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Starbucks is the largest coffee company in the world, currently with 19,974 stores in 60 countries including the two new shops that was opened in India November 2012, With its base in Seattle, Washington.
Starbucks sells Cold and hot drinks, Specialty Coffee, salads, sandwich, snacks and items like tumblers and teacups.
Starbucks started as a local coffee bean roaster and retailer before it started its expansion and got to rapid expansion in the 1990s, going at a rate of opening a new store very workday, it continued like that until the last decade with its first shop outside of the united states in Canada this was in the mid 1990s but now overseas stores has over one third of Starbucks stores with over 7035 stores now outside of the USA.
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A brief introduction to the country/market environment
I am focusing this report on the evaluation of Starbucks, to examine its past and how it got to its present stage as one of the most successful coffee shop around the world. This report will find more information about its strategy and objectives that drive the company forward, my focus country for this report will be Malaysia, We already have over 115 Starbucks currently in Malaysia.
The analysis uses SWOT, PESTEL and similar evaluative pattern to reach an understandable and well detailed info about Starbucks.
Starbucks Coffee in Malaysia is a joint venture between Malaysia’s BERJAYA GROUP and Starbucks Coffee International. Although they keep same standard like every other Starbucks around the world but they work with labor divided here, With the Starbucks International making sure they maintain standard according to the International standard and BERJAYA handles all the operations which involves local customs, Shops maintenance, and management plan as well as culture adaptability.
Analysis of Starbucks external environment
In the business world today it’s not all about your company, You have to constantly consider the impact your rival companies are having around you and what they are doing right that you not that’s the only way you can stay competitive, There are lots of external factors to consider when discussing a company like Starbucks examples of such factors are Political, Economic, Social, Technology, Legislation and Environment
The following PESTEL analysis will aim to thoroughly evaluate and explain how the social, customers, competitors, suppliers, environment, social, culture, economic, labor and political issues affect Starbucks external environment as it is not in complete control of these factors.
I will be examining the broad environment in which Starbucks operates in with the PESTEL analysis, The marketing environment of a company is a major factor for success as it contributes to everything a company needs to succeed or fail for this reason it’s good to review and do a proper research about a location before embarking on any business. There are the four key areas in which to consider how current and future change can affect the business of Starbucks Coffee.
The political situation of a company directly or indirectly affects any company, Either through political decisions, tax, foreign policy or election crisis, When this things are not stable in a country its always difficult to tell what would happen the next day, Like there was a political riot in Malaysia last year with over 1600 people arrested followed by a similar situation in April with over 600 detained (online.wsj.com), at times like this all businesses around affected areas are closed and this is not good for businesses.
When the economy of any country is bad, it affects everything especially the cost of living and the when the prices of things are inflated it automatically affects the price of selling and people will be skeptical about their spending, bad economy is not good for business, since the last decade Malaysia have experienced a fast growth in economy which is why there is lot of international business coming in.
This has to do with the people you are targeting your market for, you have to understand their taste and social life, with these you can have a better understanding about what they like and the kind of environment they find pleasing and are comfortable in. That shows in the way Starbucks has worked on making sure they serve very low calorie drinks with low fat milk and the Frappucino Light due to the fact that most people are health conscious now and want to stay slim and fit. Right now in Malaysia all Borders book shops have Starbucks coffee available to readers.
These can be handy in different ways, In the business world today the very little things can make a huge difference, That little curve or dressing on a coffee could be the reason why Mr A likes coming to Starbucks and this could make a huge difference in sales, Starbucks invest in machines and high technology research just so they can have that edge over their rivals, Internet is another technological improvement, You never know who comes to get a coffee just so they can relax while browsing the internet.
All these environmental factors contribute to the success and failure of a company.
Recycling in Stores, Reusable cups, Greener Cups. Composting of coffee ground and introduction of bring your own cup and get 10% discount shows how much Starbucks cares about environmental control.
