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Starbucks is one of the most successful and admired companies today. It has grown from a single coffee shop in Seattle 33 years ago to a $4.1 billion international company. From tasty beverages to proprietary whole bean coffee blends to strategic relationships, small businesses have so much to learn from Starbucks.
Starbucks, the specialty coffee retailer, is one of the great 21st century American success stories. Considered as one of the most successful and admired companies today, Starbucks has grown from a single store in Seattle 33 years ago to 5,945 outlets in United States and 2,392 more in 28 countries. In fiscal 2003, the company posted revenues of $4.1 billion.
Cup by cup, Starbucks has changed the way people from different continents drink coffee. More remarkably, the company successfully transformed a pedestrian commodity into a high-end accessory. It has created a “Starbucks lifestyle” that more people continue to embrace in the United States and abroad.
From tasty beverages to proprietary whole bean coffee blends to strategic relationships, small businesses have so much to learn from Starbucks. You may not have the resources that Starbucks has in its arsenal, but there are a number of things you can emulate from this company and apply to your own business, albeit on a significantly smaller scale.
More than the taste of its coffee, there are a number of factors that propelled Starbucks’ latte to the forefront. Below are some of the things that you can learn from Starbucks – a company that started small, dreamed big and grew to be a gigantic global corporation:
1. Start with a good business concept:
Starbucks is a tremendous success because it capitalized on a concept that hadn’t existed before – the coffeehouse as a gathering place. It is not just a place to get a cup of gourmet coffee, but it has become a center for socializing and intellectual discussion, particularly among students and young urban professionals. Starbucks created a unique offering that was relevant and differentiated. It turned an ordinary and humble product into an extraordinary experience that customers are willing to embrace.
2. Think big:
Starbucks opened its first store in Seattle’s Pike Place Market in 1971. The company started small, but even early on it always had big ambitions. The company was made public in 1982, almost a decade after it started. From its humble beginnings, the company currently holds about 40 percent of the specialty coffee market, and the anticipated growth in this category will offer the company considerable opportunities for further growth and expansion in the future. In fact, it can be said that Starbucks is just at its early stages to colonize the globe.
3. Think outside the box:
Starbucks’ strength lies in its ability to spot opportunities, even if that means debunking accepted retail trends. Starbucks’ ability to think outside the box is a common trait that propelled other small businesses to the big league.
Starbucks has well demonstrated this behavior in their approach to real estate, which in itself is legendary. Contrary to established tenets of retailing, the company does not choose a location based solely on demographics, traffic patterns, location of competitors, and even spacing of its own stores. Instead, it clusters its stores in chosen areas, making Starbucks ubiquitous in many city streets. Traditional retailing mindset warns against locating stores nearby as it can cut sales at existing outlets.
4. Partner smart:
Starbucks has demonstrated that even a large company needs help to achieve its goals. In fact, a key reason for Starbucks’ success is its strategic partnership initiatives. In 1993, the company partnered with Barnes and Noble bookstore in the United States to make its coffee available to bookstore customers. Continuing its strategy to gain a foothold in the bookstore segment, Starbucks formed an alliance with Canadian bookstore Chapters Inc. in 1995.
5. Create a unique experience:
Starbucks has created a retail store experience that is attractive, comfortable, and even entertaining, designed to attract customers and keep them coming back to the stores. In its stores, you will find comfortable chairs, wireless Internet connection, even a selection of music. Starbucks began offering wireless high-speed Internet access in its stores in 2001 to enhance the experience for students, business travelers, and web surfers who take advantage of this service while sipping their favorite coffee.
6. Keep customers happy :
The success of Starbucks is largely due to its steadfast commitment to the customers. The company lives by its mission statement “Develop enthusiastically satisfied customers all of the time.” Every strategy pursued by the company is intended to keep customers satisfied — from the moment a customer walks into one of the retail stores, to placing of an order, to receiving a fresh cup of coffee and finally to the choice of relaxing in the Starbucks store or moving on with the daily routine.
