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TMGT601

Strategic Management Theory and Practice

Assignment 1 (Individual)

Submitted By:
Nasir Ali BURIRO
Student No. 20172084
Strategic Analysis | Starbucks Corporation

SELECTION OF FIRM

Starbucks was first opened in 1971 in America offering the worlds finest quality roasted-
beans coffees (Starbucks, 2016). The common stocks of Starbucks are traded on NASDAQ
as SBUX. Besides roasted beans coffee Starbucks offers handcrafted coffee, tea and
other beverages and variety of snacks. It operates in 75 countries which includes Americas
and Asia pacific countries and other exiting and developed markets across the globe
(Starbucks, 2016).

This report will focus on the current strategy of Starbucks and attends to the possible
drawbacks of the strategy, mainly focusing on Starbucks Australia. Porters Five Forces
Model (PPFM) will be used to analyse the internal environment of the firm.

CURRENT STRATEGY OF THE FIRM

The vision statement of the firm shows what firm is going to achieve in the future (Lucas,
J. R. 1998). The vision statement of Starbucks it states that the Starbucks promises its
customers to provide the world finest coffee without compromising the established
principles of the firm while growing.

According to the vision statement of Starbucks, its strategy is to provide the world best
coffee which shows its emphasis on the quality of coffee products primarily. This strategy
is to make Starbucks different from its competitors and make it stand out of the crowd.
This is achieved by the strong emphasis on the specialty of coffee beans used. It is not
only the specialty of the coffee that makes Starbucks different but the pleasant sociable
atmosphere it provides to customers is the major part of Starbucks differentiation
strategy. Having considering this, Starbucks is not competing on cost like its rivals
McDonald, Hungry Jacks, Woolworths Metro and Coles express but on quality (Koehn, N.
F, 2002).

The other element in the vision statement of Starbucks is the element of growth. Current
strategy with the combination of intense growth strategy is used to obtain the optimal
output allowing firm to achieve the differentiation in the current market. In order to
achieve the desired growth Starbucks main intense growth strategy is market penetration.

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Strategic Analysis | Starbucks Corporation

It is already operating in 75 countries around the globe which underpins firms profits.
Opening more company maintained stores in the existing and potential markets will bring
more revenue to the company (Starbucks, 2015). Starbucks also allows the franchising or
licensing as a growth strategy for company (Starbucks, 2015).

Along with market penetration Starbucks also considers the strategy of product
development. Product development is achieved through continuous innovation in the
product such as bringing new variety in coffee products to increase top line item on
income statement (Miller. D, 1992). The variety in products such as Cinnamon Dolce
Latte, Flavored Latte, Iced Cinnamon Dolce Latte, Iced skinny Flavored Latte, Iced Vanilla
Latte, Skinny Cinnamon Latte, and Vanilla Late etc makes Starbucks achieve
differentiation in the market. Starbucks proclaims aloud its perfection saying their rich
espresso balanced with steamed milk serves as the perfect base for the coffee and
promises its customers to make the coffee always right what customer wants (Starbucks,
2017).

POTENTIAL FAILURES OF CURRENT STRATEGY

Future is highly uncertain and risk of uncertainty is the key issue that should be dealt
with carefully while designing and implementing the strategy. With the use of SWOT
analysis weaknesses and threats that Starbucks is facing can be considered as the factors
that could turn into the causes for potential failures of the current strategy of the firm.

Starbucks products are not cheaper. High prices of the products make Starbucks
inaccessible to the large majority of lower and lower-middle class people. It is challenge
for Starbucks to compete on price without compromising on quality and on its promise to
deliver the world class coffee and unique ambiance. 7eleven, McDonalds, Hungry jacks,
Convenient Stores and local coffee shops are effectively taking the advantage of low cost.

