Starbucks Strategy Analysis

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Starbucks Strategy Analysis | Business Strategy | Assignement | 24/05/2010 | | | | “Making your organisation fit for purpose” Starbucks Coffe Company is the world leading brand in roasting and distributing coffee. The company owns now more than 15 000 coffee shops around the globe: it is settled in North America, Latin America, Europe, Middle-East and Asia. The diversity and depth of its offer (from smooth to extra roasted coffee, African, Arabian or Latin, and all the muffins, cookies and sandwiches) allow them to count on an international exposure that has last for many years. Still, their business tends to be flattening. And the number of competitors in their core-business market, even if the competition stays way back them, is growing constantly. Considering these facts, the objective of Starbucks is to strengthen its leadership on the market. We were then approached by Starbucks in this particular goal. In this folder, you will find an entire analysis of the external environment of Starbucks Coffee Company: the macro-environment, the competitors and market and the stakeholders‟ expectations will lead to being aware of opportunities and threats. Then, we went on the study of the internal capabilities: the resources and competences, the sustained competitive advantage and the diagnosis of strategic capability that will permit us to define Starbucks‟ strengths and weaknesses. [Thus, owing to the results obtained, we endeavour to recommend Starbucks some new and relevant elements for the future strategic direction of the organisation. I. The External Environment a. Macro environment i. Pestel ii. Porter‟s Diamond iii. Key Drivers iv. Scenarios b. Industry and sector analysis v. Porter‟s 5 Forces vi. Convergence c. Competitors and Markets vii. Strategic Groups viii. Market segmentation d. Conclusion ix. Opportunities x. Threats xi. Success Keys II. The Internal Envrironment e. Capabilities analysis xii. Ressources xiii. Competences f. Sustained competitive advantage xiv. Marketing mix 7 P‟s xv. Culture xvi. Positioning g. Diagnostic strategic capability xvii. Value Chain xviii. Value Network xix. Activity Maps xx. Innovation xxi. Knowledge Management xxii. Benchmarking h. Conclusion xxiii. Strenght xxiv. Weakness III. Conclusion and recomandation IV. Appendices I. The External Environment a. Macro environment i. Pestel PESTEL analysis is a tool that can aid organisations making strategies by helping them understand the external environment in which they operate now and will operate in the future. It is a method of examining the many different external factors affecting an organisation – the outside influences on success or failure. The PESTEL analysis will be used to identify and understand the important factors Starbucks must consider in all areas of the business. ii. Porter‟s Diamond Firm strategy: High implication in faire trade showing that it is possible to contribute positively to communities and environment even if you are a worldwide company Demand conditions: More than 2.5 billion of cups of coffee are sold each day in the world which makes it the 2nd most consumed beverage in the world Chance Government Related and supporting industry: Thanks to the implication in fair trade and the creation of C.A.F.E (Coffee and Farmer Equity) Starbucks is supported by coffee farmers, processors and suppliers Nongovernmental organizations(NGOs);Coffee industry representatives; Starbucks partners Factors conditions: -Excellent customers‟ service -product quality -emerging corporate responsibility -brand recognition -good financial resources iii. Key Drivers Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy: * “Green tech”: many industries are being put under pressure by governments to lower their polluting emissions to fight global warming, or at least to show people they try to. This is true for car makers, wood industry, petrol industry and others. Starbucks must be aware that sooner or later these changes will cover all industries/markets/companies. Starbucks has long been a pioneer in fair trade and organic food retail, and we believe the green revolution is a great opportunity for Starbucks to appear as a “green leader”. * The new speed of information: considering the fact that the major part of Starbuck‟s customers are relatively young and urban means they more or less know how to use a computer. Being in a daily, close relationship with your customers means you need a flawless service anytime, anywhere. Especially at the age of the all-mighty internet and its fast paced information sharing capacities on social networks such as Facebook or Twitter. Local marketing cannot ignore that. * Ageing population: Starbucks must take in account that nations are facing radical changes such as the issue of global ageing. Pharmaceutical corporations and global health programs make people live longer. People that have usually higher purchasing power and the desire to keep up with the world they live in because of their free-time. Again, this is a huge opportunity. iv. Scenarios These are views of how the business environment might look like, depending on the decisions Starbucks will make and the key drivers. It improves organisational learning by making managers more perceptive concerning the evaluation and the development of strategies in each scenario. A B high D C IMPACT high low UNCERTAINTY A: Innovation B: Preoccupation for health C: Economical crisis D: Sustainable development trend Scenario A : People care more and more about their health (B) and about « going green » (D). Starbucks is a leader in fair trade and sustainable development. R&D money (A) will be spent on recycling process in waste management, and product development to promote healthy solutions for lunch. Scenario B : Economical crisis (C) means people focus more on what they really need and will skip what is expensive to them. Also, if there is a government intervention to alert about new health dangers in junk food and if R&D (A) doesn‟t focus on this trend, there is a certain level of threat for Starbucks. b. Micro environment v. Porter‟s 5 Forces Porter's five forces analysis is an important tool for analyzing an organizations industry structure in strategic processes. It helps the marketer to contrast a competitive environment. It tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. Porter has identified five competitive