Case Study for Starbucks
Introduction
Starbucks was founded in 1987 and over the years, it has established itself on the global stage as a formidable force in roasting, marketing, and distribution of specially formulated coffee around the world. As of April 2012, Starbucks had well over 17,000 stores operating in 55 countries around the globe. With such a large network, it was projected that annual revenues in the 2012 fiscal year will likely exceed the $13 billion mark. The global economic crisis witnessed in the years that followed 2009 affected the revenues of Starbucks negatively.
The dwindling sales made the company resort to measures leading to the close of 800 stores that were found to be performing poorly in the United States. Further, 100 more stores operating in other countries were closed down. The expansion strategy was also halted. An estimated 7,000 employees were also retrenched in a bid to cut down on costs. As a result, the premier company in coffee roasting has struggled to gain the prominence that it once enjoyed. However, there are still opportunities that Starbucks can leverage in the face of competition from substitutes such as tea to maintain its global glory of being the coffee maker of choice. This paper will analyze the Strengths, Weaknesses, Opportunities, Threats (SWOT) of Starbucks to inform its strategic management approach. It will also examine the environmental efforts of Starbucks. Also, viable strategies will be recommended for the company.
SWOT Analysis
Strengths:
The real strength of Starbucks is that it boasts a strong market position and enjoys global brand recognition. It is the most recognized brand in the coffee making industry. As of 2012, the company had operational stores in about 55 countries across the globe. Effectively, Starbucks should take advantage of its rich brand to market and license their products in international markets. This gives them a competitive edge even with the threat of entry of new players. Their distribution channels are also efficient and they have managed to foster working relationships with suppliers.
To keep the quality of its products high enough, the company has avoided franchising at all costs. They have attached a premium on quality and have restrained themselves from quality standardization tendencies even when it means high production capabilities. The appealing nature of their stores is also an advantage for the company. The visual appeal demonstrates their approach in striving to attain high standards in everything they do.
Each store is viewed in the light of a billboard and also as a contributor to the image of the company. In 2009, the company also introduced a new design approach for its global stores. This design strategy was aimed at appreciating the locally available materials in their international markets. The environment is friendly as smoking is not allowed and employees are restricted from wearing perfumes to make sure that the aroma in the environment is purely that of coffee.
They have a strong human resource management system. Starbuck employees are highly regarded. They are seen as the main assets of the company and for this reason, the management has undertaken measures to ensure that they remain motivated throughout. There is healthcare coverage for all employees including those working on a part-time basis. There is also a stock option available for all employees. Employees are motivated by competitive compensation pay packages.
Due to the social responsibility initiatives by the company, there is goodwill among consumers. The company has set out a mission to ensure that while it maintains the desire to be profitable, its social responsibility is not neglected. All its products are sourced ethically. In this bid, the company strives to inculcate responsible growing practices among its farmers. Starbucks only deals with suppliers who demonstrate social responsibility. The company has strict policies to ensure that no genetically modified ingredients find their way into its products. The company ensures that the prices at which it buys green coffee from their farmers are high enough for them to meet production costs and also allow them to provide for their families.
The Starbucks Card introduced in 2008 has inspired loyalty among consumers. The card has been integrated with Starbuck mobile application to ensure that customers enjoy services in a manner that is convenient for them. Product differentiation is another strength that the company enjoys. There is a diverse range of products from tea to coffee and spices. In 2008, Starbucks introduced a new product called “Pike Place” that brewed in all its stores around the clock. Customers prefer variety and Starbucks is always working to ensure that it is given to them.
Weaknesses:
Starbucks has concentrated so much on the United States market. A great majority of its stores are located in the United States. Following the period of the global financial crisis, many of these stores were underperforming and the company resorted to closing them down. It is reported that in the United States alone, 800 stores were closed because of underperformance. Revenues tend to dwindle for Starbucks especially in times of economic sluggishness because the company finds it necessary to shift the burden to the consumers making their products expensive.
