Starbuckscorporation Strategicmanagementreport Rodrigorezende 170217171700

RODRIGO BOQUIMPANI REZENDE
Capstone Project:
STARBUCKS CORPORATION - STRATEGIC
MANAGEMENT REPORT
Virginia
December/2016
SPECIALIZATION
BUSINESS STRATEGY
SUMMARY
EXECUTIVE SUMMARY.................................................................................... 3
1. INTRODUCTION ......................................................................................... 4
1.1. Industry analysis ................................................................................. 4
2. COMPETITIVE ANALYSIS ......................................................................... 5
2.1. Generic Competitive Position ............................................................ 8
2.2. SWOT Analysis .................................................................................... 8
2.1.1 External factors .................................................................................. 9
2.1.2 Internal factors ................................................................................. 10
2.3. Porter’s Five Forces .......................................................................... 11
2.3.1 Intensity of rivalry ............................................................................. 12
2.3.2 Threat of new entrants ..................................................................... 12
2.3.3 Bargaining power of suppliers .......................................................... 12
2.3.4 Bargaining power of buyers ............................................................. 12
2.3.5 Threat of substitutes ........................................................................ 13
3. STRATEGY ISSUES IDENTIFIED ............................................................ 14
3.1. Major strategic issue......................................................................... 14
3.2. Strategic issues ................................................................................. 15
4. STRATEGIC PATHS ................................................................................. 15
4.1. The Grand Strategy Matrix ............................................................... 16
4.1.1 Market segment development strategy ............................................ 18
4.1.2 Product development strategy ......................................................... 18
4.1.3 Acquisitions and Alliances strategy .................................................. 19
4.1.4 Retrenchment Strategy .................................................................... 20
4.1.5 Premium pricing strategy ................................................................. 20
5. RECOMMENDATION: ACQUISITIONS AND ALLIANCES STRATEGY . 21
REFERENCES ................................................................................................. 24
SPECIALIZATION
BUSINESS STRATEGY
LIST OF FIGURES
Figure 1 – SWOT: Opportunities and Threats ................................. 9

Figure 2 – SWOT: Strengths and Weakness ................................. 10
Figure 3 – Porter’s Five Forces of Starbucks ................................. 13
Figure 4 – Grand Strategy Matrix ................................................ 13
Figure 5 – Grand Strategy Matrix: Quadrant IV ............................ 21
Charlottesville, Virginia 22906-6500 USA

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LIST OF GRAPHS
Graph 1 – Coffee’s Market share in the United States in 2014 .......... 5

Graph 2 – Dunkin’ Brands revenues (in Million of Dollars) ................ 6
Graph 3 – Starbucks revenues (in Billion of Dollars) ........................ 6
Graph 4 – Starbucks’ acquisitions timeline ................................... 22

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EXECUTIVE SUMMARY
This work intends to create a strategic management report of Starbucks

Corporation, passing through the competitive analysis to identify the major
problem and give recommendations.
Starbucks Corporation is a major company that operates in the coffee
business since 1971. The company, which has placed itself as a supplier of the
experience of drinking premium coffees. Starbucks has significantly expanded its
presence during the past two decades and today the company is situated in 70
countries.
Starbucks apparently undisputed market leadership position can be
credited to the company’s clever product diversification and an acquisitions and
alliances expansion strategy. In response to changing consumer needs and
demand, Starbucks has evolved from a mere seller of coffee products to full-
fledged chain “restaurant”, offering not only coffee products but also other
beverages, foods, and merchandise.
Starbucks adopted the generic strategy of differentiation, the goal is to
make the company dissimilar from other competitors, emphasizing on the
Starbucks Experience and premium coffees.
Despite of the positive market position, the company faces challenges in
the short and medium terms. Those challenges emanate from the very way of
growth of the company and its competitors around the world. The analysis also
shows that Starbucks is well-positioned to confront expected changes in the
industry. The company is advised to continue key strategies on corporate level:
aggressive expansion strategy through acquisition and alliance primarily, product
development/positioning strategies for niche markets and retrenchment
strategies for unprofitable product lines.

