Starbucks Strategy and Internal Initiatives to Return to Profitable Growth

Starbucks Strategy and Internal Initiatives to Return to Profitable GrowthGus, Rotha and Larry

Brief HistoryThe first Starbucks location opened in 1971. The name is inspired by Moby Dicks first mate. The name and the mermaid logo were inspired by the love of sea, from Starbucks original location in Seattle, Washington.It started as a single shop specializing in high quality coffee and brewing products the company grew to be the largest roaster in Washington with multiple locations in 1980s .Current CEO Howard Schultz recognized the great opportunity with founder Gerry Baldwin. After a trip to Italy to find new products, Schultz realized the opportunity to bring the cafe community environment he found in Italy to the US. The company experienced growth from 1992, and growing tenfold by 1997 with locations in the US, Japan and Singapore.

Brief HistoryThe history of Starbucks saw the ff lines added:Offering Starbucks at United Airlines flightSelling premium teas through Starbucks own Tazo Tea CompanyUsing internet to offer people the option to purchase Starbucks coffee onlineProducing premium coffee ice cream with DreyersSelling CDs in Starbucks retail storesStarbucks uses minimal advertising and has grown on word of mouth and brand recognition. By 2004, it has reached 1,344 destinations. Today they have 16,706 sores (as of Dec 2009) in 50 countries.

Starbucks Mission and Core CompetenciesThe mission statement of the company is as follows: Our mission is to inspire and nurture human spirit, one person, one cup, and one neighbourhood at a time.Core competenciesIt can be defined as high quality coffee and products at accessible locations and affordable prices, provided a community to share in the coffee drinking experience, and variety of choicesStarbucks Guiding principlesProvide a great work environment and treat each other with respect and dignityEmbrace diversity as an essential component to do a businessApply the highest standards of excellence in the purchasing, roasting and fresh delivery of our coffeeDevelop enthusiastically satisfied customersContribute positively to our communityRecognize that profitability is essential to our future success

CompetitorsSeattle Best: price is similar to Starbuck.

Coffee Bean & Tea Leaf: same price with Starbuck, but quality is lower Starbuck.

Figaro: local business serves local coffee and tea.

UCC: Japanese coffee company provides full service coffee to the selected few customers.

Strategic MapCompetitive Advantages Sources of Advantages -Vertical integration: coffee plantation, collaboration with coffee planters within 30 countries. -Roasting process: use their own method of customizations. -Excellent training for the employees. -Competency of staffs barristers.

Positional Advantages Realized -Provide superior experiences for customers having good relationships with clients as VIP.Competitive Advantages Competitive Dynamics Erode Advantages -Imitation by the competitors Investment in Renewal -Retraining to bring service the higher level. Performance Rewards -Satisfaction -Profit -Loyalty -ShareCost DriversCriteriaCost AdvantagesDifferentiation1. Economies of ScaleScale of facilitiesLarge scale operations2. Learning & SpilloversProduce facilities and equipment for coffee makingCustomer services3. LinkagesFixed price procurement Direct from the farmers.4. IntegrationVertical integrationsVertical integrations5. TimingTime for serving coffee faster and more convenient to customers

New product launching 6. LocationBe convenient.Be available.Starbucks Mature Stage of LifecycleIntroduction Growth Maturity DeclineStarbucks was founded 20 yrs ago and it has experienced rapid growth in the last 2 decades. However its growth slowed and has even closed locations. Efforts are now on international expansion

Value ChainThe above is a value chain for Starbucks, the upstream portion of the value chain shows the product development from adding teas and international influences to the research that took place to develop the instant coffee lines.

The company also searched from international coffee bean suppliers and franchise locations even airport terminals and grocery stores and finally offered ground coffee and gift cards to take homeStarbucks differentiation and the Value ChainThe new value chain with international development added upstream to allow for international markets to develop new products that better suits their cultures that could provide value added to Starbucks product (e.g Green tea of Japan)Inbound logisticsOperationsOutbound LogisticsMarketing and salesServiceNew Value ChainThe new value chain with international development added upstream to allow for international markets to develop new products that better suit their cultures that could potentially add value to the US market as well as such as the Green Latte developed in Japans StarbucksAdded downstream is Online Storefront customization that would allow you to create a profile online, order online, create new drinks, etcPorters Generic Competitive StrategyCost Leadership

Cost cutting and efficiency was made the guiding strategy. Starbucks started price campaigns in select stores to lure customers away from other price competitors such as McDonalds and Dunkin Donuts. Starbucks Differentiation

Innovation is a fundamental strategy Starbucks created the concept of a third place between home and work where people can relax, enjoy a cup of coffee and experience the inviting ambience.

