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AL AIN UNIVERSITY OF SCIENCE AND TECHNOLOGY

COLLEGE OF BUSINESS ADMINISTRATION
AL AIN CAMPUS

STRATE
GIC
MANAGE
MENT
INDIVIDUAL
TERM PAPER
Starbucks
Dr. Mahmoud Al Askari
Name
:

Reem Salman Ahmed
Aljanabi

ID:

201410108

Strengths (Page 8) . 5. 6. Alternatives (Strategic Choice of Business Strategies and Corporate Strategies) (Page 9) 11. Criteria Matrix evaluation (Page 9) 12. Recommendation (Page 10) 13. Table of contents (Page 2) Current Situation (Page 3) Issue (Page 3) Mission (Page 3) Objectives (Page 3) PEST Analysis .Organizational strategy (Page 7) .Porter’s five forces o Barriers to entry (Page 5) o Bargaining power of suppliers (Page 5) o Bargaining power of buyers (Page 5) o Competitive rivalry (Page 5) o The threat of substitution (Page 6) . 4.Market share (Page 8) .Political (Page 4) . Contingency Plan (Page 10) 15.Technology (Page 4) 7.Economic (Page 4) .Opportunities (Page 6) . 2.Overall evaluation of the external environment (Page 7) 8.Starbucks Table of contents 1. Internal Analysis . Key success factors (Page 9) 10.Social (Page 4) .Threats (Page 6) .Weaknesses (Page 8) . Action Plan (Page 10) 14.Overall evaluation of the internal environment (Page 8) 9. External Analysis . 3. References (Page 10) 2 .Value chain analysis (Page 7) .

Starbucks’ mission statement is: “to inspire and nurture the human spirit – one person. Issue Starbucks may seem like it doesn’t have any issues.  Performance driven. For instance. where everyone is welcome. it is relying mainly on one service. the majority of revenues that Starbucks makes come from selling beverages. In most areas. because even though Starbucks is dominating the US coffee shops. Starbucks have the following objectives and values:  Creating a culture of warmth and belonging. dignity and respect.  Being present. believing in their products and keeping their customers at heart. there is a Starbucks in every block or just around the corner.  Acting with courage.” Objectives By teaming up with their partners. Mission As per their website. challenging the status quo and finding new ways to grow their company and each other. holding themselves accountable for results.  Delivering their very best in all they do. and the company has kept its word ever since.Starbucks Current Situation Starbucks is currently leading the market of specialist coffee shops in the US. Starbucks would suffer great loss. one cup and one neighborhood at a time. Starbucks made its way to the top by ensuring that their customers get a unique experience when they visit a Starbucks retailer. 3 . connecting with transparency. through the lens of humanity. which means. The company started in Seattle. if beverage customers were to shift to another coffee shop that is trending at some point in time. Washington and has franchised and expanded regionally and globally. but even the best companies come with baggage. which means that they won’t have a safety net to land on if anything doesn’t go their way. This issue needs to be put into consideration.

during the recession. Economic Starbucks is a quality brand. product prices are going to pose an issue when it comes to middle and lower class consumers. Quality doesn’t come cheap. Having the latest technological advances helps in enhancing customer experience which will lead to customer loyalty. This could also affect younger consumers due to their lack of income. Trends could also have a great effect on how well the company performs when it comes to sales. Technology Everything around us is turning digital and so is Starbucks. which is exactly how the company made it to the top. They launched a new Smartphone application in 2014 that can be used to make orders. Starbucks had to shut down hundreds of its locations. 4 . Other factors that may also affect the business could include political stabilities of the countries where Starbucks has its branches. For example. the application could also be used to customize drinks. The main one is the rules and regulations governing the trade as well as the relationship between the United States (the country where Starbucks is based) and the countries from which the company imports its fine coffee.Starbucks PEST Analysis Political Several political aspects can affect industries such as Starbucks. the higher the taxes it pays. Social Since the strategy of Starbucks is based on product differentiation. Starbucks understands that. any disturbance in stability may cause them to shut down their facilities in that area. Whether in the US or outside. companies pay huge amounts of taxes to governments and the larger and more successful the company is. leave tips and also collect rewards. Another important economic factor is taxes. Other social factors that might affect the company could be that certain countries might not allow all the items on the menu due to religious reasons. that is why economy could really affect the rate at which consumers buy the company’s products. they provide their customers with free Wi-Fi access as well as having several power outlets all over their shops to ensure that customers with notebook computers or any sort of handheld devices could enjoy their coffee while working on their devices.