forces that shape every industry and every market. These are: The threat of entry, The power of buyers, The power of suppliers, The threat of substitutes and Competitive rivalry. The Power of Suppliers: Low pressure because suppliers are numerous and scattered, and so they have a low negociation power. Gâteaux Gobelets The Power of Buyer (B to C) Low pressure because they are too many and diverse. Threat of new entrants: Barrier to entry: reputation and expertise. That is why the pressure is low for potential entrants and strong for restaurants. «Cafés» Restauration Intensity of rivalry: Low pressure because Starbucks remains unique and leader of the market. Strong Pressure Weak Pressure Café cakes Threat of Substitution products :For coffee : hot chocolate and others energizing beverages For cakes : all pastries * Barriers to Entry The first barrier to entry is reputation. In fact Starbucks is an international company, they have a worldwide reputation. If a company wants to relocate, it will "perform important communication costs" in order to compete with Starbucks. The threat of new entrants to the market is fairly low. In fact, there are many indirect competitors. Nestlé‟s Nespresso, other coffee chains and the arrival of coffee for Senseo particular type. Regarding restaurants, there are Dunkin Donuts, Burger King, McDonald's, which sell products similar to products of Starbucks. The company remains the market leader in the coffee shop. The concept is unique even though some chain restaurants can compete with him, like La Brioche Doree, where the concept is the same. However, the image and the customers are completely different. It is difficult to precisely define the barriers to entry, as different from one country to another, but also from one sector to another. They are not the same for coffee and catering. Indeed, difficulties entering the market are much greater for the coffee for the restoration. Firstly, because coffee is the heart of Starbucks' business and especially because they have experience and know-how. Starbucks is the market leader. You can find their delicious "café latte" everywhere. It is this strength of the strategy "first to market" that is to say that Starbucks is the first company to have entered the market, making it difficult to compete because of its visibility and image as a leader. * Substitution products There are many similar products to Starbucks products. First for coffee, are the automatic coffee machines which are very fast, not expensive for the consumer, even if the quality is often poor. These machines are usually placed on the workplace. Then there is the instant coffee that can be done at home, fast and inexpensive. The new Senseo coffee type or Nespresso, are also products that can compete with Starbucks products even if their use is different. Indeed, in this case, we can make a good coffee at home, much cheaper than at Starbucks. Finally, new products appear every day, such as capsules or pods of coffee. These new products contain a coffee extract and can be eaten anywhere, they do not need to be reheated. Note also all energy drinks such as Coca new Black, which contains caffeine and has the same virtues as coffee. Remember that when we speak of substitute products, we talk about products that do not contain coffee, but thanks to which it is possible to replace the coffee. For example, tea and hot chocolate are alternatives to coffee. In the case of food, Starbucks sells cakes for the most typically American: muffins and donuts. There are too many substitutes in places such as supermarkets, bakeries, restaurants (fast food). Chocolate bars can also be considered as substitutes to the extent that they offset the same need as cakes sold by Starbucks, "the munchies. * The Power of Suppliers There are three types of suppliers for Starbucks. There is first of all farms that produce coffee and bakeries that produce pastries and finally the industries that supply paper cups. In general power of suppliers Starbucks is fairly low. Indeed, if we take the case of suppliers of coffee, their power is quite low because of their numbers. Starbucks offers about 15 kinds of coffee beans are different. They are more than 15 suppliers of coffee, and they are numerous and scattered over their bargaining power is low. Also, Starbucks has maintained a long-term relationships with its suppliers. They wish to retain them for the guarantee to be always provided with a quality product. They do not choose the supplier offering best but one with whom they can work on the long term and that has a quality product. The most important thing is for Starbucks and is regarded as the preferred client. * The Power of the Customer For Starbucks, the power of buyers is very important, without customers Starbucks is nothing. Recently sales have declined as customers found that prices were too high, that's why Starbucks should pay attention to its customers, take care and meet up with their needs. However, the power of buyers is relatively low, because they are very numerous. Indeed, the more customers more power is low, because it is difficult to put pressure on a company when customers are too many and have loads of different opinions. * Competition “Bars and cafés” are the main competitors to Starbucks since they sell similar products to products of Starbucks (coffee, cappuccino, hot chocolate). However, pressure from competitors is low, because Starbucks is the market leader in coffee shop. Numerous factors contribute to intense rivalry between existing competitors in an industry. This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is found in the centre of the diagram. The extent to which competitors are in balance, this is where competitors are of an equal size which creates intense competition as one of the competitors tries to gain dominance over the other, high fixed costs in an industry may result in price wars, differentiation is important as in a commodity market where products or services are undifferentiated there is little to stop customers switching between competitors. Starbucks do not really have any competitive rivals that are of similar size to them so there are not any rivals in the market that would be considered in balance with them. However, they must maintain their excellent standards and always be on the lookout for new innovations in order to stay as the market leader. Competition is steadily growing against Starbucks each year as the industry grows. Competitors look to gain an advantage by price cuts, launching a rival product, aggressive expansion of production to increase market share or inclusion of significant modifications to a product that other competitors must also undertake to keep up. The following are the current figures showing the market share of companies in the coffee industry. 