Introduction
Starbucks Corporation is a multinational company that specializes in production and sales of coffee products including roast coffee and other coffee drinks globally. The company was founded in 1987 as a coffee roasting retail shop in Seattle, Washington by three key owners who had learned the coffee roasting idea from a local Italian retailer. The initial business performance when it was only a retail shop was a success especially since there were few competitors who specialized in the coffee roasting and sales business as most coffee houses were more into coffee brewing. The business performance was however improved when the management adopted a new diversification strategy of expanding the business to other market segments in the world as well as incorporates coffee brewing and abandons the original business that involved only roasting of coffee and spices. The company has established a strong customer base around the world after diversification and its profit margin improved tremendously over the past few years whereby as of the financial year 2010, the net profit was recorded to be 10 million dollars which is a positive boost for the company.
As a way of achieving their strategic goals of business expansion to serve the demand of customers in regard to the hospitality industry, Starbucks had adopted various strategies that aimed at increasing the productivity aimed at increasing the sales output. The main strategy involved expansion of the business by opening several outlets both in the United States and also to other countries in the world and by the end of the year 2010, the company had succeeded to operate their businesses to more than 50 countries globally whereby they had 8812 company owned outlets and over seven thousand licensed stores across various countries over the world. Also the company had adopted internal business strategies of improving productivity which mainly focused on employee welfare while at the same time focusing most on ensuring a peaceful and productive coexistence with the company stakeholders who includes the shareholders, suppliers who are mainly the coffee farmers, consumers, community and the management. The corporate social responsibility is one of the company’s main strategy of ensuring the community gains trust hence maintaining a growing economy where all the stakeholders benefits from the company operations.
This case study analysis therefore, addresses some of the steps that Starbucks Corporation has adopted in their effort to expand the business operations by analyzing the internal and external environments of the company. The analysis also highlights some of the strengths and weaknesses that the company has experienced and ways these factors have affected the success and drawbacks of the company. The analysis highlights some of the recommendations that are suitable for the company’s future prospects in achieving success in the hospitality industry where competition is increasing at a higher rate than before. The future plans of the company which includes critical decisions on whether to adopt the plan of opening additional coffee outlets across the world market is among the issues that the company need decide on in an attempt to achieve the strategic goals.
Background information and industry analysis
The history of Starbucks Company can be traced back in 1971 when the three coffee aficionados Gordon Bowker, Zev Siegel and Jerry Baldwin come up with an idea of opening a coffee, tea and spice retail shop in Seattle which is a region highly occupied with tourism operations. Their main motivation in the shop operation was to attract a wide range of clientele just like what other coffee houses had experienced such as those in Bay area, San Francisco. The trio had learned coffee processing expertise from a Dutch immigrant who owned a tea and coffee processing house in Berkeley California whereby he used imported coffee beans to make fine coffee and had encouraged his customers to learn the process and make their own home made coffee, a strategy which the Starbucks’ founders imitated and started their own outlets. They invested in the company through contributing the initial capital and one of the founders worked in the shop as a paid employee. The retail owners were at first reluctant to expand the business due to the risks involved but after the current Chief Executive Officer Howard Schultz took interest in the business, this risk was expounded. This was after his subsequent learning the customer loyalty on the quality of the dark roasted fine coffee as well as the success factor experienced by other outlets who offered wide variety of coffee products. The company opened its expansion project to the rest of the States in the United States and later to the rest of the world whilst enjoying the benefits of customer loyalty and low competition levels.
The nature of hospitality industry requires the involved businesses adopt concrete strategies that are aimed at winning the customer trust through providing quality products and a satisfactory service. The process of products diversification and uniqueness is essential in breaking the monotony of offering similar products by all the involved competitors hence creating a unique product line that satisfies the customer experience is essential for a business to thrive in the hotel industry (Kumar, 2010). Coffee products and services are the most consumed products and this requires the coffee outlets to first understand the customer needs and preferences and then deliver these needs to the best of their knowledge and capability failure to which the customers will shift to the best alternative outlet. The process of providing quality services requires equipping the employees with expertise of all the outlet’s the products and processes through provision of on the job training exercise, seminars and conferences as well as motivate them through provision of a better pay, incentives and employee benefits programs that ensures them of a safe and secure working environment. As a way of diversifying their products, Starbucks specializes in provision of hot and cold coffee drinks, variety of snacks, whole grain and whole leaf coffee sales and finely ground Arabica coffee products across the United States market as well as other parts of the world.
