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What are the four competitive strategies?

Michael Porter’s Generic Strategies prescribed four themes for gaining competitive
advantage: cost leadership, differentiation, focused cost leadership and focused
differentiation

What is a strategic competitive advantage?

This is a characteristic that allows a company (or country) to outperform its competitors.
Some examples could be access to natural resources, higher caliber labor, geographic
location, access to technology, and/or high barriers to entry.

What is a low cost business strategy?

A low cost business strategy is an approach where a business seeks to claim competitive
advantage by producing its product or service cheaper than its competitors. For commodity
products, this is particularly invaluable, as consumers will naturally deviate to this offering.

What is a hybrid business strategy?

A hybrid business strategy is when a firm seeks to gain competitive advantage by employing
different tactics via a mixture of cost leadership and differentiation strategies. This is possible
for firms with significant resources and disparate markets, reducing their chance of becoming
"stuck in the middle."

Business Ethics at Starbucks


Corporation: A Case Study
The importance of ethics has been highlighted time and again in the context of
business. In the twenty first century government and a number of watchdog agencies
have been keeping a keen eye on businesses that try to engage in unethical
practices. While large businesses mostly act responsibly, sometime they too may
feel inclined to indulge in unethical practices just for the sake of profits. From Nike to
Walmart, all have faced fierce criticism in the past for unethical practices. From
supply chain to HR management and in other areas too including marketing, there is
a need for businesses both small and large to follow ethical practices. However, in
this crowd of brands, some of the companies stand out for their ethical image.
Starbucks is also one of them. It has always adhered to ethical practices and except
a few petty issues has generally been hailed as a highly ethical and customer centric
company. Ethics is an important focus area at Starbucks. It has helped the company
acquire the image of a highly responsible coffee brand that deals with its customers,
suppliers and employees ethically. Today, Starbucks is the largest coffeehouse
chain of the world with the highest number of stores running worldwide. Its total
number of stores as of 2017 was 27,339. Despite having grown as large, its focus on
ethics has not reduced.
Ethics in the supply chain:
Starbucks focuses on ethics in every area but particularly down the supply chain. In
this area its focus on doing business ethically is very strong. What is it like being
ethical with your suppliers? There are a few important principles related to ethicality
in the supply chain. Supply chain and supplier relationships must not remain limited
to just a formal give and take relationship. The best brands that believe in being
ethical form strong and trustful relationships with suppliers. Some important
principles that businesses must follow are as follows:

 Treat your suppliers equally whether big or small. Equality is an important


principle that businesses must follow in their supply chain. Whether it is a major
supplier or a small one, it is your responsibility to treat them equally and not to
discriminate against them. While this creates trust, it also minimizes issues
which could otherwise create difficulties. Treating them equally inspires trust
and confidence and helps establish long term relationships.
 Empower your suppliers. As already mentioned, it is not just a give and take
relationship and you must focus on creating an environment of empowerment
for your suppliers. Empowering your suppliers can be highly advantageous for
your brand. It makes them feel connected and strengthens your relationship
with them.
 Train and educate your suppliers. Good businesses do not just care for
themselves but they care for others too. They care for their suppliers and
provide them the necessary training in various areas to protect and support
them. From labor to law and CSR, there are several areas where your
suppliers may require training and where training them may make them more
productive and efficient. This will have a double benefit for you.

Starbucks has followed all the above mentioned principles responsibly down its
supply chain. It believes in helping the farmers it sources from and giving back to
them by empowering them. Its success is linked to the success of the farmers
who grow cocoa for it. In the process of sourcing, the brand focuses on both ethics
and sustainability. Helping these farmers grow and thrive helps ensure sustainable
supply of high quality raw material in the longer term. The Arabica coffee that
Starbucks sources is different from the regular Arabica. It is found at the high altitude
and Starbucks picks the beans when they are at their best. However, the farmers
who grow them also deserve to be rewarded amply for their endeavour. Starbucks
has formed a meaningful relationship with these farmers which is more than just a
regular buy and sell relationship. Instead of using middle men who would seek their
own profits, it contacts farmers directly and seeks to improve their lives by helping
them be more self dependent. In several coffee communities around the world, this
company has helped at least 1 million cocoa farmers. Traditionally, what used to
happen is that most of these farmers would not get the right prices of their produce.
Middlemen mostly took away the profit. To change this norm and to help the farmers
who grew cocoa, Starbucks created its own team to source directly from the farmers.

