Starbucks Corporation was founded in the year 1971 in Seattle, Washington. The organization carried out roasting, marketing and retail of specialty coffee all over the world. Howard Schultz founded a specialty coffee store in Seattle and then went ahead to purchase Starbucks in the year 1986. The ambitious planning and execution by Shultz led to the materialization of Starbucks into the Global coffee empire as we know it today. Howard continously worked towards expanding and developing the company while providing the customers a welcoming place to hold the conversations and a quality coffee experience. Starbucks presently has 27,339 stores operational all over the world and is generally attributed to bring about the second wave of coffee by providing a distinguished quality, taste and experience to their customers (Starbucks Corporation, 2016).
Starbucks as an organization has always focused on hiring capable workforce and leadership with guides the employees and maintains the momentum of the company. The organization reached its peak of popularity in the 1990s when the developed a called following of regular coffee consumers in San Francisco, los Angeles, Chicago and other major cities of the US. The mass customer segment of the organization helps them in becoming a leader in the industry and the word of mouth marketing worked for them by making Starbucks a premium brand and a customers' favorite. This report comprises of a strategic case analysis of Starbucks Corporation by analyzing their internal and external environment. The strategic business analysis comprises of studying the competencies of the organization that provide them a competitive advantage in the market and the strategies adopted by them. This analysis ends with providing recommendations to the company to handle the challenges and the problems faced by them and to further enhance their performance and profitability (Alvarado, Dockett, Romano, & Ferguson, 2007).
External environment of an organization can be analyzed with the help of the PESTEL analysis tool. It is an effective framework that helps in analyzing the impact of the various factors that influence the operations of the organization.
General political stability in the area of operation for the organization is essential for the business to operate efficiently. Starbucks corporation is governed by various political regulations and loss including the environmental regulations and employment law regarding the minimum wage to be paid to the employees (scale, 2017).
The GDP of the nation, employment rate, inflation rate and the interest rates impact the disposable income of their citizens. This directly impacts the customer confidence and their lifestyle choices. The local currency exchange rates and the overall economic environment is also a deciding factor for the market conditions. Recession in the market main convince their customers to move to cheaper alternatives of Starbucks. The increase in the labour and operational costs of the company also impact the profitability.
The lifestyle choices and the changing consumer preferences are the Social factors that impact the performance of Starbucks. The longer working hours help in boosting the sales of the company. The increasing consciousness of the people regarding the caffeine intake is an opportunity as well as a threat for the company. The antioxidant in the coffee are beneficial for the people and when consumed in moderation it can be good for health which is a point that the organization can promote (Higbee, Liaw, & Ting, 2008).
The new inventions with regard to coffee preparation including the roasting techniques and development of new products by the company can influence their operations. The development in agriculture and biotechnological advancements also help in improving the efficiency and cost-effectiveness of their operations. The organization also needs to keep up with the new payment modes and methods to be accepted by their outlets.
The environmental factors influencing the business of Starbucks includes the concerns of the activist and the international advocacy groups. They need to take into account global warming and carry out proper disposal of waste produced by them to make sure that the abide by all the rules and regulations with regard to the environmental laws of the place (Smithson, 2017).
Since Starbucks is a multinational organization, they need to ensure that no violation of rules and regulations takes place in any of the markets from which they purchase and stores the raw materials and the places in which there and their retail outlets. The licensing regulations, tax laws, customs and trade regulations are some of the legal factors that they need to take into consideration when operating in the market.
Overall, the external environment of Starbucks is quite stable and your organization is performing well in the food and beverages industry. The organization has developed a brand value and serves a specific customer segment creating a niche for itself in the market.
The inherent strengths and weaknesses of the organization constitute their internal environment. Buy identifying the internal strengths and weaknesses, any organization can make the right strategic choices to boost their performance.
The biggest strength of Starbucks corporation is a strong brand image that the organization has created and maintained over the years. This has made the organization fairly popular among the professionals and the students alike. Starbucks has become the representative of the popular culture of America and most of the Western Nations and is now also expanding into the markets of the developing countries which hold a great potential for them (Starbucks Corporation, 2016).
The loyalty points started by the organization encourage their customers to repeatedly purchase from them at frequent intervals. It is a brand that is recognized globally and has a significant presence across the world. The location and the aesthetic appeal of the stores is strategically decided to target the locations with high visibility and high footfall. It is located at all the prime market and the aesthetics of the outlets are visually appealing. The free Internet, excellent service and a warm ambience has made the Starbucks outlets community meeting points for the people. The management and the leaders of Starbucks are known for their expertise and the organization respects and treats their workforce well. This translates into excellent service provisioning by the staff which results in a delighted customer base. The cult following of the brand is a result of this and the brand continuous to develop their portfolio to cater to the needs of customers from every age group (Geereddy, 2015).
