INTERNATIONAL UNIVERSITY
STABUCKS CORPORATION
REPORT COURSE: STRATEGY FORMULATION AND IMPLEMENTATION INSTRUCTOR: . PHAN TRIEU ANH GROUP 10
INTERNATIONAL UNIVERSITY
CONTENTS I.
INTRODUCTION ABOUT STARBUCKS CORPORATION............................................................3 I.1
OVERVIEW................................................................................................................................3
I.2
HISTORY....................................................................................................................................3
I.3
CORPORATE GOVERNANCE..................................................................................................3
I.4
PERFORMANCE IN RECENT YEARS.....................................................................................4
II.
Market Share...............................................................................................................................4
Expansion to New Markets and Products....................................................................................4
ANALYZATION AND STRATEGY RECOMMENDATION.............................................................5 II.1
EXTERNAL ANALYSIS............................................................................................................5
A. PESTLE Analysis...........................................................................................................................5 B. Five Forces Analysis for Starbucks...............................................................................................14 II.2
INTERNAL ANALYSIS...........................................................................................................17
PRIMARY ACTIVITIES...........................................................................................................18
SUPPORT ACTIVITIES...........................................................................................................22
II.3
SWOT ANALYSIS....................................................................................................................24
II.4
RECOMMENDED STRATEGIES............................................................................................25
1.
Market development:.................................................................................................................25
2.
Product development:................................................................................................................25
4.
Joint Ventures:...........................................................................................................................26
5.
Strategic Alliance:......................................................................................................................26
III.
WHAT THEY ARE DOING – THEIR STRATEGIES..................................................................27
IV.
COMPARISON.............................................................................................................................29
V.
REFERENCES..................................................................................................................................32
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INTERNATIONAL UNIVERSITY
GROUP MEMBERS NGUYEN THAO PHUONG
BABAIU13216
KIM JI SONG
BABAIU13391
NGUYEN NGOC KIM SANG
BABAIU13239
TRAN QUAN QUAN
BABAUN14023
TRAN NGUYEN MINH TAM
BABAIU13246
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RE STARBUCKS CORPORATION I.
INTRODUCTION ABOUT STARBUCKS CORPORATION I.1 OVERVIEW The Starbucks Corporation is the largest coffeehouse company in the world. The chain was founded in Seattle, Washington in 1971; it operates 23,391 locations worldwide, including 13,016 in the United States, 2,062 in China, 1,433 in Canada, 1,150 in Japan and 863 in the United Kingdom. Starbucks locations serve hot and cold drinks, whole-bean coffee, micro ground instant coffee known as VIA, espresso, cafe latte, full-leaf teas, Evolution Fresh juices, Frappuccino beverages, pastries, and snacks; some offerings (including their Pumpkin Spice Latte) are seasonal or specific to the locality of the store. Many stores sell pre-packaged food items, hot and cold sandwiches, and drinkware including mugs and tumblers; select "Starbucks Evenings" locations offer beer, wine, and appetizers. Starbucks-brand coffee, ice cream and bottled cold coffee drinks are also sold at grocery stores.
I.2 HISTORY The first Starbucks opened in Seattle, Washington, on March 30th , 1971, by three partners who met while they were students at the University of San Francisco: English teacher Jerry Baldwin, History teacher Zev Siegl, and writer Gordon Bowker. The three were inspired to sell high-quality coffee beans and equipment by coffee roasting entrepreneur Alfred Peet after he taught them his style of roasting beans. The company took the name of the chief mate in the book Moby-Dick: Starbuck, after considering "Cargo House" and "Pequod". Bowker recalls that Terry Heckler, with whom Bowker owned an advertising agency, thought words beginning with "st" were powerful. The founders brainstormed a list of words beginning with "st." Someone pulled out an old mining map of the Cascade Range and saw a mining town named "Starbo", which immediately put Bowker in mind of the character "Starbuck". Bowker said, " Moby-Dick didn't have anything to do with Starbucks directly; it was only coincidental that the sound seemed to make sense."
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INTERNATIONAL UNIVERSITY I.3 CORPORATE GOVERNANCE Starbucks' chairman, Howard Schultz, has talked about making sure growth does not dilute the company's culture and the common goal of the company's leadership to act like a small company. Howard Schultz served as the company's CEO until 2000. In January 2008, Schultz resumed his roles as President and CEO after an eight-year hiatus, replacing Jim Donald, who took the posts in 2005 but was asked to step down after sales slowed in 2007. Schultz aims to restore what he calls the "distinctive Starbucks experience" in the face of rapid expansion. Analysts believe that Schultz must determine how to contend with higher materials prices and enhanced competition from lower-price fast food chains, including McDonald's and Dunkin' Donuts. Starbucks announced it would discontinue the warm breakfast sandwich products they originally intended to launch nationwide in 2008 and refocus on coffee, but they reformulated the sandwiches to deal with complaints and kept the product line.
I.4 PERFORMANCE IN RECENT YEARS ďƒ˜ Market Share Starbucks Corporation gave another proof of its dominance in the industry after posting a robust growth in the fiscal 2015. The coffee giant reported its Q4 and fiscal 2015 earnings result on October 29th . The company posted strong positive comparable sales growth in every geographical segment, with a global comparable sales growth of 8%, marking its 23rd consecutive quarter of more than 5% comparable sales growth. With widening market share dominance in the coffee sector, introduction of coffee reserve stores, and an innovative mobile pay and order app, Starbucks SBUX -1.72% is all set to further expand its strength and brand appeal in fiscal 2016. Their price estimate for Starbucks is $55, which is roughly 14% below the current market price. However, they are in the process of revising our estimates after the fiscal 2015 report.
ďƒ˜ Expansion to New Markets and Products On February 1, 2013, Starbucks opened its first store in Ho Chi Minh City, Vietnam, and this was followed by an announcement in late August 2013 that the retailer will be opening its inaugural store in Colombia. The Colombian announcement was delivered at a press conference
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INTERNATIONAL UNIVERSITY in Bogota, where the company's CEO explained, "Starbucks has always admired and respected Colombia's distinguished coffee tradition." In August 2014, Starbucks opened their first store in Williamsburg, Brooklyn. This location will be one of 30 Starbucks stores that will serve beer and wine. In September 2014, it was revealed that Starbucks would acquire the remaining 60.5 percent stake in Starbuck Coffee Japan that it does not already own, at a price of $913.5 million. (In 1995, Starbucks and Sazaby League, a major Japanese retailer and restaurateur, entered into a 50-50 joint venture to open Starbucks stores in Japan. In 1996, Starbucks opened its first international store outside North America in Tokyo.) In August 2015, Starbucks announced that it will enter Cambodia, its 16th market in the China/Asia Pacific region. The first location will open in the capital city of Phnom Penh by the end of 2015.
II.
