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Factors behind the Decline of Starbucks

Discuss About The Implementing Automatic Espresso Machines.

There were a number of factors behind the decline of Starbucks in the year 2007 and 2008. The company lost its reputation that it had due to the reason of streamlining processes. The company also suffered from the loss of overall ambiance along with the feel of an authentic coffee shop that it had and this was due to the reason of implementing the automatic espresso machines. The factors also included the standardization of all the locations which, in turn, further resulted in the loss of neighborhood coffee shops (York, 2010). Also, flavor locked packages resulted from the requirement for fresh roasted coffee.  Furthermore, the factors contributing towards the decline of Starbucks include the number of internal and external emerging threats. The stores of Starbucks were also found to be running out of ingredients which lead to increased potential issues. Moreover, the CEO of Starbucks noticed that the managers of the stores were not investing personally into their work (Koehn, McNamara, Khan & Legris, 2014).


With the passage of time, Schultz got to know about these factors.  Till the year 2006, the revenue was climbing up and the company was making adequate progress to be called a successful company. Around 1200 stores were opened by the company in 6 years which marked the successful trend for the company. However, in the early 2007, Starbucks was considered as one of the largest coffee retailers of the world. But the decline in the same- store sales created a threat for the company when the sales of the newer stores increased in relation to the sales of the stores in older location.  This was noticed by Schultz in the year 2007 as comps were used for the purpose of measuring the retail business. This was a strong indicator that measured the expansion of stores and the generation of business. On the other hand, the negative measure indicated the cannibalizing of the existing stores due to the newer stores (Weaver, 2016).

In the year 2008, there was a major fall in the earnings equivalent to 28% which amounted to $109 million and operating income of the company across the globe fell down to $ 178 million. Moreover, the stock of Starbucks also fell to $ 14.95 which was the lowest in the prior 52 weeks. Also, the third quarter results in the year 2008 proved to be disappointing. The company also reported a net loss of $ 6.7 million (Simon, 2011). The same-store sales of the company also declined 4% as compared to the second quarter of the previous year (Marques, 2008). Such fall in the overall financial results of the company became visible to Schultz in the year 2008. However, some of the factors were less obvious such as instant decline in the financial results of such a reputed brand. Also, the competition increased at a rapid pace leading to hardships being suffered by the company for a long period of time (Piercy, 2016).   

The Transformation of Starbucks

Answer 2- There are a number of important aspects of the Starbucks transformation. In the year 2007, the gross margin of Starbucks declined to 57.5 from 59.2 (in the year 2006). The reason behind such fall was the increase in the number of transactions per store equivalent to 1% each year as compared to the year 2006 where it was equivalent to 5%. Moreover, a decline in the stock prices of the company was witnessed by 40% amounting to $ 23.39. The transformation was decided to be created by Schultz after his return in the year 2008 and such agenda was inspired by Dell.  Schultz completely devoted himself in the reinvention and innovation and did not put the blame on others for the increasing decline in the sales of the company. He further decided to obtain an offensive position and communicated the aspects of special position of Starbucks in the market. He explained the highest quality of products offered by the company by making the use of naturally available ingredients which makes it special and better in comparison with those offered by the competitors. Schultz was responsible for setting up of three major initiatives. It decided to deepen the emotional attachment of the customers with the company, Starbucks and this was aimed by the establishment of personal relationships with baristas, by way of featuring seasonal offerings, etc. Another initiative was the re-engineering of the organizational structure of Starbucks and the last was giving greater efforts towards their U. S. business as it amounted to 70% of its total revenues but its operations were slipping as compared to that of their international locations (Simon, 2011).  


It was important for the survival and transformation of the company so that a sustainable economic model can be delivered along with the establishment of an emotional attachment with the customers. The emotional connection with the customers is the most important factor for the survival of the company in the long run. The steps taken will also assist Starbucks in the expansion of its global presence along with making each of its store heart of the local neighborhood. Through the sustainable economic model, the operations were aimed to be organized for the purpose of supporting speed, quality and the management of the cost involved. Also, the creation of innovative growth platforms by Starbucks was important so that the reach of the brand can be expanded by way of bringing complementary and high-quality offerings such as cold beverages, tea and instant coffee which can be marketed through grocery and retail channels (Phillips & Rippin, 2010).

Starbucks' Initiatives for Re-Establishing Their Position in the Market

In the broader context of the business turnarounds such initiatives are generalizable as it is the basic requirement for the survival of the company to make the requisite changes in the economic model and establishing personal relationships with the customers with the aim of maintaining an emotional attachment with them.  For the improvement of the business, innovations are also required to be made in the products offered from time to time so that it keeps on attracting the current and prospective customers. The most important of them all is putting the customers to the center of the needs along with providing them value by way of rewarding their loyalty (Schultz, 2012).  

