Strategic management analysis. Starbucks - Essay Example

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Strategic Management Analysis Table of Contents The Objectives and Aims of this Paper 3 History of Starbucks 3 The Coffee House Market in the United States 4 Macro-Environment Evaluation of Starbucks Coffee Company Using the PESTEL Analysis Model 5 Political 5 Economic Factors 6 Social 7 Technological 8 Environmental Factors 9 Legal Factors 9 Conclusion of the Micro-environmental Analysis of Starbucks Company 10 Starbucks Micro-environmental Analysis using the Porters Five Model 10 The Threats and Opportunities Available to Starbucks Based on the Results of the Analysis 12 The Starbucks Company Critical Success Factors 12 Marketing Critical Success Factors 13 Technology Critical Success Factors 13 Skills and Capability Critical Success Factors 13 Service Critical Success Factors 13 Analysis of the Company’s Strategic Capabilities 14 Strategic fit analysis 15 The Main Factors Affecting the Starbucks Company 15 The Future and Current Impact of these Critical Factors 15 Appendix 16 Starbucks Critical Success Factors Table 16 Starbucks Strategic Fit analysis Table 17 Bibliography: 18 The Objectives and Aims of this Paper The principal objective of this paper will be to conduct an analysis of the Starbucks coffee house that will be both incisive and in-depth. The analysis will be in relation to the current macro-environmental and other related factors that affect the organization’s operations in the United States. The paper will also seek to provide possible recommendations that can potentially aid in improving the coffee house’s general operations within its market in the United States. History of Starbucks Starbucks as a company was started way back in 1971 in Seattle Washington. The company is an American global cooperation that happens to center its core business in the selling of coffee at its coffee houses which are globally distributed. The company currently has about 19,972 stores operating in 60 countries world-wide. The United States alone is host to about 12,937 branches of the coffee company. In the 1990’s the company happened to experience a period of rapid growth and was estimated to be opening at least one branch of the coffee house each and every day. This positive trend in company growth was seen and experienced late into the 2000’s (Thompson and Gamble 1997). In line with the current market demands, the coffee house has been introducing various new product offerings to satisfy the evolving needs of its clients. Some of the new product offerings include the introduction of sweet pastries, hot and cold sandwiches and snacks. The coffee house has also started selling items such as Starbucks tumblers and mugs. The company’s product offering is found to be mostly seasonal and tailor made to satisfy the needs of its clients in a given geographical location. Recently, the company’s ice cream and coffee products have started being distributed in various grocery stores all over the United States (Hill and Jones 2012). Starbucks has also recently been working hard at expanding into other sectors via the establishment of several subsidiaries such as its Hear Music Brand as well as the Starbucks Entertainment Division. The company has also taken to marketing books, films and even music (Starbucks 2012). The Coffee House Market in the United States In the United States, there has been a significant boom in the coffee shop business. This has been largely noticed especially in the offering of specialty coffees that are currently being offered by certain shops in the industry. The spur in growth in the coffee house market in the country has been mainly spurred by the recent trend by American coffee consumers which has seen them becoming increasingly educated as to how the espresso-based drinks in the industry are made (Starbucks 2012). As per the data provided by the First Research, the United States alone is host to an estimated 20,000 coffee shop businesses whose total annual combined revenue is estimated to clock at around $10billion as of the data provided in 2011. More than 50% of the $10 billion revenue is currently being generated by the country’s top 50 coffee shop operators. The general trend in sales per Starbucks shop are illustrated below (Starbucks 2012). With the increased competition within the United States Market, several of the coffee shop businesses have been making attempts at expanding their business into other countries with Starbucks leading the way after having setup a reported 5,500 coffee shops in several licensed locations outside the United States as at 2010 (Green and Keegan 2012). Statistics provided by the National Coffee Association indicate that 40% of American who happen to be aged between the ages of 18 and 24 years reported to be consuming coffee on a daily basis. 