35% Starbucks 20% Local Coffee Outlets 14% Internet Cyber Cafes 13% Caffe Nero 10% Costa Coffee 8% Coffee Republic c. Competitors and Markets xxv. Strategic Groups Due to its vertical integration, diversification and success, Starbucks now has many competitors. * Direct Competition: About Coffee: Starbucks has had to face many competitors in the image of Seattle's Best Coffee or Pasqua, but many other brands appeared in the meantime. However, his biggest competitor is Peet's, introduced himself on the stock exchange in 2001 and now distributed in supermarkets. About Restauration: United States: Starbucks must deal with regional chains like Peet's or The Coffee Bean & Tea Leaf. In Canada: Tim Hortons and Second Cup. In France, the only direct competitor is Starbucks Coffee Colombus. Created in 1994, the first French channel "espresso bars" which has thirty stores in France and very little abroad * Non-direct competition: First, the regional chains like Dunkin 'Donuts, and most recently, Burger King and McDonald's, the latter wishing to engage in different types mocha coffee, cappuccino, latte, and cold drinks, fruit juices, smoothies All these products offered at lower prices by about 50 cents. These stores were repositioned by providing specialty coffee and espresso-based drinks at competitive prices, often playing on an image more accessible and downto-earth than that of Starbucks. Coffees machines with brands such as Nespresso, Lavazza, and Philips. -Bakeries (selling Pastries) -Supermarket -Sodas and energy drinks retailing "Within an industry, strategic groups together organizations with similar strategic characteristics, following similar strategies or rely on the same competitive factors. " There are 2 different strategic groups: • Internationally Starbucks was first popularized among American consumers. Today, many large retailers offer premium coffees, but also a catering service. Dunkin 'Donuts, and, most recently, Burger King and McDonald's have repositioned and offer specialty coffee. Indeed, McDonald's part in the assault of this market. The largest fast food chain is testing for some time "Mc Café”. In France, we have already five, four in Paris and the Paris area and in Lyon. The effort in the Mc Café focuses more on price. • Regionally Starbucks also has to cope with the arrival of regional channels offering more attractive prices, the same type of decoration, the same environment. There is, for example, Peet's or The Coffee Bean & Tea Leaf in the United States and Tim Hortons and Second Cup in Canada and Columbus Café which first appeared in France in 1994. The French group now has 42 locations, including 22 in Paris and the Paris region and employs 150 employees. The Strategic group map shown above analyses the competitive market Starbucks is in. Starbucks has three primary competitors in the U.S. – Caribou Coffee Company, Inc., Diedrich Coffee, Inc. and Panera Bread Company. While Starbucks' operations far exceed those of the other two, all three provide specialty coffees and accompaniments. As one can easily see in the graph shown above, Starbucks is one of the biggest players in the market, but still their prices are relatively high compared to the competition. Their main competitors in the US market can be divided into two categories. On the one hand there is Diedrich Coffee and Caribou Coffee, both are about in the same price range as Starbucks. Still they are not as big as Starbucks, which makes it hard for them to compete effectively. On the other hand there are McDonalds, Dunkin Donuts and Burger King, which are huge chains just like Starbucks, but the prices they ask for are relatively low compared to Starbucks. However, as their quality offered is not as good Starbucks high-quality, competition is only fierce based on prices but not quality. The group Starbucks multiplies its outlets and its international operations. Today the company is present in over 18,000 stores worldwide and has a policy of high prices. Indeed, on average, a consumer spends $ 4.5 per visit, while other international chains (McDonald's, Burger King) make more effort on the price while offering specialty coffee. Rates Starbucks explained by efforts made at the level of quality and service. They are not limited to serving quality coffee, but a process of "relational capital" is established. xxvi. Market segmentation Starbucks is a multinational chain of coffee / restaurants, more commonly known as coffee shops. This is the first entrant in the market for the sale of coffee. But Starbucks does not only coffee but also tea, baked goods, utensils and coffee machines. The company recently decided to expand its range of products also selling books, CDs ... In fact, Starbucks knows that its customers are consumers of music and new technologies, so why not invite them to "consume" Starbucks throughout the day: coffee and muffins, as well as compilations. Coffee Global Retailing Specialties Retailing in Cafes Supermarkets, Convenience Stores Restauration Additional goods Target groups A target group analysis focuses on the main target markets a company is focusing on and their characteristics. As Starbucks is selling their products directly to their customers through their stores, it is essential for Starbucks to understand what their target groups are. A detailed segmentation of Starbucks' different target groups can be found below: * Young adults: Specialty coffees seem to be most appealing to younger adults. The 18 – 34 age group accounted for one-quarter of specialty coffee orders in 2000 and only 10% of the regular coffee orders. Five years ago, about 3% of Starbucks customers were between the ages of 18 and 34, 16% were people of color, 78% had college degrees, and overall they had an average annual income of $81,000. Today, however, about 13% of the company's customers are between 18 and 24, 37% are people of color, 56% are college graduates, and they earn on average $55,000 a year. These facts and figures clearly show that one of Starbucks' main market segments are young adults, mainly college and university students. This