Starbucks Strategic

Starbucks Strategic Management Prowess Efficacy Today we stand witness to a refreshing cocoa era, one made up of Caffe Lattes, Espresso Macchiatos, Cappuccinos and Frappuccinos. Specialty Coffee is here to stay and no one will be more eager to tell you that than Howard Schultz, CEO of Starbucks, the worlds largest oddment deep brown bar. In 1993, Starbucks continued its aggressive amplification and moved into the East Coast market by establishing a presence in Washington, D. C.This expansion has continued and today Starbucks operates more then 15,800 stores internationally and employs slightly 140,000 employees. It grosses 11. 7 billion in annual revenue and is opening 5 recent stores e precise day. (Starbucks Corporation, 2011) Starbucks competes with players both inwardly the distinguishing characteristic market and against those outside the intensity burnt umber market. Some examples of competitors within the curiosity java market are Tullys umber tree, Seattles Be st Coffee, Peets Coffee, Caribou Coffee and other little chains.Those outside the specialty market include, Folgers, Proctor & Gamble, Dunkin Donuts, McDonalds and numerous other coffee serving establishments. Starbucks leverages its customer loyalty, bonus select coffee and the homey atmosphere of its stores to f give notice off contr everyplacesy. Specialty Coffee Industry attracter The most attractive attention for any profit maximizing firm within a laissez-faire(prenominal) society would be one in which they can contract a pure monopoly. In economic science this refers to situations in which one established firm can be the sole provider of a reaping or service in a particular market segment.This theory of monopoly would be one close of the pains attractiveness over have intercourse, while the other endpoint would be defined by the theory of complete(a) competition. This scale will help us to define the attractiveness of the specialty coffee industriousness in rel ation to these deuce extremes. The five forces analysis of the specialty coffee effort has allowed us to identify nearly of the key structural characteristics of the main players in the effort, such(prenominal)(prenominal) as the buyers, suppliers, potential new entrants, potential substitutes and pits within the sedulousness.These key structural characteristics suggest that the forces exerted by these five players on the specialty coffee labor ab initio made it ideal for a situation to develop in which the industry structure was closer to the monopoly end point on the scale of attractiveness rather than the pure competition end point. The primary competition among rivals within the industry was not price oriented the buyers of specialty coffee and the sellers of Arabica beans had little bargaining strength at their disposal and there existed no true substitutes for specialty coffee.The strongest force acting on the industry was that of the potential new entrants, which coul d be mitigated by a first mover firm if it was capable to establish dominant brand recognition, successfully expand aggressively and grow a defendable tell apart product. Therefore, placing the specialty coffee industry at its inception in the previous(a) 1980s on the scale defined above is outright possible and it appears to reside closer to the monopoly end of the scale than perfect competition, do it a very desirable industry from the standpoint of a profit maximizing firm such as Starbucks.The second important factor influencing the attractiveness of an industry is the demographic makeup of the consumer base. The higher average out American consumption of coffee per day, added to the attractiveness of the industry by providing an enormous pool of potential customers. These two factors also play a significant role in determining the attractiveness of the industry because they parade that the average customer of the specialty coffee industry has more financial resources, ed ucation and consumes more coffee than the typical American.This implies a consumer base that is more flexible to price fluctuations and is less likely to fuel discounting among rival competitors, or a price war. Both Michael door guards five forces analysis of the specialty coffee industry and the demographic makeup of the consumer base, then, suggest an extremely attractive industry with large growth potential in the late 1980s. The objective of any firm trying to dominate or monopolize the specialty coffee industry would be to create defendable sources of competitive payoff through with(predicate) the use of barriers to entry and a flat or organic hierarchy that could outpace competition in innovation.Results of the five forces analysis would suggest, given the incredible prospect of a price war and the negative repercussions of one, that price superiority alone would be an mistaken approach. Starbucks Success Factors First-mover advantage When Howard Shultz purchased the ass ets of Starbucks on August 18, 1987, he immediately set in motion an aggressive growth strategy targeted at the unique consumer base the specialty coffee industry attracted. Strategic expansion to eastChicago was chosen as the first major eastern expansion target because it presented enormous opportunities being rigid in the heartland of the two largest basic coffee companies in the United States. The first of these two companies was Folgers, part of the diet and beverages division of Procter Gamble, and the second company was Maxwell House. California Expansion California simply represented a vast market with an ideal demographic makeup and open attitude toward high quality and advanced(a) intellectual nourishments.Los Angeles was chosen to be the hub city in California given its status as a trendsetter and Hollywoods heathenish ties to the rest of the country. The Catalog Another means Starbucks utilized to determine the most advantageous locations to open new stores was thr ough their mail order catalog. This catalog gave customers the opportunity to order wholesale packaged Starbucks coffee beans from anywhere in the country. Employee Satisfaction As Howard Schultz said in reference to his employees, these people are not precisely the heart and soul but also the public face of the company.Every dollar earned passes through their hands. Maintaining quality of Arabica beans In order to ensure that the quality of Arabica beans stayed at a consistently high level, Starbucks pursued strategies to sterilize their supply-chain. Environmental / Social Goodwill By collaborating publicly with Conservation International, Starbucks stands to increase their legitimacy with other NGOs thus, cut the risk of protests and the negative implications those protests would have on their brand image.This alliance also allowed Starbucks to attain economies of scale in regards to their ability to contribute positively to the community and the environment by tapping