54% of America’s adult population whose ages ranged between the ages of 25 and 39 years also reported consuming coffee on a daily basis. In essence according to the results of the study, 75% of Americans happen to consume coffee and 58% of Americans consume coffee on a daily basis (Starbucks 2012). With the increasing price of coffee in the world market, the average price of coffee has been predicted to probably increase at an average rate of approximately 2.7% annually all through to the year 2015. This has mainly been attributed to the fact that most of the coffee shop operators are being forced to pass on the increasing coffee commodity and processing prices to their customers (Starbucks 2012). Macro-Environment Evaluation of Starbucks Coffee Company Using the PESTEL Analysis Model Political Starbucks coffee company is faced with a myriad of political factors that are seen to be affecting its macro-environment. Some of these factors include: Taxation Policy: Farmers producing coffee in various countries are increasingly being subjected to higher tax rates by their governments. These increased tax rates inadvertently end up being passed on to the products end consumers, resulting in an increase in the cost price of coffee as well as severely reduced sales volumes of the product (Starbucks 2012). Employment Law: As Starbucks continues to expand into various countries and territories all over the world, its expansion is sometimes stemmed by stifling costs and government bureaucracies involved in its obtainment of the various licenses as well as permits that are required so as for the company to set up shop in these countries and start trading. Some of these permits allowing them to operate locally in these countries as well as hire local are sometimes seen to be rather expensive. In the event that the cost of these permits and licenses is high, it follows that Starbucks revenues will be negatively impacted (Starbucks 2012). Deregulation: After the United States opted to pull out of the International Coffee Agreement (ICA), coffee production quota allocations and price control effectively came to an end. The ICA body had previously been tasked with the responsibility of ensuring that various countries which happened to be producing coffee were essentially allocated fair production quotas as well as ensuring that the cost of coffee was set and maintained a t a fair price (Starbucks 2012). Economic Factors Exchange Rates: With Starbucks being an international company, it is frequently affected by fluctuation international exchange rates. This is a common phenomenon that affects the trade of all international companies. If the value of the currency of a coffee producing country happens to rise in the world currency market, Starbucks will have to spend more dollars in buying coffee from that country but if it happens to fall, Starbucks ends up getting more value for their money as they will be able to buy relatively more coffee at cheaper prices. The gains that Starbucks makes from such trade are eventually passed on to its customers in form of reduced coffee prices (Starbucks 2012). Globalization: With the advent of globalization, Starbucks as a trading company has been able to quickly expand into new and emerging markets all over the globe. Despite all these positive factors attributed to globalization, the downside of it all is that coffee farmers are increasingly earning less money from the sale of their coffee beans and as such many of them are now opting to grow other produce on their farms in place of coffee. This has resulted in a situation that has seen a decrease in the global supply of coffee beans (Green and Keegan 2012). Competitors: Starbucks is facing rather stiff competition from other coffee houses such as sears which sometimes tend to price their coffee at prices that are seen to be below what Starbucks charge for its coffee. When Starbucks responds by lowering the price of its coffee so as not to loose its customers, this ends up creating a price war that normally results in a reduction of the annual revenues that Starbucks stands to make (Saloner, et al 2006). Economic Growth: The recent global economic recessions that affected nearly all sectors of the economy had a profoundly negative effect on Starbucks. However in light of the recent favorable returns being posted by companies in the coffee house shop industry, Starbucks has consistently been able to report an increase in sales and revenue and it expected to continue doing so in the near future (Starbucks 2012). Social Age Distribution: Various studies have consistently posted results showing that as the United States birthrate continues to stagnate; its population keeps on gradually getting older. As a result of this trend, Starbucks has started implementing various policies promoting its products among the young population of the country. These measures are aimed at ensuring that the coffee house increases its popularity in this age group with the intention of securing its future market (Starbucks 2012). Increasing Health Consciousness in America: The United States population is increasingly becoming more health conscious. Starbucks customers now tend to prefer consuming healthy foodstuffs. The United States is currently facing obesity, cancer and heart attack rates that are reportedly comparatively higher than they have ever been. With this in mind, Starbucks should attempt implementing policies that will see it offer its customers healthier food products so as to satisfy its customer’s demand for healthier foods (Haberberg and Rieple 2008). Safe Working Conditions and High Safety Standards: Starbucks can be seen to currently be serving customer who are mostly concentrated in the middle and upper income levels. These customers generally expect only the very highest of standards for their money every time they happen to frequent a coffee house. This has seen Starbucks continuously strive to ensure that it only offers comfortable surroundings and the very best of quality services, but also relatively high safety standards within its various coffee shops (Starbucks 2012). Average Income of its Customers: With coffee being perceived by most Americans as a mainly luxury product, this factor has increasingly been coming into play as a vital factor that Starbucks has been using to help set the prices of its products. Starbucks is thus encouraged to attempt to open more stores in areas that can be deemed as having populations that happen to have the necessary amount of disposable income necessary for the