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Part 1 – Starbucks Business Report

Introduction

Strategic management is a beneficial concept which is applied in the organisations, respectively. The strategy is a set of actions which are applied by the managers so that competitive advantage is achieved. Starbucks is one such reputed and globally acclaimed organisation which has used different strategic management techniques. However, to sustain in the marketplace, it is crucial at analysing and assess the immediate environment of the organisation.  Therefore, the purpose of this strategic business report for Starbucks so that different options could be considered in the decision-making process.

Company Background

Starbucks Corporation is the American based company that offers coffeehouse chain and was founded in the year 1971 at Seattle, Washington. Initially, the organisation would sell coffee beans rather than brewing service, tea and other beverages. Presently Starbucks has more than 30,000 store location, which offers different products, including serving hot and cold coffee, whole bean coffee, instant coffee, tea products, fresh juice and snacks. Furthermore, organisation offers coffee and tea products under different brands including Teavana, Seattle’s Best Coffee, Evolution Fresh, Ethos, Starbucks Reserve and Princi (Starbucks, 2019). Hence, Starbucks is quite established setup and well-acclaimed worldwide due to being bigger coffeehouse.

Currently, strategic management of the company is under Kevin Johnson’s perspective, who joined on April 3, 2017 (Berman, 2019). Under Johnson’s corporate governance, Starbucks has captured a large number of globe section, respectively. As per 2019 research studies, now the company has an office in 6 continents, 78 countries and more than 31,256 store locations (Lock, 2019).

Figure 1 Starbucks offices worldwide

Source (Lock, 2019)

Besides, the company’s operations are divided into three segments from which total revenue is obtained. In the year 2019, revenue from all operating segments was Americas with 69%, channel development with 8%, and International with 23% (Starbucks, 2019). Therefore, Starbucks has now claimed global space and thus requires a potential competitive advantage to sustain other coffee-based organisations.

Figure 2 Operation Target Segments Results, 2019

Source (Starbucks, 2019)

Mission and Vision Statement

Starbucks has only one strategic mission which is designed with a statement, “to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time” (Starbucks Coffee Company, n.d.). In other words, Starbucks one only one objective that is to offer a third place for consumers who could enjoy one cup of coffee at the nearby coffee shop. Furthermore, the company’s vision statement is to become a place that could offer a useful customer experience. Therefore, the organisation is continually working to provide the customer with a new and better way so that they could achieve loyalty.

Competitive Position

Presently, the company has achieved some competitive position over other contemporary organisations. One of the best ways, Starbucks has implemented the strategic approach is creating a customer experience. Company has offered coffee buying and selling as third-place experience were consumers could sit and talk with each other (Hill, Schilling and Jones, n.d.). Second, for competitive advantage, the company has hired employees with training programs. For example, recruits are provided with Starbucks experience class so that company history, culture and social responsibility (Panopto Video Platform, 2018). To gain better feel, the stores were redesigned with contemporary culture and touch of coffee brewing experience under Howard Schultz’s corporate governance strategies.

External Environment analysis

The external environment analysis is done to analyse and understand the environment in which an industry operates. The speciality Coffee Café industry has been existing into the world since the inception of coffee shops culture. However, it is necessary to assess the impact of external factors on the strategic management of organisations. As Starbucks is specialised coffee café, strategic management is needed for its’ future development. Therefore, external factors are explored which could either aligns as opportunities or seek as a threat for new strategy (Reed, 2019). In other words, this factor will offer the position of coffee café industry a new direction, respectively.

Opportunities and Threats

5 Force Analysis

Figure 4 Porter Five Force for Starbucks

• Threats of New Entrants: Starbucks will have a lower force of new entrants due to three important reasons. Firstly, new coffee shops are not stable enough to sustain because consumers do not trust them. However, Starbucks is quite established and has consumer loyalty and thus, is preferred. As a result, revenue will be moderate and do not threaten the Starbucks store. Next, supply chain activities in smaller shops are lower and in a limited scope. Third, Starbucks has set up its brand with different programs for consumers. Therefore, small shops do not have proper brand management due to lower cash flow.
• Bargaining Power of Buyers: Starbucks will have more strong force for buyers. As some consumers will prefer lower or higher caffeine beverage that lacks at Starbucks. Hence, customer preferences could change as per new competitions. Next, if the cost is much higher than the consumer will switch for another option.
• The threat of Substitute product: Now Dunkin Donuts and McDonald is producing different beverages product that is different from Starbucks. Hence, people will prefer it due to lower cost, budget choice and variety of choices.
• Bargaining power of suppliers: Starbucks suppliers are in a large group which weaken their bargaining power. For example, Starbucks has offered suppliers programs to gather new suppliers as in coffee and tea sourcing, respectively. There is no competition among them for charging prices much lower for Starbucks.
• Rivalry among existing competitors: There are different competitors of Starbucks that could produce a different variety of beverages. However, Starbucks has implemented different concepts to face existing competitions. Another essential sort of competitive strategy applied by the company was the innovation of the new product. For example, after the launch of Pumpkin spice latte more than 150,000 visits increased in-store as compared to McDonald, and Dunkin (Forbes.com, 2017). Hence, the competitive position has been acquired by Starbucks and could be seen currently in the marketplace as the speciality coffee industry. Thus, it does have a moderate force to face existing competitors.

