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Mini-Case on the Starbuck Corporation (SBUX)

What Starbucks strategies are best?


There is only so much revenue that coffee, lattes, and pastries can bring in, so Starbucks
performed SWOT and QSPM analyses and decided to spend millions on three new strategies:
(1) provide beer and wine, (2) provide expanded lunch and dinner menus, and (3) provide
advanced mobile ordering. Several key factors that entered into this decision were (1) there
have been long wait times for customers to get served at many of its locations, (2) company
business had fallen off 30 percent after morning breakfast, and (3) rivals Panera Bread, Atlanta
Bread, and Dunkin Donuts were expanding their menus and growing revenue 15 percent faster
than Starbucks. Starbucks five-year strategic plan is to double its U.S. food revenue to more
than $4 billion, with wine and beer alone adding $1 billion in 2015. Starbucks new food items
include truffle macaroni and cheese, Parmesan crusted chicken skewers, bacon-wrapped dates
with balsamic glaze, artichoke and goat cheese flatbread, and chocolate espresso, champagne,
and raspberry truffles. Starbucks new wines include a variety of sparkling, red, white, and rose
choices. Starbucks new mobile app and coffee truck and delivery trucks help stores anticipate
demand, so customer orders are often available immediately.
Questions
1. Develop a SWOT Matrix for Starbucks that includes the three strategies and three
factors cited in the case.
2. Develop a 3x3 QSPM for Starbucks that includes the three strategies and three factors
cited in the case. Which of your three factors received the highest weight? Which of your
three strategies was most attractive? Explain.

Opportunities Threats
1. Technological 1. Company business
Advances with 10% of had fallen off 30
its transactions being percent after morning
made on the mobile breakfast.
application. 2. Rivals Panera Bread,
2. Expansion into Atlanta Bread, and
Emerging Markets Dunkin Donuts were
with 12,000 new expanding their
stores by 2021. menus and growing
3. Expanding revenue 15 percent
diversification of faster than Starbucks.
product mix and 3. Competition from low-
offerings. cost coffee sellers.
4. Partnerships or 4. Imitation
alliances with other 5. Developed Countries
firms Economy and Politics.
5. New distribution 6. Increased
channels. Competition
6. Expansion of retail 7. Price Volatility in the
operations. Global Coffee Market
and other Ingredients
like Milk and Dairy
Products
8. Developed Countries
Market Saturation
9. Changing Consumer
Tastes and Lifestyle
Choices
Strengths S-O Strategies S-T Strategies
1. Strong market position 1. Provide beer and
and global brand wine (S2, S3, S8, O3, 1. Provide expanded
recognition O4) lunch and dinner
2. Extensive global supply 2. Constantly introducing menus (S3, S8, T1,
chain new innovative T2)
3. Diversified business products in each store 2. Shift its operation
through subsidiaries (S1, S8, O3) elsewhere where it
4. Products of Highest 3. Continue to increase seems to have more
Quality its revenue by potential growth (S1,
5. Customer Loyalty expanding in other T6, T8)
6. Starbucks Experience countries as well (S7, 3. Mitigate price volatility
7. Operating efficiency O2) risky by implementing
and strong growth 4. Build better an effective hedging
leading to superior relationships with big strategy and diversify
financial performance box retailers to get its products that do
8. Competitive advantage premium shelf space not include any dairy
of providing innovative and increase the items to avoid the
products more quickly efficiency of this threat of rise in the
in all same retail distribution channel cost of dairy products
stores (S8, O5, O6) (S3,T7)
9. Human Resource 5. Further build and 4. Establishing New
Management retain customer Partnerships (S2, S3,
10. Goodwill among loyalty, by building on T1,T2)
consumers due to beta concept of on-
Social Responsibly the-go home delivery
Initiatives (S1, S6, S9, O1)
Weaknesses W-O Strategies W-T Strategies
1. There have been long 1. Provide advanced 1. Extend its product line
wait times for mobile ordering. Use in beverages like
customers to get of Technology and providing beer and
served at many of its Mobile Outlets. (W1, wine (W3, W7, T2,
locations. O1) T9)
2. Higher price points/ 2. Increase its market 2. Tailor its menus and
Expensive Products share outside its expand to give
3. Generalized standards domestic market. healthier product
for most products/ A (W5, O2) offerings in its mix
lack of overly unique 3. Build up their Tea and (W4, T1, T9)
products Fresh Juice products 3. Focus on getting
4. Imitable products mix along the same additional penetration
5. Over-dependence in line of their core into untapped rural
the United States coffee products. (W3, markets (W5, W6, T8)
market with 85% of W4, W7, O3) 4. Make significant
total revenue being investments in
generated from the US advertising and
alone. marketing initiatives in
6. Self-Cannibalization the face of increased
through overcrowding competition in the
like having 8078stored market (W4, T6)
in the US alone. 5. Reducing their prices
7. American/European to penetrate in the
coffee culture clash foreign market (W2,
with that of other S7,T3)
countries

