Starbucks case study PDF

Preview

Summary

Download Starbucks case study PDF

Description

Strategic Analysis of Starbucks Coffee Company Prepared for: Strategic Management 7000 Memorial University of Newfoundland

Friday March 9th 2018 Word Count:

Executive Summary Starbucks coffee was founded in 1971 in the United States. Starbucks is the industry leader for specialty premium coffee around the world. They offer high quality, roasted, and handcrafted coffee selections among other beverages. They pride themselves on excellent customer service with each barista being knowledgeable about the roasting process, and the different variations of coffee the company offers. They have also joined forces with several top companies (United Airlines, Nordstrom, PepsiCo etc.) to increase their sales and grow their brand recognition. Starbucks main issue is reaching all possible market segments to achieve total market domination in the specialty beverage industry.

Starbucks uses a store clustering strategy in order to maximize their market share in a given area of a city. They use experienced real estate managers to find the best locations to build new stores, however, Starbucks does not wait around for the ideal location as they also have a talented design team to turn any space into the right spot for a coffee shop. While they have prided themselves on opening stores in high traffic areas such as city centres, these areas may become saturated so it is crucial for Starbucks to look into opening stores in less populated areas if they want to reach their location targets. The company wants to continue to grow its organization globally. International demand for coffee is much larger than in North America so by Starbucks tapping into the coffee industry globally they are able to achieve greater success than their competitors. While they currently have stores in different areas across the globe this is something they need to continue working on in order to continue growth. Starbucks offers a wide range of coffee and is beginning to branch out into alternatives to coffee. They need to continue making new premium products to meet consumers changing lifestyles and tastes. Working with other companies and selling their products in places other than Starbucks coffee shops such as the supermarket will grow their brand recognition and meet the needs of current and future customers. Something that Starbucks is known for is their strong relationships. Starbucks works closely with its suppliers by providing them with training. The suppliers are expected to provide Starbucks with quality products and have good communication throughout the process if any issues arise. Starbucks purchases more high quality coffee than any other company in the world so suppliers also want to maintain good relationships with them. On the other side of the company, the baristas who work in the stores are consistently building and maintaining relationships with current and new customers by offering an extensive amount of product knowledge and excellent customer service. Recommendations for Starbucks going forward include:......

Key Strategic Issue/ Decision point: Starbucks is one of the biggest specialty coffee companies in the world holding the largest share of all of their competitors. With that being said, consumers taste and lifestyles are always changing and it is difficult for one company to dominate every market segment. This is Starbucks main issue, reaching all markets to achieve total market domination along with controlling the growing market segments. Starbucks closest competitors also have a significant market share that threatens Starbucks position in the industry. There is no cost for consumers to switch to the competition so it is important that Starbucks products are differentiated in order to maintain and attract customers. The mature nature of the specialty coffee industry means there is a low growth rate which increases the intensity of the competition. In order for Starbucks to maintain their place on top they need to focus on product differentiation. This includes continuing to grow their premium product mix, continue to grow their reputation by covering all geographical areas and providing consistent customer service. If

this is done correctly Starbucks will have a premium valued brand that is costly for competitors to imitate. Starbucks also needs to continue to make strong strategic alliances and smart acquisitions. This can be done by continuing to have and create new partnerships and joint ventures. They also need to continue to open more stores across the globe to ensure their presence is everywhere. Analysis: Industry analysis: The coffee industry is very competitive but has proven successful for Starbucks to date. For a full industry attractiveness analysis see appendix B. Most of the supplies purchased by Starbucks are commodities leaving little room price negotiation and making the power of suppliers low. Starbucks has a differentiated product that is sold to the mass consumer market making the power of buyers low. The threat of new entrants is moderate due to low barriers to entry. However, Starbucks does have a first-mover advantage in the specialty coffee market which new entrants may find difficult to compete with. The threat of substitutes in the specialty coffee market is high with the biggest threat being convenience coffee. In addition the convenience coffee there are several other substitutes including juice, tea, and water. To help counteract this Starbucks has developed a ready to drink product and does serve water and other drink at its retail locations. Finally, competitive rivalry is high within the industry; however, Starbucks has been able to differentiate itself through the “the third home” atmospheres of its locations and its knowledgeable staff. Also unlike so-called “convenience coffee retailers,” Starbucks can compete on product differentiation making the impacts of competitive rivalry less intense. Also, on a global scale, competitive rivalry is significantly lower especially in countries where western countries have not yet entered. Based on the five forces the overall attractiveness of the coffee industry is moderate.

