Starbucks is a coffee chain company which started its business in Seattle which is situated in Washington, United States. Now, Starbucks is recognised as an International Organisation which is famous all over the world for its quality coffee. It has almost 16,120 stores in 49 different countries which makes it the largest coffee company in the world. Apart from coffee Starbucks serves snacks with soft drinks and also espresso based hot drinks. It has also started supplying some fancy items like coffee mugs with Starbucks logo on it. Later on with the brand name of Hear Music Starbucks entered into music division. It has also started selling some books and movies related to the locality of the stores along with some seasonal and specific company products. Also in many countries at various grocery shops Starbucks has started selling ice-cream with its brand name. Today the Starbucks has become the power brand for its coffee all over the world and is famous for its Italian style of coffee, espresso beverages, teas and pastries.
In this report we will first discuss the corporate mission statement of the Starbucks Company. Then based on Competitive analysis and PESTLE analysis we will analyse its industry structure. Later on we will perform SWOT analysis and discuss Porter’s five forces model. After this we will discuss and analysis various core competencies of the Starbucks company, its competitive advantages and its potential fallout. Also, based on the two strategic models, we will discuss the various strategy recommendations for the company. As a conclusion various other suitable recommendations and competitive strategies for the further growth of the company will be discuss.
2. Mission Statement of Starbucks Coffee Company:
The Starbucks coffee company was started by Howard Schultz. He started supplying blends of premium coffee and soon became famous all over the world as a top supplier of the coffee.
“To inspire and nurture the human spirit, one person, one cup, and one neighbourhood at a time”. Starbucks Mission, Starbucks website
The mission statement of the Starbucks provides us with the clear view about the various companies value. Also it can be seen that the companies values were made while considering and preserving sustainability and human spirit. During the expansion of the company, the Starbucks also considers environmental issues as one of the important issues and provides positive approach towards it.
Starbucks considers six guiding principles. These are as follows:
For successfully doing the business, adapting diversity is considered as an important factor.
The environment at the workplace should be healthy and good and everyone should be treated with dignity and respect.
Every time proper standard should be maintained while purchasing, roasting and during delivery of fresh coffee.
Profitability should be identified for the future growth and success.
Every time the customer should be satisfied with the service.
Everyone should think positively towards an environment and should respect other communities.
3. Industry structure of Starbucks Company:
The industry structure of the Starbucks Company can be analysis by applying two analyses.
3.1 PESTLE Analysis:
The various important elements or factors of the Starbucks Company can be examine, understand and identify by using PESTLE analysis.
Globalisation has resulted in the change in various pattern of doing business all over the world. Now a days many companies find it very difficult to survive and last on their available domestic market only. Taking into account the various countries political background and studying other related issues, Starbuck manage to expand its business and today it has knowledge of almost all countries political pattern.
Economic factor plays a vital role for this company because Starbucks coffee is considered as a luxury product. If the interest rate increases, then it directly affects the Starbucks and their suppliers various investment plans. This may result in decrease in the sales and which ultimately affects expansion of the business.
Starbucks should undertake some techniques or policies that help them to identify their potential local customers and encourage them to come to the stores as frequently as possible.
Today technology is used everywhere. Considering the benefits of advance technology every company is trying to incorporate it wherever possible. Starbucks also uses the advantage of technology. In 1998 Starbucks has launched its website. It uses latest coffee machines in its stores. In some of its stores internet facility is also provided within the stores.
Different countries has different laws and as Starbucks has its stores in various countries the company should know all the laws related to product restrictions, trade, health, employment and also safety regulation laws. It should also be aware of religious laws of the particular country in which they are doing business. Starbucks should take care that they do not break any laws, rules and regulations of any country in which they are doing their business.
Starbucks should also pay attention towards the various factors related to environment such as pollution, disposal of waste, planning permission, etc. The company should apply some techniques which should be eco-friendly. As far as possible the company should try to use the material that is recyclable.
At present Starbucks has become brand name for the coffee all over the world. Most of the credit goes to its marketing strategies which focus mainly on satisfying customer’s needs and their expectations. The credit also goes to their employees and other staff members. Starbucks Company also takes care of their employees and considers them as the business partners.
3.2. Competitive Analysis:
Porter’s Five Force Model:
In the industry environment the competition can be analysed by using Porter’s five force model technique. It consists of issues like threat of new entrants, bargaining power of customers, bargaining power of supplier, threat of substitutes and competitive rivalry within industry.
