Starbucks is one of the most world renowned coffee shop brands in the entire world. The chain has operations from Guam to Saudi Arabia, with a huge supply chain network of coffee growers from around the world providing the beans necessary to continue production on such a large scale. Its first store was opened in Pike’s Place market, which is one of the largest fish markets in the US. Company sales rapidly expanded, and the owners of the Starbucks Corporation were able to go on and make a substantial profit through efficient organization and competitive pricing; most importantly, the company has incredible marketing and branding, and Starbucks has become a corporation synonymous with American entrepreneurship.
Coffee is traditionally divided into two types: basic and premium (Kachra). Premium coffee is considered higher quality, and Starbucks purchases more than any other company for its day to day operations. The premium coffee, while increasing the price per cup, also ensures that Starbucks is known as having the best coffee available. Starbucks also has strict standards, sampling coffee imports three times before the beans reach the shelves. These strict standards are the reason the company has performed so well on the international market, outperforming in almost every region except Italy.
The company does not just place high value on the quality of its coffee. Starbucks’ most powerful marketing tool is the atmosphere it provides. Baristas are trained on coffee making methods are expected to be able to discuss coffee information with customers, should they have questions (Kachra). Starbucks’ locations often serve to increase the branding of the company, as they are conveniently placed near book stores and in airports, creating an atmosphere that is unique to the company, and isn’t like that of a small time coffee shop. The image you see when you think of Starbucks is traditionally that of a bustling, fast-paced café with baristas moving at the speed of light to keep up. In some cases, it can be said that the strength of the company lies directly in the high volume of business the company receives, as customers expect it to be good based upon other customers’ continued service. Therefore, many would be led to say that Starbuck’s is primarily successful because of its branding, as the higher price of its coffee is virtually uncompetitive in regards to other coffee retailers.
Starbucks has a massive supply chain, encompassing coffee producers from every major region. Nearly 50% of the company’s coffee is sourced from Latin America, 35% from the Pacific producers, and 15% from East Africa (Kachra). Starbucks also trains their exporters and works closely with them, ensuring the company receives what they need and that the exporters feel comfortable in knowing what to look for. Exporters are eager to work with Starbucks because they buy more premium coffee, which helps increase the exporters’ commission. Therefore, they typically maintain a strong relationship with Starbucks. The company believes its supply chain to be one of the greatest in the world, as they believe they have the best transportation rates in the entire industry and also that they are remarkably good at predicting who will need their coffee and when, essentially implying they have remarkable data forecasting for consumer demand in their areas of operations. It also implies that Starbucks demand must remain consistent from years before during certain times of the year. Starbucks supply chain operations encompass four areas of their business: the retail stores, the specialty sales and wholesales, the grocery channel, and the mail order services. Having so many different avenues of raising revenues can be daunting, but Starbucks does so quickly and efficiently.
Starbucks coffee is also very carefully roasted. If you are picturing high class inspectors brewing each batch with love and care, you would be mistaken. The beans are carefully roasted by a mix of technological use and by people working with the beans (Kachra). After years of research and developing their recipes, Starbucks roasts every batch very carefully and follows the appropriate roasting curve. They conducted many different experiments, all trial and error, to determine the best type of coffee roasting methods possible. The roasting techniques that were discovered were programmed into computer software, in the case that company roasters left the business and defected to a competing coffee company. Thus, the technology uses the roasting curves programmed into the systems to do the hard work, and company employees simply ensure that it is running smoothly. This helps ensure the coffee tastes good. With the knowledge that roasting affects the taste of the coffee, Starbucks considers this one of the most important steps in finishing their coffee. There are many opinions about how Starbucks’ coffee tastes, but the care and precision that the company puts into the process shows the seriousness and value with which they regard the process.
After the roasting process, the coffee is then air-cooled before being sealed into vacuum bags that allow the natural gases that roasted coffee produces to be released without letting in any oxygen. This process ensures freshness, and even significantly increases the life span of the coffee itself. In fact, Starbucks claims that its supply chain protects the coffee from oxygen from the moment they were roasted until they were packaged, which was a landmark process at the time.
The capabilities of Starbucks are virtually endless. They can transport coffee all across the world, succeed in nearly every market, and are efficient while doing so. Because of the strong relationship the organization has with its exporters, Starbucks has a very consistent supply chain (Kachra). Also, because of the strength and reputation of the company, Starbucks will always have exporters seeking to work for them to ensure the needs of the company are met. The company can be flexible, and completely innovative, as it is continuously coming out with new blends of coffee.