7. Dig deep into customers’ wallets :
With coffee as its main product, Starbucks continue to introduce new products in order to get customers to spend more money in their stores. The company knows that customers would want something else with their coffee; hence they introduced hot sandwiches and pastries to go along with the coffee. Later this year, they even plan to introduce CD burners in their stores so customers can sample online music from their HearMusic subsidiary while taking their coffee.
8. Ability to roll out new initiatives:
Starbucks’ ability to roll out new initiatives and products relatively quickly is a considerable competitive strength for the company. Its disciplined innovation is one of the primary reasons behind the company’s success in generating consistent high level of same store sales. It continues to experiment and introduce new products in the market, while making sure that it maintains the consistent strength of its core product.
9. Good management :
Starbucks has a well-seasoned management team that continues to develop winning strategies for the company. One of its best decisions thus far is its strategy of foregoing franchisees and making sure that its stores are company-owned. This strategy allowed the company to maintain a tight grip on its image and provide a consistent quality of excellent service.
10. Diversified revenue stream:
Starbucks understands that good business does not mean putting all eggs in one basket. Hence, it strives to reduce its reliance of certain product lines in order to keep a healthy financial position and grow its revenues.
According to DataMonitor, Starbucks’ retail sales mix by product type during fiscal 2003 was comprised of approximately 78% beverages, 12% food items, 5% whole beans coffees and 5% coffee making equipment and accessory. It is currently looking at additional opportunities in distribution channels for Starbucks products, whether in foodservice, grocery, licensed stores or business alliances.
Despite geographical distance, Japan and the USA have similar political structures. The modern Japanese political structure was designed by the American Occupational Force after the WWII, and while the emperor is the head of state the real power is distributed through parliament and mainly held by the Prime Minister (House of Councilors, 2008). In the USA, different states have the power to regulate business; whereas in Japan regulations are made by the Diet and enforced on a country-wide basis, which implies there are less complicated and conflicting regulations to be considered when international businesses enter the Japanese market (House of Councilors, 2008).
Japan and the USA are two of the largest economies and are arguably the most sophisticated consumer cultures in the world (Rose, Bush, and Kahle, 1998). The USA has a GDP of more than $13 trillion constituting over 25.5% of the grossworld product at market exchange rates (CIA, 2008). After spectacular economical growth in the 1980s, Japan became the third largest economy after the USA and China, measured by purchasing power parity (NationMaster, 2008). However, the Japanese economy suffered a decade of recession from the early 1990s, shrinking its GDP as well as purchasing power (CIA, 2008).
Individuals from different backgrounds are exposed to different traditions, rituals, customs, and religions and all of these factors provide human beings with various learning environments, which cause significant variations in standards, behaviours, attitudes, and beliefs (David, 1998). On the other hand, the Japanese act more collectively and there is a tendency for people to be very loyal to groups or collectives (Hodgetts, Luthans & Doh, 2006). The Japanese often sacrifice their personal goals to further group interests (Lin, 1993; Belch, 1998). A low-context society in the USA shows that Americans often meet only to accomplish objectives and tend to be direct and focused in their communications (Hodgetts et al, 2006). Their messages are explicit and direct, saying exactly what they mean (Hodgetts et al, 2006). Compared with the USA, Japan is a high-context society. Their messages are highly coded and implicit (Hodgetts et al, 2006).
The two countries have very different groupings in terms of ethnic background and religion. The USA has a population consisting of diverse ethnic groups including White, Black, Asian, American Indian and Alaskan native, Native Hawaiian and Pacific Islander (2003 estimate) (CIA, 2008)1. Key religions include Protestant, Roman Catholic, Mormon and Jewish (2007 estimate) (Wikipedia, 2008). who may be of any race or ethnic group (white, black, Asian, etc.) population consists of mainly Yamato, Koreans and Chinese (July 2008 estimate) (Wikipedia, 2008). Over 84% of the population is either Shinto or Buddhist (Wikipedia, 2008).