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1. INTRODUCTION
Starbucks Corporation is a coffee company founded in 1971 in Seattle,

Washington. It operates more than 24 thousand retail stores in 70 countries
worldwide1, being the majority in United States fallowed by China, Canada,
Japan, South Korea and United Kingdom.
In the year of 2015, Starbucks employed around 238 thousand with a
revenue of US$ 19.163 billion (16.5% increase over 2014) and a profit of US$
2.757 billion (33.3% increase over 2014)2. It participates of Fortune 500 holding
the position of 1462.
Starbucks has been known for the premium quality of its coffee but their
product mix includes a range of other options beside coffee. They offered
handcrafted beverages, baked pastries, sandwiches, salad and grain bowls,
oatmeal, yogurt parfaits and fruits cups to say the more important ones.
1.1. Industry analysis
The company’s main operations rely on the industries of coffee and snacks
retail stores. Coffee is a major commodity and it plays an important role in the
global economy being the second most valuable traded commodity in the world.
In order to understand the commodity, it’s imperative to first comprehend
the agents of the economy that control this industry through an analysis: the
sections, the international trades and the leader countries.
There are three sections, per say, in this market: The growers, the roasters
and the retailers. Every one of them together make a chain of event that
separately can have its own articles given the depth of information, hence this
article will only mention to not unfocused the reader.
The import and export aspect of coffee’s industry is based on the daily
production. In 2011, 11 million hectares of the farmland in the world are utilized
for coffee farming3.
Brazil plays a major role in this industry and as the country leader in the
segment, Brazil holds the bigger production of coffee, followed by Colombia,
Vietnam, Indonesia and Mexico3. It’s important to understand that any
fluctuations that impact Brazil’s production will, in one way or another, affect the

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market globally. Fluctuations can be described as weather changing and

economic behavior as the willingness to buy.
Due to the economic crisis, the market suffered a significant slowdown in
2009. The United States’ revenue declined 6.6% to US$ 25.9 billion in contrast
of a decade of stable and consistent growth. The customers spent less money
eating out and drinking luxury coffee as consequence of the familiar budget 4.
From 2008 to 2013, the industry had a very poor growth of 0,9% annual
but the forecast for the next five years showed a rate of 3.9% with a potential to
reach US$ 35.1 billion revenues in the US.
Starbucks leads the coffee segment with a market share of 42.40%
reported in 2014.23
Graph 1 – Coffee’s Market share in the United States in 2014
32,10%
42,40%
25,50%
Starbucks Corporation Dunkin' Brands Inc. Others
Source: Statista, 2014
As can be observed, Starbucks and Dunkin’ Brands together have almost

70% of the market, giving them a strong market power and presence that can
determine the ways of the industry.
2. COMPETITIVE ANALYSIS
This present analysis will describe the organization’s current competitive

position through three different approaches, conducting research and using the
most appropriate tools to clarify the argument.
But first, this work will report information about how Starbucks sees its own
strategy and some data about Dunkin’ Donuts to contextualize the process of
understanding.

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Since 1987, the premium coffee market has seen different, both in terms
of product variety and competitive rivalry. Different from early days, when
Starbucks had to compete against small-scale and local specialized coffee
retailers, the industry has now grown globally and Starbucks has to participate in
a competition against organizations with different dimensions and exposures.
The main competitor of Starbucks is a multinational company very well
stablished worldwide, Dunkin’ Donuts. Even though it’s very old in the fast food
segment, the company has just entered the coffee sector.
Dunkin’ Brands has 8,400 franchises in the US and 3,300 stores around
the world. In 2015 Dunkin’ Brands had revenues that excess of US$ 800
million5.
Graph 2 – Dunkin’ Brands revenues (in Million of Dollars)24
$900,00
$810,93
$800,00 $748,71
$713,84
$700,00 $658,18
$628,20
$577,14
$600,00 $544,93 $538,07
$516,94
$500,00
$400,00
$300,00
$200,00
$100,00
$-
2007 2008 2009 2010 2011 2012 2013 2014 2015
Graph 3 – Starbucks revenues (in Billion of Dollars)25
$25,00
$20,00 $19,16
$16,45
$14,90
$15,00 $13,30
$11,70
$10,40 $10,70
$9,40 $9,80
$10,00
$5,00
$-
2007 2008 2009 2010 2011 2012 2013 2014 2015

