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What Are the Major Challenges Facing Starbucks as It Goes Forward

What Are the Major Challenges Facing Starbucks as It Goes Forward

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Published by: tanvir5 on Dec 09, 2010
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The potential major challenges facing Starbucks are increased competition from other retailers with a similar, if not identical concept (New World Coffee, Timothy’s, etc.) andtheir lack of experience in doing business in a price sensitive market. Starbucks should be able to defend its position against these other retailers because of the extensiveinitiatives it has undertaken to sustain its brand advantage. In addition to its directretailing activities, Starbucks has formed distribution alliances with Dreyer’s Grand IceCream, Barnes & Noble Booksellers, Capitol Records, Pepsi-Co, and Nordstrom toexpand its product and distribution portfolios.It remains to be seen whether or not its competitors will ever be able to catch up toStarbucks, given all of the lead ime that Starbucks, as the market pioneer, has had todevelop its retail mix and form all of these alliances. The only foreseeable problems thatStarbucks may encounter would be due to overall economic conditions. Starbucks hasnever had to conduct its business during an extended economic recession. The upscalenature of its retail mix might prove to be too upscale for many of its loyal customersshould the economy take a downturn.
The answers to Questions 1 and 2 basically outline the principal drivers behindStarbucks’ success. Above and beyond anything that has been previously stated,Starbucks owes its success to its employees. Due to their training, empowerment, benefits, and growth opportunities, Starbucks’ turnover is only 60 percent, considerablyless than the 150 to 200 percent turnover at other firms in the food service business.Their employees are treated like partners, and their customers like stars. The payoff iswhat the Starbucks brand name means to consumers. The average Starbucks customer visits the store 18 times a month, and 10 percent visit twice a day. Starbucks has pursuedan extensive product line strategy, creating a variety of products, beyond simply thecoffee beans. Through partnerships, it now provides coffee flavor and expertise and/or its brand name to jazz music CDs, frappuccino beverages, carbonated ready-to-drink (RTD) coffee, flavored ice creams, and branded coffee sold through supermarkets.Moreover, in terms of distribution, brewed Starbucks is now available at a variety of  places including Barnes & Noble bookstores, United Airlines, Sheraton and Westinhotels, and Holland America Cruise Lines, as well as through licensing and joint ventureagreements in 15 countries. One may argue that the Starbucks’ core image of premiumcoffee marketer remains consistent across all these product and distribution strategies.However, while the firm could have greater control over the production and distributionof coffee beans, it may have less control when it comes to the brewed product and serviceavailable through numerous locations. Consistency of the premium brand image for coffee beans may remain intact, but it is possible that the brew and services availablethrough various outlets may vary widely, potentially causing an adverse impact on thevalue of the brand name.
The factors that existed in the environment that provided the opportunity for Starbucks todevelop a new, successful retail chain begin with the insight that Howard Schultz had thatthe other players in the coffee market did not have.He realized that Americans lacked the opportunity to savor a good cup of coffee whileengaging good conversation in a relaxed atmosphere. In 1987 he purchased Starbucks, because he was convinced after a trip to Italy that Americans would be enticed by Italiancoffee house culture.
SWOT Analysis Starbucks
Starbucks Corporation is a very profitable organization, earning in excess of $600million in 2004.The company generated revenue of more than $5000 million inthe same year.
It is a global coffee brand built upon a reputation for fine products and services. Ithas almost 9000 cafes in almost 40 countries.
Starbucks was one of the
 Fortune Top 100 Companies to Work For 
in 2005. Thecompany is a respected employer that values its workforce.
The organization has strong ethical values and an ethical mission statement asfollows,
'Starbucks is committed to a role of environmental leadership in all  facets of our business.' 
Starbucks has a reputation for new product development and creativity. However,they remain vulnerable to the possibility that their innovation may falter over time.
The organization has a strong presence in the United States of America with morethan three quarters of their cafes located in the home market. It is often arguedthat they need to look for a portfolio of countries, in order to spread business risk.
The organization is dependant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the needarise.
Starbucks are very good at taking advantage of opportunties. In 2004 thecompany created a CD-burning service in their Santa Monica (California USA)cafe with Hewlett Packard, where customers create their own music CD.
 New products and services that can be retailed in their cafes, such as Fair Trade products.
The company has the opportunity to expand its global operations. New marketsfor coffee such as India and the Pacific Rim nations are beginning to emerge.
Co-branding with other manufacturers of food and drink, and brand franchising tomanufacturers of other goods and services both have potential

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