STRENGTHS:
1. Starbucks has a significant geographical presence across the globe and maintain
a 36.7% market share in the United States and has operations in over 60
countries. Starbucks is also the most recognized brand in the coffeehouse
segment and is ranked 91st in the best global brands in 2013. Starbucks
effectively leverages its rich brand equity by merchandizing products, licensing its
brand logo out. Such strong market position and brand recognition allows the
company to gain significant competitive advantage in further expanding into
international markets and also help register higher growth in both domestic and
international markets. Over the years, they have achieved significant economies
of scale with superior distribution channels and supplier relationships.
2. Extensive global supply chain: Starbucks had to implement the creation of a
single, global logistics system if it wanted to keep up with the demand from stores
worldwide.
3. Diversified business through subsidiaries: Starbucks has diversified through
investing in subsidiaries such as Teavana, Tazo, Evolution Fresh, Seattles Best
Coffee.
4. Products of the highest quality: They give the highest importance to the quality of
their products and avoid standardization of their quality even for higher production
output.
5. Customer Loyalty: Starbucks has cult following status among consumers and they
have also implemented loyalty-based programs to drive loyalty with the Starbucks
Rewards programs and Starbucks Card. The Starbucks Card is a value card
program that provides convenience, support gifting, and increase the frequency of
store visits by cardholders and integrated with their mobile application.
6. Starbucks experience: It isn't just about coffee, it's about the Starbucks
experience. It's about the atmosphere, everytime one walks in a starbucks coffee
shop and feels the warm welcome of the baristas. The continuity of the brand and
product also plays a big part on the whole experience. No matter where in the world
you go, the employee training is so good that you get the same feel and same taste
of your favorite Starbucks drink.
7. Operating efficiency and strong growth leading to superior financial performance:
With their revenue growth of 10% in the year 2016, Starbucks has been operating
with great efficiency to be able to keep up and maintain the same level of growth in
the past.
8. Competitive advantage of providing innovative products more quickly in all same
retail stores: When Starbucks offers a new product, it is very well implemented and
distributed thoughout all its branches worldwide.
9. Human Resource Management: Every Starbucks employee plays a huge part on
the Starbucks Experience. Thus, employee training is also a huge key factor. During
training, each employee has to go through the customer walk through to experience
what the customers ought to experience. Through this, the trainers make sure that
they embed in each employee the passion for coffee which Starbucks is widely
known for.
10. Goodwill among consumers due to Social Responsibility Initiatives: The reason
why it's so hard to hate Starbucks is that they give back to the community. Their
social responsibility strategy is based on three pillars: Community, Ethical Sourcing, and
Environment. Starbucks partners with local nonprofit organizations. For every
transaction, Starbucks gives $.05-$.15 to these partner nonprofit organizations.
WEAKNESSES:
1. Starbucks has been receiving a lot of complaints for its long wait times. Having some
customers with really complicated drink orders doesnt help one bit. Ever since
Starbucks has launched its mobile order app, the lines have gotten longer and they
have yet to fix this problem.
2. While their high price point was a strength in the previous paragraph, it is also a
weakness. The hefty price tags on some of their products (starting even with their most
basic coffee options) deter plenty of customers who might otherwise make Starbucks a part
of their daily lives. While their premium quality and good ethical values might be attractive,
some just dont have that much money to spend on a cup of coffee. While Starbucks does
differentiate their products with being highly quality couple with the whole Starbucks
Experience, in times of economic sluggishness, consumers to have so switching costs to
competitors products with lower prices and forgo paying a premium. These premium prices