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According with the recent aim on the marketing side of Dunkin’ Donuts,
they are emphasizing the variety of type, styles and flavors in their line-up. In
2007, when Starbucks was suffering a problem with their baristas and had to
temporarily close 7,100 stores, Dunking Donuts have a quick response and
increased their daily operation through night offering small beverages with a price
of US$0.99, aiming grasp customers from Starbucks6.
The mission statement of Starbucks is “To inspire and nurture the human
spirit – one person, one cup and one neighborhood at a time.”, and their values
are7:
1. Creating a culture of warmth and belonging, where everyone is welcome.
2. Acting with courage, challenging the status quo and finding new ways to
grow our company and each other.
3. Being present, connecting with transparency, dignity and respect.
4. Delivering our very best in all we do, holding ourselves accountable for
results.
Starbucks also have a strong camping to advocate about being a
responsible company. For them, being responsible meaning have a balance
between profitability and social conscience, which are explained in three different
approaches8:
1. Ethical Sourcing: They take a holistic approach to ethically sourcing high
quality coffee. This includes responsible purchasing practices, supporting
farmer loans and forest conservation programs. When the company buys
coffee this way, it helps foster a better future for farmers and a more stable
climate for the planet. It also helps create a long-term supply of the high-
quality beans carefully blending, roasting and packing fresh for more than
40 years.
2. Environmental Stewardship: Share customers' commitment to the
environment. The company is telling that they are working to reduce their
environmental footprint through energy and water conservation, recycling
and green construction.
3. Community Involvement: They have a strong believe in fostering thriving
communities.

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2.1. Generic Competitive Position
Starbucks Coffee uses the broad differentiation generic strategy. In this

generic strategy, the goal is to make the company different from other
competitors. It is such difference that makes Starbucks stand out. The company’s
emphasis on specialty coffee easily differentiates Starbucks from many other
establishments that offer coffee.
For instance, Starbucks uses its sustainable and responsible sourcing
policy to differentiate its products from competitors. This generic strategy is also
manifested in the company’s culture. While competitors like McDonald’s and
Dunkin Donuts emphasize low cost, Starbucks Coffee emphasizes a warm
friendly ambiance that people enjoy.
An implication of the broad differentiation generic strategy is that
Starbucks Coffee must continue innovating to ensure differentiation in the long
term. This generic strategy could lose its strength when competitors also find
ways to stand out. To address this matter, Starbucks keeps innovating its product
mix and supply chain. In applying the extensive differentiation generic strategy,
Starbucks focuses on specialty ingredients and products, such as baked goods
that do not have high-fructose corn syrup. Starbucks also innovates its supply
chain to satisfy its generic strategy through a continuing search for the most
sustainable and finest ingredients. Consequently, based on this generic strategy,
Starbucks Coffee’s strategic objective is to differentiate products and its supply
chain.22
2.2. SWOT Analysis
For measure of the company’s performance, it’s necessary to do a properly

assess of it. One of the ways to achieve this is through a SWOT analysis
comprehending both external and internal scenarios of the company.
The “O” stands for Opportunities as “T” stands for Threats, these two
sectors represent the External competitive environment of the firm, and will be
the initial part of the SWOT analysis.
The next sectors represent the internal firm capabilities. The “S” stands for
Strengths and “T” for Weakness.

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2.1.1 External factors
Figure 1 – SWOT: Opportunities and Threats
OPPORTUNITIES THREATS
1. Expansion to emerging 4. Price of coffee beans

markets 5. Local coffeehouses intense
2. Expansion of Product Mix competition
3. Partnership with food industry 6. Trademark and copyright
infringements
Source: Author's own figure
1. Starbucks does have many retail stores across the globe, but the majority
of them are located within the United States9. Therefore, there are several
locations possibly profitable, including emerging markets like India and
China, others where the firm currently has minimal presence like Central
Europe for instance is equally significant.
2. Starbucks have expanded its product mix by venture into the tea and fresh
juice through a smart acquisition strategy13.
3. The expansion of the product offerings by Starbucks can take advantages
from food and beverage retailers, like Burger King, as the segment
expanding10 and possibly leading to more business opportunities to be
explored through partnership and alliances by Starbucks, strengthen its
competitive position.
4. The rising prices of coffee beans is a serious threat that the company is
facing in current days11. The scope includes supply chain risks related with
fluctuations in the prices, consequence of a some global or a local
condition.
5. Starbucks is facing a rough contest when it comes to compete against
local coffeehouses12. Whatever the difficulties are, from a loyal clientele or
people with disgust for big brands.
6. Starbucks has been fighting against lesser-known rivals who wish to
attached on its success14. The company is affected with trademark and
copyrights infringements globally.

