Strategy and Competitive Advantage of Starbucks

Starbucks first opened. The name comes from Herman Melville’s Moby Dick, a classic American novel about the whaling industry of the 19th century. Shipping name seems appropriate to import the best coffee shop in the world into the cold people who thirst of Seattle. In 1982Howard Schultz joined Starbucks. While on a business trip in Italy, he visited Milan’s famous espresso bars. Impressed with their popularity and culture, he saw their potential in Seattle. After she tried the coffee flavor lattes and mochas, Seattle quickly becomes coffee enthusiast. Starbucks expands beyond Seattle, first to the entire United States, then the whole world. After becoming one of the first companies to offer stock options to half its employees, Starbucks becomes a public company. Nowadays, Starbucks has advantages to welcome millions of customers through our doors every day, in more than 17,000 locations in over 50 countries.

Why They Go International?

Because of its high growth in major reason, Starbucks initiate international expansion. Starbucks adopted a strategy that characterizing through low local responsiveness and price considerisation. In the 1996 Starbucks start to grown in Japan through joint venture, and then it expand to Europe and the Middle East using the same way.

Starbuck’s Products

Coffee: More than 30 blends and single‐origin premium arabica coffees.

Handcrafted Beverages: Fresh‐brewed coffee, hot and iced espresso beverages, coffee and non‐coffee blended beverages, Vivanno™ smoothies and Tazo® teas.

Merchandise: Coffee‐ and tea‐brewing equipment, mugs and accessories, packaged goods, music, books and gift items.

Fresh Food: Baked pastries, sandwiches, salads, oatmeal, yogurt parfaits and fruit cups.

Consumer Products

Coffee and Tea: Whole bean and ground (Starbucks and Seattle’s Best Coffee brands), Starbucks VIA® Ready Brew, Tazo® tea filterbags and tea latte concentrates.

Ready‐to‐Drink (RTD): Starbucks bottled Frappuccino coffee drinks, Starbucks Discoveries chilled cup coffees, Starbucks Doubleshot espresso drinks, Starbucks Doubleshot®Energy+Coffee drinks; Seattle’s Best Coffee® Iced Lattes, Tazo bottled iced and juiced teas.

Starbucks® Ice Cream: Super‐premium coffee and coffee‐free flavors.

Starbucks Differences

Starbucks keep their brand quality by managing all production proccess by themselves from the begining which is growing the coffee plant, selecting the coffee nut, roasting the nut, grinding the nut until mixing with ingredients and make it a cup of coffee and then sell it at their own shop. Due to they do every process by their own so profits don’t have to be share with any other partner. They have core competence in Coffee industry so it tough for other rival to compete with. They can cut off some unnecessary working process and ordering good make Starbuck easier to proceed. They have a course in training their staff to be qualified in making good coffee. It easy for them to reserve their product quality and also easy to learn and keep in touch with.

Starbucks also try to become responsible company. They have commitment to do business responsibly, they call this Starbucks™ Shared Planet™:

Ethical Sourcing: Starbucks made their relation with farmers all over the world strong, long‐term relationships that make them able to buy the high‐quality coffee their customers expect from them. They have a target that by 2015, all of their coffee will be grown using ethical trading and responsible growing practices.

Environmental Stewardship: Starbucks provide their customers an environment that make them feel comfortable. And they said when they care for the planet and encouraging others to do the same. They wanted that 100% of our cups will be reusable or recyclable in 2015. They will reduce their environmental footprint so it will convert energy and water conservation, recycling and green construction usages.

Community Involvement: In neighborhoods where Starbucks stores placed to the ones where their coffee beans were grown they get all people being involved because they think by being involved in the communities they was a part of that communities. Getting people together, inspiring to make a change and making a difference in people’s lives it’s all part of creating a good neighborhood.

Starbucks vs homemade coffee

Starbucks uses Arabica beans. Also the beans for Starbucks coffee are from different regions of the world and they all have different flavors and acidity levels. Like a fine wine, Starbucks coffee are all unique and you can match it with so many different food and snacks. Some of their blends are better as iced coffee, some are better in the evening and some are best in the morning. This is the reason they use many different blends and use espresso beans in their bar drinks. Coffee you make by yourself in your home maybe just normal coffee beans or a sachet instant coffee.