There is more about ethical sourcing at Starbucks. The farmers are also required to
adhere to certain rules and remain committed to Starbucks policy of corporate
citizenship. In the twenty first century, the larger businesses have seen the level of
scrutiny against them rising. Criticism and accusations have led to companies from
Nike to Walmart all implementing social responsibility programs. Starbucks too has
not remained absolutely free from accusations. Elliot Schrage, in a 2004 article for
HBR notes that when the anti globalization activists singled out Starbucks for trying
to exploit the third world farmers, Starbucks took it as a challenge to its reputation
and image. It launched a pilot programme that was going to change its relationships
with the farmer forever. This programme came to be known as sustainable sourcing.
As a part of this programme the brand started cultivating strong relationships with
farmers (suppliers) that were environmentally and socially responsible. It created
rewards to motivate such suppliers. This strategy controlled the criticism against
Starbucks and as a result the company made it a cornerstone of its global business
and supply chain strategy.

Starbucks had launched its preferred supplier program in 2001 which was intended
to attract and reward the socially and environmentally responsible farmers. The
company had set aggressive growth plan and these suppliers were a very important
pillar of its growth plan. It needed suppliers who took the best care of their
employees and lands. They were the most responsible farmers and suited the
company’s growth strategy. Farmers had to apply to the program to become a
preferred supplier. The company reviewers evaluated these suppliers on ‘twenty
metrices’ to determine if they engaged in sustainable and environmentally
responsible farming. The kind of land on which quality cocoa beans can be grown is
not found in plenty and to retain the productivity of such lands, it is essential that the
farmers do farming in a environmentally responsible and sustainable manner. The
reviewers also ensure that the farmers are engaged in socially responsible practices
such as have a good social image and take care of their labor force well. This
ensures that the supply is not compromised due to labor or legal unrest. Starbucks
rewards points on each criteria and the farmers earning the highest points are
awarded higher prices for their produce.

Starbucks has a very carefully planned supply chain strategy that is based on ethical
sourcing and supply. The brand has set ambitious targets in terms of sustainable
and ethical sourcing and has also achieved these plans to a very large extent. In
2017, the brand celebrated 99% ethical sourcing. By 2020, it plans to source 100%
of its coffee ethically from its suppliers around the world. At the time, the brand had
started its ethical sourcing plan, it was unsure if its gamble was going to be
successful in the long term. However, it has been more than 15 years now and the
brand has seen a lot of success in these years. It is clear that its gamble has paid
off. A refreshing cup of coffee sourced sustainably from the best farms is just a sign
that Starbucks cannot compromise on quality. In 2017, when its Japan and Europe
based stores celebrated 99% ethical sourcing, the brand had proved that it could
achieve its target ethically. What Starbucks is doing is actually good for the health of
the brand, its suppliers as well as the customers and the environment. Managing
100% ethical practices down your supply chain is a major challenge before any big
business. However, very few are able to do it as proactively and creatively as
Starbucks.

Ethical Human Resource Management:


Human resource management is now a central area of business in the twenty first
century that affects the productivity and efficiency of businesses. The larger
businesses are especially very careful about their hiring and retention strategies and
training their employees for maximum productivity. Well trained employees are like
an asset and businesses have to care for their well being. Managing human
resources ethically is a challenge but also an opportunity in this era. Some of the
newly risen technology brands like Google, Salesforce.com and Facebook have
performed very well in this area. Starbucks also believes in winning its employees’
trust by managing them ethically. Ethical HR practices result in higher motivation,
low attrition as well as performance maximization. Employee satisfaction has
become very critical to maximizing your organizational efficiency and productivity in
the twenty first century. This century has brought a lot of competition. Even in the
area of HR management, brands are in a race to remain ahead of others and hire
and retain only the best. This is the situation in nearly every industry because
organizational productivity depends heavily on the efficiency of the human
resources.
Starbucks has also focused on managing its Human Resources strategically and
smartly as well as ethically. So, what does Starbucks do to keep its workers
satisfied? Does it focus on worker engagement and motivation? Yes, it does. There
are several perks of working at Starbucks apart from a great environment and work
culture. It has received several honors and accolades in each of these areas
including being one of the most ethical companies in the world, a Military friendly
employer, a Military Friendly Spouse employer as well as one of the world’s most
appreciated companies according to Forbes. These recognitions show that
Starbucks is an attractive employer. So what does being an ethical employer mean
for Starbucks? Does it mean paying its employees well and caring for their needs?
Or does it mean giving them more than they deserve and helping them realize their
dreams? It involves all that apart from creating an environment of trust, inclusion and
security.

