An Analysis of Starbucks' Strategic Development

Competitor analysis Marketing Mix?? Pestel Bgc matrix?? Conclusion

Executive Summary Starbucks was founded in 1971 by Jerry Baldwin, Zev Siegal, and Gordon Bowker. In 1987, Howard Schultz bought over the company and has since begun to expand. Today, Starbucks coffee has grown into the largest coffeehouse company in the world with 16,120 stores in 94 countries such as in Australia, Canada, China, Puerto Rico, etc. Starbucks has thirty blends and single origin coffee. Starbucks brand coffee can also be purchased in local stores to brew at home. Starbucks employs over 140,000 employees worldwide with over five million customers a week. At one point they had typical customers coming in on an average of six times a month while loyal customers come in on an average of eighteen times a month spending averaging $50. Starbucks is one of Fortune magazine’s 100 Best Companies to work for in 2008 and is Business Ethics 100 Best Corporate Citizens for the fourth year. This report aims to strategically evaluate Starbucks Corporation. The analysis will be done using VRIO Framework, PESTEL analysis, Product Life Cycle Analysis, Porter’s Five Forces analysis, Marketing Mix, Value chain, Porter’s Generic Strategies and SWOT analysis. A Competitor analysis will also be done to compare Starbucks with its competitors. I will also be addressing the recommendations using Ansoff Matrix and giving a couple of suggestions. 1.0 Introduction “When I walked [into Starbucks] for the first time—I know this sounds really hokey—I knew I was home. I can't explain it. But I knew I was in a special place, and the product kind of spoke to me." – Howard Schultz (TheBiographyChannel, 2014) Starbucks is known to be a coffee chain which allows customers to feel at home. People are more than willing to pay and return again for the delightful experience, and for the past 3 decades, Starbucks has managed to monopolize the market. We will look at the Macro and Micro environments of Starbucks, and identify the strengths and weaknesses. We will analyze how Starbucks is able to be so successful and also discuss ways in which Starbucks can improve in order to have continual market share growth and profits.

2.0 Company Summary

2.1 Background Starbucks was founded in 1971 and opened its first store in Seattle. It is the world’s leading brand of specialty coffee, with almost 17,000 outlets all over the world. They believe in serving the best coffee possible, and serve with the highest quality Arabica beans. They started off as a local roaster of whole bean and ground coffee, but have since diversified over the years. Today, they own one of the highest market shares in the industry and serve more than 50 countries. (Starbucks, 2011)

2.2 Mission and Vision “To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.”

2.3 Current Market Position

(Forbes, 2014) 3.0 VRIO Framework

3.1 Strong Global Presence Valuable One of the most valuable organizations in the world, Starbucks has a very strong global presence, which helps in increasing its market share and sales revenues. (Azarian, et al., N.Y.) Rare Starbucks is one of the strongest coffee corporations in the world. Although there are many other coffee companies, Starbucks is the most recognizable and its outlets are found in many different parts globally. (Azarian, et al., N.Y.) Inimitable and Non-substitutable None of Starbucks’ competitors can gain such a large global presence as it would take a lot of time and resources to try to substitute its name. (Azarian, et al., N.Y.) Organized to Exploit

Starbucks has successfully organized its management systems, processes, organizational structure and policies. Thus it is able to exploit its capabilities and resources. (Azarian, et al., N.Y.) 3.2 Specialty Coffees Valuable Starbucks offers many different types of unique coffees as well as hand-crafted beverages which competitors do not often offer. They also provide calorie information for the coffees in their menus to appeal to different target markets. (Azarian, et al., N.Y.) Rare Specialty drinks are not limited to Starbucks only as competitors like Dunkin’ Donuts as well as Coffee Bean also offer specialty coffee during festive seasons. (Azarian, et al., N.Y.) Inimitable and Non-substitutable Specialty coffees can be imitated or even improvised by competitors, considering the fact that they are already serving similar products as Starbucks. (Azarian, et al., N.Y.) Organized to Exploit Starbucks is constantly adding new drinks to their menu and introducing different products from time to time, thus allowing consumers to try new beverages frequently, and this keeps consumers coming back. (Azarian, et al., N.Y.)

