The analysis of

Starbucks
by Anastasia Cadet

European Business School

2014-2015
CONTENTS

02. Abtract
03. Task 1: Question 1
09. Task 1: Question 2
13. Task 2
15. Appendix
20. References
List of figures:

04. Figure 1: Barriers to entry

04. Figure 2: Industry Structure
05. Figure 3: The five forces of Porters
06. Figure 4: Starbucks lifecycle
06. Figure 5: Competitive Advantage of starbucks
07. Figure 6: Mapping group of Seeking Alpha.
 Abstract

First of all, before going any further in this report it is important to situate our-
selves. What is our market ? How is it going ? Who are the major stakeholders in this
market ? Do we have a specific period in which we are interrested ?

In fact the report is oriented on the strategic position that starbucks played in 2010. It
therefore important to know how was this market 4 years ago.

Which mean starbucks , mean coffee it is therefore the reason why it exist. All the com-
pany is based on this market. Coming precisely to this market, coffee, «Coffee is one
of the world’s most popular beverages. Gross imports of all types of coffee have qua-
drupled from 33 million bags in 1949 to 132 million bags in 2010.» (ITC, 2011).

According to ITC (International Trade Center) for the year 2010/11 it is estimated that
the world’s consumption of cofee is estimated to be 130,900,000 bags. Of this total, 69.4
million bags have been consumed in the importing countries members of the OIC, 20.5
million bags were consumed in the countries who do not members of OIC, and the 41.0
million remaining bags have been consumed in the countries of the producers. The mar-
ket of coffee roasted and ground is dominated by large multinational companies.

It is always interesting to see how is the market in which we work at a worldwide scale.
Because we may export or expand our market share on an international scale. In fact, it
is already the case for starbucks, the brand is already present in more than 150 countries.

But for the moment we will concentrate on the American industry. It has all started there
for the brand. First of all we are going to highlight the Key Driving Forces through an
analysis both internal and external.

02 Starbucks it ’s bigger than coffee

 Task 1 :
Question 1

• External Analysis
• Internal Analysis
• The value chain
• Key Issues Shaping the Future
• Alternative actions
 Task 1 : Question 1

EXTERNAL ANALYSIS

Note In a report from IBIS World, which is specialised in the studies of

market we can see that the industry of coffee is a market where the
IBISWorld is one of competition is tough, that it is a mature market and the laws in order
to between in this hull are neither high nor low.
the world’s leading
publishers of bu- Let me give excerpts delivered and the report in IBIS image concer-
siness intelligence, ning the barriers of entries, and of the structure in general of this in-
specializing in In- dustry.
dustry research
Figure 1: Barriers to entry Checklist (IBIS World, 2011)
and Procurement
research.

Since 1971,
IBISWorld has pro-
vided thoroughly
researched, accu-
rate and current
business informa-
tion.

Figure 2: Industry Structure (IBIS World, 2011)

04 Starbucks it ’s bigger than coffee

 Task 1 : Question 1
EXTERNAL ANALYSIS CONT

Note We can see an external analysis through the report of IBIS. Apply this report
now to the matrix of Porter1.
1
Acording the eco- Figure 3: The five forces of porter
nomic times, the five
forces model of ana-
lysis was developed
by Michael Porter to
analyze the competi- Low
tive environment in
which a product or
company works.

