Olden Lee has been a Starbucks director since June 2003. Lee worked with PepsiCo, Inc. for 28 years in a variety of positions, including serving as senior vice president of human resources of its Taco Bell division and senior vice president and chief personnel officer of its KFC division. He currently serves as principal of Lee Management Consulting, a management consulting firm he founded. Lee also serves on the board of directors of TLC Vision Corporation (Starbucks Coffee, 2009).
Sheryl Sandberg has served as the Chief Operating Officer of Facebook, Inc., an online social utility company, since March 2008. From 2001 to March 2008, she was the Vice President of Global Online Sales and Operations for Google Inc., an Internet search engine company. Ms. Sandberg also is a former Chief of Staff of the United States Treasury Department and previously served as a management consultant with McKinsey & Company and as an economist with The World Bank. Ms. Sandberg serves on a number of nonprofit boards including The Brookings Institution, The AdCouncil, Women for Women International, and V-Day. In 2008, Ms. Sandberg was named as one of the “50 Most Powerful Women in Business” by Fortune and one of the “50 Women to Watch” by The Wall Street Journal (Starbucks Coffee, 2009).
James G. Shennan, JR. has been a Starbucks director since March 1990. Shennan
served as a general partner of Trinity Ventures, a venture capital organization, from September 1989 to July 2005, when he became general partner emeritus. Prior to joining Trinity Ventures, he served as the chief executive of Addison Consultants, Inc., an international marketing services firm, and two of its predecessor companies. He also serves on the board of directors of P.F. Chang’s China Bistro, Inc (Starbucks Coffee, 2009).
Javier G. Teruel has been a Starbucks director since September 2005. Teruel served as vice chairman of Colgate-Palmolive Company, a consumer products company, from July 2004 to April 2007, when he retired. Prior to being appointed vice chairman, he served as Colgate- Palmolive’s executive vice president responsible for Asia, Central Europe, Africa and Hill’s Pet Nutrition. After joining Colgate in Mexico in 1971, Teruel served as vice president of Body Care in Global Business Development in New York, and president and general manager of Colgate-Mexico. He also served as president of Colgate-Europe, and as chief growth officer responsible for the company’s growth functions. He currently serves as a partner of Spectron Desarrollo, SC, an investment management and consulting firm. He also serves on the boards of directors of The Pepsi Bottling Group, Inc., Corporacion Geo S.A.B. de C.V. and J.C. Penney Company, Inc (Starbucks Coffee, 2009).
Myron Ullman has been a Starbucks director since January 2003. Ullman has served as the chairman of the board of directors and chief executive officer of J.C. Penney Company, Inc., a chain of retail department stores, since December 2004. He served as director general, group managing director of LVMH Möet Hennessy Louis Vuitton, a luxury goods manufacturer and retailer, from July 1999 to January 2002. From January 1995 to June 1999, he served as chairman and chief executive officer of DFS Group Limited, a retailer of luxury branded merchandise. From 1992 to 1995, Ullman served as chairman and chief executive officer of R.H. Macy & Co., Inc. He also serves on the board of directors of the Federal Reserve Bank of Dallas (Starbucks Coffee, 2009).
Craig Weatherup has been a Starbucks director since February 1999. Weatherup worked with PepsiCo, Inc. for 24 years and served as chief executive officer of its worldwide Pepsi-Cola business and President of PepsiCo, Inc. He also led the initial public offering of The Pepsi Bottling Group, Inc., where he served as chairman and chief executive officer from March 1999 to January 2003. Weatherup also serves on the board of directors of Macy’s, Inc (Starbucks Coffee, 2009).
B. Top Management
CEO Howard Schultz wanted to strengthen Starbucks' top management team by hiring people with extensive experience in managing and expanding retail chains. Orin Smith, who had an MBA from Harvard and 13 years' experience at Deloitte and Touche, was brought in as chief financial officer in 1990 and then was promoted to president and chief operating officer in 1994. The four key executives during the company's formative years were Howard Schultz, Dave Olsen, Howard Behar, and Orin Smith who contributed the most to defining and shaping the company's values, principles, and culture. As the company grew, additional executives were added in marketing, store supervision, specialty sales, human resources, finance, and information systems. Schultz also took care to add people to Starbucks' board of directors who had experience growing a retail chain and who could add valuable perspectives (Starbucks Coffee, 2009).
