Summary
Organizational Overview
Starbucks is a very well-known leader in the coffee industry. The company has always been good at exploiting information and technological developments. For example, Starbucks has now begun to adopt a mobile apps for the promotion of the products; they gave loyalty points to customers well before the competition was able to do so. The Starbucks app offers several different features that include where the store location is, facts about the nutrition of the product and, as mentioned before, rewards and loyalty points. The Starbuck franchise came about in 1971 and at this time the company had only a single store in Seattle’s Pike Place Market. Today the company has more than 30,000 retail stores in 78 markets that range from Andorra to Vietnam. (Starbucks Corporation, 2020)
In 1982, Howard Schultz became director of retail operations and marketing. During this time, Starbucks would move forward in providing coffee to fine restaurants and espresso bars. Howard Schultz persuaded the founders of Starbucks to test the idea of a coffeehouse in the downtown Seattle area, where the first “Starbucks® Caffè Latte” was served. This was the first successful innovation that the company still thrives from today. After the company’s transition, they were able to offer full health benefits to part-time and full-time employees in 1988. The company established its initial public offering (IPO) and they went public on June 26, 1992 at a price of $17 per share and closed trading that first day at $21.50 per share. The company was also the first privately owned U.S company to offer stock programs to its part-time employees. (Starbucks Corporation, 2020).
As the company grew in 1990, they had established the first Starbucks mission statement “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.” At this time, the company held a total of 84 stores. Today, Starbucks mission statement reads “To inspire and nurture the human spirit one person, one cup and one neighborhood at a time” and, also includes seven specific mission statements targeting partners, customers, stores, neighborhood, shareholders, and environmental (Mission Statement, 2021). In 1993, Starbucks proceeded to open its first roasting plant which would help cut production costs and pave the way for the first drive-thru location in 1994. Starbucks has been persistently increasing its advertising budget throughout the years. The company’s advertising and marketing expenses come to around a total of $378.7 million. This among other areas gives Starbucks a competitive advantage over its competitors. Now, in 2021 Starbucks has 32,660 stores and are continuing to expand. (Starbucks Corporation, 2020).
Situation Analysis
Current Climate and Situation
Starbucks has recently seen a decline in sales due to the current climate and situation; the total consolidated revenues declined 11% to $23.5 billion in the fiscal year of 2020 (2021 Notice of Annual Meeting of Shareholders and Proxy Statement, 2021). Additionally, the company’s market share decreased from 40% in 2019 to 38.47% in the following year (Brown, 2019; Starbucks Corporation (SBUX), 2020). To mitigate the impact of COVID-19, Starbucks has begun investing in initiatives that will help the company differentiate themselves from competitors and strengthen their competitive advantage. For example, the company aims to focus on investing in digital touchpoints and smaller-format locations (WARC, 2020; Toplin, 2020). These digital touchpoints include mobile orders and the Starbucks Rewards loyalty program who both saw a rise in customer engagement and demand in 2020; almost 90% of sales volumes in the third quarter of 2020 were a combination of drive-through and mobile order-and-pay (WARC, 2020). Starbucks plans to improve and expand digital touchpoints as a means to increase customer engagement with the brand. Moreover, the company is shifting toward smaller-format locations to cater to the recent trend in customer behavior; they “will reorient some North American stores toward takeaway service [they plan] to close up to 400 US and Canadian stores — about 4% of total stores in the market — and instead reopen smaller-format locations with more emphasis on curbside pickup, walk-up counters, and drive-thru offerings” (Toplin, 2020). COVID-19 has affected the coffeehouse industry Starbucks operates in by highlighting the importance offering contactless ordering options.
Starbucks operates in the coffeehouse specialty retail sector. The sector includes coffee shop brands such as Dunkin’ Donuts and Caribou. In 2019, the retail sector reached $47.5 billion, a growth of 3.3% from the previous year of $45.4 billion. (Lock, 2021) The coffeehouse industry saw a 24 percent decrease in market value (to $36 billion) during 2020 which reduced Starbucks market capitalization to $77.7 billion in early 2020 (Lock, 2021; Starbucks Market Cap 2006-2020 | SBUX, 2021). Although, it is important to note that the company has recently improved its market cap and is currently standing at $130.04 billion as of March 18, 2021 (Starbucks Market Cap 2006-2020 | SBUX, 2021). The industry has steered to provide customers with an enhanced experience while interacting with stores using technology. A primary reason for doing so it to prioritize customer health and safety due to the current climate and encourage engagement.
