Critical Analysis Of Starbucks Case Study
What am I required to do in this assignment?
You are required to answer the following questions that relate to case study, Starbucks Corporation, 2018.
1. What is Starbucks’ strategy?
2. Assess Starbucks’ strategy in relation to:
a. Starbucks’ financial performance.
b. The overall coherence of Starbucks’ strategy in terms of its fit with the company’s external and internal environments.
3. Does Starbucks operate in the interests of its shareholders or its stakeholders?
4. How has Starbucks achieved a differentiation advantage in the coffee business? Is this a sustainable competitive advantage?
5. What threats does Starbucks face?
6. What should Starbucks do to sustain its outstanding performance?
According to the Starbucks case study, the mission of the Starbuck’s organization states that they nurture and inspire the spirit of humans along with providing an excellent coffee service and engaging the consumer at the emotional levels. The central to the strategies of Starbucks was its CEO Howard Schultz’s created concept of “Starbuck Experience” that was based upon the formation of the “Third Place” that is somewhere other than the workplace and home where the publics could get engaged socially by sharing their experience and emotions during the time of enjoying their mugs filled with Starbucks coffee. However, the key strategy of Starbucks product differentiation contributing to the differentiators like the exceptional product mix, coffee beverages, location reputations along with the premium customer service made it costly for the competitors to imitate and thus, made the company incur the premium valued image of its brands in the business market. The company also followed the smart strategy of shrewd acquisition and making of strategic alliance. Nevertheless, the company did not follow the franchising model and rather it operates the stores that were company oriented along with the joint venture in the global market.
Starbucks made some of the essential acquisitions such as Bay Breads, Teavana (tea commodities), Evolution Fresh (products of fruit juices) for utilizing the strategy of product diversification. Thus, as shown in the Starbucks case study, the acquisition history of Starbucks has always been horizontal, market and product extension acquisition. The other crucial strategy obtained by Starbucks was its international strategies for expansion within the key emerging and developed market and getting geographically diversified which became really successful by spanning into 60 countries, which derived them with the appreciable competitive advantage over the competitors.
- a) According to the Starbucks case study, as looking upon the period ratio of 10 years and the analysis of Starbucks financial performance from 2007 to 2017, the growth of the revenue of Starbucks faced the drop of -5.9% during the period of crisis in 2007-2009, bt after that the company geared up to stay posted on the healthy growth of revenue from the year 2010-2013. The Starbucks case study revealed an operation loss of Starbucks in the year 2013 that resulted in the operating margin as -2.2% in that year since litigation charge of $2.8 billion to the Krafts Food had been implied, due to the termination of the agreement with them. These charges were considered to be extraordinary events that should be deducted from the TOP (total operational performance) of the company. The ROE and the ROA were remarkable in 2012, with 17.8% and 29.2% and the efficiency ratios depicted a gain in operational efficiency of Starbucks, with the impressive asset, along with the ratios of inventory turnover being as low as 5.4 and 1.51 respectively in 2013. However, the cash conversion cycle of the company increased considerably, up to 54.7 on which the Starbucks should have focused for reduction that would have helped incurring higher efficiency. However, from 2015 to 2017, the total revenue of Starbucks increased from $16,906 million to $19,906.6 million worldwide.
- b) The strategies adopted by the company mentioned in the Starbucks case study appropriately fits with the external and internal environment of the company as it dominates the business industry with market share of more than 37%. As regarding the internal environment, the SWOT analysis of Starbucks is beyond the average as focusing upon its strength and opportunities. It shows that the company puts its internal resources to the optimum use and thus, gains the competitive advantage. The biggest threat that Starbucks confronts is its competitors who are introducing the high quality coffees at very low prices and hence, the coffee market is getting saturated with the several innovative competitors. Nevertheless, the recession as well as the inflation poses the major threats for the company as the consumer demands for less premium products for buying their imminent needs.
On the other hand, it is also stated in the Starbucks case study that for the external environment, the profitability of the company is analyzed through the Porter’s Five forces analysis. Thus, the threats of substitution is high as there are quite many available substitute beverages of coffee, while the bargaining power of the buyers is moderate-to-high owing to the low switching cost of the customers and the commonly available alternatives to coffee, that the millennial can enjoy. Moreover, the bargaining power of the suppliers are low to moderate as the powerful suppliers tend to capture more value through charging the higher prices, limiting the service and quality and shifting towards the industry participants. However, the threats of the new entrants is considerably low since there are enough barriers for entry and establishment in the industry and it is very difficult for any new company to establish its business as strongly as Starbucks, in the food and restaurant market. The intensity of the competitive rivalry is high to moderate as the industry has the monopolistic competition and Starbucks having the largest market share.
