Starbucks : Background of the Company and its strategies
INTRODUCTION
Coffee has constantly been deemed as the favored beverage. Nevertheless, its dominance was exceeded by soft drinks and sodas as the world’s preferred beverage in the much recent parts of the century. The cause for its decline is that coffee is frequently looked upon as ‘old fashioned’ drink for elder individuals with such narrow alternatives, specifically regular or decaf. Accordingly, the coffee industry was encountering a fierce sequence of brand identity predicament where intense price cuttings and endorsements were the standard as consumers attempted to shop on price as coffee has been condensed to mere commodities. However, in the advent of the coffee culture in the recent years, the emergence of companies like Starbucks has reinvigorated the coffee industry. In addition, coffee companies such as Starbucks have become an international phenomenon with thousands of branches all over the globe. This paper intends to look into the condition of Starbucks as an international company. Discussions with regards to the coffee industry as well as the strategy of Starbucks will be tackled in this paper.
THE COFFEE INDUSTRY
In spite of the fierce competition in the coffee industry, there are still opportunities that are present in ‘gourmet coffee’ where coffee purchasing decision-process can be motivated by quality, image, and service. To do well in the existing market condition, organizations have to reinvent a commodity by acquiring something aged and exhausted and ordinary as coffee and plait into it some sense of romance and identity in the region of it. This is Starbuck’s answer to their accomplishment where they have revived coffee by establishing an entirely novel list of options of coffee and the capability to generate a type of ‘place’ aside from the home and office where consumers can run off, mull over, read, converse, or listen in while having a nice cup of caffeine-rich beverage.
The coffee industry possesses a high intensity of rivalry among the major players. It is considered a saturated market. Starbucks’ direct rivals in the market include Diedrich, Brewsters, New World, Seattle’s Best, and Gloria Gears. Moreover, there are other alternatives which take account of restaurants, non-specialty coffee bars, and other caffeine merchandises. Coffee price is very unpredictable and similarly that coffee distribution arrangement is very compound.
BACKGROUND OF THE COMPANY
Starbucks buys, bakes, and prepares first-class whole bean coffees and puts them up for sale in conjunction with Italian style espresso infusions, various pastries, and coffee-associated ornaments and gear - principally by means of its company-ran retail outlets. Besides sales by means of the company-ran retail outlets, Starbucks vends whole bean coffees by means of a specialty sales group and superstores. In addition, Starbucks presents a line of inventive first-class teas created by its completely owned subsidiary, Tazo Tea Company. The company's goal is to set up Starbucks as the most acknowledged and esteemed brand internationally.
To realize this objective, the Company intends to carry on to swiftly spread out its retail operations, cultivate its specialty trades and other processes, and discerningly trail opportunities to leverage the Starbucks brand by means of the launch of new products and the creation of new distribution avenues.
Mission Statement and Corporate Strategy
The Starbucks Corporation intends to set up the company as the leading seller of premium coffee internationally whilst upholding its rigid philosophy even as the organization develops. Among the strategies that aids Starbucks in making any fitting choices includes the provision of a great work setting and caring for all with esteem and dignity, acceptance of diversity as an necessary element in their business approach, implementing the top standards of distinction to the buying, roasting, and trading of their merchandise, creating fervent and fulfilled consumers, contributing confidently to communities and the environment, and acknowledging that profitability is indispensable to future accomplishment.
Supply Chain Management
Starbucks relies upon both its external brokers and its direct interaction with exporters for the provision of green coffee. Coffee is the world's second mainly traded commodity and its supply and value are cause to undergo volatility. Coffee of the superiority acquired by Starbucks has the propensity to trade on a agreed basis considerably superior than commodity coffee pricing. Moreover, supply and price can be influenced by numerous components in the producing nations, particularly with regards to climate, political, and financial situations.
To reduce the perils connected with the boosts in coffee values and to permit better certainty in the prices the said company finances its coffees over extensive episodes, the company goes into fixed price purchase promises so as to get hold of a sufficient supply of first-rate green coffee and install a cost for prospective periods. Starbucks supposes that, anchored on relations instituted with its suppliers formerly, the threat of non-delivery on such purchase obligations is far-off. Specialty provisions, like pastries, are commonly acquired from domestic sources anchored on quality and price. Articles displaying the company's symbols and trademarks are paid for under contract. Hardware articles, like coffee makers, are usually paid for openly from the producers.
SWOT ANALYSIS
In order to review the company in a greater extent, the paper will employ the SWOT analysis. The findings are summarized in the figure below.
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Weaknesses |
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Opportunities |
Threats |
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Strengths
- Financially Capable
Starbucks possess substantial fiscal potency. In fiscal 2003, Starbucks produced incomes of $4.1B. The company is the number one in the context of specialty coffee retailer sector, and as such is has a superior financial range than virtually all of its rivals in the coffee industry. Vast financial resources allow the company to make the most of market opportunities, investments and growth actions that are not accessible to more undersized organizations with a condensed capital.
