The World Leading Retailer In Coffee Business

2695 words (11 pages) Essay

27th Apr 2017 Marketing Reference this

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Starbucks open its first store at Seattle’s Pike Place Market in 1971. Starbucks is the world current leading retailer, roaster and brand of specialty coffee with millions of customer pay visit to their store in every continent in the world (starbucks.com, 2008). Howard Schultz joins Starbucks and he introduced the coffee house concept to its founder after he is impressed with the popularity of espresso bar in Milan, Italy. The first Starbucks caffe latte is served in downtown Seattle and the success results lead to the founding of a company called II Giornale by Schultz. II Giornale then acquires all Starbucks asset and officially forms Starbucks Corporation (starbucks.com, 2008). The forming of Starbucks is the starting point that turned a small coffee store into the world leading retailer in coffee business.

Organisation can use resources and capability to change the industry structure and modify the system of competitive rivalry between organisation. In the verge of globalisation, the source of success of an organisation is no longer about where an organisation chooses to compete but is how an organisation competes in market (Stalk et al, 1992). In addition, Organisation need to identify what they do the most excellent and observe how they can control their exclusive resources to succeed over their rival (Mellahi et al, 2005). Furthermore, resources are the main foundation of an organisation capabilities but capabilities in contrast is the main foundation of its competitive advantage (Segal-Horn, 2004). Refering to Starbucks situation, formula for success will be the resources that it has and how Starbucks is going to manipulate their resources and create capabilities that will drive the company into gaining competitive advantage. How Starbucks going to gain competitive advantage will be discussed in the later part of my essay.

The definition of resources cannot be defined universally because the term resources are defined very broadly. According to Mellahi et al (2005), resources are organisational processes, asset, capabilities, firm attributes, information and knowledge that is available to an organisation that enable an organisation to implement strategies for efficiency and effectiveness improvement. Resources can be divided in three categories which are tangible, intangible and human (Grant, 2005).

Tangible resources consist of financial and physical resources. Financial resources refer to organisation borrowing capacity and its internal fund generation that will decide on flexibility and ability for investment (Grant, 2005). For example, Starbucks total revenue as of 27th December 2009 is $2.7227 billion compare to $2.2billion in 2000 and $103million in year 1992 (Starbucks.com). Starbucks financial statement shows that the company is growing in its financial resources in the pass two decades. In addition, the financial result for end year 2009 for Starbucks shows that gross profit margin is 56%, return on assets is 7% and return on invested capital is 10.9% (Forbes.com, 2010) These data show that Starbucks financial resources is in a good condition as the company have the ability in term of financial resources for future investment and research.

Physical resources refer to the physical asset that it held that will limit organisation production ability and affect cost position (Grant, 2005). Starbucks total stores for year 2009 is 16,635 compare to 10,241 stores in year 2005. The rapid growth of store throughout the world demonstrates that Starbucks is having a strong physical resource. In addition, Starbucks also have five specialist coffees roasting plant in Washington, Nevada, Pennsylvania, South Carolina and The Netherland. The most recent plant in South Carolina is 117,000ft² in size required an investment of $70 million and was awarded silver LEED (Leadership in Energy and Environmental Design) award (foodprocessing-technology.com, 2010). The coffee roasting plant prove that Starbucks have a good physical resources for the purpose of serving the market and it’s growing number of store in the world.

Intangible resources are technological, reputation and culture. Technological is the supply of technology in the appearance of proprietary technology (Grant, 2005) Starbucks only offer quality coffee because most commercial roasters only let their beans to lose only 10-14% of their moisture while Starbucks beans lose about 18% of moisture. Better tasting beans that create a better cup of coffee will be more flavourful and dense if lost more moisture (starbucks.com, 2010). In summary, Starbucks coffee has the technology of roasting bean to offer better quality coffee as the technology resources that they have is strong. In addition, Starbucks also introduce Starbucks® Barista Home Espresso machine in year 1997 and Starbucks® Barista Aroma Solo Thermal coffeemaker in year 1999 (starbucks.com, 2008). The introduction of these machines illustrates the solid technology resources that Starbucks own by inventing its own coffeemaker.