Part 2: Competitors and Trends
Competitors at the Global Level
In the global market, it is hard to define who Starbucks. direct competitors are. This is because Starbucks falls into various categories, within which it competes for market share. Starbucks identifies itself as a specialty coffee house; however, its competitors include restaurants and donut shops, as well as other coffee houses. Dunkin Donuts claims to be “the largest coffee and baked goods chain in the world” (DunkinDonuts, 2008); however, at the end of 2007, Starbucks had 15, 756 stores globally (Starbucks Coffee Company, 2008) versus Dunkin Donuts 7,988 stores (DunkinDonuts, 2008).
Other main global competitors include McDonalds and The Coffee Bean and Tea Leaf (The Coffee Bean and Tea Leaf, 2008; Wikinvest, 2007). In the parent country of the USA Starbucks has no one clear rival and is the dominant company in the specialty coffeehouse market (Wikinvest, 2007). Its closest competitor Caribou Coffee has 416 stores compared to Starbuck.s more than 15,000. Starbucks competition in the specialty coffeehouse market is dispersed among thousands of independent and small-chain coffee shops in the USA and globally (Wikinvest, 2007).
Current Situation and Trends:
Definition, Size and Growth
Broad – Donuts, Bakery Products and Beverages Narrow – Bagels:
â€¢ Per capita consumption of Bagel’s soared 65% between 1990 and 1995″
â€¢ US$2.4 billion industry by the mid-1990s”
â€¢ By 1995 there were over 700 bagel retail outlets and wholesale bakeries in the
United States, with annual sales of over US$1 billion”
â€¢ The market’s growth rate was estimated at over 30%”
â€¢ Analysts projected growth to remain steady throughout the decade”
This evidence points to the product life cycle being in a stage of growth, with the primary market currently being the early majority.
Structure: Rivalry – Low
Currently there are few suppliers, resulting in a low Concentration Ratio and low rivalry. However, “Retail analysts expected shakeout as the marketplace becomes increasingly crowded”. This is supported by the growth stage of the PLC, which will inevitably bring more competitors.
Threat of Substitutes – Low
While there is a medium threat of substitutes from the donut market, Dunkin’ Donuts is already very strong in this market, resulting in a low threat to Dunkin’ Donuts. Buyer Power – Medium As the primary customers are still the early majority, their relatively limited numbers gives them some buyer power. However there are also relatively few suppliers, which moderates this power.
Supplier Power – Medium
See buyer power & Threat of New Entrants – High
The relative newness of the PLC will result in an increase in entrants to the market. However the impending shakeout will eliminate the weaker entrants.
â€¢ Concern regarding health of morning foods such as donuts and bagels
â€¢Rumour that U.S. production facilities capable of making bagels were signing long-term supplier contracts and becoming in short supply
â€¢ Manhattan Bagel – joined forces with Specialty Bakeries
â€¢ Einstein Brothers – acquired Noah’s Bagel
â€¢ Mom-and-pop retail outlets
â€¢ If Dunkin’ Donuts jumped into the bagel business with its 2,700 North American outlets, it would more than triple the entire retail industry’s 700 outlets”
As Dunkin’ Donuts is a “morning destination shop”, it is fair to assume that Dunkin’s core customers are generally commuters travelling to work.
However the case has segmented sales as follows:
â€¢ 44% sold in retail shops
â€¢ 26% in-house bakeries
â€¢ 20% sold by food services
â€¢ 10% sold frozen by wholesale bakeries
Dunkin’ Donuts is owned by Allied Domecq, and has merged with Baskin-Robbins which has created some minor internal issues including employee job security concerns and clashes of culture.
Dunkin’ Donuts has a supply contract with Harold’s, however Harold’s is unable to meet the requirements agreed upon. The inbound logistics activity of the value chain is suffering, holding up the entire chain.