Starbucks calls its employees partners and does everything required to help them
live empowered lives. It believes in sharing its success with its people and has
tailored its benefits and perks to suit the needs of its workers. Packages include
base pay and bonus, benefits, retirement savings, stocks and perks. Benefits
provided by Starbucks to its employees include health coverage, stock and savings,
paid time off, parental leave, paid time off, education, commuter benefit and parters
assistance. There are several kinds of perks offered to the employees as well
that include coffee and tea mark out, in-store discount, recognition programs and
several more benefits like on site gym, day care and dry cleaning. These perks and
benefits are intended to keep the employees happy and satisfied but at the same
time they are meant to keep employees engaged and retain them longer. In the 21st
century, the companies are competing to keep their employees more satisfied than
others. However, to build an environment and culture of trust and ethics is essential
to make your employees feel truly empowered and satisfied with their jobs.
Starbucks has created a truly inclusive environment in which its employees can
collaborate with others and lead satisfied lives. It gives its employees special ethics
and compliance training in order to help them do everyday business ethically. As a
part of this program, the partners (employees are called partners at Starbucks) are
trained to make ethical decisions at work. Employees receive awareness materials
including Standards of business conduct to complete their legal and ethics training.
They also have several communication channels through which they can report their
issues and concerns.

Ethical Customer Service at Starbucks


Customer relationships are an important area of focus in the twenty first century
where businesses mind their customer relationships more than ever. It is because
competition has increased manifold and every customer is valuable. Businesses
want to retain every customer which is possible only by forming long term and strong
relationships with them. Every customer is an aware customer and knows more
about your brand already before you tell him. It is why fairness and integrity is
important in customer relationships because if you try to be unfair the customers will
know. It is why the best brands are always ethical towards their customers and
would not treat a single one unfairly. Starbucks is already known as a customer
centric company and focuses a lot on customer service and customer relationships.
It is well known for its customer service and trains its employees in the area of
customer relationships well.

The Mission statement of Starbucks is :

To inspire and nurture the human spirit – one person, one cup, and one
neighbourhood at a time.

The focus of its mission statement is also the customer – each individual customer.
The reason is clear. Your business revolves around the customer and that is why he
exists at the centre of the picture. In the recent few years, Starbucks has
strengthened its focus on customer service and made it a core part of its business
strategy. It is not just the employees in the front line but other employees two are
provided ample training in this area. Even the baristas who would ordinarily just
prepare coffee are trained in customer service at Starbucks so they can interact with
customers well and keep them engaged. Customer service is just a part of the entire
picture however because when you are concerned with ethics, you have to care for
more than just hundred percent customer satisfaction. Apart from making them feel
welcome, you have to make them feel included. To win a customers’ trust and to
retain it is a difficult task but you can handle it with responsibility. Customer ethics
are infact a matter of responsibility.

Starbucks is a premium brand that charges premium prices of its products. It is not
an average brand that can expect its customers to ignore its minor flaws. Customers
expect a personalized treatment but more than anything they want transparency in
relationships. If a brand can manage to be transparent in terms of its customer
relationships, it is an ethical brand. People say that the Starbucks experience is a
distinct experience in itself. The reason is that there are those thousands of baristas
and other employees bearing the onus of providing the best customer experience on
earth. Customer ethics are not a child’s play but you can still manage to be among
the best if you try. Starbucks has excelled other food and beverages brand in this
area and it has major benefits for the brand as well. When other brands are fighting
to create strategies to win and retain customers, it is busy expanding its business to
new regions of the world and reaching new customer segments. However, it HR has
played a very important role in ensuring that every customer gets only what he
expects. Starbucks is performing well in one other area too which is customer
conversations. It has opened several channels for customer conversations and
suggestions. Some of the key channels are its own website and the social media.
Apart from the customer care number and email, people can also use its website to
submit complaints and suggestions. Facebook has also proved an effective medium
for Starbucks to communicate with its customers and handles customer complains
and issues proactively there. Customer ethics matter in this era because of their
direct relation to your brand image and affect how much your customers love you.

Sources:
https://hbr.org/2004/06/supply-and-the-brand

https://www.starbucks.com/responsibility/sourcing

https://www.starbucks.com/responsibility/community/farmer-support/social-
development-investments

https://news.starbucks.com/news/starbucks-99-percent-ethically-sourced-coffee

http://www.starbucks.in/about-us/company-information/business-ethics-and-
compliance

https://www.starbucks.com/careers/working-at-starbucks/benefits-and-perks

Target Marketing

https://www.inc.com/business-insider/starbucks-customer-experience-baristas-north-
star-meeting.html
#Strategic Analysis of Starbucks Corporation

#INTRODUCTION:
Starbucks is a premier coffee brand that roasts markets and sells premium coffee around the
world. Formed in 1985, STARBUCKS (NASDAQ: SBUX) is operating across 75 countries.
The coffee brand is known best for its premium quality coffee. However, apart from that, it is
known for its great customer service and great stores that offer the customers a stress free
environment. The brand is known for many more extraordinary things as well. It aims to
become one of the most prestigious and recognised brands of the world. To achieve its
objective the brand has focused on disciplined expansion in key markets including developed
and fast developing as well as optimization of its licensed and owned store base. Starbucks
purchases and roasts high quality coffee that it sells along with hand roasted coffee, tea and
other beverages. The number of total Starbucks stores operational as of October 2017 was
27,339. Out of these more than 16,500 were operational across the Americas. The company
has managed an optimum balance of licensed and owned stores globally. Apart from these
things, the brand is also known for doing ethical business. It sources its cocoa ethically and
also maintains its focus on high ethical standards inside the organisation. Read more about
Starbucks and its business strategy in this strategic analysis.
#SWOT ANALYSIS:
STRENGTHS:
Brand Image:

Starbucks has maintained a strong brand image as an ethical business brand. Apart from its
premium products, it is well known as a customer centric brand. Its main focus remains on
creating highest customer satisfaction. However, it does that without compromising on ethics.
The company has formed strict rules related to work ethics. Its image of a premium brand is
also support by good quality customer service. If the brand is a favourite of millions around
the world, the reason is its dedication to customer satisfaction. A strong brand image is a
critical strength which helps at many points. Apart from higher sales and revenue it also
controls marketing costs and helps brands find faster growth as in the case of Starbucks
corporation.

Premium quality coffee:

Starbucks sources only premium quality coffee from the best producers. Its Arabica beans are
very different from the regular Arabica beans and the company goes to great lengths to
ensure that it sources only the best. Best quality beans are found at higher altitudes. To source
the best Arabica coffee Starbucks has formed deep rooted relationships with coffee farmers.
Apart from picking cherries when they are at their peak, the brand also roasts them deeper to
bring out the best taste which can be felt in each cup of coffee. Everyday experts taste
thousands of cups to ensure that only the perfect taste reaches the customers.

Global presence:

Starbucks is a global brand that sells its products across 75 countries. It sources its cocoa
from several corners of the world. Americas are its main market and the brand earns a very
large part of its revenue from the American markets. However, apart form America, it is also
focusing on growing its business in the fast developing markets. The geographical segments
that its business is divided into include Americas, CAP and EMEA. The Americas include
United States, Canada & Latin America. CAP means the China and Asia Pacific markets.
EMEA includes Europe, Middle East and Africa. Starbucks has the highest number of stores
in Americas followed by China and Asia Pacific.

Large product portfolio:

Starbucks has maintained a large and diverse product portfolio that includes premium quality
and hand roasted coffee as well as other beverages. The company also sells tea and other
beverages and a variety of high-quality food items, including snack offerings, through
company-operated stores. It sells a variety of coffee and tea products and licenses its
trademarks through other channels like licensed stores, grocery and foodservice accounts. In
addition to its flagship Starbucks Coffee brand, it sells goods and services under several
brands including: Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and
Ethos.
Customer loyalty:

Starbucks enjoys very high level of customer loyalty. It has been able to build a strong image
which has resulted in a large and loyal customer base. The main factors that have led to high
level popularity and loyalty are its premium quality products and high standards of customer
service as well as work ethics.

Financially strong:

Starbucks is a financially strong brand and the result is that it is able to invest in high quality
raw materials and excellently designed stores to welcome its customers. Total net revenues of
the brand reached 22.4 Billion dollars rising from 21.3 Billion dollars. Operating income of
the brand saw a slight decline in 2017 falling from 4.17 Billion to 4.13 Billion.

Well managed supply chain:

Starbucks has managed its supply chain very well. It needs high quality cocoa for preparing
coffee which it sources from around the world. A well managed supply chain is one of its
most critical strengths that supports its worldwide operations. It has a dedicated team
of experts in roasting, planning, warehouse management, packaging, maintenance,
engineering and logistics. The brand focuses on continuous improvement and lean principles
down its supply chain.

Weaknesses:
Low focus on marketing:

Traditionally, Starbucks has not spent much on marketing. It has mainly relied on word of
mouth and publicity for marketing. In the recent years, it has started spending on advertising
and promotions. However, its marketing expenditure is still very low as compared to the
other beverage brands. Its brand awareness and recognition could be even higher given it had
focused on strategic marketing of its brand and products.

High operating expenses:

The operating expenses of Starbucks have kept growing higher. Its operating expenses in
2017 rose to 18.6 Billion dollars from 17.5 Billion dollars in 2016. Its operating expenses in
2017 were 83.3% of its entire revenue.

Premium pricing:

The premium pricing strategy of Starbucks can be a weakness leading to erosion of customer
base. The brand targets mainly the high end customers. Its customer base could grow faster, if
the prices of its products were lower. However, Starbucks does this to maintain a premium
image among its customers. Changing the pricing strategy can result in brand dilution.
However, decreasing the prices can also have major benefits like access to a larger customer
base.

