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Starbucks strategy case
Globalization with starbucks
Starbucks strategy case
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Executive Summary Starbucks Corporation success in the coffee business has arguably been the most successful coffee chain in the past few decades. The company has been able to continue to attract customers even though they are not positioned as the lowest cost provider of coffee. Starbucks has been able to aggressively expand the business by attracting investors as well as selling their coffees for premium prices and increasing their profitability. The rapid growth of Starbucks has become a testament to the success of the expansion strategy that was developed back in 1992 and 1993 when Starbucks developed a three year expansion strategy (Shah, Hawk, & Thompson, 2010). This strategy focused on areas that had the demographic targets that they wanted as well as the infrastructure to support and service their locations. For each region of expansion, a large city is selected to act as a central hub which was staffed with teams that would branch out expansion stores from that hub within the first two years (Shah, Hawk, & Thompson, 2010). This strategy of blanketing a metropolitan area with a “Starbucks everywhere” approach helps to streamline the logistics and management of supporting these stores as well as reducing lines in each of the stores and increasing traffic in all locations. The graph on the next page represents the rapid expansion Starbucks has experienced over the last two decades. From an IPO company with one hundred and sixty-five stores in 1992 to a major corporation at the end of 2013 with nearly twenty thousand stores worldwide (Starbucks Corporation, 2013). Starbucks growth was significant during the years of 2000 thru 2008 where the company on average was opening one thousand six-hundred and fifty stores per ye... ... middle of paper ... ...yers • Less concentrated suppliers • Competitive industry, but with smaller local rivals • Consumers are not price-sensitive • Large number of potential supplier to replace existing ones • Several large rivals, but relatively smaller than Starbucks • High degree of product differentiation dilutes buyer power Threat of substitute products: • Low threat for substitutes •High degree of differentiation offers less attraction to other products • Brand image and recognition are an important factor This market assessment shows that entry into the market is relatively easy for a company that is well capitalized. In addition on going threats continue from competitors like McDonald’s, Dunkin Donuts and Burger King. The threat of substitution in the beverage is huge and includes soda, fruit juices, smoothies, water, beer and other alcoholic drinks.
This strategic capitalises on weaknesses since will decrease the cost of coffee beans/beverages but also Starbucks operating cost which they regularly ship across the world to various stores. Starbucks can capitalise on this weakness to improve their brand options. It adds value in the inbound logistics activities, operations and procurements. Starbucks should consider this option since it will decrease their operating cost and therefore will reduce the prices on their menu. The attractiveness is the exact same as mentioned in option 1.
Starbucks would emphasize their core values rather than focusing growing their franchises. According to Harrington (2011), the transformation agenda allowed Starbucks to fight for its life without losing its soul”. The transformation agenda also allow Starbucks to reduce the global amount of franchises from over 2000 speculated locations to less than 900. The reduction in franchise provided Starbucks with adequate resources to focus on innovative approaches to increase productivity and employee satisfaction. This will further allow each location to have enough proper resources to really
Today, they have expanded lunch programs to a total of 4,150 stores and introduced the ability to warm pastries and provide hot breakfast sandwiches to stores across the nation. Starbucks retail stores are operated through a number of joint venture and licensing arrangements in South East Asia countries as well as Thailand, Singapore and China. When they do the business in foreign countries, the most important issues will have to be aware of the exchange rates. They are planning to open 2,400 stores internationally in 2007, and they have approximately set financial growth targets for total revenue 20 percent and annual earnings-per-share 20 to 25 percent for the next three to five years. In addition, they have proposed new stores count target to 40,000 worldwide (20,000 U.S. and 20,000 International) in the long-term (Starbucks Financial Release, 2007).
Starbucks Corporation is an American coffee company founded in Washington in 1971. As of today, it operates 23,768 locations worldwide. Starbucks is owned by private sector. Corporate Starbucks' are owned all by the same people and offer employees discounts and free coffee/tea. Private Starbucks' are mostly located near the airport, etc. These Starbucks' are owned by individual companies and do not report to the "Starbucks head office". They don't offer their employees discounts and free merchandise however, they pay more. Both Starbucks offer the same drinks and food though. Starbucks is in the international scale: stores in Europe, Africa and Asia also operates 23,768 locations worldwide. Its competitors are café Nero, Costa coffee and McDonalds. Starbucks statement is “To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.” This mission statement reflects what Starbucks does to keep its business running.