III. External Environment: Opportunities and Threats
A. Natural Physical Environment: Sustainability Issues
Starbucks is has been affected by forces from natural physical environment that has led to threats as well as opportunities. According to the director of environmental impact for Starbucks, global warming poses "a direct business threat to our company." The supply of coffee is affected by weather conditions, and the health of coffee trees. The coffee growers are worried about soil changes and increased threats from pest infestations and has forced them to change how they grow coffee. It has especially caused a concern since the quality of coffee wanted by Starbucks is very high, and Starbucks has usually paid premium prices for its green coffee. There are no substitute products for the coffee beans Starbucks must buy. This is a potential threat to the company. In 2001, Starbucks announced new coffee purchasing guidelines. These guidelines are based on the following four criteria: quality baselines, social conditions, environmental concerns, and economic issues. Only suppliers who can meet Starbucks' coffee standards will be able to supply the company. The supplying industry to Starbucks, therefore, has few companies. This is also a potential threat. Starbucks will offset this threat by paying a premium of up to ten cents per pound of coffee to vendors based on how well their coffee meets Starbucks' standards. Glenn Prickett stated, "With these guidelines, Starbucks is taking a leadership role in addressing the environmental and social issues surrounding the global coffee industry." They have been able to take the threats and used them as an opportunity to show how they can handle certain situations (Kembell, 2002).
B. Societal Environment
General environmental forces affect Starbucks and the industry in which it competes. An economic force that affects Starbucks is the fact the coffee is not always considered a reasonable price. For example, after the Asian Crisis consumers in Macau are forced to spend more carefully. Starbucks seem to attract the white-collar workers because they are willing to spend a more. About 70% of Starbucks consumers are part of this category or are tourists. The Macau people have decreased their spending on food and drinks. Starbucks should make appropriate adjustments to respond to this change. Especially since today with the current economic disaster unfolding, consumers are all about saving money. That means less trips to Starbucks and more online orders for high quality coffee. The current economic difficulty is forcing many of us to make lifestyle changes which includes how we get our daily caffeine fix (TheFounder, 2009).
Technology can pose a threat to Starbucks because it can mean more competitors for them. For example, companies are selling high-quality coffee beans via online for a competitive price. However, Starbucks uses technology as an opportunity for them to prosper. Starbucks is continuously searching for ways to better a customers' experience. With the introduction of the Starbucks Card for example, the Company has created the opportunity to improve customer service, shorten lines and make a customer's visit at Starbucks quicker and more convenient (Kembell, 2002).
Starbucks faces political/legal environmental forces. Starbucks only imports all their coffee beans, so possible threats could include a change in import laws. A change in the status quo as far as imports go could greatly affect numerous areas of production for the company. For example, if it costs more to import or the process is made more difficult the result could ultimately be a change in price, which would affect the level of consumption for Starbucks coffees (Kembell, 2002).
The sociocultural forces of Starbucks includes the fact that culture is a difficult issue for many international marketers because it is essentially vague and normally difficult to understand. It is possible that employees of a Starbucks can violate the cultural norms of the people in the host country without knowing hence the people become uncomfortable with the behavior. Original cultures are becoming more elaborate and diverse in terms of religion, food, clothing and lifestyle. Starbucks must therefore be able to adjust skillfully to the culture aspect of Asian market and use marketing strategy that will ensure that the company capture the new market (Miller, 2010).
C. Task Environment
Starbucks face the threat of potential entrants. Starbucks, being the world leader in its industry, has controlled access to distribution channels. Starbucks has exhibited this control over distribution channels by setting guidelines for their suppliers to follow. Starbucks is Fortune's number one most admired company in the food industry. One of their key attributes to success is innovation, where Fortune ranks Starbucks number one in the industry. Starbucks is constantly innovating and showing strong product differentiation in their industry. The industry, following Starbucks' lead, is becoming more differentiated. For example, five months after Starbucks introduced a prepaid Starbucks debit card, Seattle's Best launched its version of the marketing product. This industry differentiation is an opportunity for Starbucks, and a threat to potential entrants. Statistics have shown the industry to be slowing down, therefore making competition high and the threat of new entrants low. Some believe, however, that there is a different kind of potential entry threat. Ted R. Lingle, executive director of the Specialty Coffee Association of America, believes that national food servers like McDonalds and Denny's could create strong coffee menus and become "the strongest competitor for Starbucks' business" (Kembell, 2002).
