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Market and situational analysis: Starbucks Coffee

Executive Summary

Starbucks is an extended history company in specialty coffee industry, set up in 1971 Seattle Washington USA and bought and sold in NASDAQ currency markets since 1985 under the sign "SBUX", provided drinks - e. g. high quality caffeine, tea and light foods through company-owned and qualified stores in home market and international market all over the world with strongly target in differentiate and invention known by "Starbucks experience" together with Global Responsibility strategy; determination to communities and employee satisfaction coverage complemented in its business strategy (Starbucks, 2009). Starbucks is a fast growing company and performed a significant role as the leader in specialty caffeine industry until in 2006 to 2007, the company growth was beginning to declined and turned to negative growth since 2008. While the company is at the bad situation with the global economical crisis and pressured by the strong competition - McDonald's and Dunkin' Donut, Howard Schultz possessed return as CEO (MSNBC, 2008) and tried to convert Starbucks from the struggling period go back to innovative and growth again (Howard, 2009).

In this pursuing report provides research of company quest, business strategy with Porter's Common Strategies (Michael, 1980), using Michael Porter's five pushes (Michael, 1979) to analyze specialty coffee industry, situation evaluation with SWOT, Starbucks main competencies (C. K. & Gary, 1990) and competitive benefits (Michael, 1996) examine by C. K. Prahalad & Gary Hamel method and Michael Porter competitive advantages model. The record includes strategy recommendation by using TOWS matrix in conjunction with SWOT evaluation and competitive benefit, and concluding with Potential fallout.

Company Mission

"To motivate and nurture the human being spirit - one individual, one cup and one area at the same time. " (Starbucks, 2009) as Starbucks's recently mission statement. The business has the concepts and concerns all stakeholders including their suppliers, employees which recognized as "partners", customers, communities, shareholders and even environment. Beginning with its products themselves (beans, tea, cocoa), they're keen to get the finest resources, finest procedure for products with increasing the quality of life of the farmers. With the feeling of partners, all employees treat with respect and pride, also the proposal with customers and sense of real human connections by the friendly and warming stores' atmosphere to earn their royalty and trust, duties and contribution to neighborhoods and social, together with one of the important missions is environmental friendly these make them "Starbucks" as a innovator for changes and new specifications. (Starbucks, 2009)

Business strategy

According to Starbucks quest, their business strategy used is mainly on differentiation focus strategy (Michael, 1980), not the cost command strategy, which try to make the various, to be the leader and innovate new standard with their unique products and services that customer could perceived and valued better than others competitors which challenging to be copied or time needed (for some particular cycles), as their called it "Starbucks experience" and with quite give attention to particular target and market; customers whom promote the same appreciated, required premium-level espresso, have spending capacity; young urban experts, teenage and trendy (Wikinvest, 2010) but not the pricing competition.

Source: General Strategies - Michael Porter (1980), http://www. marketingteacher. com

Starbucks' business strategy (differentiation target) has been used in all processes and everything stakeholders; starting from suppliers and farmers that Starbucks made the various in the form of finding the way to obtain materials (e. g. coffee bean) at the foundation places not from the extra sources and the most important is tried to boost farmers' standard of living in the same time also got the nice quality of coffee beans. Second, they treat the employees diversely from the others whom they called companions that desire to make different in the way of service-minded and relationships. Another most significant and differentiate point is the global/environment/community duties as their distributed value as mention by Howard Schultz, Starbucks' CEO, said "You don't do these things for recognition, you need to do these things because they're the right thing to do" (Nancy, Marya, Katherine, 2008).

Industry Structure

As another type of industry has different characteristics of business, competition or degree of profitability (efficiency and efficiency). So for better understanding in this caffeine specialty industry, it might use a construction of Michael Porter, which influenced by the five pushes (Michael, 1979).

First, the industry rivals or rivalry among existing firms in the current situation is very high. There are a great number of espresso specially brands and stores offers on the market including 3rd party, local or small-chain espresso house. Also, they are choose all of the competition including lower prices, products differentiate improvement (e. g. style, strategy or quality of services - Caribou caffeine) (Nancy et al. , 2008), progressive channel or new circulation (e. g. through fast-food chain - McDonalds, Dunkin' Donut, digital multimedia, social network - Facebook). There are numerous factors that affected the rivalry depth of the establishments such as increasing the amounts of specialty espresso stores, dropped of market expansion so the companies have to combat for market show or expand the market (Starbucks is also confronted this factors) with the same demand or fewer buyer and crowding with new entrances (Pascal, 2009).