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2.1.2 Internal factors
Figure 2 – SWOT: Strengths and Weakness
STRENGTHS WEAKNESS
1. Global brand recognition. 5. Relative expensive

2. Aesthetic appeal of products.
stores. 6. Dependence of US
3. Premium products. market.
4. Economies of scale. 7. Generalized standards
1. Starbucks has a very well consolidated presence worldwide and 37% of

market share in US, it operates in over 60 countries and they have the
coffee brand most recognized ranked 64th in the best global brands of
201615. Starbucks explored this position by merchandizing products,
licensing the company’s logo and facilitating entering international
markets.
2. The core of the company, its highest quality products, have an important
role in the market strategy and positioning. Starbucks avoid
standardization even for higher production16.
3. Starbucks aims for its locations places with premium atmosphere, high-
traffic and high-visibility such as downtown centers, office buildings,
university campuses and select off-highway across the World. The stores
have a unique appealing and customers quickly link the ambience with a
standard quality that can be founded in every Starbucks stores17.
4. Given the numbers of places that Starbucks operates, it’s reasonable to
say that the volume of its transactions is high enough to obtain scale gains,
which allowed them to be more aggressive in its premium products price.
5. Starbucks differentiate their products with being highly quality and they
come with the Starbucks experience, but when economical difficult times
arrive, customers switch for a less premium coffee to fit the new budget.
This kind of scenario is common in developing countries.
6. Starbucks generates an enormous percentage of its total revenue from the
United States what make them overdependence of US market and
sensitive for its fluctuations.

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7. Starbucks has been suffering for lacking researches when it goes

international. The majority of its products is standardized, which make their
products less aligned with the cultural demands in some countries. For
instance, Starbucks has had to close down some locations in Australia
because the concept of their coffee is different from those applied by
Starbucks18.
2.3. Porter’s Five Forces
Michael Porter, a Harvard’s professor, developed this method in 1979 to

analysis key factors of a company’s external environment.
Porter's Five Forces helps to explain why different industries are able to
sustain different levels of profitability. This model was originally published in
Porter's book, "Competitive Strategy: Techniques for Analyzing Industries and
Competitors" in 1980. The model is widely used, worldwide, to analyze the
industry structure of a company as well as its corporate strategy. Porter identified
five undeniable forces that play a part in shaping every market and industry in the
world. The forces are frequently used to measure competition intensity,
attractiveness and profitability of an industry or market.
The five forces are: Intensity of rivalry, Threat of entry, Bargaining power
of suppliers, Bargaining power of buyers and Threat of substitutes.
Intensity of rivalry is the key capability for certain competitors operate in the
market.
Threat of new entrants is the level of how determined profitable markets
can attract new entrants.
Bargaining power of suppliers is an assessment of how easy it is for
suppliers to drive up prices.
Bargaining power of buyers is an assessment of how easy it is for buyers
to drive prices down.
Threat of substitutes occur when close substitute products exist in a
industry and the likelihood of clients swapping to alternatives in response when
price is increased.
Starbucks Coffee faces the impact of the five forces as delineated in
Porter’s model. These five forces differ when comes to its intensities, based on

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the information presented in this study, only the Bargaining power of suppliers
represents the least concern for the company.
The Five Forces of Porter for Starbuck was built upon data and information
founded freely on Internet and articles alike.
2.3.1 Intensity of rivalry
 Large number of companies (strong): Starburks has the largest markets

share and Dunkin’ Donuts also has a significant market share, generating
substantial pressure on Starbucks.
 Low switching cost (strong): It’s easy for customers to shift from Starbucks
do other companies, practically with no cost.
2.3.2 Threat of new entrants
The barriers that supposedly have the goal to discourage new competitors
aren’t high enough.
 Cost to entry (moderate): The initial investment isn’t significant. The
entrepreneur can lease stores, equipment etc.
 Retaliation (high): Well-established brands have the power to take this kind
of action due to brand equity, localization and price.
2.3.3 Bargaining power of suppliers
 Low cost of switching (weak): The large overall supply lessens the effect
of any single supplier on the company, which means the Starbucks’ beans
coffee grown in regions that have this as standards inputs.
 Diversify (weak): Starbucks has the policy of diversify its supply chain with
the goal of reduction the influences on the business.
2.3.4 Bargaining power of buyers
 Diversification (weak): There are several different buyers in this business

and no one can demand price concession.
 Low consume (moderate): The industry offers vertically differentiated
products with a diverse consumer base, which make relatively low volume
purchases, which erodes the buyer’s power.

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2.3.5 Threat of substitutes
 Other beverages (strong): There are several substitutes for the coffee, for
instance tea, fruit juice, water etc. Other places such Pubs and bars could
also replace the social experience of Starbucks.
 Do it yourself (strong): Consumers could also make their own coffee with
household premium coffee makers at a fraction of the cost for buying from
premium coffee retailers like Starbucks.
Figure 3 – Porter’s Five Forces of Starbucks
Starbucks Coffee faces the influence of the five forces, as outlined in

Porter’s model.
 Intensity of rivalry (strong)
 Threat of new entrants (moderate/strong)
 Bargaining power of suppliers (weak)
 Bargaining power of buyers (weak/moderate)
 Threat of substitutes (strong)