Non Governmental Organizations and pressure groups possess incredible ability to coerce businesses into changing their practices. They could influence businesses through lobbying
and boycotts. Such measures usually impact the intangible assets of a firm which usually involves tarnishing a company’s brand name. Starbucks however works with the Fair-Trade movement (Economist.com) and the accreditation that comes with such alliance massively improved Starbucks image, hence Environmental influences is favorable for Starbucks another worry is Climate Change: implementing a climate change strategy since 2004, focusing on renewable energy, energy conservation, and collaboration and advocacy ensure a long-term supply of high-quality coffee through responsible coffee purchasing practices and by investing in farmers and their communities. Source: Starbucks USA Homepage
Employment law working time, age, minimum wage rate all attribute to legal influences, another factor is not all countries welcome big firms because they like to protect their indigenous firms from unfair competition and takeover. Legal issues such as Monopoly and national protectionist laws will affect Starbucks because of its size and its plan of expansion.
i) macro environment (PESTEL: Essential) or any other models/analyses (e.g Scenarios)
ii) Micro environment (Porter’s 5 forces:Essential) or any other models (e.g strategic groups,market segments,blue ocean canvas)
This happens to be the center point of the five forces model and its about the industry competition coming from the rivalries among existing companies.
Companies like Coffee Bean, McDonald’s and Dunkin Donuts are the closest rivals to Starbucks right now and are proving to be very tough competitors with cheaper prices for coffee and offering other variety which customers might prefer to coffee, there by providing more options to customers, non-coffee drinks like water, tea, soft drinks, juice and alcohol with so many people now into healthy and fresh juice instead of coffee the demand for coffee might be affected.
Potential for new entrants
This solely depends on the barriers to entry, because when the barrier to a particular line of business is very high the threat of new entry is minimal.
The higher the barriers to entry are within any given industry the smaller the threat of new entrants to that industry. (Porter, 1998, p. 7). Capital proves to be the major barrier in any business but in this case it is not too expensive to set up. McDonalds has already added specialty coffee to their existing service.
Today Malaysia grows about 25,000 hectares of coffee mainly in the provinces of Kelantan, Kedah, Terengganu, Selangor and Malacca. Coffee is also cultivated in the Sabah region at the northern most tip of the island of Borneo. Both the lower grade Robusta and the higher grade Arabica coffee plant varietals are grown in Malaysia but about ninety-five percent of the crop is the Liberica Coffee varietal which was first introduced to the country in 1875.(www.espressocoffeeguide.com) this leaves the industry vulnerable to new entrants despite the potentially high barriers to entry.
The primary substitute products posing a potential threat to specialty coffee were the caffeinated soft drinks produced by Pepsi and Coca-Cola. Competitors like Pepsi and Coca-Cola offered beverages, which had the caffeine inherent in specialty coffee, at significantly lower prices. (Quelch, 2006) How ever with the significant difference in taste its hard for a coffee consumer to switch to the latter so the direct threat is basic coffee but the public generally see it as a lower quality coffee than the specialty coffee this mentality helps reduce the threat of substitution.
Bargaining Power of Buyers
The force of the buyer’s bargaining power is proportional to the ability of buyers to force down prices, bargain for higher-quality products or more services, and pit rival organizations against one another. (Porter, 1998, p. 24)
Knowing that customers can get specialty coffee from other competitive rivals helps keep the price on a better level for the fear of losing customers.
Bargaining Power of Suppliers
The fact that there is no union for suppliers of coffee bean it hinders their bargaining power.
The suppliers of Arabica beans were mostly small to medium-sized family owned farms and typically sold their crops to processors through local markets. (Lee, 2007)
Putting into consideration that the most important ingredient in specialty coffee is quality Arabica beans, we can say differentiation can occur between the numerous suppliers farms based upon the quality of beans they produce, Thus increasing their bargaining power as suppliers. The suppliers with better bargaining power are the technological innovations such as automatic coffee machines, latte and espresso machines because the suppliers for their machines are not as common as the coffee beans suppliers.
