Strategic Management

Individual Report- Himanshu Aggarwal

Starbucks Corporation


Introduction

About Starbucks Corporation

Starbucks Corporation is an American global coffee company and coffeehouse
chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in
the world, with 20,891 stores in 62 countries, including 13,279 in the United States,
1,324 in Canada, 989 in Japan, 851 in the People's Republic of China, 806 in the
United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in the
Philippines, 179 in Turkey, 171 in Thailand, and 167 in Germany.

Starbucks locations serve hot and cold beverages, whole-bean coffee, micro ground
instant coffee, full-leaf teas, pastries, and snacks. Most stores also sell pre-packaged
food items, hot and cold sandwiches, and items such as mugs and tumblers. Starbucks
Evenings locations also offer a variety of beers, wines, and appetizers after 4pm.
Through the Starbucks Entertainment division and Hear Music brand; the company
also markets books, music, and film. Many of the company's products are seasonal or
specific to the locality of the store. Starbucks-brand ice cream and coffee are also
offered at grocery stores.

From Starbucks' founding in 1971 as a Seattle coffee bean roaster and retailer, the
company has expanded rapidly. Since 1987, Starbucks has opened on average two
new stores every day. Starbucks had been profitable as a local company in Seattle in
the early 1980s but lost money on its late 1980s expansion into the Midwest
and British Columbia. Its fortunes did not reverse until the fiscal year of 1989-1990,
when it registered a small profit of $812,000. By the time it expanded into California
in 1991 it had become trendy. The first store outside the United States or Canada
opened in Tokyo in 1996, and overseas stores now constitute almost one third of
Starbucks' stores. The company planned to open a net of 900 new stores outside of the
United States in 2009, but has announced 300 store closures in the United States since
2008. (Wikipedia , 2014)


Mission Statement: to inspire and nurture the human spirit one person, one cup
and one neighborhood at a time.

Here are the principles of how we live that every day:

Our Coffee
It has always been, and will always be, about quality. Were passionate about
ethically sourcing the finest coffee beans, roasting them with great care and
improving the lives of people who grow them. We care deeply about all of this; our
work is never done.


Our Partners
Were called partners, because its not just a job, its our passion. Together, we
embrace diversity to create a place where each of us can be ourselves. We always
treat each other with respect and dignity. And we hold each other to that standard.

Our Customers
When we are fully engaged, we connect with, laugh with and uplift the lives of our
customers even if just for a few moments. Sure, it starts with the promise of a
perfectly made beverage, but our work goes far beyond that. Its really about human
connection.

Our Stores
When our customers feel this sense of belonging, our stores become a haven, a break
from the worries outside, a place where you can meet with friends. Its about
enjoyment at the speed of life sometimes slow and savored, sometimes faster.

Our Neighborhood
Every store is part of a community, and we take our responsibility to be good
neighbors seriously. We want to be invited in wherever we do business. We can be a
force for positive action bringing together our partners, customers and the
community to contribute every day. Now we see that our responsibility and our
potential for good is even larger. The world is looking to Starbucks to set the new
standard, yet again. We will lead.

Our Shareholders
We know that as we deliver in each of these areas, we enjoy the kind of success that
rewards our shareholders. We are fully accountable to get each of these elements right
so that Starbucks and everyone it touches can endure and thrive.
We fulfill this mission by a commitment to:
Understanding of environmental issues and sharing information with our
partners.
Developing innovative and flexible solutions to bring about change.
Striving to buy, sell and use environmentally friendly products.
Recognizing that financial responsibility is essential to our environmental
future.
Instilling environmental responsibility as a corporate value.
Measuring and monitoring our progress for each project.
Encouraging all partners to share in our mission. (Starbucks Corporation ,
2014)


Objectives of the study
To study the SWOT analysis of Starbucks
To study the Michael Porters Five forces analysis of Starbucks
To discuss the value chain of Starbucks
To study different strategies of the company
To study the PESTLE analysis of the company








Literature Review

Starbucks Core Competence
Starbucks believes in leveraging its cornerstone products by using differentiation
strategies for the premium product mix it offers. The brand equity of Starbucks is the
unique Starbucks Experience it provides along with selling the finest quality of
coffee and other related products. The service of Starbucks is one of the best services
in the world and it has really neat and clean surrounding which has helped Starbucks
to create a loyal customer base and cult following. The company has a very good
human resource management system and it shares very good relations with its
external as well internal stakeholders. (Geereddy, 2013)

