Starbucks
Howard Schultz
Howard belongs to a humble background and began his coffee career with Starbucks coffee company in 1982. In 1982 it was solely a retailer company, on his trip to Milan he was inspired by the large number of coffee bars in Italy. After returning from the tour he presented the idea to board of directors but was rejected. After two years he resigned from the company and started his own coffee bars with the name, “II Giornale.” After two years Howard purchased the name and assets of Starbucks and renamed all his outlets Starbucks. According to Orin Smith, chief operating officer, Starbuck Corporation “Howard is a very ambitious, exceptionally demanding, very competitive and has high standards in everything and always raises the bar up. He is really caring about the people; anything anyone would do to damage the culture- he would be right on it.”
Executive Summary
Starbucks in its annual report of the year 1996 stated Starbucks have opened up more than 1000 outlets in the markets of North America and extended its operations in Tokyo, Japan by opening two new stores. With the workforce of 20000 employees they are continuously creating opportunities to offer world class experience to its customers. Starbucks is a quality driven company. Whether it is the area of recruiting employees, selecting Arabica beans, the aim of Starbucks is to offer a memorable experience anywhere, anytime. Whether it is in restaurants, airlines, company meetings or college Starbucks aims at offering high quality services and greater satisfaction.
In 1994 Starbucks refined the coffee industry by entering into joint venture with Pepsi-Cola and introduced a ready to drink beverage known as Frappucinno and hence laid the foundation for innovations in future. In 1996, Starbucks installed roasting and manufacturing equipment to create world class logistics and manufacturing organization. With the objective of becoming most recognized and respected brand of coffee in the world, Starbucks launched a new America Online Café Starbucks store. The strength of Starbucks lies in its core marketing and sales team which continues to open new channels of distribution.
Starbucks aimed at providing high quality coffee to its customers. They sourced the beans from different exporters of different region. Starbucks maintained a diversified portfolio by sourcing 50% of the beans from Latin America, 35% from Pacific Rim and 15% from East Africa. Diversified portfolio created variety in their menu. Exporters were anxious to become suppliers of Starbucks as it offered world class coffee and had world class reputation in the industry. Remarkable move was made by Starbucks by purchasing roasting and manufacturing machines and they roasted and blended their beans themselves at different temperatures. It made impossible for the competitors to copy their signature roasters and their recipes were protected. Starbucks hired experts and believed in integrated supply chain, it enabled Starbucks to accurately forecast who will need coffee and when. Starbucks build a supply chain that eliminated redundancy and maximized the efficiency.
Starbucks invested heavily on human resource and had a flat organizational structure. Starbucks treated employees as partners and looked forward to the opinions and suggestions made by barista’s as they are regularly and in direct contact with the customers. Starbucks trained its employees to be customer oriented and cater to the needs of the customer. A proper training program was created on how to serve coffee to the customer and everyone in the organization from barista to senior manager has to undergo this extensive two week training.
Consumer Trends
Consumer Trends keep on changing and recent popularity in specialty coffee resulted in due to growing awareness of the consumers. It led to more consumption of coffee not just for leisurely purpose or to stimulate the taste buds but also because it offered health benefits. Reasons for change in Consumer trend:
- Adoption of Healthy lifestyle: American people understood the ill effects of alcohol and adopted for healthy lifestyle and replaced alcohol with coffee.
- Coffee Bars were the place people could meet, interact in formal and informal group. It offered a peaceful environment for hearty laugh as well as serious business discussions.
- Affordable Luxury: Coffee became affordable as well as a luxury.
- More awareness about the benefits of coffee attracted people towards it and they did not mind having a cup or two for relaxation.
Situational Analysis of Starbucks
Starbucks offered a great experience to its visitors by creating a comfortable and royal ambience. It offered finest coffee’s of the world with up high rate music and a place where anyone can sit, reflect, read and be with himself. Starbucks offered a great place to conduct formal/informal meetings and focused on delivering high quality services along with coffee. Starbuck ensured to recruit employees who were at least graduated and offered them training to answer difficult questions of the customers and give them advice on how to make such brewery coffee at home. By giving more of a theatrical outlook to the stores it was a place to create memories.
Swot Analysis
Strengths
- Highly trained and customer oriented staff: Employees (Barista’s) of Starbucks are educated and trained to deal with the consumers who were getting aware of the different types of coffee’s and it became essential that employees should be equipped with knowledge about their product to answer the questions of customers and give suggestions
- Diversified Portfolio- Starbucks is known for its variety in the palette. They sourced around 50% of the beans from Latin America, 35% from Pacific Rim and 15% from East Africa. It helped them to maintain hedged position.
- Quality driven products: Starbucks purchased high quality beans in the world and therefore, most of the exporters were anxious to be the suppliers of Starbucks. It also carried highest quality merchandising whether it was coffee making machines, storage containers, coffee blenders or even mugs.
- Flexible: Flexibility of Starbucks worked in their favor as they could fit in any location. They were real estate opportunists and could fit any rectangular, triangle or trapezoid location. This helped them in gaining market share and regional reputation as they had large number of outlets in comparison to their competitors.
Weakness
- Lack of resources: Starbucks was falling short of resources an could not go international all around the globe at once. Hence they focused on near locations that were only five to six hours away.
- Dependency on Equity and Debt- Unlike its competitors Second cup or Seattle’s best coffee that were franchises, Starbucks was heavily dependent on equity and debt market in order to grow.
- Brand Equity- Starbucks was known as a retail outlet for its place and comfortable experience. It was not just about coffee. It was essential for Starbucks to become customer’s brand.
Opportunities
- Brand Image: Marketing and Sales department of Starbucks had to focus on changing the brand image of the company. From a retail outlet to be a customer’s most preferred brand of coffee.
- Expanding to International Markets: Starbucks holds opportunity in hands by expanding its product to other countries. With the help of joint ventures, franchising and adding sales partners, Starbucks can easily go international before its competitors.
- Grocery Market: Grocery or Supermarkets grab 60-80% of the customer’s attention as these are more accessible. Starbucks should strike a deal with supermarkets this will enable them to grab customer’s attention and increase the sale and revenue.
- Increasing Mail order services: This will enable Starbucks to provide packed coffee across the borders and make a strong client base.
Threats
- Competition: Cut to throat competition from The Second Cup and Seattle’s best coffee is the key concern. Starbuck being is not a franchisee and that is the advantage of its competitors.
- High Cost: Starbucks offer coffee that is slightly higher in price in compared to competitors. High price makes it luxury beverage and attracts only upper class customers. Differential pricing according to the different countries will enable them to make a strong client base.