Reputation is mainly about the image of the organisation in the eye of their customer, suppliers, other organisation and government thru the brand and trademark (Grant, 2005). Starbucks have a good image in the employee perspective as Starbucks is rank 93 in Fortune’s 100 best companies to work for ranking (money.cnn.com, 2010). Furthermore, Starbucks have the reputation as environment friendly organisation as show by their company statement of “committed to a role of environmental leadership in all facets of our business” (starbucks.com, 2010).The good image that Starbucks has demonstrate that Starbucks possess the strength in the reputation resources that will drive Starbucks branding to a higher level.

Human resources mean the training and expertise of staff determine the skill available to organisation. Moreover, the flexibility of staff toward the strategy of organisation and also their loyalty to organisation is part of the human resources (Grant, 2005). Since Starbucks stress on quality, the staffs are often given training that is high in cost (Michelli, 2007). Starbucks chairman Howard Schultz state that starbucks recognised their employee as Starbucks’s partners instead of being called an employee shows that how critical human resource aspect is for their continued success (starbucks.com, 2004). Strong Human resources that Starbucks has show that this factor is important to ensure the success of the organisation because of the large operation it have throughout the world.

Strategy

Industry key success Factor

Competitive AdvantageThe relationship among Resources, Capabilities and Competitive advantage

Organisational Capabilities

Human

-Specialised skill and knowledge

-Communication and interactive abilities

-Motivation

Tangible

-Financial

-Physical

Resources

Intangible

-Technology

-Reputation

-Culture

Source: Grant (2005)

As time passed, tangible resources will be less vital to organisation compare to intangible resources because their contribution toward value added and competitive advantage become less (Grant, 2005). Organisations also need capabilities to implement strategy. Capabilities is defined as “complex bundle of skills and collective learning, exercised through organisational processes, that ensure superior coordination of functional activities” Day (1994, cited by Mellahi et al 2005).In other word, capability is referring to what activity organisation are capable of doing. In addition, capabilities are how an organisation combines the tangible and intangible resources to provide client with services or merchandise (Mellahi et al, 2005). Example of Starbucks capability is the introduction of Starbucks card system which serve as a prepay card or a gift card. The success of Starbucks cards is proven by surpasses of $2.5billion mark for activation and reloads since 2001 (starbucks.com, 2010). The card system shows that Starbucks can introduce a unique system that is making the payment process much easier for the customer. Starbucks use the technology and financial resources to develop this Starbucks card. In addition, Starbucks also have 16635 stores compare to their closest competitor coffee chain Carribou Coffee with 322 stores is a capability for Starbucks (greenlagirl.com, 2006). The huge difference in the store amount shows the capability of Starbucks to expand and grow their business faster and more globally compare to their competitor. Starbucks utilise their physical and financial resources to grow more rapidly compare to their competitor. Furthermore, Starbucks also offer around more than 30 blends of coffee is also another capability of Starbucks (starbucks.com, 2010). The huge amounts of different blend of coffee show that Starbucks have the advantage on the product range that it can offer to their customer. The resources being use by Starbucks to achieve this capability is the technology, financial and human resources. Another capability of Starbucks is the forming of alliance with large company in different industry such as Apple, Pepsi-Cola, Kraft Foods, VISA and other organisation. The resources being manipulated by Starbucks is the reputation, financial and human resources. The result of this alliance gives Starbucks a major advantage in term of marketing and branding compare to their rival.

Starbucks core competencies are their ability to introduce new product to their existing line up of beverages and foods offered to their customer. For example, Starbucks have introduce various type of Frappucino blended beverage to their customer. In addition, Starbucks also have launched the bottled Starbucks Frappucino coffee drinks that is distributed to various grocery channel (starbucks.com, 2010). The ability of being innovative with the range of product being offered will lead to the competitive advantage that is only available to Starbucks. Moreover, Starbucks also offer different type of food and product such as sandwich, water, pastries, espresso machine, coffee brewer, CD, and mug proved the core competencies in the operation of Starbucks (starbucks.com, 2010). The main function of introducing large range of product to customer is to build up their brand by moving away from traditional coffee store to a more lifestyle store. This evolution of Starbucks operation is called the “Starbucks Experience” (starbucks.com, 2010). This concept is an important core competency to Starbucks because it is hard to be imitated by other rival and promises the growth of Starbucks.

