Case Analysis Starbucks PDF

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Case Analysis for Starbucks with SWOT Analysis...

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I.

Executive Summary The Starbucks Corporation stands near the top of coffee sales in the U.S. It is bolstered by its seven-step Internal Growth Plan and is currently creating new occasions with its expansion into other dayparts. These new occasions are challenged by brand dilution, choice overload, and organizational complexity. Your company will find opportunities in the increase of consumer spending in the global hot drink market, and through the investment of stores to enhance geographic presence. The threats to your company will come in the form of both foreign competition, such as Luckin Coffee, and domestic competition. The Starbucks Corporation can mitigate these weaknesses and threats by investing in stores to accommodate an expanded menu, and by expanding your digital footprint and increasing promotions.

II.

Internal Strengths

Internal Growth Plan When CEO Howard Schultz stated that he believed the company had become a “carcinogen” and needed to change, this set into motion a disciplined plan for growth that inevitably increased profits from $10.4B USD in 2008 to $24.6B USD in 2019 [2][9]. Your seven-step growth strategy was, not only sound, but proved to be successful in the long-run [9]. From a company that was known solely for their coffee, you’ve expanded into new target markets by using the approach of repositioning existing products (REPs) [1]. Some of these REPs include the creation Teavana for those who prefer tea over coffee, creating a line of Starbucks and Teavana brand K-Cups for Keurig use, and extending your digital footprint with an online ordering and a rewards program [9]. These actions fell-in with your seven-step growth strategy along with becoming the employer of choice, becoming the lead in coffee, growing the store portfolio, and focusing on consumer product goods (CPGs) growth [9]. Creating New Occasions As I mentioned in the section “Internal Growth Plan”, there were seven steps in your growth strategy. In that section, I mentioned six out of the seven steps and will now cover step four which is creating new occasions [9]. Creating new occasions for the consumer is key to the overall growth of your company. For Starbucks this meant branching out into new REPs that would be included on emerging lunch, afternoon, and evening menus [9]. This would allow Starbucks to compete with quick service restaurants (QSRs) like McDonalds, Panera Bread, Taco Bell, and Subway [9]. This idea, in my mind, is ingenious, because eighty-five percent of the revenue generated by QSRs in a single day comes from the lunch, afternoon, and evening meal

hours [9]. By expanding into other dayparts, your company has the potential of vastly increasing revenue and gain new potential customers. III.

Internal Weaknesses

Brand Dilution With Starbuck’s expansion into the QSR market, there are several challenges that arise as well. One of the challenges that your company must overcome is the brand dilution [0]. When customers visit a Starbucks, they do so with the intent of purchasing coffee and/or breakfastrelated food. With the introduction of new menu items such as gourmet sandwiches, small plates, Teavana, wine, beer, and club soda, you run the risk of creating confusion for both current and potential customers [9]. The transition from, what was once considered, a “coffee shop” to a “food and beverage destination” can be a complicated maneuver that can prove disastrous if done improperly. The QSR market is extremely fickle, and customers do not always react positively to change in this market, so it is crucial to balance brand integrity when making drastic changes to it. Choice Overload It is safe to say that most people have been out to eat at least a few times in their lives. One deciding factor that individuals mull over prior to selecting a restaurant to eat at is the menu, but more specifically the convenience goods that the restaurant offers [1]. When there are too many items on the menu, this can have a negative effect on customer satisfaction [9]. Research has shown that customers are generally more satisfied with their purchases when offered fewer choices [9]. When presented with too many choices, customers become less productive in their

choices and later become less satisfied [9]. Another negative outcome that can arise from too many menu options, is the increase in wait times and a decrease in customer satisfaction [9]. Operational Complexity The expansion of your product portfolio and movement into the QSR market will lead to increased complexity in several operational functions [9]. These functions include supply chain, store design, and employee training [9]. New products mean different materials, which requires an entirely new line of suppliers. This will lead to higher cost of materials which will have an adverse effect on profit margins. The current store layout found in any Starbucks is typical for what someone would expect a coffee shop possess, but the inclusion of new menu items that require a kitchen for preparation and cooking, will result in an entire remodeling of all existing Starbucks stores [9]. This endeavor can be expensive and must be planned for accordingly. Lastly, there will have to be an increase in staff and staff will have to be trained in making these newer food items [9]. The current ordering system at Starbucks will need to be adjusted, for the inclusion of more items that the staff is not used to preparing will result in an increase in miscommunication and result in a loss of efficiency [9]. IV.

