Starbucks strategy in the specialty coffee industry.

Mohammad Robiul Alim Raja Pravu Ashraful Kabir

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Presentation Outline

Introduction to Starbucks Industry Overview Company Overview Strategic Analysis

About Starbucks

Overview

Timeline Corporate Values and Business Principles Mission Statements Corporate Social Responsibility

Overview

Established in 1971 at Seattle, Washington Famous for its quality fresh-roasted coffee beans and stylish atmosphere. Over 9,000 stores worldwide Product lines include : beverages (coffee, Tazo tea, soda, juices) pastries whole coffee beans coffee-related hardware and equipment merchandise (mug, CDs)

Timeline
1971

Starbucks Coffee, Tea, and Spice store (coffee bean roasting) opened in Seattles Pike Place Market.
Howard Schultz joined Starbucks.

1982 1986 1987

Howard Schultz established Il Giornale Coffee Company.

Il Giornale acquired Starbucks and changed the name into Starbucks Corporation.

1992
1995

Starbucks decertified the union and made IPO.

Starbucks Coffee International opens in Japan Starbucks implemented ESOP.

Timeline

1996 Starbucks began selling bottled Frappuccino. 1999 Starbucks acquired Tazo Tea. 2000 Acquired Hear Music, a San Francisco-based company 2003 Starbucks acquired Seattles Best Coffee 2005 Introduced Starbucks Coffee Liqueur; Acquires Ethos Wate

Corporate Values and Business Principles

Building a Company with Soul
Opposing Franchising because of Quality Control and Culture Only selling coffee beans without artificial flavors. Satisfy customers by all means. Employees contribution and involvement in making Starbucks a better company

Mission Statements
Company Mission Statement:

About Starbucks

Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.

Environmental Mission Statement:

Starbucks is committed to a role of environmental leadership in all facets of our business.

Mission Statement
Six guiding principles: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success.

Corporate Social Responsibility

Starbucks focuses its efforts on improving social and economic conditions for coffee farmers; minimizing environmental impact; making a positive contribution in the communities where they do business; and providing a great work environment for their partners (employees). Establish the Starbucks Foundation in 1997 A major contributor of CARE, worldwide relief and development organization (Health, Education, and Humanitarian aid) Provides financial support to community literacy organizations Participate in local charitable projects. 2004 EnviroStars Recognized Leader Award for its community service and environmental activities

Starbucks Strategy
Rapid store expansion strategy Domestic store expansion International store expansion Employee Training and Recognition Real Estate, Store Design, Planning, and Construction Store ambience
Product Coffee

Line

purchasing strategy

Starbucks Strategy
Rapid store expansion strategy
Domestic store expansion A three-year expansion strategy Starbucks everywhere approach International store expansion Company-owned and company-operated stores or licensing Created a new subsidiary, Starbucks Coffee International Expanded its consumer products channel in South Pacific region

Starbucks Strategy
Employee Training and Recognition Systems to recruit, hire and train baristas and store managers screening training programs awards for partners Real Estate, Store Design, Planning, and Construction A broad range of store formats (the right image and character) A stores of the future project team High-traffic, high-visibility store locations Control of average store opening costs Wi-Fi availability at stores

Starbucks Strategy
Store ambience
The concept of everything matters
Assessment of standards

Starbucks Strategy
Product Line
Wide range of products choices Special product promotion Selling music CDs Joint ventures Pepsi Co Dreyers Grand Ice Cream Jim Beam Brands Acquisitions Hear Music Ethos Water Starbucks Cards Partnership with Bank One

Starbucks Strategy
Coffee purchasing strategy
Building relationship with growers and exporters, checking on agricultural conditions and crop yields, and searching out varieties and sources that would meet Starbucks standards. Using fixed-price purchase commitment and purchasing coffee future contracts Contributing to the sustainability of coffee growers and helping environment conservation Purchasing and marketing Fair Trade Certified coffee Promoting coffee cultivation methods that protected biodiversity and maintained a healthy environment

Industry and Competitive Analysis

Coffee Industry

C Corporate Values and Business Principles Mission Statements Corporate Social Responsibility

Industry and Competitive Analysis

Coffee industry

Coffee drinking trend Coffee beans production

Competitor analysis

Future goals Current strategy Assumptions Capabilities

Generic competitive strategy PEST analysis Site 7S analysis

Industry and Competitive Analysis

Coffee industry
Coffee

drinking trend

Coffee is the second most consumed drink after water. Americans substitute specialty coffee for alcohol. Coffee shops are a great place to meet people. Coffee is an affordable luxury. Consumers are more knowledgeable about coffee.
Coffee

beans production

In 1994, coffee was the second most traded commodity after Oil. There are two types of Coffee, namely basic and specialty.

