Learning Team Project Selection

Strategic Plan and Presentation 2

Strategic Plan and Presentation

STR/581

Professor Alfonso Rodriguez

August 23, 2014

Sheila Medina

TABLE OF CONTENTS

Executive Summary 3

Company Background 3

Organizational Mission, Vision, and Value Statements 4

Environmental Scan 6

Organization Structure Examination 10

Recommended Best Strategic Choice and Evaluation 13

Implementation, Strategic Controls, and Contingency Plans 14

Financial Forecasting and Budget 16

Conclusions 17

References 18

Executive Summary and Company Background

Americans have a love for coffee that revolves back to an era even before our nations birthday. Starbucks has become the “coffee” that consumers love. There was a period of time when coffee was merely a morning routine for those coffee lovers. However, this changed after Starbucks created their own culture and was made known to the world in 1971. Starbucks opened up its first coffee shop near Seattle Washington at a place known as Pikes Place and since then, research has shown Starbucks Corporation to be “leading retailer, roaster and brand of specialty coffee in the world, with more than 17,000 retail locations world wide” (www.investor.starbucks.com).

Starbucks was founded by their President, and previous Chief Executive Officer (CEO), known as Howard Shultz who made every attempt to differentiate themselves from the surrounding coffee companies. In 1971, Howard was so enthralled by his first cup of coffee he consumed that he decided to purchase the company in 1987. Howard then named the corporation Starbucks, which was named after a character in the classic story of Moby Dick. Howard Shultz believed in Starbucks and all of their products and worked hard to ensure that Starbucks would continue be the world’s leader in retail, roasting, and branding of specialty coffees for consumers worldwide. Starbucks is known primarily for selling coffee, however, also sells other hot and cold specialty drinks, beverages, pastries, sandwiches, and other snacks.

Starbucks strives to carry on the reputation of being the consumer’s favorite coffee shop however, this will require Starbucks to be committed to their customer satisfaction and company advancement in order to achieve this. Consumers know that Starbucks has and continues to be known for their customer service, relaxing atmosphere and their excellent coffee. Starbucks offers something for everyone regardless of whether or not they drink coffee. They offer a place to those who are looking for a place to study or do homework, network, socialize, or to even relax and read a book.

There are many great aspects of Starbucks that makes them a successful company known throughout the world. However, companies are only as successful as their workers. Besides all of the great products offered, Starbucks is also known for the way that they treat their employees. They respect their employees and have a reputation for treating their employees well. They provide their employees with health care coverage and offer other incentives to their workers (www.starbucks.com). With this being said, Starbucks has a huge opportunity to attain a large market share over its competitors if Starbucks can continue winning the hearts and minds of the consumers. Starbucks needs to maintain the competitive advantage, which can be done by continuing with their expansion of businesses and continuously introducing products. The following paper will address the strategic plan outlining the steps required for Starbuck to succeed and grow to include: Company background, strategic plan proposal, external scan, organizational structure, strategic choice and evaluation, implementation, strategic controls, and contingency plans. Finally, we will discuss the budget and financial forecasting needed to implement the changes desired.

Mission/Vision/Value

Starbucks aims to be the consumer’s favorite coffee shop and to achieve this the company focused on customer satisfaction as well as company advancement. Therefore, it is important to act based on what is written in Starbucks mission, value and vision statement, “To inspire and nurture the human spirit-one person, one cup, and one neighborhood at a time” (www.starbucks.com). This mission statement was changed by Howard Shultz, CEO in order to accelerate global growth. Howard strives to move Starbucks in a direction that ensures all consumers receive the best customer experience. Starbucks coffee has always been and continues to be about quality as they are committed to maintaining loyalty, integrity, and great taste of coffee through the course of its growth, and coupled with commitment is the high value placed on employees (partners) worldwide.

Starbucks vision is to be “the most recognized and respected brand in the world.” (www.starbucks.com) The vision statement coincides directly with the mission statement on reflecting on the most important issues faced today. Starbucks cares not only about its consumers, but about their employees, diversity, community, customer satisfaction while simultaneously making a profit. Vision statements are essential as they provide a means for new product strategies and revision of new visions set forth by the company.

The value statements of Starbucks focuses on employee and customers dedication/priority (as they aim to inspire their employees and maintain relationships with their customers), cleanliness, and maintaining high standards. These standards provide boundaries on the success to be attained by Starbucks. Starbucks strives to change their focus yearly with their 2013 aim to improve their image in the area of market saturation (www.starbucks.com).