Starbucks is also highly capable and profitable because they are flexible on how they plan their locations and building. Starbucks does not mind building a store in a funny shape if it is required. This flexibility allows them access to more consumers. The company also clustered its stores, building them closer to each other so that they capture the market in its entirety, rather than just a few dispersed areas. This function makes Starbucks a serious threat to its competitors.
When people shop at Starbucks, they are typically not just purchasing a cup of coffee. They are purchasing an experience. The same can be said of any coffee shop, as all customers enter a shop to smell the fragrance of the coffee beans, sit down and read a book (or write one) while sipping at perfectly roasted Arabic coffee. Starbucks creates an experience through their merchandising, with products marked as “Madagascar Vanilla Roast”, or “Sumatran Blend”. Consumers feel that they are not just purchasing basic coffee, but also promoting eco-friendly initiatives and buying goods that make them feel more posh and sophisticated. Howard Schultz, the founder of Starbucks, envisioned a place where coffee drinkers could come together in a store with a “theatrical style” atmosphere, revolving around the central expresso machine. Schultz did not want Starbucks to just be any coffee store; he wanted a place where people could come to experience first rate music, chat with friends or employees, have an upbeat and positive experience, and receive expert advice about coffee if necessary. Schultz wanted Starbucks to be a place where devoted customers can come and be themselves, while drinking delicious coffee.
This imagining of Starbucks revolves around numerous factors; notably, together they make Starbucks seem like the hip hangout in town, where college age adolescents who engage in the intellectual pursuits can mingle, but also available for older generations who share similar pursuits (Kachra). The typical Starbucks employee/barista is usually a college age student studying or just working. As previously mentioned, the company heavily trains their baristas to be capable of providing first rate knowledge about coffee, enabling them to answer any question that might arise, such as what coffee goes well with a certain type of food, etc. This became necessary as the general public became more and more knowledgeable about the different types of coffee, and Starbucks began training its employees in this way to not only increase their competitive edge but also to maintain their professional image and atmosphere.
Starbucks began entering the international market to gain a head start on their competitors. They also expanded because other countries have a much higher coffee consumption that the US, such as the Scandinavian countries and Italy. Their expansion directly increased their image in the minds of the consumers, because consumers are not just buying a coffee, but they are buying a piece of the world in a cup; they are buying a coffee that they know is sold all over the world, and that somewhere thousands of miles away, someone is enjoying a similar cup of coffee. Starbucks helped create that experience, and it is synonymous with their internationally targeted merchandise previously mentioned. Therefore, the Starbucks experience is enhanced by the international presence of the company, the strength and targeting of their merchandising, and their well-trained and knowledgeable employees who help maintain that atmosphere.
Starbucks has done incredible things to increase their brand name and recognition, notably the incorporation of specialty sales. Specialty sales are partnerships with other major brand name companies that have a reliable service history (Kachra). These partnerships were conducted so that Starbucks could increase its name recognition, and vice versa for the company they are working with. For example, Starbucks partnered with Barnes & Noble to incorporate many small cafes into Barnes & Noble bookstores, increasing the revenue of both companies. Starbucks also partnered with United Airlines, so that United only sells Starbucks coffee. Starbucks has specialty sales contracts with ARAMARK, Dreyer’s Ice Cream, Red Hook Breweries, and more, significantly increasing the scope of Starbucks’ reach. Starbucks’ partnerships with Pepsi and the bottling of their frappuccinos helped increase their expansion into grocery stores, and their Dreyer’s Ice Cream partnership helped introduce the product to an entirely new type of customer. The decision to provide these types of sales was a great upper management decision, reflecting on how the corporate leadership is working to expand Starbucks’ capacity. Upper management considers the expansion into grocery stores vital to the expansion of the Starbucks name. The COO of the company, Orin Smith, believed it to be essential in making Starbucks a home brand as well as a retail brand (Kachra). This decision is likely because grocery stores sell 70-80% of the coffee bought for home consumption, marking an important turn in long-term Starbucks strategy. Starbucks also reaches this home-market through mail order services, detailing the length that the major company is willing to go through to penetrate this market.
Much of the success and image of the company is thanks to Howard Schultz. Schultz is famous for not being concerned with failure, but mediocrity, and his personal drive helped propel the company to where it is today (Kachra). Schultz became interested in coffee after a visit to Italy, and when he returned home, he bought the rights to the Starbucks name in 1982. Mr. Schultz is well respected by his employees, who follow him with a fierce loyalty because of how he cares for his people and because of his own personal motivation.
