Golden Circle
Starbucks Coffee Company is a story of success for many. The relity is that the copmany’s business path is contimuously fascinating for many reasons. First of all, it has become an example of an integrated supply chain, which involves all the stakeholders on the upstream and downstream and brings forward global business with local business model. Secondly, Starbucks built a strong brand, based not only on innovative and forward-thinking business model in operations and Human Resource Management, but also due to its pioneer projects in Corporate Social Responsibility and the special way it treats its suppliers. Finally, for many professionals and academic researchers, the Starbucks CEO, Howard Schultz has become a remarkable figure in analysing successful leaders and their qualities. With the above in mind, an analysis of Starbucks Coffee Company allows a multifaceted view on the ways, an organization in a contemporary business environment can build a sustainable competitive proposition.
One of the interesting ways of looking at Starbucks is from the perspective of a high level business model, Golden Circle. In spite of many elements that comprise Starbucks unique business model, it is difficult to argue that the core of the company’s busines is the unique product – coffee. Starbucks built its brand over the years, offering its customers differentiated experience, which does not only include the physical product, but theentire coffee-drinking experience. The “What?” for Starbucks, therefore, is experience, embience and the coffee, rather that the drink alone.
The process of birnging forward the product is relatively simple. The core of the business strategy for the company is to ensure that every individual that comes to a Starbucks store “experience” it. To achieve this, Starbucks have developed its unique signature in terms of ambience, which involves darker colours,wooden furniture and music, which makes the stores specially attractive for individuals that need to work, organize business meeting or simply escape from a busy day. The final element of this proposition is the experience. Starbucks offers a great variety of coffee beans as well as types of coffee which leaves little room for individuals to doubt that there is something for their taste. Employees are well-trained to spread the word and offer their customers tastes and experiences that they find most attractive.
Sustainable Competitive Advantage
Starbucks Coffee Company has been competing on the market for many decades. Since the first Starbucks store was opened in 1971 in Seattle, Washington, the company has transformed itself from a coffee retailer into a coffee brand itself. The history of the company demonstrates that the changes in the external environment as well as internal development have influenced their market strategy. Over the past four decades, the company has adjusted and adapted its business to ensure that it always remains on top of innovation and quality. While the company is unique in many ways, the unique advantage and its strategic pillar are relationships along the global supply chain. That said, the mission of the company states: “To inspire and norture a human spirit - one person, one cup and one neigborhood at a time”. Indeed, the company places a lot of efforts and financial resources in building on their relationships with customer, employee and supplier (Starbucks, 2012).
The company follows extremely diversified strategy to remain best in their market. This means that the global strategy looks at diversity, loyalty creation among customers and suppliers as well as building on scope and scale of its operations to offer convenience and acessability to their clients. One of the main elements of Starbucks competitive advantageis the standartization of proposition and quality across the market, which comes along with a certain level of personalization to ensure that the company addresses the needs of local consumers. Some of the examples of this global strategy with local thinking is the menu personalization in oriental countries, which offers a variety of teas or special snacks menu in Latin America, which allows attending demanding public in Brazil.
Value Creation Model
Starbucks realized that the volatility of the global markets has tremedous impact on large companies. The organizations that pretend to grow organically should continuously look for the ways to invest in their unique image and Brand identity. Howard Shoultz bet on quality and variety within a unique product offering. To be able to become number one in a highly competitive market, Starbucks looked for ways to create a unique proposition and exclusive product. This led to the development of the global suppl chain, which transformed the organization from coffee retailer to one of the largest coffee producers, distributors and retailers. Starbucks ensures that customer loyalty does not only come from fidelity programs or special benefits that it offers through Starbucks card or one-time promotional campaigns. It also “listens” to its clients through market research and special localized studies to better peronalize their offers in different countries and even cities.
Human Resource Management within the organization is one of the most important tools for gaining competitive advantage on the market. The organization offers individual trainign and mentorship programs as well as builds on the strategy of growing their talent from within the core of the organizaiton. As a result of this policy, Starbucks is among the top companies when it comes to the employee retention rates.
Finally, Starbucks Coffee Company suppply chain is one of the most investment intencive strategic operations in the industry. The organization invests in education programs and quality improvement not only internally, but provides training and certification to each and every partner that they work with. This accurate and very demanding approach to the selection of their upstream partners allows maintaining high product standards and quality at all times. Additionally, the company believes that the success of their partners, coming from training and improving their business model will positively affect their business in the future (Starbucks Coffee Company, 2015). This thinking allowed the company to help many small and medium size coffee producers in developing and underdeveloped companies. By doing so, Starbucks built a strong image as a corporate citizen and developed its Corporate Social Responsibility (CSR) image globally.
Porter’s Five Forces Analysis
Starbucks is competing in extremely volatile and competitive business environment. The companies operating in the industry often have to adapt aggressive pricing strategy and compete on very low margins in order to build on customer loyalty and maintain its revenue levels. In order to understand the environment in which Starbucks operates, it is interesting to utilize Porter’s Five Forces Model, which outlines five major elements that determine competitive layout of the industry: competition, new entrants, and threat of substitutes, bargaining power of buyers and bargaining power of suppliers (Sandler, 2003).
Competition
Starbucks competes in the market of coffee retailers as well as cafes in general. This market is highly segmented and in spite of a number of large global players, such as Costa Coffee and Mc’Donalds, competition also comes from smaller local stores. Starbucks operates over 20,000 globally and is present in 50 countries. Based on the financial figures 2015, the company is the largest coffee shop firm in the world and consistently outperforms the industry everage. This places the company in the position to innovate and compete on the scale and scope of its operations (Starbucks Coffee Company, 2015). Like the majority of its competitors, Starbucks heavily relies on building a strong brand and customer loyalty, which induces their clients to pay a extra for Starbucks experience.