Another force that Starbucks face is bargaining power of buyers. Starbucks' customers are the buyers. The Preferred Office Coffee Provider is a plan developed by Starbucks in which companies can buy the ingredients and tools necessary to brew "the perfect cup of Starbucks Coffee," in large quantities for their offices. This is the only opportunity found in Starbucks.com for a customer to buy large quantities of their products. Starbucks' typical customer buys small quantities of their products. Products purchased at Starbucks are highly differentiated and unique. It is known that there is an enormous selection of coffees at a Starbucks' coffee shop. At Starbucks.com, it is possible to buy a large number of products, from coffees, ice cream and Frapuccino, to music and coffee mugs. This is an opportunity for Starbucks. Customers will face no switching costs in switching premium coffee suppliers from Starbucks, to, for example, Seattle's Best. This is a threat to Starbucks. Another threat to Starbucks is that their customers have the ability to brew their own coffee. Starbucks has tried to offset this threat by offering Preferred Office Coffee Providers as well as directions on how to make the perfect cup of Starbucks Coffee at home, called the "Four Fundamentals of Coffee". It is clear that Starbucks customers have some bargaining power in the industry (Kembell, 2002).
The industry force bargaining power of suppliers is another force Starbucks must conquer. Coffee is the world's second largest traded commodity. South and Central America produce the majority of coffee traded in the world. Starbucks depends upon both outside brokers and direct contact with exporters for the supply of green coffee. The supply of coffee is affected by weather conditions, and the health of coffee trees. An over-crowded market will give the coffee suppliers bargaining power. According to a 1996 Starbucks Case Profile, the price of the coffee bean could rise in the future due to lower supply, and heightened demand. For the industry, these are alarming threats. The quality of coffee sought by Starbucks is very high, and Starbucks has traditionally paid premium prices for its green coffee. There are no substitute products for the coffee beans Starbucks must buy. This is a potential threat to the company. Starbucks, however, has exhibited how little control its suppliers might actually have. In 2001, Starbucks announced new coffee purchasing guidelines, developed in partnership with The Center for Environmental Leadership in Business. These guidelines are based on the following four criteria: quality baselines, social conditions, environmental concerns, and economic issues. Only suppliers who can meet Starbucks' coffee standards will be able to supply the giant company. The supplying industry to Starbucks, therefore, has few companies. Starbucks will offset this threat by paying a premium of up to ten cents per pound of coffee to vendors based on how well their coffee meets Starbucks' standards. Starbucks has a degree of control over its suppliers in an industry where it is possible for suppliers of premium coffees to have an enormous amount of bargaining power (Kembell, 2002).
D. Summary of External Factors
External Factor Analysis Summary (EFAS Table): Starbucks |
External Factors | Weight | Rating | Weighted Score |
Opportunities | | | |
Global Operations | 0.10 | 4.0 | 0.40 |
Co-branding | 0.10 | 5.0 | 0.50 |
Mergers, joint ventures or strategic alliances | 0.15 | 4.0 | 0.60 |
Product range diversification | 0.10 | 5.0 | 0.50 |
Socially responsible | 0.10 | 3.5 | 0.35 |
| | | |
Threats | | | |
New competitor | 0.10 | 3.5 | 0.35 |
Price wars with competitors | 0.05 | 3.0 | 0.15 |
Taxation | 0.05 | 4.0 | 0.20 |
Product saturation | 0.05 | 4.0 | 0.20 |
Raw material cost rising | 0.20 | 4.0 | 0.80 |
| | | |
Total Scores | 1.00 | | 4.05 |
The External Factor Analysis Summary Table shows Starbucks greatest opportunities and threats. Starbucks has a great opportunity in its mergers, joint ventures or strategic alliances. Along with this opportunity comes co-branding and product range diversification. Starbucks, as a company, is known for taking advantages and making the most out of opportunities. On the other hand, Starbucks face threats such as the rise in raw material. The extreme weather conditions have made a shortage in coffee. This especially poses a threat based on the fact that Starbucks wants to buy the best quality of coffee. Also, Starbucks has to be aware of their competitors. McDonalds has become one of their prime competitors based on their cheap prices they offer to consumer. McDonalds is also international which poses a threat to several different areas.
