Starbucks Case Study

Assignment 1: Strategy Analysis- Starbucks Introduction One of the most competitive industries in the world is the food and beverages companies. Being one of  the shopping and tourist capitals in the world, Hong Kong has many competing companies in these industries. The coffee market in Hong Kong has been markedly flourishing in the past decades leading to the sprout of the number of coffee shops in the country. the sprout of the number of coffee shops in the city. The coffee drinking culture in the said country has been one of the most eclectic from ‘gourmet’ to the local blends served in coffee houses. In Hong Kong, there exist different competing coffee shops and this includes Starbucks Coffee shops. It can be said that this type of industries can be considered to have a strong competition in the market. Primarily, of this paper is to analyse the strategies used by Starbucks through SWOT Analysis and Porter’s Five Forces Model. From this analysis, optimistic and pessimistic scenario for the next ten years will be considered.

Company Overview Starbucks Coffee is known as one of the fastest growing brands in the international level, the company made its debut in May 2000 as it opened its first store in Hong Kong at launched at Central's Exchange Square. The second store was opened at Hysan Avenue in Causeway Bay (Ho, 2002). At the end of 2000, Starbucks had already nine coffee houses in Hong Kong and continue to grow in the following years. By the end of 2001, there are already 24 branches and 60 by the end of 2005. As of today, the company has opened close to 65 branches in the country and are now located at shopping and entertainment, commercials and residential sites across the countries. The operations of the said coffee shops were instigated by the joint venture of Starbucks Starbucks Coffee Company International and Maxi’s Caterers Ltd under the name Coffee Concepts (HK) Ltd. (Starbucks Coffee Company HK, 2008).

SWOT Analysis The situations analysis of the company will be conducted through the use of different marketing tools. Herein, Herein, Starbucks Starbucks will be analysed analysed through through the use of SWOT (Strengths, (Strengths, Weakness Weaknesses, es, Opportuniti Opportunities, es, and Threats) Analysis. Analysis. The purpose of this internal and external analysis is to see what the organization has to work with as it begins to position itself to deal with the opportunities and threats identified through the analysis of the external environments. Specifically, it helps identify what existing strengths and weaknesses might impact the organization's value creation capabilities.

Strengths As mentioned, Starbucks has been one of the leading brands in coffee companies in the world. One of its strength is its being a very profitable company, in

its domestic and international branches. In

addition, Starbucks is a global brand established upon a reputation of quality products and services with almost 9000 branches in different regions. It is one of the Fortune Top 100 Companies to Work for in the year 2005 and is considered as a respected employer which values the employees. Furthermore, one of the strengths of Starbucks is its strong ethical values integrated with its ethical mission statement of 'Starbucks is committed to a role of environmental leadership in all facets of our business.' 

In addition, one of the strengths of Starbucks’ is the idea of providing free internet access among customers as well as the ambience of the branches and outlets of Starbucks. Other strengths include. strong capital resources, strong brand names, trademarks, good reputation among customers, on-going staff training and up-to date technology.

Weaknesses Although Starbucks encompass much strength, the company has also its weaknesses. One of the weaknesses of the company is the notion that Starbucks remain vulnerable to the plausibility that the creativity and product development may falter over time. In addition the company has also lacking the ability to look for a business portfolio for various regions, like in the case of Starbucks Coffee so as to spread business risk. In addition, the company is largely dependent on its main competitive advantage which is coffee retailing. Such aspect could make them slow to diversify in other aspects when the need arises.

Opportunities With the management system and the marketing strategies implemented within Starbucks in HK as well as with the strengths that company enjoyed, it can be said that companies has bigger opportunities to still dominate

the

Hong

Kong

in

terms

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providing

quality

coffee

products

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to

its

residents, commercial and industrial clients or even have an opportunity to be the most competitive brands in the HK market. With the continuous innovation of the company and the support that it shows to different needs of the region, the company can gain loyalty from their customers to make them more competitive in the marketplace. The continuous initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow all its rival companies. Such opportunities will include e-business development, leveraging the company’s investment in the World Class customer Satisfaction systems, and other business opportunities in non-core and core areas. In line withStarbucks, the company have the opportunity to expand their market in the global level, though Starbucks is on its way ahead of competitors in terms of international expanding.