ANALYZATION AND STRATEGY RECOMMENDATION This part goes into analyses about Starbucks Corporation by conducting Internal and External Analysis, then combining them into SWOT and finally suggesting some grand strategies that match Starbucks’s mission.
II.1 EXTERNAL ANALYSIS A. PESTLE Analysis It is crucial for a successful company to fully understand and acknowledge its external interrelationship between the firm and its remote, industry, and operating environment, the combining environment since these factors have important impacts on a firm’s choices of direction and actions and, ultimately its organizational structure and internal processes. In this part we will examine into details the three interrelated subcategories in Starbucks’s external environment, which are: factors in remote environment, factors in the industry environment, and factors in operating environment, so as to visibly recognize the action of these factors which form a basis of the opportunities and threats that a firm faces in its competitive environment. Then, in the next part, we will look into the five specific factors to clearly see how they can have impact on Starbucks’s operation.
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INTERNATIONAL UNIVERSITY a. Remote Environment: Starbucks is one of the largest companies that has been known for its special care for its differentiated products. Starbucks believed that quality of products is a part of ethical supplier and products. However, there are unquestionable factors that strongly influence Starbucks’s business, those factors that are comprised in the remote environment and that originate beyond and usually irrespective of, Starbucks’s operating factors: the economic, social, political, technological, and ecological factors. This environment presents the firm with opportunities, threats and constraints, but rarely exerted any meaningful reciprocal influence.
Economic factors The economic factors interest in the nature and the trend of the economy in which the firm are operating. The importance of economic indicators to the strategic planning process in any organization is the ability to benchmark economic conditions that contribute to the improvement in profitability, business growth and market size. It is a must-consider for Starbucks about the economic patterns in various market segments that affect its industry since those segments have a relative impact on the consumption patterns of the firm. Leadership sets up the mission “to establish Starbucks as the most recognized and respected brand in the world.” In doing so, they have created a set of industry-leading, comprehensive coffee-buying guidelines addressing coffee quality, financial transparency, social and environmental responsibility. Starbucks strategy is also expanding market in globally to provide high quality coffee in convenient and visibility locations. They are continuing to innovate and extend the business with imaginative new readyto-drink beverages and expanded packaged coffee offerings. From December 2007 to June 2009 came the Great Recession that has dented the macroeconomic environment as well as the coffee-house industry in which Starbucks was operating. The recession hurt the consumer’s purchasing power. However, “Despite the challenging economic environment, Starbucks is still profitable, has a strong balance sheet and generates cash from operations”, said Schultz. “Our customers’ connection with, and trust in the Starbucks brand remains at a high level. We are laser-focused on delivering the finest quality coffee and getting the customer experience right every time”. The current year of 2015 marked six years after the Great Recession but the world has not fully recovered from such crisis. In fact, the aggregate economic activities have remained depressed, seven million jobs still needed and prime-aged workers still underemployed. Therefore, it could be a threat for the business of Starbucks unless the corporation itself has some plans to deal with these after-crisis-impacts as soon as possible.
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INTERNATIONAL UNIVERSITY Besides, since Starbucks operates their business in foreign countries, the most important issue that they have to face is the awareness of fluctuated exchange rates. Starbucks have succeeded several economic factors as well as price elasticity of demand. Starbucks innovation in joint ventures has opened new markets and opportunities increasing product use among different demographics. Starbucks has proven to be highly innovative in business culture that offers prepaid cards, priced from $5 to $500. Joint ventures with Pepsi Company, Dreyer's Grand Ice Cream Inc. and inspiring entertainment with the launch of “Hear Music” have developed Starbucks with great success. Starbucks has shown their values, leveraging market power, resources, and capabilities to achieve returns higher than their competition. The global economy is always moving and Starbucks has to consider planning out a new strategy that can adapt to such changes. The current trend includes deepening of income inequality and persistent jobless growth, which will negatively affect the demands for high quality-high price coffee like Starbucks itself. Furthermore, in the future, it is expected that the level of living standard will rise even faster than official estimates, and this huge trend will be an opportunity that Starbucks ought to catch up with as its mission is to create its own value through high quality coffee in an environment of conversation and a sense of community- a “third place” between work and home, and such trend will create Starbucks’ competitive advantages to obstruct any intimidate competitors in the market or ones who are going to enter.
Social factors: The social factors that affect Starbucks involve the beliefs, values, attitudes, opinions and lifestyles of individuals in the external environment as developed from cultural, demographic, education, ethnic conditioning and customers’ needs and the size of the potential market. The social forces are very dynamic, with constant change resulting from efforts of individuals to satisfy their desires and needs by controlling and adapting to environmental factors. First of all, Starbucks’s opportunity is shown in the growing trend of coffee culture. American consumers-the Starbucks’s largest consumptions- are notorious for making a ritual out of the first cup of hot coffee in the morning. The staffs at Starbucks strives to make itself a part of that ritual-a part of the customer’s life. Furthermore, according to the National Coffee Association’s most recent annual consumer report, coffee has continued to increase its dominance over soft drinks, with 61 percent of adults drinking coffee daily compared to 41 percent of adults drinking soft drinks. Also, the globalization of lifestyles fueled by internet and the media resulting in the spread of western cultures in developing countries is a noteworthy social factor that may contribute to Starbuck’s long-term growth prospects. Spending time in Starbucks is associated with leading American and European lifestyle in consumer perception and as such, individuals from developing countries attracted to American and European values may represent future customers for Starbucks Coffee. GROUP 10
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INTERNATIONAL UNIVERSITY Secondly, Starbucks’s acknowledgement about the growing trend of accelerating interest of consumers and employees in quality-of-life issues and the increasing health consciousness is supported by its approach to corporate social responsibility (CSR). In term of social issues, Starbucks shows its CSR by the development of ethical sourcing practices for products such as coffee, tea and cocoa, the strengthen in its involvement toward education programs that focused on cultural diversity globally, the offer of benefit package to its employees and the establishment of Starbucks Foundation as part of its commitment to strengthen communities. Such moves on the trending issue have helped Starbucks to motivate its shareholders (employees, farmers, suppliers…) and gain their loyalty and commitment, add its own values to its products by showing cares for the customers and open an opportunity to reinforce its already-strong-brand name to become even stronger and better than ever. Starbucks Company profile states that they “offer benefits package to both full-time and part-time employee included medical, dental, vision and short-term disability insurance, paid vacations and employee stock options package.” They also provide training programs to facilitate the knowledge of products and discount stock option for global partners. The benefits package promotes employee motivation, strong workforce and the implementation of this policy has been highly successful for Starbucks. These benefits packages decrease employee turnover and encourages them to be attentive in order to satisfy consumer needs. They treat employees as the most valuable asset for the company and empower to make decisions. They continue to sustain the values of personal dignity, mutual respect, shared success and diverse workforce culture in the organization. In addition, they focus on ethical sourcing that offers affordable loans for farmers, sustainable farm management practices, the prohibition of forced child labor, and economic transparency to increase their value chain. The Starbucks Foundation is one of the important moves that Starbucks have made in order to show its contribution to the communities worldwide. This foundation includes the program of Opportunity for Youth by committing to creating pathways to opportunities and employment in communities around the world (one example is the Community Stores that represent their ongoing global commitment), the establishment of Community Service which carries out the value of: “Every Starbucks store is a part of a community, and we’re committed to strengthening neighborhoods wherever we do business.”, the Veterans and Military Support program and the College Achievement Plan. The Starbucks Foundation has begun to serve impoverished communities and support education funds for the children where it operates through social, environmental programs and projects. Starbucks has built trusting relationships with their future neighbors and to gain a deep appreciation for what each community values and many Starbucks leaders are involved with such organizations serving on boards and making personal contributions of their time and money. Starbucks and CARE International, a global humanitarian organization, have been working
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INTERNATIONAL UNIVERSITY together to help alleviate poverty and create long-term solutions in coffee growing communities since 1992.