Bargaining Power of Buyers
Based on the fact that Starbucks product is not unique and there are many substitute products on the market, it is possible to argue that the general threat is moderate. It is important to take into account; however, that the individual bargaining power of customers is reasonably low as the size of an individual purchase is too small to negotiate, relative to the overall revenue of the Strbucks Coffee Company. Starbucks market proposition and competitive advantage isn based on relative diversification of its product. The shops offer snacks, coffee drinks, juices and other beverages, making individual customer groups less strong in terms of their bargaining power. With that in mind, bargaining power of buyrs is mostly related to the preference that they may give to other competitor based on price or specificity of the product.
Bargaining Power of Suppliers
Global coffee market is extremely competitive and segment. There is a great number of large and small coffee producers that are willing to export their product and partner with retailers to gain sale and scope. With that in mind, Starbucks is free to choose from many suppliers, limiting their power to a minimum. Moreover, the policy that the company have adopted to grow and develop together with their partners, makes the players in the upstream of the supply chain more dependent on the Starbucs itself. Bargaining power of suppliers is also limited due to the fact that many of the Starbucks partners are small and medium size companies in the developing world, which cannot compete by diversifying their customer base.
Threat of New Entrants
Given the size of the market and strenth of several major competitors globally, it is possible to classify the threat of new entrants as low. In spite of the fact that the market is open for new entrants and the level of initial investment is not very high. Building on loyalty and compete on the market with extremely reduced margins is significantly more difficult for new companies, especially with lower working capital.
Substitutes
There are numerous options on the market and the threat of substitutes is significant of the company. Many customers may opt for tea, juice or other substitute beverage. The threat is even more evident as the switching cost in this situation is very low. Bars and restauranets consistently look for the ways to attract new clients and for those customers that are less loyal to the brand, switching the product and provider can become a matter of habbit. At the same time, when the consumer is loyal to the taste of coffee and the experience, substitute threat becomes more relative.
Metric Plan Development
Strategic planning for any organizaion demands a series of meaures that can allow evauating the progress and understanding of the organizational position with regards to the market as well as its internal objectives. Starbucks Marketing Plan is closly aligned and linked to the objectives and targets of its high level long-term strategy. With that in mind, it is possible to outline several major metrics that drive organizational performance and allow an overall analysis of the company’s performance in the industry.
First of all, the company is extremely concerned with its liquidity due to the fact that it builds its competitiveness on the innovation in the sector and HRM policies and metrics. With that in mind, liquidity and debt to equity ratio are some of the first metrics for Starbucks.
Secondly, Starbucks brand is built around loyalty and the company gives a lot of attention to the HRM policies aimed at talent management as well as employee motivation schemes. One of the core ways to measure the effecivteness of such policies is the employee retention rate and average satisfaction among employes globally. Starbucks measures employee retention and employee satisfaction thoroughly and conducts surveys on a regular basis (Starbucks, 2012).
Another important metric for the company is the pace of growth. Starbucks places orgnic growth in the center of its global strategy. With that in mind, one of the most important targets is the number of own stores opened in the existing new markets. As such, Starbucks is one of the companies with the most aggressive organic growth strategies in the industry.While Mc’Donalds builds on the major competitive force, its growth is based mostly on inorganic strategy, while Strbucks own shops continue to dominate the company’s expansion plan.
Strategic Plan
Starbucks is a forward thinking company that places long-term planning in the core of its competitive advantage. The five-year plan, which is the basis of organizational development, is built around proitable and sustainalbe growth. Starbucks strategy outline the importance of coffee and tea market leadership for its stakeholders and highlights the role of innovation in the sustainable competitiveness of the company on the market.
One of the newest developments and plans that was recently announced by the company is building on the online and remote services for the clients. That said, the company have already invested significant capital to build its mobile order and pay as well as delivery application to attend the clients with extremely limited time availabilty. While the management recognizes that such approach places the “Starbucks experience” at risk, it is seen as a need and the opportunity to compete in the contemporary environment.
Another important element of the strategic development is the merger and acuisition strategy. Some fof the most recent examples is the strategic acquisition of Teavana Company in 2013, which gave Starbucks an oportunity to immediately grow in tea retail and production market (Starbucks Coffee Company, 2015).
Additionally, Starbucks continuoes to build on customer experience. With that mind, Starbucks 2015 Strategy document reflects strong focus on the day part and diversification of its stores worldwide. One of the pillars of this diversification of customer experience is the food menu. Starbucks Coffee Company announced an aggressive plan to increase its revenue from food sales 200% over the coming year. This number should be achieved through the offering of various store formats from macro shops to the Starbucks Evening Experience (Starbucks, 2015).
References
McDonald´s (2013). McDonald´s Annual Report. McDonald´s Corporate Website. Retrieved 4 October 2014, http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDs2013AnnualReport.pdf
Starbucks Coffee Company (2015). Starbucks Annual Report 2015. Starbucks Official Website [Online]. Retrieved 23 April 2016, http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual
Sadler Ph (2003). Strategic Management. 2nd Edition. London: Kogan Page Limited
Starbucks (2012). Business Ethics and Compliance. Standards of Business Conduct. Starbucks Official Website. Retrieved 25 April 2016, http://www.starbucks.com/aboutus/SoBC_FY09_eng.pdf
Starbucks (2015). Starbucks Newsroom. Starbucks Official Website [Online]. Retrieved 25 April 2016, https://news.starbucks.com/news/starbucks-details-five-year-plan-to-accelerate-profitable-growth
