A further strength is the wide availability of their coffee. Starbucks decided to push into supermarkets because the majority of people had been buying their coffee in supermarkets. Therefore Starbucks came to the conclusion to make a deal with Kraft. This deal combines Starbucks experience in producing premium coffee with Kraft’s knowledge of marketing, selling and distributing. That was a good step for Starbucks to reach a new channel and to get the entry to 25,000 supermarkets. Starbucks is now able to include more people into the Starbucks lifestyle as they don’t need to enter a coffeeshop to enjoy the Starbucks experience.
Beyond stores, Starbucks also sells its beans to hotels, several airlines and airports. Starbucks sells gourmet coffee, beans as well as gifts and related goods. They have also signed a deal to operate coffee shops within Waterstones bookshop superstores.
Furthermore customers can access Starbucks via their homepage which has become successful and a ‘lifestyle portal’, offering a variety of products like tea, coffee making equipment, compact discs and collectibles to satisfy their customers’ needs.
Weaknesses
One of Starbucks` weakness is that their primary product is just coffee. They are therefore dependent on this main product line. Starbucks is however testing to launch food offerings like sandwiches and chips in combination with coffee. Its goal is not only to expand more and more in its offerings but also to reach further target groups. A problem is that Starbucks has a slow ability to diversify into other sectors which could be fatal because the company believes in being successful not only because it is selling coffee but rather it is selling an experience. This makes them different from other competitors who might only sell coffee. “Coffee Lifestyle” may vary from time to time due to the fact that the global coffee market is a very competitive sector.
Another weakness is high prices of its products. People pay up to $3.15 for a caffe latte. One supposes that people buy this product only because they think that it is a premium product. But it is especially the brand name which tempts customers to buy the product without taking the high prices into consideration. As already mentioned before, the customer is not only buying the product, he is buying it with an experience.
Another weakness of Starbucks is that they are simply relying on the philosophy that coffee is an experience. Although this has been a good marketing strategy so far it is questionable if this will help them to keep their strong position on the market. “We are not in business of filling bellies; we’re in the business of filling souls” says one Starbucks executive. However, once people have had enough of this experience they will need to find a new reason for people to buy their coffee.
Opportunities
Starbucks has a widespread presence and practices in about 1.415 stores and just
last year they build up 400 new stores. The company has seen opportunities to open
further stores in the US due to the heavy demand.
In the state of Indiana there is, for example, only one Starbucks store up to now.
Furthermore, Starbucks has the opportunity to expand its global operations. The
company is now expanding rapidly and in 2003 the number of stores has increased in 24 international markets compared to 1996 when they had only 11 stores outside the United States. If growth continues at this rate, they will be able to extend their position as the market leader not only in the US, but on a global level.
Starbucks also tests new food which indicates that might be the next step
they want to go. With this the company would have the chance to offer food that could be as successful as its coffee. They test everything from doughnuts to Greek pasta salads. Starbucks also teamed up with PepsiCo to adopt the brand on Frappuccino drinks and a new DoubleShot expresso drink.
Beyond this Starbucks ice cream is nowadays a leading brand of coffee ice cream after Starbucks established a joint venture with Breyer’s.
In addition, Starbucks invested in Café Starbucks, a European-style family bistro, where the costumer has a wide choice from huckleberry-pancakes too oven-roasted seared sirloin. Alongside, Starbucks is testing Circadia, a new food venture, where the customers have Internet access and listen to live music. Both of these store concepts offer new opportunities for expansion in the future. Besides increasing their presence they could also reach new target groups who have so far not been attracted by their coffeeshops.
Starbucks has always been able to offer new coffee experiences creating new products or opening new kinds of stores.
Threats
One of the biggest threats of Starbucks is its grand expansion all over the world.
It is especially Starbucks growth strategy which poses a threat for the company. Starbucks especially concentrates on store growth. Almost 85 per cent of sales are generated through its stores. Although their expansion has been successful they must consider that the local as well as the national market may be saturated with its product. The creation of new retail channels also shows that Starbucks is not concerned about peoples` rejection or about failing to be successful. Apart from their strong presence in kiosks, several airlines, hotels and the co-operation with Waterstones’ bookshop superstores, Starbucks has enters 25,000 supermarkets to sell their products next to their strong competitors like Nestlé and Kraft. While expansion may be their key to long-term success they must be careful that consumers will turn to other products or companies if they are overexposed to Starbucks.