Opportunities:
Digital marketing opportunities:

Digital technology has brought several new opportunities for brands and marketers which
they can use to better market their brands and engage their customers. Starbucks can use AI
and digital technology for establishing deeper connection with its audience. It can also use
digital technology and explore new channels to engage its customers and increase customer
satisfaction.

Asian markets:

Asian markets are among the fastest growing markets in the world currently. These markets
have brought several unique opportunities for the brand. Starbucks is focusing on increasing
its presence in the Chinese markets and for that it is investing in opening new stores and
marketing for increased brand awareness and faster expansion. India is also an attractive
market where the brand can find faster growth.

Acquisitions and partnerships:

Acquisitions and partnerships can also offer the brand opportunities of faster growth.
Starbucks can acquire other smaller food and beverage brands and grow its product portfolio
and business. It can also partner other brands for cobranding and to access a larger pool of
customers.

Threats:
Growing competition in the beverage industry:

Competition in the beverage industry has increased a lot. Apart from coffee there are other
beverage and fast food brands too competing with Starbucks. It seems that due to the higher
pressure of competition, the brand raised its expenditure on advertising and promotions.

Rising operational costs:

The operational costs of Starbucks have kept rising year over year. Apart form the cost of raw
material, the cost of labor has also increased. Other costs like that of supply chain
management are also adding to operational costs and causing a reduction in operating
income. In 2017, the brand’s operational costs were higher than 83% of its total revenue.

Regulatory pressures:
Around the world regulatory pressures have grown leading to higher legal and regulatory
pressures on the international business organizations. These pressures are not just leading to
compliance costs but also making international expansion difficult. Starbucks also ensures
that its business is in compliance with all the local and international laws.

Changing customer trends:

Customer trends keep changing fast. People are now looking for healthier products. Fast
changing trends alter people’s preferences and affect their taste. This can prove costly for
brands like Starbucks as they have to alter their menu as per their changing trends.

#PESTEL ANALYSIS:
POLITICAL:
Political forces have grown increasingly important in the context of business in the twenty
first century. Several things have changed in the international political environment.
Worldwide political and government agencies have grown highly strict in terms of their
control of local and international business. Higher oversight and control has resulted from
several factors including lack of ethics and corruption. However, the degree of regulation
may have increased manifold in this century. Political factors affect businesses in many more
ways too. Political stability in a market results in economic stability which can be great for
businesses. On the other hand, political chaos causes economic instability and can lead to
disruption of supply chain and sales and distribution network. Moreover, trade relationships
between various nations also affect stability of the business environment. The recent trade
wars between US and China re affecting their business relationships and in turn the
businesses based in these two nations. Starbucks is a global brand that operates across the
world in 75 nations. While its main markets are the Americas, it has also maintained an
impressive presence in China and Asia Pacific. Americas are generally a stable market. Asia
Pacific has also remained politically stable in the recent years. A stable political environment
proves profitable for Starbucks.

ECONOMIC:
Economic factors are among the most important in the context of business. It is because they
affect businesses directly whether big or small. The world has been through a recession some
years ago. The period of recession was a very difficult period for the international businesses.
Employment level had tumbled globally leading to fall in people’s income and level of
spending. This was having an adverse impact on businesses and their income. Large
businesses were forced to cut down costs. Most large companies were engaged in lay offs to
reduce their labor costs. Since employment was down middle class customers were spending
less on lifestyle and premium priced items. All these factors had a negative impact on the
income of international businesses. Now the world economy is back on track and people’s
income level as well as employment have risen. This has led to higher spending as people
have higher dispensable income. the post recessionary period is also remarkable for the rise
of the middle class. Competition and premium pricing of Starbucks are also some important
factors affecting the demand of its products. Since Starbucks only sells premium quality
products, its customer base is also limited to the higher end segment of the market. This can
have an adverse impact on sales of the brand in the times of economic fluctuations. Apart
from that currency fluctuations and a stronger dollar also affect businesses like Starbucks
adversely.

SOCIAL:
Social factors have also acquired larger importance in the context of business. Sociocultural
factors are affecting various dimension of business including their sales and marketing as
well as supply chain management. Having a socially responsible image is important for any
brand. A socially responsible image leads to higher customer loyalty and popularity.
Changing social trends affect businesses and they have to alter their product and marketing
strategies accordingly. The 21st century has seen major sociocultural changes happening.
After globalization, now brands are focusing more on executing localized strategies to win
their customers and to grow their business. Localized branding and marketing strategies can
help you grow popular with local audience. Companies are also focusing on local sourcing
for improving the condition of employment in local economies. In this way socio cultural
factors are now an integral part of business sales and marketing strategies of international
businesses including Starbucks.

