CaseStudy for Starbucks
CaseStudy for Starbucks
Starbuckswas founded in 1987 and over the years, it has established itself onthe global stage as a formidable force in roasting, marketing anddistribution of specially formulated coffee around the world. As ofApril 2012, Starbucks had well over 17,000 stores operating in 55countries around the globe. With such an extensive network, it wasprojected that annual revenues in the 2012 fiscal year will likelyexceed the $13 billion mark. The global economic crisis witnessed inthe years that followed 2009 affected the revenues of Starbucksnegatively.
Thedwindling sales made the company resort to measures leading to theclose of 800 stores that were found to be performing poorly in theUnited States. Further, 100 more stores operating in other countrieswere closed down. The expansion strategy was also halted. Anestimated 7,000 employees were also retrenched in a bid to cut downon costs. As a result, the premier company in coffee roasting hasstruggled to gain the prominence that it once enjoyed. However, thereare still opportunities that Starbucks can leverage in the face ofcompetition from substitutes such as tea to maintain its global gloryof being the coffee makers of choice. This paper will analyze theStrengths, Weaknesses, Opportunities, Threats (SWOT) of Starbucks toinform its strategic management approach. It will also examine theenvironmental efforts of Starbucks. Also, viable strategies will berecommended for the company.
Thereal advantage of Starbucks is that it boasts a strong marketposition and enjoys a global brand recognition. In fact, it is themost recognized name in the coffee making industry. As of 2012, thecompany had operational stores in about 55 countries across theglobe. Effectively, Starbucks should take advantage of their preciousbrand to market and license their products in international markets.This gives them a competitive edge even with the threat of entry ofnew players. Their distribution channels are also efficient, and theyhave managed to foster working relationships with suppliers.
Tokeep the quality of its products high enough, the company has avoidedfranchising at all costs. They have attached a premium on quality andhave restrained themselves from quality standardization tendencieseven when it means high production capabilities. The appealing natureof their stores is also an advantage for the company. The visualappeal demonstrates their approach in striving to attain highstandards in everything they do.
Eachstore is viewed in the light of a billboard and also as a contributorto the image of the company. In 2009, the company also introduced anew design approach for its global stores. This design strategy wasaimed at appreciating the locally available materials in theirinternational markets. The environment is friendly as smoking is notallowed and employees are restricted from wearing perfumes to makesure that the aroma in the background is purely that of coffee.
Theyhave an active human resource management system. Starbuck employeesare highly regarded. They are seen as the primary assets of thecompany and for this reason the management has undertaken measuresto ensure that they remain motivated throughout. There is ahealthcare coverage for all employees including those working on apart-time basis. There is also a stock option available for allemployees. Employees are motivated with competitive compensation paypackages.
Dueto the social responsibility initiatives of the company, there is agood will among consumers. The company has set out a mission toensure that while it maintains the desire to be profitable, itssocial responsibility is not neglected. All its products are sourcedin a manner that is ethical. In this bid, the company strives toinculcate responsible growing practices among its farmers. Starbucksonly deals with suppliers who demonstrate social responsibility. Thecompany has strict policies to ensure that no genetically modifiedingredients find their way into its products. The company providesthat the prices at which it buys green coffee from their farmers arehigh enough for them to meet production costs and also allow them toprovide for their families.
TheStarbucks Card introduced in 2008 has inspired loyalty amongconsumers. The card has been integrated with Starbuck mobileapplication to ensure that customers enjoy services in a manner thatis convenient for them. Product differentiation is another strengththat the company enjoys. There is a diverse range of goods from teato coffee and spices. In 2008, Starbucks introduced a new productcalled "Pike Place" that brewed in all its stores aroundthe clock. Customers prefer variety, and Starbucks is always workingto ensure that it is given to them.
Starbuckshas concentrated so much on the United States market. A vast majorityof its stores are located in the United States. Following the periodof global financial crisis, many of these stores were underperformingand the company resorted to closing them down. It is reported that inthe United States alone, 800 stores were closed because ofunderperformance. Revenues tend to dwindle for Starbucks especiallyin times of economic sluggishness because the company finds itnecessary to shift the burden to the consumers making their productsexpensive.