Next, Risk of Substitutes; the substitute of the products from other industry that can cause by the economic situation or even some new matter issue, for example, health concern (Starbucks, 2009). In monetary tough economy period, the spending and value of customers might be an important concern and with an increase of alternatives they could choose to take instant coffee at home instead of costly premium-quality caffeine from the stores. Also with healthy concern, customer might change to drink healthier beverage - drink, dairy or less/no caffeine drink such as tea, natural tea.

Third drive, Bargaining vitality of buyer (Buyer ability), in this specialty espresso industry customers are powerful because there a whole lot of alternative selection of stores or others type of drinks to choose with limited scope of market, as not everyone prefer to drink coffee. It is easy for customer to change from one product to some other without difficulty so it is also low switching cost; you can pass by McCafe' local their working place and get a caffeine with meal instead of walk quite a distance to Starbucks.

Another is Bargaining electric power of dealer (Supplier vitality), that most of industry needs natural material, aspect, others supplies. In this case the most important supplier for specialty coffeehouse is Coffee bean that is the main cost of the productions pursuing by dairy (Starbucks, 2009). And the high quality or high-quality coffee bean usually from the precise places or proper agriculture areas so "supplier ability" performs important role and has electric power in this industry so the person who understand and take these into account can also gain the benefit from others competitor like Starbucks presently does.

At last, new entrance (Obstacles to entry) is the hurdle or threat to enter to the specialty coffee market. When there are opportunities or increasing in the profit of an industry, we can get to acquire new comer to have or those profit. Together with the not too (quite low compare to some advance technological expert required industry) expensive start-up cost, it can be seen that specialty coffee industry is simple to entry or low barrier to entry so for people existing in this industry have to concern and discover a proper technique to gain the benefit or create barrier for the new comer.

Starbucks' Situations and SWOT Analysis

From the specialty coffee industry, it could be seen that industry has high competition with low hurdle for new entrants and customer switching cost to others brand or alternative product is low. So through the previous time Starbucks experienced the attempting situation to progress that will clarify in the next paragraph.

From the study from Pascal (2009) found that the situation where Starbucks earnings was rose slowly and gradually in 2008 and online profit fell significantly. The progress rate commenced to be negative the first time in 2008 since 1997. Among the reasons may come from the overall economy recession that reduced customer spending but in the same period some company such as McDonald's sales increased which can be assumed that customer finding for most value for the spending from the less income. Second, Starbuck strategy of fast store widening especially in U. S. markets that nearly every a corner in the top city acquired Starbuck store must find more customer to keep up with new opened store. So in 2008 and Jan 2009, Starbuck had shut down around 800 stores in U. S. and 100 stores internationally. Third, another reason was from increased rival in coffee-house business and new rival from junk food chain restaurant; McDonald and Dunkin's Donuts that contain large numbers of stores and existing customers provided with varieties value or economy meals and beverages. Even Starbucks tried to provide hot breakfast but finally acquired to stop by the customers' issue of smell detraction from caffeine house environment.

According to the people situations, maybe it's use SWOT analysis to review the information of Starbucks' situation, challenges and chance to conquer those situations.

At first, the Talents, it could be seen that Starbucks has a solid brand and good brand reputation (Nancy et al. , 2008), Strong visionary control of presently CEO, Mr. Howard Schultz with experienced management team (Starbucks, 2009), Competence and know-how in coffee house business, Well-training systems and engagement from partners (employees) and large number of circulation stores. Especially they have got their own exclusive sources of coffees with experienced and expert team to prove the quality of materials together with researchers to increase the quality of coffee bean. In addition Starbucks has strong finances as can be seen from the cash movement and the increasing of dividend which is paid in August this season (2010) (The New York Times, 2010).

