Starbucks Business and Corporate Strategies
Starbucks is an international organization that has been operating in the coffee retail, market industry since 1972. The organization has positioned itself globally as the leading seller of premium coffee products and has extensively expanded its market in the last two decades. Currently, Starbucks operates in 64 nations across the globe and has grown to be the world’s leading coffee powerhouse organization. The organization’s success and expansion can be attributed to its effective strategic approaches and management in a competitive environment. This paper analyzes Starbucks business and corporate level strategies as well as the competitive environment strategies, which allow the organization to be successful in the long term.
Starbucks Business and Corporate Strategies
Starbucks is one of the leading coffee organizations in the world in terms of sales and market share. The organization has been able to position itself as an illustrious provider of high quality coffee products, which has attracted millions of consumers across the globe. The organization was first established in Seattle in 1971 (Geereddy, 2012). Initially, it only served whole bean, ground coffee, tea, and spices. In 1985, the company penetrated the market as a seller of brewer coffee after Mr. Howard Schulz, who was a former employee and the current CEO, realized an enormous potential in selling the product. The company opened eleven more stores in the region and later spread to the rest of the United States. The organization began expanding globally after initial public offering (IPO) in 1992. Starbucks’ first international store was opened in Tokyo, Japan and was followed by several chain stores in other nations like Philippines, Singapore, and Australia among other nations. Currently, Starbucks has approximately 16,635 stores in more than 59 nations across the globe.
Starbucks Strategic Analysis
Starbucks’ growth and expansion has taken shape in many forms, for instance, through forming alliances with leading coffee producers and retailers and acquiring other emerging competing firms to consolidate the market. Moreover, the organization has also been following the hot trends in the coffee market, such as single serve coffee and delivery of readymade coffee in the hotel rooms besides tapping into the emerging markets that ensured it gets a competitive edge over other competing firms. These aggressive strategies have ensured that the organization is more connected to its customers, thereby making good use of the opportunities they have (Larson, 2008)).
An organization’s corporate level strategies entail the scope of the company that focuses on the direction the organization is taking both in the short and long term. On the other hand, the business in other cases denoted as the competitive strategy refers to the manner in which an organization competes and generation of income in the short and long term.
Starbucks Corporate Level Strategy
Since the organization is among the leading businesses in coffee products, it is striving to maintain its position and expand its market situation in order to survive the rising competition. As a result, the organization’s long-term strategy is aimed at fending off competition that is being witnessed both at home and at international level (Larson, 2008). Starbucks has realized that its dominance in the market that has been enjoyed over the past decades will not be tolerated by the rising competition from emerging organizations like McDonalds and Dinking Donuts. Therefore, as some counter mechanisms, the organization has come up with several corporate strategies in the long run to foresee its success in the future.
Starbucks organization was linked to the international co-inventor of coffee frenzy in the early 1970s. Despite this rich historic origin, the organization needs to get outside help to ensure that it experiences effective growth and development. Therefore, significant collaboration with strategic partners has enhanced the company to penetrate new markets both locally and globally and obtained intellectual property, for instance, Clover Brewing System. Furthermore, several acquisitions of both direct and indirect competitors has assisted Starbucks to expand its portfolio, for example, acquisition of Seattle’s Best Coffee Company and azo Tea. In the coming days, the organization is also projected to make use of alliances and acquisitions to foster growth and expansion in emerging markets internationally.
Global Market Expansion Strategies
Starbucks embarked on its expansion plan internationally after the IPO by opening its first store in Japan and thereafter in other parts of the world through an effective capital backing. In approximately ten years after these projects, Starbucks managed to establish more than 8,000 stores globally. This expanded to developing nations at a slow rate due to the low-income capability of customers in the nations. In 2008, the organization also suffered the effect of the global financial crisis, which made it to focus its expansion program on emerging markets, mainly China, India, and Brazil, which are among the leading coffee production nations in the world (Roby, 2011). The market expansion across borders is important in ensuring that the organization secures a promising growth market for its products and services both currently and in the future.
