Starbuck’s Case Analysis
Starbuck is and has been one of the most popular and well-known coffee shops. It was started in 1971 by Jerry Bladwin and Zev Siegl in Seattle as the principal shareholders. As competition is expanding in this business field, Starbucks’ business strategy is at an ever significance stage, to maintain and develop as a company. Today, Starbucks coffee company has grown to become the leading speciality coffee retailer. It normaly operates many coffee shops across the globe in more than 62 nations. The company also is a dominant Fortune 500 company who has built at rusting brand through various competitive strategies and has stood among competitive market forces. This paper explains in detail and analyzes the business case/company Starbucks. It includes several elements and in particular organization and management, product/service offerings, marketing/sales, funding and financial projections. It also details other elements which are relevant in explaining the viability of the company and goes ahead to explain why this business venture is viable. It ends with a review of Starbucks’s performance and the environment from different perspectives.
Analysis of this firm’s Structure.
A company firm’s structure is very significant for the company. The company has developed to have an organizational structure that matches its current business needs. At this section, Starbucks does great in firm structure. It grows with the business, enabling it to optimize processes and the quality of its products. The four key features of this company firm’s structure are functional structure, geographical divisions, product-based division and teams. The functional structure of Starbucks’s firm structure by grouping is based on the business activities. Like, it facilitates top-down monitoring and controling, with the president and CEO at the top. Starbucks’s firm structure involves geographic division. There are many stores over 62 countries. Starbucks’s firm structure focuses on certain product lines. It assist effectively develops and innovates its product with support from its structure. final feature of this firm structure is team. They are most important at the lowest organizational levels. This feature of Starbucks firm’s structure enables it to provide effective and efficient service to consumers.
Industry Rivalry
At the midst of the five forces model is industry competition emerging from the rivalries amongest the existing industries. Defining an industry can be explained as drawing a line between the started competitors and the alternative products offered by competitors outside the company. (Porter, 1998, p. 17) The assumption is that the relevant industr confined to its competitors within the specialty coffee segment; thus, any reference for competition from outside of the specialty coffee area, say maybe from basic coffee companies such as Folgers, should be considered competition from a substitute product category. However, in provided the difficulty in defining the boundary of the specialty coffee industry, will analyze the effects of some basic coffee competitors tries to enter the specialty coffee industry not as sources of potential new entrants but as a force adding to rivalry among existing industries. This general competition, created by rivalry between founded competitors, normally drives down the rate of returns on capital invested toward what economists refer to as, “the industry floor rate of return,” that occurs if there is perfect competition. (Grant, 2008, p. 69). The environment in which the speciality coffee industry had to compete with during the late 1980s was made up of both product-based competition and retail-based competition. 9 The commodity-based competition was primarily by the basic coffee companies, who could attempt to enter the specialty coffee segment. Most of the larger basic coffee companies, who made most of their sales in grocery, could have responded to rapid growth in specialty coffee industry by introducing their upscale versions of already popular supermarket . (Koehn, 2005)
These potential retaliatory threat were unlikely to materialise the high risk an established, branded company would be taking by entering the company with the speculative growth prospectives. This conclusion follows based on the much higher hurdle rates; a major established company must surpass. Such founded companies would have needed to achieve a far larger volume of sales than would that small company like Starbucks at that time to reach a sustainable and consequential profit margin. However, coffee would have to confront by the product based competition from other non-coffee beverages, such as tea, soft drinks, snacks and alcohol. (Harding, 2000) In this context, speciality coffee was at an advantage because the consumption of most potentially competitive supplement products was declining relative to speciality coffee during the late 1980s. (Harding, 2000) The retail-based competition was divided between flavoured speciality coffee retailers and non-flavoured coffee retailers. Flavoured speciality coffee came in a variety of flavours including hazelnut, raspberry, pumpkin spice, and others that were infused inside the coffee beans during the roasting process. Although this company offered its coffee in a variety of flavours, they never used flavoured beans, instead of adding concentrate syrup to the brewed coffee, because adding flavour to the beans themselves violated Starbucks’ definition of speciality coffee in their view, would degrade the quality