Cost Focus

Minimize expense. Low spending on marketing expenses Starbucks made its employees its partners, by offering them stock options and health insurance. Focused Differentiation

In-store BrewingStarbucks has strived to build its brand identity on offering customers a relaxing and enjoyable experience. In addition, Starbucks has also built its brand on things that tend to be out of the box, by consistently defying the conventional wisdom- more products Broad TargetNarrow targetCompetitive ScopeLower CostDifferentiation

Cost AdvantageWhen companies were aggressively advertising, Starbucks decided not to advertise.

When cost cutting was the dominant paradigm of the industry, Starbucks chose to emphasize non-routine procedures to create excitement among the baristas instead of streamlining procedures to minimize cost.

Unlike most other companies, Starbucks made its employees its partners, by offering them stock options and health insuranceSWOT AnalysisStrengths Brand IdentityQualityVarietyLocationsConvenienceStore AmbianceEthicsWeaknessesOverexposure Too many productsRisky investment in more locationsOpportunities

CustomizationInternational demandsOn-the-Go lifestyle of young professionals Partnerships with overseas companiesThreats

Direct competitionCheaper alternativesRecession

SWOT AnalysisStrengthsThe company consistently maintains its brand even without heavy marketingThey searched for high quality beans worldwideThey offer drink variety and customizationLocations are everywhere as one of the companys main goalWith new product live VIA, drive thru windows, instore locations convenience is importantAmbiance was a foundation of Starbucks brand and continues in its locationsBy using fair trade ingredients they are a leader in ethicsSWOT AnalysisWeaknessesStarbucks goals to have 30,000 locations stalled in recent recessionsBy becoming overexposed, they lose losing unique qualities they were founded onBy constantly adding products, some products have lost value. Seattles Best for example and they are risky endeavorExpanding locations in the US is a high risk and costly investment in comparison to international expansion

SWOT AnalysisOpportunitiesStarbucks introduced a completely custom Frappuccino in CanadaIncreasing efforts internationally to increase stabilityVIA instant coffee and other products to be in groceries and convenience storesPartnering with more locations including New York Stock Exchange

SWOT Analysis StrengthsBrand identity is extremely important to the company and is a long term factor to the companyConvenience is also one of the foundations that the company grew on and will continue to maintain their advantageThreatsInternational markets offer risk investment and innovation opportunitiesCheaper alternatives like Macdonalds (McCafe) threaten convenience factorStarbucks StrategyCompletely vertically articulated:Starbucks source coffee from 30 countries, It has proprietary brewing process, it distributes to company owned stores, and finally serve coffee

Why Starbucks is a great place to work?

Instituting Health care coverage for all employeesA Stock Option Plan for employeesStock Purchase Plan for employeesEmployee training and recognitionPorters 6 forces

HIGH

Bargaining Power of Supplier

Relative power of other stakeholdersMEDIUM

Threats of New Entrants

Industry CompetitorsLOW

Threat of Substitute Products or ServicesStarbucks Corporate Social responsibilityEthically sourcing all of the companys productsCommunity InvolvementEnvironmental stewardshipFarmer loansExecutive SummaryStarbucks offers a focused differentiation strategy. This strategy is described in the text as "concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products." ( Thompson, Strictland, Gamble, pg. 140) Starbucks has implemented a reward program that gives back to frequent customers. The "My Starbucks Rewards" program allows customers to make purchases at their local Starbucks and receive points for every purchase made with the rewards card. Those points are then used toward discounts, free merchandise, etc. Also, Starbucks is continuously offering new products on their menu. The coffee-drinking company introduces new beverages in accordance with the seasons and holidays, and have even extended their menu beyond beverages offering breakfast and lunch items. The company's loyal customers have coined the phrase "a cup of Starbucks." With the great success of Starbucks, it's easy to see the focused differentiation strategy works well for the company.

Alternative ActionMore Customization by allowing users to create new flavors and drinks beyond options they have now

Have online Starbucks interface - Have complete control to create own drink, order online and find nearest Starbucks and receive direction

Use mobile apps, putting online drink orders etc

Launch Starbucks into the digital age!ConclusionOverall Starbucks maintained competitive strategy since creating its blue ocean strategy of bringing quality, bistro-style coffee choices to the masses.

In order to stay in the business, it will need to refocus its core competencies and avoid spreading its wings too thinly

To avoid competitors, it has to create a more innovative approach by investing in online connectivity and interactivity

The strength lies in its brand and by enhancing the connection to their loyal customers.