Product Portfolio Diversification Strategies
In an effort to expound on its sales and evade any possible declines in coffee consumption, the organization has been expanding its product portfolio in the past years. Initially, Starbucks began as a mere seller of coffee products in the early 1070s. Currently, the organization is providing a wide variety of market products to its clients, for instance, food, teas, coffee-making equipment, and CDS among others aimed at diversifying its product portfolio and upgrading customer experience (Reed, 2011). This has ensured growth of the organization sales over the years and will be enhanced in the future.
Market Segmentation Strategies
As the organization expounds on its product diversification, it is significant for it to also penetrate new market segmentations. For instance, the acquisition of hear music made it possible for Starbucks to play music in its chain stores. Furthermore, Starbucks has also penetrated the bottled water market through acquisition of Ethos water. In as much as they seem to be different from the coffee industry, they have attracted different market segmentations in the process. Starbucks has also maintained the latest trend in the coffee industry, an alliance with the Keurig, which saw the organization serve K-cups single serve to coffee segment. The enactment or market segment as a diversification strategy is significant in ensuring that the organization attains a fully-fledged chain restaurant similar to its competing firms like McDonalds, which is significant for its further growth and development in the future.
Social and Environment Stewardship
Every organization’s growth and development popularity is aligned with social responsibility. Starbucks company has taken part in the global responsibility through its Global Responsibility Program that is a long- term engagement. This program is aimed at ensuring that the organization image is conserved as caring, clean, and sustainable, portraying it as a company that invests back to the society and reduce environmental hazards. Despite some criticisms of the organization’s mishandling of wastewater, it has been awarded frequently for its effective social responsibility management (Reed, 2011). This ensures good relations between the organization, its clients, and the society thus promoting its growth and expansion now and in the future.
The organization has made efforts that rebrand its products in an aim to attract more customers, especially the younger cohort. The young population makes a significant customer base for Starbucks market. Therefore, in order to satisfy this group, the organization has made sure that they feel comfortable in its chain stores. For instance, in this era of technology, the organization has introduced free Internet Wi-Fi in its stores and mobile payment systems (Morio, 2004). This has a positive impact on the organization market value.
Business Level Strategies
This entails strategies that ensure Starbucks organization creates demand for its products and gain a competitive edge over its competitors. The following are some of the strategies Starbucks applies in its business level
According to the Porter’s generic strategies, it is apparent that Starbucks has incorporated the product differentiation strategy. This involves the process of providing a wide range of products to a larger customer group an opposed to low prices to a smaller customer group. An organization that incorporates this strategy strives to be exceptional in the market industry and incorporate some elements that are widely acknowledged by customers (Geereddy, 2012). Furthermore, this strategy chooses one or more attributes that customers perceive as significant and places itself in a position to meet those needs. This outstanding feature is regarded as a premium price (University of Cambridge, 2014). Starbucks has positioned itself as a premium producer of coffee products and its clients value this facet alongside quality products, friendly environment, and organization’s image. This makes the organization to be able to charge a premium price for its products.
Starbucks has also strived to create demand through product differentiation by making transformations in the competition scope. Initially, the organization began as a small business model as a mere seller of coffee products. However, it changed with time to a more dynamic business model serving several other products to its customers. The organization has continued to add more quality to its products through technological advancements, for instance, the Brewing System. This makes the organization to be more product oriented than market oriented thus adding value to its products and increasing the market base.