is mainly due to the fact that students are on the one hand often in the need for a fast cup of coffee, but on the other hand also like the ambience of Starbucks stores. There they can gather with their friends, enjoy a drink and they also have the possibility to have a snack. Of course one has to consider the fact that Starbucks is a little bit more expensive than its competitors. But as it is the combination of good coffee and the ambience in the stores, especially college and university students think of Starbucks as the most convenient place to go. * Business people The second segment Starbucks is targeting is the so called work-force, or business people. This becomes evident by taking the location of the stores into consideration: Those are mainly placed in busy downtown areas, where they are easily accessible for business people, who don't have a lot of time before going to work or during their lunch break. Starbuck's offers these customers a fast and efficient way of getting a highquality coffee. Mostly this segment doesn't have the time or need to stay longer than necessary in a Starbucks store. However, because of the nice ambience and the highly motivated and friendly staff, business people feel good when entering a Starbucks store. * Seniors According to the National Coffee Association, seniors drink more coffee away from home. Seniors are discovering gourmet coffee more and more as the overall percentage of coffee drinkers over the age of 60 jumped from 12 percent in 2007 to 16 percent in 2008. Adults aged 55-64 are 28 percent more likely than young adults to consume coffee away from home. From 2000 to 2005, the 55 - 64 age group grew 24 percent, which is nearly twice the amount the 45 - 54 age group grew. Although this is not Starbucks' main target group, as one can see in the figures stated above, Starbucks profit is also achieved through sales to elderly people. Most of these people are still working, and they have a higher income than college and university students. This enables them to spend more money on gourmet coffee. Also they are highly attracted by the high-quality products Starbucks offers and the ambience in Starbucks stores. d. External analysis conclusion: With Starbuck's strength in terms of its strong capital base, the company has the opportunity to expand its global operations. Starbucks is targeting 15,000 international stores in the next few years. It invests a lot of hope into the Chinese markets, due to large urban population and rising economy in China. In addition, International Market News reports that coffee consumption in China has been growing steadily at about 15% per annum. Cafes with a distinctive culture and character are becoming consumers' top choice for a relaxing cup of coffee. Next to China, markets such as Brazil, India, and Russia are also among the expansion opportunities. Continuous market expansion will lead Starbucks to new opportunities for revenue growth. Starbucks has many customers with different taste preferences. With the advancement of technology, Starbucks can make use of this good opportunity to keep track of customer profiles, not only on their coffee preferences, but also their preferences in music. In other words, it can keep track of information about what types of coffee and music their customers normally purchase. With such information, when there is any coffee or music that is of the customer's preference, Starbucks can actually recommend it to them via all means. This will give the customer a personal feeling, which leads to customer satisfaction and customer loyalty. In the past years, Starbucks engaged in joint venture or partnerships with other companies, which resulted in a great success. For instance, in October 1995, Starbucks Coffee and Dreyer's Grand Ice Cream formed a joint venture to dish up a super-premium line of coffee ice creams. By July 1996, Starbucks became the No. 1 brand of coffee ice cream in the United States. Starbucks is joining the race championed for years by fast-food chains such as McDonald's and Burger King to capitalize on family-friendly films. In times ahead, there are still great opportunities for Starbucks to take advantage of new partnerships and joint ventures. In today's coffee market, the supply and price of coffee beans is experiencing a significant volatility. Multiple factors can affect supply and price. These include weather and political and economic conditions in the producing countries. In the past, organizations and associations have attempted to influence prices of green coffee through agreements establishing export quotas or restricting global coffee supplies. Such situations may reoccur in the future. Coffee of the quality sought by Starbucks tends to trade on a negotiated basis at a substantial premium above commodity coffee prices, depending upon the supply and demand at the time of purchase. If such incidents were to reoccur, Starbuck's operations would suffer a certain degree of disruption. No one can predict whether the market for coffee will grow and stay in favor with customers, or whether another type of beverage or leisure activity will replace coffee in the future. This uncertainty can become a threat to Starbucks as the world's leading specialty coffee retailer. In addition the trend in the beverage market is going toward more healthy drinks. For instance, in the United States, people are more health conscious now, cutting down on caffeine. Such a switch in consumer trends would affect Starbucks tremendously, as less people would purchase coffee from Starbucks. As the coffee market is very competitive, Starbucks faces keen competition from existing, as well as emerging competitors. These competitors are on the hand those, which are selling similar products and on the other hand those who are selling other caffeine products which can become a substitute of Starbucks' products. Some examples of competitors are restaurants, coffee shops and supermarkets. Since its start Starbucks' success has lead to the market entry of many competitors and copy cat brands that pose potential threats. Facing this competition, Starbucks has to maintain and even improve on its current operational performance. II. The Internal Envrironment a. Capabilities analysis i. Ressources The strategic capability of any company is underpinned by the resources available to it. Practically all resources fall into one of four categories: Physical, Human, Financial or