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Starbucks Coffee has a variety of challenges linked to these five forces,

the company must ensure effective measures to prioritize intensity of rivalry,
threat of new entrants, and the threat of substitutes.
3. STRATEGY ISSUES IDENTIFIED
3.1. Major strategic issue
The major issue that Starbucks is dealing strategically is related with

growth and, at same time, maintains its principles that lead them to success.
The growth is making the stock price soar30, and Starbucks is doing
everything it can to keep it going. The company's primary strategy is to revise and
expand its food and beverage menus to draw in customers during lunch and early
evening. Although the plan has enabled U.S. stores to keep growing, it has three
vectors that could have a negative impact on growth and profitability.
The first one is that no company can be all things to all people. Starbucks
is no exception. Over 2013, Starbucks added new gourmet sandwiches, renewed
its push to sell alcoholic beverages, and is stocking Teavana tea and craft soda
in its coffee shops. People think of Starbucks when they think of coffee, but it can
become a problem if extend this period for more ten years. Costumers might have
problem to identifying Starbucks as a coffee shop.
The second is related with the abundance of choice of Starbucks'
expanded food and beverage menus. A Columbia University study28 found that
people were more likely to make a purchase when offered six choices rather than
30 choices. Participants in the study were also more satisfied with their purchases
when they selected from fewer options.
The third was when Starbucks adds several layers of complication to its
supply chain and employee training by buying29 and introducing La Boulange to
its stores just for shutdown it in 201520. In December of 2013, Lutz30 wrote an
article illustrating how difficult it is to deliver an order that includes both food and
beverages when your store is designed to sell coffee. The author discovered that
miscommunication between employees preparing food and those preparing
beverages led to incorrect orders or orders not being filled at all. When you add
in the logistical complexities that come with expanding store inventory and the

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new routines required to prepare gourmet food, Starbucks' expanding menu

could easily lead to problems in execution.
3.2. Strategic issues
Another challenge that Starbucks has is regarding of its competitors. There

are several coffee shops all over the world with a similar, if not identical concept
(New World Coffee, Timothy’s, etc.) and being able to stand out to generate
customers.
Starbuck coffees have their price higher than other market competitors
because of “Starbucks Experience” and because of their policy of only purchasing
premium quality coffee beans, thus increasing the price of the drink to meet
expectation, and because of that giving the competitors a cost advantage over
Starbucks.
The severe expansion strategy followed by Starbucks can take a toll on
the firm’s brand image. As companies grow, they tend to focus too heavily on
increasing output and locations, and less focus on quality and brand image21.
Also, Starbucks policy of not franchising can be a cause of concern for the firm.
Franchising would allow the company to open many new stores with less risk,
and make considerable profits in doing so.
4. STRATEGIC PATHS
In this section this work will present several strategic ways that Starbucks
can pursuit to address those three strategic issues together, previously identified.
Along with it will be also describe the pros and cons of each strategy.
Starbucks has to effectively continue to growth by pursuing a focus-based
strategy in differentiation combining with acquisitions to tackle the three strategy
issues.
The differentiation, it so called “Starbucks experience”, is a core element
in the whole history of Starbucks and it’s the way that costumer identifies the firm
in their mind.31

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4.1. The Grand Strategy Matrix
The Grand Strategy Matrix will be applied to determine which strategies

are most appropriate for each category on the basis of competitive position and
market growth.
Figure 4 – Grand Strategy Matrix
Source: Strategic Management Report - A Strategic Pathfinder for STARBUCKS
Products that have a strong competitive position and experience rapid

market growth fall into quadrant I. For Starbucks, such products are typically
beverages and foods that enjoy a high acceptance among customers. Examples
are the Frappuccino and the Panini, but also juices and teas (e.g. Chai). In order
to consolidate the market position and boost growth, Starbucks needs to further
develop those product categories. This can be done by adding flavors,
ingredients, or temperature. Starbucks has already applied this strategy on
domestic scale by introducing the Caramel Ribbon Crunch Frappuccino blended
beverage or the Vegie Panini.
Products that have a weak competitive position and experience rapid
market growth fall into quadrant II. For Starbucks, product lines such as the K-