 Political factors: The direction and stability of political factors are a major consideration for managers on formulating company strategy. Political factors define the legal and regulatory parameters which firms must operate in complied with. Especially for a multinational corporation like Starbucks, it has to face tremendous political threats and opportunities not only from within its own country, but also from the local government that it operates in. There are huge discrepancies in laws and regulations among countries. Therefore, in order to meet the requirements for each situation, Starbucks have to take into consideration and develop the most suitable strategies to restrict or even eliminate the negative influences of political obstacles. Starbucks sales are affected by a wide range of political factors, in both direct and indirect ways. The patterns of sourcing raw materials have related to political factors that affect the business in a direct manner. Specifically, nowadays it has become compulsory for Starbucks and other global businesses to engage in the sourcing of raw materials complying with environmental and social norms that are becoming stricter. The negligences in such norms intentionally or unintentionally are likely to cause political troubles on the business. Government attitude towards the business is another significant political factor effecting companies. Tax scandal faced by Starbucks in the United Kingdom can be mentioned to illustrate the impact of such factor. Once it was revealed that Starbucks paid no corporation tax for 15 years of operation in the country until 2014. The investigation launched by Public Accounts Committee of the UK Government and questions raised in the Parliament caused damage to the brand images. Although, according to Starbucks management, the company had violated no rules, however, the UK Government made the company to pay GBP 20 million, an obligation that was completed by December 2014. It is predicted that the global political trend of 2015 will comprise of lack of leadership, weakening of representative democracy, rising of geostrategic competition and the intensifying nationalism. These trends will for sure threaten and might lead to political crisis. It will become even worse when these factors affect the global economy and have negatively impacts on the operation of Starbucks Corporation. Therefore, such threats should be taken in to account to avoid any damages in the future.
 Technological factors: To avoid obsolescence and to promote innovation, firms need to be aware of technological changes that might influence its operating industry. Creative technological adaptions can suggest GROUP 10
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INTERNATIONAL UNIVERSITY possibilities for new products or for improvements in existing products or in manufacturing and marketing techniques. At the moment, the most important trend that will prosper into the very near future is the mobile technology development. As smart-phone technology advances, smart-phones will be used in new contexts and environments. Along with wearable, smart-phones will offer connected screens in the workplace and in public, and user experience will be the key. To be more specific, research has shown that the coffee giant’s mobile platform is light-years ahead of other brickand-mortar retailers, and Starbucks’ plan to build on this lead could make it one of the best stocks to own in 2015. This has opened a huge opportunity for Starbucks. In fact, Starbucks is one of the dominant corporations in taking advantages of the growth in smart-phones and providing itself a best-in-class mobile and digital strategy. More than 13 million consumers in the U.S now use Starbucks mobile apps. As a result, the coffee retailer now generates over 7 million mobile transactions in its stores each week. Not only does Starbucks have a significant lead over others in the mobile space, it's also building on that edge. For example, Starbucks recently unveiled its Mobile Order & Pay technology, which lets customers place orders ahead of time using their mobile device and then pick up in the store. Starbucks Mobile Order & Pay, like so many other facets of its mobile strategy, is a roaring success because it seamlessly integrates mobile technology with a memorable in-store experience. Secondly, the company also has an opportunity to improve its supply chain efficiency based on new technologies coffee farmers use. The development of new technologies applying to farming process has increased the productivity for farmers and has helped Starbucks to manage the supply of coffee, preventing any fluctuation in the availability of coffee in the future. However, the major trend in technology that has caused a rising risk for Starbucks is the appearance of specialty coffee machines for home use. To be more specific, the most popular company that is currently leading this trend is the Keurig Green Mountain Company- a firm that is known for beverage brewing system for home and commercial use. The convenient of this machine has driven the customers toward the trend and leaving companies like Starbucks losing its market share. Such threat should be carefully considered for Starbucks’s future strategy.
Ecological factors: Ecology refers to the relationships among human beings and other living creatures, the air, soil, and water that support them. As today’s major trends are the rising pollution in developing countries, the increasing occurrence of severe weather events and the growing of water scarcity, Starbucks faces problems in its remote environment and it has to come up with solutions to open itself the opportunity for development.
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INTERNATIONAL UNIVERSITY The first important opportunity for Starbucks in the year of 2015 is the trend of business sustainability. To be more specific, scales tip on global climate change action and interest in water stress are the top two movements that the world is concerning for the environment right now. Starbucks get ahead of its competitors by concerning for water and climate change through several actions. Starbucks has been a leader for more than a decade in the development and implementation of scalable green building program for retail companies like itself. Starbucks is working to bring all of its stores to LEED (Leadership in Energy and Environmental Design) building standards and ensure that its approach to designing, building and maintaining the stores is inclusive of a range of environmental goals. Besides that, Starbucks is also conserving the energy and water it uses and purchasing renewable energy credits to push the reduction of environmental footprint of its operations and help ensure access to clean water in coffee-growing communities. This includes water saving through installation of efficient fixture, monitoring consumption to identify spikes in water usage and targeting leak repairs and upgrading the water filtration systems; energy saving through installation of Energy Management Systems in approximately 4,000 stores and the investment in renewable energy. Growing popular support for responsible sourcing has opened a different opportunity for Starbucks’s business operation. It has demonstrated farmers to “produce high quality coffee through Coffee and Farmer Equity (C.A.F.E.) Practices” that issue individual farmers, cooperatives, processors, exporters and importer to create a long-term supply of coffee for loyalty customers. Starbucks has been cooperated with farmers to make good relationship of the supply chain stipulation targeted to grow the finest coffee and to accelerate the interest of consumers. Starbucks has a strong partnership with Conservation International (CI), which together are working with coffee producers to promote coffee cultivation methods that improve the livelihood of coffee farmers everywhere. Last but not least, Starbucks’ new opportunity is the showing of its interest in the growing popular support for environmentally friendly products. Starbucks shrinks the environmental footprint and meets the expectations of customers by increasing recycling, promoting reusable cups and reducing the waste associated with its cups and other packaging.
b. Operating Environment: Competitive Position:
+ Market share:
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INTERNATIONAL UNIVERSITY Starbucks’s market share in 2015 is currently at a rate of 32.6%, which is more than double the amount of its rivalry Dunkin’ Donut (16.1%) and is very promising to prosper into the future.