Figure 3 Market share of Starbucks to Other Competitors

Source (Forbes.com, 2017)

Industry Life Cycle Position

There are four phases of the industry life cycle in which Speciality Coffee Industry is placed in the maturity stage as far as 2019 statistics. However, the creation of new coffee beverages goes through the same industry life cycle process.

Figure 5 Coffee Cafe Industry Lifecycle Position

• Introduction: It is the beginning of the speciality Coffee café industry where new coffee shop will be created. New coffee café businesses will face problems of low consumers in this stage. Furthermore, new products and services will be introduced in the market. However, Starbucks is already setup organisation that could quickly introduce new coffee beverage due to popularity among masses respectively.
• Growth: In the growth stage, consumers are now aware of coffee beverages produced by coffee shops. However, coffee café industry is not in the growing stage because even small shops and their products are quite famous among the consumers. Starbucks is also not positioned into this stage because people are already aware of its variety of coffee offerings.
• Maturity: The speciality Coffee Industry globally is now in maturity stage due to being already set up in the market. In other words, now focus is not on growing. However, it is on sustainability, market share, profitability and cash flow (). According to a market research report 2018, global speciality coffee market had obtained revenue of USD at 35.9 billion (Mordor Intelligence, 2020). Henceforth, coffee café industry is doing much better and has obtained a mature stage due to being stable coffee sourcing and production.

Figure 6 Global speciality coffee market

Source (Mordor Intelligence, 2020)

Additionally, speciality coffee café industry is producing and souring coffee to obtain sustainability. For instance, top coffee roasting companies are producing and sourcing coffee with 0.3 million metric tonnes through sustainable approaches effectively (Voora, Bermúdez and Larrea, 2019).

Figure 7 Sustainability over coffee production companies

Source (Voora, Bermúdez and Larrea, 2019)

The market size for speciality came mainly from Europe and sourced to different regions, as shown below (Mordor Intelligence, 2020).

Figure 8 Market Size Speciality Coffee

Source (Mordor Intelligence, 2020)

It could be noted that Starbucks could source more coffee and being sustainable and consumer stability. To obtain profitability, now coffee café companies are doing innovation for Arabica Coffee through 100% organic coffee so that consumers could be targeted excellently (Mordor Intelligence, 2020). Therefore, the industry is currently focusing on being stable, and hence it stays in the maturity stage.

Figure 9 Green Coffee Arabia Production by Country, 2019

Source (Mordor Intelligence, 2020)

• Decline: The last stage is the decline where industry could decline. However, in the case of coffee café industry, it is not applicable because it is in the phase of maturity stage and will get stable over there.

PESTLE Analysis

There are following parameters which are included in PESTLE analysis for understanding the external environment.

• Political

The political factor includes the presence of government in the speciality coffee industry. The political rules and regulations could affect the industry as a threat as well as opportunity. For instance, trade relationships could affect the coffee café industry as a threat. The international trade between two countries that produce coffee and distribute in another decide the selling price for speciality coffee (Bush, 2019). If this trade relationship is sored due to political issues that if affect café’s sales negatively. Another threat for coffee café is regulations under the Food and Drug Administration due to government role. On the contrary, the opportunity for political factor includes infrastructure development by having more suppliers if infrastructure demand increases.

• Economic

Two important economic opportunities include higher economic growth as well as a reduction in the unemployment rate (Smithson, 2017). Everyone now has economic support due to employment and thus could afford to buy coffee. Therefore, the café industry could improve its revenue by souring different coffee drinks to every consumer out there effectively. However, the labour cost has been increased due to minimum wage issues. Thus, café will need to pay labour. As a result, spending will increase and affect the work process.

