Category: Business Essay

Aims and Objectives. Starbucks is an ever-growing business organization. Since its inception in 1971, it has laid success stories of business. On the one hand, it expanded its operations globally and on the other has portrayed the sustainability of the business in the time of severe recessions and a declining economy. Starbuck is a success story, and it tells the managers how to manage and expand the business. The aim and objective of this report are to analyze the corporate and business strategy of Starbucks and conclude for future managers and business how to be successful in a dynamic environment. The other aim of this report is to have a look on current strategies of Starbucks with respect to the theoretical background of the adopted strategy (corporate and Business) and come up with implications of future for Starbucks.

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Purpose of Report. The main purpose of this report is to gain an insight into the importance of strategic management for any business and in this particular case “Starbucks”. The other purpose is to identify how strategic management and proactive strategic choice and analysis help Starbucks to become an international brand. In this report, the report will examine the future of the coffee industry in today’s world when people are facing inflation and declining economies all over the world. How the coffee industry and in this report Starbucks in particular, will sustain in today’s environment of business? The report will also examine how companies can expand themselves from local operations to international operations. What strategies that did companies follow which operate globally? The main reason for doing this analysis is to find out the revival of Starbucks, after its decline from 2006 to 2008, when the Starbucks has announced the closure of 300 stores and cutting of 6700 jobs. In the year 2011, Starbucks announced 500 of free shares to its employees in the UK, although weather was bad in the previous quarter of operation. But it’s the strength of Starbucks that helped the company to manage this kind of extra favor to its employees. The report will also analyze the structure of business which Starbucks is currently adopting and currently operative strategies of Starbucks. The report by analyzing the strategic implications of Starbucks will present a guideline to new companies about their survival and expansion both locally and internationally. The business model of Starbucks is an example for managers and researcher to find the strengths behind successful local and international operations. Background history and Core Competence It was in 1971 when an English teacher, a history teacher, and a writer, named Jerry Baldwin, Zev Siegel and Gordon Bowker respectively opened a shop “Starbucks Coffee, Tea and Spice” in Seattle, WA. It was at that time when three people invested 1350 US dollars each and borrowed a loan of 5000 US dollar from bank to start first Starbucks Store. The initial motive behind the store was a mission to provide the exclusive experience of coffee and tea with extra quality. The concept of ambiance which is still working behind every Starbucks store is given by the co-founders. The co-founders at the start deepened their knowledge of coffee and concentrated on the extraordinary experience of customers visiting their store. The initial success of Starbucks was because of cofounder’s insight into the coffee business and the perfect location of stores in Seattle. Schultz was ambitious in the expansion of stores, as by visiting several other coffee stores in the town he realized that any store can learn the art of good coffee making and the survival of Starbucks lies in the expansion. So here we can point out that. The initial strategy of Starbuck was expansion. In the September 1982 Starbucks stores were opened all across the country. The Starbucks success is deeply rooted in Schultz philosophy of expansion and developing a culture of Starbucks embedded in trust and loyalty. He was planting Starbucks Corporation with in-depth knowledge of the coffee industry, with quality service to customers, trust in employees and planning a vision for the future.

Innovation. Schultz since the beginning in 1971 was ambitious to make Starbucks a place, where customers are not meant for a cup of coffee instead the customers should feel Starbucks a place like their home. His idea was incorporated in 1983 when he introduced freshly brewed coffee, espresso, and cappuccino.

Expanding the vision and building the concept. The major change in the history of Starbucks came in August 1987 when Baldwin and Bowker decided to sell Starbucks with its trade name and all the assets. Schultz acquired Starbucks with the help of an investment from Giornale Investor and became the president and CEO of Starbucks Corporation. From here the journey of Starbucks Corporation started as a nationwide chain of coffee stores. At this crucial moment, Shultz was fully aware of the importance of employee trust and loyalty towards the company. Shultz not only focused on the quality and satisfaction of customers but also emphasized the involvement of employees in decision making, so that he can get best out of them. Shultz was well aware of the fact that key success factor for Starbucks corporation to expand is in mutual coordination, respect and trust between management and employees. In order to conclude we can say that, Starbucks since its start focused on knowledge of coffee making and devoted its efforts in providing the customers with valuable experience of visiting Starbucks. On the other hand, Starbucks focused on the expansion of coffee stores throughout the country and their core competence was providing customers with a home experience away from home.