could also pose some weakness for it to succeed in developing countries.
3. While Starbucks might be known for their frappucinos, pumpkin spice lattes, and big
chocolate chip cookies, they dont exactly have the most unique market. Plenty of other
coffee shops, chains or otherwise, provide similar products and only lose out to Starbucks
big name.
4. With coffee becoming a necessity, many coffee shops have sprouted left and right
and this doesnt help Starbucks one bit because their products are very much alike.
With the same drinks being offered, Starbucks suffers from their products being easily
imitated.
5. Overdependence in the US market: Starbucks generates 85% of revenues from US, its
domestic market. Being known as an international brand, the organization needs to obtain
some revenues from outside the US market. In line with self-cannibalization of the US
market with 8078 stores, Starbucks generates a huge percentage of their total revenue
from the US and this makes it very sensitive to prospects of the US economy and growth.
6. Self-Cannibalization: By aggressive expansion and high saturation due to overcrowding in
the market leads to self-cannibalization and diminishes long term growth targets of
Starbucks. This is happening especially in the United States where Starbucks operates 8078
stores.
7. Coffee culture clash: Starbucks coffee culture may not widely accepted in some countries
as part of their international expansion strategy.
OPPORTUNITIES:
1. Technological advancement can help Starbucks improve its services/ Advances in
Technology like applications on androids and iOS. Starbucks has leveraged the use of
mobile applications and has an investment partnership with Square, a mobile payments
app that is integrated with its Starbucks app. This creates an ease of use process for
customers, aligns customer loyalty through reward programs. Starbucks has already set
the bar in the industry with this advancement and about 10% of its transactions in the
US have been made using mobile applications. This is a growing field and would drive
more business to their stores as technology advances.
2. Currently, Starbucks is operating 15,000 international and expects to expand further in
countries/ Expansion in Asia, the Middle East, and Africa. Their 5-year global plan is to
open 12,000 new stores globally to a total of 37,000 by 2021.
3. Diversification of Product Mix/ Brand Extension: Starbucks carries a powerful brand
image and it can leverage it to extend into horizontal lines of its business and also
venture into product diversification with keeping brand dilution risk in check. Starbucks
recently started to expand their product mix by venturing into the Tea and fresh juice
product offerings with a smart acquisition strategy. This provides significant
opportunities for Starbucks.
4. Starbucks has partnered with a lot of firms. In 1993, they partnered with the local
bookstore Barnes and Noble. In 1996, they partnered with Pepsico. They also partnered
with United Airlines to have their coffee served during flights. And they also partnered with
Apple to sell music that comes with the whole Starbucks experience.
5. New distribution channels: Starbucks introduced a beta version of a delivery system
called Mobile Pour. This presents a great opportunity for the future by expanding their end
product distribution systems and could drive more revenue if the implementation is
successful.
6. Expansion of Retail Operations: Starbucks currently sell its packed coffee products, iced
beverages and merchandizes through large box retailers. This markets potential is yet to be
fully realized and this provides Starbucks great opportunities for the future.
THREATS:
1. The Starbucks Evenings program would increase its market reach by including
non-coffee drinkers in its clientele. Allowing the company to compete on a
stronger base. Studies have also shown that coffee sales usually peak and
decline at a certain point in the day. The study showed that 65% of all coffee is
consumed during breakfast hours, 30% between meals, and the remaining 5%
with other meals (E-imports, 2015). Allowing the company compete throughout
the day instead of just in the mornings when coffee drinking is predominant.
2. The rivals, Panera Bread, Atlanta Bread, and Dunkin Donuts were expanding their menus
and growing revenue 15%faster than Starbucks. With competitors as such, Starbucks faces a
huge threat because their menus arent expanding as fast as the competitors.