THE STARBUCKS MODEL

Howard Schultzs goal is to: Establish Starbucks as the premier purveyor of the
finest coffee in the world while maintaining uncompromising principles as we grow.
The companys 25-year goal is to become an enduring, great company with the most
recognized and respected brand in the world, known for inspiring and nurturing the
human spirit. The companys mission statement articulates several guiding principles
to measure the appropriateness of the firms decisions. In describing Starbucks
unique approach to competition, Fortune notes:

The strategy is simple: Blanket an area completely, even if the stores cannibalize one
another's business. A new store will often capture about 30% of the sales of a nearby
Starbucks, but the company considers that a good thing: The Starbucks-everywhere
approach cuts down on delivery and management costs, shortens customer lines at
individual stores, and increases foot traffic for all the stores in an area. Last week 20
million people bought a cup of coffee at a Starbucks. A typical customer stops by 18
times a month; no American retailer has a higher frequency of customer visits. Sales
have climbed an average of 20% a year since the company went public. Even in a
down economy, when other retailers have taken a beating, Starbucks store traffic has
risen between 6% and 8% a year. Perhaps even more notable is the fact that Starbucks
has managed to generate those kinds of numbers with virtually no marketing,
spending just 1% of its annual revenues on advertising. (Retailers usually spend 10%
or so of revenues on ads.) (Glassman, 2003)

Securing the finest raw materials- Starbucks coffee quality begins with the
purchase of high-quality arabica coffee beans. Although many Americans
were raised on a commodity-like coffee made from lower quality robusta
beans (or arabica beans mixed with less- expensive filler beans), Starbucks
coffee is strictly arabica, and the company ensures that only the highest quality
beans are used. (Glassman, 2003)

Vertical Integration- Roasting the coffee bean is close to an art form at
Starbucks. Starbucks currently operates multiple roasting and distribution
facilities. Roasters are promoted from within the company and trained for over
a year, and it is considered quite an honor to be chosen. The coffee is roasted
in a powerful gas-fired drum roaster for 12 to 15 minutes while roasters use
sight, smell, hearing and computers to judge when beans are perfectly done.

The Starbucks Experience- According to Schultz, Were not just selling a cup
of coffee, we are providing an experience. In order to create American coffee
enthusiasts with the dedication of their Italian counterparts, Starbucks
provides a seductive atmosphere in which to imbibe. Its stores are distinctive
and sleek, yet comfortable. Though the sizes of the stores and their formats
vary, most are modeled after the Italian coffee bars where regulars sit and
drink espresso with their friends.

Building a unique culture- While Starbucks enforces almost fanatical
standards about coffee quality and service, the policy at Starbucks towards
employees is laid-back and supportive. They are encouraged to think of
themselves as partners in the business. Schultz believes that happy employees
are the key to competitiveness and growth. (Glassman, 2003)

Leveraging the brand

Multiple channels of distribution- Besides its stand-alone stores, Starbucks has
set up cafes and carts in hospitals, banks, office buildings, supermarkets and
shopping centers. Other distribution agreements have included office coffee
suppliers, hotels, and airlines.

Brand Extensions- In 1995, Starbucks launched a line of packaged and
prepared teas in response to growing demand for tea-houses and packaged t
ea. Tea is a highly profitable beverage for restaurants to sell, costing only 2
cents to 4 cents a cup to produce. (Glassman, 2003)