The term strategies are the representation by which the organisation accomplishes its goal. Strategies work as “ground-rules” and describe the nature and occasion of the decision need to gain organisation goal. In summary, strategies decide how the organisation will take out its activities through the time prospect when it is working, so that they can reach their goal (Morden, 2007). Based on the topic area of this essay, goal is referring to competitive advantage. In addition, if an organisation resources and capability can be easily imitate, then the organisation must get a new basis for competitive advantage.

The strategy that is being used by Starbucks is the “Starbucks Experience” concept. This concept is about the quality of coffee, ambience, and function of a Starbucks store to their customer. “You get more than the finest coffee when you visit a Starbucks- you get great people, first-rate music and a comfortable and upbeat meeting place” says Howard Schultz (starbucks.com, 2008). The implementation of this concept is closely linked with the core competencies of Starbucks. For example, Starbucks competencies of offering various beverage and products in their store soon become their main selling point of “Starbucks Experience”. The choice of product range of will lead to the competitive advantage of choice to their customer. In addition, Starbucks also introduce the “Hear Music Coffeehouse” concept with Hewlett-Packard by offering music download to customer. The purpose of the strategy that Starbucks implemented is to offer good service and impression to customer (cnet.com, 2004). In addition, another strategy of Starbucks is the offering of wireless internet access in their store by making alliance with Hewlett-Packard and T-Mobile (hp.com, 2002). The purpose of this strategy is to attract customer to visit Starbucks for not only the enjoyment of coffee but also serve as leisure or a mobile work place with the availability of internet. The combination of the product range, music service and internet access is the main idea behind “Starbucks Experience” that is the main focus of Starbucks to achieve the competitive advantage.

The definition of competitive advantage is quiet simply the advantage that is not available to competitor (Hardy, 1987). Once competitor gain access to the advantage, it will then no being classified as competitive advantage anymore. The purpose of competitive advantage is to discover market opportunity before competitor reach gain access to it because the world is getting more globalised with the availability of more product, services and experience to people around the world (Hardy, 1987). Linking back to the resources, and capability of Starbucks, competitive advantage is gain thru the implementation of “Starbucks Experience”. The use of Starbucks capability of having large amount of store requires the both tangible and intangible resources. By gaining the store amount capability, Starbucks can implement the concept of “Starbucks Experience” in a large scale as small amount of store will not have a great impact on sales and brand loyalty. In addition, the various blend introduce by Starbucks require the financial, technology, and human resources because of the research and development process involved will result in the achievement of the capability to offer different type of beverage to customer. Linking of large beverage offering capability to the strategy of “Starbucks Experience” that promise finest coffee to customer will lead to the competitive advantage of an exclusive taste coffee that is not being easily imitated by competitor. The capability of offering Starbucks Card and alliance with large organisation that require tangible and intangible resources will lead to the capability of offering of large amount of product and services to customer. The offering of product and service will lead to the last element of “Starbucks Experience” that offer a great store atmosphere that is comfortable to customer. This will eventually lead to the competitive advantage of gaining of strong image and branding by having customer to be loyal to Starbucks and not the competitor. Brand loyalty will lead to more sales as customers visit Starbucks more frequently.

In conclusion, Starbucks strategy of gaining competitive advantage is in the form of “Starbucks” Experience” is proven to be successful because there is no competitor from other industry can imitate the concept that Starbucks is executing. Furthermore, Starbucks is the leader in the coffee segment that even its main competitor cannot match up with the advancement and innovation that being offered by Starbucks shows that the strategy of “Starbucks Experience” concept is a good step to gain competitive advantage. Starbucks should further improve its capability as the modern world is moving rapidly as Starbucks competitor will try to match Starbucks’s competitive advantage one day as the industry of coffee is huge and proven profitable. More effort must be put in by Starbucks to research and find new strategy and core competence as the competitive advantage held by Starbucks will not be available to Starbucks forever.

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