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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;

  • Starbucks open in Tokyo, Japan. Nowadays, there are more than 700 retails shops in Japan. Furthermore, Starbucks also open in Hawaii and Singapore.
  • Starbucks open in Philippines
  • Starbucks open in U.K., Taiwan, Thailand, New Zealand and Malaysia.
  • Starbucks open in Beijing, Kuwait, South Korea and Lebanon.
  • Starbucks open in United Arab Emirates, Shanghai, Australia, Qatar, Saudi Arabia and Bahrain.
  • Starbucks open in Switzerland and Austria.
  • Starbucks open in Oman, Germany, Spain, Mexico, Puerto Rico, Southern China, Macao and Shenzhen, Greece and Indonesia.
  • Starbucks open in Turkey, Peru, Chile and Cyprus.
  • Expansion to France
  • The latest expansion in Jordan

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:

  • High taxation imposed on farmers in those countries producing the coffee bean will usually mean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxation levels in the industry are almost certainly ultimately passed on to the consumer.
  • Trade issues will affect Starbucks predominantly when exporting and importing goods. When another country’s government imposes a tariff it not only results in an efficiency loss for Starbucks but large income transfers can become inconsistent with equity. This extra charge can turn a bargain into a rip-off. Also, since 9/11, trade relations have been adversely affected between the USA and some other countries.
  • Starbucks should thoroughly investigate the political stability of any country they plan to expand to. Changes in government can lead to changes in taxation and legislation. The American elections may have an effect on Starbucks as new legislation or new or existing government may bring in taxes. Also, those countries in political turmoil or civil war (e.g. Zimbabwe at present) should be approached with great caution when considering new ventures.
  • The international economy must be brought into consideration as it can affect Starbucks’ sales and markets. The aftermath of 9/11 was an example of an economic downturn that affected the world market.
  • A reduction in licensing and permit costs in those countries producing the coffee bean for Starbucks would lower production costs for farmers. This saving would in turn be passed on to the purchaser.

Economic:

  • A rise in interest rates means investment and expansion plans are put off resulting in falling sales for Starbucks and their suppliers. Also mortgage repayments rise so consumers have less disposable income to spend on luxury products such as coffee. Low interest rates will have the opposite effect of it.
  • If growth is low in the nation of location of Starbucks then sales may also fall. Consumer incomes tend to fall in periods of negative growth leaving less disposable income. Consumer confidence in products can also fall if the economic situation is bad.
  • Competitive pricing from competitors can start a price war for Starbucks that can drive down profits and profit margins as they attempt to increase, or at least maintain, their share of the market.
  • Globalisation of the coffee market has meant farmers of the bean now earn less money than they used to. This can result in a decrease of people willing to do it for a living, which will mean a decrease in coffee produced, resulting in a drop in Starbucks supply levels and probably profits.
  • Starbucks are affected by exchange rates when dealing with international trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their $ or £ when importing the goods to their country. This saving can be passed along to the customer. Exchange rates are forever changing throughout the world in today’s market.

Social:

  • Where income is distributed is another factor that Starbucks should look at as this also demonstrates the ideal place to aim their marketing or to locate their stores. Coffee is more of a luxury product so it is those people/places with the most amount of disposable income to spend that should be targeted the most intensely.
  • Starbucks would not want to locate to an area where the local population have a poor attitude to work. Recruitment would be difficult, training arduous, and staff turnover would be high. Attitudes to work are important in other ways.
  • Transport needs to the premises must be considered for both staff and customers. Easy access is vital to ensure there is no excuse for staff to arrive late or for customers not to visit.
  • Research shows the average age of the population is getting older and birth rates are stagnating. Starbucks is presently aiming it’s product at young people but maybe these views will change in the long-term as the market proportion for young people diminishes. The most profitable way forward may be to widen their target market despite the risk of alienating present customers.

Technological:

  • Developments in the technology of coffee making machines and the computers that Starbucks use to run their cash registers will enable their staff to work more quickly and efficiently. This will result in customers being served quicker and create the potential to serve more customers in a day.
  • In the short-term, Starbucks must identify the most efficient software upgrades to use to keep up with the competition. This applies to the improving the accessibility of their website (www.starbucks.com) and also improving the speed and quality of the service provided on the shop floor.
  • As a multi-national business empire, Starbucks has the budget and the resources to have a cutting-edge R&D department. The website is very accessible, the facilities are state of the art but more importantly new ideas are consistently being tried in terms of a constantly updating menu.
  • The rate of technological change in the current world market is high, much higher than, say, thirty years ago. Much of this is down to the Internet and the speed with which information can be communicated around the globe. Starbucks will need to invest heavily just to stand still in their ever expanding and developing market, and even more so to try to stay ahead of competitors.

Legal:

  • Starbucks need to be aware of the trade laws in the various countries they occupy and do business with. They need to ensure they are not in violation of e.g., religious laws. Also, certain countries impose a tariff that has to be paid when goods are imported/exported so this must be taken into account.
  • Each country has varying employment laws. Some may have a Sabbath day, some may have a limit on the number of hours an employee may work per week, and all will have varying levels of minimum wage. Starbucks should consider these factors when deciding on relocation.
  • Starbucks may have to abide by local planning regulations when building shops or altering purchased sites, as certain areas of land may be protected or unsuitable. All matters would be addressed by the local government.

Environmental:

  • Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.
  • Planning permission may not be granted if Starbucks wish to build in an area that could be harmful to the environment. The land may be protected.
  • Starbucks need to carefully consider the methods in which they dispose of their waste as there are strict laws in most countries to ensure a firm trading in their country disposes of the waste that is created in their business in a specific and efficient way.
  • Starbucks should be aware of the physical and influential power of groups such as Greenpeace and Friends of the Earth.
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‘SWOT’ Analysis for Starbucks Coffee Company

Strength:

  • Strong brand name and image

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.

  • Healthy financial performance

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.

  • High-skilled management team

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.

  • High technology

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.

  • High quality and innovation of products

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:

  • High price

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

  • Clusters of store

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:

  • Large consumer group

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.

  • Lifestyle

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:

  • Competitors

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.

  • Intellectual-property violation

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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