Maintaining the temperature is an important thing when making coffee. Lot of home machines don’t really heat the water before it hits the grounds causing the oil of the coffee to stay in the grounds. The oil is what gives the coffee it’s flavour( flavoured coffee just has flavour oil added.) So Starbucks provide a really good machines that heat the water in under a min. It should be above boiling point before it hits the grounds.

Caribou Coffee vs. Starbucks

This two company provide almost similar food and drink products, both of them offer customers a trendy place to enjoy those products. The most difference in popularity is the Starbucks franchise succeed as a weel known coffee shop in public , while Caribou Coffee has not been as famous as Starbucks in establishing coffee shops out of the United States.  Starbuck’s also increased its popularity through the marketing and selling of Starbuck’s coffee products by using online.  Caribou Coffee also sells their own brand of coffee products online, but their product is hard to find in another country other than United States.

Starbucks Strategy and Competitive Advantage

Competitive Advantages

Starbucks maintain competitive advantage by creating for

New ideas. For example, in the beginning Starbucks didn’t provide free wi-fi facility. But today because of so many coffee have free wi-fi facility so they make they coffee shop have that facility too, so that the customers can feel more comfortable.

New products. For example, Starbucks make a coffee sachet. It almost the same like coffee which Nescafe produced.

New experiences for guests.  For example,Starbucks hires it’s own designers to make artwork for commuter mugs. 

Strategy

Starbucks strategy is a simple saturate the market. By spreading out the outlet location it makes one store not cut the profits of another store. Usually, the stores would be placed on locations based on demographics, traffic patterns, the location of competitors as well as the location of its own stores.

However, the Starbucks strategy went against the grain. Instead of following the trend, CEO Howard Schultz had a different idea. He decided that the Starbucks strategy would be to blanket an area completely. Siding matter about one store cut the profits of another store, the Starbucks strategy focused on heavily increasing the foot traffic in one specific part of town. They think this will reduce the company’s delivery and risk, also the customer doesn’t need to stay in the waiting line for a long time. Schultz knew that his Starbucks strategy was a risk, but it was one he was willing to take.

For the result of this strategy. Starbucks quickly achieve market dominance. They have more than 20 million customers per week, this is the highest frequency of visiting customers. Since the company went public, sales have risen roughly 20% each year. Even when the rest of the economy seems to be in a slump, loyal patrons keep returning to Starbucks for their regular cup of Joe.

Starbucks using many kind of entry mode for expanding its business to another country. These include joint ventures, licensing, and wholly owned subsidiaries. Starbucks gain advantage of providing access to local partner knowledge by using joint venture. Starbucks also shares development costs and risks with Sazaby in addition. Starbucks use licensing way to enter the Middle East because with this mode it allow Starbucks to minimize capital outlays for marketing research and decrease local market expertise. And for the wholly owned subsidiaries it offers technology protection and ability to engage in the global strategic coordination.

Starbucks Culture

Country Culture (United States)

The culture of the United States of America culture is what usually we call Western culture, regarding the history it very affected by European cultures. It happened a long time ago before the United States made their country own special social and cultural characteristics for example like dialect, music, arts, social habits, cuisine, and folklore. Nowadays the United States is an ethnic and racial diverse country because of so many immigration come to United States.

Starbucks Culture

Starbucks Coffee Company is one of fastest growing companies in United States. There are about 10,000 stores and opens an average of 20 stores per month. Starbucks realy care about their employees qualities, also known as baristas, are compensated. For example, baristas are not guaranteed hours; full-time status is only available to management; and a need for increased pay and a safer, healthier work environment are issues that have lead to the formation of the Starbucks Workers Union, a branch of the well known Industrial Workers of the World (IWW). Global Communications relates to Starbucks due to the fact that they are both dealing with unions that advocate for their rights. Although the Starbucks Union is not recognized by Starbucks, it has affected the welfare of baristas across the nation. In the case of Global Communications, the union stepped in when the company considered outsourcing and laying off the staff of its call center.

