Starbucks Corporation Case Analysis

Consultant: November 3, 2012,

Executive Summary

Starbucks is a company that has a history of excellence despite the fact that it has changed its differentiation from its early start in 1971. With Shultz at the Helm of Starbucks their main objective seems to be expansion. This analysis will explore the growth areas that exist for Starbucks and some of the pitfalls that they face. Overall Starbucks is in a solid positive foundation with great market position.

External Analysis

Coffee statistics show that Specialty coffee sales are increasing by 20% per year and account for nearly 8% of the 18 billion dollar U.S. coffee market.(e-importz.com) Even though Shultz and Starbucks have been the pioneers in bringing the Italian social coffee drinking experience to America. There are several sources that suggest an increase in overall coffee consumption and there is now a maturity in the American coffee market caused by overcrowding of competitors which may be the reason for Shultzs choice for aggressive expansion. This aggressive expansion has in some ways begun to alienate some of their customers and is seen as an erosion of local environments and cultures. The acquisition of local community coffeehouses and buildings has led to boycotts, outright customer dissatisfaction, and a decrease in brand value.

There are political influences when dealing with the import of coffee beans from different countries. Global sales and their competiveness can be compromised if Tariffs are increased. High Tariffs could in turn tarnish Starbucks reputation for providing premium coffee beans.

Legal issues can also become an obstacle for a large company like Starbucks. There are many countries that do not welcome big corporations because of the strain they place on the indigenous businesses. This helps to protect these small companies from takeovers and unfair competition. Monopoly Laws and national protectionist Laws will put a damper on their plans for expansion. As more and more countries begin to adopt these practices of Law Mega corporations like Starbucks will hindered in their efforts of expansion.

Internal Analysis

Starbucks is a globalized industry market leader with an extensive knowledge base in premium coffee products. They have a strong financial foundation and have done a great job with product diversification. Starbucks has a developed Brand with an established recognizable logo with customers having brand loyalty. Employees and partners have an impressive benefits and incentives package, also they are valued and motivated with a good work environment. Starbucks maintains good relationships with suppliers which is important. Despite their massive corporate size of Starbucks it still maintains company operated retail stores and International stores (no franchise). Starbucks is a Strong organization that is wide spread and consistent; with the strengths they possess has carried them thus far.

In my analysis there were several weaknesses observed that Starbucks has. Its size can be a disadvantage when attempting to move into different markets. Also there is a lack of internal focus and too much focus is given to expansion. Product pricing at Starbucks is expensive and is a barrier for some customers and everyday an increasing number of competitors are immerging in a continually growing market.

Still opportunities exist for this massive expanding corporationStarbucks can continue its domestic expansion and use a new USP to continue to dominate their market segment. With many international markets on the rise chances exist to increase market share. Also they can experiment with introducing new products into their lines like they did with selling CDs of the music played in their stores.

A company the size of Starbucks is bound to have threats and there are several that they face. Competition like coffee shops, supermarkets, restaurants, or any other caffeine based products. Then there is the possibility of US market saturation, what will they do when there is a Starbucks everywhere and they cannot expand any further in the US.

Issue Identification

It shows in our analysis that Starbucks strengths and opportunities far outweigh their weaknesses and threats. The main issues that Starbucks faces is the legal issues that can and will arise as they move forward with expansion. One is the cultural differences of the people abroad versus Americans. Take for instance spending differences of the Chinese market. Although Starbucks menu prices in developing markets are on par with those in the U.S., similar menu prices dont necessarily translate to similar spend per customer. For example, an average customer in the U.S. might ore a coffee and muffin whereas their more price sensitive counterparts in China might order only one of the two, hoping to enjoy the Starbucks experience without stretching his/her purchasing power. (www.forbes.com/sites/greatspeculations/2012/05/04/dont-get-excited-about-starbucks-chineseexpansion-just-yet/) Also customer tastes and preferences are different when moving to different geographical locations. Depending on the place Starbucks will need to experiment with different products to be in line with the customers of that area. Take for instance Indians many still begin their day with a cup of milky, sweet chai tea but according a consultant company Technopak the market could double in te next five years to more than $500 million. Starbucks opened its first store in India this year. Like Technopak chairman Arvind Singhal said You could be selling lemonade in Starbucks in India and people will still come.(money.cnn.com/2012/10/19/news/starbucks-india/index.html)

Alternatives/Recommended Actions

The actions I would recommend is to first experiment with new products using split tests to gauge customer behavior toward the new products. First make a leap of faith assumption and creating a Minimum viable product. Then they must test scientifically to see if the leap of faith assumptions is valid or needs to be changed. Unlike a prototype or concept test an MVP is designed not just to answer product design or technical questions. Its goal is to test fundamental business hypotheses.(The Lean Startup- Eric Reis) As Peter Drucker said There is surely nothing quite so useless as doing with great efficiency what should not be done at all.(The Practice of Management Peter F. Drucker)

Appendices and Exhibits

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The Practice of Management Peter F. Drucke The Lean Startup- Eric Reis money.cnn.com/2012/10/19/news/starbucks-india/index.html www.forbes.com/sites/greatspeculations/2012/05/04/dont-get-excited-about-starbuckschinese-expansion-just-yet/)