Essay on Starbucks Corporation

BACKGROUND AND HISTORY

The company I will choose for this particular case analysis is the Starbucks Corporation. The corporation’s website is www. Starbucks.com and it is in the coffee shop industry. Seattle, Washington in the Unites States is the headquarters of the multinational chain of roastery reserves and coffeehouses. The second wave of coffee culture in the United States is represented mainly by Starbucks since it is the largest coffeehouse chain globally. The corporation has a presence in over 70 countries worldwide while operating stores in the region of 30,000 in those locations as of early 2020. Items served in Starbucks locations include microground instant coffee, whole-bean coffee as well as hot and cold drinks. Gordon Bowker, Zev Siegl and Jerry Baldwin were the initial founders of Starbucks in 1971 and later sold the Corporation to Howard Schultz in the 1980s. Schultz transformed the company and espresso-based drinks were served when the corporation was made a coffee shop. Expansion of the franchise was very aggressive between 1986 and 2000 in Howard’s maiden tenure as Chief Executive Officer (CEO). A series of coffee wars that were highly publicized in the early 1990s opened the opportunities for the company to prosper with its entry into California despite an initial economic downturn (Tu & Chang, 2012). Subsequently there were Chief Executive stints for Orin Smith (5 years), Jim Donald (3 years), Howard Schultz again (9 years) and in 2017 the current CEO, Kevin Johnson, took over the reins (Windiana et al, 2020). In the Fortune 500 list, Starbucks was ranked 132 in the year 2018. In mid-2019, an increase of 41% ($110.2 billion) in the Company’s market value was reported. A 38% decline in revenue in the American region was reported by Starbucks due to the influence of COVID 19 pandemic in 2020 (Sokol & Jordanov, 2020).

STARBUCKS ANALYSIS VIA PORTER’S FIVE FORCES MODEL

COMPETITIVE RIVALRY

Small local coffee houses, Dunkin Donuts, and McDonald are Starbucks main competitors. The United States market share is 40% for Starbucks. These competitors are establishing and implementing strategies to gain prospective customers as well as trying to specialize and innovate. The competitors also serve most of the beverages and coffees sold at Starbucks. Brand loyalty amongst Starbucks customers is only built by a few unique products. Therefore, there is a high competitive rivalry (Dess, 2018).

THREAT OF NEW ENTRANTS

This industry has several barriers of entry. A substantial investment is required in the establishment of the huge store chains. It expends a lot of time to build up economies of scale as well as gaining brand loyalty. Attracting customers would be very difficult for new entrants since Starbucks products have grown on the customers and they have developed a liking for them. Nonetheless, local customer bases have been developed by many coffee shops which have started using moderate investment. Thus, there is a moderate threat of new entrants.

BARGAINING POWER OF SUPPLIERS

A number of suppliers supply Starbucks raw materials and other commodities. Suppliers in their high numbers highly rate Starbucks due to the sheer amount of supplies required by the company worldwide. The availability of coffee beans required by Starbucks is not in doubt although the Arabica coffee is not easily available. Prices are therefore set by Starbucks and cannot be influenced by suppliers. There is a low bargaining power for suppliers.

BARGAINING POWER FOR BUYERS

Consumers have an abundance of choice since there is intense competition in the industry. The modern customer is aware of his/her choices and is well-informed. Customers would move to a rival firm if prices are increased by Starbucks or any other company within the industry. Thus, there is a high bargaining power for buyers.

THREAT OF SUBSTITUTES

Substitutes exist for all Starbucks products. Starbucks products can also be more expensive than the cost of the substitutes. This is because tea and coffee can be made at home by many people. Therefore, there is a high threat of substitutes.

STRATEGY USED

One of the key strengths for Starbucks is their pricing strategy for its premium coffee. The focus on customer service and quality is the basis of pricing of the premium coffee although there are numerous customers who are willing to part with more money for Starbucks products. A large customer base and market share is enjoyed by Starbucks despite of the industry’s competition. Exorbitant prices can be charged since higher bargaining power has been achieved through variety of products and premium quality.

SPECIFIC STRATEGIES

ACHIEVING COMPETITIVE ADVANTAGE

One of the key competitive edges of Starbucks is its range of products. Coffee products are value-added with the addition of flavors. Snacks and tea are also sold alongside coffee. Choice and a fulfilling experience are guaranteed for every Starbucks customer with the large range of products. Another competitive advantage for Starbucks is customer service (Dess, 2018).

LEADERSHIP

For any brand, leadership is regarded as an important advantage. Good leadership has made companies such as Google and Apple very successful over the years. Kevin Johnson is regarded as a visionary leader and he mainly concentrates on creativity and ethics. Major milestones have been accomplished under his smart and able leadership. Currently, among all coffee brands globally, Starbucks coffee stands out and it is a leading player in the world. Kevin Johnson should be credited with the brand’s success.

COURSE OF ACTION RECOMMENDED

The focus of the strategic goals of Starbucks should competencies and related strengths of the Corporation. For instance, the brand can be made even stronger through implementation of various strategies. Production stability and resource access can be increased through supply chain diversity improvement. In order to gain and sustain existing customers, marketing aggressiveness should be increased by Starbucks.

OPINION

Despite the competition, Starbucks competencies need to be strengthened even though its strengths as shown by the SWOT analysis are sufficient to counter the force of its competitors.

References

Dess, G. (2018). Strategic Management: Text and Cases. [VitalSource Bookshelf]. Retrieved

from https://online.vitalsource.com/#/books/9781259900440/

Sokol, V., and Jordanov, K. (2020). Site selection for small retail stores using sustainable and location-driven indicators: Case study: Starbucks coffee shops in Los Angeles.

Tu, Y. T., and Chang, H. C. (2012). Corporate brand image and customer satisfaction on loyalty: An empirical study of Starbucks coffee in Taiwan. Journal of Social and Development Sciences, 3, 24-32.

Windiana, L., Bakhtiar, A., Kurniasih, V. R., and Basamah, S. (2020). The Effect of Green Marketing toward the Consumers Buying Interest of Starbucks Coffee Mediated By Brand Image. HABITAT, 31, 36-41.