Theirpricing strategies are solidly anchored on the supply and demandpolicies. When some essential materials are low and the demand high,the company adjusts its pricing accordingly. Sometimes this makestheir products very expensive, and some consumers may have no otheroption but to turn their attention to substitute products from thecompetitors who may be offering them at competitively low prices.Some countries engage in quota restrictions, and this may affect thesupply of unroasted coffee to Starbucks.
Thebid to expand in other international markets may meet resistancebecause there is likelihood that some cultures do not allowconsumption of such products as coffee. If this is anything to go by,their international expansion strategy may suffer a significant blow.The company also faces challenges in trying to walk a balanced pathbetween profitability and social responsibility.
Oneof the possibilities available for Starbucks is expansion intoanother international market. The company is large and enjoyssuperior brand recognition over the competition. Relying on theUnited States has proved untenable in the long run, and this is areason the company needs to get out there and explore other options.There is growing need for the company to leverage their brand valueand expand their market well beyond the United States and Asia.
Starbuckshas already embarked on measures to make it technologically relevant.In 2008, the company introduced a Starbucks Card that can be used bycustomers to earn loyalty points and this has inculcated loyaltyamong consumers. To ease transactions for the customers, the companyshould intensify its technological efforts to provide even moreuser-friendly methods of accessing their services.
Thetastes and preferences of customers are continuously changing. What acustomer liked yesterday may not be what they will like tomorrow. Forthis reason, the company must strive to ensure their products aredifferentiated according to the needs of the customers. This is agreat challenge for any business. Global economic events such as theeconomic recession that were witnessed in 2008 affect the company.During such like times, revenues tend to dwindle as was observed atStarbucks after 2009.
Thereis increased the threat of competition from players such asMcDonalds. Increased competition will reduce the market share ofStarbucks. With few restrictions in the market, there is also thethreat of new entrants. This will lead to market saturation andimpact negatively on the revenues of Starbucks. Price volatility inthe market especially with some countries imposing quota laws hassometimes diminished the supply of unroasted coffee. This makes thecompany adjust their commodity prices on the supply. Sometimes thecost is pushed to the consumer making Starbuck`s products expensive.
Ithink Starbucks are serious in their environmental efforts. In 1997,the company developed content cups that could be recycled. The yearsafter this, they also came up with a plastic cup that was heralded tobe a more environmentally friendly alternative. Discount Incentiveswere also given to those customers who remembered to bring theirrecyclable cups back to Starbucks. In 2009, reports indicated thatthe company had sold well over 5 million beverages using reusablecups more than the figure in the previous year (Taylor, 2011). Theirstore designs have adopted an approach that utilizes locallyavailable materials. In most cases, these materials are recyclable.To minimize energy consumption at their stores, the company hasimplemented an LED lighting systems in collaboration with GE Consumer& Industrial. As a result of its environmental efforts, Starbucksis ranked in the Fortune 500 companies that green (Taylor, 2011).
Theinternational segment presents the biggest opportunity to Starbucksfor growth. Coupled with their superior brand over the competition,the company should leverage this to increase its market share. Itsgrowth strategy in the United States should draw focus on enteringareas that are untapped especially in the rural places. To furtherenhance the loyalty of customers, Starbucks ought to implement astrategy that will see services delivered at the doorsteps ofcustomers. Payment services need to become more streamlined. Theadoption of the mobile application and the Starbucks Card is the bestway to start. More innovative ways can be adopted to bringconvenience in payments and access of services to the customer. Thecompany has also not invested enough in marketing and advertising.Initiatives towards this should be immediately adopted to increasethe brand awareness especially in the areas that remain untapped.
Inconclusion, Starbucks is a global company boasting a brand andcustomer loyalty not witnessed among its key competitors. The companyis profitable but for this to remain so, at least in the long run,the company needs to undertake measures to ensure that its relevancein the market is not in jeopardy as a result of increasingcompetition in its area so specialization. There is the need to buildits profit drivers continually around the strengths and opportunitiesdiscussed in this paper while at the same time working around theirweaknesses and threats.
Taylor,S. (2011). Starbucks Spreads the Spirit of Giving with CARE.Advertising& Society Review,9(1).http://dx.doi.org/10.1353/asr.2008.0004