External Opportunities

Increased Consumer Spending in Global Hot Drink Market There has been an increase in consumer spending in the global hot drink market with coffee accounting sixty-five percent of the hot drink revenue in 2019 [6]. There were initial losses during the half of the pandemic in 2020, but current projections in the increase in consumer spending for hot drinks will result in an increase in revenue [6]. The U.S. has nearly fifteen thousand Starbucks stores with China have the second largest amount of Starbucks at

nearly five thousand stores [3]. Despite your company’s sales relying mainly on the revenue generated in the Americas, there has been major increase in coffee drinking globally in nations such as Danish countries (Denmark, Luxemburg, Iceland, Norway, Sweden, and the Netherlands), Canada, Qatar, Austria, and Switzerland [6]. There have even some modest increases in coffee consumption in some African countries: Algeria, Sudan, Angola, Ethiopia, and Morocco [6]. These projections present new and profitable opportunities for your company, and it would be in your best interest to look further into international expansion and growth. Investment in Stores to Enhance Geographic Presence Starbucks may be a common house-hold name in the U.S., but this does not detract from its presence internationally. China, Japan, Canada, the United Kingdom, and Korea have the highest number of stores behind the U.S. [3]. If you invest into the stores in these foreign nations, you have a chance to enhance your company’s geographic presence and will be able to increase your consumer base. An excellent example of this was your construction of a Japanese traditional-style store in Oharai-machi, Japan [5]. I will say this is the most beautiful Starbucks that I have ever seen. The exterior blends in with the town and provides an excellent JapaneseAmerican infusion that appeals both geographically and aesthetically. Following this example will ensure continued success abroad and expand your consumer base. V.

External Threats

Foreign Competitor- Luckin Coffee China hosts the second largest number of Starbucks stores in the world, numbering at nearly five thousand stores [3]. Unfortunately, there has been a local up-and-coming coffee chain that presents a serious and direct threat to your company in that region. Luckin Coffee is a

Chinese coffee startup that, within three years, has expanded exponentially by opening nearly as many stores that Starbucks has in-country in three years when it took Starbucks nearly nineteen years to reach [4]. The Luckin Coffee prides itself on affordability and convenience [4]. It purposely prices its products to be lower than Starbucks and offers a great deal of promotions such as buy two-get-one-free or buy-five-get-five-free [4]. Luckin Coffee has jumped on the digital train by not accepting card or cash but instead using a mobile app, through WeChat or Alipay, that locates the nearest store and allows for online pickup and delivery [4]. Domestic Competitors Domestic competitors would include McDonalds, Dunkin, Panera Bread, Krispy Kreme Doughnut, and Nestle. McDonalds’ menu innovations and use of celebrity endorsements, such as the Travis Scott meal, have served to further skyrocket the QSR giant to new heights [7]. “America Runs on Dunkin” is your competitor Dunkin’s slogan, and they have been a consistent rival in the coffee and breakfast daypart market. Following your expansion into the QSR market with lunch, afternoon, and evening menu products, you will find that the number of competitors has also expanded. Panera Bread offers similar menu items to what you plan on offering, but already possesses a dedicated following of customers [9]. The threat of domestic competitors will continue to be a prevalent issue that you must contend with, and with an increase in digitalization in the QSR market, can become exceptionally difficult. VI.

Strategies

Invest in Stores to Accommodate Expanded Menu As stated in the Strengths Section under the subsection “Create New Occasions”, your company plans on expanding your product portfolio to including lunch, afternoon, and evening

menus [9]. While this plan comes with a few challenges, they can be addressed and mitigated for Starbucks to achieve overall success, an increase in revenue, and an expanded customer base. Your stores’ current layout is that of a regular coffee shop, but it will need to be restructured to accommodate the new cooking equipment, bar, coffee/seated areas, and register and line area. It was stated in the study, Starbucks: Driving Growth Through New Dining Occasions, you may need to consider the redesign of the storefront…be that a wine bistro, beer pub, or QSR [9]. When deciding this, consider what type of clientele you want visiting your stores. When I picture a Starbucks in the morning, I see a variety of blue- and white-collar workers who are on their way to work, or college students working on assignments in a relaxing and quiet atmosphere. The rich aroma of coffee is in the air, and it brings about a feeling of comfort. When you mix in different foods with stronger aromas, as well as presence of alcohol, the atmosphere changes along with the clientele. A way to mitigate this clashing of atmospheres is to redesign the storefront in a way that separates your coffee drinking college students from the diners. This can be skillfully done with partitions, signage, and separate kitchens. One side of the storefront would host the typical coffee area, complete with baristas, registers, and regular Starbucks setup. The other area, which could be separated by a partition or just be on the other side of the store, would host the lunch, afternoon, and evening time food and beverages. This area will have its own kitchen, staff, and register. I have seen this with a few other QSRs that have their breakfast and lunch/dinner areas separated with success. You will avoid diluting your brand with this separation, for customers who visit your store will already know which side of your store they wish to go to. With the physical separation of store into two distinct parts, so does the menu separate as well, for the breakfast menu will stay on the breakfast side and the lunch, afternoon, and dinner menu will go to the latter. This

