Marketing Analysis for Starbucks UK - Essay Example

Marketing Analysis for “Starbucks UK” Executive Summary The report provides a brief overview of the Starbucks Corporation, its business activity and presence on the global market. Based on the analysis of the UK’s Food and Beverage industry it has been concluded that the American-based coffee network has opportunities for strengthening its market position in the UK as the economic forecasts are positive. However, in order to meet the potential challenges and use the opportunities available, Starbucks has to keep its strategy and apply its marketing techniques to differentiate its brand from the competitors and increase customer’s loyalty. However, it has been recommended to focus on the development of broader range of healthy and organic products due to the shift of the consumers’ preferences towards healthier eating habits is a great niche for the company. Starbucks might broaden its existing range of food items by offering innovative and tasty but healthy food items. Also, Starbucks could strengthen significantly its market position by selecting a good “victim” for M&A. In case of successful acquisition, Starbucks could develop and launch relevant campaign devoted to its healthy product line. Also, as the company is operating through franchising system in the UK’s market it might be helpful to promote its franchising opportunities through launching a broad marketing campaign and participation in various franchising events and exhibitions. By developing its network through franchising, Starbucks will be able to capture a larger market share within a short period of time and thus will be more competitive on the market. Introduction: Company overview Starbucks Corporation is the US-based premier roaster, marketer and retailer of specialty coffee, operating globally (MarketLine Advantage 2014). The company began its story in 1971 in Seattle (Starbucks.com, 2014). Nowadays, its presence is covered by the 19, 767 retail stores operating in 62 countries all over the world (MarketLine Advantage 2014). In addition to purchasing, roasting and selling whole bean coffees, handcrafted coffee, tea and other variety of beverages, the company offers different fresh food items in its stores (MarketLine Advantage 2014). Starbucks also sells its products and licenses trademarks through grocery and national foodservice accounts and licensed stores (MarketLine Advantage 2014). Analysis of the Food and Drink Markets, The food and Drink Market Size, Competition The Food and Beverage sector in the UK’s economy has a broad definition as it is comprised of different sub-sectors (Thornton 2010). The major sub-sectors include: dairy products, soft beverages, frozen and chilled foods, meat/fish/poultry, cereals, fresh produce, food ingredients, sugar and confectionery, baked goods, and others (Thornton 2010). Graph 1 (Appendix) visually illustrates market segmentation by different subsectors and share of the market gained by each sector. Below are given some key facts related to the UK’s Food and Beverage industry: The overall number of UK Consumers is 68 million people; Total Consumers’ Expenditure of food, drink and catering – 180 bn pounds, whereas 78 bn pounds on catering services (restaurants, cafes, and canteens); Food and Drink Retailing sector has a 27% share (26,1 bn pounds) by the gross value added to the UK agri-food sector (2011); Non-Residential Catering – 26% share (25,2 bn) by the gross value added to the UK agri-food sector (2011) (Department for Environment, Food and Rural Affairs 2012); Consumer expenditure on food and drink shows a continuous growth despite the economic downturn; Consumers tend to eat out more often than in the previous years, however, the spending has declined (as of 2012) (Department for Environment, Food and Rural Affairs 2012); Despite the economic downturn in 2008, the UK Food and Beverage sector is demonstrating positive sign of recovery. However, there are some significant challenges (or opportunities) that are faced by the companies operating in Food and Beverage sector, including the following: weakening of sterling, lack of scale and cost pressures as sell-side drivers of Mergers and Acquisitions, rise in commodities prices, changing consumer’s behavior towards healthy eating and corporate social responsibility (Thornton 2010). Competition on the UK’s Food and Beverage market is quite intensive: at the start of 2012 there were about 2260 enterprises operating in the food and drink sector (Department for Environment, Food and Rural Affairs 2012, 22). Segmentation, Targeting, Positioning and Customer Value Proposition Starbucks has focused its strategy on the offering of an up-scale coffee product and service. The company defined its segment as the category of health conscious people, who liked travelling, and who could be named as gourments (Davidson, Keegan & Brill 2004). The company has identified and developed the gourment coffee segment and has transformed ordinary commodity into sophisticated ritual (Davidson, Keegan & Brill 2004). Focusing on sophisticated customers, the coffee retailer was initially targeting successful people, white collars and other office workers, as well as young college students and social classes (Bremont 2013). Further, with the ambitious business development plan the company has broadened its target audience practically to every individual of every age (Bremont 2013), offering their products not only in stylish and elegant