5 . Thus. it won’t be affected on the short run. which gives the coffee beans suppliers a high bargaining power. Competitive Rivalry Starbucks has a lot of rivals in the American market including Dunkin Donuts. they will lose the biggest buyer they could ever get in today’s market. but it takes a lot of effort to keep it open and competing against other shops. on the other hand. McDonald’s offers coffee at a rate starting from $1 per cup. For example. But. because even if a few people changed their minds about going to Starbucks. because as we all know. Starbucks held around 60% of the market share of specialist coffee shops in 2013 according to Euromonitor International.Starbucks External Analysis Porter’s Five Forces Barriers to entry It might not take a lot of money to open up a coffee shop. Starbucks has partnered up with its coffee bean suppliers rendering them powerless when it comes to bargaining. and they undergo periodic health inspections and so on. because if a supplier doesn’t offer the company a good deal. if people steered away from Starbucks. Another factor contributing to the difficulty of keeping such businesses open is the fact that the market is saturated. Costa and most recently McDonald’s. To solve this dilemma. Bargaining power of buyers The thing that gave Starbucks its current position in today’s market is the loyalty of its customers. Panera bread. All of these companies offer similar services to those of Starbucks but not quite the same. One can say that the competition is fierce between these rivals and Starbucks must always stay one step ahead of the others if it wants to keep its spot at the top. Although Starbucks has made it to fame and taking that away is not going to be an easy task. Bargaining power of suppliers It is debatable whether the suppliers of coffee beans have a great bargaining power when it comes to Starbucks. The reason for that difficulty is that it takes a lot of authorizations to open up such places. it is safe to say that buyers do possess some bargaining power in this industry. Coffee shops are found around the corner of every block and all of them offer similar services at competitive prices. in all fairness. that is not going to affect its status among other coffee shops. high quality coffee beans are not very common around the world. it will definitely be affected and it will start losing its spot as America’s #1 coffee shop. But. while Panera bread offers endless refills on coffee. this gives Starbucks power over its suppliers. but in the long run.

Launching iPhone 5c did not affect the quality of other Apple products and they are still known for their high standard items and services. Although buying these companies and starting to sell their products in Starbucks outlets all over the states may not protect the company from being substituted. Opportunities Starbucks has many opportunities that it has started to embrace already such as their Starbucks Evenings program which features a selection of beers and wines alongside some appetizers that are served in selected locations after 4 PM. but it will definitely make the task much harder. it just expanded their audience. or bottled and sold in supermarkets and convenience stores. Other opportunities that Starbucks is investing in are selling products that can be prepared at home. which might eventually lead people away from Starbucks. because coffee is generally perceived as a “day drink”. Companies like McDonalds (McCafe) offer a variety of drinks for a more affordable price. Other threats might include the fact that the coffee shop market is already saturated in developed countries.Starbucks The threat of substitution Starbucks handled the threat of substitution in a very diplomatic and smart way. but they need to give some serious consideration into launching an economic menu in addition to their existing menu. The same thing could happen if Starbucks was to consider launching the more affordable menu. which is possible if Starbucks doesn’t keep on coming up with new trends and ideas to overcome the attempts of other companies to surpass Starbucks. Although Starbucks’ popularity is based on their strategy of product differentiation. Another opportunity would be expanding their international presence and increasing the number of outlets inside and outside of the United States. 6 . Threats The main threat that faces Starbucks is the possibility of its rivals taking over the industry. which leaves little room for expansion. for example Apple launched iPhone 5c. which features many great qualities similar to those of iPhone 5s but at a cheaper price to cover a larger consumer base. especially in circumstances similar to those of the recession that happened a few years back. The main substitutes for coffee would be: Tea (Starubucks purchased Teavana tae shops in 2012). This is because the main reason people might consider other coffee shops is due to the competitive pricing that rivals are offering. juice (Starbucks purchaced Evolution Fresh in 2011) and baked goods or food in general (Starbucks purchaced La Boulange Bakery in 2012). This will increase the flow of customers during evening hours. Many companies have adopted this option and succeeded.

This gave Starbucks the luxury of owning those goods (Fresh juice. it needs to study the services that its rivals are offering and try to overcome them by coming up with new services that will meet the needs of the consumers and at the same time maintain the image of Starbucks as a high quality coffee shop. Another thing that adds value to this service is the environment provided at all Starbucks coffee shops. For it to stay on top. The service doesn’t end just yet. It offers goods and services that are unique in quality and brand from other companies. Starbucks’ main strategy is based on product differentiation. Internal Analysis Organizational strategy As mentioned earlier. 7 . The coffee is freshly brewed inside the coffee shops and prepared with an exquisite choice of milks and flavors and served to customers in customized cups. Value chain analysis As a company. Their aim is to make their shop a third place between work/school and home where people can go to relax and grab a bite. we are going to analyze the value of coffee in this section. with a variety of seating arrangements as well as a soft musical tone in the background to provide customers with the peace and quiet the crave. Another strategy adopted by Starbucks is vertical integration. most of it comes from Latin America and the rest comes from the Pacific Rim as well as East African sources. After the coffee beans are imported they are roasted and ground in Starbucks facilities and then either sent to retail shops or packaged and sold individually in Starbucks shops as well as supermarkets and convenience stores. Teas and Pastries) rather than having to buy them from third party sources.Starbucks Overall evaluation of the external environment Starbucks is leading the specialist coffee shop industry for the time being. but because beverage purchases rendered 75% of the company’s revenues in the fiscal year of 2013. They also adopted corporate diversification strategy by purchasing several other stores that offer different goods and services. It also provides a distinctive ambience that attracts people to make it a habit to get their coffee and spend their day breaks at Starbucks. This move eliminated a huge portion of the bargaining power that suppliers had over Starbucks. They managed to partner up with their suppliers and started to roast their own beans. Starbucks buys its coffee beans from the finest farmers around the world. Starbucks offers many products and services.