Starbucks competitive pressures include, but are not limited to, threat of substitution, changing buying preferences, and uncompetitive pricing. The company is facing the threat of substitution since more companies are producing similar products that satisfy the same need; the cost to enter the coffeehouse industry is not very high since the initial capital and investments needed are low. However, a main driving force for Starbucks has been its strong branding which has created customer brand loyalty and recognition. Therefore, it is important for Starbucks to continue to invest in branding efforts to ensure continued customer interaction with the brand, with an emphasis on contactless ordering due to changing buying preferences. (Team Pitchspot, 2020) The shift to contactless ordering has proven to be an area that can increase the competitive advantage of Starbucks if handled well. Additionally, prices for Starbucks products are 38% higher than competitors; research from Alliance Bernstein, an asset-management and research firm, done in 2018 stated that while Starbucks sales are strong in the morning, they lose out to competitors in the evening when the customer is more price sensitive (Rapier, 2018). Thus, Starbucks must position its products so that consumers are more willing to pay more.
Environmental Forces Analysis
Political
Since Starbucks operates in various countries around the world. It is important for the company to monitor the political stability of the countries they operate in. Currently, Starbucks has stores in countries such as China, Canada, Japan, Korea, United Kingdom, Mexico, Turkey, Taiwan, Indonesia, Philippines, Thailand, and many others (Lock, 2021). The company must comply and adjust with the political situations in each country to be successful. Any political disruption may affect Starbucks business activities in any given country.
Economical
Since Starbucks has positioned its products as premier and specialty, their pricing is high. Consumers may have financial restrictions limiting their interaction and engagement with Starbucks products. For example, in 2020, the company was estimated to have lost around $3.1 billion in revenue due to the economic downturn many faced due to COVID-19 (Lucas, 2020). The main reason behind this being that many individuals were struggling financially due to being furloughed, cut hours, etc.
Social
The consumption of Starbucks products is dependent on the social conditions in which it is operating in. Coffee culture is well-established in most developed countries with many individuals having more than one cup of coffee a day. The second most traded commodity is coffee; global coffee consumption is expected to grow 1.3% annually (James, 2016; International Coffee Organization, 2021). Starbucks invests in research and development when planning store locations and product offerings since each country has different views on coffee-drinking. Furthermore, Starbucks is aware of the importance of having a good brand image in gaining and retaining customers, so they have invested millions of dollars in programs aimed to help local communities (Starbucks expands initiatives to advance opportunity, equity and inclusion in the communities it serves, 2021). The company is building a strong brand image by highlighting its corporate responsibility.
Technology
Starbucks has implemented new technologies in its business strategies to drive growth and sales. For example, the company uses AI to gather data on every transaction that is made. Also, customers can receive personalized order recommendations through a learning platform in Microsoft Azur. (Sokolowski, 2019) Moreover, Starbucks introduced its mobile order and pay in 2014 which allowed customers to order through the company’s app (SBUX, 2016). Starbucks aim to create a more memorable experience between its stores and customers by using technology to build brand awareness and loyalty (through ease of access, etc.).