3.3 Upscale and Cozy Atmosphere Valuable The cozy atmosphere that Starbucks outlets have allows customers to feel relaxed and comfortable while enjoying a snack or a cup of coffee. This is one of the strengths that Starbucks has which their competitors do not. (Azarian, et al., N.Y.) Rare Starbucks is the only coffee chain with an upscale ambience, encouraging customers to bring along their computers and do some work while relaxing at the same time. Most of their competitors cannot create such a homely atmosphere. (Azarian, et al., N.Y.) Inimitable and Non-substitutable When competitors realize that customers are looking for this kind of cozy ambience to be in, they might just imitate and renovate their stores to be similar to Starbucks’ in order to attract more customers. (Azarian, et al., N.Y.)

Organized to Exploit

Starbucks is taking advantage of the fact that customers thoroughly enjoy the cozy and homely experience, and does not plan to have a new facelift for its stores. They are sure that customers return because of this comfortable environment. (Azarian, et al., N.Y.)

4.0 Macro Environmental Analysis 4.1 PESTEL Analysis 4.1.1 Political 4.1.2 Economical 4.1.3 Social 4.1.4 Technological 4.1.5 Environmental 4.1.6 Legal 5.0 Micro Environmental Analysis 5.1 Porter’s Five Forces Analysis

Rivalry among Existing Competitors The rivalry among competitors such as Costa Coffee, Dunkin’ Donuts, McDonald’s and Coffee Bean is high. Competitors serve coffee and similar food products like sandwiches and cakes, which makes competition high. (Dudovskiy, 2014) Bargaining Power of Buyers Bargaining power of buyers is high because consumers do not have any cost of switching to other competitors, therefore creating significant pressure on Starbucks. (Dudovskiy, 2014) Bargaining Power of Suppliers The demand for coffee is high in every parts of the world, and high-quality coffee beans can only be produced in certain geographical areas. To add on to the increasing bargaining power of suppliers, there are many issues associated with African coffee producers being unfairly treated by multinational organizations. (Dudovskiy, 2014) Threat of Substitutes The threat of substitutes is moderate as the substitutes for coffee include juices, tea, water, soft drinks and energy drinks. Starbucks is already selling tea, juices and water. Thus the threat of substitute drinks is only substantial. (Dudovskiy, 2014) Threat of New Entrants The threat of new entrants is low because the market is already highly saturated. In order to enter the industry, huge financial resources like capital and properties are required. With industry giants like Starbucks and Dunkin’ Donuts, it is very difficult for new entrants to enter and survive in the market. (Dudovskiy, 2014)

6.0 Industry Analysis 6.1 Product Life Cycle Analysis

Starbucks is currently in the Maturity stage of its product life cycle. It has experienced rapid growth in the last 3 decades since it was founded. However, its growth has slowed down within the past few years, which has led to a slight decline in sales revenue. There are many competitors out there which have come up with similar products as Starbucks, leading consumers to be spoilt for choices. Many consumers will not just stick to a particular store; instead they will patronize the store which serves products to their likings. (Lee, N.Y.) 6.2 Starbucks Turbulence

In this industry, the change is low. Consumers expect only good coffee from coffee chains. The predictability is high because consumers do not change their tastes overnight. People who love coffee will keep returning, and we can predict that as long as new products are introduced and improvised, Starbucks will still be a leading coffee chain. 6.3 Key Factors for Success Starbucks has several key success factors and listed here are some.

6.3.1 Skill-related Starbucks has a superior workforce talent as its baristas are trained and professional. Starbucks is also innovative as they are constantly developing new products. Two of the most popular new products are the Green Tea Latte and Cranberry Mocha Frappe. (Koomsub, N.Y.) 6.3.2 Marketing-related The employees at Starbucks are friendly and courteous, and this makes customers enjoy their experiences. Starbucks also has a broad line of products and selection, making customers spoilt for choices. They also have ongoing promotions like the 1-for-1 Venti-sized beverages every now and then. (Koomsub, N.Y.) 6.3.3 Organizational Capacity Starbucks offers e-commerce for customers to order and purchase products online. It also possess managerial know-hows. (Koomsub, N.Y.) 6.3.4 Convenient Locations Out of all the coffee chains in the world, Starbucks has the most extensive range of outlet stores globally. In Singapore itself, there is at least one Starbucks outlet in every neighbourhood. This makes it very convenient and accessible for consumers to visit. People would always go for ease, thus this makes it a success factor for Starbucks. (Koomsub, N.Y.) Starbucks Experience 7.0 Marketing Mix 7ps