Intellectual capital. * Physical resources: The physical resources of Starbucks are the shops that they own, any vehicles they own for transporting goods and all the equipment that is used to create the cup of coffee (or pastry etc). Those resources that are younger and in better condition are deemed more useful to Starbucks. In 2002 Starbucks had 5689 outlets around the world, which at the time was still increasing at a „breakneck speed' and at the end of the 1990's the company was opening an average 2 stores per day. In January 2004 the company opened their 18,000 stores worldwide located in strategic locations. (www.Starbucks.com) * Human Resources: The human resources are the knowledge, skills and adaptability of the workers at Starbucks. Staff who work to their potential in these areas often become a company's „most valuable asset'. Schultz, the founder of Starbucks, believes every member of staff plays an equal part in the „customer experience' regardless of whether they be CEO or waiter. The entire group has 110,000 employees. * Financial Resources: These are the capital, cash, debtors & creditors, and suppliers of money (e.g. shareholders) of Starbucks. Obviously for Starbucks the less debt they are in, the more positive their resource audit looks. Starbucks have a lot of working capital tied up in the business. Some of this capital includes varieties of whole coffee beans, foodstuffs, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers and other accessories. 85% of Starbucks revenue comes from direct sales in pubs. The large number of cafes in the world (4900 in the United States and about 1,133 in the rest of the world). In addition, the group recently became a publicly traded Starbucks therefore a source of additional income. The CFO is Michael Casey. At 10/05, the Group records a turnover of € 5,377,432,000. The distribution of sales is as follows: 84.7% for the exploitation of coffee, 10.6% for the licenses, 4.8% for other operations that are selling food products to companies, hotels, airlines, hospitals... * Intellectual capital: These are the intangible/immeasurable resources of Starbucks. This is the information captured in brands, patents, customer databases, business systems and relationships with business partners. All these can contain great value and when a business is purchased these values fall under the price-tag marked „goodwill'. One of the few ways Starbucks can protect this intangible information is to ensure employees sign confidentiality agreements to protect any leaks of knowledge to competitors. ii. Competences What is their competitive advantage ? Thanks to its strategy of "first to the market", the brand has been able to emerge as a leader in quality products and services. Having adopted this strategy has allowed Starbucks to take an advantage over its competitors, especially in terms of advances in technology, advance the development of alliances with suppliers in advance and then on savings related to production quantities». The rapid and massive Starbucks around his "Coffee Shop" has sparked a lot of competition, thereby, to prevent potential entrants from entering the market, the company has opted for a position with its own principles. First: the quality is indeed a key factor in its success, communication turns around a lot of this criterion. The products which they know mostly calls for coffee and therefore the coffee beans are mainly from traditional crops and quality controls on these products is extremely common. Then, another criterion differentiating Starbucks from its competitors is prices. In fact, coffee sales at the "Coffee Shop" are more expensive than their competitors, the quality of products offered by the Group can only lead to higher prices. We turn now to the question of the budget allocated to the communication / advertising Starbucks. The Starbucks brand which has not come from the communications or advertising budget that she gives. In fact, its budget for this area is extremely limited (About 1% of sales), it follows therefore that the packaging Starbucks is not the main priority. The distribution in this company is also unusual, since about Starbucks products are sold exclusively in their stores. However in recent years, their distribution tends to widen the fact that some brand products are now available in supermarkets and bookstores. Finally: the service is the criterion that takes the most important in society, especially in their marketing strategy. The extreme importance of this criterion applies to both market and non market services. Indeed, the quality of service does not reside exclusively in the coffee or pastries available, but also in the home for guests. Group Starbucks likes to say that these places are creators of social ties and even tends to develop to a "relational capital". Like other companies like eBay, around Starbucks creates a real community. Therefore, such a sense of belonging to this group allows customers to retain their brand and therefore have a competitive advantage. * One of the key factors leading position occupied by Starbucks result of the relationship with the company weaves its suppliers. Thus, the company has retained its leadership through numerous alliances particularly in the development of new products and sales of its coffee. The purpose of the brand by building such relationships with its suppliers as to promote the single outside the coffee shop to reach consumers on different levels, and thus in new places such as libraries, hotels, or the supermarkets. It thus follows that one of the real assets owned by Starbucks lies in how they choose their partners contentious. Suppliers are selected according to their commitments in terms of quality and reputation. Note therefore the company's vision for a strategic alliance. It is defined as follows: "a formal, sustainable and evolving between two companies with different skills, but complementary and similar values and principles in order to create a competitive advantage, developing new business opportunities and broadening their range of joint operations through collaboration and mutual sharing of risks and rewards of the relationship. " The relationship implemented by the company with its partners is extremely special, since it encourages producers to produce coffee at best and with greater efficiency through various incentives or commitments (social or environmental) by country . Observation has been observed through the