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Starbucks Coffee

Starbucks Coffee company is headquartered in Seattle, Washington. It began in 1971 with just one retail store at Seattle's historic Pike Place Market. Now it has become the leading brand and retailer in the world. Starbucks went public on June 26, 1992.

The main aim of Starbucks is to become the leading brand and retailer of finest coffee in each of its target markets nationally and internationally by selling the best quality coffee and related products, and by providing high class customer service. Starbucks purchases and roasts a high quality whole bean coffees to sell them with fresh, rich-brewed espresso beverages, different varieties of pastries and coffee related accessories and equipments (www.starbucks.com). Moreover Starbucks also sells coffee and tea products strategically through other channels such as supermarkets and non traditional retail channels such as United Airlines, Marriott International, Barnes & Noble bookstores and Department stores.

More than quality coffee, Starbucks features a variety of hand-crafted beverages, pastries and in some markets, a selection of sandwiches and salads. Starbucks merchandise includes exclusive espresso machines and coffee brewers, unique confections and other items related to coffee and tea. Some of the Starbucks products are as follows;

Beverages: Brewed coffees, Italian-style espresso, cold blended beverages, roasted whole bean coffees, tea products, fruit juice, sodas, and coffee liqueur.

Food: Sandwich, Salads, pastries and ice creams

Non food items: Mugs, Travel tumblers, coffeemakers, coffee grinders, storage containers, compact discs, games, seasonal novelty items, Starbucks card, media bar.

Starbucks's main mission is to be a global company. In order to achieve this it needs, the development strategy that Starbucks implemented to adapt with variety market and local need are: joint ventures, licenses and company owned operation.

The total number of Starbucks stores are 15,011 which are operated and 3,891 are licensed operation in US which are spread out in 50 states. For the international location, Starbucks’ store can be found in 44 countries outside of the United States and 1,049 stores are company owned operated in Australia, Canada, China, Germany, Singapore, Thailand and the U.K. and 6,506 are joint ventures and licensed operation.

Internationally Starbucks opened their stores in the following countries;

5 P's for Starbucks Coffee Company

Starbucks is not just a good cup of fresh coffee, but a better quality product, excellent customer service and better understanding of coffee culture. Starbucks has so far achieved unpredictable achievements in coffee chain industry. Now we will go through the strategies of 5 P's, price, product, place, promotion and people.

Price:

The Starbucks prices continuously matches with its competitors competitively represents Starbucks an attractive combination of features, high quality, excellent service and other attractive attributes.

Product:

Starbucks is known very well in the market due to its high quality coffee, care in selection and expertise in roast. It purchases coffees that have been grown and processed which meets strict environmental, economical, social and quality standards, which is suitable & appropriate for the market and the customers.

Starbucks establishes its longer lasting and more profitable competitive advantages by broadly differentiating its coffee and coffee related products depending upon its competence and innovation.

Place:

The decisions of Starbucks about where to site its stores depends on reaching its potential customers and providing better service to its existing customers. Its stores are typically clustered in high-traffic, high visibility locations. When it opens a new store near an established Starbucks, it is generally intended to relieve long customer lines and improve service. It takes more than just location to be successful. Attracting customers to Starbucks happens by providing high-quality coffee as well as creating inviting, comfortable places located in convenient location.

The store expansion strategy for Starbucks is by entering new markets wherever the opportunity exists to become the leading specialty coffee retailer. Its current location totals 8,505 worldwide by the year 2007.

Promotion:

There is not much conventional advertising because Starbucks found that there is too much competition for consumers' attention in TV, radio and print media. Starbucks usually picks one or two charities or events that reach the community it serves. This will inspire people inside and outside the company and reinforce the company's value and image. For instance, after September 11, stores in New York, Washington D.C and Pennsylvania brewed coffee free of cost for relief workers.

People:

One of the strategy of Starbucks is to believe that the Company is in the 'people development' business as well as in the coffee business. As stated in its mission ' Provide a great work environment and treat each other with respect and dignity', Starbucks realizes that one of the most important resources contributing to success is their employees or 'partners' as referred by the Company. Starbucks is attempting to imbed its values in the Company culture. They use these values to give employees a sense of meaning to their work even if it is just pouring a cup of coffee. The coffee chain provides medical, dental and vision coverage to all employees, even including part-timers. The part- time partners are also eligible for the company's stock program. The purpose is to instill in its partners a sense of purpose, commitment, loyalty and enthusiasm. Expectedly, what Starbucks benefits are the reduced recruiting and training costs.

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‘PESTLE’ Analysis for Starbucks Coffee Company

Political:

Economic:

Social:

Technological:

Legal:

Environmental:

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‘SWOT’ Analysis for Starbucks Coffee Company

Strength:

The reputation of brand name and image of Starbucks allow brand recognition and consumer retention. Therefore, the expanding of stores to other countries is more proficient and easier.