2
SWOT is a tech-
nique for analysing
the internal and ex- Low Equal
ternal environments
of an organisation
through the identi-
fication and assess- Equal
ment of its strengths,
weaknesses, oppor-
tunities, and threats Discover in detail in (annex N°1) the analysis of porter the analysis of porter.
(SWOT).
Another model that we can rely on to bring out the Key Driving Forces is the
SWOT analysis en- SWOT analysis2. The opportunities and threats align themselves with the exter-
tails a distillation of nal analysis, the strengths and weakness siding has the internal analysis.
the findings of an
OPPORTUNITIES (BCRC, 2012) THREATS (ACC, 2010)
internal and exter-
nal audit that draws • The products have an advantage • The markets depend on the eco-
attention, from a to adapt themselves to the exter- nomy and the political stability
strategic perspective, nal market. • Lack of affordable credit
to the critical orga- • Opportunity for strategic growth • The culture in some countries
initiatives such as in the United Kingdom
nisational strengths
• If the expansion of the market where tea is ubiquitous
and weaknesses and continues the brand could domi- • Inadequate research and availabi-
the opportunities and nate in these sections. lity of info to farmers;
threats facing the • Creation of a coffee experience • Lack of training and development
organisation (Kot- on world markets targets in the developing countries
ler and Armstrong, • Concentrate on the emerging eco-
nomies
2011).
• The advanced technology is an
important factor as starbucks can
use those coffee machines to de-
velop this sector
05 Starbucks it ’s bigger than coffee
 Task 1 : Question 1

INTERNAL ANALYSIS
STRENGTHS WEAKNESSES

This is an industry for almost a millennium; coffee is Expensive Product

one of the largest and most important products in the The cultural shock
world. (Dicum, 2006) Coffee is one of the products The image of the CSR
which is the most consumed throughout the world,
it is estimated that the consumption of coffee has
reached 2.25 billion cups per
day in the world. (Dicum, 2006).

• Good position on the market

• High quality product
• The localisation
• Human Resources Management
• CSR

POSITION OF STARBUCKS ON THE MARKET

Now, we will analyse the place where starbucks occupies in this industry. Starbucks is positioned on a market
in maturity based since more than 20 years ago and it has seen a rapid growth in the past two decades. Howe-
ver, in the last years of its growth has slowed and even had to close in several parts of the world. Therefore,
we will see in this report how this occurred.

Figure 4: Starbucks lifecycle Figure 5: Competitive Advantage of starbucks

A company that focuses on the generic strategy of

differentiation would reveal strong marketing capabi-
lities; however Starbucks has not used television ad-
vertising until 1998. In fact, their advertising budget
was only 4 %. (Porter, 1998).
Michael porter defines three potentially successful
generic strategy; overall cost leadership, differentia-
tion and focus.

Starbucks seems to adapt to the generic strategy of

differentiation.

06 Strabucks it ’s bigger than coffee

 Task 1 : Question 1

VALUE CHAIN
Note A detailed analysis is to be found in annex N°4.

Acording the economic

times, a value chain is
the whole series of activi-
ties that create and build
value at every step. The
total value delivered by
the company is the sum
total of the value built up
all throughout the com-
pany. Michael Porter de-
veloped this concept in
his 1980 book ‘Competi-
tive Advantage’.
KEY ISSUES
Although Starbucks has succeeded very well in the past, they still face external
problems as all the businesses as well. The main problems of Starbucks are com-
petition, the maturity of the market because no business is safe to a decline in the
market. Competition in the coffee industry is increasing thus causes the market to
be saturated. Although there are only a few major competitors in this industry, a
complete service in offering products of coffee is increasing thus causes also an
increase in competition. For example, in the past few years McDonalds has added
the McCafe products to their range of products. It offers alternatives to low prices.
The latter has taken a part of the market share of Starbucks Corporation, because
they are products of substitution. According to an article published in 2010 in
Seeking Alpha3 of all the companies who have the potential to successfully com-
pete with Starbucks, Peet is the stronger.

Figure 6: Mapping group of Seeking Alpha Note

«Seeking Alpha is a
platform for investment
research, with broad co-
verage of stocks, asset
classes, ETFs and invest-
ment strategy. In contrast
to other equity research
platforms, insight is pro-
vided by investors and
industry experts rather
than sell-side analysts.»