3. Fierce competition from cheaper alternatives


Low-cost coffee from firms like McDonalds and Dunkin Donuts effectively compete
against the more pricey Starbucks products. Dunkin Donuts and McDonalds are two
other huge multinational companies which directly compete with some of the products
that Starbucks sells. While these companies dont pride themselves entirely on their
coffees and teas, they offer products of a similar quality for a fraction of Starbucks
prices. Who can tell what consumer forces will favour in the future?

4. Again, with coffee shops sprouting left and right, Starbucks faces a huge threat
because their products are easy to imitate.
5. Developed Countries Economy: The political, economic and weather conditions in some
countries outside the domestic market like India can adversely affect the business.

6. With coffee shops being a thing these days, Starbucks has been facing a lot of new
competitors in the market.

7. Price Volatility: The rise in dairy prices can be a threat to Starbucks as milk and
dairy products usually get 3% or 5% of sales and its consistently increase in prices
could affect the companys operations
8. With market saturation, Starbucks can only gain revenue growth from developing
new products to offer its customers.
9. With the changing consumer tastes and lifestyle choices, Starbucks has to keep
up by conducting a majority of studies.

STRATEGIES
A. S-O Strategies
1. Provide beer and wine (S2, S3, S8, O3, O4)
Starbucks continues to introduce new products and steadily captures the
attention of all age groups. For now, Starbucks product line
includes: Coffee, Tea, Pastries, Frappuccino beverages, Smoothies. To cater to
more groups of customers, they can offer beer and wine. Starbucks five-year
strategic plan is to double its U.S. food revenue to more than $4 billion, with wine
and beer alone adding $1 billion in 2015.

2. Constantly introducing new innovative products in each store (S1, S8, O3)
With their advantage of having a strong brand image and being able to quickly
have their products in their retail stores, they should expand a diversified product
offering and mix by offering new innovative products to keep up with the demands
and taste of their market.
3. Continue to increase its revenue by expanding in other countries as well (S7, O2)
As the U.S. market gets more saturated, they should venture into other markets
to create stronger global recognition of their brand.

4. Build better relationships with big box retailers to get premium shelf space and
increase the efficiency of this distribution channel (S8, O5, O6)
Another growth sector for Starbucks is its packaged coffee packets and iced
beverage products. They have to make sure that their products are visible to their
customers but at the same time, they have to maintain their efficiency in operations
and in finance.

5. Further build and retain customer loyalty, by building on beta concept of on-the-go
home delivery (S1, S6, S9, O1)
Starbucks is making efforts at expanding its ready-to drink segment which is
forecast to grow at approximately 10% y-o-y in the next five years. Starbucks already
holds a 75% market share in the U.S. ready to drink coffee market, and hopes to
claim an additional market share of $1 billion in the premium RTD category through
its latest partnerships.

B. W-O Strategies
1. Provide advanced mobile ordering. Use of Technology and Mobile Outlets (W1, O1)
Their mobile apps business drove 10% of the sales in the US, so it would be
recommended for further building to stream lining ease of use and payment process
which would help drive more customers, decrease wait time in stores and increase
efficiency. Integrating Starbucks loyalty program with the mobile application would
also be recommended. This mobile application can be available in both apple and
android software.

The companys latest endeavor at driving digital engagement, Mobile Go and


Pay, is at 20% of all mobile transactions. The initiative is directed towards promoting
a truly seamless, digital experience. Moreover, the company can add to its loyalty
program from one based on frequency to amount, to decrease order splitting and
hassles such as long queues associated with it. Starbucks new mobile app and
coffee truck and delivery trucks help stores anticipate demand, so customer orders
are often available immediately.

2. Increase its market share outside its domestic market (W5, O2)
As Starbucks has large market share of about 85% in the US market, they must
take advantage of their market expansion to increase its market share outside its
domestic market. They can make use of their subsidiaries to increase such market
share. Teavana, since its launch, has become one of the biggest growth drivers for
the company. It has contributed one percentage point in comparable sales growth for
seven consecutive quarters. Its successful launch has led to Starbucks rolling out
Teavana in China and Europe. The company is betting on Teavanas popularity in
China, one of the largest tea consuming countries, to give the brand a boost. Further,
it may positively impact the sales of premium Teavana brewed and iced teas in
Starbucks stores, helping increase the average spend per customer on beverages.
3. Build up their Tea and Fresh Juice products mix along the same line of their core
coffee products. (W3, W4, W7, O3)
Starbucks started off as a coffee shop and it has built its brand to be one of
luxury in coffee. Starbucks has moved from the traditional coffee shop but most of its
growth in variety has been in the same realm of business, for example, Starbucks
introducing products like Products like Evolution fresh juices and La Boulange food,
is still closely related to the Starbucks brand.