• Socio-Cultural

The socio-cultural trend will affect the speciality coffee industry in a positive as well as negative manner. Consider people who are health conscious they will prefer beverages with lower caffeine constitution, sugar, fat and carbohydrates (Bush, 2019). However, if coffee café does not offer healthy options in their menu cards, then it is considered a potential threat. While it also brings opportunities for industry to create new and variety-oriented beverages so that consumers will prefer it over competitors.

• Technological

The technological trend could create one of the threats which are extensive and over the budget coffee machines. For example, to implement such a huge technological change of coffee machine will charge coffee café. On the other hand, opportunity for technology such as mobile app will produce marketing, branding and sales at the café among consumers (Smithson, 2017). For example, people will prefer online buying for beverages and coffee through mobile purchase. These technologies will create a productive and efficient coffeehouse chain; however, they will increase the expense of the company.

• Environmental

The concept of sustainable farming for coffee production is considered due to carbon dioxide emissions (Bush, 2019). Hence, the green environment will create more consumers who prefer recycled products. The industry has many opportunities, for example, recycled paper products, reusable mugs, emailed receipts, and reusable dishware (Loschelder et al., 2019). However, the threat for coffee café industry is more cost implementation in sustainable practices.

• Legal

The speciality coffee café industry should also consider the legal factors due to being threatful. For example, some legal constraints are put by laws that define the constitution of caffeine in beverages (Guo, Bai and Gong, 2019). Therefore, consumers who prefer an excellent constitution will not prefer popular beverages offered by coffee shops. Whereas, food standards also affect negatively to the coffee production, storage and brewing process. Therefore, all legal standards should be considered by industry while offering a coffeehouse domain, respectively.

Internal Environment analysis

Competitive advantage for Starbucks is required to be assessed for offering new changes. Therefore, the purpose of internal analysis is to gather the company’s position for dealing with competitors and suggesting some recommendations.

Value Chain Analysis

The value chain is a set of activities which showcase how a product or service is created through different production steps (Cristino Mandinga Bonfim et al., 2019). For Starbucks coffee and beverage creation, different activities are undertaken, including primary and secondary group.

Source (Own illustration)

• Primary Activities: This activity will showcase the direct link with the product and service of the Starbucks corporation.

1. Inbound Logistics:

In this process, the raw materials which is coffee selected from coffee beans producers from different regions. Starbucks currently procure unroasted beans directly from the farmers and transport it for storage and distribution (Bajpai, 2019) Henceforth; corporation directly chooses different types of coffee beans to create and brew their beverages.

2. Operations

The operations of Starbucks are due to three segments of operations, respectively. However, the most considerable operation contribution comes from the international market effectively, with 23% in 2019. Furthermore, the corporation has more than 25,000 stores and sell products such as Starbucks Coffee, Teavana, and other health-oriented products at locations (Bajpai, 2019). Therefore, the company has a flow of operations, making it competitive with others.

3. Outbound Logistics: Starbucks offers storing, distribution and transportation of the final product. However, it offers product distribution through store employees, online purchasing, as well as a mobile application. Henceforth, the distribution of coffee beverages is done directly by store location rather than third-party intermediaries.
4. Marketing and Sales: Marketing and sales are not supportive and taken into consideration by Starbucks. It can be noted that the company does no additional advertisements for current products or new beverage. Furthermore, it affects sales as customer reach lacks due to lack of communication strategies with them.
5. Service: One of the significant purposes of Starbucks is to offer effective customer services. All the employees are offered formal training to greet customers while barista asks them for selecting different types of products effectively.

• Secondary Activities: These activities are offered for supporting the product development inside Starbucks.

1. Firm Infrastructure: The infrastructure includes the processes internally supporting the final product. For example, the employees are very well trained and offered with an apron to present the customer with better beverages (Bajpai, 2019).
2. Human Resource Management: Employee motivation is the biggest priority, and thus Starbucks offers several benefits. Some of them include effective education, insurance, and training programs to make them independent and supportive.
3. Technology: Starbucks has regular coffee machines from which they make coffee brewing. Additionally, mobile apps are offered; however, it does not support advanced features for customers.

VRIO Framework

The VRIO framework model offers the analysis for resources, competencies and capabilities that Starbucks has to become competitive as compared with other organisations. VRIO model is applied in the below table to understand the strength and weakness of Starbucks corporation concisely.

Recommendations

After analysing external and internal environment factors for Starbucks, following recommendation are made for the CEO as well as implementation and changes to strategic management.