Website: http://seekin-
galpha.com/
In addition, the industry has matured and is becoming more and more saturated. Website of article : http://
There are only a few major competitors, but there is a lot of small local coffee seekingalpha.com/ar-
point. Similarly, the prices are increasing and because of the limited number of ticle/767061-why-star-
geographic regions. Nevertheless it is noted that there is an increase of coffee with bucks-should-jump-in-
the suppliers. But overall, Starbucks Corporation remains a significant sharehol- and-bid-for-peets-a-va-
der in the coffee industry. Nevertheless, it is necessary to monitor the evolution of riety-of-ways-to-create-
the market constantly. synergy-and-growth

07 Starbucks it ’s bigger than coffee

 Task 1 : Question 1

CONCLUSION

After extensive research and Up to date, the company has The strategies of global en-
analysis of Starbucks, we well done in this field: they terprise of Starbucks Corpo-
have now a much better un- distinguished themselves ration have enabled the com-
derstanding of the threats that against other competitors in pany to remain both profitable
the company must face in their industries not only by and successful since their
the near future, as well as the providing excellent products creation in 1971. Their me-
strengths, skills and capabili- and a relaxing environment, thods to differentiate them-
ties of the company. but also by highlighting selves from their competitors
their commitments to ethical have enabled them to com-
First of all, in order to face the practices and corporate ci- pete effectively.
threat of the growing number tizenship.
of competitors cost leaders in
the industry, Starbucks must Indeed the CSR must conti-
continue to develop and com- nue to develop, because they
mercialise their products of give the consumer the feeling
high quality. Maintaining a that each dollar spent at Star-
relaxing atmosphere and keep bucks also contributes equal-
on innovating. These tactics ly to the company.
will perhaps interest more
competitors to participate.

As the world economy is uns-

table, Starbucks must also
continue to develop their bu-
siness strategies in order to
remain profitable and suc-
cessful.

08 Starbucks it ’s bigger than coffee

 Task 1
Question 2

Howard Schultz
strategic assessment

STRATEGIC OF HOWARD SCHULTZ IN 2008
In order to understand what has happened it is important to know of whom we are talking about.
Who is Howard Schultz?
After knowing better of this mini curriculum vitae of Howard Schultz PDF of Starbucks, we can ask two ques-
tions! Why has he gone? And why has he returned?
Let us first of all analise the facts.
Howard Schultz resigned from his job of PDG in
2000. He then decides to stay away for some time and
focus on «the global strategy and the politic expan-
sion” of the group. The openings of different sales
points increased in the following years and the Stock
Exchange price then follows the same trend. «Up
until the trimester where they have ceased to grow».
(Schultz, 2012).
In his book « Onward: How Starbucks Fought for
Its Life without losing its soul» Published on the 27
March, 2012 Howard spoken about his sense of nos-
talgia.
Task 1 : Question 2
• Born in Brooklyn, NY, on July
19, 1953
• Worked as appliance salesman
outfit for Hammarplast, which
sold European coffeemakers in
the US
• Director of Retail Operations
and Marketing for the Starbuc-
ks Coffee Company in 1982
• Founded a coffee company, Il
Giornale
• Purchased Starbucks in 1987
and became Chairman and
CEO
• In 2000, Schultz guishing resi-
gnation as Starbucks’s CEO
• Returned as CEO in 2008
amidst global downturn, ma-
naged to bring back the com-
pany’s profitability.
«I ran my right hand over the original wood counter,
feeling more than three decades of history beneath
my fingertips. Nostalgia washed over me. In this store
I’d learned how to make espresso as a young man. «
(Schultz, 2012).
We will use the model of the McKinsey 7shared va-
lues in order to analyse the situation which Starbucks
has faced during this period.
10 Starbucks it ’s bigger than coffee
 Task 1 : Question 2

THE MCKINSEY 7SHARED VALUES

Shared Values

The values that were transmitting the company were:

• Provide a great work environment and treat each other with respect and dignity.
• Embrace diversity as an essential component in the way we do business.
• Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.
• Develop enthusiastically satisfied customers all the time.
• Contribute positively to our communities and our environment.
• Recognise that profitability is essential to our future success

In addition Starbucks fully engage in the leadership

• Understanding of environmental issues and sharing information with our partners.