Key Issues :
â€¢ Size of business in comparison to competitors
â€¢ Advanced market research in new market
â€¢ Inbound logistics activity
â€¢ Broken contract with Harold’s allows for new suppliers to be sought Threats
â€¢ Risks associated with creating such an aggressive schedule
Dunkin’s mission statement is “Dunkin’ Donuts will strive to be the dominantretailer of high quality donuts, bakery products and beverages in each metropolitan market in which we choose to compete.”
Dunkin’s generic strategy is one of differentiation whereby it seeks to make a high quality product and sell that within a specific environment (trying to capture the bagel experience”) to maintain competitive advantage.
Problem Analysis :
“In the short term, volume promises from the supplier were not being met, which was hurting the rollout plan.” “It was costly to delay the rollout.” Supplying the system long term had presented challenges as well. Harold’s was already experiencing several problems with regard to constructing the new lines. Harold’s was having difficulty locating the proper equipment as well as suffering product-related problems with one of its co-packers.
Alternatives : Continue rollout & Costs and Benefits
Continuing the rollout will result in having a partial product line, resulting in customer satisfaction levels not achieving predictions, and potentially brand equity being lost. However, continuing with the rollout may be the best way to salvage the supply situation. By not slowing the rollout, the franchises will be operating a full capacity when the supply problems are finally sorted out.
Competitors may take this opportunity to enact a flanking attack, by offering a full range of products. Customers may try Dunkin’ donuts with the partial product line, and make the conscious decision to purchase from competitors, not giving Dunkin’ an opportunity to reclaim that customer once the product range is completed.
The rollout is suggested to have 2,700 stores supplied with bagels within one year. However, it may be an additional number of weeks or months before the supply problems are rectified, lengthening this rollout to 1.25 years.
Congruency with managerial predispositions
As management is very focused on the rollout taking the minimum time possible, it is likely that management will agree with this alternative, even at the expense of brand equity.
Slow Rollout :Costs and Benefits
The alternative is to limit advertising or limit the pace of store expansion, which will limit the demand for Dunkin’ Donuts bagels and give the supply chain an opportunity to catch up. However, these lost sales “can never be recaptured”. If advertising was cut by 25%, the $25 million advertising budget would be reduced to $18.75 million, however projected sales would be reduced from 36 cases per week to 31.5 cases per week.
Larger competitors may be able to capitalise on this slowed rollout by securing bagel franchises in the areas that have not yet been rolled out to, resulting in a foothold in the area that may be costly to overcome. Alternatively if only advertising is reduced, competitors may be able to gain market share that is also costly to regain in the future.
If the rollout is slowed by a factor of 75%, it will take an additional 3 months on top of the expected 1 year rollout to complete.
Congruency with managerial predispositions
While “senior managements drive to get fiscal year 1997 off to a great start” may not be satisfied, the Purchasing and Quality Assurance departments would be pleased that their recommendation has been heeded – if only in the light of supply problems.
Stop Rollout : Costs and Benefits
If the rollout is put on hold until the supply problems have been solved, Dunkin’ Donuts must either work with Harold’s, which would be costly, or find another supplier. Finding another supplier may not be possible in the current environment – taking this leap of faith may result in Dunkin’ being left behind in the growth of the bagel market. However, doing so would allow Dunkin’ to hit the market with the original surprise that was intended, which may yet be the most effective strategy.
Depending on the competitors’ awareness of Dunkin’s intention to enter the bagel market, the competitors may be able to set-up a position or pre-emptive defence that will damage Dunkin’s future market share and sales.
The planned rollout time would be extended by however long it takes to resolve the supply problems. If this involves finding a new supplier this may be an extended period of time.
Congruency with managerial predispositions
This alternative is probably furthest against managerial predispositions, who believe that it is imperative to enter the market quickly.