With that store being there to help support new stores that would be entering the region. The goal was to have around 20 stores after two years of entering a market and have those stores expand even further into smaller cities and suburban locations. They also started to add drive-through because it made it more convenient for parents with small children. Some of the drawbacks of drive-through were that it took away from impulse buys and sometimes created bottlenecks in the line. Licensing the brand was also a great way that they expanded their business; by putting Starbucks in airports in malls they create a lot of foot traffic lead to successful stores. Starbucks carefully considered their image and the image they wanted to uphold when choosing licensees. The international market is now where Starbucks has the most potential to grow. As of right now Starbucks has plans to open 1,400 new stores in China. That’s more than half of the store it already has in China. The growth technique that I was most impressed with was that having two locations so close to each other would not saturate the market. The first store would see a drop in sales at first but would bounce back and the new store would grow. I notice we have that here, at Target in uptown you can actually see the Starbucks across the street while you are in line. Both seem pretty busy most of the time too.
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.
Starbucks Financial Analysis Company Overview Starbucks is the world’s largest specialty coffee retailer, with more than 16,000 retail outlets in more than 35 countries. Starbucks owns more than 8,500 of its outlets, while licensees and franchisees operate more than 6,500 units worldwide, primarily in shopping centers and airports. The outlets offer coffee drinks and food items such as pastries and confections, as well as roasted beans, coffee accessories, teas and a line of compact discs. The company also owns the Seattle's Best Coffee and Torrefazione Italia coffee brands. In addition, Starbucks markets its coffee through grocery stores and licenses its brand for other food and beverage products.
Starbucks has identified high value opportunity in China, India, Brazil and Japan. The large expansion opportunity of twelve billion in China alone is enough to drive Starbucks to expand globally. The organization has planned to double its footprint to 3000 stores in China by 2019 ("Starbucks Details Five-Year Plan to Accelerate Profitable Growth", 2014). Starbucks realizes that eventually there will be a diminishing return on their existing market within the US due to market maturity and there are only two ways to expand through diversification in their offerings and entering new markets. Given the international opportunity for growth and expansive tea market in Asia, the company will enjoy the benefits of the growth opportunity. Management’s decision to continue to grow globally is a driving force that has yielded
Starbucks is a worldwide company, known for is delicious brews of coffee and seasonal varieties of tasty drinks for any occasion. Starbucks opened with two main goals, sharing great coffee with friends and to help make the world a little better. It originated in the historic Pike Place Market of Seattle, Washington in 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker. The creation of Starbucks’ name came from the seafaring tradition of early coffee traders and the romance evoked from Moby Dick. At the time, this individual shop specialized in the towering quality of coffee over competitors and other brewing services enabling its growth to becoming the largest coffee chain in Washington with numerous locations. In the early 1980s, the current CEO Schultz saw an opportunity for growth in the niche market. After a trip to Italy he brought back the idea of a café style environment of leisure and social meetings to the United States we now see in Starbucks locations today. Schultz ultimately left Starbucks to open his own coffee shop, Il Giornale which turned out to be a tremendous success. Fast forward a year later, Schultz got wind that Starbucks was going to sell all their components of Starbucks including their stores and factories, he immediately acquired the funds to buy Starbucks and linked both operations. Within five years he was able to open more than 125 stores starting in New England, Boston, Chicago, and gradually entered California. He wanted Starbucks to be a franchise system based on the mission of telling the truth and emphasize the quality,
They are always willing to help people that are struggling and they help provide people with a job. Every day I walk into the library the Starbucks line is always long and it gets a lot of business. Many people purchase their product because of the name. But not a lot of people know what they do behind the scenes of their stores. Starbucks is always looking to give back to communities, and help the environment. Not a lot of people see that. I think what they do as a company is great and they need to keep doing what they do and need to continue to expand to more
The study of managing change in today’s dynamic business environments greatly benefits from an insightful examination of leaders and organizations that have successfully engaged in strategic renewal. Perhaps more than any other recent change effort, the extraordinary revitalization of Starbucks Coffee Company represents a compelling example of successful change. Confronted by the cumulative impact of multiple internal and external performance pressures, Starbucks, led by the return of CEO Howard Schultz in 2008, engaged in a comprehensive well-formulated process for change that brought the company back from the brink of potentially catastrophic failure (Schultz, 2011). In response to requirements for the ORG521 portfolio project, this paper proposes an in-depth analysis of the change process that Starbucks followed in the company’s quest for strategic renewal. A summary description of the Starbucks Coffee Company follows the discussion.
Expansion of Domestic and International retail markets: With the target of 2000 stores by year 2000, Starbucks is on an expansion mode. They are expanding into the international markets and simultaneously they are diversifying in the domestic markets also. Initiatives like Frappuccino and the Doppio cart are part of this.
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.
I would give Howard Schultz a grade of A for the job he has done as the CEO of Starbucks. He has successfully performed all the 5 tasks of strategic management discussed in Chapter 2.