IV. Internal Environment: Strengths and Weaknesses
A. Corporate Structure
Starbucks firmly believes that their employees are one of their important assets and that it's through their high quality workforce, that they are able to maintain a competitive advantage. They have successfully built a nationwide retail company by creating pride in the labor force produced through an empowering corporate culture; exceptional employee benefits, and employee stock ownership programs. Employees are empowered by management to make decisions without having to first report to management, and are encouraged to think for themselves as an entity of the business. The culture towards employees can be described as 'relaxed' and supportive. Starbucks has avoided a hierarchical organization structure and has no formal organizational chart. It is evident that employees at Starbucks share common goals. An employee was quoted as saying; "We all have this common belief in the product we sell".
B. Corporate Culture
Starbucks coffeehouse cultural value is based on becoming a central part of many neighborhoods by serving as a place for people to gather, talk and share. But Starbucks believes it can contribute even more to local communities, by encouraging their partners to become responsible neighbors and active participants in the places where they live, work and play. It is an important part of our company’s culture and values. They also have a strong belief in helping to improve the lives of coffee farmers and protect the environment where they grow their beans. They have examined many issues that farmers face, including economic challenges and environmental concerns. Commitment to Origins is our way of helping coffee farmers address these challenges while sustaining their farms, being sensitive to the environment and meeting the highest-quality coffee standards (Starbucks, 2005).
C. Corporate Resources
1. Marketing
Proper implementation and execution of a strategic marketing plan is essential to the success of any company. A company may have an ideal product, but without proper positioning, identification of a target market, and a proper marketing plan a company would not be able to successfully market its products to consumers. Starbucks has been successfully able to convert an activity carried out at home to a commercial success through proper implementation and execution of its strategic intent. The firm has been able to convince consumers that its stores provide more than just coffee, but rather a rich experience that they should indulge in on a recurring basis. The company has been able to translate this consumer "experience" of its products into a highly profitable business (Starbucks Marketing Strategy Unconventionally Effective).
The marketing principles, or the four P's, also follow the differentiator marketing strategy. Starbucks is competing in an industry where marketing principles has to follow the differentiator strategy, or it risks losing market share. The company must create value to its customers, or the customers will find another place to spend their money. The marketing principles of Starbucks, can be argued, are the basis of the company's competitive advantage within the industry. Starbucks products are associated with quality, and the company has differentiated itself during the years as being committed to producing high quality products. Because of this association with quality, Starbucks has been able to charge a premium for its product (Starbucks Marketing Strategy Unconventionally Effective).
Until recently, Starbucks did not face the type of competition it is experiencing today. Not too many companies that were as large as Starbucks were in the gourmet coffee business. Starbucks, though its promotions was able to create a perception of a premium gourmet coffee. Originally, this was what gave Starbucks a huge advantage over any potential competitors. The place or location of each outlet is also in line with the company's differentiator strategy. With 17,000 outlets worldwide, Starbucks individualized each outlet based on the surrounding communities. In addition, Starbucks also prides itself on innovation of new products, which further differentiates it from other competitors. Each of these aspects of the marketing principles that Starbucks utilizes helps to contribute to its differentiator strategy (Starbucks Marketing Strategy Unconventionally Effective).
2. Finance
Starbucks historically positioned itself as an upscale brand. Due to the economic downturn and increased competition from large quick-service restaurant chains and specialty retailers, the company saw its profits being eroded. The company introduced new products that would appeal to price-skittish customers and implemented techniques that would standardize its stores and reduce costs. The new strategy carries with it its own risks. Starbucks has been known as the "anti-fast food" chain, and any perception that it is now competing with McDonald's in bare-bone products and services could risk brand devaluation. Starbucks's most loyal customers might start to see its stores as being no different than any other McDonald's store, and move to rival coffee specialty stores or independent coffee shops. The new standardization techniques could also face resistance from Starbucks employees or "partners". Starbucks "partners" might see the new standardization techniques including time saving measures and material cost reduction measures as a way of turning them into robots or factory workers (Bhaskar, 2009).
Since Starbucks enjoyed such a rapid growth in its business, the company expanded anywhere it saw profitability for its stores. This has meant that Starbucks stores are as readily available as McDonald's and as such the Starbucks "experience" the company asserts it provides, might be seen as no different than the experience of McDonald's. As in the case of appealing to mass market with bottomless coffee, Starbucks's core customer might move to other stores where they perceive the "experience" is still being provided (Bhaskar, 2009).