C. S-T Strategies
1. Provide expanded lunch and dinner menus (S3, S8, T1, T2)
Since their competitors were expanding their menus, they could also expand
theirs to keep at par with their competitors and to increase their revenues in the
period after breakfast. Lunch hours, for the company, have been the fastest growing
day part for a number of years now. This was driven by improved food offering, more
fresh food items around bistro boxes and sandwiches, and strength in its tea
platform. Starbucks new food items include truffle macaroni and cheese, Parmesan
crusted chicken skewers, bacon-wrapped dates with balsamic glaze, artichoke and
goat cheese flatbread, and chocolate espresso, champagne, and raspberry truffles.

2. Shift its operation elsewhere where it seems to have more potential growth (S1, T6,
T8)
Due to economic/political instability in some countries that affect the business
operations. However with its strong global image, Starbucks can shift its operation
elsewhere where it seems to have more potential growth.

3. Mitigate price volatility risky by implementing an effective hedging strategy and


diversify its products that do not include any dairy items to avoid the threat of rise in
the cost of dairy products (S3,T7)
Coffee beans are a significant input into Starbucks value chain and there have
been wide fluctuations in the market prices of high quality coffee beans. Starbucks
could mitigate this price volatility risky by implementing an effective hedging strategy
like future contracts to lock in their estimated quantity inputs at a low swing price so
that the future costs can be managed to a greater extent. As for dairy products and
milk, they can offer a diverse product mix and offering to have it as another source of
revenue and reduce in terms of cost on milk and dairy products.

4. Establishing New Partnerships (S2, S3, T1,T2)


Food sales now represent 20% of Starbucks revenue and has been consistently
contributing almost a percentage point to comps. Further, the company has found
that each day part is far below its saturation level in terms of food offerings. To fully
leverage off the gaining popularity of its complementary coffee and food menu, the
company should work towards establishing partnerships and making food one of its
major future growth drivers.

D. T-W Strategies
1. Extend its product line in beverages like providing beer and wine (W3, W7, T2, T9)
Starbucks, when faced with growth of competitors and changes in their
customers tastes and lifestyle, need to extend its product line in beverages. Every
loyal Starbucks customer knows that Starbucks comes out with new flavors of coffee
every year. They also rotate their popular flavors during the holidays, like pumpkin
spice, gingerbread, peppermint, etc. They shouldnt limit to introducing new flavors
but they should also offer other beverages. Starbucks new wines include a variety of
sparkling, red, white, and rose choices. Venturing from non-alcoholic drinks to wines
and beers is a transition that a few would struggle with.

2. Tailor its menus and expand to give healthier product offerings in its mix (W4, T1,
T9)
The shift of customers toward healthier products and the risk of coffee culture
vanishing, represents a future threat for Starbucks. With this, they should expand
their product offerings that meets their customers needs and demands.

3. Focus on getting additional penetration into untapped rural markets (W5, W6, T8)
With the saturated U.S. Market, Starbucks should expand the brand
internationally. They had already started such process and they can have possible
growth in potential markets to penetrate like emerging and developing markets in
Asia, Europe and Middle East.

4. Make significant investments in advertising and marketing initiatives in the face of


increased competition in the market (W4, T6)
From their Annual Report on Form 10-K, we can see that Starbucks invest very
little in advertising and marketing initiatives. It would be recommended that
Starbucks make significant investments in advertising and marketing initiatives in the
face of increased competition in the market.

5. Reducing their prices to penetrate in the foreign market (W2, S7,T3)


There is a consensus among customers and industry analysts that Starbucks
coffees and other beverages and foods are more expensive compared to the
products the majority of other coffee house chains in most parts of the U.S. It is
understandable that this is the result of their product differentiation and capitalization
of customer loyalty. But this may alienate certain segments especially those markets
in countries that are experiencing economic difficulties. Thus, to penetrate a foreign
market, they must start going with a lower price for such markets.

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