http://www.slideshare.net/noopursingla/starbucks-29256308

8.0 SWOT Analysis

(Kotler, 2006) 8.1 Strengths break up Starbucks has an extremely strong brand image. Over the years, it has built up its foundation and social image successfully. Whenever a coffee chain comes to mind, Starbucks would definitely be one of the first names to pop up. Starbucks is known to be one of the best coffee chains in the world. They also produce high-quality products as they use high-quality Arabica coffee beans to roast their coffees. Even for handcrafted beverages, they also have standardized measuring cups so as to make sure the portion of every ingredient is equal, making the taste of the beverages almost identical everywhere in the world. One of the strongest strengths of Starbucks would be the Starbucks experience. They are well known for their perfectly blended coffee, soothing music, cozy atmosphere with comfortable sofa seats, and friendly staff, which results in incomparable customer service. (Jurevicius, 2013) This is something that every competitor cannot beat, which makes Starbucks gain competitive advantage. Starbucks also has an extensive range of products in its menu, from freshly roasted ground coffee to handcrafted ice-blended beverages, and now even having flavoured teas, juices, as well as snacks like sandwiches and cakes. Customers can have a large variety to choose from, and can try something different on every visit. Starbucks also has attractive membership benefits like getting a complimentary slice of cake on your birthday month, and also be able to redeem a free drink of any size with every purchase of 13 drinks. This keeps customers coming back to enjoy the benefits. 8.2 Weaknesses break up However, the beverages are priced relatively high. In Singapore, a regular small-sized coffee costs at least $6. Not everyone can afford to drink coffee at this price all the time, therefore the target market for Starbucks is not for the lower-income people. There is also a lack of workforce in stores at times, especially during lunch and dinner hours. Customers have to queue and wait for a

substantial amount of time before receiving their orders, and this is due to a lack of manpower during the busy periods. Another weakness would be that the price of coffee beans is the major influence over the firm’s profits. It is a commodity and cannot be controlled by Starbucks. Due to weather conditions, seasonal changes and many other factors, the price of coffee beans cannot be fixed and Starbucks’ profits cannot be constant or estimated all the time. (Jurevicius, 2013) 8.3 Opportunities break up Starbucks can increase its market expansions to emerging economies like the Chinese and Indian markets, as the number of outlet stores in these two markets are comparably lesser than compared to the European and Asian countries. Starbucks should expand its retail operations. They should sell some of their products through other retailers by forming partnerships such as supermarkets to sell its products like coffee beans. Starbucks can also increase product offering by expanding the number of outlet stores that offer alcoholic drinks, and also add new products to reach a broader customer group. (Alexis, 2013) 8.4 Threats break up Starbucks also faces threats like the rising prices of coffee beans and dairy products. This is something that Starbucks cannot control, but still have to buy them from their suppliers no matter how much they cost. Consumers often compare the prices, and local cafes offer much lower prices. Not everyone can afford Starbucks but everyone can afford local cafes. This causes Starbucks to experience intense competition. Another threat would be trademark infringements. Starbucks is always involved in cases where the illegal use of its trademark is used. In countries like Thailand and China, small coffee outlets are opened with the Starbucks logo, some identical while some slightly changed. People who fail to notice the imitations would think that the quality of Starbucks has gone down, making it detrimental for Starbucks. (Alexis, 2013) 9.0 Competitor Analysis Retail coffee and snacks market share in the United States

(Geeredy, N.Y.) The first Dunkin Donuts was opened in 1950 in Quincy, Massachusetts by William Rosenberg. Today, there are over 13,000 Dunkin Donuts located in 50 countries worldwide with sales of $6.4 billion in 2006. Dunkin’s headquarters is located in Canton, Massachusetts.

Dunkin Donuts is known for their doughnuts and coffee. Over the years, Dunkin has introduced new products such as bagels, muffins, breakfast sandwiches. In order to compete with the lunch crowd, Dunkin expanded their product menu to include pizzas and sandwiches. In order to compete with the specialty coffeehouses, Dunkin expanded their coffee offerings to include flavored coffees, lattes, coolattas, flavored hot chocolate and teas.

10.0 Value Chain Analysis

The above is the value chain for Starbucks. It shows the product development from adding tea and international influences, to the research which developed the VIA instant coffee line and the search for high-quality beans. The products are then distributed to storefronts, grocery stores and the retail outlets. Finally they offer ground coffee and gift cards to take home. (Lee, N.Y.)