• Specific: One of the specific recommendations is to target the international segment of operations, including Brazil, India, China, South Africa and Mexico. Furthermore, these countries and their potential market areas which should be explicitly explored by Starbucks. For example, the Indian market can be covered adequately by adapting to their culture and atmosphere into café design. The purpose will be specifically making Starbucks as part of Indian consumers lives. Hence, to achieve this specific target market could be obtained through store format design, lifestyles and taste for Indian consumers effectively (Geereddy, n.d.). It will increase the company’s market share area.

Another specific recommendation is to focus on increasing customer loyalty programs. One of the ways to achieve customer loyalty is building loyalty programs for them through rewards, points and lower price. Secondly, mobile apps should be launched by Starbucks so that customers could book coffee online and create ratings for the best beverage. Third, as consumers become health conscious and thus, menu cards should be expanded by having health-oriented options such as a smoothie, milkshake and another product mix. This will increase profitability as the customer’s preferred products will be sold.

• Measurable: Another important recommendation should be in measurable approach. For example, the product development should be measured through selected factors of coffee and drink constitution as per consumer preferences. Additionally, in the next three years, recruitment for young students should be focused on measurable outcomes. For example, if more employees are recruited, they will perform better and produce more opportunities with efficiency.
• Achievable: The product variety is another recommendation which quite archivable for Starbucks. For example, product mix with the different product including tea and fresh juice should be aligned with traditional coffee beverages (Geereddy, n.d.). In this way, consumers could be attracted more and thereby reducing the competitive rivalry and product switching factors.
• Realistic: The company should have a realistic approach to marketing their brand for consumers. For example, to face competition, new marketing techniques should be implemented through endorsements. In this way, people will build trust over new and old products offered inside the coffee café. Secondly, the green concept of sustainability is now preferred by customers; hence the company should use reusability and sustainable approaches for sourcing coffee (Geereddy, n.d.). It will also make coffee beverages realistic and environmental oriented as well as organic for consumers to buy and sell.
• Time-Bound: Another recommendation is to have different global collaborations with other companies. It will help them to have international market penetration and setup process. For example, in India, Starbucks has joined venture with Tata making market present effectively (Geereddy, n.d.). However, it should be time-bound and planned in a certain period. In the next few months, new opportunities for international global segments should be obtained through collaboration with countries similar to India.

Part 2 – Starbucks Stakeholder Report

Internal and External Stakeholders

The internal stakeholders are those members who affect the Starbucks from inside including employees, and chief executive officer while, external stakeholders that influence Starbucks are sponsors, customers, and suppliers (Appendix A).

Customer Priority Stakeholder Group

Recently, from the past three years, microscopic and medium scale competitors in the coffee shop industry have been found. Therefore, Starbucks needs to focus on its customer stakeholder group and retention so that they will stay with the company only.

• Demographics: Customer involve young adults in the age group of 19-24, men and women want wants to relax and drink some coffee at Starbucks stores. Their occupation includes being a student, young professionals working into companies visiting café. Whereas, older adults do not get involved as regular customers of Starbucks stores as they will prefer homemade brewed coffee only.
• Psychographics: These customer groups are highly caffeine drinkers who prefer coffee in the morning. As young students want to discuss their lives with their friends and relatives, the place offers them. Additionally, people going to office want to feel refreshing in the morning and hence choose coffee as an essential beverage.
• Lifestyle: The young customers prefer highly tasty coffee as well as healthy consumption. The consciousness for health is an important aspect which should be kept in mind by Starbucks.
• Believe and Values: These customers will prefer products that are sustainable and address the regulations.
• Geography: Customers often chose places which are nearby their offices as well as colleges. The reach for the closest place to drink coffee is an important constraint which youngsters will be preferred.
• Behaviour: The customers will prefer instant delivery for the purchased order from a barista. They will demand quick coffee delivery after giving payment successfully to enjoy sitting and chatting with a group of friends.

Power and Interest of Customer Stakeholder Group

Mendelow’s Matrix

The purpose of this matrix is to analyse how customer groups could affect the company, and it could be managed (Laurisz, 2019).

Strategies for Communication

There are different strategies through which communication with customers could be built-in context with Starbucks. The online digital platform offers three types of communication approaches including online catalogue search, customer salesperson contact and online purchasing (Lawrence et al., 2019). Starbucks could create online mobile apps by giving catalogue option to search for different sorts of beverages. While they could also make online purchasing and order delivery at home for building interactions. Lastly, involvement for customer suggestions and online forum could be more useful to interact.

References

Appendices

Appendix A: Starbucks External and Internal Stakeholders