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Starbucks Case Final

Starbucks Case Final

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Executive summary Starbucks was a Seattle-based coffee roaster in 1971.

During the 1970’s and 1980’s with the demand for specialty, high-quality coffee bean increased, Starbucks spread the gospel of high quality, customized coffee drinks to urban areas around the States. The Starbucks fans helped the company grow its revenues from $10 million in 1988 to more than $1.3 billion in 1998. By 2007, the coffee company earned $9.4 billion in revenues through a network of more than 15,000 shores worldwide.

As the time goes by, Starbucks changed its mission statement from: “To establish
Starbucks as the premier purveyor of the finest coffees in the world while maintaining our uncompromising principles as we grow.” to “To inspire and nurture the human spirit – one

person, one cup and one neighborhood at a time.” Starbucks keeps growing rapidly with its high quality coffee, variety beverages selections, unique Starbucks experience and its efforts to balance profits with social and environmental responsibility. These are the Starbucks’ core according to the CEO Howard Schultz. These have always been, and will always be the core competencies of Starbucks. In the current coffee market, there are more rivals than ever before, and more entrants are joining in. The competition is more intense. And the expectations from the public are not only focus on Starbucks financial performance but also on its CSR. Can Starbucks do as well as before without modifying its organization structure, operating

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and it involves in every aspects of coffee industry. To customers. community. Corporate mission On Starbucks website. the tradition. Industry structure The specialty coffee market in America just began when Schultz started to build Starbucks chains in the late 1980s. Starbucks sells coffee.process and business strategies? It is time to make a decision. colleague. Besides the coffee. to create a win-win situation. “It is time to get back to the core and make the changes necessary to evoke the heritage. But the coffee market increased rapidly at the end 2 . to make sure when people smell the aroma they can identify its Starbucks.” said Schultz. It commit to the society to be a responsible corporate citizen. harvest. selection to brew to make sure the coffee customers buy in any Starbucks taste the same. At last but not least. and the passion that we all have for the true Starbucks experience”. Starbucks is such a reliable friend. To partners. society and the world environment. Starbucks also interact with its partners and customers. “You don’t do these things for recognition. Starbucks concerns the neighborhood. from coffee beans grow. you do these things because they are the right thing to do. Starbucks is a haven to stay long. They respect each other. Starbucks communicate with them with genuine smiles and home experience. one cup and one neighborhood at a time. it says: Our mission is to inspire and nurture the human spirit – one person.

Caribou. there were 15. 2007). 10. Where there is demand.684 were in domestic market. Starbucks. Coming with the increasing incomes. the UK. and Diedrich (Gloria Jean’s). by the end of 2006. Dunkin’ Donuts. A significant driver in the coffee shop industry is growth in the form of domestic and international expansion. 2007). China. The industry is highly concentrated at the top and fragmented at the bottom: the top 50 companies have over 70 percent of industry sales (Kauffrau. They are fighting for new customers. According to Kristin Dizon’s study. there were nearly 24. the Middle East and Latin 3 . Customers have greater purchasing power when the country becoming rich. people became health conscious. opens on average three stores a day and has already made significant inroads into countries like Japan. Many factors boosted the coffee industry boom. there is supply. Australia. According to the Starbucks’s 2007 corporation report. brewed coffee. and overseas markets. Organic foods. they started to pursue better quality life. fine wine.011 stores worldwide. Starbucks encounter intense competitions from rivals. Customers do not have to make a budget to enjoy a specially prepared coffee drink. Consumers taste and personal income drive demand. Major companies include Starbucks.000 coffee shops in America. etc. premium locations. 75% of the sales come from Starbucks (Kauffrau. There is no doubt that as a market leader.of 20th century. But overall the industry is saturated. for example. The optimistic economy is one of them. Coffee Bean and Tea Leaf. settled and stable which allows almost all of the competitors to yield very good margins.

It is a cozy place for people to hang-out. snacks. Beside products innovation. cups. chit-chat and even work. J. Its leaders pursued such a tightlyknit structure in order to maintain control of the coffee beans. Starbucks keeps a good relationship with coffee beans suppliers. The broader selection brings more revenue. When customers walk into a Starbucks. teas.” At the same time. Such expansion is considered the number one growth driver for the company which plans to grow from 12. they are faced with a plethora of options.000 stores in 10 years (Moon. It offers a wide variety of coffee. mugs and even Starbucks music. the people. Another driver is collaboration with partners. Starbucks controlled nearly every aspect of the processing and distribution of its products. Starbucks pays lots attentions on the in-store experience. books and movies. Starbucks is not just selling coffee. juices. Schultz has called this innovation “the most significant product innovation since Frappuccino. It tightens the link between Starbucks and its customers. Starbucks was keen on innovate its service. So that this industry is increasingly impacted by consumer’s perception of what a brand stands for. Starbucks introduced pre-paid card and gift card to customers. And also Starbucks was the first to realize 4 . The second industry driver is innovation. baked food. 2006). Y & Quelch. covering food and beverage products.000 stores to 30. but also selling Starbucks-branded items.America. and other tangible and intangible ingredients that made up the brand. Starbucks emphasizes the communications between barista and customers.