TECHNOLOGICAL:
Technology is now a central factor affecting business and apart from being a source of
competitive advantage it is also a major differentiator industry wide. This is true about nearly
every industry including the coffee industry. Starbucks invests heavily in Information
Technology. It uses IT to facilitate work processes at several points including point-of-sale,
web and mobile platforms, including online and mobile payment systems and rewards
programs, and for administrative functions, including human resources, payroll, accounting
and internal and external communications. IT and digital technology have become central to
the functioning of businesses efficiently. Starbucks also uses digital technology like its
website, blog and the social media for marketing and brand awareness. The brand also uses
other forms of technology down its manufacturing and supply chain. So, overall technology
plays a critical role in the functioning of Starbucks’ day to day business.

ENVIRONMENTAL:
Environmental factors are now increasingly central to business as government and private
agencies are watching the environmental impact if businesses globally. Starbucks is highly
cautious about doing business sustainably and playing an accountable role in the society and
community. It also invest heavily n environmental protection and community empowerment.
Apart from recycling and waste reduction, the brand has also focused on energy conservation
in its system for managing its environmental footprint. It has continued to focus upon
reducing the amount of water it uses by continuously evaluating its store design, equipment
and operations. It is making its stores as green as possible by using responsible building
materials as well as energy efficient design. It also organizes regular programs on
environmental awareness and trains its employees in community service. Starbucks does its
business ethically and has retained its focus on environmental protection.

LEGAL:
Law has taken a stricter position around the globe with respect to international businesses in
the recent years. The level of oversight and control of businesses by legal agencies globally
has increased a lot. Several of international businesses have got to be at the receiving end in
the recent years. The level of fines for violations have also increased and the stance taken by
EU is particularly ver strict. In case of Starbucks too, it focuses a lot on compliance in all its
markets. Compliance and ethics are important issues and therefore the company trains its
employs well in both the areas. Compliance issues can pose major challenges before
enterprises in today’s world. Apart from higher operational costs, it can also lead to reduced
profitability. In case of violations, fines can be very high and from labor to environment there
are several laws in each area to be complied with. Overall, the role and importance of legal
factors in the business industry has grown manifold. Law is keenly observing businesses
around the globe to ensure they remain engaged in ethical practices. However, in several
areas it can become a challenge to business growth and expansion.

#FIVE FORCES ANALYSIS:


BARGAINING POWER OF SUPPLIERS:
The bargaining power of suppliers in case of Starbucks is low. the brand itself works to
ensure that its su[pliers get nothing less than fair value. However, while these suppliers are
scattered worldwide, they are also much smaller in size and strength. Starbucks is a large
brand with financial clout. Moreover, Starbucks ensures ethical sourcing and selects its
suppliers carefully. All these factors lead to lower bargaining power for Starbucks suppliers.

BARGAINING POWER OF CUSTOMERS:


The bargaining power of customers in the twenty first century has grown much higher as
compared to earlier. It is because of several factors. Apart from rising competition, the rise of
digital technology is also responsible for these changes. Today, the level of competition in the
food and beverages industry is very high which has led to higher control in the hands of the
customers. Moreover, the premium pricing strategy of Starbucks also makes every customer
valuable. It is also why the brand focuses on both premium quality and premium customer
service. It has implemented several customer retention programs too.

THREAT OF SUBSTITUTE PRODUCTS:


The threat from substitute products for Starbucks is moderately high. It is because of the
significant competition in the coffee industry. The food and beverages industry is marked by
intense competition. There are several rands offering matching products. However, the threat
gets moderated by the premium quality of Starbucks products and the extraordinary customer
service that the brand offers. Overall, the threat from substitute products in case of Starbucks
remains moderately high.

THREAT OF NEW ENTRANTS:


The threat of new entrants in the coffee industry is moderate. It is because of the low barriers
to entry. A brand can start its business locally with a small financial investment. Starting a
local brand does not require major investments in product, processes or marketing and human
resources. However, to grow into an international brand requires considerable investment as
well as focus on quality and human resources. All these factors make it difficult for new
brands to rise in the coffee industry which is already marked by heavy competition. The
overall threat from new players remains moderate.

COMPETITIVE RIVALRY in THE INDUSTRY:


Competitive rivalry in the coffee industry has grown moderately high. The number of brands
that roast and/or sell coffee has grown. In this competitive market some of the factor
that moderate the competitive pressure for Starbucks are brand image, premium quality, and
customer service. Overall, the competitive threat for Starbucks is moderately high. It is the
largest coffeehouse chain of the world based on the number of stores. Its global presence also
moderates the competitive threat before the brand.

#VALUE CHAIN ANALYSIS:


Value chain covers the entire range of activities that add value to the product or service from
product conception to product delivery, marketing and after sales service. The concept of
Value chain was given by Harvard Professor Michael E Porter. All the activities down the
value chain add value to the product and a value chain analysis helps get a better glimpse of
how each step can be better optimized to add value to the final product. Optimization of the
value chain helps control costs and bring higher efficiency. It can also help generate unique
sources of competitive advantage. This is a value chain analysis of Starbucks Corporation.