- Internationally Recognized
Starbucks is beyond doubt an international brand. The firm possesses more or less 6,500 retail outlet sites all over the world, the bulk of which are company ran and controlled. The firm has shed its net across thirty nations in an attempt to set up a ground-breaking likeness, and even though such a strategy has produced some degree of early returns from its worldwide industry, the organization has been successful in creating an actual international brand. At the end of the 2003 fiscal year, Starbucks had a sum of almost over a thousand accredited retail outlets, counting almost a thousand in the Asia-Pacific area, over a hundred in Europe/Middle East/Africa and the rest in the Americas, not including North America.
- Constant Innovations
Starbucks is a closely controlled trendsetter, and first-rate management of its innovation time line is among the key causes following the firm’s accomplishment in creating consistent soaring levels of same store sales. Starbucks at present has numerous new designs being attempted in its outlets. In 2002, the firm launched the new Frappuccino Blended Beverages, and in 2003, the "Iced Shaken" drinks product line was initiated. Starbucks’ capability to even out new ideas and creates comparatively fast is a significant competitive strong point for the corporation. That it can quickly load gaps in its calendar is a spin-off of Starbucks’ company-ran retail configuration, vertical integration of a lot of products and comparatively uncomplicated store operations.
- Strong Hold on the Beverage Industry
Starbucks has constantly obtained rising amounts of its yearly revenue from its beverages business division. It is excellent for Starbucks to concentrate on the beverage industry, as this central product division states the course of other divisions, like merchandise and foodstuffs. A sustained development in the beverages division corresponds to by and large company development for Starbucks, as it reveals the steady strength of the company’s core product.
Weaknesses
- Dependence on the Market of the United States
Starbucks’ obtains roughly 85% of its revenue and to a large extent all of its profits from its domestic market in the United States. Provided that the business is a global brand with wide ranging operations, it is supposed to be intending to create a superior amount of revenues from external the domestic market. This is Starbucks’ dependence on this market, the business’ whole performance will be significantly influenced should the company’s US component do poorly, in consequence of economic circumstances or improved levels of rivalry in the market.
- Large Overhead Charges
Starbucks, as stated in its international strategy on the foundation that utmost advantage can be acquired from going into markets early to seize a first mover advantage. Appropriate to this, the corporation quickly shed its net, setting up operations in just about thirty nations, and by this means, bring upon themselves generous overhead charges. Similarly, in the firm’s hurriedness to boost its scale, some impulsive decisions were carried out and a number of these errors have postponed growth to productivity. Starbucks’ business paradigm has undoubtedly entered for some criticism; even though the firm’s global business should ultimately turn out to be profitable in the coming fiscal years.
Opportunities
- Opportunities in the International Market
Starbucks’ global business is supposed to finally attain profitability in the coming years. Approximately 23% of the company’s outlets are situated exterior North America. The noteworthy markets take account of the UK and Japan, which ought to offer functional determinants for the individual performances of Starbuck’s other functions in Europe and Asia.
- Possibility of product expansion
There is a possibility for the company to expand to other products beside beverages. With their brand deeply entrenched in the market, they could look into penetrating into the market of cakes and other pastries.
- Increase in the Quality of Life
Threats
- Tough Competition
The international coffee market is a very competitive segment, and Starbucks have to contend in opposition to the likes of restaurants, coffee shops, and street carts. A chief player, with considerably superior fiscal, marketing and operating sources than Starbucks, may perhaps go into this market at any instant and vie openly against the company. The United States specialty coffee market carries on to develop and a growing amount of organizations are seeking to go into the market. Starbucks have to be conscious of competition on every levels and sustain its operational performance if it is to keep hold of its position as the world’s foremost specialty coffee trader.
- Unpredictable Market
Starbucks is in danger to the unpredictability of the supply and price of coffee. The company’s hunt for higher standard coffee denotes that it can be unfavorably influenced by numerous issues in the producing states, including climate, political and financial situations. Additionally, green coffee prices have been influenced formerly, and may possibly be influenced at some point, by the feats of groups and unions that have formerly tried to manipulate prices of green coffee by means of agreements setting up export allowances or limiting international coffee supplies. The feats of these unions may well bring about a certain extent of pricey interruption to Starbuck’s operations, both domestically and in the international context.
References
Starbucks Annual Report 2003. Available at: http://www.starbucks.com/aboutus/Annual_Report_2003_part1.pdf [Accessed 02 May, 2006]
Starbucks Annual Report 2004. Available at: http://www.starbucks.com/aboutus/Annual_Report_2004_part1.pdf [Accessed 02 May, 2006]
