Strategic Management Paper & Business Plan

Strategic Management Paper

Kimberli Harris-McBride

Starbucks

MBA 599

Table of Contents

Phase 1

Introduction 4

Description and products of Starbucks 5

The History of Starbucks Corporation 6

Vision and Mission Statement 7

Starbucks’s Competitors 8

Competitive Position of Starbucks 9

Opportunities and Threats of Starbucks 10

Starbucks’s External assessment EFE and CPM with strategic implications 11

IFE and calculate financial ratios in Starbucks 13

PHASE 2

Current use of Technology by Starbucks 14

BCG Matrix for Starbucks 15

SWOT Matrix for Starbucks 16

SPACE Matrix for Starbucks 16

Evaluation of the Current organizational Structure used by Starbucks 17

The Possible Strategic Alternatives for Starbucks 18

Recommendation of the Change on the Organization Structure used by Starbucks 19

Starbucks

Introduction of Starbucks

Starbucks is an American Coffee Company as well as a coffeehouse chain. It was founded in 1971 in Seattle Washington. Currently, Starbucks operates in over 23,760 locations all over the world. It majors in the United State, Canada, Japan and South Korea. Starbucks is actually the major representative of coffee’s second wave. It distinguishes itself from other venues that serve coffee in the United States through its taste, customer experience, quality as it is popular of the darkly roasted type of coffee. To achieve the best quality, Starbucks has currently been using automated espresso machines for safety reasons and efficiency (Clark, 2010).

Locations of Starbucks not only serve hot beverages, they also serve cold ones. They also serve whole – bean coffee. VIA which is instant coffee that is micro grounded, loose leaf and full teas which includes Teavana tea products, Frappuccino beverages, evolution fresh juices, snacks and pastries. Some of the offerings are unique with the location, while others are just seasonal. Most of the Starbucks locations also sell food items that have been pre - packed, cold and hot sandwiches, as well as drinkware that include tumblers and mugs. Some of the Starbucks evenings offer wine, beer and also appetizers. Bottles coffee drinks, brand coffee and ice cream from Starbucks are also available in grocery stores.

It was in 1980s when Starbucks became very profitable and popular in Seattle, and regardless of the former economic challenges that the company went through during the British Columbia and Midwest expansion in 1980s, the company still enjoyed great prosperity after getting to California in 1990s. Besides being among the largest coffeehouses in the world, Starbucks is a typical owned company that also has a very nice atmosphere with WI –Fi and coaches that make the customers enjoy more. Further, the company licenses stores, which is to businesses but not individuals. For instance, Barnes and Noble booksellers in the United States have been licensed by Starbucks. Some of the licensed businesses offers atmosphere similar to that of Starbucks while others sell pastries and coffee at the counter. Majority of the revenue collected by Starbucks comes from their stores.

Description and products of Starbucks

Starbucks Inc. which began as a Washington corporation in 1985 buys and roasts coffees of high quality that are whole bean together with rich brewed and fresh coffees. Besides coffee the company sells espresso beverages with Italian style, blended beverages that are cold, various items of complementary food accessories that are related to coffee premium teas and varying compact discs from different locations. Further, the company sells its tea and coffee products through some various equity investees among other channels. The company also sells after production Frappuccino, premium ice creams and DoubleshotTM coffee beverages. The main objective of Starbucks Corporation is to be the world’s most respected and recognized brand. Therefore, the company has relentlessly continued with expansions in retail shops, developing specialty operations along with taking advantage of other opportunities with a purpose of reaching their objective. New products as well as channels of distribution are introduced on a regular basis.

Starbucks Corporation aims at leading as a retailer and a brand in its target markets through selling coffee of the best and finest coffee among other products and also to offer its customers the best services through building the best customer loyalty. The company aims at expanding its retail shops with an aim of expanding their market share in the markets that exist. To achieve this goal, Starbucks opens more stores and new ones whenever an opportunity comes hence becoming a leader in the retail of coffee. The retail stores of Starbucks are strategically stored along high traffic locations that are highly visible. With the fact that the company varies in format and size, the stores locations vary in settings. Settings like suburban retailers and downtown, university campuses and office buildings are quite different. The company puts focus on getting good access to drivers and pedestrians.

In all the Starbucks stores they have decaffeinated and regular coffee drinks, varieties of Italian style espresso drinks, cold drinks, iced drinks, a variety of teas, along with packaged roasted coffee are offered. The stores also offer a variety of fresh pastries, sodas, food items, coffee making accessories and tools, whole coffee beans, games and compact discs. Depending on location and size, the products are provided in varying mixtures. While large stores offer whole coffee beans in varying sizes, coffee assortment and equipment to make espresso, smaller stores sell varying coffee beverages, few types of coffee beans and lesser accessories. Most importantly, Starbucks is totally committed to selling products that are only of the best quality. To ensure that they achieve this goal and they are compliant with the coffee standards that are very strict, the company controls its purchasing of coffee, its roasting as well as its packaging. It also closely monitors the coffee distribution in the retail stores. Starbucks buys green coffee beans from regions that produce coffee across the world to roasts them to the desired standard.