+ Breadth of product line: Starbucks product line has grown to include fresh brewed coffee, hot and iced espresso beverages, coffee and non-coffee blended beverages, Tazo tea, baked pastries, sandwiches, and salads. Starbucks paraphernalia includes coffee grinders, espresso machines, coffee brewers, CDs music, books, movies and gift cards. The global consumer products include bottled Frappuccino, iced coffee, and espresso drinks, whole bean coffee, tea, coffee liqueurs and premium ice cream.
+ Location and age of facility: Starbucks’ location strategy focuses on urban centers, especially those with large middle and upper class populations. Most of its cafés are in densely populated areas. Also, Starbucks occasionally uses strategic clustering of cafés in the same geographic area to gain market share and drive competitors away. This decision area of operations management shows that Starbucks emphasizes areas with affluent consumers who could afford its premium priced products.
+ Capacity and productivity: Process and capacity efficiency is one of contributors to Starbucks’ success. The company’s processes are highly efficient, as observable in its cafés. Also, Starbucks optimizes capacity and capacity utilization by designing processes to meet fluctuations in demand. For example, processes at the firm’s cafés are flexible to adjust personnel to a sudden increase in demand during peak hours. In this decision area of operations management, Starbucks aims to maximize cost-effectiveness though efficiency of workflows and processes. GROUP 10
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INTERNATIONAL UNIVERSITY One strategy that Starbucks employs to increase productivity is what is known as lean manufacturing or lean production. The essence of lean production is maximizing customer value while eliminating waste, which means cutting out any part of the process that does not directly provide value to the customer. When the recession hit and Starbucks was forced to close over 900 stores executives were forced to reevaluate Starbucks’ practices and determine how they could improve them. They found that it was simply taking too long for employees to make drinks, reducing the time baristas had to interact with customers and improve their Starbucks experience.
+ Technological position: Social Media In June 2010, Starbucks was named the most popular social media brand, according to a snapshot taken of its fans, followers and subscribers by Famecount, an online statistics and analytics provider. Starbucks social media space includes technology like its website and social media platforms, including Facebook, Twitter and Foursquare. According to a February 2010 article in "AdAge," Starbucks was able to use social technology to its advantage and bring customers back to its stores by giving them an online space to submit ideas and provide feedback on the brand and their experience with it. Mobile App After a two-year pilot period, Starbucks launched a nationwide mobile payment app in early 2011. The app is available for iPhone, Android and Blackberry, and," it can be used at 9,000 Starbucks locations. To use the free app, customers simply add their Starbucks card number. From there, they can use the app to make purchases, track their own rewards and check your balance. They can also find which Starbucks stores will accept mobile payments.
Brewing In 2008, the "Seattle Times" reported Starbucks' recent purchase of the Coffee Equipment Co., a small company known for its single-cup coffee maker known as the "Clover." The Clover uses precise technology and a calculated algorithm to brew coffee within one degree Fahrenheit of its ideal temperature and produce the ideal flavor. It also controls how long the grounds and water interact and the flow of water brewing. Clover units are connected via Ethernet port so that the Starbucks network can manage the diagnostics and details of each unit. Starbucks Digital Network Starbucks can serve as makeshift office and meeting place thanks to the free, unlimited Wi-Fi available in its stores. In October 2010, the company made a move to expand its online offerings to customers with the Starbucks Digital Network. According to Starbucks, the news, GROUP 10
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INTERNATIONAL UNIVERSITY entertainment and lifestyle channel was available in 6,800 locations as of March 2011. The digital network is a partnership of Starbucks and Yahoo, and delivers premium content from sites like "USA Today," "Wall Street Journal," ESPN, Nick Jr. and more to laptops, tablets and smartphones. When customers connect to Starbucks' free Wi-Fi, they are greeted with the landing page for the digital network that allows them to check in with Foursquare, log in to their Starbucks card and more.
B. Five Forces Analysis for Starbucks Five Forces investigates the attractiveness of an industry by concentrating on the threat level of various factors having impacts on the industry. These forces include: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat from substitutes, and rivalry among existing players. In this section, Starbucks will be analyzed from five competitive forces framework which is developed by Porter. This analysis of Starbucks indicates the intensities of the five forces on the company. Success potential is based on how Starbucks positions its business to address or overcome these five forces. Furthermore, opportunities and threats that Starbucks contains will be shown through the analysis. Starbucks Coffee Company is one of the premier companies in the coffee industry and known as a worldwide brand which is operating as a roaster and retailer of specialty coffees. Starbucks has experienced massive success since 1971 and became one of the most recognized global brand names. The five forces that Starbucks faces have varying intensities or strengths based on its position, as follows:
Threat of new entrants or new entry (moderate force) Competitive rivalry or competition (strong force) Bargaining power of buyers or customers (strong force) Bargaining power of suppliers (weak force) Threat of substitutes (strong force)
This analysis represents that Starbucks has a variety of challenges as well as opportunities linked to these five forces. Based on this five forces analysis, only the bargaining power of suppliers presents the least concern for the company. However, Starbucks must ensure effective measures to prioritize competitive rivalry, the bargaining power of customers, and the threat of substitution. Threat of New Entrants (Moderate Force)
In the five forces analysis model, this force refers to the potential effect of new players in the industry. The threat of new entrants into the industry is a moderate market force. The market is GROUP 10
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INTERNATIONAL UNIVERSITY relatively open for potential new entrants since barriers to entry are not excessive. However, this is balanced by the fact that there are several substantial obstacles to potential new market entrants from competitive forces that Starbucks has. The following are some external factors contributing to the level of the threat of new entrants: • • • • •
Cost of doing business (moderate force) Supply chain cost (moderate force) Cost of brand development (strong force) Size and benefit of economies of scale (strong force) Switching Cost (strong force)
On one hand, the factors that make new entrants can compete against Starbucks are the moderate costs of doing business and supply chain development. However, there are substantial entry barriers in international coffee chain industry which weaken threats of new entrants. It is hard to attain market saturation in the industry thus discourages new players to enter. Since Starbucks has a strongly established brand, it would be very difficult for any new market entrant to be able to match it. Howard Schultz, CEO of Starbucks, has successfully positioned Starbucks as a ‘third place’ in customers’ minds to make it a part of their life. This creates power by reducing customer susceptibility to visiting competitor stores in proximity to Starbucks, making it an unattractive market for new entrants. Although the absence of switching costs from Starbucks to other stores may attract new competitors to the industry, survival in the global coffee-chain industry is currently associated with massive capital investments and this fact can be referred to as an additional entry barrier to the industry. In addition, Starbucks is able to take advantage of its size and benefit of economies of scale with 20,891 global stores and that is almost double that of the second biggest coffee shop chain Dunkin’ Donuts’ 10,083 stores. According to this component of the Five Forces analysis, it indicates that new entrants have some significant factors but not strong enough to pose threats to Starbucks’s business. Thus, the threat of new entrants should be a secondary priority in Starbucks Coffee’s strategies.