VIRO: VRIO Valuable Rare Inimitable Organized Roasting & blending process

×

×

×

×

Relationships with suppliers

×

×

×

×

Brand recognition

×

×

×

Human Resources

×

×

×

×

Starbucks has several resources and capabilities that have the potential to provide it with a sustained competitive advantage.Starbucks' roasting and blending processes required years of research and has enabled Starbucks to develop its signature roasting curve. The equipment and methods used throughout this process were developed in such a way that they are nearly impossible to replicate even if the equipment used was given to the competition. Starbucks relationships with suppliers enables it to procure high-quality coffee on a consistent basis without fail. What makes these relationships valuable and difficult to replicate is that Starbucks suppliers will always prioritize Starbucks over other customers. Starbucks has worked hard to develop its brand and reputation a high-quality coffee retailer. Going forward, Starbucks can leverage its size and brand through the use of marketing to further extend its global reach. Starbucks is also able to utilize its brand recognition in the marketing of new and non-coffee products. Finally, all of Starbucks staff have an in-depth knowledge of coffee and are well aware of the companies values and goals. This largely results for Starbucks huge investment in training and dedication to customer service. Alternative Analysis: Specialty sales via store development and distribution: Increased specialty sales is an option to increase market share and brand recognition. This option allow Starbucks to advantage of consumer preferences associated with the brand. However, specialty sales also have to potential to negatively impact Starbucks' brand. One big question facing Starbucks is if it should allow McDonald's to serve Starbucks coffee. Allowing McDonald's to serve Starbucks coffee would enable Starbucks to reach McDonald's vast customer base and develop increased brand awareness. However, Starbucks is typically associated with high quality and superior customer service; in comparison, McDonald's is associated with fast, low quality food, delivered by employees with minimal skills and training. Starbucks ability to source and roast high quality coffee and its exceptional customer service are two of its biggest competencies. A partnership between the two companies could negatively impact Starbuck brand because the strategy and values of the two organizations are not inline. Starbucks typically operates it own retail locations and does very little in terms of franchising/licensing this is because it enables the company to ensure standards and preserve the brand. Starbucks must continue to be selective in choosing partners going forward. Product development: By working with other major brands on the development of new products Starbucks is able to target new customers and further promote its brand. Product development also enables Starbucks to build on existing brand recognition and use this recognition to promote new products. To date, Starbucks has worked with other brands to develop new products such as ice cream. These partnerships enable Starbucks to develop new products without diverting resources from its core business. Product development is a good option because the coffee market is highly saturated and new products would enable the company to increase its scope. However, it is important to note that product development projects only account for a small portion of revenue, with joint ventures projected to be only 15.4% of earning in 1999. Similar to specialty sales, it is essential for Starbucks to be selective about who it partners with and the types of projects it chooses to develop. Working with a company that does not share Starbucks dedication to quality could spell disaster for the company's reputation. Overall, product development via partnership is a great way for Starbucks to leverage its brand and increase its scope of business. Store development:

To date, Starbucks has relied on a market penetration strategy as its primary means of growth. As Starbucks continues to grow its existing clusters may become saturated and new A locations more difficult to find. As a result, its current rate of opening of 200 to 400 new locations per month may become unsustainable. One option is to open Starbucks locations in less central locations where the market is less saturated and more real-estate, including A locations, are available. The downside is that these areas may not have to population to support the cluster approach. In addition, if the number of Starbucks in less central areas increases people may perceive Starbucks as being similar to “convenience coffee,” this may negatively damage the company’s reputation. Another option is to increase the use of coffee carts. Coffee carts enable Starbucks to target areas such as university campuses and office buildings. However, one downside to coffee carts is that they are not in-line with Starbucks' goal of being a so-called "third home." Starbucks should maintain it strategy of waiting for A locations but should also attempt to develop such locations in less central areas. In addition, the use of coffee carts in select area such as university campuses is a good option for continued growth as long as these carts are not in lieu of standalone locations. Additionally, Starbucks can continue with geographic expansion. Geographic expansion allows the company to take advantage the increasing preferences for western companies in non-western markets.In addition, competitive rivalry in areas such as Asia and the Pacific Rim is significantly lower than in North America. Early entry will allow Starbucks to develop a first mover advantage and should help the company develop brand preference in foreign markets. Foreign markets are expected to contribute heavily to earning going forward, especially in the Pacific Rim where sales are forecast to hit 150 million by the year 2000. Appendix A: Diamond- E Analysis Management preferences: Starbucks management preferences are to stay away from franchising and to carefully select their joint ventures as they want to maintain their premium image by only partnering with other companies that will help their reputation. They also want to continue to grow their market share internationally through product differentiation. Organization: Starbucks flat organizational structure allows for effective communication of the company’s values and culture. This ensures consistency at all levels and areas of the organization.Starbucks culture is one that promotes positivity and respect while also demanding excellence throughout the organization. It is this culture that has enabled the company to develop it brand and reputation. Resources/ Capabilities: Their main resources and capabilities include a loyal customer base who continue to choose Starbucks over the competitor. Starbucks has brand recognition as consumers know their logo. Their coffee shops are in ideal locations using store clustering to maximize profit share in given areas. They maintain close relationships with suppliers and offer consistent customer service for customers. Environment: The speciality coffee industry is moderately attractive and Starbucks has developed a strong foothold in the industry. Starbucks has growth opportunities if they continue to expand globally, opening more international stores will increase their revenues and continue to grow the companies brand recognition. Strategy: Starbucks goal of being a leading retailer of high quality coffee; core activities of coffee roasting and blending, customer service, and brand development; product market focus on people located in central areas; all appear to be line with its value proposition which is to be consumers prefered location for high quality coffee.

Appendix B:

· · · ·

· · · · · ·

· · · · · · · ·

Porter’s 5 Forces: Threat of Substitutes: High Many substitutes (tea, juice, water, pop etc.) Customers can make their own coffee at home instead of using Starbucks coffee Little to no cost for customers to switch to a different companies product Starbucks is dealing with the threat of substitutes by selling at home coffee makers along with introducing coffee alternatives in their product mix. Threat of new entrants: Medium Barriers of entry are not high enough to stop companies from entering the industry Not hard to be successful in the industry Starbucks has positive reputation Bargaining power of suppliers: low Cost of switching between suppliers is low as the product is standardized Starbucks size allows it to take advantage of suppliers however the fair-trade agreement allows suppliers some power but very little Starbucks is the biggest specialty coffee company so they are crucial to the supplier’s survival, giving the suppliers very little power to change prices Bargaining power of buyers: low Too many buyers to demand price changes Customers are making low volume purchases, diverse customers gives them little buyer power Starbucks has competitive pricing relative to others in the industry Customers want to pay a premium price for the higher quality product Competition/ Rivalry: Medium-high Monopolistic competition- closest competitors also have a significant share of the market There is no cost for customers to switch to the competitors’ products Starbucks differentiated products gives some security The specialty coffee industry is mature so there is a low growth rate making the intensity of the competition high...