In the same year Starbucks’ net sales were $14. This means that even though the company suffered losses that year. it has a sort of first mover strategy on its side.4 million were in loss. It may not be what the company is used to offer. which means if the sales of beverages were to decline. 8 . Starbucks’ value share in the foodservice industry was 59.892. their customers have become loyal and even though many competitors have emerged.2 million. Furthermore.9%. which compromises the competitive position that Starbucks holds. it still was the leading company in the industry. The other weakness that might come to mind is.Starbucks Strengths Starbucks’ strength relies in its unique and high quality products that are served in places that are specifically designed to provide customers with the quality time they seek. Weaknesses The only weakness that threatens Starbucks is the fact that it only offers products at a specific range of pricing that doesn’t appeal to all classes of the society. Overall evaluation of the internal environment Based on what was mentioned above. Since Starbucks basically invented the specialist coffee shop trend. Countries are not stable and this makes the economy unstable itself. Another area of strength for Starbucks is that even when it expanded internationally it is still one of the most popular coffee shops in almost every country it franchises in. the company may need to start focusing on how to increase the revenues from all of its products and services rather than beverages alone. The problem is that Starbucks has made it to where it is today by serving luxurious goods to their customers. customers’ loyalty was not compromised. and ranks #1 among its competitors. The continuous growth of the company on all aspects makes it very strong in the industry of making coffee. and to downgrade from that would betray the trust of its loyal fans and customers. Starbucks needs to consider adding a new strategy to its organization that includes a cost leadership kind of approach. And since Starbucks has kept their word when it comes to high end services over the years. but it seems necessary under the current circumstances. Market share According to a study conducted by Euromonitor International in 2013. the majority of the revenues comes from beverage sales. from which $325. the company would suffer a great loss.

Criteria Matrix evaluation The Criteria Matrix evaluates each alternative based on a set of criteria. Another smart move made by Starbucks was the purchasing of several other small businesses in an attempt to expand their product range to appeal to a wider consumer base.Starbucks Key success factors The main key for the success of the Starbucks is the brand that it has made for itself by providing high quality products to customers. Other factors include the availability of Starbucks retailers at practically every corner of every block. Another option could be opening new retail shops that only serve to go products at fixed rates. which makes them very approachable to customers. The last option that comes to mind could be purchasing a small business that also brews coffee and provides similar services to those of Starbucks but at more affordable rates. each has a certain weight and options are evaluated based on how much effect they have in each criterion. Alternatives (Strategic Choice of Business Strategies and Corporate Strategies) In order to solve the main weakness that threatens Starbucks in the current market. which will lower expenses and increase revenues. it needs to come up with a solution to the cost of its products. 9 . This requires Starbucks to think of ways to attract more consumers from all economical classes. this option will let Starbucks keep the same standards of quality that come with the brand while serving all layers of the economic society via a sub-brand. Some of the suggested alternatives might be the introduction of an economic menu that includes more affordable ranges of products.

start as a beta-menu until it’s optimized and launched throughout the chain around the world. 10 .starbucks. or it could be by cutting back on the flavors and cup accessories.edu/files/nithingeereddy/files/starbucks_case_analysis. and saves them the time wasted while waiting in line to get their order fulfilled.com/portal/analysis/relatedtab). Scholars at Harvard (http://scholar. This will give the customers a wider range of items to choose from as well as a more affordable list of products and services while maintaining the old and traditional products. 3. This plan may not offer much when it comes to lowering prices. 2.portal. Starbucks (http://www. which will include similar but basic items from the old menu.pdf). but it can help cut down expenses if the economy goes into recession. References 1. Contingency Plan In case the first alternative (economic menu) did not work out.harvard.euromonitor. the next alternative should be considered. a new menu needs to be studied and put into action. This might appeal to busy customers.Starbucks Recommendation Based on the evaluation generated by the Criteria Matrix the best option for Starbucks is to launch an economic menu alongside its original menu. The menu could go for a trial run at first. The thing that might help make these products cost less could be getting coffee beans (for the new menu) from new distributers at cheaper prices. Opening take-away stands is a very smart way to earn higher revenues.com/about-us/company-information). The rent is much less and the services provided other than foodservices are nonexisting. Action plan In order to implement the recommended solution for Starbucks’ economic dilemma. Euromonitor International (http://www.