Secondly, the Weaknesses, Starbucks brand name itself as reduced coffee for prime customers, trendy, young and teenage that limitations the scope of the marketplaces or loses the new prospective customers (Wikinvest, 2010). Because of Starbucks has experienced management and has permanent relation with the business, the loss of advanced management make a difference the current operation and strategy plan (Starbucks, 2009). Another point is the fact that Starbucks is a fast-growing and successful company in the past decade so this make Starbucks complacent (Howard, 2009) making the company not creating new improvements in coffee business. Next weak spot is that presently, there are higher turnover rate of companions (employees) that some induced by company restructuring yet others by the bulkier fill in the stores, less connection or relation between managements and partners also triggering by the fast extension and the large numbers of partners (Nancy et al. , 2008). Additional, Starbucks has high cost of productions especially for the beans that normally 15% greater than the marketplace price (Nancy et al. , 2008) to maintain the business strategy which aim to improve quality of farmers or personnel life- fair salary and research and development for the best quality of coffee beans. Furthermore, there isn't too nimble to make decision and execution as well as struggling available strategy so there are lacks of new distribution channels, associates and systems.

Third, Opportunities: You have the growth development of specialty caffeine as the demand of more people drinking coffee and the trend of flavor to truly have a coffee at caffeine house (Vending market watch, 2008). There are International market gap that still available to fulfill the demand of caffeine drinking alcohol, especially in the growing country like Russia, India and China (The Seattle Time, 2010). Another good sign is that the economic recession seems to be at the lowest point and beginning to recovered (Jeremy, 2010). And with the new technology introduction, Starbucks can improve IT system from back-end functions that provides faster and prcising information aiding management to respond or make immediate decision to the marketplace situations and opponents including utilizing it to enhance the supply string management, manufacturing plant/warehouse automation or even the operation processes at the stores to improvement customer buying process such as billing and information gathering to increase customers networking and deliver information through digital mass media and public network like Facebook or iPhone Apple online store (Starbucks, 2009). Additional condition of the global warming and climate change situation has bring the communal concern and that can make more reputations to the Starbucks as the leader in environment friendly which is one with their mission and business strategy.

Forth, Threats: The monetary crisis and recession change the way of consuming and spending of customers (Pascal, 2009) and also high rivalry in the coffee house industries in which the competitors can offer similar products and services with difference worth and strategies like fast-food string restaurant such as McDonalds and Dunkin' Donut in addition with new entrances which have expertise of caffeine brew or experienced barista in the neighborhood brand stores. Another threat is the new technology of computerized coffee machine that can offer similar quality or flavor with cost competitive and convenience as the espresso house provided. One of the main danger is the Demographic changes that your reduce of the progress rate in volume of young and teenage compare the infant boomer age groups that are more plus more (Wikinvest, 2010) that aren't Starbucks' marketplace and not match with their strategy. The past threat can include the concern of the health of the people to drink caffeine that has level of caffeine, lots of sugars and fat which issue can become the significant threat of customers switching to the alternative much healthier products.

Core competencies and competitive advantage

As the key competencies will be the source of competitive advantage and they're lead to the introduction of products and services (C. K. & Garry, 1990).

Source: The Core Competence of the Corporation by C. K. Prahalad and Gary Hamel

Starbucks's Core Competencies:

From the diagram above, Starbucks uses one of its competency (e. g. expert and keen to find the finest source of raw materials) to create their center product (Coffee bean) that didn't sale right to the customers nevertheless they use it to create a large amounts of end products. It could be explored more detail of Starbucks core competencies such as:

From Nancy et al. found, it can be seen that, Starbucks develop their own competency on the knowledge of beans selection that difficult for the competition to copied by use their love to discover the source of great coffee bean also with your brain of differentiate and creativity, they keep researching and expanding the procedure to improve the way of agriculture and transfer the data to the contracted farmers or staff member with long-term marriage using the principle of fair wages and improving the quality of their life as well as community proposal. Also with the data and research & development in roasting technology in their stock make them expertise in coffee bean roasting process as another competency, these make Starbucks own unique premium quality coffee beans as their first key product.