Strategic Plan

Starbucks needs a strategic plan as a foundation to assist them in determining the direction of their company’s future. There are several different sources that could also be utilized to conduct this analysis. One of the most significant sources would derive from a corporation known as “Marketing Research Trends”, LLC. This source will help us to detect any future trends we may encounter pertaining to the demands and preferences of the consumer. This marketing company will also provide updates on the different activities and plans from the different competitors (such as: Burger King, McDonalds, and Dunkin Donuts). Another source is the Business Monitor International services to receive first-hand government related activities such as, political stability, nation’s policy, and new or altered regulations, which directly impact the business (Schultz, 2013). Utilization of the different sources will also be needed to conduct an internal environmental analysis of Starbucks. These sources will be comprised of: The company’s personnel policies, SOPs, company code of conduct, product portfolio, audit results, and historical financial reports will also be used.

After the conduction of the analysis is over, the development of the strategies, vision, and mission will need to take place and must also be aligned with the strategic plan. This would involve the key stakeholders (from several representative branches) being involved in the construction/set-up process in order for it to be successful. This would also ensure the best interest of the company was at hand while representing a wide scope of the company. With the involvement of these stakeholders, all parties would be knowledgeable and aware (mutual/shared understanding) of the strategic plans (detailed), terms involved, planning, agreements, and even the outcomes of the planning process to allow for the plans to be carried out efficiently. Finally, the results and even the strategies should be translated into detailed action plans/schedules to achieve meaningful results and to ensure strategic alignment to the vision, mission, strategies, and values of the company.

Environmental Scan

The environmental scan is a critical stage for Starbucks to make decisions on the operational side. An internal analysis will help Starbucks to know their strengths and weaknesses, which will help them to improve on their weaknesses and make the required improvement needed (Pearson and Robinson, 2013). The internal environment of Starbucks is a representation of the general conditions, which affect aptitude in executing a successful strategy. The internal elements are their growth strategy, brand management, and human resources. The external environment of Starbucks is focused on competition, which are within the same business as them, legal, and political changes, opportunities such as environmental concerns, and the demographic social issues such as income per household. Thus, resulting in an environmental scan of Starbucks will increase Starbucks chances and distribute resources in the expectation of the constant changes within the environment.

The SWOT analysis serves to give us a starting point for a discussion on what Starbucks can do to reduce its weaknesses. Due to its large size, Starbucks trends for the industry that can be backed up by the volume of their delivery. Exactly how long Starbucks can dominate the market depends on Starbucks itself. Starbucks has a large number of stores for coffee outlets, all of which are owned outright by the corporation and no franchises. Minimal revenue requirements have been placed on each store, and those that fall short are closed. Starbucks closed down approximately 600 stores that fell short of its revenue requirements (Fiscal 2008 Annual Report). The large number of stores is a huge asset or liability depending on how one assesses the situation.

Strengths

Starbucks has built a strong brand image although it hardly initiated any large marketing campaign. Not depending on any marketing campaign by focusing their superior product quality, customers became strongly attached to the company and its products. Due to this, Starbucks was able to rely on solely word-of-mouth promotion from its customers. Starbucks possesses several main strengths including their high visibility given that their locations are located in high traffic areas, quality of service and products and their established brand loyalty. Starbucks remains an established leader being the number one known coffee house in the world with almost 17,000 stores in over 55 countries. Starbucks possesses a competent workforce, providing quality service, and continuing financial soundness. Starbucks is known for their strong ethical values, commitment to the environment and their community. They are also known for their strong internal and external relationships with their suppliers. Starbucks has many years of experience in its business and because of this experience customers develop trust towards Starbucks, leading to a strong customer loyalty.

Weakness

The consume rate of coffee is declining over the last few years and trends show that in the future, coffee will be consumed less and less. The rapid expansion of Starbucks might lead to an oversaturated market and the company can end up with too many stores when coffee consumption declines tremendously. Although this can be considered as a threat, one can consider rapid expansion as a weakness based on the market expectations as a weakness of the Starbucks coffee company. Producing coffee does not involve highly sophisticated technology and opening a coffee bar is relatively easy, therefore, it can be indicated that Starbucks concept is rather easy to copy since investment costs are not extremely high. It is often said that consumers feel overwhelmed by the tremendous varieties offered by Starbucks. This can be indicated as a weakness since customers get confused and some are afraid of entering a Starbucks store since ordering a plain cup of coffee becomes impossible. Weaknesses that Starbucks must address include: Product affordability and pricing, coffee beans price is the major influence over the firms profits, maintaining the positive public opinion of their products, avoiding any negative publicity, and remaining connected to their customers. Starbucks is known for innovation and the development of new products, however, they are also vulnerable to the possibility that their innovation may falter over time and product acceptance will eventually cease/come to a halt. Starbucks must also consider the fact they need to continuously expand even though they have already expanded domestically and internationally. They have already saturated the markets and expansion is needed in order to reduce business risk. Finally, Starbucks is a non-smoking facility alienating some customers from purchasing coffee or other products from their store.