purchase of luxury products such as its coffee (Aladwani 2011). Technological Software Upgrades: Starbucks is constantly shopping in the market for any new software that can potentially be used to make its customer experience more satisfactory as well as help it keep well ahead of any of its current competitors in the market. Most of these software have been designed with the aim of improving the company’s website in terms of its speed and accessibility. The software upgrades are also serving to help in increasing the speed at which customers visiting the Starbucks coffee shops are attended to (Tallman 2007). Information Technology Department: Since its inception, Starbucks has always been on the lookout for any technological advances it can use to improve its service offering. Starbucks managed to launch its first website in 1998. Using the website, the company was able to successfully transact e-commerce. In the year 2000, when the company managed to upgrade its server system to the Microsoft Commerce Server 2000, remarkable improvement was witnessed in its online service delivery (Starbucks 2012). New Materials and Processes: Starbucks has consistently been purchasing various new cash registers as well as coffee making machines as it is always replacing its older systems. The use of these new systems has played a major role in improving the staff’s efficiency and speed as well as helping the shop produce better quality coffee products. The use of these new materials and processes has resulted in Starbucks offering its customers faster attendance and service. In general, at most Starbucks coffee houses, customers do not have to queue for long periods while waiting to be attended. This has seen the company significantly expand its customer base as well as helping it experience improved and better customer relations (Starbucks 2012). Environmental Factors Recycling: Starbucks has instigated measures that have seen it becoming more and more green. The Starbucks company currently composites the ground coffee that are the resultant byproduct of the coffee production process. The company has also taken to using new greener and reusable cups for serving its coffee. By the year 2015, the company is hoping to have is hoping to have reduced its total water consumption by about 25%. In order to achieve this goal, it has started including water saving technology in its equipment (Starbucks 2012). Legal Factors The company is currently grappling with a variety of legal factors. Some of them include the fact that it is always trying to comply with comply with all the government regulations as pertaining to the minimum wage payable to its employees as well as regulations setting the total number of working hours per employee and age. In a recent move, the Starbucks Company CEO announced a salary cut to be effected to his own salary from a high $1.2 million to a low of $10,000 per annum. The company was also alleged to have committed gift card violations and it consequently had to part with $ 225,000 in the form of settlement (Starbucks 2012). Conclusion of the Micro-environmental Analysis of Starbucks Company The analysis conducted on Starbucks external environment clearly shows that the company is currently being faced by potentially crippling political factors such as high taxes and tariffs which are outside its control. The coffee house company has also been seen to be in command of a fairly reasonable market share in the United States. It can be seen that the use of state of the art technology by the company has been perceived as causing the company to gain a valuable edge over its competitors in relation to the general effectiveness of the various services it currently provides to them. The company should also be commended for its efforts to make it a more green company by using recyclable cups as well as compositing its coffee production byproducts. The company’s employees are also seen to enjoy relatively favorable working conditions as well as wages in line with the government stipulations and regulations (Sadler and Craig 2003). Starbucks Micro-environmental Analysis using the Porters Five Model Barriers to Entry: Medium-High: It will be fairly difficult for new potential entrants into the coffee shop market to manage to manage to break into the market. This is because the coffee shop market is currently being controlled by several large, old and well established companies such as Starbucks, Caribou Coffee and Tully’s Coffee which can be able to command relatively vast economies of level. These larger companies are able to easily command the various coffee supply and distribution channels. Starbucks has been noted to have invested in the use of several innovative information technological systems as well as engaging itself in a rather massive product differentiation campaign that has seen the company offer more products to its customers as well as its remaining afloat in the intensely competitive coffee shop market (Starbucks 2012). The Threat of Possible Substitute Services and Products: Starbucks is constantly facing the threat of substitute products being offered by its rivals such as Caribou Coffee and McDonalds. The two companies offer substitute coffee, sandwiches and juices at prices and qualities that are quite similar to those offered at Starbucks (Henry 2008). The Potential of Rivalry among Starbuck’s Existing Competitors: The coffee shop market is currently littered with a large number of competitors who are all fighting to claim a portion of the market segment. The squabbling for market segments has resulted in a situation that has seen Starbucks intensify its marketing campaigns in efforts to retain its market segment. Some of