Industry and Competitive Analysis

Competitor analysis
2 Types of Competitor: Coffee shops and restaurants Nationwide coffee manufacturers (rival brands of specialty coffee)

Industry and Competitive Analysis

Competitor analysis
Future goals

To grow bigger To better position themselves as an alternative to Starbucks

Current strategy
Merger of local and regional chains of coffee shops etc.
Assumptions Competitors assumptions about themselves Competitors assumptions about the industry and other companies in it

Industry and Competitive Analysis

Competitor analysis

Capabilities (areas of competitors strengths and weaknesses) Product Dealer/distribution Operations R&D Financial strength Organization & managerial ability Personnel turnover

Industry and Competitive Analysis

Generic Competitive Strategy

Industry and Competitive Analysis

Focused differentiation
Serve

niche buyers better than rivals Buyers have distinctive preferences, special requirements, or unique needs Have unique capabilities to serve needs of target buyer segment Big enough to be profitable and offers good growth potential Costly or difficult for multi-segment competitors to meet specialized needs of niche members Starbucks has resources and capabilities to effectively serve an attractive niche Few other rivals are specializing in same niche

PEST Analysis
Political

Influences

Relationships between U.S. and countries producing coffee beans Environmental regulations Industry-specific regulations

Economic

Influences

Demand for food and beverages Customers buying power Exchange rate & taxation

PEST Analysis
Social

Influences

Trend Consumer preferences Changes in lifestyle and occupation Education

Technological

Influences

advances in manufacture
biotech and agricultural development IT developments

Site 7S Model
Strategy
Rapid

store expansion strategy Line

Product Coffee

purchasing strategy

Site 7S Model
Store Manager

Structure
There are one store manager, one assistant manager, some shift supervisors and 16 partners/baristas

Assistant Manager

Shift Supervisors

Baristas

Baristas

Baristas

Site 7S Analysis
Staffing
Employee benefits package includes base salary, health care benefits, stock option plan, and Health care benefits include preventive care, crisis counseling, dental care, eye care, mental health, chemical dependency, and medical costs for terminal illness up for 29 months. Employees trainings that include basic 24 hour-training, Star Skills, Coffee Master Program, Servant Leadership Workshop, Career Power and Career Power for Coaches Workshop. Awards for partners, which range from frequent awards to highlevel cash awards.

Site 7S Analysis
Systems
Centralized control over individual stores by headquarters Total Quality Management (i.e. Just-In-Time) Information system to support business operations.

Site 7S Analysis
Skills
coffee making customer service sales techniques

Site 7S Model
Style

Increase motivation through reviews and raises.

Employees are allowed to make decisions and participate in

Site 7S Model
Shared

Values

Fun working environment

Treat each other with respect and care Diversity is encouraged. Maintain highest quality standards for products Satisfy customers and compensate the unsatisfied ones.

CSR. Respect employees by calling them partner. The importance of profitability for future success

Does Starbucks strategy seem to be well- matched to industry and competitive conditions?

The first of these factors was their ability to design a strategic approach to growth that quickly demonstrated the feasibility of their business model and took advantage of some key demographic groups.

Does Starbucks strategy seem to be wellmatched to industry and competitive conditions? Cont

Ability to attract the highest-quality employees through the implementation of a superior healthcare plan while reducing costs and giving equity ownership to all employees.

Does Starbucks strategy seem to be wellmatched to industry and competitive conditions? Cont

The strategic alliance they had with conservation international allowed them to create a sustainable supply chain of high quality coffee.

Does Starbucks strategy seem to be wellmatched to industry and competitive conditions? Cont

A community environment in which casual social interactions could take place.

Does Starbucks strategy seem to be wellmatched to industry and competitive conditions?

Ability to adapt to the changing dynamics of their consumer demographics.

Does the strategy seem to be keyed to a cost advantages, differentiating features serving the unique needs of a niche or developing resource strengths and competitive capabilities rivals cant imitate or trump?

The specialty coffee industry does not put a high premium on economies of scale. Although, companies with national distribution in the coffee industry at large experienced some discounts through bulk purchases and superior infrastructures, their advantages were small.
Many cost advantages can be independent of scale and may be gained by establishing one's position in an industry early. These can be referred to as first mover advantage. Some of these advantages come from proprietary product technology, favourable access to raw materials, favourable locations and a learning experience curve.

Does the strategy seem to be keyed to a cost advantages, differentiating features serving the unique needs of a niche or developing resource strengths and competitive capabilities rivals cant imitate or trump?

There is also numerous cost disadvantages imposed on new entrants that are independent of the economies of scale considerations. As the industry matures, the ability to access distribution channels and select from the highest quality coffee beans has becoming increasingly difficult.
The strategy of differentiation is particularly attractive because it offers insulation from the price competition inherent in a cost leadership strategy. The goal should shift away from differentiating physical attributes and towards differentiating the organizations systems and bureaucratic set up as well as their image within the industry.

What is there about Starbucks strategy that can lead to sustainable competitive advantage?
Many efforts are being made at Starbucks to enhance their image as being environmentally friendly, as is true for all modern corporations, they still have much room to improve, thus, further differentiating themselves.
To encourage customers to use porcelain cups, Starbucks could offer inhouse drinkers who choose to use the porcelain cups a discount. Other examples of ways in which Starbucks could enhance both its actual green bona fides and its image as an environmentally friendly company would include: selling to go mugs and re-usable sleeves at affordable prices; implementing recycling bins; seeking to compost or otherwise recycle food waste; and encouraging customers, using financial incentives, to recharge plastic Starbucks cards as opposed to purchasing a new one.

Thank You All