in to some of the expertise endureed through Conservation international. The most important aspect of the strategic alliance with conservation international was the collaborative tuition of C. A. F. E. practices (Coffee and Farmer Equity Practices). The primary goal of the C. A. F. E. practices was to enhance the coffee farmers quality of sprightliness and to ensure a long-term stream of high quality coffee.Capturing the concept of The Third Place Starbucks tries to offer a third place, where people can get away from the daily routines of their lives and enjoy a cup of coffee from Sumatra, Kenya or Costa Rica. Most importantly, it is a place that offers casual social interactions. Michael Porters 5 Forces Analysis The five variables responsible for the forces analyzed using this manakin are the industry suppliers, buyers, potential new entrants, substitute products and the competition among existing firms.The analysis will apply Porters five forces model to the environment surrounding Starbucks today in order to develop an accurate taking into custody of the current specialty coffee industry. Industry Rivalry Starbucks competes with a variety of smaller scale specialty coffee shops, broadly concentrated in different regions. All of these specialty coffee chains are differentiated from Starbucks in one way or another. Caribou Coffee is a specialty coffee chain that competes with Starbucks. Where Starbucks strives to create an upscale European atmosphere, Caribou coffee tries to implement a more American feel to their coffee houses.A Canadian-based company, A. L. Van Houtte, operates roughly 100 corporate outlets and franchises, serving nearly 3 million cups of coffee per day. As the original inspiration for Starbucks, Peets Coffee and Tea Company which originated in Berkeley, California still poses a serious competitive threat. In addition to these smaller scale specialty coffee companies, Starbucks must now compete against two of the largest companies in the f ast food industry namely Dunkin Donuts, and McDonalds restaurant fast food chain. PASTE REST OF COMPETITOR LOGOSPotential for New Entrants The primary deterrents to entry in the specialty coffee industry are the various barriers to entry. The economies of scale within the specialty coffee industry have increased as the size of the top players has increased. There is numerous cost disadvantages imposed on new entrants that are unaffiliated of the economies of scale considerations. Product differentiation within the specialty coffee industry has moved towards more subjective traits such as the ambience of the store, the social responsibility of the company and brand identification.All of this makes it more difficult for new entrants to gain a solid customer base. Substitute Products The force created by substitute products in the specialty coffee industry has decreased. Supplier Bargaining Power This initiative was designed to. The fair trade coffee certification ensures that the co ffee farmers would be compensated fairly for their crops. Their increased unity under this initiative worked as a positive externality by increasing their ability to exert bargaining power over their buyers, and this initiative is looked at by consumers in their decision of where to purchase their premium coffee.Bargaining Power of Buyers The primary buyers in the specialty coffee industry remain individual consumers, who neither engage in concerted conduct nor individually purchase in large volumes relative to the total sales of a corporation such as Starbucks. The Specialty Coffee Industry Life Cycle An Evolutionary Process Through the practical application of Michael Porters five forces model to the specialty coffee industry in which Starbucks currently competes, an understanding of the relative magnitude of each of the five competitive forces has been developed. Specialty Coffee Growth RateWhen analyzing the specialty coffee industrys sales growth from 1990 to 2011, as illustra ted in exhibit 1, we can see that the industry experienced enormous growth in total sales between 1998 and 2002. Using exhibit 2, which depicts the generic stages of the industry lifecycle in a graphical format, we can compare the two and pose a conjecture as to where the specialty coffee industry is in this life cycle. Namely, this comparison suggests that the specialty coffee industry is near the inflection point between the growth stage and the maturity stage in the industry lifecycle. Target Consumer SegmentWhen specialty coffee was first being produced, its target consumer segment was the upper income class. This can be seen in Exhibit 3, which shows a survey Starbucks conducted during the 1990s and highlights the high education and income of its average consumer. This specific customer segment has been nearly fully penetrated. Any additional growth will most likely come from those consumers with middle or lower incomes. Strategic Adaptation Strategies The first thing an organ ization must do to adapt to a changing lifecycle is to determine where the industry is in that lifecycle.From the assumptions made in this analysis, I have postulated that Starbucks and the specialty coffee industry in the United States is at the end of its growth stage and in the beginning of its board stage. The buyer market will slowly become fully saturated and paraphrase buyers will become the primary constituents of the consumer base, with a stronger emphasis on discounting and less differentiation between brands. The next step is formulating a proper strategy to overcome the barriers, in the form of organizational inertia. This would involve exploitation a fundamental understanding of what the primary contributors to that inertia are.This in turn involves identifying the existing routines and capabilities, the hierarchy structure, along with the power structure and identifying the ingrained perceptions of the business from an outsiders perspective. Competitive Advantage i n a Mature Industry It is first important to determine how Starbucks should reorient their strategic focus, given the characteristics of a mature industry. In the case of Starbucks, they should improve their capabilities in their distribution network and maintain their industry lead in low transportation costs. Starbucks, however, should not attempt to pursue cost advantage in low-cost inputs.In the specialty coffee industry, quality is determined in large part by the quality of the raw inputs, Arabica coffee beans, which are used during the brewing process. Starbucks also should not attempt to seek a cost advantage through their labor force. Undercutting these two inputs would place their brand reputation at risk, which would have a very detrimental effect on their profits. TO ADD SWOT ANALYSIS + PORTER MODEL IN graphic FORM+ PESTEL ANALYSIS SOME MOER DIAGRAMS AND PICs Appendix Starbuck global footprint Growth of Starbuck Stores over last 40 years