Competitive Rivalry or Competition with Starbucks Coffee company (Strong Force) In the Five Forces analysis model, this force pertains to the influence of competitors on each other. Starbucks faces the strong force of competitive rivalry or competition. The following external factors contribute to the strong force of competition: • • •
Large number of firms (strong force) Low switching cost (strong force) Variety of firms (moderate force)
Although it holds a preeminent position in the coffee shop marketplace, rivalry among existing firms is fierce. Competition from major rivals is the strongest market force that Starbucks has to address but the company also faces a large number of competitors, which have different sizes, GROUP 10
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INTERNATIONAL UNIVERSITY specialties and strategies. It faces competition in the global market place such as Costa, Caribou Coffee, McDonald’s, Dunkin Donuts, Pret-a-Manger and thousands of small local coffee shops and cafes. Among these specialty coffee companies, McDonald’s and Dunkin Donuts are the main competitive force. However, while McDonald's and Dunkin' Donuts are primarily identified with secondary coffee sellers and considered as other food and beverage product stores, Starbucks has a marketplace advantage with its brand identity specifically as a coffee company. Another strong force of competition is low switching cost which makes customers easy to shift from Starbucks to other brands. Thus, this component of the Five Forces analysis indicates that competition should be among Starbucks Coffee’s top-priority challenges.
Bargaining Power of Starbucks Coffee’s Customers or Buyers (Strong Force) Starbucks Coffee experiences the strong force of bargaining power of buyers or customers. This force is based on the effect that individual and grouped customers have on business. The following external factors contribute to the strong bargaining power of customers: • • •
Low switching cost (strong force) Substitute availability (strong force) Small size of individual buyers (weak force)
The bargaining power of buyers is also among the most significant forces affecting Starbucks’s business. Starbucks' customers have little individual bargaining power since individual purchases are very small in relation to the company's total revenues. Also, there are a variety of customers, such as purchasers of coffee shop drinks, purchasers of coffee shop foods, and purchasers of retail store coffee and other beverages. Thus, there is no single customer or type of customer who can carry enough weight to significantly affect market pricing of Starbuck. However, since there are no switching costs involved for customers, they can easily shift from Starbucks to other brands because it is affordable to do so. Customers can also stay away from Starbucks because there are many substitutes which are less-expensive competitor products, such as instant beverages and drinks from restaurants. In the industry with low switching costs, it is clearly critical to highlight the correlation between listening to customers and customer loyalty to maintain them and Starbucks must be sensitive to such issues as how much of a premium its customers are generally willing to pay. Thus, this aspect of the Five Forces analysis shows that the bargaining power of customers should also be among Starbucks Coffee’s top-priority challenges.
Bargaining Power of Starbucks Coffee’s Suppliers (Weak Force)
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INTERNATIONAL UNIVERSITY This force refers to the influence that suppliers have. The bargaining power of suppliers is the weakest of Porter's Five Forces. The following external factors contribute to the weak force or bargaining power of suppliers: • • •
High variety of suppliers (weak force) Large overall supply (weak force) Moderate size of individual suppliers (moderate force)
Starbucks is free to choose from among a huge number of potential suppliers, with relatively low switching cost. This large overall supply lessens the effect of any single supplier on the company. Moreover, Starbucks is available to lessen bargaining power of suppliers since it is a major customer for most of its suppliers. Thus, Starbucks has the stronger hand in negotiations with suppliers and they do not have much impact on Starbucks. Also, Starbucks has a policy for diversifying its supply chain. This policy reduces the influence of suppliers on the business even though each supplier has a moderate size compared to the Starbucks supply chain. Therefore, based on this aspect of the Five Forces analysis model, Starbucks Coffee does not need to prioritize the concerns on demands of suppliers.
Threat of Substitution or Substitutes to Starbucks Products (Strong Force) The threat of customers opting for substitute products is another significant market force and this force pertains to the impact of substitute goods or services. The following external factors contribute to the strong force of the threat of substitution: • • •
Availability of substitutes (strong force) Low switching cost (strong force) Low cost of substitutes (strong force)
There is an enormous variety of alternate foods and beverage products that consumers can choose instead of Starbucks' offers. Bars or restaurants are readily available substitute choices for a coffee shop with instant and bottled beverages and other goods from grocery stores. Also, there is little or no direct substitution to Starbucks core products since the company sells a comprehensive range of non-alcoholic drinks such as coffee, tea, juices, energy drinks, and water. This market force is strengthened by the fact that there is no switching cost involved in choosing alternative products without spending for the shifting process. With attractiveness of relatively inexpensive price, these substitutes have strong potential to negatively impact on Starbucks’s business. Furthermore, successful innovations and popular beverages such as the Frappuccino are subject to copycat products due to the difficulty in differentiating and patenting coffee products. Thus, based on the Five Forces analysis, Starbucks should consider the threats of substitutes as one of its top-priority concerns.
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INTERNATIONAL UNIVERSITY II.2 INTERNAL ANALYSIS Internal Analysis focuses on what inside the company by showing the Value Chain Analysis – which describes a way of looking at Starbucks as a chain of activities that transform inputs into outputs that customers value. The Value Chain Model as shown below comprises of 2 stages of activities: Primary and Support (Secondary) Activities.
The Value Chain
PRIMARY ACTIVITIES
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INTERNATIONAL UNIVERSITY Primary Activities in a firm comprise those involved in the physical creation of the product, marketing and transfer to the buyer, and after-sale support.
Inbound logistics Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting high-quality arabica coffee. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Starbucks supply chain was subjected to a dramatic restructuring in 2010 after the founder of the business Howard Schultz returned to the role of CEO amidst the global economic and financial crisis in 2008. The restructuring initiative of Starbucks’s inbound logistics involved simplification of supply-chain management and the creation of a single, global logistics system. “Green” (unroasted) Arabica coffee beans are directly brought from the farms in Asia, Africa and Latin America to the US and Europe in containers across the oceans. After being roasted and packaged at storage sites. These are now ready to be delivered to Starbucks regional distribution centers ranging from 200,000 to 300,000 square feet in size, few of which are company owned and some are operated by other logistic companies. Along with coffees from regional distribution centers, central distribution centers also receive deliveries from vendors for a wide range of products starting from coffee machines to napkins. Central distribution centers make more than 70,000 deliveries per week to Starbucks 23,043 stores located in 68 countries. Recently, Starbucks is exploring the opportunities to grow its own coffee. Specifically, since 2013 Starbucks has its first own 240-hectar coffee farm in Poas Volacno, Costa Rica. Such a shift in the sourcing of products can increase the effectiveness of new product development initiatives for the business as the company will have a chance of experimenting with developing new sorts of coffee.