publication of a guide to coffee producers. It is also important to note the strong involvement of Starbucks Fair Trade. This commitment aims to help coffee producers through the creation of cooperatives, facilitating strong communication with the importers. The latter are thus willing to establish long term relationships with producers. . b. Sustained competitive advantage iii. Marketing mix 4 P‟s * Product Starbucks has been diversifying its products portfolio in the last years. By doing this, Starbucks became less dependent in its coffee serving business as other beverages and accessories are being offered. Through this extensive line of beverages, and the expertise of Starbucks in the coffee roster procedures and coffee machines, Starbucks is able to customize its coffee to the customer's preference, which may be seen as a major competitive advantage. "Starbucks purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment" Starbucks' main selling product is obviously coffee made with high-quality Arabica beans bought from various countries in South-America and eastern Africa. The beans purchased by the company are roasted under strict quality measures by high technology roasting machines. Starbucks does not make use of any artificial chemicals in its coffee to ensure quality for the customers. After a joint-venture with PepsiCo in which the two companies agreed on selling canned cold coffee, Starbucks, made more and more agreements to offer other products than just coffee through different channels. Nowadays Starbucks' product line includes packaged coffee sold in Supermarkets, Music CDs, coffee mugs, juices, coffee making equipment and other accessories. The company's retail sales mix in 2002 was 77 percent beverages, 13 percent food items, 6 percent whole-bean coffees and 4 percent coffeemaking equipment and accessories. The trend towards drinking tea was early 2003 adapted by the company by offering exclusive tea flavors and it is expected that by 2010 tea is a 10 billion industry in the US. * Price Since Starbucks offers high quality coffee, the company is able to demand a higher price for a coffee than a „normal' coffee house. The customer seems to accept the higher price in return for a high quality cup of coffee. Starbucks customers are aware of the fact that the price they pay is justified, as Starbucks pays a fair price to the coffee bean farmers, which enables the farmers to raise their living standards. Thus, one can say that the pricing strategy of Starbucks is a value based pricing. Prices are based on buyers' perception of product values rather than on costs. For a standard cup of Italian-style espresso the average price in the US is about $4. Starbucks prices for coffee vary from country to country, but are always considered "pricey" and are more expensive than in a normal local coffee house. Nevertheless, the price for Starbucks coffee per pound in the supermarket is equal to the prices in the retail stores. * Place The creation of new selling points enables Starbucks to introduce its products to people who have never visited a Starbucks retail store. By doing this, Starbucks' products became more available. As Starbucks products are available in different locations, different types of customers buy Starbucks products. For example, the stores near office buildings are visited more by business people while stores in shopping centers are mostly visited by families. In the early years Starbucks coffee and beans were only offered at the company's retail stores. Starbucks retail stores are typically clustered in high-traffic, high-visibility locations in different markets which will attract different types of customers per store. One of the main characteristics is that every location should have high foot-traffic and should be located in a high-density area to ensure a sufficient customer-base. Starbucks' products are also available in supermarkets, where they are placed at a distinctive place with different lighting and elegant packaging to stress its exclusiveness. Due to licensing and specialty sales Starbucks' products became available in airplanes from United Airlines as well as in hotels, university campuses and even office buildings. * Promotion Helping the environment and community is proven to be a powerful marketing tool for Starbucks. Firstly, Starbucks helps the community and the environment, and at the same time creates the image of being a socially responsible company that contributes to better living standards. Customers are aware of the fact that when they buy something from the company, they also do something good for the community. In addition to that Starbucks uses a non-typical approach to promote its products. Starbucks' products are neither advertised in TV nor radio commercials. Instead, Starbucks intents to build up a reputation and a strong brand image by using community programs and relying on word-tomouth promotion. The community programs include charity programs such as CARE that sponsors health care, education and humanitarian aid. These programs also include a fair trade for certified coffee, where farmers and small coffee growers receive a fair price for their products. Starbucks also promotes its brand by associating it with environmental friendly practices. One other way to promote its products is the word-to-mouth endorsement. Starbucks relies on its customers and employees to pass the word about Starbucks' products. With an outstanding benefit program for its employees and an empowering corporate culture, Starbucks uses employees' pride to spread the word and promote Starbucks. iv. Culture The Starbucks Mission Statement states the following: "Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow." Furthermore six guidelines were set up to help the company measure the appropriateness of their decisions: * Provide a great work environment and treat each other with respect and dignity. * Embrace diversity as an essential component in the way we do business. * Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. * Develop enthusiastically satisfied customers all of the time. * Contribute positively to our communities and our environment. * Recognize that profitability is essential to our future success. As Starbucks feels deeply committed to its social and environmental responsibilities, an environmental Mission Statement was added in 1997, which states the following: "Starbucks is committed to a role of environmental