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Cup and VIA instant coffee are good examples. Having missed out on the first-
mover advantage, such products have to quarrel with strong competitive brands
(e.g. Nestlé). Hence, their competitive position is weak yet fast market growth
rates in the single-serve coffee sector make them highly profitable. It is therefore
important to further develop the market by redirecting financial resources and
R&D capabilities to making niche products more attractive in the eyes of
consumers. Marketing campaigns that highlight product qualities or appearance
make-overs are possible options to better the competitive position of such
products and turn them into stars.
Products that have a weak competitive position and experience slow (or
no) market growth fall into quadrant III. Being portrayed as dogs in the BCG-
matrix, such products are merchandise and traditional coffee-making equipment.
Possible strategic alternatives are therefore retrenchment and even complete
liquidation of product lines. The retrenchment alternative suggests slimming
down the merchandise offering, only keeping items with positive sales figures
(e.g. stainless coffee mugs and tumblers or Verismo Machines) and getting rid of
unprofitable product lines (e.g. music CDs). Liquidation suggests offering no
merchandise and solely focus on selling beverage and food products.
Products that have a strong competitive position and experience slow
market growth fall into quadrant IV. For Starbucks, an example would be the
classical ground and whole bean coffee with its different blends. Ground and
whole bean coffee have been around almost since the foundation of the
company. Customer have been buying traditional coffee for decades and
Starbucks’ ground and whole bean coffee products enjoy a high reputation
among customer due to their high-quality image. However, over the past years
sales of traditional coffee have stagnated due to the appearance of single-serve
coffee products and changes in consumer needs. What Starbucks could do to
boost sales of traditional coffee products is to form strategic alliances with large
restaurant chains, hotel chains, or specialty and premium retailers that sell
freshly-brewed coffee to customers. This retail strategy has already been
successfully applied in the early stages of Starbucks’ expansion and needs to be
further developed to boost sales of traditional coffee products. The company has
shown that customers still value good service, high quality, and a cozy store
atmosphere and that they are willing to pay an extra price to feel “special”.

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Especially in emerging markets, pushing for market share by cutting prices is a

losing strategy as new entrants can never “outcut” the prices of local competitors.
4.1.1 Market segment development strategy
Starbucks should apply a market segment development strategy for niche

markets in developed economies, in particular, the single-serve, courtesy and
flavored coffee segments. Those segments portray positive growth rates and
must be exploited if the company plans to increase market shares in established
markets.
Pros:
 Helps focus your marketing efforts.
 Set more specific and measurable goals
 Creates different, more suitable content for each segment
Cons:
 Can be expensive and It takes research to survey customers and define
segments.
 Time-consuming. Market segmentation entails developing customer
profiles and personas from the research data, and that takes time away
from potentially more pressing tasks.
 Can miss important customers. A significant consumer segment may fall
through the cracks.
4.1.2 Product development strategy
On business level, the company is advised to further develop successful

product lines (Frappuccino, Paninis) so that they do not loose attractiveness in
the eyes of customers. Starbucks also has great growth potential in Tea and
Fresh Juice products, and the company is advised to build up those product lines
alongside their core coffee and food products. But they must have in mind that
many options on menu might play against them, a more simple and effective
menu can increase further incomes.
Pros:
 By improving the performance of existing beverages, competitors probably
won't match the new level of performance.

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 Increase revenue or profit by charging higher prices for a superior product.

Cons:
 Between 50 and 80 percent of new product programs fail.32
 When the team is generating ideas, it may not carry out sufficient research
into market requirements, leading to developments that do not meet
customer needs.
4.1.3 Acquisitions and Alliances strategy
Growth in this segment can be revived by forming alliances or acquisitions

with key strategic retail partners (e.g. Tata Group or Kraft Foods) who dispose of
the necessary market spread to distribute traditional coffee products.
Pros:
 Learning the necessary skills and obtain certain capabilities from your
strategic partner.
 Reducing costs and risks by distributing them across the members of the
alliance.
 Joining with your rivals to cooperate instead of compete.
 Adding value to the combined entity by eliminating redundancies and
increasing overall revenues.
 Acquiring existing technologies, business processes and employees,
which would otherwise be extremely expensive to develop on your own.
Cons:
 Require the sharing of resources and profits.
 Require the sharing of knowledge and skills.
 Create a potential competitor. An ally one day may become a competitor
the next when it decides it no longer needs of the alliance.
 Possible clashes between your corporate culture and that of the company
you intend to buy.
 Apprehension among both your employees and those of the company you
acquire. These employees may feel that their jobs may be in jeopardy
during a consolidation.