Development and expansion strategies
Starbucks serves a wide market of coffee lovers across the world with the current outlets spread to over 50 countries across the world. The expansion program was started by Howard Schultz as a way of providing a solution to the growing demand of quality coffee, a situation which the company founders claimed was not being served by the supermarkets as they were providing low quality Robusta coffee. Through serving a wide market that targeted places beyond Seattle which was the only place where the company was based, there was a potential for growth and increased profits. The main goal that made the company to keep going was the idea of providing quality products and services to the customers at an efficient and friendly manner that aimed at ensuring customer satisfaction while at the same time educating the customers on the benefits of consuming and appreciating the finely produced quality coffee that was being offered by Starbucks without focusing on the price. This prompted Schultz to start an espresso café which proved to be successful hence leading to opening of multiple coffee houses in Seattle and later to other parts on the US through opening the company to public investors as a way of rising the expansion capital.
The company initial expansion plan involved opening only the company owned stores and outlets whereby the initial stores were initiated in Seattle then spread to other states. The main idea behind buying buildings to start company owned stores was to preserve the quality of coffee provided by Starbucks as this was the main way of marketing the company brand image based on quality products for maximum customer satisfaction. This was however faced with financial challenges as well as the unwilling buyers in California who were not familiar with the products. The expansion process involved market survey with the company developing a reputable relationship with the local real estates and opening new stores in strategically located places which included downtown sites and populated business areas.
Another expansion strategy was the adoption of licensing techniques as a way of entering new markets outside the US. This also involved the company assessing and identifying the productive restaurants and coffee houses with reputable products and services to partner with. This includes experience in the hospitality industry particularly coffee making expertise, adherence to environmental regulations and observing the corporate social responsibility. Alternatively, the company could open up independent stores and outlets with permission from the international country’s trade regulation bodies. The international market provided an increased profitability ratio. The process of expanding the business through licensing is a way of avoiding risks of losses especially in places with low customer turn out or high competition and thus the company gets to reduce the marketing and other risks related costs through partnering with local businesses who have already established a stable market for the products.
Business licensing and partnerships are the main expansion strategies that have enabled Starbucks Corporations to expand its operation in many regions of the world. Some of the partnerships that has enabled the company to grow and expand includes its partnership with major airlines in the US which uses Starbucks coffee products, joint venture with PepsiCo to produce canned products in North America, among other major companies such as Kraft food (1998), Apple Company (2008) and Jim Beam brands in 2004 among other major companies partnerships that enabled the company to open up international market sell their products in various countries in the world. The main reason for diversified partnerships and licensing also aimed at diversifying the company products such as shifting from the previous espresso to coffee flavored ice cream, shots, ice coffee among other forms of products offered by the licensed companies.
Internal environment analysis
The success factor of Starbucks Corporation has been greatly influenced by the company’s favorable internal environment which includes the involvement of the company with the Shareholders, employees, suppliers, environment and competitors (Kumar, 2010). The company has adopted various strategies that aim at strengthening the business expansion strategy.
Employees: The Company has various employee benefits strategies aimed at equipping them with knowledge on the production and sales of various coffee products. These includes on the job training on various operations such as roasting, preparation of coffee products, , management staff seminars and retreats and recognition programs. The company as well adopted various employee benefits schemes which include employee reward system, fringe benefits including insurance covers, sick offs, paid vacations and promotion schemes for the permanent employees who had promotion qualifications. The company has succeeded in retaining highly qualified full time and part time employees who have expertise in their respective fields of work hence assisting the company to implement the expansion strategy quite easily.
Suppliers: The main suppliers for the company are the coffee farmers and exporters from various countries. To maintain a close and trustworthy relationship with the suppliers, Starbucks had adopted a strategy of buying coffee directly from the farmers through the Certified Fair Trade organization which is owned by the small scale farmers at a fair price. This enables the company give the benefits directly to the farmers hence cutting down the brokers who in most of the times undermine the small scale farmers.
Shareholders: The main aim of the company is to increase profits so as to satisfy the investors through offering recommendable dividends. This is one of the main reasons for adopting the expansion program. In addition, the company closed down several underperforming outlets so as to reduce the total losses.