reduces the number of options on a single menu, which presents customers with few options and will result and higher satisfaction. This separation within the store will make it easier to train employees, which will result in few miscommunications and confusion amongst the staff. This process will an expensive endeavor but will result in success if done properly. Expand Digital Footprint and Increase Promotions We live in an ever-expanding digital age. One thing that Starbucks has done an excellent job with is establishing a digital footprint and presence. In fact, despite the drop in stock and loss of revenue due to the COVID-19 pandemic, analysts are confident that your company will be able to bounce back due to your implementation of a loyalty program [8]. Customer retention is more likely to increase when digital options are presented to them. This can include a loyalty or rewards program, online ordering and pickup, digital promotions, mobile app use, and social media. As I stated before, you have a solid digital footprint and presence already, but things can always be improved upon. The Starbucks mobile app has five and a half stars on Google Play. It has an easy-to-use interface and allows customers to quickly place orders, pay, and earn free food and drinks. Having used it myself, I know that the mobile app works extremely well and allows for expedient pickup. The mobile app allows for purchases to be completed by cash, credit, and gift cards, which is a huge gamechanger for dedicated coffee drinkers. The mobile app is also good for keeping track of rewards for the loyalty program. Not everyone keeps a physical rewards card on them, so having a digital card with a QR code to scan is helpful. The mobile app, along with your social media account, has been an excellent way of communicating various promotions to users as well.

Your company can expand on this excellent digital footprint and presence by increasing promotions and rewards for those who use the mobile app, expanding the star system on the mobile app, and offering in-store promotions. This can be achieved in several ways, but simply put, you capitalize on the things that your company is already doing well with. For example, “pumpkin spice” season is coming up soon and your loyal customers are “chomping-at-the-bit” your season drinks. Offer rewards that are specific to occasions such as these in the form of free drinks and foods. Included mobile app only promotions that rewards customers with the app, while incentivizing the downloading of the app to potential users. Social media serves to inform customers of new products and upcoming season items. Social media can also be used to push out different promotions. An example being placing a special coupon or code that customers who subscribe to one of your social media pages would be able to see and use. This will increase the number of subscribers that your social media has, thus increasing awareness and popularity. Ask customers to post selfies of themselves with your products while doing something they love, or something comedic. Getting your customers involved in your marketing is an excellent way to boost popularity and sales.

References [1] Johnson, Mark W, and Greg W Marshall. Marketing Management. 3rd ed., McGraw Hill Education, 2019. [2] Lock, S. “Global revenue of Starbucks 2003-2020” https://www-statistacom.proxy.libraries.rutgers.edu/statistics/266466/net-revenue-of-the-starbuckscorporation-worldwide/ [3] Lock, S. “Countries with most Starbucks locations globally as of September 2020” https://www-statista-com.proxy.libraries.rutgers.edu/statistics/306915/countries-with-thelargest-number-of-starbucks-stores-worldwide/ [4] MarketLine “Luckin Coffee could displace Starbucks in China” https://advantage-marketlinecom.proxy.libraries.rutgers.edu/Analysis/ViewasPDF/luckin-coffee-could-displacestarbucks-in-china-company-has-the-potential-to-become-leading-specialist-coffeeprovider-78644 [5] MarketLine “Starbucks unveils new traditional Japanese-inspired store” https://advantagemarketline-com.proxy.libraries.rutgers.edu/News/starbucks-unveils-new-traditionaljapanese-inspired-store-8637128 [6] Lu, Yangdi “Coffee Report 2020” https://www-statistacom.proxy.libraries.rutgers.edu/study/48823/coffee-report/ [7] Rivas, Teresa “Here’s Why McDonald’s, Wendy’s and Starbucks Stand Out in Fast Food” https://www.barrons.com/articles/mcdonalds-wendys-starbucks-stand-out-in-fast-food51601318420

[8] Rivas, Teresa “Wendy’s, Starbucks Use Rewards and Online Ordering to Lure Back Diners” https://www.barrons.com/articles/wendys-starbucks-use-rewards-online-ordering-to-lureback-diners-51595442186 [9] Sawhney, Mohnbir “Starbucks: Driving Growth Through New Dining Occasions” https://hbsp.harvard.edu/coursepacks/820753...