STARBUCKS

PGP-BL01 | Section B | Group 04

Name Roll No.

Aadhar Hasija PGPBL0134
Charmi Agarwal PGPBL0141
Kamal Singh PGPBL0146
Karthika Warrier PGPBL0147
Rahul Krishnan PGPBL0155

Q1. What is the industry of Starbucks?

Ans. Industry of Starbucks operates in retail specialty coffee.

Q2. Draw the Value Chain of Starbucks? What is the core competency of Starbucks?

Ans. Using Porter’s value-chain model, Starbucks value-chain analysis is as follows:

Fig. Starbucks Value Chain (Porter’s)

Primary Activities
Good relationships with the suppliers which leads to efficient supply chain
Inbound Logistics management system. Proprietary roasting process which cannot be duplicated
by competitors
Global Operations modelled on company operated stores and licensed stores.
Operations Forecasting and Integrated supply chain with strengths like higher inventory
turn-arounds, best transportation rates, closed loop packaging etc.
Very little or no intermediaries in selling of the products. Majority sales are in-
Outbound Logistics
stores sales
Low investments in marketing activities. Rely on “Starbucks Experience” to drive
Marketing & Sales
customers to their stores and products
Known for providing supreme level of customer service through well-trained and
Service
knowledgeable Baristas to build customer loyalty
 Support Activities
Aesthetically pleasing stores. “Starbucks Experience”. Efficient support activities
Firm Infrastructure
i.e. finance, accounting and legal and compliance departments.
Good organizational culture and values, employee benefits and low turnover rate
HR Management
(around 60% for baristas; less than half of industry average)
Technology Signature roasting curves, proprietary software, one-way valve bags.
Starbucks procures its products from worldwide suppliers and maintains a very
Procurement
good relationship with all the suppliers.

Competitive Advantage analysis of Starbucks using VRIO framework (to identify Core Competency)

Imperfect Imitability
Competitive
Resource & Capability Value Rareness History Causal Social Substitutability
Advantage
Dependant Ambiguity Complexity
Real Estate Approach
Temporary
• Design Flexibility
Yes Yes Yes No Yes Yes Competitive
• Store Clustering
Advantage
• Street sniffers
Brand Equity
Sustainable
• Starbucks Experience
Yes Yes Yes No Yes No Competitive
• Baristas
Advantage
• Specialty Coffee
Human Resources and
Company Culture Temporary
• Baristas as Partners Yes Yes Yes No Yes No Competitive
• Customer-service oriented Advantage
• Training
Technology
Temporary
• Signature Roasting Curves
Yes No No No No Yes Competitive
• Proprietary Software
Advantage
• One-way Valve bags
Sourcing
• Close and direct Temporary
relationships with exporters Yes Yes Yes No Yes Yes Competitive
• Training Advantage
• High quality Arabica beans

Based on above analysis we identify “Brand Equity” ie the ‘Starbucks Experience’, in-store customer experience as a
third place of meeting with knowledgeable and trained baristas, as Starbucks’ Core competency – passing the 3 tests of
core competencies ie – access to wide variety of markets (nationally recognised brand), perceived customer benefit
(knowledgeable and trained baristas with unique third place of meeting) and difficult for competitors to imitate
(integrated value-chain).
Q3. Which activities of Starbucks should Mr Schultz pursue now? Which would contribute to adding to
the core competency of Starbucks?

Ans. Following options are available to Mr. Schultz currently:

Option Pros Cons

Evaluating domestic and
international retail markets
New specialty sales partners:
ex. Pepsico & Dreyer’s
partnerships
Penetration in grocery
channels
Future potential of mail-
order business
• Head-start in high population Asia • Not enough resources to
Pacific market expand worldwide in short-term
• Global brand building opportunities • Strong local market competition
• Domestic Specialty stores sales share to
increase 54% in 1999
• Ready-to-drink (Frappuccino) • Unchartered business model
partnership with Pepsico (for • Dependency on third-party
distribution) with USD 1 billion-dollar partners
opportunity
• Starbuck’s ice-cream (Dreyer’s
partnership) USD 40 million potential
with new customer-base
• Platform for Product Innovations
• Entry to home-coffee business having • Grocery stores sales of specialty
70-80% market share coffee de-growing to 46% in
• Greater margins 1999
• Greater reach to remotely located • Logistics complexity
customers
• Increased transaction size

Activities which Mr. Schultz should pursue now which would contribute to Starbucks core-competency are as follows:

1. Domestic and International retail stores contribute to Starbuck’s core competency that is the “Starbucks
Experience”. They can replicate their existing value chain, ie, sourcing specialty coffee, roasting and blending, closed-
loop distribution and in-store experience with trained and knowledgeable baristas, in new markets. Investing in retail
stores and providing the “Starbucks Experience” to customers in international and domestic markets will lead to
sustainable growth and enhanced brand image.

2. Partnerships in serving Starbucks coffee by increasing participation in specialty sales contracts. Specialty sales not
only provides Starbucks with revenue growth potential but also increased brand recognition. For example, Pepsico’s
Frappuccino bottled beverage venture has USD 1 billion potential, leverages Pepsico’s extensive distribution network
and opportunities are also there in foreign countries (Pacific Rim) having existing market of cold-coffee and opens
up growth opportunities in new customer segments. These specialty partnerships serve as platform for product
innovations.