The major strengths of Starbucks lie in its philosophy of continuous improvement. The company had been attempting to improve its functions throughout its lifetime.
Starbucks has become a preferred place of work for its employees. Starbucks has been providing adequate and attractive employee benefits to its members. This facility has not only benefitted and pleased the current staff at Starbucks, but has also helped in getting a better pool of recruits at every hiring process. The social media campaigns led by Starbucks are also very effective. One such campaign is the launch of Starbucks Instant Coffee. The product was introduced to the social media by a video that showed a Wall street Journal reporter interviewing customers coming out of a Starbucks outlet. These customers were holding new samples of Starbucks Instant coffee and they were being questioned by the reporter about the taste of the new Instant Coffee. Starbucks has put its focus right on the use of social media tools and internet to promote its brand in its target audience. It has launched an interactive website named, MyStarbucksIdea.com. This website acts as a platform for all Starbucks customers who can visit the site and contribute with their valuable opinions and suggestions at different forums. The new president responsible for global development of Starbucks has been planning to renovate all the Starbucks according to different themes. The themes would depend upon the local culture and traditions of the local community of the place where the store is situated. Starbucks is also attempting to stop the practice of frequent store openings and closures. The unprofitable Starbucks stores are continuously monitored and finally removed out of the business equation. This has made it possible to focus energies and strategies on the stores that bring in the most revenue or are the most profitable ones for Starbucks.
Starbucks has focused more on opening and launching new stores and outlets rather than focusing their attention on the present ones. Extensive geographical presence seems to be an important objective at Starbucks. To emphasize the significance of this attitude it is enough to cite that only in the year 2007, Starbucks had launched 2571 outlets around the different cities of the country. This focus on increasing geographical presence somehow leaves the focus on customer satisfaction, product improvement, profitability of the business and sustainable competitive advantage at the back. The Starbucks experience got lost in its race to jump in the coffee business and do all that its competitors were doing. Starbucks outlets were an integral part of Starbuck’s experience. They offered people a place that can be like home even far away from home. It had lounges, where friends and families could come together and talk, which is usually not possible at places of work or even at homes.
Social media industry is rapidly developing at a fast pace. All these major companies and even small businesses make themselves visible at the social media platforms. The attraction of being low cost and wide reach tools, these websites provide a promise of instant recognition, once a thing goes viral. Vital content is that which is quickly forwarded to other users over the internet. The content can be dynamic, videos, pictures, or even text. If the audience is intrigued, they will definitely share it with their social circles. Moreover, within no time, news or a message has been spread to a wide range of audience without any company efforts in doing so. Such is the power of social media. Another aspect the social media marketing is that content should be developed with the focus of people and not the product itself. The product will sell, if people realize that the company cares for them and streamlines its operations according to the customers’ demands and preferences and not according to the business choices made by senior management or the board of the company. Similar to the social media trend is the trend of smart phone applications. Almost all the customers require that their phone have the latest and the best apps. The location-basedservices make it possible to search and find a nearby Starbucks shop with relative ease. Another opportunity available to a Starbucks is the strategic option of alliance with retail and grocery stores. If Starbucks starts selling its products like other brands at general grocerystores, it is possible that it becomessuccessful in tapping another customer segment that was previously unreachable through specialty stores. Grocery stores offer a different characteristic and benefit of convenience to its customers. Moreover, these customers are not very likely to spend a lot of time in a comfortable cozy environment enjoying coffee. They may like the idea of having a coffee while they shop or while they wait for their turn at the counter.
The recent economic recession of 2007 onwards has left many businesses in tough waters. Cost cutting and cutting down other extra facilities provided is a common practice now. Firms have to become more cost efficient in order to deliver their customers a cheaper version of the same product they used to deliver before. Consumer trends are changing, and they arenow spending far less on luxuries and concentrating their bucks on the major necessities of their lives. The new brand of Starbucks launched as Instant Via is an instant packaged version of the coffee that is brewed in stores. Although it has claimed to taste similar to the freshly brewed store coffee, it does not come up to that quality. Also Instant Via has been launched at a premium price, whereas other coffee sellers are selling their similar products at far less prices in such stores. Customers prefer to buy other brands, in the absence of any strong brand loyalty.
The political condition for businesses and corporation has, for the most of time remained favorable in American economy. The government has always supported local business ventures, realized the importance of such corporate giants in developing, and sustains American economy. American government has also supported the consumer market segment, which benefitted Starbucks in a great deal. However, it is important that the company make efforts on its own to follow the political and legal decorum and keep it low with the authorities, not to offend the law. According to Kotler, the management of Tim Horton was unsuccessful in establishing friendly and amiable relations with the Canadian government. Instead of following the general norms of the business,they tried to stand apart by trying different new strategies, which ultimately led him to nowhere. Such experiments can be turbulent for a company especially at the time of economic recession. Such political feats damaged the company and it was no longer regarded as the best coffeehouse of the country.
The economic environment for Starbucks is favorable because Americans have more disposable income at their discretion then does their counterparts in other countries. The consumption-oriented society loves coffee. The weather and the social norms all support and boost the consumption of coffee in America. Starbucks has now started to select carefully the new locations for its business and it looks for the economic affordability of the residents of that place.
The social approval of Starbucks is enviable. People recognize Starbucks and affiliate with it. It is the coffee and the experience that they relate. Starbucks has created a niche for itself in the market by offering a comfortable, secure and highly equipped atmosphere in its stores along with an amazing freshly brewed coffee. Americans are high at socializing. Business meetings, hangouts, get together are every day’s routine. Places such as Starbucks provide for these needs away from the stress and anxiety of office.