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4.1.4 Retrenchment Strategy
Starbucks should consider slimming-down unprofitable product

categories, such as merchandise and traditional coffee equipment. This will free
up additional financial resources which is necessary to further drive the extension
of profitable and currently “hip” product lines. A liquidation strategy for the entire
merchandise category is not recommendable as certain products still enjoy high
demand among customers (e.g. tumblers and Verismo machines).
Pros:
 Improved Efficiency. The employees are going to be on their best behavior
once the retrenchment has been placed, even if the downsize will only
focus on products.
 Cost Savings. Mergers and acquisitions lead to duplication of support staff.
Changes in technology lead to obsolesce of product or service lines. All
these things create excess workforce with no work, and a retrenchment
strategy allows organizations to respond to such changes and protect
profitability.
Cons:
 Regardless of the merits, downsizing results in disruption of interpersonal
relationships at work, both formal and informal that have taken root over
the years.
4.1.5 Premium pricing strategy
It is advisable to aggressively expand the number of stores at home and

abroad in order to not fall behind competitors, who, based on their low-cost
advantage, are able to attract more customers particularly from the fast growing
and highly coffee-conscious middle-class in emerging economies. Aggressive
expansion does not mean undercutting competitors. On the contrary, Starbucks
should hold on to its high-quality image. Lowering prices would most likely
mediocritize Starbucks’ excellent brand image and reputation as a provider of
premium coffee and exceptional service.
Pros:
 Competitors Advantage. Investing resources and using the right
advertising strategies to correctly promote the Starbucks brand’s

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SPECIALIZATION
BUSINESS STRATEGY
premium products is a great way to gain the upper hand in

competition.
 Increasing of the barrier to enter. it will make harder for other
companies to enter the market and compete with the same
strategies and ideas.
 Increased visibility by raising the product awareness using prestige
pricing.
 Improved profits.
Cons:
 The cost of effective marketing is a serious premium pricing
drawback. If Starbucks isn't eager to invest sufficient funds, it’s
impossible to create a premium brand image.
 Sometimes, image pricing limits our customer base, shrinks it and
eventually, decreases annual income.
5. RECOMMENDATION: ACQUISITIONS AND ALLIANCES STRATEGY
Figure 5 – Grand Strategy Matrix: Quadrant IV
Source: Strategic Management Report - A Strategic Pathfinder for STARBUCKS

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BUSINESS STRATEGY
Since its foundation in 1971, Starbucks has acquired or formed alliances

with a number of companies. The most prominent acquisitions of Starbucks
include the purchase of Tazo Tea Company in 1999, which allowed Starbucks to
add various tea products to its portfolio, the Seattle Coffee Company in 2003,
which further expanded Starbucks’ presence in the US coffee market and also
opened the way into the wholesale sector, and the Coffee Equipment Company
in 2008, which granted Starbucks the right to use the innovative Clover Brewing
System.
Key alliances include the partnership with Target, which allowed Starbucks
to sell its coffee in highly frequented cafés in Target Stores, the Green Mountain
Coffee Roasters, providing Starbucks with access to the fast-growing single-
serve coffee market, and Tata Coffee of India, which will lead to Starbucks
gaining a threshold in the aspiring Indian coffee market and also providing the
company with access to high-quality Arabian coffee beans. Acquisitions and
alliance can therefore be seen as important measures to diversify the product
portfolio (e.g. Tazo Tea), gaining market share (e.g. Seattle Coffee Company),
penetrating new segments (e.g. Green Mountain Coffee Roasters), gaining
access to intellectual property (e.g. Coffee Equipment Company), and expanding
into new markets (e.g. Tata).33
Graph 4 – Starbucks’ acquisitions timeline
Source: Starbucks Company37
In 2013, Starbucks began to expand its presence into the coffee farming
industry, enabling it to manage the supply chain, ensuring that the coffee beans
are of the highest quality34. If Starbucks is able to generate a profit through
farming, they are hedging against the volatility of coffee bean prices through self-

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SPECIALIZATION
BUSINESS STRATEGY
production34. One advantage of Starbucks initiating this process of vertical