SWOT Analysis of Starbucks

Strengths

Strong Market Position and Global Brand Recognition: Starbucks has a
significant geographical presence across the globe and maintain a 36.7%
market share in the United States and has operations in over 60 countries.
Products of the Highest Quality: They give the highest importance to the
quality of their products and avoid standardization of their quality even for
higher production output.
Location and Aesthetic appeal of its Stores: Starbucks has stores in some
of the most prime and strategic location across the globe. They target
premium, high-traffic, high-visibility locations near a variety of settings,
including downtown and suburban retail centers, office buildings,
university campuses, and in select rural and off-highway locations across
the world.
Human Resource Management: Starbucks is know for its highly
knowledge base employees. They are the main assets of the company and
they are provided with great benefits like stock option, retirement accounts
and a healthy culture. This effective human capital management translates
into great customer services. It was rated 91st in the 100 best places to
work for by Fortune Magazine.
Goodwill among consumers due to Social Responsibly Initiatives: Their
stores are community friendly, focused on recycling and reducing waste.
They build goodwill among communities where they operate.13
Diverse Product Mix: Starbuck portfolio of products given in Appendix 8,
that caters to all age groups demographic factors.14
Use of Technology and Mobile Outlets: Starbucks efficiently leverages
technology with its mobile application Starbucks App in both apple and
android softwares. They make significant investments in technology to
support their growth every year.15
Customer base loyalty: Starbucks has cult following status among
consumers and they have also implemented loyalty-based programs to
drive loyalty with the Starbucks Rewards programs and Starbucks Card.



Weaknesses
Expensive Products
Self-Cannibalization through overcrowding
Overdependence in the United States market
Negative large corporation image
American/European coffee culture clash with that of other countries

Opportunities
Expansion into Emerging Markets
Expanding Product mix and offerings
Expansion of retail operations
Technological advances
New distribution channels
Brand extension

Threats
Increased Competition
Price Volatility in the Global Coffee Market
Developed Countries Market Saturation
Developed Countries Economy
Changing Consumer tastes and lifestyle choices (Geereddy, 2013)




Value chain analysis of Starbucks



Primary Activities

Inbound Logistics: Company agents choose coffee beans producers mainly in
African continent and then they communicate the standards related to the quality of
coffee beans followed by the establishment strategic relationships with suppliers and
organizing the supply-chain management. (Geereddy, 2013)
Operations: Operations of Starbucks are present in more than 50 countries in two
ways: direct operation of the stores by the company and licensing.
Outbound Logistics: Starbucks sells its products through its stores without any
intermediates. However, they have started a range of products such as instant coffee
mix and bottled cappuccinos that are being sold through a set of supermarkets and
hypermarkets giants.
Marketing and Sales: Starbucks relies on the word of mouth rather than investing
heavily in marketing and promotion by providing high quality of products and
superior level of customer services. However, occasionally they distribute samples of
new products in the area that is nearby their stores.
Service: Providing superior level of customer services is one of the Starbucks main
objectives and it is driven from the mission statement of the company. Accordingly,
the company staffs are trained and encouraged to dig deeper in order to ensure the
best level of consumer satisfaction. (Geereddy, 2013)


Support Activities

Infrastructure: Like every other company Starbucks infrastructure includes a range
of general support activities ranging from management, planning to finance,
accounting, legal support and government relations that are required to support the
work of the entire value-chain.
Human Resource Management: Starbucks perceive their workforce as their most
valuable resource. Starbucks provides a wide range of training and development
programs for them and make them feel motivated by both, tangible and intangible
incentives. In a few countries Starbucks staff is entitled to free drinks during the shift.
Technology development: Starbucks ensures the consistency of quality of services
and products by relying on technology for cost-saving purposes. They introduced
computerized coffee roasters for the consistent taste of Starbucks coffee that has
contributed to the level of customer retention for the company.
Procurement: This process involves the purchasing of items that are needed for the
production of final products or offering services such as coffee beans and raw food
items, as well as fixed assets such as buildings, machinery etc. (Geereddy, 2013)

MICHAEL PORTER'S FIVE FORCES

Rivalry Among Existing Competitors
Rivalry is really intense within the industry as Starbucks survives in with major
competitors like Barista, Costa, McDonalds, Caf Coffee Day and Dunkin Donuts
and various others small local coffee shops and cafes.

Bargaining Power of Buyers
The customers of Starbucks possess a large amount of bargaining power because
there is no or minimal switching cost for customers, and there is a variety of offers
available for them but Starbucks has implemented loyalty program i.e. the service
provided by Starbucks to its customer is top notch and the environment that it gives is
an experience in itself. Starbucks has achieved the loyalty of its customers, which has
helped them to reduce the buyer power. (Geereddy, 2013)


Bargaining Power of Suppliers
Starbucks directly buy the coffee beans from the producing countries i.e. Latin
America, Pacific Rim and East Africa. The power of suppliers in case of Starbucks is
limited. It would not be wrong to say that suppliers need Starbucks as much as
Starbucks needs its suppliers.