Barnes and Noble. cruise lines and the airline industry. But Schultz realized these machines will dilute the coffee experience. 2. Starbucks is profitable company in financial market.the benefits of partnering when it reached out to powerhouse brands like Pepsi. Chief Merchant of Global Product. Starbucks. Its financial performance and profitable capability is the attraction that can generate more investments during innovation and market expansion. But the in store wireless coverage is strengthening the customer satisfactions. Michelle Gass. Starbucks logo is one of the well recognized in the world. Brand recognition globally. SWOT analysis After a brief review of the industry. SWOT analysis and Michael Porter five forces model are methods to better appreciate Starbucks’ competitive advantage and to make strategy recommendations. Customers know this brand. reach new customers and enter new channels of distribution like grocery. and efficiency is a key driver in customer satisfaction as customers “want their beverage in three minutes. and they know they can have brewed coffee 5 . Technology also is an aspect of industry driver. Kraft and United Airlines to create new products.” Since Starbuck introduced automatic coffee machines. Nordstrom. Strengths: 1.

Opportunities 1. It has the biggest market share. Profit generating ability slow down. controls the many resource and it usually makes the rules. Russia. The emerging markets. Power of suppliers: Market dominant position. Starbucks’ revenue is largely depending on the domestic market. and South American region have great potential for Starbucks global expansion. As a market leader. Countries like China. but the margin is not as significant as usual. A good corporate image. Although Starbucks is making money. 4. It helps and supports the partners to achieve higher goal not just business achievement. Market imbalance. 6 . Starbuck need to handle this buyers’ bargaining power well. Starbucks can gain more market share with the collaborations with its partners. Weakness 1. 3. Starbucks commits its business activities under a strict corporate social responsibility. Because Starbucks is such a leader in coffee industry. Starbucks is enjoying privileges. Alliance. 2.and comfortable environment in Starbucks. India. the customers will have bigger expectation to it than other companies. 2.

Threat of new market entrants: the coffee market in United States is mature. Existing competitive rivalry: The intense competitions from competitors. market is full of entrants. the competitions with them are inevitable. 3. Starbucks can keep its market leader position when its innovation attract more customers. maybe the customers change their appétit. Core competency of Starbucks Starbucks branding  High quality  Good reputation  Responsibility 7 . 2. Dilution of differentiation. but in other emerging countries. But the market is unpredictable. This is a tough challenge to Starbucks. Or the trends of drinking market become tea. With a strong R&D ability and abundant funds. Imitation and substitution are everywhere in the market. even better in store experience. Threats 1. Usually they are local chain brands or family-run café. Same products. Threat of substitute products: the coffee is the second large commodity in the world.3. Not all the competitors want to be market followers. Innovation. 4.

Starbucks is famous for its coffee but only the original coffee cannot exist in the beverage industry. Innovation is the driving force in the coffee industry.  Product: adapt to the taste. People ask for different product. also the service should be much better than yesterday. In the economic down turn the product cost is higher than before Starbucks provide a $4 latte to meet the. In order to meet the different need of the customer Starbucks provide bottle drinks. Providing a seasonal drink “Indulgent Iced Lattes” as a new product 8 . Ability to innovate. brewed coffee chocolate and espresso beverages. As a fact Starbucks just purchase 1% of coffee beans worldwide the contribution to the avenues will be small. the excellent service and the excellent environment.The quality of Starbucks comes from the ability to provide the excellent coffee product. So product diversity is significant. Starbucks also get a good reputation for social responsibility. Beyond the profitable effort. but it will greatly influence the other competitors. Beyond the drink Starbucks also provide the food service. adapt to the culture these sum of learning and skills. and the environment should tasteful. One of the most important efforts should be: Starbucks provide a financial and educational support for famers.  Environment: environment diversity. adapt to the economic  Service: maintain the customer loyalty. alliance.

