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STRATEGIC

MANAGEMENT
STARBUCKS

6.Technology (Page 4) 7.Weaknesses (Page 8) .Starbucks Table of contents 1. Key success factors (Page 9) 10. 4.Political (Page 4) .Value chain analysis (Page 7) . Criteria Matrix evaluation (Page 9) 12.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) . References (Page 10) 2 . External Analysis .Opportunities (Page 6) . Contingency Plan (Page 10) 15.Market share (Page 8) .Organizational strategy (Page 7) .Overall evaluation of the internal environment (Page 8) 9.Strengths (Page 8) . Internal Analysis .Economic (Page 4) .Social (Page 4) . Action Plan (Page 10) 14. Table of contents (Page 2) Current Situation (Page 3) Issue (Page 3) Mission (Page 3) Objectives (Page 3) PEST Analysis . 3. Recommendation (Page 10) 13. Alternatives (Strategic Choice of Business Strategies and Corporate Strategies) (Page 9) 11. 2. 5.Threats (Page 6) .Overall evaluation of the external environment (Page 7) 8.

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

Technology Everything around us is turning digital and so is Starbucks. 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. Starbucks had to shut down hundreds of its locations.Starbucks PEST Analysis Political Several political aspects can affect industries such as Starbucks. Starbucks understands that. leave tips and also collect rewards. companies pay huge amounts of taxes to governments and the larger and more successful the company is. 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. They launched a new Smartphone application in 2014 that can be used to make orders. Trends could also have a great effect on how well the company performs when it comes to sales. Quality doesn’t come cheap. that is why economy could really affect the rate at which consumers buy the company’s products. Social Since the strategy of Starbucks is based on product differentiation. during the recession. 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. which is exactly how the company made it to the top. 4 . product prices are going to pose an issue when it comes to middle and lower class consumers. 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. Economic Starbucks is a quality brand. Another important economic factor is taxes. any disturbance in stability may cause them to shut down their facilities in that area. the higher the taxes it pays. Whether in the US or outside. 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.

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

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

but because beverage purchases rendered 75% of the company’s revenues in the fiscal year of 2013. we are going to analyze the value of coffee in this section. It offers goods and services that are unique in quality and brand from other companies. 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.Starbucks Overall evaluation of the external environment Starbucks is leading the specialist coffee shop industry for the time being. Value chain analysis As a company. Another strategy adopted by Starbucks is vertical integration. 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. 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. 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. Teas and Pastries) rather than having to buy them from third party sources. 7 . 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. Starbucks buys its coffee beans from the finest farmers around the world. Another thing that adds value to this service is the environment provided at all Starbucks coffee shops. The service doesn’t end just yet. They also adopted corporate diversification strategy by purchasing several other stores that offer different goods and services. This move eliminated a huge portion of the bargaining power that suppliers had over Starbucks. Starbucks’ main strategy is based on product differentiation. Internal Analysis Organizational strategy As mentioned earlier. Starbucks offers many products and services. For it to stay on top. most of it comes from Latin America and the rest comes from the Pacific Rim as well as East African sources. This gave Starbucks the luxury of owning those goods (Fresh juice. They managed to partner up with their suppliers and started to roast their own beans. 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.

Overall evaluation of the internal environment Based on what was mentioned above. the company may need to start focusing on how to increase the revenues from all of its products and services rather than beverages alone.2 million. it still was the leading company in the industry. This means that even though the company suffered losses that year. but it seems necessary under the current circumstances. It may not be what the company is used to offer. Since Starbucks basically invented the specialist coffee shop trend. The continuous growth of the company on all aspects makes it very strong in the industry of making coffee.9%. Starbucks needs to consider adding a new strategy to its organization that includes a cost leadership kind of approach. and ranks #1 among its competitors. In the same year Starbucks’ net sales were $14. Furthermore.4 million were in loss. And since Starbucks has kept their word when it comes to high end services over the years. and to downgrade from that would betray the trust of its loyal fans and customers. their customers have become loyal and even though many competitors have emerged. The problem is that Starbucks has made it to where it is today by serving luxurious goods to their customers. Starbucks’ value share in the foodservice industry was 59. 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. 8 .892. which compromises the competitive position that Starbucks holds. The other weakness that might come to mind is. the company would suffer a great loss. which means if the sales of beverages were to decline. customers’ loyalty was not compromised.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. the majority of the revenues comes from beverage sales. Market share According to a study conducted by Euromonitor International in 2013. it has a sort of first mover strategy on its side. 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. from which $325.

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. 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. Another option could be opening new retail shops that only serve to go products at fixed rates. Some of the suggested alternatives might be the introduction of an economic menu that includes more affordable ranges of products. 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.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. 9 . This requires Starbucks to think of ways to attract more consumers from all economical classes. Alternatives (Strategic Choice of Business Strategies and Corporate Strategies) In order to solve the main weakness that threatens Starbucks in the current market. each has a certain weight and options are evaluated based on how much effect they have in each criterion. which will lower expenses and increase revenues. it needs to come up with a solution to the cost of its products. Other factors include the availability of Starbucks retailers at practically every corner of every block.

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