The financial performance of company has positive aspects. The revenues of Starbucks in 2007 were $9.411 billion, growing at about 30 percent. The exponential growth in revenue and profit creates the strong financial statement and reliability to shareholders.

Starbucks has highly skilled and professional Chief executive officers (CEOs), for example, Howard Schultz, Orin Smith and Howard Behar. These lead to the rapid and stable growth of Starbucks.

Starbucks brings the technology to use in the stores in order to attract more customers. For instance, there are high-speed internet, website and prepaid Starbucks card. It might be increase traffic in the stores particularly in new generation group.

Starbucks uses high quality of coffee beans and dairy goods. Furthermore, new products are usually introduced by Starbucks including coffee and beverage line. Both of them enable Starbucks to be able to maintain level of sales and keep competitors out.

Weakness:

Starbucks has increased the price due to rising cost of production, including cost of dairy goods and cost of rent. The increase of price might have an effect on the falling of sales and customer retention directly

Because Starbucks has a lot of stores and also these are located in closed areas, it leads to the scramble of customers in each store. Clusters of store might cause inefficient performance of the company.

Opportunities:

China has the biggest world’s population. Coffee drinking is more popular among young generation, especially those who have overseas education, which influences the coffee consumption. Many of these teenagers have lived in western countries for a long time and they have familiar with the coffee culture. When returning to China they have carried on living in this fashion. Chinese teenagers also like to choose western style coffee shops as their favorite place.

Modern lifestyle of Chinese teenagers and adults supports the proliferation of western coffee shops. Meeting and discussing business in a warm and nicely designed coffee shop have become more popular in China. Consequently, the teahouse’s domination has been challenged by the foreign coffee house.

Threats:

The global coffee market is a very competitive sector. Starbucks is facing the increase of competitions from other foreign players. The latest Starbucks’ competitor is Canadian chain Blenz Coffee, which plans to open a string of café in China where consumers can smoke, while Starbucks is non smoke stores.

Starbucks filed a lawsuit for trademark infringement against Shanghai Xingbake which signs, logos and names similar to Starbucks. It would seem that chances of consumer confusion are high.

Porter's Five Forces Analysis

Porter’s five forces analysis is an important tool for analyzing an organizations industry structure in strategic processes. It helps the marketer to contrast a competitive environment. It tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products.

Porter has identified five competitive forces that shape every industry and every market. These are: The threat of entry, The power of buyers, The power of suppliers, The threat of substitutes and Competitive rivalry.

The threat of entry:

The threat of entry covers: Economies of scale, The high or low cost of entry, Ease of access to distribution channels, Cost advantages not related to the size of the company, Whether competitors will retaliate? Government action and How important differentiation is.

There will always be a continuous pressure for Starbucks to react and adjust to these new entrants. The easier it is for new entrants to enter the market the more competition there is within the market. Although this really should not pose too much of a problem

for Starbucks as they have a very large share of the market that will be relatively immune to the threat of new entrants. Starbucks is a company that have years of experience in roasting specialised coffee, if a company was to enter the coffee industry it would be extremely difficult for them to offer the same quality of coffee at a competitive price. As a company’s volume increases, so does its experience and knowledge which tends to decrease the cost of their products

The power of buyers:

Buyer power is likely to be high if a number of conditions are in place. There is a concentration of buyers, particularly if the volumes of purchases of the buyers are high, the supplying industry comprises a large number of small operators, there are alternative sources of supply, the component or material cost is a high percentage of total cost, the cost of switching a supplier is low or involves little risk, there is a threat of backward integration by the buyer. This is high where there a few, large players in a market If there are a large number of undifferentiated, small suppliers The cost of switching between suppliers is low for Starbucks.

The power of suppliers:

If the market is dominated by few large suppliers rather than numerous fragmented sources, a suppliers bargaining power is likely to be high. Although suppliers do have certain amounts of power, it is limited. With Starbucks being ‘the most famous specialty coffee shop chain in the world’ and still expanding they should still be requiring coffee beans for some time. It is safe to say that the Suppliers need Starbucks, just as much, if not more so than Starbucks need their supplies. Fortunately for Starbucks they buy their coffee beans directly from producing countries: Latin America (50%), Pacific Rim (35%) and East Africa (15%).

The threat of substitutes:

This occurs where there is product-for-product substitution, where there is a substitution of need e.g. a bald head reduces the need for hair gel, where there is generic substitution and finally the attitude ‘we could always do without'. An example for Starbucks would be if an alternative to coffee was offered e.g. a customer switching from coffee to tea.