The History of Starbucks Corporation

Starbucks history dates back to 1971, when the first store was opened in Seattle, Washington. The idea began with Alfred Peet, then initiated by Zev Siegl, Jerry Baldwin and Gordon Bowker. In the beginning, Starbucks only sold coffee making tools and coffee beans without selling any beverage. Ten years later, Howard Schultz was hired as the director of retail operations. It is Howard who came up with the idea of selling beverages besides the equipments and beans.

In 1987, Baldwin along with his other partners sold Peets Coffee to Howard Schultz who renamed his company to Starbucks. Starbucks was able to conquer Seattle throughout the United States and later became an international business. Over time, Starbucks acquired Seattle's Best Coffee as well as many other coffee locations. Starbucks went public in 1990s when it offered stock options to the employees. Currently, Starbucks owns over 17,000 stores in over 50 countries all over the world. The United States still remains the biggest holder of this business, with more than 10,000 locations. Starbucks can be also found in varied nations like Chile, Bahrain, Romania and Bulgaria. In 2010, the most current expansion was done in Budapest.

Starbucks’ initial logo was an image cut from wood of two mermaids. The logo has gone through numerous changes over years. The initial mermaid had bare breast but the current one has her hairs covering her body. The history of Starbucks has its controversy share. The company has taken over smaller coffee businesses in addition to eliminating competitors which has resulted in Starbucks becoming an extremely powerful coffee business.

Vision and Mission Statement

Vision Statement: “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” (Gregory, 2015).

Their vision statement comprises of the following:

1. Premier purveyance

2. Finest coffee in the world

3. Uncompromising principles

4. Growth

Therefore, Starbucks goal is be the leader in providing the finest quality products, especially coffee in the world. Another part of their vision statement is there uncompromising principles which include strong ethical practices along with a warm culture environment. Starbucks growth has expanded globally with more than 22,500 locations around the world. (Gregory, 2015)

Mission Statement: “To inspire, and nurture the human spirit – one person, one cup and one neighborhood at a time.” (Gregory, 2015)

Starbucks mission statement centrals around building rapport and warm environment. Their mission statement comprises of the following:

1. Inspire and nurture the human spirit

2. One person, one cup, and one neighborhood at a time.

Starbucks has created an environment which is warm and cozy and has resulted in effecting each customer and neighborhood by reaching one person at a time.

Starbucks’ Competitors

The greatest competitors of Starbucks are Krispy Kreme and Dunkin Donuts. Both competitors are aggressively pushing down the coffee line in an attempt to dominate a market that is controlled by Starbucks. These companies have been seen getting deep into the territory of Starbucks. Krispy Kreme for instance has frequently been spotted utilizing an espresso machine and grinding beans to come up with drinks that are similar to the ones provided by Starbucks. The company is also offering very modern features that have a more warm feeling that that of Starbucks. Krispy Kreme is now offering numerous power outlets and free WI-FI as a way of attracting more customers.

Unlike Starbucks that over the years have branded itself like a beverage location, Dunkin' Donuts promote as a coffee seller in addition to offering foods and donuts. This is quite competitive to Starbucks since many customers would chose to go to Dunkin’ Donuts since they can be given more varieties than just beverages, they view food as an important component of their product line. Recently, Dunkin' Donuts has even focused more on nontraditional food types something that will help them in attracting customers on lunch and dinner hours. Most of the customers view traditional foods as more healthy hence they could embrace more the idea. The company also introduced steak in 2014 to its menu. This is successful since consumers are now more conscious about healthier foods.

Competitive Position of Starbucks

Starbucks works on offering a connected customer practice to maintain and build a relationship that is long-term. By providing fine coffee, Starbucks gives an experience that makes customers comfortable creating a sturdy emotional environment. The stores are built with great atmosphere in mind in locations that are easily accessible. According to Schultz, employees focus on building a positive experience for customers.

Rewards Card

Starbucks has introduced the Rewards Card that gives many benefits to customers. This encourages customers to return to explore other products along with building customer loyalty. They have launched a Customer Experience Survey that allows customers to give their thoughts concerning the experience they had at Starbucks. This clearly shows that Starbucks is enthusiastic to develop long-term connection with its customer.

The Best Coffee Beans

Starbucks is known for using the best beans in its coffee production. The workforce are frequently researching for suppliers that meet the required standards. Additionally, Starbucks purchases certified Organic coffee as well as Fair Trade certified coffee. Their coffee is brewed with Mastrena which is a Swiss-made espresso mechanism that is very sophisticated. When customers visit Starbucks’s cafe abroad, they get welcomed with a familiar taste regardless of where they are (Joseph, 2007).