From this point, Starbuck deliver this core product to different business to produce varies end products; one of the business unit is Global Consumer Product Group (CPG) that responsible for the different products kind of packaged coffee. Another business unit, foodservice, will send out the beans to Starbucks stores to make many kind of coffee beverage drink; Cappuccino, Late, etc. (Starbucks, 2009)

Additional competency that we can remove from Starbucks is their experience in general management and authority with honest to transfer and make all stakeholders distributed the same values which include partner (employees), supplier, areas or general public and customers. Some of the beliefs are global responsibility, good trade certified, environmentally friendly, engagement of partners with customer in personal level and proposal of the organization to communities. Out of this competency they received Starbucks' brand itself as another primary products. These key competency can be distribute to different sections and provide others the finish products such as "Starbucks coffee machine", "Souvenir-Mug, Glass, Cover, T-shirt, etc. " or even "CDs, music and books" in the name of Starbuck's selections. And it could be seen that these kinds of the merchandise also generate good revenues to the company.

Starbucks' competitive advantage

These can be utilized Michael Porter Competitive edge (Michael, 1996) to analyze Starbucks' competitive gain that he grouped into two type; Cost advantage and Differentiation. It can be seen that Starbucks position itself in differential advantages and utilize it as their business technique to create competitive advantages. The aspect description will be shown in pursuing paragraph.

Source: Competitive Gain, Strategic Management from http://www. quickmba. com

As diagram above, in order to develop competitive gain the firm must to have resource and capabilities - know to work with the learning resource in efficiency way, in cases like this Starbucks has superior resources than others opponents as stated in their core competency, they have got strong brand and strong reputation, knowledge or experience in specialty coffee process and business including royalty and good networking in the value chain - suppliers, accredited stores and customers that challenging or hardly any competitor and gain similar resources. While using capabilities to utilize or bring their products and services to the market faster than competitors, those make sure they are has the distinctive competencies (QuickMBA, n. d. ). Compare to a competition like Caribou Caffeine which includes fewer resources - fewer stores network (less than 5% of Starbucks) (Wikinvest, 2010) and less capabilities (slower expansion stores growth rate) to bring products or advancement to the marketplace.

While set alongside the potential competition such as McDonald that has good similar resources, brand reputation in food-services and with an increase of stores sites than Starbucks but there still some resources (know-how of coffee brew and coffee bean) Starbucks has more superior than McDonald. Even McDonald has almost the same features to work with those resources but they opt for cost gain as their strategy that contrary with Starbucks. Incorporating with the worthiness that Starbucks created in the value chain system (upstream value created with suppliers, sociable and downstream to customer) that perceived by the client has overall more value and differentiate than McDonald.

Strategy recommendations

Currently, the majority of Starbucks strategy are tried out to create differentiate and tried to use Blue Sea Strategy with pursuit differentiation and cost advantages (low-cost) in once (W. Chan & Renee, 2004). So from the SWOT (TOWS) examination in section 5 above, strategy suggestion might be developed using TOWS Matrix (Heinz, n. d. ) as

Source: The TOWS Matrix --- An instrument for Situation Examination, Heinz Weihrich, University of San Francisco

First, as the opportunities in the growth of coffee taking in markets, Starbucks might use their durability in Brand reputation to create more brand awareness to new potential customers by using various kind of medias include digital press especially in communal network that might increase stronger network and royalty, in which Starbucks currently would it (Willis, 2010) but these would cover only the target which customers relating in the sociable network such as teenage and young adult so they have to expand more target market to ones who still use the traditional way of advertising including TV, Journals or Sport or neighborhoods activities. Also create more interpersonal responsibility activities and connections between customers and the business.

Another opportunities is to fulfill in international market that compare to the current ratio of home stores in U. S. (11, 128) and international stores (5, 507) that only a half compare inly in U. S market (Starbucks, 2009). As their power in knowledge and experience in Niche Caffeine industry, strong management - training method and financial situation, they should concentrate more in international expansion, finding local experienced spouse that understanding and educated in customers in that local market.

