Starbucks Corporation: A Brief Overview - Case Study Example

Starbucks Business Strategy of the Introduction Starbucks Corporation is a US based multinational company operates in the field of beverage industry. The company is the world’s largest coffee chain with around 9000 company owned outlets and 7,852 licensed outlets. Presently, the company operates in more than 50 countries of the world with a whooping annual sales value of $10 billion (Thompson & Shah, 2010). However, in the re3cent times the company has been witnessing serious downfalls and as a result of that the overall sales is declining thereby affecting the growth and development of the firm. The rationale behind the collapse of the firm is related with strategic issues. This research paper will be broadly divided into three sections which will be titled as background, analysis and conclusion. The objective of the research paper will be fulfilled in these three sections and along with that relevant conclusion will be also drawn. In the first segment, i.e. background the study seeks to highlight clear and detailed overview of pertinent information from the case and outside resources that describes the industry and the organizations and key players involved. The external sources that will be used are generally books, journal articles and authentic electronic sources. In the analysis section, the study seeks to scrutinize the course concepts and along with that identifies and discusses the main strategic issues facing the industry and organizations, such as external environment, internal situation, and strategic fit. Hence, in order to carry out this section, the study will be emphasizing on the external as well as the internal environment of the organization. In the last section of the study, the study would be highlighting the important points and will also describe about the ways the situation can be improved. Background Technically, Starbucks should fall in the beverage industry, but since they also market various other food products, they are adjudged to be a part of the restaurant industry. As the economy continues to improve, a significant wave of change is being moved through the restaurant industry. This has redefined how the companies have grown operated and managed risks. The robust technological development has been the key driver for this change and has provided companies with the opportunity to explore new business techniques. The impact of technology in the US restaurant industry has also been positive as it allowed them to be more efficient and enhance the overall productivity. The US restaurant industry has emerged as one of the major industries of the world. The industry has been continuously witnessing strong growth since the last few years. Despite the global credit crunch and financial turmoil, the US restaurant industry managed a steady 4% growth. The research study has shown that the fast food industry of US is driven through increasing young population (who are the prime customers of the industry) and comparative cost advantage. Some of the leading players of the industry are Burger King, McDonalds, KFC and Barista and Café Coffee Day to name a few. According to a report published by “US Fast Food Market Outlook 2010” this industry is expected to achieve impressive in the years to come. The baseline is the increasing variants and reduced trade regulations. However, one of the major barriers of the industry is the increasing awareness among the people about the health concerns associated with the foods offered by the restaurants. The industry is currently valued at $683.4 billion and approximately 990,000 restaurants operate in the market (Pham-Gia, 2009). This shows that the industry is presently witnessing a booming phase. Starbucks is also one of the major players of this industry and the focus will be on the evaluation of the firm. The study will now present a brief overview of the company and after that comprehensive analysis of the industry pertaining to the situation of the external and internal business environment will be evaluated. Starbucks: A brief Overview Starbucks Corporation was incorporated in the year 1971 and was founded by Jerry Baldwin, Gordon Bowker and Zev Siegl. The company is basically involved in beverage industry and falls in the genre of coffee. The coffee house is presently headquartered at Seattle, Washington, U.S. As of 2012, the company had presence in 62 countries with 20,891 company owned and licensed outlets. The company is famous for serving hot and cold beverages, microground instant coffee, pastries, full-leaf teas and snacks. Some of the stores owned by the company also sell hot and cold sandwiches, pre-packaged food items and products such as tumblers and mugs as add on items. In the evening, the menu greatly changes and the variants available are wines, beers and different appetizers. Apart from that the company also has a separate entertainment division, market books, film and music. Most of the products of the company are seasonal and are highly specific to the store location. In some of the grocery stores, Starbucks branded ice creams and coffee is available. Since its beginning the company has experienced steady growth and with the current progress it is expected that they will continue with the development process. The analysis of the external business environment have shown that the industry is greatly shaped by the external factors such as the political factors, social factors, economic factors and the technological factors. The political factors emerge in the form of government regulations pertaining to health and hygiene, food standards and infrastructure of the location. Apart