Core Competence. The core competence of Starbucks Corporation is in-depth knowledge of coffee making in particular and coffee industry in general. The company made it different from other coffee stores by providing customers coffee without any addition of chemicals.

Mission statement/Key Stakeholders. In 1990 the management of Starbucks realized the importance of mission statement and realized that it can serve as a tool for communication with stakeholders (employees, customers, investors). The mission review system was introduced to make sure that Starbucks is aligned with the mission statement. Our mission: “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time”. The mission of Starbucks revolves around six principles; establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow. The following six principles will help us in developing our understanding of the mission of Starbucks, Providing an environment of work where there is a trust and respect among the employees Incorporation of diversity as a core business activity Applying the highest standards of quality in purchasing, roasting and delivering our coffee Developing enthusiasm among the customers all the time Positive contribution to the communities and environment we are working in Recognizing profitability as an essential component of growth in the future The industry and the competitors The coffee is a choice of millions of people all around the world; consumers come to coffee shops daily from morning to evening. The sales of coffee have risen up to 50 percent in the year 2007. That is the main reason more and more organizations are moving to the coffee business, examples of McCafe from Macdonald’s and Dunkin Donuts Coffee from Dunkin Donuts are the recent addition to competition in the international coffee business. In this report, McCafe and Dunkin Donuts coffee will be examined as the major competitor of Starbucks. By examining the driving forces of the coffee industry we can come to a conclusion why the business model of Starbucks is an example for new companies. The prices for coffee beans has increased from 108.39 U.S. cents per Ib. in 2009 to 184.26 U.S cents per Ib. in 2010. This 200% increase in the price of coffee beans in the last two years has disturbed the whole industry forcing to leave many small players and declining the profits of other players. Because of this increase in the price of coffee beans and overall economic condition of the world the Starbucks also has to increase the prices especially in China and the United States. Besides the increase in coffee prices all over the world, the coffee industry can still survive because of high demand and a strong consumer base. The coffee industry will continue to grow until 2015 or even more in the emerging economies of the world. As it has demand and very strong consumer base. For the overall industry position, there are no issues for Starbucks as they have emerging markets in the form of Brazil, China, and India. As Brazil is progressing economically and it has been estimated that in the near future Brazil will become the larger coffee consumer country with its recent coffee consumption of 39%. Starbucks is already in China and planning to buy coffee from India as well as opening Starbucks in India.

Competitors. The coffee industry is growing at a pace and survival of coffee operators in the industry depends on the expansion of the company that will provide the company with a market leader among its competitors. The major competitors of Starbucks are McCafe of Macdonald’s and Dunkin Donuts Coffee. McCafe is currently operating the strategy of low-cost leadership. While on the other hand, Dunkin Donuts is operating at low-cost differentiation strategy where customer can choose a coffee from the menu. The strength of Starbucks is in its wide range of coffee with high quality. In order to compete for the mounting pressure from competitors Starbucks introduced Wi-Fi, Starbucks digital network from where customers can access Wall Street Journal and iTunes, the Starbucks introduced these services free of cost for its customers while normally these services are paid. The differentiation strategy of Starbucks is providing Starbucks with a glorified image among the customers. That is the only way Starbucks can save and improve its image in the close competition with McDonald’s and Dunkin Donuts.

Analysis of Strategy Porter Five Forces Model. In order to have a closer insight into the coffee industry, we can use the Porter Five forces model. The major threat which the coffee industry is facing until today is the rise in prices of coffee at the end of suppliers. In the year 2010 the price of most sold a brand o