Threats One of the threats of that Starbucks may face is the emergence of a new and stronger company which offered a more diversified coffee products which is cheaper than the two existing companies. If the company will not be able to provide the latest trends in this kind of business industries, the company may experience some industrial threats. In order for the company to maximise its strengths and minimise or totally eliminate its weaknesses, the company must be able to use or impose a strategic management system that will help them enhance their business operations. The management may use the concept of Total Quality Management to make sure that all business performances adhere to their goal of providing quality service to its customers. In addition, the company must not only focus on its strengths but must try to also pay attention to their weaknesses and find solution to solve such i ssues and maintain a competitive business operation and performances.

Porter’s Five Forces Model  Accordingly an industry is a group of companies which market its products and services closely substituted from each other. As noted by Porter (1980), some companies tend to become more profitable and competitive than their rivals, hence, an existing company such as the coffee shops should always bear in mind that their company will only survive in the market competition by using a strategy which would enhance the competitiveness of the business. Through the use Porter’s Five Forces Model, the analysis of the industry aspects of the Starbucks will be analysed.

New Market Entrants The first element of Porter’s Five Forces Model includes threat of entrance of new industries. Apparently, the objective of Starbucks in HK is to build a position in the coffee shops service industry and to be recognised as company which would always be competitive in the HK market. Starbucks is said to be a world-class companies in providing coffee products and services in HK. With this, it can be said that because of the existence of Starbucks, having another coffee shops is unnecessary unless, the new company which will emerge will have the appropriate and efficient marketing strategy to outgrow leading companies. Hence, it can be said that the coffee shop belongs to a higher entry obstruction because of the existence of competitive companies like the companies and their other rival industries.

Supplier Power  It can be noted that the conditions and the present system in the coffee shop industries largely determines the extent in which effective competition can be achieved. The bargaining power of a supplier could be a threat for the profit of the company, and Starbucks are very much aware of it. In this manner, Starbucks are trying to have a good contract with its supplier, herein; Starbucks makes it sure that they are also benefited in the said contract while the suppliers enjoy the agreement with them. In this kind of business, there is a high level of  competition in the coffee products supply market.

Competitive Rivalry Starbucks still enjoy their competitive position in the Hong Kong market. In this analysis, it shows that companies still dominate the coffee market by providing those quality and innovative services. This means that Starbucks are still on top of the competition among other coffee retail companies in HK. The company enjoys its competitive position in the region and still trying to sustain i ts competitive advantage among its rivals.

Buyer Power  Porter’s also include in his model the concept of the bargaining power of Buyers. Hence, the management of Starbucks makes sure of it that their clients and customers in all aspects will be satisfied for the quality service they provide. Specifically, the company has focused their marketing approach on the demands and needs of the buyer for a coffee service source that satisfies the and heavily positioned their products in this segment. The company also uses their corporate responsibility as a good public image to make the company more appealing to their customers. The competitive aim of each industry is to provide what the buyers or  consumers are looking and satisfy these needs to gain competitive advantage and outgrow rivals within the marketplace (Thompson & Strickland, 2003).

Threats of substitutes In terms of threats and substitutes, although the company is aware that there were threats for substitute products or retail coffee shops because of its high demand in the Hong Kong market, specifically now that companies offered coffee alternative products and flavours which suit the needs of the HK market.

Scenario Planning Based on the strategy analysis conducted for the Starbucks Company, the following scenarios can be considered. Optimistic Scenario

In the next ten years, the coffee products and coffee shows are said to be continuously shaped and developed by dynamic financial and social attribution. Accordingly, the conventional focus of Starbucks and other  coffee industries has been upstream research in the value of innovative coffee products in the value chain, which leads to the discovery of new coffee cultures and lifestyles. Nonetheless, such occurrence is the start to change the coffee industries in various ways. First, an increasing value of products is moving through the pipeline to the approval of regulators and sale in the market environment. As this maturing occurs, many developing coffee industries must be able to shift beyond the core research capabilities intro downstream operations which include manufacturing, product development and sales and marketing. If not, most industries will continue to expand their  business portfolio to become vertically-integrated coffee industries or become an acquisition targets for industries looking to bolster their product development like what Starbucks is actually doing. There are various environmental trends that may affect pharmaceutical products in the next ten years, these include developing products in coffee industries, emerging personalised coffee products for each consumer, the emergence of more attractive and convenience coffee restaurants, product diversification and the emergence of a more high technology restaurants to target internet and broadband users (Thompson, Strickland and Gamble, 2005).