leadership in all facets of our business." Seven guidelines were set up to help the company fulfill the mission of this statement: * 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 fiscal 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. v. Positioning c. Diagnostic strategic capability vi. Recruiting, managing, training, developing and rewarding. For Starbucks all employees are equal (Bonuses, Free Cofee and health coverage), this was to make sure that the members of staff felt as if they were valued by the company and would continue to provide a good service. Another implemented scheme is for all Starbucks store staff to have a comprehensive 24 hour training scheme before they were allowed on to work directly with customers. Value Chain Starbucks want their organisation to run and how it is best to implement systems of planning, finance, quality control and information management, it is also where they have made the decision to make high quality coffee from the best coffee beans as this is involved with the quality control. Making use of an extensive research team, Starbucks has to diversify its products portfolio to adapt it to new markets. Margin Margin Infrastructure R & D, HRM Service Marketing And Sales Stock And Distribution Production Inbound Logistics Purchase One of the most important key success factors when looking at Starbucks is their customer service excellence All the activities that enhance or maintain the value of the product, e.g. installation, repair and training. This area is concerned with the members of staff that deal with the customers, it focuses on the need to ensure the customer experience' of visiting a Starbucks store is all the more enjoyable due to the friendliness and efficiency of staff and consistently high quality product on. offer. Starbucks buy all their beans direct from the farmers in the producing countries cutting out any middle-man therefore keeping prices to a minimum. Starbucks fully appreciate the need to oversee all aspects using a vertical integration strategy. Suplier‟s acquisition ensured some of the highest quality coffee supplies in the world. The company has close relationships with their coffee exporters maintaining this by working directly and training them. A good relationship here is essential and needs to be maintained. This is how consumers become aware of Starbucks coffee and purchase it. Starbucks is a worldwide company and their brand is recognised all over the world, which means that marketing is not as necessary as it once was. Most people now recognise the name and associate the brand-image with high quality products. Starbucks is a worldwide company and their brand is recognised all over the world, which means that marketing is not as necessary as it once was. Most people now recognise the name and associate the brand-image with high quality products.Thus with just 1% of the turnover used in communication. Customer value chains' illustrate how value is added by the end buyers of the product. Customer value can be increased by Starbucks by ensuring the store environment is how it should be, the coffee is consistently up to a high standard, the menu is broad and varied enough to cater for most tastes, value for money is achieved and most of all the service is exemplary. Through training and research and development all these factors are achievable and maintainable for Starbucks and should ensure a bright and prosperous future. vii. Value Network viii. Activity Maps ix. Knowledge Management x. Benchmarking d. Conclusion xi. Strenghts Further Explanation: Over the years the organization has built a strong brand image although it hardly initiated any large marketing campaign. Not depending on any marketing campaign but focusing their superior product quality, customers became strongly attached to the company and its products. Due to this, Starbucks was able to rely solely on word-to-mouth promotion from its customers. In addition to that, the Starbucks Coffee Company utilizes high quality beans and through its high quality production processes and control, the corporation is able to offer its customer a superior product. The quality process includes the funding of farmers which gives them better living standards and opportunities for raising the quality of the products. Due to the high salary and the extensive health care policies, Starbucks creates a work environment with highly motivated staff. This has to be considered a strength since the motivated employees affect customer service positively and therefore an environment is created where customers feel comfortable. Although the rapid expansion requires high investment rates and low margins on its products, over the years Starbucks has been able to generate revenues. This can be seen as a strength because Starbucks is continuously growing and still making profits, making it attractive to investors due to stable growth rates. Starbucks makes use of an extensive research team to come up with creative and innovative business strategies, such as launching a revolutionary in-store CD burning service. Starbucks has many years of experience in its business. Because of this experience, customers develop trust towards Starbucks, leading to strong customer loyalty. xii. Weakness • Further Explanation: The consume rate of coffee is declining over the last years and trends show that in the future, coffee will be consumed less and less. The rapid expansion of Starbucks might lead to an oversaturated market and the company can end up with too many stores when coffee consumption declines tremendously. Although this can be considered as a threat, one can consider the rapid expansion as a weakness based on the market expectations as a weakness of the Starbucks Coffee Company. . Starbucks` concept is based on providing customers a excellent product and a feeling of relaxation, comfort and safety. Producing coffee does not involve highly sophisticated technology and opening a coffee bar is relatively easy, therefore it can be indicated that Starbucks` concept is rather easy to copy since investment costs are not extremely high. It is often said that consumers feel overwhelmed by the tremendous varieties offered by Starbucks. This can be indicated as a weakness since consumers get confused and some are afraid of entering a Starbucks store since ordering a plain cup of coffee became impossible. Keys competences: The global strategy of Starbucks is to provide costumers with