Additional strategy suggested is using Maxi-Mini which utilize talents to minimize threats is that, because they are strong in Brand, knowledge to find the own resources of beans and strong budget by using cost benefit strategy in this financial recession, Starbucks may create additional second brand which they are started to have another brand known as "Seattle's Best Coffee" (Starbucks, 2010) deliver to different route such their new fast food chain partner, Burger King, to contend and make an effort to get additional market show in this sectors also create a hurdle for the new local caffeine brew to entry to this industry too. So that as their strength in quality coffee bean, Starbucks may create more varieties products to functions new marketplace to reduce the change of demographic situation that more senior or baby boomer age range which have different value and life style these products can include premium quality coffee bean deals and Starbucks programmed brew coffee machine that they can make their own high quality at home and new syndication channel (not only sell in Starbucks stores) such as discount stores to provide instant soluble caffeine and packed coffees bean, even Starbucks already experienced this type of products such as VIA, TAZO (Starbuck, 2010) however in the mark market and concentrate still so strong to purpose at this society altered as we're not easily see those products in presently situation.

One more strategies to lessen the weakness by take good thing about the opportunities that are: first, even Starbucks has faced the drop in revenue growth during financial recession but there are opportunities for them to improve their business to be more efficiency using new opportunities in new IT system technology that will help them to improve customer satisfaction in the process of the stores, buying, billing and customer feedback also provide fast and specific information for manager to make decision such as additional lovers (employees) in peak period or in packed stores by those technology include semi-automatic caffeine brew machine to reduce overload job of worker that can improve lovers satisfaction and reduce turnover rate. Also free WIFI-internet available (Rick, 2010) for customer while waiting and crate new appeal for customers to invest frequently time at Starbucks.

Another strategy advises minimizing weakness and avoiding hazard, which Starbucks has experienced and good management team as their strength also it's the weakness of these if they are lost good management team, so to minimize this aftereffect of management turnover, they may have to make sure that they have prepared successors or professional trainees to prepare yourself to take in charge. To minimize partners (employees) turn over triggered by over filled job at store, they need to improve employees' satisfaction, proper workload, upgraded skilled by provide well-training course, valued creation and attractive benefits. In the same time, avoiding some dangers such as customers' health concerned by provide more choice in healthy options like Low-sugar, Sugar-free, low-fat, decaffeinate on drinks and treats/meals. An another important risk is the improved in demographic of Higher volume of seniors and reduced range of teenage or parents that can beat by well prepared additional or wider range of products and services to complement with their life style such as much healthier drinks- juice, high-calcium dairy product drinks and warm friendly (not too trendy) classical with senior facilities-easy accessible comfortable seat/table at stores.

Potential fallout

According to the ideas and solutions where some of them are employing different business strategy and competitive strategy (Michael P. , 1980); Differentiate and Cost advantage, in once and same industry may create issue each other or create others concern (Constantinosc & Daniel, 2010) or even bring the business to "get stuck in the middle" (Michael P. , 1996) so Starbucks has to concern some of this consequence that can go wrong and make problems in the future such as:

As the suggested strategy they might have more syndication channels (Stores, discount/convenience store, second brand - Seattle's best and fast-food chain restaurants), variety of products (In-store, Ready-to-Drink, Soluble, packaged bean and foods) and various kind of international expansion (Starbucks' own stores, Licensing and franchising). One issue that may occur is the Channel issue which cause by the new way of provided products and services or over productions or product substitutions such as less consume at store increasing soluble and packaged coffee bean make at home might that may drop the demand of in the store and increasing the coffee sales in discount store that damage some of programs. Increasing deal through fast-food string restaurant such as Burger King and Subway (Carol, 2010) but reduce earnings from the Starbucks's own stores or even reducing the partner (certified/Franchise) romantic relationship.

More than that the recommendation strategy to make new technology, differentiation by create more Communal/global responsibility, research and development, suppliers and partner satisfaction and used of new technology as customer satisfaction are more expensive to the production and with the concern of cost advantage for simultaneous use of differentiation and low cost (W. Chan & Renee, 2004) to build more value to customer, efficiency and extend all the resources are essential and some of them may lose from this process which could affect brand reputation or even lost the value or culture of the business (Constantinos & Daniel, 2010).

At last, as the current situation in August, 2010 of Starbucks leading by Mr. Howard Schultz, it appears that Starbucks offers back into the track which includes the positive progress in both sales and profits (The New York Times, 2010) and can have new development products and services launched in sooner days.

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