cafes but also in retail chains. Starbucks has differentiated its brand of its competitors by positioning itself as an up-scale premium location where “Starbucks drinkers” could enjoy not only the taste of superior coffee at a premium price, but also a friendly atmosphere and excellent and consistent customer service (Pilch 2006; Davidson, Keegan & Brill 2004, 219). All these three aspects are the key elements of the Starbucks’ customer value proposition. Marketing Review of Current activities: The Marketing Mix - The 4 P’S Product The company has undergone significant evolution of its product line and today it offers different categories of products, which can be divided into three major categories: coffees, handcrafted beverages, and non-coffee blended beverages (MarketLine Advantage 2014). Coffees include: single-origin premium Arabica coffees, and blended coffees. Handcrafted beverages include: fresh-brewed coffee, Frappuccino coffee, Hot and iced espresso beverages. Non-coffee blended beverages include: Tazo teas and Smoothies (MarketLine Advantage 2014). Price Starbucks is a company using a strategy of premium pricing (or prestige pricing), and thus setting prices at the high end of possible price range or near it. Thus, the company is oriented on status-conscious consumers who are committed to the American-based coffee shop brand. The perceived value of the product (including the atmosphere and customer service) influences on the customer’s decision to prefer Starbucks to its less expensive competitors (Marketing Mentor, n.d.) Promotion Starbucks is continuously promoting its brand through the various entertainment events devoted to different themes and focused on special geographical location. Also, the company is taking an active position towards promoting its brand through the online environment. The company is active user of the most popular social networks and has a great website platform. Also, Starbucks is developing and launching new applications that enable to engage better its target audience with the help of new IT technologies (Starbucks Coffee Company n.d.). Place Starbucks’ business is run globally through the retail chains specialized in coffee and its substitutes or other beverages. The ideal place for Starbucks location is highly-visible place with high-traffic. The principle of locating the stores is based on proximity to the city center; the potential locations can be: office buildings, retail centers, university campuses, railway stations, and other busy rural locations (MarketLine Advantage 2014). Starbucks Boston Matrix model Starbucks has different products which are positioned in different categories based on the Boston Matrix model. There can be identified four major categories of products including: coffee and cakes/packed food, mugs, and packed coffee for consumption outside the café. Coffee/coffee beverages and cakes/packed food relate to the products that can be labeled as “stars” in the Boston matrix as they have high market share and operate in high growth markets. These products are the major cash generators at the restaurants as they work as key attraction for customer’s visit. Mugs are the products that operate in a low growth market but still have high market share. Starbucks mugs also generate good profit for the company as the product is well established and supported with continuous design innovations (Starbucks.com, n.d.). Therefore, this product category can be referred to the Cash cow section. Tea products of Starbucks relate to the category of products operating in a market of high growth but has low market share – problem child. Even though this product is consumed by a huge number of people, Starbucks is not the right place for tea lovers; it is the placer for coffee lowers. Thus, the demand for retail tea in Starbucks is much lower than demand for coffee in Starbucks. Packaged Coffee beans offered in Starbucks stores is a product operating in a low growth market and has low market share. While Starbucks is popular for its coffee and quality it is more popular as a place for quick coffee out of home. While coffee lovers tend to buy packed coffee in the stores, their number is quite small. Therefore, it generates not much cash for the company. This product is referred to the dogs section. High Coffee/coffee beverages & cakes/packed food Low Tea Mugs Packaged coffeee Existing Product Management and New Product Development Starbucks is continuously redeveloping its existing products and recipes and is creating new innovative products based on the geographical location of the store and current customer’s preferences and needs (depending on age, race, culture, and seasonality factors). For the UK market Starbucks also has pushed a large investment and offered a set of new products and revamped packaging. These efforts were undertaken in order to capture a larger share of fast-food market by extending its reach beyond coffee (Joseph 2013).Thus, for example, the company has introduced a hybrid of donut and muffin in October 2013. Also, the company has refreshed its menu designs and packaging indicating on the “artisan nature” of the products (Joseph 2013). The next step in Starbucks’ path of new product development has enabled the company to capture the largest share of potential consumers, as it has launched a “flexible” Frappuccino referred as the “however-you-want-it Frappuccino blended beverage” (Starbucks Coffee Company 2014, n.p.). This offer enables the customer to