If Starbucks continues its store closing measures and implementation of its various cost cutting initiatives, Starbucks is likely to see increased profitability. The firm has closed over 800 company-operated stores in the United States and approximately 100 stores overseas ("Starbucks Posts Strong Fourth Quarter and Fiscal 2009 Results"). Closures of these less profitable stores will likely increase company's same store sales and profitability. The company is also introducing 100 new stores in US, and 200 new stores in International markets, which might positively affect the company provided they are successful. Aggressive adoption of "no-frills" products to bring in new customers could also affect Starbucks's profitability. Until now, any increase in commodity prices are more or less offset by company's high prices, but a "no-frills" products would put downward pressure on company's profitability, and possibly even damage Starbucks image as an upscale brand (Bhaskar, 2009).
3. Research and Development (R&D)
Starbucks research and development teams are responsible for the technical development of food and beverage products and new equipment. The Company spent approximately $6.5 million, $7.2 million and $7.0 million during fiscal 2009, 2008 and 2007, respectively, on technical research and development activities, in addition to customary product testing and product and process improvements in all areas of its business. Starbucks expenses research and development costs as they are incurred. The Company spent approximately $6.5 million, $7.2 million and $7.0 million during fiscal 2009, 2008 and 2007, respectively, on technical research and development activities, in addition to customary product testing and product and process improvements in all areas of its business (Starbucks Research and Development, 2009).
4. Operations and Logistics
Even though it spread production across a wide territory, transportation, distribution, and logistics made up the bulk of Starbucks' operating expenses because the company ships so many different products around the world. Getting that under control presented a daunting challenge for the supply chain group. "Whether coffee from Africa or merchandise from China, [our task was to integrate] that together into one global logistics system, the combined physical movement of all incoming and outgoing goods," says Gibbons. "It's a big deal because there's so much spend there, and so much of our service depends on that. With 70,000 to 80,000 deliveries per week plus all the inbound shipments from around the world, we want to manage these logistics in one system" (Cooke, 2010).
The creation of a single, global logistics system was important for Starbucks because of its far-flung supply chain. The company generally brings coffee beans from Latin America, Africa, and Asia to the United States and Europe in ocean containers. From the port of entry, the unroasted beans are trucked to six storage sites, either at a roasting plant or nearby. After the beans are roasted and packaged, the finished product is trucked to regional distribution centers, which range from 200,000 to 300,000 square feet in size. Starbucks runs five regional distribution centers in the United States; two are company-owned and the other three are operated by third-party logistics companies (Cooke, 2010).
Depending on their location, the stores are supplied by either the large, regional DCs or by smaller warehouses called central distribution centers (CDCs). Starbucks uses 33 such CDCs in the United States, seven in the Asia/Pacific region, five in Canada, and three in Europe; currently, all but one are operated by third-party logistics companies. The CDCs carry dairy products, baked goods, and paper items like cups and napkins. They combine the coffee with these other items to make frequent deliveries via dedicated truck fleets to Starbucks' own retail stores and to retail outlets that sell Starbucks-branded products (Cooke, 2010).
5. Human Resources Management (HRM)
Starbucks realized early on that motivated and committed human resources were the key to the success of a retail business. Therefore the company took great care in selecting the right kind of people and made an effort to retain them. Consequently, the company's human resource policies reflected its commitment to its employees. Starbucks relied on its baristas and other frontline staff to a great extent in creating the 'Starbucks Experience' which differentiated it from competitors. Therefore the company paid considerable attention to the kind of people it recruited. Starbucks' recruitment motto was "To have the right people hiring the right people” (Starbucks' Human Resource Management Policeies and the Growth Challenge).
Starbucks hired people for qualities like adaptability, dependability and the ability to work in a team. The company often stated the qualities that it looked for in employees upfront in its job postings, which allowed prospective employees to self-select themselves to a certain extent. Having selected the right kind of people, Starbucks invested in training them in the skills they would require to perform their jobs efficiently. Starbucks was one of the few retail companies to invest considerably in employee training and provide comprehensive training to all classes of employees, including part-timers (Starbucks' Human Resource Management Policeies and the Growth Challenge).