Their pricing strategies are strongly anchored on the supply and demand policies. When the supply of their key materials is low and the demand high, the company adjusts its pricing accordingly. Sometimes this makes their products very expensive and some consumers may have no other option but to turn their attention to substitute products from the competitors who may be offering them at competitively low prices. Some countries engage in quota restrictions and this may affect the supply of unroasted coffee to Starbucks.
The bid to expand in other international markets may meet resistance because there is a likelihood that some cultures do not allow consumption of such products as coffee. If this is anything to go by, their international expansion strategy may suffer a big blow. The company also faces challenges in trying to walk a balanced path between profitability and social responsibility.
Opportunities:
One of the opportunities available for Starbucks is expansion into other international markets. The company is large and enjoys a superior brand recognition over the competition. Relying on the United States has proved untenable in the long run and this is a reason the company needs to get out there and explore other options. There is growing need for the company to leverage their brand value and expand their market well beyond the United States and Asia.
Starbucks has already embarked on measures to make it technologically relevant. In 2008, the company introduced a Starbucks Card that can be used by customers to earn loyalty points and this has inculcated loyalty among consumers. To ease transactions for the consumers, the company should intensify its technological efforts to provide even more user friendly methods of accessing their services.
Threats:
The tastes and preferences of customers are continuously changing. What a customer liked yesterday may not be what they will like tomorrow. For this reason, the company must strive to ensure their products are differentiated according to the needs of the customers. This is a great challenge for any company. Global economic events such as the economic recession that was witnessed in 2008 affects the company. During such like times, revenues tend to dwindle as was witnessed at Starbucks after 2009.
There is increased threat of competition from players such as McDonalds. Increased competition will reduce the market share of Starbucks. With few restrictions in the market, there is also the threat of new entrants. This will lead to market saturation and impact negatively on the revenues of Starbucks. Price volatility in the market especially with some countries imposing quota laws has sometimes diminished the supply of unroasted coffee. This makes the company to adjust their commodity prices in respect to the supply. Sometimes the cost is pushed to the consumer making Starbuck’s products expensive.
Environmental Efforts
I think Starbucks are serious in their environmental efforts. In 1997, the company developed content cups that could be recycled. The years after this, they also came up with a plastic cup that was heralded to be a more environmentally friendly alternative. Discount incentives were also given to those customers who remembered to bring their recyclable cups back to Starbucks. In 2009, reports indicated that the company had sold well over 5 million beverages using reusable cups more than the figure in the previous year(Taylor, 2011). Their store designs have adopted an approach that utilizes locally available materials. In most cases, these materials are recyclable. To minimize on energy consumption at their stores, the company has implemented an LED lighting systems in collaboration with GE Consumer & Industrial. As a result of its environmental efforts, Starbucks is ranked in the Fortune 500 companies that green(Taylor, 2011).
Recommendations
The international segment presents the biggest opportunity to Starbucks for growth. Coupled with their superior brand over the competition, the company should leverage this to increase its market share. Its growth strategy in the United States should draw focus on entering areas that are untapped especially in the rural places. To further increase the loyalty of customers, Starbucks ought to implement a strategy that will see services delivered at the door steps of customers. Payment services need to become more streamlined. The adoption of the mobile application and the Starbucks Card is the best way to start. More innovative ways can be adopted to bring convenience in payments and access of services to the customer. The company has also not invested enough in marketing and advertising. Initiatives towards this should be immediately adopted to increase the brand awareness especially in the areas that remain untapped.
Conclusion
In conclusion, Starbucks is a global company boasting a brand and customer loyalty not witnessed among its key competitors. The company is profitable but for this to remain so, atleast in the long run, the company need to undertake measures to ensure that its relevance in the market is not in jeopardy as a result of increasing competition in its area os specialization. There is need to continually build its profit drivers around the strengths and opportunities discussed in this paper while at the same time working around their weaknesses and threats.
References
Taylor, S. (2011). Starbucks Spreads the Spirit of Giving with CARE. Advertising & Society Review, 9(1). http://dx.doi.org/10.1353/asr.2008.0004