• Developing innovative and flexible solutions to bring about change.
• Striving to buy, sell, and use environmentally friendly products.
• Recognising the fiscal responsibility is essential to our environmental future.
• Instilling environmental responsibility as a corporate value.
• Measuring and monitoring progress on each project»

But what has happened that causes things to change?

“We thought in terms of millions of customers and thousands of shops rather than we look on our customers,
our partners or even understand our employees. « (Schultz, 2012). Everything is said! Aiming too high and
neglecting our values are not always the key to solution.

Strategy Tensions were at its highest with the comeback of

What enable us to discuss on the strategy, you will
understand it by resigning the CEO. The CEO had a
new objective by multiplying the points of sales. At
the end of 2000 there were 3,501 stores in all against
2,498 stores in 1999, and 1,886 stores in 1998. (Star-
bucks, 2000)
Result? after 8 Years 800 coffees had closed during
the two years 2008 and 2009 in the United States. This
has affected 180,000 people including employees and
also their families. (HBR, 2010). It was therefore a
very bad strategy by wanting to multiply the points
of sales.
Schultz. «Behind the closed doors of our corporate
boardroom, I stood at the head of a long conference
table and addressed» used Starbucks’ chief financial
officer, chief operating officer, and the senior leaders
responsible for US and international store operations,
our consumer packaged goods business, marketing,
partner resources, supply chain, and legal affairs.»
(Schultz, 2012). «The collective doubt that had
emerged within and around Starbucks was palpable.
I saw it on partners’ nervous faces and in their body
language.» (Schultz, 2012).

Structure

Starbucks has a functional structure (human re-

sources, marketing, corporate social responsibility,
public affairs etc).

11 Starbucks it ’s bigger than coffee

 Task 1 : Question 2

THE MCKINSEY 7SHARED VALUES CONT

Style and Skills System

«I would not cast blame for the in- Starbucks has several factors in its systems, but as explained previously
volved has also been isolated of the in "Staff.", the key system which made the strengths of Starbucks was
past. It is unproductive.» (Schultz, the training. Ignoring that, the result would have been catastrophic.
2012).

At no time the CEO has blamed or

Conclusion
reprimanded someone. This is an
exemplary behaviour for a CEO .
Starbucks has learned two essential lessons:
He was able to recognize his errors
and assumes all responsibilities.
• In the new world that surrounds us, we should not only put in place
A man who questions himself is
a strategy, but also adopt a new way to behave.
a virtue given to very few people.
• A trademark must be pro-active in order to become a source of
confidence and not only to be sold.

Staff To be honest, Schultz could he really have foreseen what would have
happened? Certainly if he had neglected his values and his heart of
The training forms part of the business by opening shops, he could not have been able to follow the
company since its existence in rhythm of its investment on the long-term. This would not have been a
1971 and even more when Schultz flourishing idea. But as leader of an enterprise, manager at the head of a
bought the brand in 1987. But multinational company, has he not helped the stock exchange to climb?
the rapid expansion of Starbucks By wanting to follow the ascension of the stock exchange in 2000 has
around the world had given this re- been a behavior that no one is in a position to judge.
quirement a lesser importance that
is in the second priority, result?
on 26  february 2008, at 17h   30
sharp, 7  100 Starbucks coffees in
the United States have closed at
the same time on that day. On the
closed doors, a small notice on
which is written  : «We take time
to improve our Espresso.» That
day, 135  000 waiters prepare cof-
fees for about three hours. This
had not only been the main news
of the media but also Starbucks
had resumed with the training of
its employees.