Analysts said that Starbucks biggest challenge in the early 2000s would be to ensure that the company's image as a positive employer survived its rapid expansion program, and to find the right kind of people in the right numbers to support these expansion plans. Considering the rate at which the company was expanding, analysts wondered whether Starbucks would be able to retain its spirit even when it doubled or tripled its size. By the early 2000s, the company began to show signs that its generous policies and high human resource costs were reflecting on its financial strength (Starbucks' Human Resource Management Policeies and the Growth Challenge).
Although the company did not reveal the amount it spent on employees, it said that it spent more on them than it did on advertising, which stood at $68.3 million in fiscal 2004. The company was finding its human resource costs burdensome was reflected in the fact that it effected an increase of 11 cents on its beverage prices in mid-2004. Analysts wondered whether the company's cost problems could be met by a price increase, as customers already paid a premium for Starbucks beverages. On the other hand, it would not be easy for the company to cut down on benefits, as it could result in a major morale problem within the company (Starbucks' Human Resource Management Policeies and the Growth Challenge).
6. Information Technology
Starbucks is continuously searching for ways to better a customers' experience. With the introduction of the Starbucks Card for example, the Company has created the opportunity to improve customer service, shorten lines and make a customer's visit at Starbucks quicker and more convenient. Starbucks deploys Blue Martini's order management system to its retailers and channel partners. The system provides Starbucks with the ability to centrally manage and deliver contract-based products and pricing in different languages for its global distribution (Kembell, 2002).
D. Summary of Internal Factors
Overall, Starbucks seems to be a strong, well-established, and well-rounded company. As the industry leader, they have built a strong brand image that has helped them to gain a considerable greater share of the market in comparison to their competitors. Management has shown to have the ability to foresee market trends and changes in consumer behaviors. Management has also created a corporate culture that promotes high productivity levels by their competent employees. Financially, Starbucks is stable despite its rapid and continuous growth strategies. The Company has done well to establish reliable, long-term relationships with suppliers. For the most part, as individual scores indicate, Starbucks is fairly to very capable in most areas of its business. In areas where they do perhaps lack expertise, skills, or competencies, they have formed strategic alliances with companies that can be more efficient and effective.
Internal Factor Analysis Summary (IFAS Table): Starbucks |
Internal Factors | Weight | Rating | Weighted Score |
Strengths | | | |
Operations | 0.10 | 4.2 | 0.42 |
Marketing and Sales | 0.20 | 5.0 | 1.00 |
Customer Service | 0.05 | 4.0 | 0.20 |
Procurement | 0.05 | 3.9 | 0.20 |
Technological Development | 0.05 | 4.0 | 0.20 |
Human Resource Management | 0.10 | 4.5 | 0.45 |
| | | |
Weaknesses | | | |
Dependency on coffee | 0.20 | 3.0 | 0.60 |
Reputation with pressure groups | 0.05 | 3.0 | 0.15 |
Competitors with lower prices | 0.10 | 2.5 | 0.25 |
Seen as "American Global | 0.10 | 3.0 | 0.30 |
| | | |
Total Scores | 1.00 | | 3.77 |
V. Analysis of Strategic Factors (SWOT)
A. Situational Analysis
One of the main strengths of Starbucks are their long range outlook of the company due to its ethical approaches in building relationships with its customers, employees and suppliers. Starbucks always attempts to keep a good relationship with suppliers, treating their customers in the best way in order to gain long-term customer loyalty. Starbucks offers the value proposition that its biggest competitors are not able to deliver to Starbucks’ customer base. Therefore, has a strong position to take advantage during the economic recovery. Starbucks’ always offers high-quality and diversified products and try to come out with new promotional products. They target almost all demographics and offer a variety for everyone, such as organic chocolate milk for toddlers, non-coffee beverages, salads, fruits, snacks, free pastry with a drink, breakfast pair for $3.95, etc. Most importantly, the coffee that Starbucks offers is a great and rich tasting (Nara, 2010).
Along with so many strengths, Starbucks has some weaknesses. Due to high price of their premium coffee beans, Starbucks increased prices of some of their coffee drinks. Therefore, Starbucks lost many of its customers, 20% of coffee-drinkers either have stopped drinking coffee, or they make it at home by using less expensive brewed coffee. Then Starbucks ended up lowering the prices of some of their brewed coffee, and are offering promotions on iced drink in order to either regain those customers, or not lose others. However, it is hard for Starbucks to maintain low prices, since premium coffee beans are always expensive, and it is the number one expense for Starbucks (Nara, 2010).