PRIMARY ACTIVITIES:
Inbound logistics:

Starbucks sources from suppliers all around the world and the brand has managed excellent
relationships with its suppliers to ensure continuous supply of high quality raw material. The
company undertook some major reorganization in 2008 to optimize its supply chain and
manage its logistics better. It created a single global logistics system for its global supply
chain. the company sources beans from Latin America, Africa and Asia which are brought to
US and Europe in ocean containers. From the ports, these beans are brought to the roasting
sites, storage sites and warehouses. Several of its facilities worldwide act as roasting,
warehouses and distribution facilities. Starbucks also uses external logistics and supply chain
partners to manage its inbound logistics.

Outbound logistics:

Starbucks has more than 27000 stores worldwide. It ships roasted coffee beans in large
amounts regularly from its warehouses and distribution centers to the retail stores for final
sales. Apart from the company owned regional distribution centers, the brad uses third party
logistics providers to serve its retail stores. It serves its retail stores through its larger
distribution centers or the smaller distribution centers called Central distribution centers. the
largest number of Starbucks distribution centers are located in US. A dedicated fleet of trucks
carries products from these central distribution centers carry products regularly to the
company retail stores and other retail outlets selling Starbucks branded products.

Operations:

Starbucks is a global brand with operations in 75 countries. The brand has a large number of
facilities located globally to carry out its operations including retail stores and supply chain
facilities. The company owns its roasting facilities but it has leased a major part of its
warehousing and distribution to external partners. Its headquarters are in Seattle, Washington,
United States. The brand has 27,339 retail stores operational across the world (as of October
1, 2017). the locations of some of its major facilities are listed below:

Rancho Cucamonga, —- Manufacturing

Augusta, GA —– Manufacturing

Auburn, WA — Warehouse and distribution

San Francisco —- Warehouse and distribution

Stratford —– Warehouse and distribution

Samutprakarn, Thailand — Warehouse and distribution

Minden, NV (Carson Valley) —– Roasting and distribution

Kent, WA —- Roasting and distribution

Amsterdam, Netherlands — Roasting and distribution

York, PA —– Roasting, distribution and warehouse

Gaston, SC (Sandy Run) —- Roasting and distribution

Lebanon, TN —- Distribution center

Seattle, WA —- Corporate administrative

Marketing and sales:


Traditionally, Starbucks has not undertaken major marketing activities as most brands do for
promotions. It has relied on word of mouth and publicity for marketing. It has also been
heavily successful in this area because of its premium product quality, excellent customer
service and well designed stores. these stores have always attracted premium customers in
large numbers. Apart from that its ethical image has also been a major support for its
marketing strategy. However, during the recent years, the level of competition in the industry
has grown which has led to Starbucks increasing its spending on advertising and promotions.
Compared to the other beverages and coffee brands, its marketing expenses are still limited
and hardly touch even half a billion dollars. It sells its products through a mix of company
owned and licensed stores. Apart from that customers can buy its products online as well as a
limited range at Walmart, target and other retail stores.

Service:

Starbucks has managed excellent level of customer service. It trains its baristas and
employees to serve its customers well and generate highest level of customer satisfaction.
Customer service is one of the major priorities of Starbucks which has traditionally been
known for managing a customer friendly environment inside its stores.

SUPPORT ACTIVITIES:
HRM:

Human resource management is also an important focus at Starbucks. Apart from hiring and
retaining the best talents, it also nurtures a unique culture. It calls its employees partners since
they share the brand’s success. As of 2017, the brand had 277,000 employees of which
185,000 were employed in United States alone. It has implemented several training programs
and important benefits for higher employee satisfaction. A culture of integrity and inclusion
ensures a non discriminatory work environment. Employees are also trained in ethics and
compliance.

Infrastructure:

Starbucks has managed a global infrastructure that includes its several manufacturing,
roasting and distribution facilities as well as retail stores. Led by Howard Schultz, the
company is growing its global presence continuously through growth in the number of stores.

Technology:

Technology has grown increasingly central to the functioning of Starbucks. Apart from the
various types of technologies that the brand uses for roasting and down its supply chain the
brand has maintained extensive focus on Information technology. Investment in IT has
brought higher efficiency and productivity. Starbucks uses IT at several points
including point-of-sale, web and mobile platforms, including online and mobile payment
systems and rewards programs, and for administrative functions, including human resources,
payroll, accounting and internal and external communications. It is also using digital
technology proactively for the purpose of marketing.
Procurement:

Starbucks procures raw material from numerous suppliers across the globe. Its procurement
function is also known as Global Sourcing and Supplier relations. However, continuous
growth can make it difficult to retain a consistent supply of high quality raw materials.
Therefore, its global sourcing function is continuously on the look out for new suppliers. he
company has also formed rules for the selection of suppliers who must be able to meet the
quality expectations as well as other standards related to HRM and diversity.