the competitors include New World Coffee Inc, Mc Donald’s, Diedrich Coffee Inc, Dunkin Donuts, Green Manhattan Coffee Inc, and several thousand small local shops and cafes (Starbucks 2012). The competition can be seen to be affecting Starbuck’s Stock prices and causing a general decrease in the Starbuck’s Coffee Prices. This situation is clearly illustrated in the graph below. Starbucks has been facing (Kembell et al. 2000) Suppliers Have High Bargaining Power: Most of the world’s current coffee suppliers and producers are perceived as having fairly high bargaining power. This is mainly attributed to the fact that the product’s global demand happens to be rather high in addition to its being produced in relatively few specific geographical locations in the world. Various non-governmental organizations are playing a major role in resolving the issues pertaining to the unfair treatment that the coffee farmers often receive at the hands of the large multinational coffee buying companies. This is seen to be gradually increasing the amount of bargaining power that is in the possession of the coffee farmers (Starbucks 2012). Customers Seem to Have Relatively High Amounts of Bargaining Power: Starbuck’s customers are perceived as having relatively high amounts of bargaining power as a result of the large pool of products from various companies to choose from. They are currently spoilt for options when it comes to purchasing various products and services (Starbucks 2012). The Threats and Opportunities Available to Starbucks Based on the Results of the Analysis There are several key opportunities available to Starbucks. When the global exchange rates are profitable, the company stands to make impressive gains from its purchases of coffee from the coffee producing nations. The coffee company’s investment in the development and use of the latest coffee making machines as well as cash registers is greatly helping the company maintain its technological lead in the country. The company is also gaining from benefits of globalization which is a factor that is helping it rapidly expand into new countries and markets and as a result of this earn the company larger profits. The company’s recycling efforts are also helping promote the companies among its more environmentally conscious customers (Kotler 2005). Some of the threats that are currently facing Starbucks include heavy fines that are sometimes imposed on the company by the coffee producing and exporting nations. The high cost of coffee adversely affects the company’s profit margin which is already under attack from the stiff competition that is facing the company (Starbucks 2012). The Starbucks Company Critical Success Factors There are several factors that are critical to the success of the Starbucks Company, some of these factors include: Marketing Critical Success Factors Starbucks needs to further intensify its marketing so as to be able to further increase the market share that it happens to command. Stiff competition in the form of competitors such as Mc Donald’s and Caribou Coffee is also a critical factor affecting the company. The company needs to differentiate its current marketing campaign to reach a wider target market as opposed to concentrating most of its efforts on the younger populace (Starbucks 2012). Technology Critical Success Factors The results of the PESTEL analysis clearly show that due to its various innovations and heavy investment in technology, the Starbucks currently has a technological competitive edge over its competitors. However the company needs to continue with this trend so as to maintain its technological lead (Starbucks 2012). The development of various mobile applications for use within Starbucks that is helping customers in making their payments at Starbuck’s coffee shops is seen to be a new first in the market. Adoption of this technology by all Starbucks coffee outlets should be encouraged (Starbucks 2012). Skills and Capability Critical Success Factors Starbucks needs to continue employing qualified personnel in its various shop. Employing skilled and dedicated personnel ensures that the company’s customers receive the very best of service each time they visit a Starbucks shop (Starbucks 2012). Various training and development sessions can be organized so that the company’s employees can be able to learn the latest trends in their various fields as well as share ideas with colleagues on some common best practices as well as new ideas on how to resolve some of the challenges that they commonly face in their lines of duty (Thompson and Gamble 1997). Service Critical Success Factors The provision of good quality service at all its shop outlets should be of prime importance to the Starbuck’s management as its ability to attract and retain customers is highly reliant on this factor. Starbucks also needs to ensure that it retains strong links with both its distributors as well as its suppliers; this will help ensure that the delivery of supplies to its various shops is adequately secured (Starbucks 2012). Analysis of the Company’s Strategic Capabilities An analysis of the strategic capabilities of a company normally takes into critical account the resources that are currently available to the company for its disposal. These resources are normally classified and categorized under one of the following categories (Johnson, Whittington & Scholes 2011): Intellectual Capital Resource: Starbucks needs to protect several of its innovations including several of its coffee machines designs; brand patents business systems and customer databases. These resources are collectively referred to as goodwill and can be of great value in the event that the company is sold. Starbucks