The great success of Starbucks has also brought negative consequences for the company because many competitors try to imitate them. These are companies like Caribou Coffee, Costa Coffee, and Coffee Republic. Starbucks must compete against the offers of restaurants, coffee shops and street carts. A major competitor with substantially greater financial, marketing and operating resources than Starbucks could enter the market at any time and compete directly against the company. Starbucks must be aware of competition on all levels and maintain its operational performance if it is to retain status as the world’s leading specialty coffee retailer.
Finally you could say that Starbucks is more concerned about the fact that there are still plenty of local places as well as internationally places which is not taken over by them. Instead of being worried about the fact that their rapid expansion could also lead to a rapid decrease and failure in several markets. The whole marketing strategy of Starbucks may cause to a loss of the main focus through stretching its resources by further expansion. The main focus should be on the product itself and not on international expansion. It can be seen that Starbucks has the potential for
development in many different ways but it has to have its growth under control. This may be a challenge for Starbucks.
BCG Matrix
The BCG matrix is an instrument, developed in the early 1970´s by the Boston Consulting Group to analyze the product portfolio of a company or a business unit. The matrix is based on the product life circle. The matrix is mainly used in the strategic marketing sector. The matrix shows in a coordinate plan the positions of different strategic business units. The BCG matrix has two dimensions: relative market share and market growth rate.
The method brings insight in three relevant areas:
- Analysis of the strategic position of a company.
-
Determine the capital in the several business units with a view on the whole company and therefore the cash flow in the company.
-
Every quadrant responds to a norm strategy which could be used as a guideline to verbalize strategic activities in the company.
It is also necessary to look after the whole portfolio as the products in the portfolio should be based upon on another and finance one another.
To create a long-term value a company should have a portfolio of products that includes fast growing products which need a high input of money and slowly growing products which are creating a high amount of cash. The idea behind this matrix is: if a product has a high market share or the market of the product is growing fast then it is an advantage for the company.
Analysis of Starbucks using the BCG Matrix
Cash cows: Benefits from the generation of cash should be high. Because of the low-growth rate capital expenditures which are necessary should be hold low. Often cash cows are the stars of yesterday and build the base of a company.
One of Starbucks’ cash cows is their coffee ice cream. This is a relatively risk free investment that doesn’t absorb great amounts of cash. Through the partnership with Breyers, Starbucks doesn’t need to spend money on the production process. With Breyer´s experience and the Starbucks name the ice cream was sure to succeed on the market. With it now being one of the market leaders on the coffee ice cream market, Starbucks can “milk” it and benefit from the sales, knowing that there is not a high cost factor.
Another, but quite small cash cow is their bottled Frappuccino drink. Once again Starbucks took on a similar strategy by working with an already established beverage manufacturer. The investments are once again a lot lower than their sales, giving them a high profit margin.
Stars: Stars use a high amount of cash. These are leader in the business and hence they should create a high amount of cash. Stars are often in balance with the net cash-flow. The company should do their best to hold the market share on stars because stars will become cash-cows if the market-share is held by the company.
Starbucks’ biggest star is the coffee sold and consumed in their coffee shops (stores). With an incredible 85% of sales coming from their stores it is their biggest source of cash intake. Although competitors offering similar products have emerged, the market growth still looks promising. Some states like Alabama and Mississippi don’t have any Starbucks stores meaning that there is still a large market to expand onto. The people living in these states have not been able to enjoy a cup of Starbucks coffee. The revenues from their coffee sales should therefore be used to invest in new stores making it possible to sell their coffee.
Another one of their stars is the packaged coffee sold in supermarkets. With the help of Kraft Starbucks has gained quick access to the packaged coffee market. Thus they have been able to quickly increase their market share on a rapidly growing market. Unlike their other joint ventures with PepsiCo and Breyers, Starbucks has done more than just put their name on the product. As they are still roasting and packaging their own coffee they need to invest a lot to further establish their position on the market.