Control over operational costs :
Starbucks Japan should collaborate with new suppliers to reduce operational costs. Working with new suppliers to source raw materials such as mugs from the low cost Japanese vendors instead of importing from America will help Starbucks Japan reduce costs (Dutta and Subhadra, 2003). Suppliers in other low cost countries in Southern Asia should be considered for materials such as paper plates and cups. Starbucks will save on costs as these suppliers will be less costly in terms of transporting supplies versus sourcing from America. Furthermore, once the cost is diminished, Starbucks will be able to lower prices for their products in Japan to maintain its competitiveness as disposable income in Japan is decreasing. Competitive prices will assist Starbucks Japan to attract more customers and encourage them to purchase Starbucks products viewing them as quality products at a competitive price (Mañez, 2006).
Closing down stores that are making a loss :
The decreasing performance of Starbucks international operations and the near saturation of the Japanese market for Starbucks, forced Starbucks to rethink its operational strategy. In the short run, it is possible to close down some loss-making stores to raise Starbucks. profitability in Japan. With fewer stores, Starbucks could focus more on the successful profit making stores and provide a better service togain more sales.
Promoting the client experience :
Seattle (2008) states that â€žStarbucks communicated several organizational structure changes to its partners (employees) that will better focus efforts on enhancing the customer experience.. As mentioned in previous sections of this paper, there are many cultural differences between the USA and Japan. Starbucks should promote its customer experience in Japan and gather more information on preferences from Japanese consumers. Once consumer preference information is gathered, Starbucks should concentrate on adapting their service and products to satisfy Japanese clientele.
Improving employee productivity :
As low employee productivity is one of Starbucks. main weaknesses, improving employee productivity is imperative. Starbucks Japan should focus on the initial hiring stage in order to employ the right people to work at Starbucks. A good position description which includes the job description and job specification is necessary for Starbucks to select the right employees (Dessler, Griffiths, and Lloyd-Walker, 2007). In addition, on-the-job-training programs are necessary to improve the performance of current employees. Other programs such as a good rewards system based on the right motivational strategy, and regular employee communication and meetings will assist in increasing employee productivity and thus boost revenue per employee.
Distributing Starbucks products in convenience stores :
Using products such as Starbucks packaged ready to drink product Starbucks Discoveries, Starbucks can distribute its products to convenience stores. This will enable Starbucks to intercept the growing number of Japanese consumers who buy their morning coffee from convenience stores. This will ensure that no matter where Japanese consumers go to purchase coffee, they have the opportunity to buy Starbucks products over other brands, and this should enhance Starbucks Japan sales. However, as revenue from these products currently goes to Starbucks in the USA, Starbucks Japan must obtain the authority and capability to distribute Starbucks products in convenience stores in order to reap the profits.
Building on store atmosphere :
Because Japanese prefer to sit down for coffee rather than take-away or drive through stores, Starbucks should concentrate on improving store atmosphere rather than investing in drive-through stores in Japan. Although Starbucks already has a good brand image, building a high quality atmosphere in Japanese stores is key to remaining competitive. Book readings, collections of games, baby changing stations, and the cleanliness of the stores are all essential components contributing to a high quality atmosphere. Furthermore, because the No Smoking principle is deterring a large culture of Japanese people from going to Starbucks, incorporating some smoker-friendly environments in Japanese stores will ensure these consumers will consider Starbucks as a store they would frequent.
In Conclusion, Starbucks is leading the world in the Japanese fast coffee market; however, it still has room for improvement. A decentralised structure accompanied with a mixed global/international strategy has helped the company to find a balance between reaching economies of scales and respond to the local market. By establishing a joint venture with local retail chain Sazaby Inc., has reduced their risks of being unfamiliar with the market; and Starbucks successfully gained the knowledge and channel of distribution from its partner. Starbucks. strong brand image and customer loyalty contributed in maintaining their leading position in this market, together with their enduring commitment to the community, Starbucks Japan has already built their reputation in this market. However, despite being regarded as one of the best place to work in Japan, Starbucks suffered from its employee.s low productivity. Starbucks Japan was running under loss before they finally turned things around last year, but sales growth was weak. Further risk includes their over reliance on global coffee prices. But Starbucks. introduction of new drinks into their menu offers new opportunities in pursuing a large share of the market.
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