needs to continue applying new patents for its products as well as insisting that all its customers sign confidentiality agreements which will help prevent any potential leakage of vital information (Starbucks 2012). Physical Resources: The Company’s physical resources include the over 15,000 coffee shop outlets that have been established globally as well as a variety of coffee making equipment and transportation vehicles. The company is still the process of opening up new outlets all over the world (Starbucks 2012). Financial Resources: Starbuck’s financial resources include the fact that a large percentage of its finances are invested in various assets such as storage containers, grinders and whole coffee beans. Some of its other resources include its shareholders, capital and debtors (Daft & Marcic, 2009). Human Resources: Starbucks is seen to heavily invest in its human resources. The investment is seen to be in line with the views Starbuck’s founder Schultz who believed that all the individuals employed by the company ranging from the highest ranking CEO to the lowest ranking waiter all play a vital part in the customer’s experience. Currently, the company’s workforce is estimated to stand at around 110,000 employees (Thompson and Gamble 1997). Strategic fit analysis Some of Starbuck’s strengths include its established and well recognized brand name as well as its new product offerings into the tough coffee shop market. Their recycling efforts have also been commended and are currently receiving a lot of positive recommendations and reviews from the public as well as various environmental bodies (Lynch 2012). Some of the threats that the company is currently facing include the sometimes unfavorable international exchange rates as well as the heavy taxes and tariffs that are sometimes imposed on the company (Starbucks 2012). The Main Factors Affecting the Starbucks Company According to the analysis done on Starbucks, some of the critical factors affecting the company include greater health awareness by its customers, the ever present threat of substitute products in the coffee products market, the effects of globalization as well as the often rather expensive permits and licenses (Starbucks 2012). The Future and Current Impact of these Critical Factors Globalization is a factor that the company has been able to utilize effectively and has managed to use it to spread to several countries around the world. This strategy should be maintained as it will help the company in growing its market presence as well as generate more revenue (Reuer 2004). Starbucks needs to start offering more healthy foods for its health conscious customers. The company will stand to make greater gains if it continues investing in this market segment as more and more people in America and the world at large are increasingly becoming conscious of what they eat (Witcher and Chau 2010). Starbuck needs to develop and implement a strategy that will continue promoting its marketing efforts as well as developing various new products to help in countering is the threat of substitute products being offered by its competitors (Wong 2010). Various expensive taxes and tariffs being imposed on Starbucks when it buys coffee from foreign countries as well as during importation will continue hurting the company if the situation is not corrected. Regulatory bodies need to be set up that will ensure that Starbucks and other coffee importing companies are not unduly over taxed when they purchase and import coffee (Starbucks 2012). Appendix In the tables below, Starbuck’s critical success factors and the results of its Strategic Fit Analysis have all been tabulated into a table with three basic categories of Critical Success Factor, Match and comment. The Match column indicates the effectiveness Starbuck’s in regards to the preceding item. In the event that Starbucks happens to be making an effective impact, the match reflects a check symbol (?) whereas in the event that the company is doing relatively poorly in regards to a factor or component, the particular instance is marked using the (?) symbol. Starbucks Critical Success Factors Table Critical Success Factors Match Comment Marketing ? The company has been actively marketing in its products in all the various markets. Technological ? The company is always on the forefront in developing new technology for use in its various shops. Skill and Capability ? The coffee shops needs to start employing more qualified personnel to man various posts in its branches. Service ? The company offers good quality services to its customers. Starbucks Strategic Fit analysis Table Opportunity/ Threat Fit Comment Well Recognized brand name ? The company has a strong brand name that is globally well recognized. This brand name can be used in strengthening the company’s position as it sets up new markets abroad. Going Green ? The recycling efforts will help in promoting the company among the environmentally conscious consumers. Unfavorable International Exchange Rates ? The impact of unfavorable international exchange rates is seen to sometimes adversely affect the company’s profit margin. Expensive foreign licenses and various permits ? Some coffee producing countries tend to charge expensively for the various permits and licenses that Starbucks needs to trade in the country. Bibliography: Thompson, A. A. and Gamble, J. E., 1997. Starbucks Corporation. Columbus: McGraw-Hill Companies. 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(2002) Catching The Starbucks Fever. Missouri State University Accessed on December 12th 2012 From http://academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag -catching-the-starbucks-fever.html Read More