more than a cup of coffee: "You get more than the finest when you visit a Starbucks, you get great people, first rate music and a comfortable and upbeat meeting place" , says Mr. Howard Schultz. Core competences help to provide firms with a „competitive advantage'. They are used to achieve a strategic advantage through activities, skills or know-how, and basically a general expertise in the development of the product. This advantage will provide value to customers. The aim is for Starbucks to focus attention on competences that really affect competitive advantage. For Starbucks, these competences include the knowledge of where the finest coffee beans are grown, the knowledge of how best to prepare them in order to make the best cup of coffee and also the knowledge of how best to approach a foreign market as, of all their industry competitors, they are the most successfully globalised. Core competences can provide potential access to a wide variety of markets so can be of immeasurable use to Starbucks and their varied attempts of product diversification. Starbucks have established such a strong leadership in the coffee market due to core competences such as clear distinctive brand proposition that focuses solely on a closely-defined customer group and leading direct marketing skills in the Starbucks Research and Development department. This global strategy can be undermined by the key success competences of Starbucks: Apendicies * Caribou Coffee Company, Inc. According to Caribou's Nov. 2005 8-K report, the company has been reported as the No. 2 company-owned "gourmet coffeehouse" in the country. Founded in 1992, Caribou is based in Minneapolis, Minn. and maintains 348 coffeehouses, including four licensed sites and four joint venture locations, in 14 states and Washington, D.C. Its specialty products include espresso-based beverages, specialty teas, baked products, whole bean coffees and related branded merchandise. In addition to its specialty stores, Caribou sells their coffee beans to a wide variety of outlets, including grocery stores, distributors for offices, hotels, sports and entertainment venues and college campuses. Caribou became a public company on Sept. 29, 2005. * Diedrich Coffee, Inc. Diedrich Coffee, Inc. is a specialty coffee roaster, wholesaler and distributor. The company's annual report states that it also sells various blended beverages, most of which are espresso-based, food items, whole bean coffees and branded accessories. Diedrich has 56 owned and operated retail locations and 426 franchises with outlets in 34 U.S. states and 13 countries. The company's best-known store brand, apart from Diedrich Coffee, is Gloria Jean's, with a base in the shopping mall market. In addition, Coffee People, another Diedrich brand, sells primarily in Portland, Oregon. Diedrich is based in Calif. where the company was founded in 1972. It completed its initial public offering in Sept. 1996. * Panera Bread Company (PNRA) The Panera Bread Company was originally known as Au Bon Pain Co., Inc., the name under which it was incorporated in Mass. in 1981. Now based in Richmond Heights, MO, the company has grown substantially since its beginnings with three Au Bon Pain bakery-cafes and one cookie store. Its retail operations today include 226 company-owned bakery-cafes and 515 franchises, all in the U.S. Panera specializes in fresh baked goods, sandwiches, soups, salads, custom roasted coffees and specialty beverages. Like the other companies, Panera competes for prime retail space in malls and in strategically located neighborhood settings. While Panera competes with the other two companies at the specialty beverage level, its "loaf of bread in every arm®" mission differentiates it with its mainstay product line, in-store baked breads. * Other competitors US market Starbucks' two other largest competitors are Dunkin' Donuts and Krispy Kreme, both are national chains. Both companies sell donuts as their main product, but in addition to that offer their customers a range of coffee beverages as well. These companies use aggressive price-cutting, up to 20%, for their drinks. Next to that, other competitors include small local coffeehouses, and other coffee brands like Tully's and Pete's Coffee. The direct competitors for Starbucks' other products such as hot and iced-teas and juices include Orange Julius and Jamba Juice. Fast food chains such as McDonald's and Burger King, are also competitors, as they do not only sell coffee and tea, but also dairy products, juices and in addition to that, soft drinks. Especially McDonalds is trying to compete with Starbucks, as they opened up Mc Cafes in certain places. * Competition in Europe and Asia When trying to analyze the competition for Starbucks in Europe and Asia one has to consider the fact that competition on these two continents has to be looked at differently than at competition for Starbucks in the United States. As Starbucks is the first major chain opening up their coffee stores in Europe and Asia, competitions on these two continents include single coffee stores but no coffee store chains. Especially in Europe, where coffee is a beverage heavily consumed in certain countries, Starbucks major competitors are small coffee stores that are only present in certain cities. Italy and France, for example, are both countries were coffee is heavily consumed. Still, people in these countries probably won't be attracted by Starbucks stores that much, as they already have favorite places to go when they want to sit down to enjoy a coffee. In Germany and the Netherlands coffee is also a very famous beverage, but in these two countries Starbucks has less problems when attracting customers. This is due to the fact that the products offered by Starbucks have a broader variety than normal restaurants and cafes, where people normally go to enjoy a cup of coffee. Furthermore the trend of having a coffee to go is more attractive to people living in countries like Germany and the Netherlands, than in countries like France and Italy. Competition for Starbucks in Asia is even less. Although coffee is not that heavily consumed in this area of the world, Starbucks is really successful by offering other products out of their product range, like tea. The attractiveness of Starbucks stores in Asia is bigger, as people there are very time-conscious and like the concept of getting coffee (or tea) to go.
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