Pessimistic Scenario

In line with the pessimistic scenario, it can be said that for the next ten years, Hong Kong market will become more saturated which may affect growth and performance of coffee industries. For instance, the existence of different competitors like Pacific Coffee, McCafe, Pret a Manager, Kosmo Coffee and others nonspecialist payers such as many Hong-Kong-style small cafes and fast-food chain shops, the market will be saturated with different substitute products which may threaten the competitive position and advantage of  Starbucks and other coffee industries. In addition, other pessimistic scenario that can be considered for the next ten years is the changing consumer behaviour and needs (Schiffman & Kanuk, 2004). It can be noted that consumers are also becoming more adventurous in their food choices and are seeking wider array of food and beverage offers including organics and healthy food and drinks options and are also eating and drinking more onthe-move.

For these scenarios, it can be said that the optimistic and pessimistic scenario is possible to happen for the next ten years. Both of these scenarios are possible to happen because of the rapid growth of coffee industries and the low barriers of entry in terms of coffee products, though Starbucks has a strong hold for its competitive advantage and position. Analysis shows that the trends of coffee industries are fast changing from coffee retailing to providing coffee services especially for people whoa re always on the go. In this regard, these scenarios are expected to happen in the next ten years and Starbucks must be aware of its occurrence and must be able to plan

ahead

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sustaining

their

competitive

advantage

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maintaining

their

competitive

lead.

Conclusion Drawing on the identified competitive advantages, weaknesses, threats and opportunities present to Starbucks, we are in a position to consolidate our findings with a view to arrive at recommendations which would take the company into the next decade. The retail and coffee market is Starbucks Coffee’s stronghold where it continues to yield strong sales revenue by leveraging off its excellent shop locations, strong brand name and excellent reputation among customers. However, with threats of increasing cost of rental in premier location and coffee beans due to the weakening of Hong Kong dollar along with speculative activities in global commodities market, Starbucks Coffee is facing a critical moment of its retail growth strategy. Starbucks coffee should consider selecting new shop locations close to residential as opposed to premier commercial areas. Serious consideration should be given to large shopping malls and areas where the expatriate community gathers. This recommended strategy of identifying new shop location would help to promote a welcoming image that Starbucks Coffee is “going” (rather than waiting for customers to come) to the customers and by doing so it also achieves future cost minimization. Since, there are many competing coffee-shops in Hong Kong, firms Starbucks are faced with the challenge of sustaining their competitive advantage and position in the marketplace. To be able to analyse the current situation of coffee shops in the HK market, this paper have provided industry analysis using some marketing tools like SWOT Analysis, SWOT and Porter’s Competitive Five Forces. Accordingly, through these marketing tools the analysis has been able to identify that Starbucks have a strong competitive advantage against their rival industries and hold a strong competitive position in many parts of Hong Kong. It can be said that coffee shops in HK has a strong competition, hence, it is recommended that companies like Starbucks should be able to gain competitive advantage and position in the Hong Kong market. In doing so, the company must be able to adhere to the needs of their customers for them to remain loyal to avail the services and products offered by the company. It is recommended that Starbucks must be able to apply prioritized quality in customer services. The assurance of quality service and products may yield to customer  satisfaction, loyalty, employee satisfaction and more importantly profit growth. In order to cope with the challenges of the market environment today and for the next ten years businesses like coffee industries must be able to implement different strategies which will enhance their competitive advantage and customer services.

Reference Schiffman, LG and Kanuk, LL 2004. Consumer Behaviour. 8 th edition. Prentice Hall: New Jersey. Thompson, AA Strickland AJ & Gamble J 2005, “Starbucks in 2004: Driving for Global Dominance” . Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, New York, pp. C2-C32. Starbuck

Coffee

Company.

(2007) Starbucks

In

Hong

Kong. 

Available

in:

http://www.starbucks.com.hk/enUS/_About+Starbucks/Starbucks+in+Hong+Kong.htm. [Accessed May 8, 2008]