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Starbucks Strategic Analysis
Introduction
Starbucks ranks 45th on the Forbes list of hundred most innovative companies and 52nd on the list of worlds most valuable brands (Forbes, 2015 a & b). This is no small achievement considering the size of the corporation and its level of expansion. At last count in 2015, the corporation boasts of 22519 stores in 66 countries around the globe in which they offer a variety of products ranging from coffee to beverages to ready to drink delicacies. For an organization of this size, sustainability of product quality and service quality is an ongoing challenge. In this paper, we examine Starbucks’ corporate and business level strategies that have led to its spectacular success.
Corporate Strategy
Starbucks claims in its mission statement “Our mission: to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time” (Starbucks, 2015). The corporation has succeeded in realizing its dream by strategic business decisions. The company ensures that they provide the best quality Arabica coffee from Latin America, Africa and Asia. The beans are roasted using a special technique called the Starbucks Roast by carefully trained roasters. Thus, the company maintains its product quality. Their menu boasts of a range of beverages and food products. They also sell coffee beans, sauces, and syrups that are available online. Their HR strategy is evident in the fact that they refer to their employees as partners giving them recognition for their role in serving up the best coffee and other products to their customers. The growers from whom coffee beans are imported are also treated with the respect they deserve giving them their due even though the end product is priced high in the market. The customers too are treated with respect and connection between employees and customers is encouraged. The stores provide a cool ambience, which allows customers to destress. The stores offer several other products in addition to coffee. For example, the handcrafted beverages such as Vivano smoothies and Tazo Teas are unique to Starbucks. Thus, the company makes itself different from the competition. The Starbucks concept of “Shared Planet” embodies its CSR (Corporate Social Responsibility) initiative. From the farmers who grow the coffee beans to the distributors on to the partners working in the stores, Starbucks maintains good relations and gives each person his due. They have made efforts to conserve energy by using recyclable cups. They claim to volunteer within each community where they do business whether it is selling coffee in a store or purchasing coffee beans from growers. Thus, Starbucks has endeavoured to achieve its mission through strategic decisions in every area of business (Starbucks, 2015).
Business Strategy
Business Strategy analysis refers to understanding the external and internal environment of an organization. The common frameworks for strategic analysis include SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, Five Force analysis, PEST analysis, and Value Chain analysis (Price, 2003). We examine Starbucks strategy using some of these frameworks.
SWOT Analysis
The SWOT analysis tool distinguishes clearly between internal and external forces that influence a business. Strengths and weaknesses are internal to an organization while opportunities and threats are external (Luffman et al. 1996). The following diagram shows the SWOT analysis of Starbucks:
SWOT Analysis of Starbucks
The above analysis shows that though Starbucks has its weaknesses, they do not outweigh the strengths. There is some concern regarding competition from other global players such as Dunkin Donuts and Chipotle. However if Starbucks were to expand its product range and adapt to local cultures, it can sustain the competition.
Five Force Analysis
Porter’s Five Force Analysis offers a tool to analyse the micro within which an organization operates (Team FME, 2011). The analysis comprises of five market forces, which influence business namely, competition, new entrants, substitutes, consumer power and supplier power. The following table shows the impact of these five forces on Starbucks.
Porters Five Forces Analysis of Starbucks
Competitor Analysis
Competition for Starbucks can come from any retailer offering fast food and beverages. However, in the international market, a few key players can rival Starbucks. Of these, the top three are Dunkin Donuts, Chipotle and McDonalds.
Dunkin Donuts has close to 8000 franchises around the globe. In the year 2007, Dunkin Donuts made efforts to expand their coffee product base offering a variety of flavours and styles. This led to a range of high value products such as cappuccino, latte, and espresso in a variety of flavours such as hazelnut, cinnamon, and vanilla. In the same year, Starbucks temporarily shut down several stores and Dunkin Donuts rallied by extending their operational hours offering day and night services in several stores. They also lowered prices for standard coffee products like cappuccino, espresso and latte (Adamy, Starbucks Upgrades Espresso Machines, 2007).
Chipotle has a mere 1600 outlets as against Starbucks’ over 20000. However, Chipotle stocks rate higher in the stock market (Munn, 2014). Their brand promise is “Food with Integrity”. Although growth is slow in terms of number of outlets and geographical area, Chipotle has succeeded in providing a wide range of menu items both for the health conscious as well as for the foodies. It also has a strong marketing strategy with their free “Cultivate” food festivals and their “Cultivating Thought” program.
Like Chipotle, but unlike Starbucks, McDonalds works through franchises. However according to recent reports sales are declining (Peterson, 2015a). With more than 36000 stores (McDonalds.com) around the globe, this fact is surprising. The company however has rallied by launching a new turnaround strategy; however, this has been dubbed by some experts as overdrive (Peterson, 2015b).
Dunkin Donuts although older than Starbucks, does not have a large number of stores. Almost all stores are franchises unlike Starbucks’ self-owned stores. Thus, investment in real estate is higher for Starbucks as compared to other food chains. Similar to Starbucks, Dunkin Donuts offers a wide range of food items but its primary product is coffee. However, the Starbucks brand is mainly associated with beverages where as the Dunkin Donuts brand is associated with food as well as beverages. The company (Dunkin Donuts) offers competitive prices for its products however Starbucks offers better customer experience through its store ambience, free internet, and personalized service (Downie, 2015).