PESTEL

Political:

Taxation policy

High taxation imposed on farmers in those countries producing the coffee bean will usuallymean Starbucks pay a higher price for the coffee they purchase. Any fluctuations in taxationlevels in the industry are almost certainly ultimately passed on to the consumer. Recently(June 13, 2003) Tanzania’s Minister of Finance harmonized and rationalized localgovernment taxation to boost rural productivity of the coffee bean. Tax was lowered for these’small holder’ farmers and this saving will have been passed on to purchasers of coffee likeStarbucks.

Deregulation

A decade ago, the USA pulled out of the ICA (international Coffee Agreement) that set exportquotas for producing nations and kept the price of coffee fairly stable. Coffee quotas andprice controls ended. Since the deregulation farmers have suffered and their earnings havedropped. Many have struggled to make a living so have given up.International trade regulations/tariffs – Trade issues will affect Starbucks predominantly whenexporting and importing goods. When another country’s government imposes a tariff it notonly results in an efficiency loss for Starbucks but large income transfers can becomeinconsistent 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.

International stability

The international economy must be brought into consideration as it can affect Starbucks’ salesand markets. The aftermath of 9/11 was an example of an economic downturn that affectedthe world market. If the world market is in a slump it is not usually the ideal time for abusiness to look at grand expansion.

Employment law

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 onto the purchaser. 

Economic:

Economic Growth

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 ‘mood’ is lowInflation rates – Inflation is a condition of increasing prices. It is measured using the RetailPrice Index (RPI) in the UK. Business costs will rise for Starbucks through inflation, as willshoe-leather costs as they shop around for new ‘best prices’ of materials, menu costs will riseas Starbucks have to create new price lists. Also, uncertainty is created when makingdecisions not least because inflation redistributes money from lenders to borrowers. A firmthat borrows L1000 during an inflation period will pay back less in ‘real terms’ as the value of this money will decline over the period.

Competitors pricing

Competitive pricing from competitors can start a price war for Starbucks that can drive downprofits and profit margins as they attempt to increase, or at least maintain, their share of themarket.

Globalisation

Globalisation of the coffee market has meant farmers of the bean now earn less money thanthey used to. This can result in a decrease of people willing to do it for a living, which willmean a decrease in coffee produced, resulting in a drop in Starbucks supply levels andprobably profits.

Exchange rates

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 L when importing the goods to their country. This saving can be passed along to thecustomer. Exchange rates are forever changing throughout the world in today’s market.  

Social:

Income distribution

Where income is distributed is another factor that Starbucks should look at as this alsodemonstrates 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 tospend that should be targeted the most intensely.

Attitude to work 

Starbucks would not want to locate to an area where the local population have a poor attitudeto work. Recruitment would be difficult, training arduous, and staff turnover would be high.Attitudes to work are important in other ways. A large number of workers in large cities nowgo out for their lunch rather than use an internal canteen. Starbucks can use this to their advantage and promote the shop as a place where people can meet up and so it will mean thatthey will get a larger amount of people in their stores at this time of the day.

Standard of education/skills

When Starbucks are deciding upon new premises they must look at the standards of educationand skills locally. They must be sure there are people who live there with sufficient skills toensure successful operation of the business, or at least the potential to learn that comes with agood education.

Working conditions/safety

Those people with the most disposable income, e.g. young single professionals etc, will beaccustomed to high standards. Starbucks must ensure it’s shops are clean and comfortable,service is of the highest order and health and safety issues are fully addressed

Location

Transport needs to the premises must be considered for both staff and customers. Easy accessis vital to ensure there is no excuse for staff to arrive late or for customers not to visit.

Age distribution

Research shows the average age of the population is getting older and birth rates arestagnating. Starbucks is presently aiming it’s product at young people but maybe these viewswill change in the long-term as the market proportion for young people diminishes. The mostprofitable way forward may be to widen their target market despite the risk of alienatingpresent customers.

Health consciousness

Good health and foodstuffs associated with healthy living are important I today’s marketplace, as this is a trend that is occurring at the moment in western societies. Starbucks can use