Operation Starbucks has operated 1,677 net new stores in fiscal year 2015, ending the year with 23,043 stores in 68 countries, and there are two store formats: company-operated and licensed. The company has divided its operating segments into five groups and the figure below illustrates the share of revenue from each segment. GROUP 10
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Starbucks operating segments and Shares of revenue in the end of year 2015
Operating segment
Share of total revenue (in %)
Americas (US, Canada and Latin America)
69.4
Europe, Middle East and Africa (EMEA)
12.5
China/Asia Pacific (CAP)
6.4
Channel Development
9.0
All other segments
2.7
Calculated based on: Starbucks Reports Record Fourth Quarter and Record Fiscal Year 2015 Results
Outbound logistics There is very little or no presence of intermediaries in product selling. Majority of its product mix are sold in-licensed store and some through large box retailers. Payment around source through point of sale, prepaid Starbucks Cards and mobile payments. As a new venture, the company has launched a new range of single-origin coffees which will be sold through some leading retailers in the U.S.; these are Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau.
Marketing and Sales Starbucks invests in superior quality products and high level of customer services than aggressive marketing. However, need based marketing activities are carried out by the company during new products launches in the form of sampling in areas around the stores.
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INTERNATIONAL UNIVERSITY Starbucks rode the baby boomer trend in the 1990s, the unique value proposition of Starbucks if best described by Howard Schultz himself: “The idea was to create a chain of coffeehouses that would become America’s “third place”. At the time, most Americans had two places in their lives – home and work. But I believed that people needed another place, a place where they could go to relax and enjoy others, or just be by themselves. I envisioned a place that would be separated from home or work, a place that would mean different things to different people.” They have been successfully executing their social media marketing plan since the first days of social media and social commerce. For many years, their strategies have played a significant role in their growth. Market segmentation - The company has stayed with the upper-scale of the coffee market, competing on comfort rather than convenience, which are the case with its closest competitors, McDonald’s and Dunkin Donuts. Execution - The company continues to focus on its original product bundle that includes good coffee, quality service, and a nice environment to hang around. They keep their attention on paying attention to the details of great execution and service. Social Media - One of the earliest adopters of the use of social media for marketing and social commerce, Starbucks has certainly taken a leadership position. Their social media strategy is built around their company web site and 6 additional social platforms, including Twitter, Facebook, Pinterest, G+, Youtube, and My Starbucks Ideas. Starbuck’s social media strategy in detail are previewed below. Adaptation and Innovation - Starbuck’s business crowdsourcing, via its My Starbucks Idea website, has been a hugh success. Why you may ask? Because they have combined the concepts of change, experimentation, social media, customer engagement, and market research and made the results key components of both their brand as well as their marketing strategy. Starbucks has clearly embraced the digital realm. With a strong presence on multiple social networks, the brand has set a high bar when it comes to being social and engaging its customers. They are at or near the top of nearly every major brand ranking in social media.
Service Starbucks aims at building customer loyalty through high level of customer service at its stores. The retail objective of Starbucks is, as it says in its annual report, “to be the leading retailer and brand of coffee in each of our target markets by selling the finest quality GROUP 10
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INTERNATIONAL UNIVERSITY coffee and related products, and by providing each customer a unique Starbucks Experience.” Starbucks has a reputation for providing supreme level of customer services to their consumers. Starbucks adds value in operations through proving free Wifi internet access in its stores. ‘Starbucks experience’, i.e. ‘third place’ experience where customers can spend quality time alone or in the company is an additional point, where the company adds value to its operations. Last year, the partnership with the mobile payments company Square had Starbucks processing four million mobile transactions a week. Such innovative step allowed Starbucks to redefine the gift card industry by allowing customers to upload money to their phone app and pay for their coffee and tip with their phone, according to TechCrunch. It is more than simply the suggestion that using personal phone as a wallet can make life easier— it is the next logical step from gift cards. Instead of buying a gift card that can be lost, customer can upload money to their own smartphone. So far, Starbucks has been quite innovative by coffee house standards, for instance, rolling out new offerings such as selling healthy foods, allowing customers to drive thru rather than having to go inside to the store, selling wine at some locations, and, more recently, the ability to tweet a coffee. Tweeting someone a cup of coffee, it turns out to be pretty simple once you link your Starbucks and Twitter accounts. You just tweet “@tweet-a-coffee TO @GeryMenegaz”. Feel free to use me as your test tweet. This innovative approach to digital and social media caught customers’ interest, leading to the consideration of “Starbucks as a Service
SUPPORT ACTIVITIES Support Activities in a firm that assist he firm as a whole by providing infrastructure or inputs that allow the primary activities to take place on an ongoing basis.
General Administration
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INTERNATIONAL UNIVERSITY This includes all departments like management, finance, legal, etc. which are required to keep the company’s stores operational. Starbucks well designed and pleasing stores are complemented with good customer service provided by efficient level of finance, accounting and legal departments to support the firm’s infrastructure.
Human Resources The company’s committed workforce is considered a key attribute in the company’s success and growth over the years. Starbucks employees are motivated through generous benefits and incentives. The company is known for taking care of its workforce and this is perhaps the reason for a low turnover of employees, which indicates great Human Resource Management. There are a wide range of training programs available for staff in a setting of a work culture which keeps its staff motivated and efficient.
Technological development They make use of technology to save costs, and deliver a consistent tasting coffee, anywhere in the world. Starbucks is very well known for use of technology not only for coffee related processes (to ensure consistency in taste and quality along with cost savings) but to connect to its customers. Many customers use Starbucks stores as make a shift office or meeting place because of the free and unlimited wifi availability. The company in the year 2008 also launched mystarbucksidea.force.com as a platform where customers can ask questions, give suggestions and openly express opinions and share experiences. The company has implemented some of the suggestions given via this forum. Starbucks also uses Apple’s iBeacon System wherein customers can order their drink through the Starbucks phone app and get a notification when they walk in the store.
Procurement All the purchasing that is required to produce the end products, like the coffee beans, raw food items as well as the buildings, and machinery. The company agents travel to Asia, Latin America and Africa for the procurement of high grade raw material to bring the finest coffee to its customers. The agents establish strategic relationship and partnership with a supplier which is built up after reconnaissance and communication about the company standards. High quality standards are maintained with direct involvement of the company right from the base level of selecting the finest raw material which is coffee beans in case of Starbucks.