Starbucks’ organizational structure inspires confidence and motivation in its employees because of its flat structure. Baristas and CEOs are all considered equal, and upper management values the opinions of the baristas because they are on the front lines, interacting with customers and seeing firsthand the opinions that customers might have. Starbucks managers are also frequently in communication with each other and baristas, ensuring the proper flow of communication. All employees also receive the same training, meaning the CEOs must be baristas too.
This training requires all employees to undergo 24 hours of training before they can touch coffee at all. By ensuring everyone understands what is expected of employees, everyone can work together and create a more fluid organizational structure, which makes the company very unique. The structure of the retail stores is built on hospitality, education, and production, and employees are expected to be well educated about coffee and customer-service oriented.
The organizational structure of Starbucks also provides motivation for employees. Starbucks currently partners with universities around the US, notably Arizona State, to help provide tuition reduction and tuition assistance for baristas seeking an online education. Employees may also receive great benefits, such as health insurance, vision care, dental, and life insurance; employees are also entitled to being able to purchase stock options in the company, something very important for such a powerful coffee company. These factors helped give Starbucks one of the lowest turnover rates for employees in any organization, as the managers recruited were very effective at operating high growth retail stores and the incentives/corporate culture helped increase the number of baristas dedicated and loyal to the job.
Starbucks uses six principles to measure the appropriateness of its decision making: Respect each other and provide a great working environment, embrace diversity, apply the highest standards throughout the value chain, create customer satisfaction and loyalty, contribute to the communities and be environmentally friendly, and recognize the need for profitability. These guidelines helped cement the company’s corporate governance and organizational culture, and reflects on the imaging and branding style of the company.
Starbucks’ outstanding financial success has led it to massive growths and large stock market gains; indeed, Starbucks is one of the greatest long-term stock buys on the market today. Starbucks is considered to be slightly risky due to its transition to a global brand, but the growth rates of the company have shown it to be a fantastic portfolio stock. Starbucks does not franchise, meaning they own all of their stores and must rely on equity to raise money, which can be damaging for the company.
Starbucks’ marketing is focused on turning the brand into more than just a big retail name; as previously mentioned, the company has branched out into mail orders and grocery outlets, and its special sales help provide it with other outlets of revenue (Kachra). Unfortunately, this form of business model turns the company into less of a physical product into more of a brand name. The corporate leaders need to ask themselves if Starbucks can handle relying on its name to influence sales, rather than just focus specifically on increasing retail revenue. Starbucks’ competition is remarkably stalwart and competitive, and they have less trouble expanding in local markets, despite the superiority of Starbucks’ international brand name and image. Starbucks does not appear to be capitalizing its value chain in support of this issue; rather, they are focused completely on turning Starbucks into an experience. This is progress for progress’ sake, and Starbucks should focus on using the vast resources at its command to try and increase local sales all across the board.
Starbucks does have significant potential in growing its grocery sales; however, it needs to reevaluate its branding. It also has great growth potential in its specialty partnerships. Starbucks should continue to expand in this area to continue to increase its brand name and broaden its portfolio into numerous new markets.
A SWOT analysis would reveal that the primary weakness of Starbucks in regards to its competitors is the expense of premium coffee. People who are sensitive to higher prices are naturally not going to buy coffee from Starbucks, as often times, you can build quality coffee for half of the price. Starbucks needs to consider this as well, as their refusal to purchase anything but the highest quality of goods might actually be hurting sales; perhaps they should engage in price discrimination, and provide alternate bundles of goods at different prices. This is one option the company can take. The threats to the company are numerous, as Starbucks faces pressures from all sides due to their expansion into numerous markets. Italian brands compete to sell fresh, cold frappuccinos. There are numerous other well-known brands that sell coffee flavored ice cream. Starbucks uses its brand name as its leverage, which only works because of the company’s reputation. This being said, the company has many strengths, such as the quality of its goods and the quality of ingredients. As far as retail goes, Starbucks maintains a competitive edge due to its ambiance and overall welcoming atmosphere. There are numerous opportunities for the company, starting with increased specialty sales orders. Once Starbucks starts building upon the sale of its coffee rather than just the experience, sales will increase, and the company will become more economically powerful. (Kachra)
Our analysis reveals that Starbucks’ initial success is due to its successful brand image, but the name can only take the company so far. Starbucks is the most famous name in coffee sales, but as the company is trying to expand further, it is difficult without a devout customer base. Many have compared Starbucks to the Walmart of coffee, with effective branding/marketing but little to actually show for it. Regardless, Starbucks will remain a major player in coffee for years to come, and Starbucks is a global player in the international economy thanks to its organizational culture and the strength of its value chain.
Works Cited:
Kachra, Ariff. "Starbucks." Starbucks. N.p., 1998. Web. 15 June 2016.