New and advanced technologies are being introduced every day that makes the process of selecting, storing, transporting and brewing the best coffee possible in a number of ways. There have been many biotechnical developments in the field, whichincreased and improved coffee production, to fulfill the needs of a growing marketplace. Developments and innovation in agricultural practices has also positively influenced the coffee business inAmerica.
Industry Analysis –Porter’s Five Forces
Bargaining power of Suppliers
The suppliers have strong bargaining power due totheir strength of producing coffee beans for a global market with high levels of demand. In addition, coffee beans are produced in very few places of the world. Governments have been doing efforts to protect the coffee farmers in African countries
Bargaining Power of Buyers
The bargaining ability of buyers is also very high. This is because there are many alternatives available in the market and there is almost no switching cost of changing a coffee brand. Buyers can very easily switch from one brand to the other without any significant search or switching costs.
Competition is stiff due to the presence of many coffeehouses such as Dunkin Donuts, McDonalds, and Caribou Coffee. In addition, many others provide instant coffee sachets such as Nescafe(Cooper, 2013).
Threat of Substitutes
Threat of substitutes is also high. There are several drinks and alternatives available in the market such as tea, juices etc. that can be used to satisfy a sudden impulse. Moreover, many places are available for people who want to hang out with their friends at outdoor locations.
Threat of New Entrants
Although the level of threat in other components of the Porter’s analysis of Starbucks has shown a high level, but as far as the threat of new entrants into the marketplace is concerned, it is low. The market is already saturated with a number of giant coffeemakers and many other small ones that complement their products with coffee. In addition, the market would now require substantial capital investment for any new entrant to come up to the level of Starbucks and compete heads-on with it.
Resources, Capabilities, Competencies for Competitive Advantage
The major Competitive advantage of Starbucks is its premium quality coffee that it offers. The level and quality is difficult to be matched by others because Starbucks has built its business primarily on the premises of luxury with coffee. Another competitive advantage that it commands over its competitors is the luxurious services that it offers in its store A complete ambience is created to lure customers in, and make them stay longer.Starbucks has substantial resource availability, as it has been expanding rigorously since the time it incepted. It has increased its geographical presence many folds since its establishment.
Competition of Starbucks
The major competitors of Starbucks in United States include Dunkin Donuts, McDonalds and Krispy Kreme Doughnuts. Dunkin Donuts as managed to sustain its name in the international market for very long now. Its specialty is its coffee and the scrumptious donuts it produces to go with the coffee. Its strength is the level of specialty it offers, which enables it to charge a premium price for its products. Dunkin Donuts competitive advantage over Starbucks is its business format of franchising. On the other hand, Starbucks buys and manages its own personal outlets, which become a problem in unprofitable circumstances. McDonald’s is another brand that threats Starbucks in the global environment. The company has always been experimenting with new and improved menus and has left almost nothing as a gap for competitors. The specialty coffee McCafe offered by McDonalds is an example of how the company will leave no stone unturned. In addition, the price level is lower than that of Starbucks or even Dunkin Donuts, because McDonalds has built upon this concept of affordable food for all. Krispy Kreme Doughnuts is a well-established brand of premium quality doughnuts and beverages, sweets and other sorts of treats. The organization has expanded its operations to 97 company owned stores and 651 franchises. Krispy Kreme is primarily known for its doughnuts. The contribution of coffee sales in the total sales of the company is almost four percent. However, the company has planned to change the situation, and bring coffee among its higher revenue generating products. Their promotion plans for the future include competing heads-on with Starbucks, which specializes in the coffee market.
Starbucks Swot Analysis
Starbucks SWOT Analysis
Starbucks Corporation, founded in 1971, is a retailer of specialty coffee. Starbucks retails a variety of drip brewed coffee, espresso-based hot drinks, other hot and cold beverages, complementary food items, coffee-related accessories and equipment, teas, ice cream, and items such as mugs, coffee beans, and music and other non-food products through retail stores in approximately 39 countries worldwide. The company operates primarily in the US. It is headquartered in Seattle, Washington and employs about 150,000 people. Starbucks mission is “To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time” (www.Starbucks.com). Top management believes in involvement in the activities of the corporation and employees enjoy unsurpassed benefits in the industry. Schultz strongly believes that Employee satisfaction is directly related to customer satisfaction.
The company recorded revenues of $7,787 million during the fiscal year ended October 2006, an increase of 22.3% over 2005. The operating profit of the company was $894 million during fiscal year 2006, an increase of 14.5% over 2005. The net profit was $564.3 million in fiscal year 2006, an increase of 14.1% over 2005. Its very strong financial position allows it to expand aggressively domestically and internationally.
In regards to the coffee bean market, although it has endured much criticism for its purported monopoly on the global coffee-bean market, Starbucks only accounts for roughly two percent of global coffee production. According to Starbucks, they purchased 4.8 million pounds of Certified Fair Trade coffee in fiscal year 2004 and 11.5 million pounds in 2005. They have become the largest buyer of Certified Fair Trade coffee in North America, 10% of the global market, and the only company licensed to sell Certified Fair Trade coffee in 23 countries.
Starbucks Corporation is a very profitable organization, earning in excess of $700 million in 2006. It is a global coffee brand built upon a reputation for fine products and services. Due to its specialization in all things coffee, it achieves high buying volumes, and utilizes international sourcing, some from fair trade suppliers. It has almost 9000 cafes in almost 40 countries. Starbucks was one of the Fortune Top 100 Companies to Work For in 2007, ranked at number 16 (www.money.cnn.com). The company is a respected employer that values its workforce. The organization has strong ethical values and an ethical mission statement as follows, “Starbucks is committed to a role of environmental leadership in all facets of our business” (www.starbucks.com). It has a strong brand image associated with high quality coffee and excellent customer service. The company franchises and licenses 6,500 shops and has developed excellent skills in franchise management.
Starbucks has a reputation for...
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