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INTERNATIONAL UNIVERSITY II.3 SWOT ANALYSIS STRENGTH + The premier roaster and retailer of specialty coffee in the world + Internationalizing market rapidly + A few numbers of intermediaries in product selling + Good marketing strategy + Superior service + Continuous development on technology + Employees-welfare + Excellent quality of coffee supply + Well-based infrastructure
OPPORTUNITY + Benefit of economies of scale allows investment in foreign markets + Growing trend of coffee culture + Rising concern on using qualified products to maintain high living standard + Mobile technology development + Farming technology development + High focus on environmental issues
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WEAKNESS + Relatively high price compare to other competitors
THREAT + Unstable price of coffee beans due to changing weather + Fluctuated exchange rate + Deepening of income inequality and growing unemployment rate + Differences in laws and regulations among countries + Negative global politic environment + The absence of switching costs + Fierce rivalry among existing firms + Substitute availability + Difficulty of differentiation and patenting coffee products
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INTERNATIONAL UNIVERSITY II.4 RECOMMENDED STRATEGIES All analyses that are performed above show Starbucks’s strengths and weaknesses, furthermore the opportunities for it in the future as well as the threats that may affect its sustainable development. Moreover, after conducting these analyses, we suggest some grand strategies that can help Starbucks to come closer to its top rank in coffee-house industry.
1. Market development: Globalization has been a major trend since the mid – 19 th century and for sure has already had a great impact toward not only the Starbucks Corporation itself but also its intensive competitors. Everything becomes globalized and so does the ritual of drinking coffee. Nowadays, the habit of having a cup of coffee in the morning no longer stays within the border of Europe or America however has continuously expanded to many countries of Asia. This is for sure, has opened the most potential new market ever for Starbucks and also for the entire coffee-house industry. Such trend needs to be captured. Hence, we suggest that Starbucks should focus on its business toward market development where it can spread the geographic segmentation for its new customers in the future. Also, Starbucks Corporation is one of those companies that are assuredly financed enough in order to seize such chances of development for becoming the first mover and getting ahead of competitors. Furthermore, this kind of strategy can increase barrier to entries for the company in the future.
2. Product development: At the moment, customization has become a common trend, and Starbucks must also adapt to the changes in order to survive. This can be done by developing its products to meet the demands of customers, which is tougher and tougher day by day. To be more specific, for instance, the tastes of good coffee may vary among countries, so Starbucks ought to adjust to changes by offering diversified kinds of coffee to fit the different cultures and likings. This is such an effective way to serve customers’ demands. On the other hand, the most important trend right now is the consideration of the environment. Since the intensive pollution in developing countries and the shortage of water have had a great impact on the society, it’s our suggestion that Starbucks should be a part of this trend and show its responsibility to the community and the environment. Starbucks Corporation can develop projects which involve environmental-friendly materials for the package, and having systems to track down any waste water in its operation.
3. Vertical Acquisition: GROUP 10
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INTERNATIONAL UNIVERSITY For company like Starbucks, which enormously depends on the supply of its coffee, it is very hard for the corporation to maintain and control the price of coffee in the market, especially after seeing inflation’s impacts on the markets of numerous goods and services. Moreover, the current trend of unstable weather due to climate change’s negative effects on the farming of coffee and therefore has made the price of coffee fluctuate more than ever. One way that we think Starbucks should consider to deal with such situation is through vertical acquisition. By doing so, Starbucks can restrict or even eliminate the power of its suppliers.
4. Joint Ventures: When operating a business in foreign countries, Starbucks may face various challenges due to different cultures, social norms and government policies. Hence, Joint Ventures is such an interesting way that we recommend for Starbucks to solve this problem. This can help Starbucks to smooth its business abroad and can even get mutual benefits when signing joint ventures contracts.
5. Strategic Alliance: The growing trend of technology appliances especially the trend of using “specialty coffee machines for home use” has threaten the development of Starbucks. More and more people prefer this type of machines when it comes to drinking coffee to the traditional style as it is quicker to have a hot cup of coffee in the morning. Thanks to this invention, people can save a lot of times for their other works. Especially, nowadays, people are getting busier and busier. To be more specific, the leader of this trend at the present is the Keurig Green Mountain Company, which produces these types of machine and also its own line of beverages included coffee, tea or even coke in small pods called K-Cup that is only compatible with the machines. Thus, in our opinions, one way that can help Starbucks survive is by conducting Strategic Alliance. Starbucks and Keurig Green Mountain Company can joint together to create a new KCup product that serves Starbucks coffee to customers. This can make Starbucks reach more customers, keep loyal customers satisfied with the convenience of drinking its coffee, and also help the Keurig Green Mountain to add new products to its offers, moreover induce more people to catch up with this trend and buy their coffee machines.
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III.
WHAT THEY ARE DOING – THEIR STRATEGIES 1. Market Development:
Starbucks uses market development as its intensive growth strategy. This intensive strategy supports growth of the company by generating revenues in new markets or market segments. Starbucks grows by expanding its global reach through this strategy. Starbucks focuses its expansion into the geographical area of Asia, especially with a focus on China and India. Some of the reasons for choosing these areas include a growing economy, large populations, and a growing interest in coffee. Starbucks Coffee Company has announced plans on August in 2015 to open its first store in Cambodia by the end of 2015, representing the company’s 16th market in the fastgrowing China and Asia Pacific (CAP) region.
2. Product Development: Starbucks also uses product development as an intensive growth strategy. This intensive strategy involves creating new products to gain more revenues. Starbucks continues innovating its product mix. Especially, Starbucks has been expanding distribution for packaged tea and coffee such as bottled Frappuccino and the instant coffee. The company also introduced sodas in 2014 and started offering light refreshments. In addition, the company also sells coffee-related accessories and equipment. Through such new products, Starbucks offers more choices and grows through this intensive strategy. Starbucks has been starting to focus on selling more food in the U.S. In July 2015, it introduced a new Omega-3 bistro box with salmon spread and trail mix as well as a barbecue beef brisket sandwich. GROUP 10
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INTERNATIONAL UNIVERSITY 3. Vertical Acquisition: Starbucks has been expanding its presence into the farming business and implementing backward vertical integration strategy in order to manage the supply chains of its growing coffee empire with the highest standards in coffee beans. The self-production of the coffee beans can be the best hedge against rising and falling coffee bean prices which are generally unstable because of natural factors. Starbucks is also able to dealing with suppliers in developing nations with varying standards of quality. Starbucks has acquired a 600-acre coffee farm property in Costa Rica to develop new coffee varieties and test methods to eradicate a fungal disease known as coffee rust that is vexing the industry.
Starbucks has started to develop its own coffee farm in southwestern China to maintain
the supply of coffee beans and help manage the costs. Starbucks hired coffee growers in the province of Yunnan to grow Arabica seeds.