Starbucks lunches an in-store CD burning service for creating the “Starbucks Hear Music” alliance with XM Satellite Radio and Apple iTunes. its environmental impact should be as minimal as possible. In the environment area. How to adapt the culture will be a great step for Starbucks. and in our Starbucks™ Shared Planet™ community involvement and environmental stewardship goals.come out to defense the market share from McCafe and some other brands. tea drinking is a culture. In different culture background Starbucks design its coffee store in different ways   Concentrate: the original Starbucks environment Fragments: adapt to the culture design with the local taste Starbucks’ store designs are rooted in their coffee heritage. And it should fit seamlessly within its neighborhood. Starbucks come out with the product Starbucks green tea. books. Brand expansion will be the best solution to the questions. 9 . Starbucks branch into the world of media with offerings in music. So the designs reflect the character of a store’s surrounding neighborhood and help reduce environmental impacts. In the international markets. especially China and India. Nowadays all Starbucks get its own wireless or public wireless service in the Starbucks environment. Starbucks believes a coffeehouse should be a place to find connection. and movies to enhance the experience Starbucks provided. Starbucks red tea. in 2001 Starbucks has introduces high-speed wireless internet access in select store locations.

and Starbucks will be willing to be promoted as the third place between home and work. Many employees just above the minimum wage. 10 . They provide the health-care coverage to all employees who worked more than 20hrs per week. also the coffee retailer industry has an average of 80% turnover these days. Howard Schultz said the company will have to innovate and provide more value to the customer. the sense of humanity in Starbucks stores. It's a conman sense that most people want low cost but high benefit. the sense of the community. And in order to provide an excellent service Starbucks has a training program for the employees. Starbucks supply an excellent environment to the customer and the employee at the same time. The Starbucks customers can enjoy coffee. Coffee shop highly depend on part-time employees. For Starbucks company should revolutionize their industry by creating a different value proposition. How to balance the benefit of these three groups and maximize the profit of the company will be the main objective. employees and share holders. As known value=benefit/cost. most worker require some particular skills. Starbucks took care of its people Starbucks has its concept to treat its employees with respect.Value creation Starbucks Company should consider three kinds of major groups: customers.

resource reinvention in other cities or countries like India. As we know Starbucks’ promotion way is heavily located in the cities. So resource reengineering should be implemented in the cities which there are too much Starbucks coffee store. Starbucks need to teach the potential customer the coffee civilization its ingredients quality different. Furthermore the education would motivate coffee buyers to pay a higher price to the better products. This could be beneficial for developing a relationship with the customers and make loyalty to the Starbucks brand.Starbucks can boost its financial performance by cutting back on support to some of the shareholders. Stretch and brand expansion is the only way to deal with the profitless situation. For example in Well Street just a feel meters far away customers will see another Starbucks coffee. But in some countries there is no Starbucks coffee. Recommendation Starbucks is now leading the market in coffee by following a differentiate strategy. Perseverance will be important in this situation. They also created a good brand image which made people to see them as a brand higher than its competitors. But in the long run “do the right thing” will lead to the success of financial finally. they differentiated their products in quality and innovation in many new products their differentiation strategy also involved in choosing the right place and location for their store having thousands of stores worldwide with good 11 . Starbucks need to learn that they are no more monopoly in customer’s concept.

infrastructure. Clemente and David S). Horizontal integration “The acquisition of additional business activities at the same level of the value chain is referred to as horizontal integration” (Mark N. Starbucks only deals with products which are related to coffee and retail stores so the business level strategy of star bucks is very similar to corporate level strategy. In the strategic analysis. This made them increase their profit level because people always need a change and this made them different from others. 12 . This strategy is diversifying into many products. which were they managed to maintain and give their employees in its retail stores a good working environment. Since they were their competitors. Starbucks was very successful up to date. They created thinking in people that coffee is not just only a drink but they made people experience the real feeling of coffee by following different strategy. Starbucks followed the strategy of horizontal integration when they bought Tazo and Lcc to enter into the tea market. because till now they have created a good brand image and they acquired the huge market share by following different demographics and they were also able to change the customers view towards coffee. But Starbucks even though they grow very rapidly they never gave up on their principles. So the corporate strategy of Starbucks is to make itself the premier supplier of finest coffee in the world. sophisticated seating’s and number of other facilities to satisfy their customers they were able to differentiate themselves from their competitors.

Vertical integration “The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. differentiation.like they launched star bucks prepaid card.Starbucks should not involve themselves in every aspects because it involves huge cost and time . and other strategic issues. So Starbucks should continue doing horizontal integration into coffee and food related products and should reduce diversifying into unrelated products because this might hamper the brand image (coffee company). in 1994 they started selling CDS in stores and by 2005 they were selling over 3. and they also started to sell books and DVDs in their stores . Because it can have a significant impact on a business unit's position in its industry with respect to cost.5 million CDS over a year. the vertical scope of the firm is an important consideration in corporate strategy” (Greaver. star bucks involves itself in every process in order to provide their customers their best quality products which they serve in their cafes .They also followed a strategy of expanding themselves by diversifying into unrelated products to cover the entire market . Maurice F).They should limit themselves to the important aspects and concentrate on their core 13 .To make themselves strong they partnership with apple iTunes to survive in the music market. From the coffee bean farms to the finished products in their cafes.