of the Arabica beans. (Schrage, 2004) As defined by the firm, specialty coffee 10 has no defects and has a distinctive flavor originating from the microclimates where these beans were produced. (Schrage, 2004) Roughly 25% of all specialty coffee was sold in 1987 was flavored. (Schrage, 2004) Because the industry rivalry which existed between the specialty coffee industry consisted of differentiating a comodities that was once considered a product and involved many differences in both flavoring techniques so on to presentation, the consumption of specialty coffee was rather insensitive to price fluctuations. This presented a condusive environment in which price wars would not become prevalent. Furthermore, budding state of the specialty coffee industry was meant competition was limited and small in the scale. The last environmental factor that affecting the nature of company competition during the era of firm’s founding was the market rate of growth, which for retail specialty coffee was about 6% in North America in 1987. (Specialty Coffee Association of America, 1988)
this companys Success Factors Firstly is -mover advantage When Howard Shultz purchased most assets of this industry on August 18, 1987, he immediately set in a motion an aggressive growth strategy targeted at the unique buyer base the specialty coffee firms attracted. The expansion plan called for 125 new stores to be opened to facilitate eficiencyin the first five years of operation. However, these great plans would lag that of the actual expansion that Starbucks underwent. In the first year of their expansion, financial year 1988, this firms more than doubled the 11 stores at the base they operated by opening 15 new stores in the Pacific Northwest. From ther proceed to re-re-open 20 stores in 1989, 3131 stores at 1990, 32 stores in 1991 and 53 stores in 1992, with a total of 150 stores in period. In order to ensure that reputation for quality and customer service Starbucks, did not adopt franchising, instead of maintaining company control of all new stores. (Shultz, Pour Your Heart Into It: How it Built a Company One Cup at a Time, 1997, p. 114) A primary reason they were able to enlarge in such an aggressive rate without experiencing any significant problems was the result of a crucial strategic decision that made the year 1987 to move into both Chicago, IL and Vancouver, Canada simultaneously. With only five stores in operation at the time, within close proximity to one another, many questioned both the move 2000 miles away to Chicago and the international expansion into Canada. (Shultz, Pour Your Heart Into It: How this firm Built a Company a Cup at a Time, 1997, p. 111) These decisions, however it made to 23 both the feasibility of Starbucks’ business plan of national expansioning using the generic strategy of focus and to giving them an opportunity to test the waters near the East Coast before making of capital investments.
Expansion East Chicago was chosen as the first major eastern expansion target because it presented a lot of challenges not present in many other Midwest and East Coast towns, that would help the corporate team at Starbucks assess how best to expand throughout the country. The city has been located in the heartland of the two largest basic coffee industries in the United States. The first of these two industries was, that part of the food and beverages division of Procter & Gamble, and the second company was Maxwell House. Both of these companies had the financial resources and brand recognition to muffle any expansion attempts made by Starbucks. The real question which this firm corporate team was trying to answer was whether these companies perceived Starbucks as a legitimate threat and whether they would act upon Starbucks’ expansion into Chicago by launching theretaliatory campaign. The second goal of the move into Chicago was to establish the infrastructure necessary to operate a store far from the corporate headquarters. Logistically, transporting perishable product thousands of miles while maintaining its quality presented Starbucks with a significant barrier to their expansion plan, which they would have to overcome if they were to achieve success in Chicago. The solution to this was the production and utilization of flavor lock bags. These bags 24 allowed them to transport of coffee for every bag without risking deterioration from moisture or the carbon dioxide released by the coffee beans. This allowed them to maintain the integrity of the Arabica beans without limiting their ability to expand. (Shultz, Pour Your Heart Into It: How it Built a Company One Cup at a Time, 1997, p. 160) Their stores in Chicago were originally unsuccessful, which forced it to access again both their matrix for selecting locations to open stores and operational components such as pricing and to hire. They found three causes of the initially unsuccessful stores. The first mistake was in not opening their stores bu office building lobbies. The cold and windy winters in Chicago dissuaded people from walking outside to get a cup of coffee and since their initial stores faced the streets in the Chicago Loop, they received little foot traffic during the winters. The second mistake was in hiring inexperienced management to run the stores. Due to Chicago’s great distance from Starbucks central hub in Seattle, it was more challenging to convey the ideals and methodology of Starbucks to baristas hired there. Management was required to play a much role in ensuring that customer service expectations were met.