Here is the new value chain, with international development added upstream to allow the development of new products in international markets that suit the cultures of different countries. An example would be Green Tea Latte developed in Starbucks Japan. Online storefront customization is added downstream, and it allows consumers to create an account online, to order online and even to create our own drinks. The mobile application is also added, and it can locate the Starbucks locations, as well as receiving the latest promotions that Starbucks is having. (Lee, N.Y.)

11.0 Porter’s Generic Strategies

(Lee, N.Y.) Here, Starbucks is using the Differentiation strategy as a whole. They provide high-quality coffee and a unique, homely experience in the convenience of many locations. The high quality, great ambience and good accessibility together, allow customers to have a one-of-a-kind experience and convenience. This separates Starbucks from its competitors. The new instant coffee line, VIA, is in between Differentiation and Cost Leadership. Although it is a lower-cost alternative to regular coffee at Starbucks, it is still special and unique from other products in the market. The in-store products like brewing utensils and gifts such as gift cards and coffee mugs fall under the Focused Differentiation category because they target consumers who are coffee lovers, and they are also items which are unique to Starbucks and cannot be found anywhere else.

11.0 Recommendations for Future Direction 11.1 Ansoff Matrix

(Riley, 2012)

11.1.1 Market Penetration Market penetration is the growing sales of existing products in existing markets. For Starbucks, they have a loyalty programme, where its members can receive special benefits during their birthday month and getting a complimentary drink upon purchasing 13 beverages. The baristas have also started writing customers’ names on the cups to identify who is having which drink. This results in greater customer satisfaction. (Blatchford, 2013) 11.1.2 Product Development Product development is where a business aims to introduce new products into existing markets. An example would be to develop a new premium coffee which is made from rare and exclusive coffee beans, with some additional flavours to compliment it. (Blatchford, 2013) 11.1.3 Market Development Market development is when the business seeks to launch its existing products into new markets. Starbucks can penetrate into new emerging economies like China and India. By expanding their business there, Starbucks is most likely to succeed in making itself the largest monopoly in the market. As China and India are both extremely huge, it provides a good opportunity for Starbucks to start new outlets there and have growth in revenue. 11.1.4 Diversification Diversification is the launching of new products into new markets, with the potential of increasing sales revenues significantly. Starbucks should plan to introduce food products like baked rice, fish and chips, finger food to Starbucks. As they only serve sandwiches and cakes in most outlet stores, Starbucks should come up with an attractive food menu like that of Coffee Club and The Coffee

Connoisseur (TCC). This way, it will attract a larger group of customers and hopefully the food range can be a significant source for consumers’ meals.

12.0 Other Recommendations 12.1 Introducing New Promotions Other than the Ansoff Matrix, Starbucks can also increase their sales and sustain their market share by introducing new promotions. Now that they already have the re-chargeable membership card, they should implement some discount offers for students and elderly to target different target groups. Since working adults are already regular customers, Starbucks should make their products affordable to the younger and older generation. This in turn can create more sales revenues. (UKEssays, 2013) 12.2 Acquisition Starbucks can further increase its market growth by acquiring companies which have financial difficulties that they see a potential in recovering. If done well, huge profits will come in. Just like Walt Disney Company buying over Marvel, it is because Disney sees the potential in Marvel, and is confident in making larger profits after acquiring Marvel. 12.3 Employee Training and Development Training and development plays an important role in the service line. Employees must be wellmannered and professional in order to maintain a good brand image of the organization. Starbucks should organize training programmes for its staff to attend annually to improve on their customer service and also to give feedback about their jobs and see which areas can be corrected. 12.4 Employee Motivations Employees should be given good pay and benefits in order to be motivated to work. For an organization like Starbucks, it is essential for all employees to enjoy being at work before they can provide good service and produce high-quality beverages for customers in order to maintain its image and position in the market.

13.0 Conclusion Starbucks’ plans to diversify is one of the Ansoff Matrix growth strategies. The alternative strategies to grow sales are market penetration, market development and product development. The benefits to Starbucks are to grow sales, spread uneven demand and gain a competitive advantage. This strategy is also suitable for Starbucks because they have exhausted the ability to grow sales through the other means. Appendices

Appendix 1: Starbucks Corporation’s Financials

Source: Starbucks 10-K Form for Fiscal Years ended 2008-2013