Opportunities

Opportunities include the ability to enter into different and new markets,

partnership opportunities, growing acceptance and customer satisfaction, and increase

different product offerings and online services. Starbucks has the potential to co-brand with other manufacturers of food and drink services as well as brand franchising with other manufacturers. Starbucks needs to open more stores in other departments and they could open more drive-thru windows is a possibility for them if they can increase their management capabilities. Finally, Starbucks must strive to continue expanding their products and food service to remain competitive and reach other consumers.

Threats

Starbucks success has lead to the market entry of many competitors and copycat brands that could pose potential threats. Starbucks must choose carefully how they will combat these threats as this will determine their future. Other threats result from direct and indirect competition. Is other coffee shops choose to expand geographically or extend their product lines to include offering products that Starbucks currently offer, this expansion could have a negative impact on Starbuck’s bottom line. Another threat could be traditional stores, shopping malls, and even grocery stores, as they tend to expand their offers to include organic products and some gourmet items. Traditional super markets such as Super Walmart, Carrs, or Safeway usually have higher bargaining power, which allows them to offer low prices, and they have the advantage of covering a wide range of needs in a same location. Other threats that Starbucks might encounter include strong competition (expansion of product offerings by other coffee shops), vulnerability to economic change resulting in a increase in coffee prices and a decrease in the consumers’ willingness to pay these prices, disruptions in supply, saturated markets in the developed economies, the trend of consumers changing to a healthier lifestyle, rising process of coffee beans and dairy products, as well as the new products innovation from their competitors. Starbucks is a large company with a competitive advantage that is shrinking because of its huge success. This is due to Starbucks model being copied by its competitors and this poses a serious threat to Starbucks. Thus, making it imperative for Starbucks to maintain its differentiation strategy.

Industry

The demand for premium coffee continues to rise and coffee beans are the main driver of of the market costs and the profits to be made. Coffee prices have increased over the years due to an increase in demand, resulting in supply shortages. A review of Starbucks financial reports has identified an increase in revenue (but does not account for the increase in profits) over the past few years. The change in profit increase could be attributed to external factors such as demand, competition from other coffee shops. However, the growth is rising compared to the economic crises that occurred in 2009 resulting in a significant decrease in revenue. The industry in now forecasted to grow at an annualized rate of 3.9% over the next five years due to economy improving, consumer satisfaction, and the expansion of menu options (Schultz, 2013).

Organization Structure Examination

The organizational structure of Starbucks should be examined as this has a profound impact on how well Starbucks performs. The organizational structure of Starbucks was rearranged to better accommodate customer satisfaction. Howard Schultz has four different organizational functions he is able to pick from when considering the organization structure for Starbucks. These functions are referred to as: functional, divisional, network, and matrix organizations. After thoroughly evaluating his options, Howard chose to utilize the matric structure to focus on helping to better serve their consumers as well as providing an open gateway to communication. The matrix structure is composed of cross-functional teams and enables employees to communicate side to side, up and down. These teams are afforded the opportunity and encouraged to communicate with the “heads” of their organization as well as their supervisors. To be honest, this structure has been known as one of the main reasons behind the success of Starbucks today despite the challenging workplace. The matric structure allows for open/clear communication as well as creates team commoradity while providing a sense of belonging and empowerment of those team members. The team cohesiveness between the employees allows for them to develop their interpersonal skills and if Mr. Schultz would have used a strictly functional/divisional organization, he would not have had as much success with communication as the lines of communication would have been stifled.

Starbucks has successfully enacted the matrix operational functions which is made visible throughout its structure, service, marketing, and departmentalization. This structure (matrix) is flexible and has enabled Starbucks to achieve their goals (including: communication, transparency, and uniqueness) making them a market leader. Starbucks will continue to grow exponentially through the matrix system without finding themselves stifled by the constraints of other operational structures.