Competitors: Starbucks Corporation is a business operation within the hospitality industry which has the highest levels of competition in terms of hotels, coffee houses, and retail shops among others. This poses the greatest threat and hence, the company has adopted a strategy of selling the highest quality fine coffee that is in house roasted and blended to achieve its quality. The company should however come up with intensive marketing strategies that will enable different coffee lovers get to know the importance of quality coffee offered by the company (Thompson, 2012).
Community/environment: Starbucks has adopted various corporate social responsibility measures that ensure environmental conservation as well as give back to the community through various projects implementations. The community initiatives include sponsoring community youth initiatives as well as offer loans to farmers among other community involvement programs incorporated in the company’s CSR programs.
SWOT analysis
The internal and external environments surrounding Starbucks have provided the company with strategic successes due to the strengths that the company has and the market opportunities that have enabled the company to expand and increase their total revenues (Thompson, 2012). At the same time, the company has weaknesses that limit its full potential performance in addition to the potential and existing market threats that limits the company’s potential in achieving all their set strategic goals of expansion and perceived profitability.
Strengths
High motivated employees dedicated with favorable working environment who work extra hard to achieve the company strategic goals.
The Starbucks Corporation has several owned companies across the globe with no franchise. This has enabled the company to maintain quality of their products as well as retain the company’s share dominance.
Established recommendable relationship with the coffee farmers and suppliers who ensures a stable supply of fine coffee beans to the company.
The company has established loyalty consumers across the globe hence the flow of the company products and services are relatively constant.
Established company brand name and logo which has enabled the products be recognized globally.
Well acquitted and knowledgeable management and staff who have knowledge on the coffee products, roasting, marketing and diversification as well as knowledge on the industry business potentialities and competitive nature.
The company has secured partnerships with well established businesses which have saved the company on marketing costs particularly in risky market segments.
The company has adopted product differentiation that targets various coffee consumers in different forms hence retaining the market base.
Weaknesses
The company has focused too much on expanding the business operations giving less attention on the internal issues.
The company has no unique strategies to counter the high market competition.
The company also lacks distinct marketing strategies for the products. The company initially depended on the word of mouth to market their products and until the latest business activities, the company has paid little attention on the marketing as they believe the brand name and quality of services are already well known globally.
Opportunities
There is a ready market for the quality coffee in various regions across the globe.
Technological advancements in the current world market which provides an easy way to monitor, supply and purchase coffee products across the globe.
There are new emerging distribution channels that pose an opportunity for the company to sell their products to the existing and potential market segments.
The product diversification is also possible as a result of new emerging products that can be blended with the coffee products.
Trade regulations in the global market are also favorable to some point particularly in countries where the country has established their business through franchising, licensing or formation of joint ventures.
Threats
High competition from the existing coffee houses, restaurants, supermarkets and street carts among other coffee and snacks outlets.
The industry offers potential business opportunities for new entrants which may further worsen the level of competition.
Political instabilities in potential market segments which has even forced the company to close some of their outlets.
Global economic recession and inflation which is likely to affect the forecasted profitability and this has also led to closure of several outlets to save the company from continuous losses.
Threat of specialty coffee production being eliminated since traditional methods of growing coffee have been abandoned.
Conclusion
Starbucks Corporation’s expansion strategy has proved productive for a long time since its initial steps. The expansion has not only enabled the company achieve their goals of attaining a wide market for their products but it has also helped the company attain recommendable profits for several financial years. The corporation remains among the reputable companies in the world for producing high quality coffee both in terms of coffee beans and finished coffee drinks in diversified varieties which contributes to customer satisfaction. As a result of closure of some of the company outlets as a result of economic recession in 2008, it is necessary for the management to adopt ways of replenishing and reinvesting in those market segments where the outlets were closed through reopening them once again. This should however be performed after a thorough market research which determines the new market potentialities so as to avoid future losses as a result of lack of a clear market research and analysis to determine how productive the niches are. This is the same process that the company should conduct before deciding on whether to adopt the former CEO’s proposal of expanding the company to have 40,000 stores globally.
References
Howard, B. and Goldstein, J. (2007). It's Not About the Coffee: Leadership Principles from a Life at Starbucks.
Kumar, D. (2010). Enterprise Growth Strategy: Vision Planning and Execution. NY: Gower Publishing, Ltd.
Martin, F. & Thompson, J. (2010). Strategic Management: Awareness & Change. London: Cengage Brain.
Thompson, A. (2012). Essentials of Strategic Management: The Quest for Competitive Advantage. New Jersey: Mc Graw Hill Education.