Identify opportunities and threats from both analyses
Starbucks competes against a number of categories in the food service retail market, such as coffee beverages sales, quick-service restaurants and specialty coffee shops. The most direct competition is from specialist coffee houses. (Euro monitor International)
Strong brand image
Leader in the coffee retailing market
High brand awareness
Worldwide resources for coffee beans
Diverse distribution channels, such as grocery stores, convenience stores and department stores
Staffs personality making customers want to come again
Aggressive growth which has lead to cannibalization of sales
Over-reliance on coffee and coffee related products
Brand image becoming a mere commodity with rapid expansion
Lack of menu for kids
Contact and contracts with foreign exporters
Excellent relationship with suppliers
Worldwide resources for coffee beans
Some degree of control over suppliers
Saturation in the specialty coffee market
Growing competition from national brands and new entrants in Malaysia
Many companies are selling their coffee cheap just to increase their customer base
Critical Success Factors (CSF)
Starbucks is known for the quality and high standard specialty coffee and that’s why its price is higher than its rivals and the psychological believe that expensive things are made of high quality makes more people want to go for Starbucks specialty coffee.
The quality of their employees is one great factor for their success. The fact that Arabica beans is produced here in Malaysia is a huge cost advantage,
The cafe industry is to some extent dependent on front house staff, their attitude and their ability to make customers come back. Starbucks promotes an environment that encourages team working and collaboration. As such it encourages managers to follow its motto of hire the personality, train the skill. Hence through exceptional service, customers keep coming back. Arguably, Starbucks has one of the lowest staff turnover rate in the industry (workforce.com). this is one of the reason they are very successful another factor is their environment which is very conducive for Social or Business meeting and its arguably one of the most chilled cafes around here in Malaysia not withstanding their unique ability to adapt to the changing dynamics of their consumer increase. Providing free internet has increased makes people want to visit more often once they are on break from work so they can go on internet and do personal work.
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Task B: ANALYSIS OF STARBUCKS STRATEGIC
CAPABILITY (Approximately 1000 words) Maximum of 30 marks
¨ Strategic capability: Threshold resources and competences + Distinctive resources and competences (Essential)
¨ Value chain and value network analysis (Essential)
¨ Optional: Any other models
¨ Make sure your analysis includes evaluation of resources and competences that are relevant to the Critical Success Factors
¨ Identify strengths and weaknesses from analyses!
Strategic Capabilities (Resources and Competency)
The strategic capability of any company is based on the availability of resources it needs to function; The four resources that determines the strategies are Human, Financial, Physical and Intellectual capital.
The Human Resources
These are the skills, knowledge, commitment and adaptability of the workers at Starbucks. that’s why at Starbucks all the staffs are offered shares to the company including the per time staffs as well as full time health insurance, for the 14th time, Starbucks was named to FORTUNE’s “100 Best Companies to Work For” list. Schultz, the founder of Starbucks, believes every member of staff plays an equal part in the customer experience’ regardless of whether they be CEO or waiter.
These are the capital, cash, debtors & creditors, and shareholders of Starbucks. Starbucks has a lot of running cost and very minimal debt which puts them on good financial stand. Some of this running cost includes varieties of whole coffee beans, foodstuffs, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers and other accessories.
The physical resources of Starbucks include the buildings, vehicles and machine used in the process of coffee making. Starbucks has around 115 outlets here in Malaysia with a target to open 20 more every year to meet a target of 200 in 15 years (The Edge Financial Daily).
These are the intangible/immeasurable resources of Starbucks.This is the secret that makes a company successful and its under this core values that it’s based on. This is the information captured in brands, patents, customer databases, business systems and relationships with business partners. All these can contain great value and when a business is purchased these values fall under the price tag marked goodwill. One of the few ways Starbucks can protect this intangible information is to ensure employees sign confidentiality agreements to protect any leaks of knowledge to competitors.