Environmental
In 2020, Starbucks has increased environmental sustainability efforts to improve brand image. For instance, some key areas the company is focusing their environmental efforts on are: creating partnerships between environmental companies, introducing plant-based food and reusables, reducing its carbon emissions, waste output, and water impact. Starbucks has partnered with companies such as Quantis and World Wildlife Fund to measure and track progress of environmental sustainability activities. They have also spent two decades in a partnership with Conservation International working towards the achievement of sourcing 99% of coffee through Coffee and Farmer Equity practices. (Warnick, 2020) Moreover, by 2030 the company aims to be environment-friendly by “expanding plant-based and environmentally friendly menu options; shifting from single-use to reusable packaging; investing in innovative agricultural, water conservation and reforestation practices; looking for ways to better manage waste (including food waste) in stores and in communities; and developing more eco-friendly operations, from stores to supply chain to manufacturing” (Warnick, 2020). Furthermore, the company plans to reduce carbon emissions and waste by 50% and conserve 50% of water currently being used for business activities by 2030 (Warnick, 2020). By increasing environmental sustainability efforts, Starbucks is improving its brand image, which impacts customer behavior, and taking steps to protect the natural resources it depends on to stay in business (coffee, sugar, etc.).
Legal
Starbucks has had past conflicts over the years in the various countries they are operating in. For example, in London they were fined by the Westminster Magistrates Court for leaving trash bags on the street past collection times (Al-Othman, 2016). The company must make sure to be aware of and adhere to the various policies and regulations of the countries they operate in since they can incur additional operating costs if rules are violated. Additionally, the company must make sure their food and beverages are in accordance to the food and health safety regulations in the countries being operated in.
Target Market Analysis
The target audience for Starbuck is women and men in the middle to upper-class who have the ability to afford higher priced beverages on the regular. Starbucks is a retailer that focus on product and place elements of the marketing mix. As we all know the marketing mix is made up of the four P’s – product, place, price, and promotion. Companies pick to pay attention on one or two factors as their sources of competitive advantage in accordance too their business strategy.
Therefore, Starbucks advertising and marketing mix should focus on product issue through supplying ingredients and beverages of excessive pleasant and supplying respective stage of service. The business should use this to control the type of attraction they give off to potential customers. With the ability to attract more high-end customers Starbucks competitive benefit in a way that stores are typically placed at high-traffic, high-visibility locations. Starbucks or also known as the world’s greatest coffee retailer, by looking to target men and women from upper and also middle-class customers who have the ability to pay for a highly priced Starbuck product/s for ordinary consumption. It is my suggestion that using different types of the marketing mix methods such as, mono-segment, standby and also adaptive product positioning methods will give them the enchantment to the wants and wishes of the target group. Starbucks advertising communications mix uses a large range of marketing communications channels. Some of them are things like print and media advertising, income promotions, public members and direct advertising in a built-in manner to communicate the advertising message to the goal customer. Starbucks has been persistently increasing its advertising budget for a quantity of years.
References
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Al-Othman, H. (2016, August 11). Starbucks fined £160k for leaving rubbish on street opposite the Ritz. Evening Standard. https://www.standard.co.uk/news/london/starbucks-fined-ps160k-for-leaving-rubbish-on-street-opposite-the-ritz-hotel-a3317721.html.
Brown, N. (2019) Nearly Four of Every Five US Coffee Shops are Now Starbucks, Dunkin’ or JAB Brands, https://dailycoffeenews.com/2019/10/25/nearly-four-of-every-five-us-coffee-shops-are-now-starbucks-dunkin-or-jab-brands/
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Lock, S. (2021, March 1). Selected countries with the largest number of Starbucks stores worldwide as of September 2019. Statista. https://www.statista.com/statistics/306915/countries-with-the-largest-number-of-starbucks-stores-worldwide/.
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Rapier, G. (2018, June 26). Starbucks gets away with expensive coffee in the morning - but it's losing out to cheaper competition in the afternoons (SBUX). Business Insider. https://markets.businessinsider.com/news/stocks/starbucks-stock-price-expensive-coffee-in-morning-losing-to-cheaper-competition-afternoons-2018-6-1027320203.
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Sokolowski, J. (2019) Starbucks turns to technology to brew up a more personal connection with its customers, available at: https://news.microsoft.com/transform/starbucks-turns-to-technology-to-brew-up-a-more-personal-connection-with-its-customers/
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Toplin, J. (2020, June 12). Starbucks is closing up to 400 North American stores and replacing them with takeaway-focused locations. Business Insider. https://www.businessinsider.com/starbucks-shifts-post-pandemic-strategy-2020-6.
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