Starbucks should follow same strategy towards their employees to make them work more effectively and could even add more promotions and other benefits which can even motivate them more and they should keep following this in future.in fact one of the reasons why they could not enter into the Indian market is their high pricing strategy. They always motivate their employees to give full service to their customers to satisfy them . As they provide high quality coffee and extraordinary cafes with many facilities the consumers are ready to pay such high prices. So they gave intensive training to their both full time and part time employees which other competitors were not capable of.They treat employees as the best assets in the organization.so introducing such prices in those countries will not work effectively . But when they expand internationally in some countries 6$ can easily fetch a whole meal . Pricing strategy Starbucks is a high end premium coffee brand and they charge high prices for their coffee and other products. Human resources Starbucks recruited employees who had good abilities to work as a team and made sure that they could be adaptable.competency of coffee making. 14 .

15 .7$ million and 1. Starbucks they never advertise much on media or others they mainly concentrate on advertising on their stores and lots through print medium since they always target customers who are educated and read lots.4% of their revenues. Expansion Strategy United States has always been star bucks largest and most profitable market . In 2005 their advertising expense was 87. A large city was selected as a hub in which a team to support the goal of opening twenty over stores was identified.Starbucks expected its future revenues to come from outside the USA. Demand in particular hubs was a major driver which fuelled star bucks expansion strategy. The three year geographic expansion strategy of Starbucks was in 1992 and 1993 where they targeted places having favorable demographic profile. So Starbucks followed a good marketing strategy and they should mould their strategy towards pricing in order to enter different markets.Marketing strategy The marketing strategy of Starbucks is mainly their positioning strategy where they made their place attractive where people come there for relaxation where it was considered as a place after home and work. even from a day to day operations perspective. By pursuing this expanding strategy Starbucks steadily increased its international stores from 1200 in 2001 to over 4300 by 2007.

16 .The Starbucks expansion strategy had a powerful impact on employees coffee farmers and coffee growing industry. where as in China even though people did not like the bitter taste of coffee they still visited the stores frequently because they liked the image and it was a good place for them to relax. more demand for coffee and other inputs purchased from suppliers .taste and preferences.their international strategy also involved in to consider different peoples culture . Due to their expansion strategy star bucks created more jobs. Like in United States most of their orders were take away. As they expanded rapidly their partners were benefited more and even the coffee producers were paid much more than the market price this is to satisfy the farmers and incentivizing them to maintain the quality standards of their coffee beans.star bucks expansion strategy was supported by its stake holders because of its implications for the firm’s stock.hence it played a vital role in improving the quality of living for the suppliers . Starbucks had a positive impact on the farming community. Starbucks focused mainly on partnership for their international expansion then the countries. The international strategy of Starbucks also involved in targeting on small countries which has the significant potential to grow . Starbucks offered different countries with the product according to their culture and taste for example in Austria Starbucks offered smaller cookies and muffins with less sugar but they still retain with their core drinks and their no smoking policy even though they know that 40% of the Europeans smoked this is because of the trade off between the customization and consistency which they had to take care to establish globally.

Also Starbucks needs to attract more funds from the stakeholders and investor. They should also even work towards reducing the production cost so that they can reduce the price and can even enter markets with low cost in order to increase their profit. 17 . There are two rules Starbucks can follow in the future to overcome the problems they will face. 1. That means Starbucks will face more competition in future and lack of funds to solve the competitions. new product R&D. Starbucks to enter into new markets like India market should have a strategic alliance with cafe coffee day or barista since coffee day and barista have a efficient network throughout India By doing so Starbucks can save on their initial investment for this venture and leverage on the market expertise of a local player like coffee day or barista. According to analysis. Potential fallout The Starbucks potential fallout is the competitors of Starbucks can easily copy their strategy and take over its market shares. modify the operation and optimize the organization structure. Starbucks needs to be more differentiate and innovative from their competitors for example their products should be more creative and unique. Never give up the market leader position in coffee industry. In such case.We recommend that Starbucks should do more differentiation strategy in order to sustain their market share in future also. So that Starbucks can invest this money to staff training.

if they leave this position they will lose their brand image and even it will affect Starbucks revenue. Be a pioneer in the new industry development.Starbucks should never leave the leading position in coffee industry because it is their core business and people know Starbucks through coffee only . Starbucks should look at constantly innovating its products and services so as to consistently maintain a competitive edge over competition and to make it sustain in future they should build an infrastructure or an installed base so that the latecomers cannot duplicate it easily In the future. 18 . Starbucks wants to sustain. 2. it should keep learning to maintain its core competence and maximize its competitive advantages.

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