12 Starbucks it ’s bigger than coffee

 Task 1 : Question 2

2
sk
Ta

l s
o de
e m
T h
13
 Task 2

THE DIFFERENTS MODELS USED

Throughout this report we have used not less than 3 models namely the 5 forces of Porter,
SWOT and Mckinsey with 7S. Although their success, they face also some disadvantages.
For example let us start with the 5 forces of Porter. This is a model which has achieved a great
success in the year 80 but it has also been a subject of criticism. Because it is not able to take
into account of new business models and the dynamics of markets. According to Recklies
Management Project «The value of Porters model is more that it enables managers to think
about the current situation of their industry in a structured, easy-to-understand way as a star-
ting point for further analysis.»

Actually lets talk about SWOT of the authors as Mintzberg are very much critised of any
strategic planning as they deem very little reactive. This is because they think that external
factors are important for the strategy of an organisation or a project can be definitely changed.
Similarly, the internal factors are not always immutable.

Finally another great model which is present in this Mckinsey report in the book is written
by C. Fleisher & B. Bensoussan intilulant» Business and Competitive Analysis» the authors
define McKinsey 7S Model as a «a diagnostic management tool used to test the strength of the
strategic degree of fit between a firm’s current and proposed strategies». Similarly, they say
that this model has some limitations:

• May miss some fine-grained areas in which gaps in strategy design and execution can arise.
• Little empirical support for the model gold of its originator’s conclusions.
• Remains difficult to properly assess the degree of fit.
• Difficulty for analysts to explain what should be done for implementation using the model.
• Tea 7S is mostly a static model.

14 Starbucks it ’s bigger than coffee

 Task 2

ANNEXS

15 Starbucks it ’s bigger than coffee

 Annex

Annex n°1: The analysis of porter : 5 forces

Barriers at the entrance

We can see that according to the report from IBIS, there is not a very big barrier. It is a flou-
rishing market, indeed the competition remains high. We may see this market may be a favo-
rable market, but to compete with others it will be more useful to have financial support to
invest in this industry.

The bargaining power of suppliers

The power of some suppliers can be very limited because they come from developing coun-
tries therefore they are not necessarily in a suitable position in order to raise prices.

Current Competitors
From a point view regarding major industry of cofee and tea, tea is preferable to cofee . This
drink is widely spread and appreciated in many countries in the world. As in the United King-
dom, drinking tea is a custom. (Altmann, 2007).

Power of Customer
As in all industries it is important to satisfy the customers. This will also make him feel good
and happy, then he will be back again. The communication therefore is an important aspect in
this industry.
If there are rumours concerning your industry that the coffee is bad or the waiter is not friendly
this probably will not encourage other potential customers to try your coffee. In order to target
a wide market it is necessary to propose different types of coffee.

Substitute Products
As in any industry we see that there are many sustituted products. Soft drinks have always
been a product of the competition for coffee. There are subsequently other products such as
cigarettes, beer, ice cream and other sweets can be substituted to coffee. (Altmann, 2007).

16 Starbucks it ’s bigger than coffee

 Annex

Annex 2: analysis SWOT : Strengths

Strengths High quality product: In addition they attach the ut-

most importance concerning the quality of their pro-
It’s an industry for almost a millennium. Coffee is one ducts and avoid the normalisation of their product,
of the largest and the most important products in the even for the output of production is a little higher.
world. (Dicum, 2006) coffee is one of the products (USSEC, 2013).
which is the most consumed throughout the world.
It is estimated that the consumption of coffee has The location: Starbucks has stores in certain strate-
reached 2.25 billion cups per day in the world. (Di- gic places around the world. They target premiums at
cum, 2006). high-traffic, high-visibility and close proximity to pe-
rimeters including the city center, commercial centers
Good rank on the market: The brand that we are and suburban shopping centers, office buildings, uni-
dealing with ,is Starbucks. It has an important geo- versity-campuses ,in the rural areas and throughout
graphical presence throughout the world in order to the world. (USSEC, 2013).
maintain a market share of 36.7 per cent in the United
States (annex No.) and operates in more than 60 coun- Human resources management: Starbucks is also
tries. (IBIS World, 2011). known for its way of treating its employees. They are
considered as partners and not as employees.