from that the economic policies of the government pertaining to running eating joints and restaurant industry may include inspections, licenses by the health and food minister. The economic factors emerge in the form of jump in the interest rates, rise in corporate taxes etc. Furthermore, the inflation rate of the host country has the ability to shape the operation of the firm and at the same time can reduce or increase the overall revenue of the firm. The economic trends of the market also act as one of the deciders of the marketing as well as business strategies of the firm. The social factors also have drastic impacts on this industry. The food offered by the restaurants is dependent upon the culture of the locality or country. For example, Hindus never consume beef whereas pork is consumed by Muslims. As a result of that, companies operating in this industry generally pursue ‘glocalized’ strategy. The ratio of people preferring to get out for fast foods is also a determinant for the industry. The technological factors nowadays also plays critical role in the success of the industry. A well developed technical infrastructure would lead to better production, efficient distribution and logistics, procurement which in turn results in lower cost and reduced wastage. Apart from that sound technology can lead a company towards innovation, more effective and efficient business marketing. The industry is however highly attractive with the persistent forces shaping the operations of the firms functioning in this industry. The supplier’s power is low in this industry as there are numerous suppliers who operate in this industry and the switching cost is negligible. The threat of a new entrant in this industry is moderate as the start up cost is a bit high and the new firm needs to pass through various legal restrictions before finally starting the operation. However, an establish group with high market capitalization can obviously act as a threat to the firm. In the similar way the threat of the substitutes is moderate. This is because the threat of this industry com in the form of super markets or organic food centers whose target market segment is considerably small in size and depends only on the niche segment. However, the biggest cause of concern for this industry is the high bargaining power of the buyers. Customers often switch from one provider to the other so as to maintain a variety in food consumption. The switching cost is also considerably low or negligible. As a result of these companies functioning in this industry always needs to maintain an edge and bring continuous innovation so as to hold retain the customers. In the context of Starbucks, the company specializes in offering coffee which is hardly available in any other restaurants such as McDonalds, KFC or Dominos. The level of competition among the existing players is immense as majority of the players are well established and have significant share of market. A brief analysis of the competitors is presented below: - McDonalds is the market leader with a share of 7.7%, whereas other renowned players such as Burger King, Wendy’s and subway follow the list with 2.4%, 2.3% and 2.2 % respectively. Starbucks currently holds 6th position with 1.7% share of the market (Hughes, 2012). Hence, with low market share the company should seek diversification or explore other avenues in the same industry to experience growth and development. In the next section of the study, the issues faced by the industry and the company will be discussed. In this context, the case will be comprehensively evaluated and issues will be identified. Analysis The investigation of the case reflected that Starbucks makes use of a number of strategic elements so as to manage and maintain their stance pertaining to ensuring satisfaction of the customers. One of methods being pursued by the firm is the expansion of the stores to different locations. However, this does not always acted positively for the company, rather the poor growth of some stores resulted in their closure and the company suffered financial losses. Apart from that the case also makes it evident that due to widespread business, the company required to various management levels so as to oversee the process of expansion and this impacted negatively for the firm. Hence, poor management can also be cited as a strategic issue of the firm. The case also reflected various troubles for the company when they expanded in other parts of the world. The company has always sought for ideal locations, adequate employee strength and a qualified management team so as to achieve success in the international arena. Their entry to the Chicago proved extremely troublesome than what the management had expected. The first store in Chicago was opened in the year 1987 and subsequently three new stores were opened in the next 6 months. Despite widespread presence in Chicago, the customer footfalls were way below the expectations. This is purely because of the fact that the people of Chicago were reluctant to accept dark-roasted coffee. Hence, this is clearly a case of poor strategy and reflected company’s failure to identify the market needs. In the similar way, downtown store was opened in street rather than lobby of a building and as a result of that customers were reluctant to visit street based store in the winters. This again reflects the failure of the company to properly devise the location strategy. The company faced similar situation in various other markets of US, but the issues differed from one location to the other. Initially, it was decided that the company would only be opening company owned stores so as to attain greater control over