Value Chain Strategy
Value chain strategy incorporates all the operational activities of an organization that are accountable for profit or loss making. These are production, organizational, financial strategies. Starbucks organization is commonly known to outsource its production process from suppliers. The organization does not directly get involved in the farming to packaging of the products but is significant in establishing long-lasting strategic links with all the stakeholders. This has ensured that the organization maintains top quality brand image. This process of outsourcing has enabled the organization to reduce costs through delegating the production process to organizations with better proficiency in the process and focus its attention on selling the products. Starbucks has also ensured satisfying jobs for its employees, positive working atmosphere and a suitable working schedules as well as fair remuneration. These endeavors are aimed at ensuring quality human resources in order to maintain a competitive advantage for organization products and services. Employees are trained frequently, both on job and off job. The social benefits awarded to them enhance their service production. This has made the organization to be among the best sought by employees as listed in the Financial Time’s Top 100 (Fortune, 2012)
Starbucks Competitive Environment
Starbucks faces stiff competition from quick serving restaurants and other specialty coffee shops. There are several other competitors in the coffee beverage industry. Starbucks believes that in the competitive environment, customers select products from the retailers on the basis of product service, services, price, and convenience. In the recent times, the organization has also faced stiff competition from renowned associations in the global markets. This increased competition and rivalry has improved the capability of these organizations to position in the market. For the organizations to bet new markets, they may engage in activities like reducing market prices for products, introducing new products or substitutes and increasing promotional efforts to attract new customers. For example, in February 26, 2008, Starbucks shut down all its activities for hours to train their employees. Dunkin Donuts made use of this opportunity to get new customers by reducing prices of some of its products by 99 cents during the hours that Starbuck shad shut down. Competition in the service industry for these organizations increase the fight for market share, thereby decreasing prices as well profitability for the organization. The following organizations are the main competitors for Starbucks.
The first Dunkin Donuts store was operational in 1950 in Quincy, Massachutes and was founded by William Rosenberg. Currently, the organization more than 13, 000 stores across the globe. Dunking Donuts is recognized for its doughnuts and coffee. Throughout the years, the organization has continued to introduce new products, such as bagels, muffins, and breakfast sandwiches. In their competing strategies, Dunkin Donuts has expanded its menu to include other options like pizza, favored coffees, lattes, teas, and hot chocolates.
Panera bread company was established by Louis Kane and Ron Shaich in 1981. Initially, it was called Au Bon Pain Co.,Inc., and has more than 1160 café around the U.S. Its product line comprises baked goods, artisan, salads, roasted coffee, soups, and gourmet pizzas among others. In its strategy to handle competition, Panera bread expanded its product line by serving breakfast sandwiches. As compared to Starbucks, the organization offers free Wi-Fi services to its clients and a pricing is designed to encourage customer loyalty.
The initial McDonald restaurant was opened in San Diego, California in 1940 by two siblings Dick and Mac McDonald. The organization has also expended to an international market, operating in 118 nations. In the Long-term, McDonald is the fiercest competitor to Starbucks and is likely to achieve success in the long-term. Its specialty drink products that are found in most of the US stores have attracted more customers, some of whom are Starbucks’ fans. Furthermore, McDonald enjoys a larger customer demographic as compared to Starbucks and its coffee is considered to cater for families, teenagers, adults, and senior citizens unlike Starbucks coffee that is regarded as a luxury of affluence. McDonalds also has a strong brand recognition aligned to a strong loyal customer base. Moreover, it has a higher traffic advantage to Starbucks as a result of a coffee specialty served alongside quick breakfast, lunch, and dinner.
McDonald would not pose a great challenge in terms of competition to Starbucks in a slow cycle markets because its strategies will not be emulated by other organizations over a long period. Therefore, in my opinion, in slow cycle markets, Starbucks can make good use of its strategic pact to penetrate into constrained markets, for instance, as the Keurig Coffee markets where it supplied Starbucks K-cups to the new market. This will enable the organization to enhance its competitive advantage internationally. Furthermore, in its strategy to focus on training and educating employees, Starbucks’ long-term success is enhanced in a slow market cycle as compared to McDonald, thus, maintains its stability
Starbucks organization has enjoyed market power in the coffee industry since its establishment. This is because of the large customer base and market for those willing to pay the premium price of their products. Nevertheless, with changing times and competition, the organization has been forced to incorporate both corporate and business strategies that has enabled it to relevant in the industry. These strategies work for all organizations around the globe and have seen the success of the organization, both currently and in the future.
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