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Challenges faced by Starbucks
Challenges faced by Starbucks
Starbucks: Strategy Analysis and Choices
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Synopsis In 2003, Starbucks was listed as one of the Fortune 500. Despite the ongoing recession, the company had managed a 31% increase in net revenues for the year. This was reasonable, considering they only spent about 1% of total sales on marketing. All of this, coupled with the fact that they were popular with customers and employees, was a sure recipe for success. While their domestic figures were rosy, the international operations were losing ground. The once profitable Japanese market was declining, and the European and Middle Eastern ventures failed to gain momentum. Unfortunately, the U.S. market was experiencing saturation and the only way to grow seemed to be the overseas markets. They achieved entry through the use of wholly owned subsidiaries, licensing deals, or joint ventures. Starbucks did not escape the common practice of adapting and integrating the business to different geographic regions, but they did stick to their guns when it came to their standard product line-up and their no-smoking policy. Surprisingly, these conditions were met with wide acceptance. Analysts felt the real challenge would be in the European marketplace, what with coffeehouses on every corner to compete with. Again, the stores did very well, mainly because of the newer, cleaner environment they provided compared to the older locations of established houses. Business was good, but it was not without its problems. There was the political upheaval in the Middle East, followed by further tension after then CEO Howard Schultz commented on growing anti-Semitism in the region. Their integrity came under fire when certain Non-Governmental Organizations (NGO's) accused them of purchasing coffee beans under questionable social and economic conditions. These situations, together with difficult economic times globally, meant that Starbucks was likely going to take a hit somewhere. Eventually, they shut down their Israeli operations altogether. There is speculation that the company was pouring too much capital into its complex system of joint ventures and licensing agreements, and could not get a hold of its operational costs. They decided to source some of their merchandise and disposables to less expensive suppliers as an immediate cost-cutting measure. They also decided to cut back on the number of new stores and shut down unprofitable ones. Starbucks has had to learn the hard way that external forces go far beyond a society's taste in coffee, and that too much growth can have negative effects. Internal Analysis Strengths: · Strong commitment to quality and community · Popular with their employees
In 1982 the president and CEO Howard Schultz, joined the company. He had just returned from a trip to Italy in 1983, and invasion a new way to serve coffee in the United States. He wanted to bring the way of Italian coffeehouse here. Nevertheless, this was not until 1987 where he would come in with several local investors to purchase Starbucks and rebrand. Opening their doors here in Chicago. In 1991, Starbucks took off and was the first companies to offer full and part time employment with benefits. They also were able to take the lead in the coffee world by offering Frappuccino’s. Their success landed a partnership in 1995 Pepsi-Cola. This help them market to consumers a ready-to-drink Frappuccino that was available for purchased through local grocery stores or convenient stores. It was also in 1996 that Starbucks opened its first store outside of North America, which expanded a branch in Japan. In 1998, this offer Starbuck to acquired Tazo Tea Company. This lead to collaboration with Conservation International in 1999, to promote environmentally responsible methods for growing coffee. Starbucks has continued to grow over the years, launching its VIA™ Ready Brew coffee in 2009 (Starbucks Timeline, 2010). They have continued to work aggressively to serve the public as of today Starbucks has more than 15,000 stores in 50 countries, and have taken their name to be known as the world’s premier
One critical obstacle for the Starbucks franchise is the over saturation of the market, they continued to build new businesses in local markets with out giving each the opportunity to solidify their customer base, some building as close as 2 blocks in large metropolitan areas. The economy could also have a direct impact on the Starbucks franchise. During times of prosperity and job security it is more comfortable to spend $2.10 on a 16 oz. cup of coffee than a $5.15 for a medium sized specialty coffee drink such as a Café Mocha or Carmel Macchiato. When the economy is down, the average consumer will cut
The company has employed value based pricing to maximize its profits. Starbucks generally sets premium prices for its products. The prices of its products also vary from country to country depending on the costs of raw materials, labor, taxes as well as various other factors. The company does not try to compete with the cheaper chains by cutting prices. Yet, without any major price cuts it has continued to survive and remain ahead of the others in the coffee market. Seeing its commitment to quality and excellent customer service, it won’t be either for the company to serve the same quality at lower prices. The company has also lost a part of its customer base in history due to its price hikes.
Great quality products, customized, served in clean, convenient placed stores for everyday coffee, friendly and fast serving, everything in a pleasant atmosphere - these were just few factors that lead to the great success of Starbucks during the nineties. Their USP was a place where every American could escape from home or work, for a coffee drinking ritual; high quality coffee, according to each customer's taste, served in a special, intimate ambience. Their image was supposed to appeal to anyone, being based on the idea of community, "exploiting" the need of people to interact with each other, in a "third place", away from home or work.
Founded in 1971 at Seattle’s Pike Place Market, Starbucks Coffee, Tea and Spices, as it was originally called, has been “brewing-up” its famous blends in over 43 countries, including the United States. Now called Starbucks Coffee Company, business isn’t just about the coffee and tea anymore. Starbucks has its own line of bottled water, handcrafted beverages, fresh food, entertainment, merchandise and a Starbucks Card. The company has received numerous awards for their outstanding business practices. Fortune Magazine has ranked them as one of “The Best 100 Companies to Work For” in 1998, 2000, 2002, and 2008 (Starbucks, 2008). The Starbucks Experience provides consumers and the general public a direct line a of business communication. From friendly baristas to press releases from CEO Howard Schultz, Starbucks keeps its “partners” informed.