Competitive rivalary:

Numerous factors contribute to intense rivalry between existing competitors in an industry. This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is found in the centre of the diagram. The extent to which competitors are in balance, this is where competitors are of an equal size which creates intense competition as one of the competitors tries to gain dominance over the other, high fixed costs in an industry may result in price wars, differentiation is important as in a commodity market where products or services are undifferentiated there is little to stop customers switching between competitors. Starbucks do not really have any competitive rivals that are of similar size to them so there are not any rivals in the market that would be considered in balance with them. However, they must maintain their excellent standards and always be on the lookout for new innovations in order to stay as the market leader.

Competitor Analysis

Competition is steadily growing against Starbucks each year as the industry grows. Competitors look to gain an advantage by price cuts, launching a rival product, aggressive expansion of production to increase market share or inclusion of significant modifications to a product that other competitors must also undertake to keep up. The following are the current figures showing the market share of companies in the coffee industry.

35% Starbucks

20% Local Coffee Outlets

14% Internet Cyber Cafes

13% Caffe Nero

10% Costa Coffee

8% Coffee Republic

Culture Model

The culture of an organisation is the set of values that helps its stakeholders understand what the organisation stands for, how it does things and what it considers important. Under culture model, we are going to explain the communication and decision making of Starbucks.

The Organisation & its environment

(Source: Davidson, 2002 pg. 73 Figure 3.1

In the diagram (above), owner created the company objective for Starbucks and the boarder of directors is going to lead company to achieve that company objective. Therefore, the boarder of directors has to choose the suitable organisation culture environment for Starbucks in order to achieve the company objective.

The Value System

The value system is the inter-organisational links that are vital in the creation of the product or service of a company. It follows the production of the service/product from raw material stage right through to the customer purchase. Each instruction for the development of the product is detailed and explained at each stage of the value system. The ‘firm value chain’ is the most important to a manager because that is their company, however, a good manager will understand the whole process and how to manage each individual link and relationship to maximise customer value. Managers should also need to learn the whole value system because most of the cost and value creation occurs in the supply and distribution chains.

For Starbucks, the ‘supplier value chain’ deals with where they get the coffee beans from that they use to create their end product – a cup of coffee. Starbucks buy all their beans direct from the farmers in the producing countries cutting out any middle-man therefore keeping prices to a minimum. The countries that supply them can be found in Latin America, East Africa and on the Pacific Rim. Starbucks fully appreciate the need to oversee all aspects of the value system and we can see an example of this in their determination to obtain the highly sought Narino Supremo crop in 1992. This acquisition ensured some of the highest quality coffee supplies in the world would be reaped by Starbucks. The company has close relationships with their coffee exporters. They maintain this by working directly with them and training them. A good relationship here is essential and needs to be maintained.

The ‘firm’s value chain’ consists of:

The Firm’s infrastructure; which is about the ways in which Starbucks want their organisation to run and how it is best to implement systems of planning, finance, quality control and information management, it is also where they have made the decision to make high quality coffee from the best coffee beans as this is involved with the quality control.

Human Resource Management; It is concerned with the activities involved in recruiting, managing, training, developing and rewarding people within the organisation. For Starbucks this is where they have made decisions about the fact that all employees are equal, even those on the shop-floor that are working over 20 hours a week receive bonuses like free coffee and health care coverage, this was to make sure that the members of staff felt as if they were valued by the company and would continue to provide a good service. Another implemented scheme is for all Starbucks store staff to have a comprehensive 24 hour training scheme before they were allowed on to work directly with customers.

Technology development; Starbucks has a large number of areas where it uses technology from regulating their stock levels to the cash registers. There is also technology to enable customers can to order their coffee over the internet and then pick it up from the store when they get there. Some stores now also contain computers where customers can access the internet.

Procurement; this refers to the processes for acquiring the various resource inputs to the primary activities. For instance, the method of obtaining the grade A coffee beans from suppliers to use in the Starbucks coffee.

Inbound logistics; For Starbucks this means receiving the coffee beans and other products that they need to make the products in their stores from their suppliers and storing these until they are used to make the product that they are going to sell.

Operations; this is the stage where Starbucks make the coffee in the store and package the other subsidiary products.

Outbound logistics; this is collection, storage and distribution of coffee. A customer actually purchasing a cup of Starbucks coffee from the store.

Marketing and Sales; This is how consumers become aware of Starbucks coffee and purchase it. Starbucks is a worldwide company and their brand is recognised all over the world, which means that marketing is not as necessary as it once was. Most people now recognise the name and associate the brand-image with high quality products.

Service; this includes all the activities that enhance or maintain the value of the product, e.g. installation, repair and training. This area is concerned with the members of staff that deal with the customers, it focuses on the need to ensure the ‘customer experience’ of visiting a Starbucks store is all the more enjoyable due to the friendliness and efficiency of staff and consistently high quality product on offer.

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