Dogs: Dogs are discontinued models of the company. A company should minimize, better avoid the number of dogs. Dogs have to make cash, otherwise they are divested.
Starbucks´ dog is the sandwiches sold in their stores. Although they experiment with different foods in their stores, they do not make a lot of profit from food sales. Furthermore it can be said that the sandwich market is not growing and Starbucks do not have a high market share. However, this SBU should not be divested immediately as it may help them to draw in further customers who know that they will be able to grab a sandwich to go with their coffee.
Question marks: Question marks are the newcomer of the products. The have a high growth-potential. They have the worst cash features of all, because they have a high demand of cash but perform low outcomes because of their low market-share. If the market-share is unchanged question marks will continue to use a high amount of cash without a profit in return. The management has to decide to invest in the product or to give it up.
Starbuck’s further attempts to boost their growth such as selling coffee to airlines and hotels can be classified as question marks. At the moment the demand for premium coffee to be sold in airports and hotels might be high, but so far only Marriott, Sheraton and Westin have deals with Starbucks meaning that there are a lot of hotels not selling their coffee. If they want to expand on this market they will need to invest a lot of money into new deals with other hotels. It will take time before they can increase their market share and make a profit.
Café Starbucks and Circadia, two new store concepts are also question marks. At the moment they are only experimenting to see how customers will react to a different kind of Starbucks experience. Setting up a chain of these new concepts will require a lot of money and time before they can establish themselves on the market. If they succeed in competing with other cafés of a similar style this SBU could be another profitable SBU in the future
After positioning Starbucks´ products on the BCG matrix it can be said that they have a stable source of revenue. With the majority of their sales coming from the coffee sold in their stores and two profitable, if on a smaller scale, joint ventures they have enough money to invest in other new products or stores to ensure that they will be as successful in the future. Besides investing this money in new stores enabling them to serve an even larger market, it can be invested in their coffee sold in supermarkets. Rapid growth of the premium coffee segment indicates that it won’t be long before a number of competitors force their way onto the market. Investing into this SBU will enable it to develop into a cash cow in the future. Regarding the sandwiches sold in their stores they need to reconsider if this is something they should continue to invest in the future. The prospects for the future look promising as they have two strong stars and other smaller products that can carry the company in the future.
Looking at Starbucks as a whole it can be seen as a star. Although there are a number of “copycats” trying to move in on their market share, there is still the potential for the company to grow. Up until now not all states have their own Starbucks store, an indication that the market is still growing. Although they have tripled their sales and profits over the last 5 years, they need this money to invest in new stores in states such as Alabama and Mississippi and their new store concepts such as Café Starbucks. If they are able to expand successfully and the market ceases to grow they will eventually turn into a cash cow.
Attachment
Figure 1
Figure 2
1= ice cream
2= bottled drinks
3= coffee sold in coffeshops
4= packaged coffee
5= sandwiches
6= coffee sold to airlines/hotels
7= new store concepts (Circadia, Café Starbucks)
Bibliography
Literature
Kotler, Philip, Wong, Veronica, Saunders, John, Armstrong, Gary; Principles of Marketing, Fourth European Edition, Essex 2005
Peter Winkelmann, Marketing und Vertrieb, 5. Auflage, München 2006
Internet sources
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.81
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.81
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.81
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong “Principles of Marketing – Fourth European Edition“, Essex 2005, pp.80
See http://www.4managers.de/themen/bcg-matrix/ 10.12.2007
See Peter Winkelmann, „Marketing und Vertrieb“, 5. Auflage, München 2006, Seite 77
See Peter Winkelmann, Marketing und Vertrieb, 5. Auflage, München 2006, Seite 77
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.81
Peter Winkelmann, Marketing und Vertrieb, 5. Auflage, München 2006, p77
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.81
See Kotler, Wong, Saunders, Armstrong, “Principles of Marketing – Fourth European Edition“, Essex 2005, p.80
1,415 stores or 5500 as stated in first page?
Ceases or continues to grow?