Strategic Choice and Evaluation

In order for Starbucks to even understand growth, they will need to identify their weaknesses as well as implement different strategies to address the weaknesses that were identified. Starbucks needs to consider a value discipline, generic strategy, and grand strategy to remain competitive in today’s economy.

Differentiation, focusing, and low-cost leadership are three generic strategies that were identified by Michael Porter. According to Pearce and Robinson (2013), differentiation requires that the business have sustainable advantages that allow it to provide buyers with something uniquely valuable to them. In the case of Starbucks, the consumer feels that the cost to purchase the coffee/food item is well below what the coffee/food item is worth compared to their competitors such as McDonalds and Dunkin Donuts.

A generic strategy that is used as an alternative approach is known as value discipline, which consists of three important concepts needed as a basic foundation for the success of any organization. Starbucks will focus on a mixture of customer service and operational excellence as the best value disciplines to be utilized. Operational excellence for Starbucks will involve cutting down their costs while still providing quality and reliable services to their customers. Customer intimacy is another important aspect of that should be utilized. In order for Starbucks to retain customer loyalty they will need to ensure that cultivate a strong relationship with their customers.

Grand Strategy

According to Pearce and Robinson (2013), Grand strategies are a means by which objectives can be achieved. Grand strategies can be utilized in Starbucks as a concentration on increasing their sales of the current coffee and products as well as the services they offer with the current distribution channels that they have in place for their business. Due to the economy being at risk and unstable, this would increase the risks for Starbucks. Unfortunately for Starbucks, they are faced with several different competitors that use the grand strategy (such as McDonalds, and Burger King) to market. These food chains use advertising and different promotions as they market their products and services that they are currently offering. McDonalds and other coffee shops send out discount coupons, or a percentage off coupon, to include buy one get one free coupons to their customers. This alone entices the consumer to purchase their products. Many customers buy based on budget and as a consumer I know that I may buy a coffee from McDonalds if I can get two for the price of one. This is why it is imperative that Starbucks really listens to their customers’ needs, wants, and desires in order to remain successful and competitive in today’s economy.

Recommended Strategies

Although, Starbucks has adopted the differentiation strategy they should continue to further expand on it to ensure that the coffee and products are different then their competitors. This could include offering different products and services at different locations. For example, Starbucks could open more coffee shops offering organic lattes, frappuccino’s and organic food products at major retail stores such as Walmart, Sears and Kohl’s Department stores. Starbucks could also acquire more companies and form more alliances to generate more money and increase their amount of sales. With the current economical conditions, Starbucks needs to differentiate their products, which may in turn, help change the minds of consumers who are less willing to spend $4.00 on a cup of coffee. They could also create new products at a cheaper price to attract more customers.

Starbucks needs to incorporate the value chain and continue to involve their suppliers and make them feel as if they are the stakeholders to their company. Starbucks has and should continue to use the horizontal integration to help control its competition and be able to reach out to new markets. They would need to continue to derive new contracts (long term) with other branded coffee companies to develop and even penetrate other product lines. Continued market penetration expanding the types of delivery systems is another option. Starbucks needs to increase the market share of the products that are currently being offered. This could be done by opening up coffee shops inside Walmart and other retail shops as well as providing more drive-through services. Another option is to expand their services to include online ordering. Starbucks should open up a drive-thru window accommodating only those customers who ordered on-line, they would be able to attract more customers and expand their stores.

Implementation, Strategic Controls and Contingency Plans

Starbucks main objective is to establish its company to be recognized and respected as a brand throughout the world. In order for Starbucks to maintain its success it must have an implementation plan that is effective. Throughout the years Starbucks has been successful in their marketing strategies and providing its consumers with quality service. Starbucks has been able to create a company where its consumers can enjoy great products but also be able to unplug from their busy lives and relax. This in turn has enabled Starbucks to be a very profitable company. In order for a successful plan to be implemented, short term objectives need to be incorporated. It is impossible to see how successful the company will be in the future so therefore goals that can be easily achieved are better in the long run. “Since 1985 we’ve rewarded our customers with a discount when they bring in personal tumblers, and we have a goal to serve 5% of the beverages made in our stores in tumblers and mugs brought in by our customers” (Schultz, 2013). This implementation was made as part of the company’s goal to reduce waste with cups that are reusable. This goal has seen some progress since the percentage of beverages being served in personal tumblers increased from “1.5% in 2012 to1.8% in 2013” (Schultz, 2013). Starbucks goal is to provide the finest quality of coffee among other products to its consumers. In order for Starbucks to remain competitive and stay ahead of the competition, they need to develop and expand their products.