Answer 3- When Schultz said that Starbucks is “redefining the role of a for-profit company”, he meant that the roles that every for-profit company assumes are required to be redefined by taking a number of steps in accordance with the situation. Now the customers do not trust businesses, public institutions, and government and therefore greater transparency is required in the businesses. This, in turn, puts high burden on the companies regarding demonstration of this requirement. The consumers are all set to trust and partner the companies who fulfill their requirement of demonstrating transparency and trust. This statement further means that the success of Starbucks was now dependent on how the company links and balances its profit motives with its social conscience (Massetti, 2008). In other words, for the success of the business in the long run, the companies cannot take a chance of rejecting this proposition otherwise such businesses will be dismissed by the consumers. Therefore, it is the responsibility and role of a for-profit company to take into account the interest of the society for the survival of the business. Customers are now able to easily recognize the businesses that genuinely think for the benefit of the community and support them in the hardships.  It took a number of steps for the purpose of fulfilling its social responsibility such as it created Schultz Family Foundation and committed to spend $ 30 million for helping veterans in navigating the challenges linked with their return back to the life of a civilian along with transitioning into careers at home.


The efforts made by Schultz had an impact on the bottom line by actively participating in the corporate responsibility. For the purpose of becoming an ethical leader, it linked its longstanding efforts for balancing its profits with environmental and social responsibility. Starbuck entered into partnership with Conservation International which is a not for profit organization for promoting the practices related to coffee production that also assisted in the preservation of biodiversity, maintenance of healthy ecosystems and supporting social and economic development in the production of coffee (Nair & Weber, 2017). The company’s commitment was underscored by the partnership to the idea that their success for the long term was associated to the success of the millions of farmers who are responsible for the growth and supply of the coffee used by Starbucks. The fulfillment of social responsibility by Starbucks also helped it in ranking among the Fortune’s list of “100 Best Companies to Work for” for eleven consecutive years along with also ranking in the World’s Most Ethical Companies for the seventh year in the year 2013. Bottom line here means the impact of the performance of corporate responsibility on the net income, net earnings and earnings per share of the company. During the period 2012- 13, the revenues of the company crossed $ 14,000 million and the net income was over $ 1000 million which resulted into breaking of its own records by Starbucks (Campbell & Helleloid, 2016).


The brand formulated itself as an indicator of cultural awareness and social mobility. Schultz was of the opinion that a balance is required between the profit motives of the company and its social conscience. It makes good amount of investment in the environmental sustainability along the value chain for the purpose of assisting and educating the coffee growers across the world (Snell, Lemley, Snell & Yemen, 2017). This, in turn, created the image of Starbucks of a good corporate citizen and positioned it as a successful business. Further, it has led the company to reach new heights and has made it one of the largest coffee retailers in the world. The company is also named on the fifth position in the list of most admired companies of the world and this ranking was based on the performance of social responsibility by the company, use of corporate assets, innovation, financial soundness, quality of management, quality products and long-term investment (Austin & Reficco, 2008).

References

Austin, J. and Reficco, E., 2008. Corporate social entrepreneurship. Int'l J. Not-for-Profit L., 11, p.86.

Campbell, K. and Helleloid, D., 2016. Starbucks: Social responsibility and tax avoidance. Journal of Accounting Education, 37, pp.38-60.

Koehn, N.F., McNamara, K., Khan, N.N. and Legris, E., 2014. Starbucks Coffee Company: Transformation and Renewal. Harvard Business School.

Marques, J.F., 2008. Spiritual performance from an organizational perspective: the Starbucks way. Corporate Governance: The international journal of business in society, 8(3), pp.248-257.

Massetti, B.L., 2008. The social entrepreneurship matrix as a" tipping point" for economic change. Emergence: Complexity and Organization, 10(3), p.1.

Nair, A. and Weber, T., 2017. borjo coffeehouse: Franchise, Independence, and Starbucks. Entrepreneurship Theory and Practice, 41(5), pp.861-875.

Phillips, M. and Rippin, A., 2010. Howard and the mermaid: Abjection and the Starbucks’ Foundation memoir. Organization, 17(4), pp.481-499.

Piercy, N.F., 2016. Market-led strategic change: Transforming the process of going to market. Taylor & Francis.

Schultz, H., 2012. Pour your heart into it: How Starbucks built a company one cup at a time. Hachette UK.

Simon, B., 2011. Not going to Starbucks: Boycotts and the out-scouring of politics in the branded world. Journal of Consumer Culture, 11(2), pp.145-167.

Simon, B., 2011. Everything but the coffee: Learning about America from Starbucks. University of California Press.

Snell, S.A., Lemley, A., Snell, S.A. and Yemen, G., 2017. Starbucks: Schultz Back in the Brew. Darden Business Publishing Cases, pp.1-18.

Weaver, S., 2016. Creating great visitor experiences: a guide for museums, parks, zoos, gardens & libraries. Routledge.

York, E.B., 2010. Starbucks gets its business brewing again with social media. Advertising Age, 81(8), p.34.

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