As regarding the Starbucks case study, it can be possibly stated that Starbucks operates as per the interest of its stakeholder rather than that of its shareholders. However, it seems that Starbucks highly values the stakeholders of the company starting from the customers, the employees, the suppliers and the investors. The company considers its employees to be the eminent part for delivering the Starbucks experience as they played the role of not only brewing the coffee but also made the consumers get engaged with the ambiance of the store. It was supported by the practices of human resources that were based on the distinctive view regarding the relationship of the company with its employees. Thus, Starbucks first required attracting and recruiting the individual who possessed a consistent personality and attitude that were equally consistent with the value of the company and secondly, the company fostered the loyalty and trust that facilitated their involvement with the Starbuck Experience. Moreover, the training of the employees was beyond the basic along with the skills of customer service that educated the employees about coffee, provided them with health insurance and with tuition reimbursement for the employees pursuing online degrees.
The most significant stakeholder of the company were the customers, and the company was specifically customer oriented as it came up with innovative ideas and technologies to satisfy the customers such as with food products by merging with Bay Breads, Tea products by merging with Teavana, fruits juices by merging with Evolution fruits, Grocery products, and the stores included music, books, videos, Starbuck bottled drinks, Starbuck prepaid cards, licensed kiosks and coffee shops and distribution of retail packets of Starbuck Coffee in the market. Thus, this made the company engage the customer at the emotional level and strengthen the company-customer relationship.
The product differentiation strategy of Starbucks outlined in the Starbucks case study made the company gain the sustainable advantage in the coffee business market as the market was segmented between the specialty coffee and the quality coffee, thus, Starbucks achieved in bringing the quality coffee among the mass markets. Thus, the sales of the premium coffee had grown from 3.5 billion in the year 2000 to $23.4 billion in the year 2017 with the number of Starbuck Coffee shops roughly doubling at the same time. However, the company expanded its menu of food and drinks with streaming new varieties of coffee within the stores like Cascara Latte, Nitro Cold Brew and much more with expanding beyond the coffee drinks. The company viewed expanding its retail distribution of the fruit juices within the store and also in the grocery trade. The company even included the tea products by merging with the Teavana and also saturated the new formats in the stores such Starbuck reserve that is the brand for ultra-premium coffees offered in selected stores where the coffee ranged from $3.5 to $12. The company viewed food to be the greatest chance for froing the revenue and acquired the La Boulogne and San Francisco bakery for providing pastries and baked food in the stores. Furthermore, the most successful differentiation was its expansion for sales in the grocery sector and thus, Starbucks Channel Development became the fastest growing part of the company.
According to the Starbucks case study, the recent threats that are faced by the Starbucks within its growth and success has spawned the imitators that involve the independent chains of coffeehouses which mostly were regional or local and out of which some had aspired to grow in the national chains. Adding to the specialty coffeehouses, most of the catering establishments of the US, whether being the fast food or restaurant chains, offered coffee as the art of their menus of beverage and food. These outlets seek to compete directly with the Starbucks through adding the premium coffee beverages within their menus. The food chains like McDonalds, Burger King and the Dunkin Donuts served premium coffees and moved upmarket within their offerings of coffee. However, this company even advertised that directly targeted Starbucks by characterizing its product to be snobbish and overpriced. The readings of Starbucks case study illustrates that the company faced the competition from the top, as the upmarket roaster of Italian Coffee Illycaffe Spa expanded its market in the US by franchise arrangements and it was also observed that as the Starbucks educated the North American regarding the joy if the premium coffee, the customers of the gourmet coffee started seeking the best substitutes to Starbucks. However, the competitive advantage for Starbucks varied from country to country and the competition brace much more intense outside the USA. Starbuck withdrawal its stores from Australia due to the consequences of the greater sophisticated and exclusive coffee market developed by the Middle Eastern immigrants. In Europe, the company had to deal with the developed market along with high coffee preparation standards and tenacious local preference.
There are certain ways illustrated in the Starbucks case study analysis through which the Starbucks’s can sustain the outstanding performance such are as follows’
- Increasing the length of the time that the brand’s new employee spends within training, as there is a hurry in the development and training of the employees they learn a very little about the history of the company and its brand image, including the Starbuck Experience, and even the coffee as well as espresso beverage. Thus, in order to elevate the Starbucks Experience, the Company we elevate the training as the present 20-25 training hours is not enough.
- Making the time for the coffee education that includes the coffee seminars with attracting the customers to taste the premium coffee so that they would prefer Starbucks coffee. The company outlined in the Starbucks case study should also weed out the employees who have a bad attitude towards the customers, as the customers are considered to be premium stakeholders.
- The Company should increase the awareness of the exclusive and great things it's doing for the local communities and to increase the brand standard the company should also slow down the rate of the licensed stores.