Third, the stores did not charge prices given the higher cost of goods and rental prices present in Chicago and did not take adequate advantage of the inelastic demand for specialty coffee. (Shultz, Pour Your Heart Into It: How it Built a Company One Cup at a Time, 1997, p. 120) After gain a thorough understanding of why success was not initially achieved in Chicago, firms corporate staff took the appropriate actions necessary to correct these problems. They closed the stores in undesirable locations, reopened in the lobbies 25 of higher traffic buildings, hired more experienced managers, and raised prices. The lessons learned in the Chicago stores allowed much of the following expansion to take place with few unforeseen problems. Their expansion into Vancouver, Canada was met with far less resistance because of the similar demographic makeup of the city compared to Seattle and helped to convince future investors of the viability of international prospects for the company. California Expansion Until 1991, when they opened their first store in California, their expansion remained confined to the Pacific Northwest and Chicago. Unlike Chicago and Vancouver, which were strategically important for Starbucks to success, California simply represented a vast market with an ideal demographic makeup and open attitude toward high quality and innovative foods. Los Angeles was chosen to be the hub city in California given its status as a trendsetter and Hollywood’s cultural ties to the rest of the country. It was an immediate success, with the Los Angeles Times naming Starbucks the best coffee in America before their first store in the city was opened.
A second advantage that came with the opening in Hollywood was the implicit celebrity endorsements of Starbucks propagated by the candid photos taken by paparazzi showing celebrities holding cups of Starbucks’ coffee. (Shultz, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, 1997, p. 116) 26 The Catalog Another means Starbucks utilized to determine the most advantageous locations to open new stores was through their mail-order catalogue. This catalogue gave customers the opportunity to order wholesale packaged this firm’s coffee beans from anywhere in the country. Typically areas with high concentrations of catalogue orders were ones in which new store openings were well received. Thus, the catalogue gave Starbucks the opportunity to create a loyal customer following before physically entering the regional markets by opening new stores.
Employee Satisfaction
From the perspective of the Starbucks’ corporate team, the quality of the baristas and other employees was the most important ingredient of Starbucks’ success, next to the speciality coffee itself. As Howard Schultz said about his employees, “these people are not only the heart and soul but also the public face of the company. Every dollar earned passes through their hands.” (Shultz, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, 1997, p. 125) Vast financial resources and time were dedicated to pursuing the best means of obtaining the highest quality employees available. A novel approach used by Starbucks was to raise health care benefits and extend them to all employees working more than 20 hours a week. Conventional wisdom would lead one to believe that this measure would increase costs to an unacceptable degree. The corporate staff at this company reasoned that increasing healthcare benefits would not only attract higher-quality employees but would decrease the profit and potentially decrease the overall expenses for the company. Their strategic assessment of the effects increased health-care benefits would have on the company expenses with time. 28 The cost of training a new barista at Starbucks was $3000 in 1989 when they initially began to offer the healthcare benefits, and the cost of providing an employee with full health benefits was $1500. With the typical turnover rate at a retail or fast food chain ranging between 150% to as high as 400% a year, Starbucks turnover rate of 60% at the barista level and 25% at the managerial level was the lowest in their industry. (Shultz, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, 1997, p. 128) Without mathematical calculations, it is easy to conclude that the increased health benefits did indeed save Starbucks cash.
The second unique initiative that the companies corporate team implemented was an employee stock ownership plan affectionately referred to as Bean . The basic plan was to grant stock options to every employee, companywide, top managers down to the baristas, to proportion to their level of base pay. Initially, the stock options were offered at 12% of base pay but were then boosted to 14% of base to pay. Because Starbucks offered these stock options to 700 employees as company, they had to obtain special exemption from the Securities and Exchange Commission. The SEC typically required companies more than 500 rshareholders members to file for public status. (Shultz, Pour Your Heart Into It: How Starbucks Built the Company Cup at the Time, By involving all employees in the equity success of the industry , Starbucks effectively created incentive for employees to both reduce costs and treat potential customers with exceptional service. In addition that program, this cop initiated an open forum every quarter to explain the company’s progression and also to encouraged suggestions from all employee levels. After the program started, the word employee was neither longer used on internal documents; instead, it was exchanged with its word partners. This was another ploy to create employee loyalty with dedication.
Other examples of ways in which this firm could enhance both its actual green bona fide and their image as an environmentally friendly company would include: selling to go mugs and re-usable sleeves an affordable prices; implementing recycling bins; seeking to compost otherwise recycle waste; and encouraging customers, using financial incentives, in recharge plastic Starbucks cards as opposed purchasing a new . All of these procedures would enhance Starbucks’ image for corporate responsibility and would help further its differentiate Starbucks from its competition. Ultimately, just as with the company to continually analyze and improve the coffee, going green should be a continuous process. All employees should be encouraged to suggest environmentally beneficial to initiatives. Management should organise constant improvement in this area a very public company priority, which only seems appropriate a company with a famously green logo.
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