2) Competences – Their competitive advantage
Its strategy of “first to the market”,
Its ability to see opportunities before its rivals and always trying to be the first to explore a country’s specialty coffee market gives it an edge over its rivals, Its advancement in technology, advance the development of alliances with suppliers in advance and the non savings related to production quantities.
Starbucks is known for its quality which is what they have maintained from the start and that contributes the huge success they enjoy today, communication turns around a lot of this criterion. They have a good quality control of their product and its environment.
The price difference between Starbucks and its rivals is well known and it goes down to the quality of coffee they serve you for every penny spent. This is what makes them unique.
One of the key factors leading position occupied by Starbucks result of the relationship with the company weaves its suppliers. Thus, the company has retained its leadership through numerous alliances particularly in the development of new products and sales of its coffee. The purpose of the brand by building such relationships with its suppliers as to promote the single outside the coffee shop to reach consumers on different levels, and thus in new places such as libraries, hotels, or the supermarkets.
4) Customer service
This is one of the most important and strongest success point for Starbucks, That explains why they don’t believe in skills, they go for personality and develop the skills after employment, The way the customers are treated by staffs makes them want to come back and the staffs are well encouraged by good offers by the management of the company just to keep them happy and make them feel like they are a part of the company and that they are not just staffs but a family.
5) Ownership specific advantages
The Starbucks brand has become almost synonymous with coffee here in Malaysia. the combination of the green and white color now reminds you of coffee, that’s how much they have impacted the coffee market here in Malaysia.
Strategic Alternative (TOWS analysis)
S1. High brand equity
S2. Satisfied employees
S3. Economics of scale in purchasing
W1. High prices
W2. Over dependency on coffee related products
W3. lack of internal focus(too much focus on expansion)
O1. New market with low investment
O2. Coffee market growing worldwide.
O3. Product range diversifications to food and non food items
1. Grow vertically to include other low cost countries using the good brand.
2. Use the experienced employees to diversify in other related businesses.
1. Diversification to related business to overcome the dependency on the coffee and increase product range.
2. Reduce costs to reduce prices in low investment markets and get benefits from the growing markets.
T1. Financial Crises and recession
T2. Increase in Domestic competition
T3. Volatile coffee and diary products.
1. Differentiate using the high brand to prevent domestic competition.
2. Make a backward vertical integration using the economics of scale to avoid volatile of coffee and diary
1. Reduce cost to reduce price in order to survive in the current financial crises.
2. Depend on international alliances in the international stores to focus on the domestic market to avoid competition, as the domestic market is the main source of revenue.
Task C: STRATEGIC FIT ANALYSIS (Approximately 750
words)Maximum of 20 marks
How are Starbucks’ strengths and weaknesses matching the opportunities and threats in the external environment?
To what extent is Starbucks matching the CSF identified in Task A?
â€¢You may answer these questions in a tabular format
Summarise the overall strategic fit of Starbucks, highlighting any special strengths/weaknesses, and opportunities/threats
Optional: Provide recommendations
Final Thoughts (1)
Make sure that there is a clear link between Task A and Task B. If not, you will not be able to do Task C.
The main body of the report should be dominated by critical analysis.
PESTEL/Five Forces/Value Chain, etc.: Best placed in the appendixes (but refer to the appendixes in your text!)
Final Thoughts (2)
From these appendixes, select and analyse in the main body those 4-6 factors that you believe have the greatest impact/importance on Starbucks
The analysis must explain:
Why factors are important?
How they impact Starbucks now?
How they will impact Starbucks in the future?
“Starbucks Coffee Company.” 123HelpMe.com. 08 Nov 2012
Management concept and practices by Tim hannagan
fortunes magazine http://money.cnn.com/magazines/fortune/best-companies/2012/full_list/
(The Edge Financial Daily) june 13 2012
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