For one of my selections for buying stock, I invested into Starbucks, this company has attracted me with their wonders of different coffees, and I knew many others were interested in the very popular coffee company. Starbucks all started 1971 in Seattle Washington. With three men which were Jerry Baldwin, Zev Siegel and Gordon Bowker each of them put in one thousand three hundred and fifty dollars along with a barrowed five thousand from the bank to start up there small coffee shop in pick place market, witch is located in down town Seattle. The name for this company was inspired from the character Starbuck from Moby Dick; this character was a coffee lover. There close friend designed there well known logo. These men never thought of this small company to get large they just thought of it as a small coffee shop. Out of all three men Siegel was the only one that work at it full time. The men depened on a man named Alfred Peet for there coffee beans but soon then started there own blends of coffee beans. With in a year opening the first store they were able to open a second store. When the 1980’s rolled around, it was a thriving company, in the Seattle area. However, the co-founders began to have other interests and were involved in other careers simultaneously. Despite that, the company was about to undergo a major turning point. A man by the name of Howard Schultz started to pursue an interest in the company. He noticed that the coffee shop had a wonderful environment. He started asking a questions and becoming more and more interested by every moment. He loved how the founders had so much knowledge on the coffee and each blend. In 1982, Schultz became director of retail operation. This was just the start to a new phase with the company.
Everything became very difficult for the company. At the time, their coffee prices were shown as extremely ridiculous and their sales began to decline. Other companies took this as their time to join the coffee business and gave Starbucks a run for it’s money. As for the people buying their products, bloggers began discriminating against how Starbucks handled some things in their stores, like wasting water while washing their equipment. Since publicity relates to a lot of the company’s success, this took an even bigger toll on Howard’s decision-making process as CEO.
While some believe the company is growing too rapidly and repeat the mistake McDonald’s made by opening too many stores of offsetting its own profits, Starbucks still continues to remain strong. It has also been able to achieve growth in other ways by developing new products, such as the much-anticipated Starbucks Liqueur.
Starbucks is currently the industry leader in specialty coffee. They purchased more high quality coffee beans than anyone else in the world and keep in good standings with the producers to ensure they get the best beans. Getting the best beans is only the first part, Starbucks also has a “closed loop system” that protects the beans from oxygen immediately after roasting to the time of packaging. They did this through their invention of a one-way valve which let the natural gasses escape but keeping oxygen out. This gave them the unique ability to ensure freshness and extended the shelf life to 26 weeks. Starbucks isn’t only about the coffee, it’s also about a place where people can escape to enjoy music, reflect, read, or just chat. It is a total coffee experience. The retail outlet has been responsible for much of Starbucks growth and has contributed substantially to their brand equity.
Gordon Bowker, Jerry Baldwin and Ziv Siegl founded Starbucks in 1971. Their goal was to sell the finest quality whole beans and ground coffees (Starbucks timeline and history, 2004). In 1982, Starbucks had grown to five stores and started serving coffee to restaurants and espresso bars. Harold Schultz was employed as the director of retail operations and marketing. Harold Schultz convinced the founders of Starbucks to open a downtown Seattle coffee bar, which opened in 1984. With the success of Seattle coffee bar, Schultz left Starbucks to start his own company named Il Giornale. In 1987, Il Giornale acquired Starbucks retail operations for 4 million dollars. In addition, Il Giornale changed its name to Starbucks Corporation and opened locations in Chicago and Vancouver, B.C. (Starbucks timeline and history, 2004).
t. The dollar amount for cash & cash equivalents increased between 2011 and 2012, yet the percentage of total assets comprising these assets declined. Explain.
Starbucks has many business-level strategies, such as cost leadership strategy. Starbucks focused on increasing its profits and compete with other competitors (Starbucks,n.d). According to Starbucks (n.d), “a cost leadership business strategy focuses on gaining advantage by reducing its economic costs below all of its competitors. Although Starbucks targets product differentiation as their main business strategy, they have also implemented cost savings strategies in an effort to maximize profitability. An example of Starbucks cost saving strategy can be identified between 2007 and 2008 when their operational expenses increased by more than $125 million while sales for the same time period were beginning to dip. As outsourcing for distribution contributed to 70% of Starbucks operational expenses, they began targeting these outsourcing agreements for renegotiations in an effort to bring down costs.” Starbucks intended to reduce their
In 1971, three young entrepreneurs began the Starbucks Corporation in Seattle Washington. Their key goal was to sell whole coffee beans. Soon after, Starbucks began experiencing huge growth, opening five stores all of which had roasting facilities, sold coffee beans and room for local restaurants. In 1987, Howard Schultz bought Starbucks from its original owners for $4 million after expanding Starbucks by opening three coffee bars. These coffee bars were based on an idea that was originally proposed to the owner who recruited him into the corporation as manager of retail and marketing. Overall, Schultz strategy for Starbucks was to grow slow. Starbucks went on to suffer financial losses and overhead operating expenses rose as Starbucks continued its slow expansion process. Despite the initial financial troubles, Starbucks went on to expand to 870 stores by 1996. Sales increased 84%, which brought the corporation out of debt. With the growing success, Starbucks planned to open 2000 stores by year 2000.
With clear core values towards providing quality coffee, the best service, and atmosphere, Starbucks has enjoyed great success since it was founded 30 years ago. The company has being doing very well for last 11 years with 5% or more store sales increase, even with the rest economy still reeling from the post-9/11 recession. However recent research, conducted to Starbucks, have showed some concerns regarding company’s problem meeting customers’ expectations.
Usually that revenue growth is in line with the growth of the economy”. I believe there are thousands of students contributing to Starbucks 's growth today. “As a result, mature companies tend to engage more in inorganic growth to fuel innovation. That means acquiring start-ups or middle-sized companies”. Not all products have been a home run for Starbucks. A lot of their flavored lattes, recipe process, technology endeavors have been part of the declining stage as well. However, Starbucks does have product extension for some items and they tend to return them ever so often due to holiday or