New entrant’s threats:
The environment in which the Starbucks operates is very competitive. The company has to compete with the other strong brands in the market such as burger king and Mc Donald’s. For the Starbucks to enter into the coffee market is comparatively low because it requires less capital investment for renting or purchasing a store. In the market there are many new entrants which operate in a single store. The Starbucks is able to reach its potential customers through its various distribution services like supermarkets, grocery stores, mail delivery and also through internet.
Customer’s bargaining power:
The profit of the Starbucks Company is directly related to its number of customers. Earlier the bargaining power of customer is less but now due to various brand competitors and new entrants in the market the situation has been change. Also previously in coffee market customers has less bargaining power because of the monopoly of Starbucks but now as the number of coffee suppliers in the market has increased, it has increased the bargaining power of the customers. Now the customers can easily switch between the companies which are offering fewer prices. Starbucks has to maintain its uniqueness in order to minimise the bargaining power of customers.
Supplier’s bargaining power:
Suppliers that supply raw material to the Starbucks have very high bargaining power. As this raw material such as coffee beans are very essential, Starbucks generally fixes the prices with its suppliers. Also the companies which supply coffee machines and other advanced machines as high bargaining power because within the industry there are very less suppliers that supplies these machines.
The other suppliers of Starbucks such as napkins and coffee cups have very less bargaining power. Also the Starbucks has contract agreements with almost all of his suppliers which ultimately reduce their bargaining power with the Starbucks.
Threat created by substitutes:
In the market there are many other products like energy drink, beer, smoothes, soft drinks, fruit juices, etc which can replace coffee. All these products possess a threat to Starbucks. Also in the market there are many other pubs, lounges and bars that provide the similar environment as provided by the Starbucks. Starbucks has to deal with all these products effectively and efficiently.
Competitive rivalry in industry:
All over the world the Starbucks is recognised as a brand name. The other competitors such as Gloria Jeans coffee, De Bella and Mc Donald are also famous all over the world and also has a brand image. All these increase the competition in the market for the Starbucks. Also other coffee supplier such as burger king and dunkin donut further increases the competition. All these competitors provide almost similar products which further raised the competition between them.
4. SWOT Analysis:
The biggest strength enjoyed by the Starbucks is that it is a brand name and highly recognised worldwide. Almost 70 percent of world’s population know about this company and their products. In 40 countries Starbucks have 15,000 stores and all the services and products offered by the Starbucks are accepted by the consumers. This increases the potential customers and sales for the company and is considered as the biggest advantage. The other strength of the company is that among the people they have a good impression. Starbucks respect his employees and provide them good working environment. Starbucks is able to reach the global market by globalisation. Starbucks is successful to satisfy the market needs and changing demands through new innovations and by establishing new products. Starbucks maintains good relations with their suppliers and are loyal to their customers. Starbucks always provide their customers good quality services and products which have helped them to achieve the good reputation in the market. Starbucks provide pleasant environment for the people to hangout, socialise and talk with each other while enjoying their coffee.
With the increase in the number of stores all over the world the Starbucks Company is also lacking its internal focus. Also its pricing policy is considered as a major weakness. People find the prices of the company really high as compared to its competitors and usually consider Starbucks as a luxury item. Also the prices of the Starbucks are similar irrespective of the different locations. The Starbucks depends heavily only on its coffee business and therefore now they are required to look for other related products too. The parent company which is in US controls all the stores as the company doesn’t have any franchisee system. The variety of coffee provided by Starbucks is fever as compared to their competitors and therefore sensible growth policy should be applied instead of aggressive expansion.
Starbucks has many opportunities. Now, as the recession is almost over in United States, Starbucks can again open its stores which got closed due to recession. Also the Company can spread its business to various nations like India and Brazil in Asia and South America where the competition in the market is also less related to coffee industry. There is also scope to improve in technological methods and retail operations. Many observers are of the opinion that there is vast scope and potential to expand if the company co-brand or franchise itself with other drink and food companies.
The biggest threat that the Starbucks Company possess is the competitors in the market like Mc Donald’s which are entered into the coffee market. Mc Donald’s has the similar prices as set by the Starbucks but if the prices vary in future Starbucks will directly get affected by it. Also the company can be affected by the heavy competition due to the opening of new less costly coffee shops and restaurants. The company also have to be inflexible with its pricing strategy especially in developing countries. There are also chances that the price of products and services can be affected if there is an increase in the price of raw material and dairy products.
5. Competitive Advantage and Core Competencies:
For every company the design of their competitive advantage strategy plays a vital role. It helps the company to sustain in this competitive market environment. It is consider as an essential tool to discover and reach the potential customers. Starbucks is a company which is famous in the market and has generated a huge profit. It is considered as a well established company in the market. But its sustainability can be affected if its competitors offer similar services and products as offered by the Starbucks Company in the market. Therefore to survive in the market every company should have its competitive advantage strategy.