The best opportunity for Starbucks would be getting a license to open Starbucks coffee shops on University campuses. Starbucks has to expend its existing market segmentation throughout Generation Teens by offering free internet in all Starbucks coffee shops, and new customized drinks, such as blenders with fresh fruits and variety of ingredients that teenagers would have fun and enjoy consuming. Since nowadays going green is a main concern in our lives, Starbucks could meet growing trends by offering environmentally friendly products, such as motivating customers to stay and drink their coffee in house in a ceramic cup vs. plastic cup. And offering free internet would help to attract customers to stay and enjoy their food or drink in the coffee shop (Nara, 2010).
Increasing competitors in the coffee industry consider as major threat as well for Starbucks. The competition in the coffee industry, including restaurants, supermarkets, other coffee shops, and other caffeine based beverages, will always remain one of the main threats. Within the last three years Starbucks gained more competitors entering in their dominated coffee market than ever before. An Increase in competitors in the industry have attracted consumers with tight budgets by offering less expensive coffee beverages. Dunkin’s Donuts and McDonalds recently initiated an invasion of the Specialty Eateries market by competing directly with Starbucks. McDonald’s has introduced their McCafe product line offering a large variety of coffee drinks, such as cappuccino, latte, mocha, premium roast coffee, and many other beverages. McDonalds still wants to expand the McCafe product line, in its future. Another big competitor, Dunkin Donuts, has aggressively engaged into competing against Starbucks in coffee industry, with similar drink products (Nara, 2010).
Strategic Factors Analysis Summary (SFAS) Matrix |
Strategic Factors | Weight | Rating | Weighted Score | Short | Intermediate | Long |
Marketing and Sales (S) | 0.15 | 5.0 | 0.75 | | X | X |
Operations (S) | 0.10 | 4.2 | 0.42 | | | X |
Dependency on coffee (W) | 0.10 | 3.0 | 0.30 | | | X |
Competitors with lower prices (W) | 0.15 | 2.5 | 0.36 | | X | |
Mergers, joint ventures or strategic alliances (O) | 0.10 | 4.0 | 0.40 | | | X |
Co-branding (O) | 0.15 | 5.0 | 0.75 | X | | |
Raw material cost rising (T) | 0.15 | 4.0 | 0.60 | X | | |
New competitor (T) | 0.10 | 3.5 | 0.35 | X | X | |
Total Scores | 1.00 | | 3.93 | | | |
B. Review of Mission and Objectives
Starbucks has literally shaped the culture of America by altering what we’ll pay for coffee, what we eat, where we meet and how people spend their time. Since Starbucks went public in 1992, it became part of the popular culture that extends “beyond the espresso machine to influence the films we see, CDs we hear and books we read.” It definitely met its long range goal of becoming the most recognized brand of coffee in the world. Starbucks has expanded rapidly in number, averaging five stores opening every week, into the 2000s. In recent years however, its endeavor of expansion has been coming to a screeching halt due to the economic downturn. Faced with a rather difficult operating environment, Starbucks announced the closure of 900 under-performing stores since 2008. It’s a part of initiatives that Starbucks has been taking to “enhance long-term fundamentals by slowing growth, controlling costs and investing in traffic-driving [strategy].”Turning the market around will be a gradual transition, but the long term outlook of Starbucks is positive as many investors would agree based on its current financial performance. Howard Schultz’s ongoing drive to reinvent the way Starbucks does its business is another positive attribute to the company that enhances the future outlook of the company (Carmicheal, 2010).
VI. Strategic Alternatives and Recommended Strategy
It would be recommended that Starbucks differentiate themselves from the others in the market. The differentiation strategy would allow Starbucks to establish a clear difference between themselves and their competitors. They must create a perception that the customer is actually receiving superior value from a Starbuck's product that cannot be provided by Tim Horton's, Panera Bread or Dunkin Donuts. This can be accomplished by focusing on providing superior customer service and reinforcing the idea that they are providing the highest quality products in the industry. Differentiating themselves successfully from the competition will provide Starbucks with a competitive advantage and allow them to charge a premium for the products and services (Hunger, 2010).
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