Analysis
The above analysis of Starbucks brings out the following facts. Starbucks main competitor is Chipotle. Starbucks’ primary product is coffee. Its strengths include global brand recognition, high product quality, good HR management, and use of technology. Given these strengths, Starbucks currently has a strong hold over the market. However, with Chipotle expanding rapidly and competition from other coffee houses, sustainability is not ensured. In order to remain sustainable, Starbucks must strengthen its business strategy further. Improvement is possible in the following areas. Starbucks does not have a strong marketing strategy. There is some amount of market saturation. Product diversity is medium. Use of technology can be improved. Despite these weaknesses, Starbucks’ main competitor Chipotle cannot compete with Starbucks in terms of size. In the stock market, however Chipotle rates higher than Starbucks (Munn, 2014). This indicates that Starbucks must revise its strategy to remain sustainable.
Recommendations
Starbucks’ strongest selling point is its commitment to quality. Its main threat is competition from Chipotle who is expanding its franchises. Chipotle has also launched CSR in a big way through community programs such as “Cultivate” food festivals and “Cultivating Thought” whereas Starbucks’ only claim to CSR is its commitment to quality and its concept of Shared Planet. The concept of Shared Planet has not been publicized other than within its stores. Starbucks therefore needs to improve its marketing strategy within its existing markets. Chipotle offers its customers a variety of products apart from coffee. Starbucks too has a range of products but it is not as wide as that of Chipotle. In addition, there are cheaper substitutes available for its primary product from other coffee houses. One may say that the Coffee Culture created by Starbucks though not extinct is somewhat outdated and overshadowed by the new concepts introduced by Chipotle. Starbucks therefore needs to expand its product base and achieve differentiation both in their products as well as in culture and brand image. This can be done by designing a new marketing strategy closely integrated with the CSR initiate and its mission statement. It can also explore new avenues for expansion of existing products and innovation of new products. The current humanitarian approach to HR is supportive of innovation and Starbucks can easily expand its product base through innovation given its large employee base.
Conclusion
Starbucks has an excellent business strategy that has thus far differentiated it from competitors. However, the two major competitors Chipotle and McDonalds are rapidly penetrating the Starbucks market. On the other hand, Starbucks’ commitment to quality and its humanitarian approach both on the marketing and production sides, does not allow the corporation to lower prices. Thus, the threat from cheaper alternatives will always be a drain on the customer base. Starbucks must therefore explore new avenues of marketing and distributing its products. It must also explore the possibility of inventing new products or enhancing existing products that will differentiate it in the market. CSR can and should be integrated with the new marketing strategy. A closer look at the marketing strategy will perhaps reveal opportunities for CSR and a closer look at its product line and production procedures will reveal possibilities for innovation of new products.
References
Adamy, J (2007) Starbucks Upgrades Espresso Machines - WSJ Retrieved February 4, 2016, from http://wwwwsjcom/articles/SB119612072768304542
Downie, R (2015) Starbucks Vs Dunkin’ Donuts: Comparing Business Models (SBUX, DNKN) | Investopedia Retrieved February 6, 2016, from http://wwwinvestopediacom/articles/markets/120215/starbucks-vs-dunkin-donuts-comparing-business-modelsasp
Forbes (2015a) The World’s Most Innovative Companies - Forbes Retrieved February 3, 2016, from http://wwwforbescom/innovative-companies/
Forbes (2015b) The World’s Most Valuable Brands - Forbes Retrieved February 3, 2016, from http://wwwforbescom/innovative-companies/
Luffman G, Lea G, Sanderson S & Kenny B (1996) Strategic Management –An Analytical Introduction Oxford, Blackwell Publishing
Mcdonaldscom (nd) Our Company :: AboutMcDonaldscom Retrieved February 5, 2016, from http://wwwaboutmcdonaldscom/mcd/our_companyhtml
Munn, A (2014) Starbucks vs Chipotle by Ainsley Munn on Prezi Retrieved February 5, 2016, from https://prezicom/ufeqkotisgpu/starbucks-vs-chipotle/
Peterson, H (2015a) McDonald’s is about to unveil a huge plan to save its business - here are 8 things investors need to hear | Business Insider India Retrieved February 5, 2016, from http://wwwbusinessinsiderin/McDonalds-is-about-to-unveil-a-huge-plan-to-save-its-business-here-are-8-things-investors-need-to-hear/articleshow/47130718cms
Peterson, H (2015b) McDonald’s turnaround strategy is in overdrive | Business Insider India Retrieved February 5, 2016, from http://wwwbusinessinsiderin/McDonalds-turnaround-strategy-is-in-overdrive/articleshow/49030673cms
Price ADF (2003) The strategy process within large construction organizations Engineering, Construction and Architectural Management 10(4): 283–296
Starbucks (2015) Starbucks Company Profile | Starbucks Coffee Company Retrieved February 3, 2016, from http://wwwstarbuckscom/about-us/company-information/starbucks-company-profile
Team FME (2011) Porter ’ s Five Forces Free Managemnet eBooks Retrieved from http://wwwfree-management-ebookscom/dldebk-pdf/fme-five-forces-frameworkpdf