the operations of the firm. However, Schultz had other idea in mind and he decided to license other providers with the aim of raising new venture capital and cover the cost of operation. Although the strategy was successful to a large extent as they managed to raise $3.9 million, but the company lost its control over the operations over the franchised store. There were only partial control and any negative approach of these franchised stores would adversely affect company’s reputation in the market. Another major flaw identified was related with the store ambience. The company has already initiated plans for bettering the ambience of the stores in order to ensure that it exactly reflects the values and principles of the firm. Yet, the company has failed to meet the expectation and still depends upon the age old and traditional setting. One of the biggest causes of concern for the firm is that the management team of the company was getting older and as a result of that the required innovation lacks in the organization. Studies have shown that with new people, new ideas come up which takes a company to new heights. From the social perspective, the company is also facing threat in the form of shifting demographical trends. The generation X does embrace coffee drinking habits that were used to be with the earlier generations and thus the management of the firm has to come up with new ways by which they can capture new customers and retain the existing ones. The failure of the economy can act as another major threat for the firms operating in this industry as it is reducing the overall disposable income. The spending of people greatly depends upon the level of their disposable income. Furthermore, the failure of the economy can result in disastrous sales plummet and can reduce the revenue of the firm. Another major worry is that the competitors who are offering similar products are making the customers believe that their quality is superior to that of Starbucks. Hence, the case clearly points out to the gap in promotional methodologies. This study has also carried out a comprehensive analysis of the internal and external environment of the firm and found various factors that can impact the industry negatively as well as the company. Some of the major findings related to the industry are detailed below. The industry is highly administered by the government and as a result of that various rules and regulations needs to be followed. The changes in the corporate taxes also poses as a major threat to the industry as increase in the corporate takes would result in reduction of profitability. In the similar way, the economic stability is one of the key requirements of the industry in order to ensure its growth and development. From the societal point of view, changes in demographics can shape the industry. For example, increase in the number of population, in the target segment would be benefitting the industry as the market size will increase, however a change in coffee consumption habit will have negative effects. In the similar way, technology also plays a major role in the growth of a firm and industry. Nowadays, the dependence on technology is considerably high and even if the company wants to develop its technical infrastructure, it needs to depend on the technology providers. Some of the other threats as identified from the analysis are high threat of new start ups, high switching tendencies among the customers. The matter of the fact all the aforementioned areas is beyond the control of a firm and hence rather than taking preventive measures, the company have no other options. The above segment of the study has shown the various problems facing the industry and the company arising from both internal and external environment of the firm. Apart from that the strategies issues were also highlighted. In the next section, the study seeks to recommend ways by which the company can get rid of the issues they are dealing. Conclusion The study was meant for analyzing the case “Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth” by Arthur A. Thompson of The University of Alabama and Amit J. Shah of Frostburg State University. The case basically takes the readers through a timeline and highlights some of the major strategic event took place with the company since its inception. It has been found that the Jerry Baldwin, Zev Siegel and Gordon Bowker , the founders have been instrumental in taking the firm to the global landscape, however after the change leadership the company experienced several problems and some directly affected the firm’s operation The following are the recommendation by which the company can overcome the existing problems: - The company needs to carry out proper market research activities before investing in a new segment. In the similar way, they should analyze the market research findings before opening a new store. Development of advertising efforts would help them increase visibility. Apart from that transforming the traditional setting to sophisticated and classy ambiance coupled with high end usage of technology. Offering new products will also help the company to remain competitive in the market place. References Hughes, B. (2012). Starbucks marketing escapes the prisoner’s dilemma. Retrieved from http://www.gametheorystrategies.com/2012/01/05/starbucks-marketing-escapes-the-prisoners-dilemma/. Pham-Gia, K. (2009). Marketing strategy of Starbucks Coffee. Munich: GRIN Verlag. Thompson, A. A. & Shah, A. J. (2010). Starbucks’ Strategy and Internal Initiatives to Return to Profitable Growth. Retrieved from http://cdn.transtutors.com/UploadAssignments/323408_2_Reading-Starbucks-Case-Study.pdf. Read More