customize their drink by deciding on the amount of coffee, flavors, milk, and toppings. Recommendations UK’s market is a great opportunity for Starbucks business development as the population is representing the ideal target audience for the company. Based on the research of the UK market, it is possible to define two reasonable recommendations for the American-based coffee shop chain. First recommendation is to focus on the development of broader range of healthy and organic products. The shift of the consumers towards healthier eating habits is a great niche for the company. While the company is already offering a set of similar products, it might broaden its range by offering innovative and tasty but healthy food items. While the R&D costs for this category of products may be very high and take long time for product development, the company can take over another opportunity – through applying Mergers &Acquisition strategy (M&A). Based on the UK’s market overview, more small and medium sized companies tend to face the threat of being acquired because of strong competition of larger players. This is a great opportunity for Starbucks who has already gained some experience in M&A practice (acquisition of 65 Seattle Coffee Company stores in the UK, Starbucks Coffee Company, n.d.). In case of successful acquisition, Starbucks should develop and launch relevant campaign devoted to its healthy product line. In the UK Starbucks is operating through the franchising system whereas the company should focus also on attracting potential franchisees to its brand. While the brand by itself is quite popular and many investors would like to buy Starbucks franchise, the company could promote its franchising opportunities by launching a broad marketing campaign through participation in various franchising events and exhibitions. By developing its network through franchising, Starbucks will be able to capture a larger market share within a short period of time and thus will be more competitive on the market. Conclusion The research has provided an overview of the Starbucks Company and its marketing strategy. Based on the results of analysis of the UK’s Food and Beverage market and the overall Starbucks’ marketing mix strategy it is possible to conclude that the American-based retailer has to retain its market share (already gained) through launching innovative but healthy products in order to meet the changing consumer’s demand of healthier products. While the company can use its own R&D resources for this purpose, it can also review the opportunity of M&A. M&A should be supported with a large marketing campaign devoted to promotion of its health conscious focus. This will enable the company be more competitive on the market, where many other fast-food retailers are already offering a broad range of healthy/organic product items. References Bacon, J. 2014, The secrets of the worlds most valuable brands | Analysis | Marketing Week. [online] Marketingweek.co.uk. Available at: http://www.marketingweek.co.uk/analysis/essential-reads/the-secrets-of-the-worlds-most-valuable-brands/4010478.article Bremont, R., 2013, First period blog. Starbucks marketing strategy. [online] Entrepreneurship_pze. Available at: http://entrepreneurshippze.weebly.com/1/post/2013/03/first-period-blog-starbucks-marketing-strategy.html Davidson, J, Keegan, W, & Brill, E 2004, Offensive Marketing : An Action Guide To Gaining Competitive Advantage, Amsterdam: Elsevier Butterworth-Heinemann, eBook Collection (EBSCOhost), EBSCOhost, viewed 22 June 2014 Department for Environment, Food and Rural Affairs, 2012, Food Statistics Pocket Book 2012 -in year update. 1st ed. [ebook] Available at: https://www.google.com.ua/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0CFkQFjAF&url=https%3A%2F%2Fwww.gov.uk%2Fgovernment%2Fuploads%2Fsystem%2Fuploads%2Fattachment_data%2Ffile%2F183302%2Ffoodpocketbook-2012edition-09apr2013.pdf&ei=0DOnU4MB6OPLA7XbgKgE&usg=AFQjCNFhfka6RzQNpBxWKPQY60Sz-7EQaw&sig2=0zfpRg3-g5-PTFi7sO3bUw&bvm=bv.69411363,d.bGE Joseph, S. 2013, Starbucks launches UK food drive to extend its reach beyond coffee | News | Marketing Week. [online] Marketingweek.co.uk. Available at: http://www.marketingweek.co.uk/sectors/food-and-drink/starbucks-launches-uk-food-drive-to-extend-its-reach-beyond-coffee/4008106.article Joseph, S. 2014, Starbucks to bring wireless charging to Europe | News | Marketing Week. [online] Marketingweek.co.uk. Available at: http://www.marketingweek.co.uk/sectors/food-and-drink/news/starbucks-to-bring-wireless-charging-to-europe/4010819.article Marketing Mentor, n.d., Prestige pricing. [online] Marketingmentor.net. Available at: http://www.marketingmentor.net/wp/?wpid=2063 MarketLine Advantage 2014, Company Profile: Starbucks Corporation. Pilch, CL 2006, Find Your Market Niche And Build a Stronger Brand, Businesswest, 23, 13, pp. 22-23, Corporate ResourceNet, EBSCOhost, viewed 22 June 2014. Starbucks Coffee Company, (n.d.). New packaging comes to Starbucks Stores. [online] Available at: http://www.starbucks.com/promo/package-art Starbucks Coffee Company, (n.d.). Responsibility. [online] Available at: http://www.starbucks.com/responsibility Starbucks Coffee Company, (n.d.). Company Information. [online] Available at: http://www.starbucks.co.uk/about-us/company-information Thornton, G. 2010, Targeting growth: Challenges and opportunities for the UK Food and Beverage sector. 1st ed. Appendices Appendix 1. Food and Beverage –Gross Value Added (2011) Read More