Threat of Substitutes
There is a threat of substitute products and services for Starbucks, specifically,
substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy
drinks, whereas restaurants, pubs and bars can be highlighted as substitute places for
customers to socialize.

Threat of New Entrants
The threat of new entrants to the industry to compete with Starbucks is considerably
low as the specialized beverages market is highly saturated and a substantial amount
of financial resources associated with buildings and properties are required to make a
noticeable entry. (Geereddy, 2013)


PESTLE ANALYSIS OF STARBUCKS

Political
The withdrawal of the USA from the International Coffee agreement which sets a
limit of coffee exportation could have a major influence on Starbucks operations
(Thomson, Shah & Thomas, 2006). Additionally, the instability and price fluctuation
from coffee producing countries also or coffee organization largely affect Starbucks
buying behavior and production.

Economical
Inflation rates in countries where Starbucks operates often results to low sales
performance. Customers may not be able to afford the cost of buying a cup of coffee.
These economic financial rates or even recessions could cause customers to set
priorities for their spending, placing their important needs first when spending. Slow
economic growth and demography factors like taste and cultures might result to poor
spending thereby influencing the sales of Starbucks.

Social
Starbucks brand image is increasing in many countries with the perception of its
customers that other customers are of high social class therefore; patronizing
Starbucks could permit them to meet people of their social status. (Uwakwe, 2013)



Technological
Starbucks adoption and reliance on technology for quality service has been able place
the company to achieve an efficiency mark and commendations from its customers.
The company to innovate and research for new products and ways of delivery also
uses technology.

Legal
Health and safety regulations from different governments pose certain business
restrictions that influence Starbucks operations and turnover in different countries.

Environmental
Starbucks are sometimes faces environmental pollution and waste management
regulations and restrictions from diverse governments or countries they operate.
Starbuck is faced with challenges of obtaining permission or authorization to establish
brewing plants or manage production waste. Some countries implement tough and
strict environmental policy for businesses like Starbucks. (Uwakwe, 2013)


MARKETING STRATEGY OF STARBUCKS
Starbucks strategy adoption was designed out of the aim of providing customers with
exquisite products or services out of the range of its competitors at the same price of
higher price. The strategy is carried out through segmentation, targeting and
positioning.

Segmentation
Before the inception of Starbucks, there were other coffee shop that existed, but the
need for Starbucks to be unique or different from its competitors was an important
task Schulz who was then a marketing executive.
Schulz idea was to design an Italian coffee bar with new additional specialty products
and services that would create a connection within customers as a third place where
they can relax with a cup of coffee and interact with social life outside their office or
homes.


Targeting
Starbucks targeting strategy was based on developing a personal relationship with its
customers. Office workers were the major target audience with middle and high
income earners who desire to buy premium products and share similar social lifestyle.
Different products and services were designed for different segments based on prices,
additional or quality of services.

Positioning
After Schulz acquired Starbucks, he replaced the old typical transaction dealings by a
concept he called the relationship marketing. In this case, he changed the
perspective of customers with the introduction of additional services couple with
unique coffee shop rebranding approach, placing Starbucks to be different from every
other regular coffee shop. The success of this strategy was based on employees
involvement, use of attractive furnitures and customers perception on social class.
Starbucks Unique Selling Proposition
Starbucks unique selling proposition was derived out of the need to differentiate its
products and services from the competition with a strong pull on its consumer.
Starbucks USP is communicated in a memorable message that can be easily
understood. (Uwakwe, 2013)

































Conclusion

The report provides an overview of Starbucks Corporation and how it implies various
strategies in the market. We did a Pestle analysis of the company to find out what are
the different factors that influence the company. Michael Porters Five Forces
analysis showed the current position of Starbucks in the market. We carried out a
SWOT analysis to find out the challenges and opportunities that Starbucks has to
work upon to maintain its dominance in the market. We studied various strategies of
Starbucks and how it is different from other companies. Starbucks creates a unique
distinctive advantage for itself and Starbucks experience to be particular is its unique
selling proposition. The company enjoys differential advantage as it has created a
loyal customer base, which is because of the experience offered by Starbucks.




































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