All the marketing initiatives by Starbucks are directed towards promoting the Starbucks experience. The products offered by the company are generally priced higher than their competitors which is the reason why the organization suffers from the drop in sales at times of economic sluggishness. Even the loyal customers of the brand sometimes off for the cheaper alternatives which may be a big challenge for them to overcome especially in the developing economies. The organization has been implementing the expansion plan aggressively which has led to overcrowding the market. The premium proposition of the brand may come down because of this which may result in impacting the long term growth of the company. The organization has more than 8000 outlets in the United States alone. This is also leading to self-cannibalization and saturation of the market. High percentage of the profit for the Starbucks Corporation comes from their American markets. This over dependence on a single market makes the position of the company weaker (Lombardo, 2017).
Starbucks needs to maintain its Prime service characteristics of providing service to the premium customers. Why it is important to be profitable, the organization should not carry out the expansion of the stores at the expense of their core strategy of differentiation. The corporate social responsibility of a large Corporation like Starbucks is Greater as compared to the local cafes and the food and beverage organizations (Dalavagas, 2016). They need to maintain a straight control over the labour practices since the larger organizations are under a greater scrutiny and need to invest extensively in maintaining the image and Goodwill of the company. The coffee culture of the European and American people clashes with some of the economies that are majorly tea consumers. The international expansion strategy of Starbucks should be planned by taking into consideration these choices and preferences of the people (Hellman, 2014).
Michael Porter gave the five forces analysis framework to carry out a study to assess the attractiveness of an industry. In a world of dynamic circumstances where the consumer preferences are changing rapidly, this approach helps in the identification and assessment of the relative strength of an organization and in the industry which influences the overall competitiveness and the performance of the organizations.
The Starbucks was earlier enjoying a monopolistic competition by owning most of the market share. However, there is an intense competition now between not only the Global leaders in the food and beverage industry but also the local breweries and cafes. The intensity of rivalry is extremely high and with very low switching cost for the customers, the intensity of the competition in the industry is high for Starbucks. The food and beverage industry has also reached its maturity stage and the growth rate is low for it now. There are numerous organizations computing directly with Starbucks for the market share and all these factors result in intensifying the competition among the existing players (Rego, 2017).
The barriers to entry of the new players in the food and beverage industry is very low. However, because of the high competition and the monopolistic situation off the market with a few Global leading players dominating the industry, the localized and smaller cafes cannot compete directly with the large incumbent brands. Starbucks has differentiated strategy and utilizes prime locations for setting up their outlets. The large organizations which have been operational for a long time already enjoy the economies of scale and a new brand offering civil services with low market share will not be able to offer similar products at the same prices which makes the threat of new entrants in the market completing directly with Starbucks moderate.
There are numerous substitute available in the market as a beverage for coffee. Tea, fruit juices, water, energy drinks, soft drinks, soda, cocktails, beer and other hard drinks can easily substitute the social experience that Starbucks provides to its customers. In addition to this, the customers can also make coffee at home with the premium coffee maker that are available in the market easily. The switching cost when a person switches from Starbucks Coffee to an alternative are very low which for that increases the threat of substitutes for the company. Starbucks is trying to counter this threat by selling coffee beans and packs in the stores along with specially designed coffee makers included in their product portfolio (Rubenstein, 2012).
The bargaining power of the suppliers who provide the raw material to Starbucks is a strong quote for any industry. In case of Starbucks, the bargaining power of the supplier is low since the only inputs and the raw material required by the organization is Arabica coffee which is available in abundance. There are numerous suppliers providing homogenous products and the switching cost between the suppliers is also very low for Starbucks. With the size and the scale of operations as big as Starbucks Corporation, they maintain a partnership status with most of their suppliers which for the decreases the bargaining power of the suppliers and the forward vertical integration practice by the company ensure that the suppliers continue to provide business to the organization at their own terms and conditions (Schultz & Donald, 2006).
There are numerous buyers of the product of Starbucks Corporation and a single person cannot influence the pricing offered by the company. Due to the diverse customer base of people coming from different occupations and background, the bargaining power of the customers is very low and can only be exercise in case of volume purchases. The premium coffee retail sector has the customers that are not very sensitive regarding the price and are ready to pay a higher price for quality products. Therefore, the bargaining power of the buyers in the food and beverages retail sector for Starbucks corporation is low (Thompson, 2017)
Superior efficiency, quality, innovation and customer responsiveness are the four building blocks of competitive advantage for an organization. For Starbucks Corporation, the organization has attained superior efficiency by strategically forming alliances and entering into joint ventures with international organization to pursue their aim of becoming a globally recognized and respected brand. The brand Starbucks has a very high visibility and is known across the world for the quality products offered by them (Roby, 2011). The customer responsiveness for the company is also very high. They constantly take into consideration the needs of the customer and their preferences my bringing about the required changes in their offerings and customizing the menu for the different retail stores across the world. The menu and the product portfolio of Starbucks is moderately innovative and the organization mostly depends upon serving the customers with the classic coffee and food items that are common and generally accepted by the people across the world. The organization also enjoy the first mover advantage in the food and beverages industry which indicates towards the acceptance to innovation and creativity by the company (Wei, 2016).