Applying the porters five forces model on Starbucks it seems clear that the rivalry among
the firms is high because of heavily crowded population of coffee businesses around the
world For instance; 7eleven, McDonalds, Convenient stores, Coles express, Woolworths
metro and other local coffee shops. The bargaining power of suppliers is low; this is the
only factor about which the firm is less concerned but this is also the one of the reasons of

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Strategic Analysis | Starbucks Corporation

strong rivalry among the firms. Customers are the driving force in this situation because
the bargaining power of the buyer is strong due to availability of enormous options to buy
coffee. The customers can easily switch to other beverages because of low switching cost
and availability of substitute products. Threat of substitute products is high because of
low switching cost and availability of other beverages. Moreover, Starbucks also operates
in Asian countries where consumers of Tea are relatively higher than the coffee which
also makes the threat of substitute products high. Nowadays coffee machines are readily
available for home-use, which is another threat of substitute products to Starbucks.
Threat of new entrants is also high because of low switching cost, low training cost and
low cost of infrastructure. But new entrants will face difficulties to compete with
established brands because of the high cost of brand development. (Roy. D, 2002)

Starbucks products are based on generalized or ordinary commercial standards. It doesnt


make it unique or line up with the specific cultural demands. Coffee business is ordinary
in its nature which can be copied or imitated by others easily. Ambiance or environment
of the caf is also easy to imitate. In order to overcome these weaknesses Starbucks must
do some research and development and bring more innovative ideas to the business to
lead the rivalry among the coffee businesses.

RECOMMENDATIONS

In the light of the above strategic analysis of Starbucks following are the
recommendations for Starbucks to address the potential failures of the current strategic
intent:

1. Starbucks should ensure that the competitive advantage is maintained through the
proper implementation of differentiation strategy in combination with the intense
growth strategy.
2. Starbucks should keep on innovating in order make the product unique and special
to maintain the differentiation strategic intent.
3. Intensive growth strategy of the firm must be aligned with the generic strategy of
the firm.

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Strategic Analysis | Starbucks Corporation

4. Starbucks should expand in Africa and Middle-east using the market penetration
strategy and competing existing competitors using product development strategy
bringing the innovations to the product and caf ambiance which should be
aligned with cultural customs and demand. Shisha cafs concept could be used to
penetrate in the market of Middle-east with the world class finest coffee flavours
of Starbucks.
5. It should also introduce the new range of the coffee products for health conscious
customers spreading in the huge market of healthful products.
6. Starbucks should improve the mobile app and services linked online in order to
attract more revenue through new reward schemes, loyalty schemes, bonus deals
such as buy one get one free, referral bonuses etc.
7. Improving the steps already taken in regards of corporate social responsibility,
sustainability planning, environmental and social footprints in order to show the
commitment and responsibility of Starbucks towards society.
8. Starbucks should also pay attention to the matters like protecting intellectual
property, patents and trademarks in order to reduce the threat of being copied by
competitors.
9. Instead of opening delegated caf, new concept of drive thru and walk thru caf
will also be the new innovation to Starbucks business model and will attract
customers from different segment of market.
10. Innovating new coffee based cold beverages, lunch deals for corporate sector and
introducing fresh food variety during lunch hours will bring the fast growth to the
company.
11. Introduction of ready to drink coffee at home concept will also be the new
innovation to Starbucks line of products.

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Strategic Analysis | Starbucks Corporation

REFRENCES

1. Rob, D. (2014). Strategic Foresight and Porters Five Forces.

2. Starbucks. (2016). Starbucks Corporation - Financial Information - Annual Reports.


Retrieved from starbuck.com: http://www.starbucks.com

3. Koehn, N. F. (2002). Howard Schultz and Starbucks Coffee Company. Harvard


Business School
4. Miller, D. (1992). The generic strategy trap. Journal of Business Strategy, 13(1),
37-41.
5. Grundy, T. (2006). Rethinking and reinventing Michael Porters five forces model.
Strategic Change, 15(5), 213-229.
6. Glazer, R. (1999). Competitive Advantage Through Information-Intensive
Strategies. Handbook of Services Marketing and Management, 409.
7. Miller, D. (1992). The generic strategy trap. Journal of Business Strategy, 13(1),
37-41
8. Lucas, J. R. (1998). Anatomy of a vision statement. Management Review, 87(2), 22.