4. Joint Ventures: Starbucks International has adopted a strategy of partnerships to create its line of international coffee stores. It has been choosing a partner that would facilitate their creation and expansion of coffee bars in the international arena. Starbucks is able to align themselves with partners who may already have working knowledge of what it takes to run a business in other locations outside of the United States. Specifically, Asia and China are their primary targets. In India, Mumbai, Tata Global Beverages Limited and Starbucks Corporation has formed a joint venture between the iconic international coffee brand and the second largest branded tea company in the world in 2012. They organized the 50/50 joint venture and named it as TATA Starbucks Limited.
In July 2011, Starbucks signed a deal with Ai Ni Group in China to create a joint venture that would buy coffee from Yunnan province. The company has bought a small amount of coffee from that area.
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INTERNATIONAL UNIVERSITY 5. Strategic alliances: Starbucks has been performing strategic alliances as well as joint venture to get mutual benefits from collaboration between the two companies for sourcing and roasting high-quality coffee beans. Strategic alliances allow Starbucks to gain knowledge, expertise, and expenses as well as to gain entry to new markets or to gain a competitive advantage in one when it internationalizing its operations. Autogrill Group, Italian food service group, and Starbucks extended their partnerships all over the world to develop a new business in Europe by establishing Starbucks stores in France since January 2012.
Green Mountain Coffee Roasters, INC and Starbucks organized a strategic alliance for the expansion of their strategic relation for manufacturing, marketing, distribution and Starbucks brand in March 2012.
IV.
COMPARISON
Based on the information of what Starbucks has been doing and the external and internal analyses, we conclude that Starbucks has a variety of similar business strategies as our analysis linked to SWOT. The following are overlapping business strategies of Starbucks and our suggestions: •
Market development
•
Product development
•
Vertical Acquisition
•
Joint Ventures
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Strategic Alliance
1. Market development Starbucks uses market development as its intensive growth strategy as we suggest. Starbucks is already well aware of the global phenomenon of drinking coffee and has been conducting their plans to widen the market share especially in the geographical area of Asia. It is obvious that Starbucks captured the essential opportunity for entering into new markets where there are a growing economy, large populations, and a growing preference to coffee. Therefore, Starbucks should continue its market development of enlarging the market internationally since there is no conflict between their strategy and our analysis.
2. Product development Starbucks also uses product development as its intensive growth strategy by innovating and diversifying its product mix. As we recommended, in order to perform customization and to satisfy the demand of customers, it has been kept on improving and innovating ahead of competitors to maintain its growth. Also, the company is offering packaged tea and coffee in retail stores. We can see that Starbucks gives more options to choose. However, Starbucks has not yet addressed the most important trend which is the environmental issues such as intensive pollution levels and stress of water. Since there is a huge growth in a number of people who are concerning on those problems as they pose a great impact on the society as a whole, we recommended Starbucks to consider more on protecting the environment to establish its reputation by showing responsibility toward the community and the environment. The suggested options for Starbucks are utilizing environmental-friendly materials for packaging and having systems to minimize occurrence of water waste during its operating process.
3. Vertical Acquisition According to the analysis of the coffee industry, those companies, even a huge company like Starbucks, are affected adversely due to unstable price of coffee beans as their business performance is largely depend on the supply of coffee. Since maintaining and controlling price of coffee bean are heavy tasks, we proposed an option to carry out backward vertical integrations. Also, abnormal climate due to environmental change has affected to the fluctuation of coffee bean prices. Hence, we suggested Starbucks to consider vertical acquisition to ensure settled coffee bean supply, lower their cost of production, reduce pest and disease, improve coffee GROUP 10
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INTERNATIONAL UNIVERSITY quality and increase the yield of premium coffees. And we figured out from the research of what Starbucks is doing that it acquired coffee farms from various countries and regions such as Costa Rica, Colombia, and China. Thus, they should continue this vertical acquisition strategy.
4. Joint Ventures When Starbucks carries out the market development strategy and internationalizing its market, we expected there will be various barriers that Starbucks probably face from difference in cultures, social norms, and business regulations. So we gave a recommendation to fulfill joint ventures because it creates an ease of entry into the foreign market and helps to deal with potential cultural issues. And throughout the research, it is identified that Starbucks has been practicing joint ventures with Indian Tea Company and Chinese agriculture group to facilitate expansion of its stores in the international market. Since Starbucks has adopted a strategy of joint ventures, it is clear that is operates in accordance of our recommendation.
5. Strategic Alliance Strategic alliance is a major tool for businesses that are globalizing their operations. We offered a proposal because of its potential advantages that collaborations between companies will generate mutual benefits for Starbucks such as attaining knowledge, expertise, and gain entries to new foreign markets. Starbucks has been conducting strategic alliances as well as what we suggested in the above part that is should address its importance on the trend of using home coffee machines. With steady and strong consumer adoption of K-cup coffee and tea, Starbucks provides the benefits of convenience and consistent great taste to customers. However, providing beverage variety is relatively weak while partner’s brand is growing as a valuable channel. Thus, we advise Starbucks to reinforce its product variety in the collaboration with Green Mountain Coffee Roasters. In conclusion, the recommendations and Starbucks’s strategies are confirmed that there are many areas of overlap between them. However, in contrast with market development, vertical acquisition, and joint ventures which are operated by Starbucks in accordance with our analyses, product development and strategic alliance need to be supplemented. According to the analyses, Starbucks should be aware of the environmental issues not only addressing economic and social development in local communities or farmer supporting activities. In addition, it needs to strengthen the product variety of K-cup products to ensure that the company maintains competitive advantage from specialty products and ingredients.
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V.
REFERENCES
Starbucks Coffee Company (2015). Company Information – Starbucks Coffee Company.
Starbucks Coffee Company (2015). Supplier Diversity Program
2015 Financial Release
Solomon, M. (2014) Forbes, Available at: http://www.forbes.com/sites/micahsolomon/2014/11/01/speed-up-your-customer-service-likestarbucks-and-apple-but-never-ever-rush-it/
http://www.starbucks.com/about-us/company-information http://www.starbucks.com/responsibility/sourcing/suppliers http://www.investopedia.com/articles/markets/120815/analyzing-porters-5-forces-starbucks.asp http://archive.thoughtsoncloud.com/2014/06/starbucks-service/ http://www.investopedia.com/articles/investing/103114/starbucks-example-value-chainmodel.asp?layout=infini&v2A
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INTERNATIONAL UNIVERSITY http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-newsArticle&ID=2104341 http://www.digitalsparkmarketing.com/creative-marketing/social-media/starbucks-marketing/ http://www.forbes.com/sites/panosmourdoukoutas/2013/04/25/starbucks-and-mcdonaldswinning-strategy/ http://panmore.com/starbucks-coffee-five-forces-analysis-porters-model
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