#CORE COMPETENCIES:
Customer loyalty:

Starbucks enjoys very high level of customer loyalty. Some of the factors that have helped it
build such high level of loyalty include its premium quality, customer service and an ethical
brand image.

Premium quality:

Starbucks’ focus on premium quality is also an important core competency of the brand. It
has always sourced the best quality coffee from around the world. the brand sources coffee
from best sources and roasts it deeper to bring out the flavour.

Global expansion:

Starbucks is operational across 75 countries. It is also the largest coffeehouse chain based on
the number of operational stores.

Human resource management:

Starbucks is an ethical brand that has managed its human resources well. It trains them well
in several areas apart from customer service and ethics as well as compliance.

Brand image:

Starbucks has maintained an excellent image as a global coffee brand. It has maintained a
premium image which is related to its premium products and service. Apart from that its
focus has also been on ethics and community service which has helped it earn a strong image.

#VRIO ANALYSIS:
#BUSINESS STRATEGY:
Premium Quality and Global Expansion:

The central pillar of Starbucks’ business strategy is is premium quality products. It as always
brought the best quality coffee to its customers. Its focus on quality has earned it heavy
customer loyalty and high level popularity around the globe. A strong brand image has
resulted in strong sales and revenue growth. The brand sources best quality Arabica coffee
found at altitudes from around the world. It has also brought a large portfolio of products that
includes coffee, tea and other beverages and snacks.

Starbucks has focused on global expansion for revenue growth. Its biggest market are the
Americas followed by China and the Asia Pacific region. The company is working to expand
its market by adding to the number of stores in its developed and fast developing markets. It
has also worked on optimizing the mix of company owned and licensed stores. The current
proportion of licensed and company owned stores is 51% and 49%. Total 27,339 Starbucks
stores were operational worldwide as of October 2017.

#FINANCIAL ANALYSIS:
Starbucks’ financial performance has continued to grow better year by year. Its revenue has
continuously increased over the previous several years. Rising from 14.9 Billion dollars in
2013, its net revenue has reached 22.4 Billion dollars in 2017. From 2016 to 2017, there was
a net growth of 5% in the revenues of the brand. Its global comparable store sales also grew
by 3%. US comparable store sales increased by 3% whereas in China there was a growth of
7% in comparable store sales. Net Earnings attributable to Starbucks rose to 2.9 Billion
dollars in 2017 from 2.8 Billion dollars the previous year. The company’s GAAP Operating
income declined 0.9% to 4.1 Billion dollars compared to the previous year. Non GAAP
operating income on the other hand grew by 7.8% to 4.4 Billion dollars. GAAP EPS grew
3.7% versus the prior year to $1.97. Non GAAP EPS grew 11.4% to $2.06 versus the
previous year.

#SUGGESTIONS:

 Starbucks must focus on international growth to reduce its dependence on the US


markets. For this purpose the brand must focus on growing its range of stores in
emerging markets like China, India and Brazil. The rise of the middle class in these
economies offers great growth opportunities for the brand and a chance to increase its
customer base and market share. Local partnerships will help Starbucks find faster
growth in these areas.
 The core product of Starbucks is coffee but the brand must also focus on teas and juices
for faster growth. these products also offer great opportunities of sales growth.
 Tastes and preferences of the consumers are changing and people are looking for
healthier options. The millenial generation is especially very health conscious.
Starbucks must tailor its offerings to suit the health conscious generation’s taste.
 In the US market too, it must try tapping into the rural customer base.
 The brand has kept its investment in marketing and advertising very low. In the last
five years since it started spending on advertising and promotions, it limited its
advertising expenditure to lower than half a billion. Starbucks must raise its investment
in this area to grow its market share and customer base as well as sales and revenue
faster.
 It must try to improve customer engagement and loyalty by investing in digital
technology and AI. Tailored experiences can help it improve the level of customer
experience.
 A large part of its customer segment uses mobile apps for purchases. Starbucks should
focus on this area for more growth.

SOURCES:

STARBUCKS ANNUAL REPORT 2017

http://www.starbucks.in/responsibility/environment

http://www.starbucks.in/coffee/ethical-sourcing/coffee-quality

https://www.starbucks.com/careers/find-a-job/manufacturing-and-distribution

https://en.wikipedia.org/wiki/List_of_coffee_companies

https://www.starbucks.com/business/suppliers

Starbucks financial results Q4 and full year 2017

https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf

https://www.starbucks.com/careers/working-at-starbucks/culture-and-values