CSR: Different activities are put in place by the brand.

CSR: extract from starbucks site (http://www.starbucks.com/responsibility)

17 Starbucks it ’s bigger than coffee

 Annex

Annex 2 cont : analysis SWOT : Weaknesses

Weaknesses

Expensive Product: The products of Starbucks remain relatively expensive. The economic situation is in
crisis. The practice of high price might harm the company.

The cultural shock: some countries have difficulty to adopt the vision of the brand. By doing so, Starbucks
must take into account the culture and the demand of the country before investing.

The image of the CSR: Being a multinational, the brand remains constantly monitor on its citizen’s behavior
and environmental as well. It is therefore considered to be important that the brand continues to put in place
different civic activities.

Annex 3 : The places of starbucks on the market

18 Starbucks it ’s bigger than coffee


Annex 4: Starbucks Generic Value Chain:
PRIMARY ACTIVITIES
Inboud Logistics
The producers of coffee beans
originate mainly from the African
continent. They do so by com-
municating the standards relating
to the quality of the coffee beans
and by establishing strategic re-
lationships with suppliers as well
as the organisation of the supply
chain management. In addition
they have efficient supply chain.
(Clark, 2007).
Operations
The operations of Starbucks are
conducted in more than 50 coun-
tries in two ways: direct exploita-
tion of shops by the operation of
the business and of licenses. Cur-
rently, there are 8870 stores ope-
rated by the company on a global
scale and 8139 stores having a li-
cense. (Starbucks Company Pro-
file, online, 2011).
Outbound logistics
The products are sold in store and
some through large box retailers.
Annex
There are different methods of Human Resources Management
payment: by loyalty card, case, Basing on its principles, value
bank card, and payment by mobile. and culture of enterprise, Starbuks
lead an effective management of
Marketing and sales human capital.
Starbucks does not invest greatly
rather in marketing but it account Technology development
on the limited communication in Starbucks invested in innovative
capitalising everything on the qua- technologies throughout the mo-
lity of its products and the high bile application.
level of services towards the cus-
tomer. Procurement
Starbucks buys its products from a
Service diverse group of suppliers and has
Starbucks has the reputation to fixed contracts with some of the
offer a higher level of service to suppliers. (Starbucks, 2013).
their consumers. It is indeed one
of their important priority.
SUPPORT ACTIVITIES
Infrastructure
The infrastructure of starbucks in-
cludes a list of activities such as
«management, planning, finance,
accounting, legal support and go-
vernmental relations which are
necessary to support the work of
the whole of the value chain» (R.
Hoskisson, 2009).
19 Starbucks it ’s bigger than coffee
 Annex

References

Altmann, M. (2007). Coffee shop industry - A strategic analysis .

BCRC, Business & company resource center (2012). Starbucks S.W.O.T. Business & company resource
center .

CAC, The Coffee Apex Committee (2010). Cofee sector Strategic Plan. The Coffee Apex Commitee.

Clark, T. (2007). Starbucked: A double tall tale of caffeine, commerce and culture, little, brown and
company. New York.

Dicum, R. N. (2006). Anatomy of an industry from crop to the last drop. the coffee book.

HBR, Havard Business Review (2010). We Had to Own the Mistakes.

ITC, International Trade Centre (2011). The Coffee Exporter’s Guide Third edition.

Porter. (1998). Competitive Strategy. Technique for analyzing industries and competitors.

R. Hoskisson, H. M. (2009). Starregic management: Concepts & cases, cengage learning.

Schultz, H. (2012). Onward: How Starbucks Fought for Its Life without Losing Its Soul.

Starbucks. (2000). Annual Report.

Starbucks. (2013). Report n°10-K Form dor FY ended on septembre 29th.

Starbucks (2013). Report n°10-K, U. s. Starbucks corporation . Washington.

20 Starbucks it ’s bigger than coffee