Over 80 percent of Americans over the age of 25 drink an average of about 3.5 cups of coffee a day. In order to succeed, Starbucks must maintain its high quality standards even when so many other companies like McDonald’s and Dunkin Doughnuts have a very low price approach to coffee, which in turn creates some very heavy competition.

Starbucks should also increase the number of stores and to prioritize the user experience since consumers do not have a lot of patience living in a fast past society. They could also increase their advertising funds by increasing the amount of money they allocate for local newspapers. Starbucks also needs to diversify its offering either by partnering with local stores, shops, or by acquiring new coffee beans from other parts of the world. They need to offer new product lines for non-coffee drinkers such as organic drinks and organic teas ; Starbucks could also change the stores atmosphere/theme during holiday seasons ; more global presence; increase number of online services and drive-thru service.

In order for Starbucks to keep on tract and move forward, they need milestones and deadlines. For Starbucks, we will reflect on the milestones in a yearly or quarterly review to help with the decisions as to whether or not the projects are still beneficial to our overall goal of improving profit margins and increasing customer satisfaction.

Financial Forecasting and Budget

Financial forecasting is imperative for predicting how Starbucks will perform financially in the future. There are three steps useful when determining this. The first step is to estimate Starbucks Coffee expenses and revenues relative to the current planning period, which can be accomplished via the use of forecast of sales (percent-of-sales method of forecasting financial variables). Starbucks sales are expected to grow in the next several years due to their innovation and customer service (www.starbucks.com). Starbucks anticipates their sales in 2015 to grow atleast 4.5% as they anticipate the economic crises coming to a halt. Thus, expecting more people to have more jobs,which equates to more money to allow for them to have extra money to spend on their products and not settling for cheaper products or lower quality coffee. The second step consists of estimating how much Starbucks will need to invest in the fixed and current assets, which are needed to strengthen the projected sales. This can be done via estimation of a sustainable growth rate. We also need to consider the expenses Starbucks faces with operating their stores. Starbucks has long-term debt, advertising expenses, research and development expenses as well as many other expenses (www.starbucks.com). Starbucks anticipates seeing a increase in their expenses around the Holiday season as families are out shopping, thus increasing the amount of store traffic and people buying gift cards as presents. Starbucks anticipates seeing a influx of people after the Holiday seasons as those people with gift cards will need to use the cards they have and they typically are accompanied with another individual, thus causing them to spend more then what is on their card. Third, and finally, we need to be able to identify Starbucks finance needs relative to the planning period which can be done via a cash budget as this lays out a detailed plan of cash reimbursements, receipts, new financing need, and net changes in a cash over a period.

While taking a look at the break-even point for Starbucks we need to realize that Starbucks has an average revenue forecast of 12 billion over the next three years. We care able to take that 12 billion and divide it by $4.00, which is the average price of a drink at Starbucks. If we have 12 billion in sales divided by an average price of $4.00 for a drink we come out with 3 billion cups of coffee that have been sold yearly over the 3 year forecast. If we take an average variable cost of 2.5 million and divide that by the number of cups of coffee sold per year, which is the 12 billion, we would get $0.20 cents per cup of coffee sold. Starbucks would have to take the average price of a drink which is the $4.00-0.20 and you would get $3.80 of profit per drink sold giving us the cost of a average price of a cup of coffee. Now we need to determine the fixed costs of 15 million and divide it by the profit of a drink which was the $3.80 thus giving us the number of cups of coffee that have to be sold to break even which is 3.95 million cups of coffee needing to be sold at a price of $4.00. The break-even point would then be calculated using the following equation: 3.95cups X $4.00 = 15.8. So Starbucks will be able to be successful if they keep reducing their costs while continuing to improve their customer service, new innovations, and by serving high quality coffee.

Conclusion

Starbucks’ strives on being known for selling the finest quality of coffee and other products. However, this could change with the rapidly growing competition, the economy, and the consumers’ preference. In order for Starbucks to remain competitive and stay ahead and separate themselves from their competition that is in the market. They must develop and expand their products to include: Offering a variety of organic products, enhancing their customer service and investing in quicker service via use of online ordering and interactivity.

References

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Schultz, M. (2013). Starbucks Global Responsibility Report: Goals and Progress. Retrieved from www.starbucks.com

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