STARBUCKS STRATEGY AND INTERNAL INITIATIVES TO RETURN TO PROFITABLE GROWTH

Gus, Rotha and Larry

BRIEF HISTORY

The 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 HISTORY

The history of Starbucks saw the ff lines added:

Offering Starbucks at United Airlines flight Selling premium teas through Starbucks own Tazo Tea Company Using internet to offer people the option to purchase Starbucks coffee online Producing premium coffee ice cream with Dreyers Selling CDs in Starbucks retail stores

Starbucks 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 COMPETENCIES

The 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 competencies

It 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 choices

STARBUCKS GUIDING PRINCIPLES

Provide a great work environment and treat each other with respect and dignity Embrace diversity as an essential component to do a business Apply the highest standards of excellence in the purchasing, roasting and fresh delivery of our coffee Develop enthusiastically satisfied customers Contribute positively to our community Recognize that profitability is essential to our future success

COMPETITORS

Seattle 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 MAP

COMPETITIVE 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 -Share

COST DRIVERS
Criteria 1. Economies of Scale 2. Learning & Spillovers 3. Linkages 4. Integration 5. Timing Cost Advantages Scale of facilities Produce facilities and equipment for coffee making Fixed price procurement Vertical integrations Time for serving coffee faster and more convenient to customers Be convenient. Differentiation Large scale operations Customer services Direct from the farmers. Vertical integrations New product launching

6. Location

Be available.

STARBUCKS MATURE STAGE OF LIFECYCLE

Starbucks 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
Introduction Growth Maturity Decline

VALUE CHAIN

Product Development

Bean and Ingredient Selection

Product Distribution

Storefront

Take Home Products

The 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 home

STARBUCKS
DIFFERENTIATION AND THE VALUE CHAIN

The 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)

Superior Product Developme nt (Bean and ingredient selection)

Product
International Development (International expansion; presence in 30 countries Distribution (variety of products in several locations in and out of US)

On-line storefront customizati on (brand identity)

Storefront (ambiance and community appeal)

Mobile apps (online ordering, internet access, superior customer relations)

Take home Products (coffee beans, mugs, tea etc)

Inbound logistics

Operations

Outbound Logistics

Marketing and sales

Service

NEW VALUE CHAIN

The 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 Starbucks Added downstream is Online Storefront customization that would allow you to create a profile online, order online, create new drinks, etc

PORTERS GENERIC COMPETITIVE STRATEGY

C o m p e ti ti v e S c o p e Lower Cost
Cost Leadership

Differentiation
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.

Broad Target

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.

Cost Focus

Focused Differentiation In-store Brewing Starbucks 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 wisdommore products

Narrow target

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

COST ADVANTAGE

When companies were aggressively advertising, Starbucks decided not to advertise. When cost cutting was the dominant paradigm of the industry, Starbucks chose to emphasize nonroutine 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 insurance

SWOT ANALYSIS
Strengths Brand Identity Quality Variety Locations Convenience Store Ambiance Ethics Opportunities Customization International demands On-the-Go lifestyle of young professionals Partnerships with overseas companies Weaknesses Overexposure Too many products Risky investment in more locations

Threats Direct competition Cheaper alternatives Recession

SWOT ANALYSIS

Strengths
The company consistently maintains its brand even without heavy marketing They searched for high quality beans worldwide They offer drink variety and customization Locations are everywhere as one of the companys main goal With new product live VIA, drive thru windows, instore locations convenience is important Ambiance was a foundation of Starbucks brand and continues in its locations By using fair trade ingredients they are a leader in ethics

SWOT ANALYSIS

Weaknesses Starbucks goals to have 30,000 locations stalled in recent recessions By becoming overexposed, they lose losing unique qualities they were founded on By constantly adding products, some products have lost value. Seattles Best for example and they are risky endeavor Expanding locations in the US is a high risk and costly investment in comparison to international expansion

SWOT ANALYSIS

Opportunities

Starbucks introduced a completely custom Frappuccino in Canada Increasing efforts internationally to increase stability VIA instant coffee and other products to be in groceries and convenience stores Partnering with more locations including New York Stock Exchange

SWOT ANALYSIS
Strengths Brand identity is extremely important to the company and is a long term factor to the company Convenience is also one of the foundations that the company grew on and will continue to maintain their advantage Threats International markets offer risk investment and innovation opportunities Cheaper alternatives like Macdonalds (McCafe) threaten convenience factor

STARBUCKS STRATEGY

Completely 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 employees A Stock Option Plan for employees Stock Purchase Plan for employees Employee training and recognition

PORTERS 6 FORCES
HIGH

Bargaining
Power of Supplier Relative power of other stakeholders

MEDIUM

LOW

Threats of Threat of New Entrants Substitute Products or Industry Services Competitors

STARBUCKS CORPORATE SOCIAL

RESPONSIBILITY Ethically sourcing all of the companys products Community Involvement Environmental stewardship Farmer loans

EXECUTIVE SUMMARY

Starbucks 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 ACTION

More 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!

CONCLUSION

Overall 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.