriorating sales, which moved to 5 quarters of improving sales in 2009-2010. This shows that his transformation is working. Q. 9) What issues confront the company as of mid-2010? What should Starbuck’s management be worried about? Issues affecting Starbucks as of mid-2010 include oversaturation of the market, lack of emphasis on relationships with their clients, and drifting off from the original values that were at the heart of Starbucks at the beginning (Shah & Thompson, 2010). Additionally, offering products of high quality will become a problem as they move, into new locations, to get customers from local spots. As they move into new markets, Starbucks will also need significant research to decipher the customer’s values. Finally, the fluctuation of coffee prices due to political, economic and weather conditions in source countries is also affecting the company. Starbucks’ management needs to be worried about offering products of high quality. If the organization cannot prove the better quality of their coffee, then they will face difficulties in drawing customers away from locations when these customers already owe loyalty to other coffee retailers. Q. 10) What recommendations would you make to Howard Schultz to sustain the company’s growth and support continued strong financial performance in the years ahead? Selectively develop new distribution channels Continue partnerships with Unilever, Pepsi and Jim Beam to allow the extension of their product offerings into other client markets. Continue with the hub international expansion strategy and slow down on international expansion until finances have undergone a significant improvement. Take caution with their price premium so that their products do not become too expensive to be indulged in everyday. Manage costs so as not to erode profitability Coordinate with their suppliers to better address their client’s needs. References Shah, Amit & Thompson, Arthur (2010). Starbucks’ Strategy and Initiatives to Return to Profitable Growth. Cases in Crafting and Executing Strategy, 333-367. Accessed on 10-10-2012, From, www.scribd.com/doc/77301040/Reading-Starbucks-Case-Study Read More