Starbucks Corporation has effectively leveraged the strategy of product differentiation by offering premium quality products to the customers looking for high quality snacks and beverages. Starbucks Corporation provide its customers the finest quality products and the unique experience derived from the excellent service and well maintained ambience of their outlets. This has helped the organization in garnering a lot of support from their customers and the organic expansion of the company into the international market but also allowed them to horizontally integrate by carrying out smart acquisition and developing alliances that helps the organization in attaining their strategic objectives. Starbucks Corporation wishes to become a widely recognized and respected brand in the food and beverage industry. The organization has successfully achieved it and they have built a high degree of customer loyalty and already have a cult following among the masses in the premium coffee retail sector. By providing superior customer service, the organization has also translated the brand into a premium valued model of business (Auch-Roy, 2004).
Starbucks focuses on the generic strategy of differentiation by creating and developing a brand that was considered unique in the industry. The target of particular consumer segment only and emphasize on providing them the best quality product and services with the Starbucks experience. Although the organization has adopted the generic strategy of differentiation, they do not execute strong marketing abilities and do not invest much on promotion and advertisement. Starbucks Corporation invests in the research and development as opposed to setting quantifiable goals. The organization has a long tradition of possessing unique skills and developing a portfolio of distinct products. Starbucks is a leader in the specialty coffee industry and they are known across the world for the high quality and standard maintained by them along with a knowledgeable staff which is well trained and provides excellent services (Pratap, 2017).
There are numerous strategic alliances including mergers, acquisitions and joint ventures that Starbucks Corporation has been a part of. Some of the key acquisitions that the organization went through include that of Tevana tea products, the premium bread products offered by Bay Breads and the acquisition of the fresh fruit juice products offered by Evolution Fresh. The organization has also gone into a strategic alliance with the payment partners including MasterCard and PayPal. Buy for the expanding into developing strategic alliances with the organizations providing e-wallet services will help Starbucks in gaining a considerable competitive advantage over the similar organizations in the market and also help in for the extension of service delivery making the entire experience more convenient for their customers (Tobey, 2014). The life cycle stage of the food and beverage industry and special is a coffee retail sector has reached the maturity stage. It is recommended that Starbucks goes into diversifying their product offerings by including innovative food and beverage items that attract the customers who are looking for something new
Starbucks corporation boasts of well managed business operations and a seasoned management team that is known for its leadership qualities. Commonly considered an immensely successful organization, there are a few challenges and with that the company is facing right now. The biggest risk faced by Starbucks corporation is that of market saturation. Starbucks is dependent on the United States of America for most of its revenue and with a market that has already reached its maturity stage, the moral of the company is lowering day by day. The issues with regard to the wages and salaries paid to the employees by the Corporation have also hit the headlines which has led to bad publicity of the company (Jacob, Lenk, & Souza , 2012). The economic uncertainty is of the market have also forced a lot of customers of Starbucks to switch to budget brands which offers similar products at a lower price. Most of the young professionals who have recently joined the corporate world are not ready to pay a high price for a cup of coffee which has also diminished the profitability and the market share of the company. Starbucks also faces of competition from the local players as well as global brands like Costa Coffee and other fast food outlets who also offer similar beverages (Babson College, 2013)
Some of the recommendations to Starbucks Corporation in order to ensure the sustainability and long term health in the market include an increased investment in advertising and publicity of the company. By maintaining a proper structure of salary and remuneration for their employees, the company can ensure that the stuff is motivated and deliver quality service to the customers. Starbucks need to also expand into the developing markets by including budget product in their menu (Melody, 2015). The unexplored territories of China, India, Brazil and Russia can prove to be a huge source of revenue for the company and also ensure their success and profitability while maintaining the image of the brand as a global organization (Timonen, 2012). The organization should transfer the core competencies of the firm into the international markets and gradually work towards building the profit drivers when pursuing their global expansion plan. The constant development and tailoring of the menu to include healthy options as per the tastes and preferences of the customers can allow the organization to work in line with the shift towards a healthier lifestyle for the people (Larson, 2009).
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