integration is that they can use their farms to grow coffee beans of higher value,
allowing them to save a lot of money and making higher profits 34. Additionally,
the coffee beans that Starbucks’ farms produce have an immediate market, their
coffee shops, which already price their coffee at a higher price than the
equilibrium price that is generated by the futures exchange 34. A further analysis
of Starbucks’ vertical integration strategy demonstrates that Starbucks utilized
backwards vertical integration through: purchase agreements with coffee
growers, company owned bean roasting plants, company owned warehousing
and distribution facilities and through the purchase of coffee bean farms in Costa
Rica and China35. By doing this, Starbucks took on a lot of risks, as it introduces
more complexities into its business structure, through additional capital
acquisition and an increase in the number of employees. 36 However, these risks
are outweighed by the benefit that Starbucks reaps through achieving its main
goal of maintaining high quality throughout the value chain35. In the future,
Starbucks is expected to utilize alliances and acquisitions to spur expansion in
emerging markets.33
Acquisitions of direct (e.g. Seattle’s Best Coffee Company) or indirect
competitors (e.g. Tazo Tea or Teavana) helped Starbucks to level the competitive
landscape and diversify its product portfolio.
With new products being added to the existing brand portfolio, it is inevitable for
Starbucks to penetrate new market segments through acquisitions. The
acquisition of Hear Music allowed the company to play and sell “hip” music in its
stores. Starbucks also entered the bottled water market by acquiring Ethos water.
While the latter two acquisitions portray two markets that have little to do with
coffee, Starbucks also kept track of hot trends within the coffee market. For
example, the alliance with Keurig allowed the company to deliver K-cups to the
fast-growing single-serve coffee segment. By signing a deal with Courtesy
Products, a provider of in-room coffee service in hotels, Starbucks is further
advancing its position in the luxury coffee segment. This alliance will allow the
company to cater its instant coffee to as many as 500,000 luxury hotel rooms in
the United States.38 The right implementation of the acquisition strategy will bring
Starbucks closer to becoming a full-fledged chain restaurant.33

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REFERENCES
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http://interbrand.com/best-brands/best-global-brands/2016/ranking/
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28 “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?”
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newsArticle_Print&ID=1702299
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fall-in-2015.aspx
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Lee, E.; Ristic, M.; Franke, M. Fachhochschule Osnabrück. Osnabrück,
Germany. 6 June 2014.
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potential-upside-catalyst
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Kaempf, J. Web 21 May 2015.
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Figure 1 – SWOT: Opportunities and Threats ................................. 9

Charlottesville, Virginia 22906-6500 USA

Graph 1 – Coffee’s Market share in the United States in 2014 .......... 5

Charlottesville, Virginia 22906-6500 USA

This work intends to create a strategic management report of Starbucks

Charlottesville, Virginia 22906-6500 USA

Starbucks Corporation is a coffee company founded in 1971 in Seattle,

1.1. Industry analysis

Charlottesville, Virginia 22906-6500 USA

market globally. Fluctuations can be described as weather changing and

Starbucks Corporation Dunkin' Brands Inc. Others

Source: Statista, 2014

As can be observed, Starbucks and Dunkin’ Brands together have almost

This present analysis will describe the organization’s current competitive

Charlottesville, Virginia 22906-6500 USA

Source: Statista, 2015

Charlottesville, Virginia 22906-6500 USA

Charlottesville, Virginia 22906-6500 USA

2.1. Generic Competitive Position

Starbucks Coffee uses the broad differentiation generic strategy. In this

2.2. SWOT Analysis

For measure of the company’s performance, it’s necessary to do a properly

Charlottesville, Virginia 22906-6500 USA

2.1.1 External factors

Figure 1 – SWOT: Opportunities and Threats

1. Expansion to emerging 4. Price of coffee beans

Charlottesville, Virginia 22906-6500 USA

2.1.2 Internal factors

Figure 2 – SWOT: Strengths and Weakness

1. Global brand recognition. 5. Relative expensive

Source: Author's own figure

1. Starbucks has a very well consolidated presence worldwide and 37% of

Charlottesville, Virginia 22906-6500 USA

7. Starbucks has been suffering for lacking researches when it goes

2.3. Porter’s Five Forces

Michael Porter, a Harvard’s professor, developed this method in 1979 to

Charlottesville, Virginia 22906-6500 USA

2.3.1 Intensity of rivalry

 Large number of companies (strong): Starburks has the largest markets

2.3.2 Threat of new entrants

2.3.3 Bargaining power of suppliers

2.3.4 Bargaining power of buyers

 Diversification (weak): There are several different buyers in this business

Charlottesville, Virginia 22906-6500 USA

2.3.5 Threat of substitutes

Source: Author's own figure

Starbucks Coffee faces the influence of the five forces, as outlined in

Charlottesville, Virginia 22906-6500 USA

Starbucks Coffee has a variety of challenges linked to these five forces,

3. STRATEGY ISSUES IDENTIFIED

3.1. Major strategic issue

The major issue that Starbucks is dealing strategically is related with

Charlottesville, Virginia 22906-6500 USA

new routines required to prepare gourmet food, Starbucks' expanding menu

3.2. Strategic issues

Another challenge that Starbucks has is regarding of its competitors. There

Charlottesville, Virginia 22906-6500 USA

4.1. The Grand Strategy Matrix

The Grand Strategy Matrix will be applied to determine which strategies

Source: Strategic Management Report - A Strategic Pathfinder for STARBUCKS

Products that have a strong competitive position and experience rapid

Charlottesville, Virginia 22906-6500 USA