Starbucks looks in a different way towards its customers and suppliers which makes them successful. They are able to provide their customer with good customer service, more value quality products and access to the internet and the most important the capability to offer the best coffee. Starbucks encourage and motivates their employees so that both parties get satisfied. Starbucks is able to sustain in the competitive market because of it unique competencies which their customers most valued.
Starbucks is succeeding in maintaining its long lasting growth because of its various strategies related to pricing of the product, product development and market development. Also all existing products of Starbucks are identified by its value and quality. Starbucks has managed to increase its profit and market share with its expansion strategies and by various joint ventures with other related companies. In United States Starbucks has collaboration with companies like Dreyer’s ice cream and Sazaby which further increases their share in the market.
Starbucks has always concentrated more on its expansion policies. The company has experienced huge benefits because of it large integration methods and international, domestic and national expansion.
6. Potential Fallout:
The potential issues which can result in the downfall for Starbucks are discussed below:
In 2008, many stores were shut down in United States. It is stated that almost 600 stores were close down which contributes to the 8 percent. This has resulted because it was discovered that within same location there were many stores which further resulted in saturation of customers. The decision was made to reduce the density of Starbucks stores which was very high.
Lower discretionary income:
Products of Starbucks are considered as a luxury items. It may be possible that because of the global financial downturn the customer may find it difficult to spend on Starbucks product which are little costly as compared to their competitors product.
Increase in competition:
Globalisation has resulted in the increase in the competition for the Starbucks Company. The Starbucks has to compete in the market ranging from the various international companies such as donut king and Mc Donald to the coffee shops which are situated locally. It has also found out that the fast food industry is also giving good competition to the Starbucks.
Operations involving high cost:
The investments made by the Starbucks are to design their stores is very high. This is done in order to attract many customers and provide them with pleasant and refreshing experience. This can be resulted costly to the company.
The common problems faced by the Starbucks are proper disposal of waste and global warming which resulted due to its raw material production. Starbucks uses various innovative recycling methods to minimise its waste in the environment.
7. Various Strategy Recommendations:
The strategies I would recommend for the Starbucks Company are Dynamic Growth Cycle and Commercial Interface.
7.1 Dynamic Growth Cycle:
It is an interesting concept in which the innovation of new product or process is done and with proper strategy it is introduced in the market. Starbucks can execute its plan regarding low price depending upon the value and its position in the market. This gives the customers an opportunity to save their money while conserving coffee and other food items. This will also help the company to expand while maintaining the customers bargaining power. Following this cycle, the company slowly can earn huge profits which can be further invested for the growth of the company. Thus, further expands the customer base all over the world.
7.2 Commercial Interfaces:
The commercial interface pyramid consists of customers buying power, shaping the aspirations, proper knowledge of locals and improving access.
Customers Buying Power:
Before entering the market any company should be aware of its level of economy. Without knowing this no company can price its products. Once it is decided it should make the customer feel affordable to purchase the product. As Starbucks is a coffee company their prices should be affordable so that the customers can come to the store regularly.
Shaping the Aspirations:
The company can sustain and grow in the market if the customers develop trust in their product which results in increasing the sales. The customers trust can be developed by providing them with proper education and knowledge about the product.
Proper Knowledge of Locals:
It is essential for any company to have the proper knowledge of the local competitor in the market. This allows the company to notify the strength and weakness about their competitors and provides them with competitive advantage. This enables the company to provide the service which their competitors are unable to provide. Employees of the Starbucks provide good customer service but due to the high price of its products it restricts customer from accessing the stores regularly.
In United States Starbucks have 11,000 stores and around 1000 stores worldwide. Through extensive marketing strategy it got success in making the brand accessible easily. Starbucks has various opportunities in developing countries like India where there is high demand for coffee and also has less competitors in the market.
8. Preferable Recommendations:
Starbucks has the strategy of opening more stores to get more sales. This should be avoid. Instead the company should pay more attention towards satisfying customer needs.
The cost of the products should be fixed which depends on the purchasing capacity of the local customers.
Starbucks should discover new products before their competitors to gain more market share and be leaders.
Various research should be made and the company should be able to find out new deals and offers for their customers.
Maintaining proper relations with farmers so that they remain loyal with the company and do not switch with competitors.
Knowing that consumption of tea has more health benefits as compared to coffee, Starbucks should invent and introduce in the market various special drinks related to tea.
Starbucks should reconsider its pricing policy and it must be flexible in different countries.
Starbucks should concentrate more on its coffee making methods as majority of the business depends on serving good quality coffee.