Opportunities and Threats of Starbucks

Opportunities

New Channels of Distribution: As the retail business continues to grow, Starbucks is challenged to get its brand into channels of new distribution through enlarging its consumer packaged goods (CPG) processes. Starbucks is transitioning away from K-cup growth, however; benefiting from acceleration in sales of packaged coffee

International expansion: Starbucks has a great potential to grow internationally. They possess the opportunity to reach the level of McDonald’s which is based in more than 35,000 locations globally. The best opportunity is China where there is a vast population, growing middle class, along with a desire for overseas brands. Though Starbucks has been in China since 1990s, it can work on getting a local flavor on its beverages. Starbucks should also work on establishing open spaces in China since the consumers of China prefer extensive open spaces to allow a cozy relaxing environment.

Threats

Heightened Competition: McDonald’s and Krispy Kreme are a major threat to Starbucks in terms of competition. These two companies through their pricing and advertising are gaining more customers that are price-conscious as well as an environment which is comparable.

Commodity Pressures: Costs of coffee incurred some challenges with Starbucks. One problem is the Coffee Rust Disease which has resulted in coffee trees becoming less productive. In addition to less production, coffee trees inclement weather has negatively affected coffee crops in South and Central America.

Starbucks’s External assessment EFE and CPM with strategic implications

Key External Factors
Opportunities	Weight	Rating	Weighted Scores
Globalization makes it easy to enter international market.	0.15	4	0.60
People are looking for cheap internet connection.	0.10	3	0.30
Express foods are getting famous to reduce time to be spent.	0.10	2	0.20
Demand for non-chemical and healthy products.	0.10	3	0.30
Threats
Increase in the inflation rates creates a demand in lower priced products.	0.15	3	0.45
Many companies are pricing their products cheaper to impress customers	0.20	3	0.60
Increase in hypermarkets and economical supermarkets	0.10	2	0.20
	1.00		2.55

 

According to the above assessment, both threats and opportunities are very vital to the company since they weigh above 2 where 1 is on the lowest side while 4 is on the highest side. Globalization is giving Starbucks a good opportunity through getting to external markets (Simon, 2009). Starbucks ability to capture the global market with internet service, along with healthier food was created a positive opportunity. However, their threats is based on pricing which if Starbucks can decrease product pricing, it could potentially decrease the Threats.

Competitive Profile Matrix

Based on my Competitive Profile Matrix, Starbucks rated low in affordability. However, Krispy Kreme’s and Dunkin Donuts rated higher than Starbucks on affordability, all three rated fairly equal in advertising.

IFE and calculate financial ratios in Starbucks

Net Revenue	10/2/05	%	10/3/04	%	9/3/03	%	Diff 2005 &2004	Diff 2004 &2003
Retail	$5,391,927		$4,457,378		$3,449,624		21	29
Specialty	$977,373		$836,869		$625,898		17	34
Total Net Rev	$6,369,300	100	$5,294,247	100	$4,075,522	100	20	30
Operating Expense
Store Operating Exp.	2,165,911	34	1,790,168	34	1,379,574	34	21	30
Other Operating	197,024	3	171,648	3	141,346	4	15	21
Depreciation & Amort Exp.	340,169	5	289,182	6	244,671	6	18	18
General & Admin Dev	357,114	6	304,293	6	244,550	6	17	24
Income From Equity Ven	76,745	1	59,071	1	36,903	1	30	60
Operating Income	7,806,615	12	606,587	12	420,850	10	29	44
Gain on Sale Investment	-	-	-	-	-	-	-	-
Net Earnings	494,467	8	388,973	7	265,355	7	27	47
Net Earn per share	.61	0	.49	0	.34	0	24	44

From the table above, it is evident that the increase in revenue in Starbucks is as a result of customers being loyal and the major demand that was experienced. Due to the progressive expansion the company had been making, the outcome was increased operations over the years. The fact that Starbucks is reaching its target, will lead to the increase in net earnings which is a positive outcome (Walker, 2007).

Phase 2

Current use of Technology by Starbucks

As companies globally transition to digital technology, Starbucks is also a part of transitioning in technology. It has made use of the technology as one of the key strategic policies to ensure that the company remains as marketable as always and for smooth running of the global company. In fact, there are some economists who are arguing that Starbucks has proved to be a digital innovation machine. Due to their Mobile Order along with the Pay rollout that it has increased sales of the products consumer most desired.

By commencing their investment many years ago on the curve of mobile technology, Starbucks has taken the center stage of defining the customer facing and the apartment-facing mobile the experiences of retail for the future. Starbucks has opted to make use of the innovations in technology to strengthen their brand, to improve their efficiency along with in-store execution. (Dignan, 2015). The inception of technology has allowed the Starbucks to intersect the physical and the digital worlds. As Starbucks makes use of technology to help in the unique combination of assets including the growth they engaged their consumers daily to use the available digital technologies to better appeal to customers. Now customers have the capability to make payment through the mobile payment. It has made use of digital platforms to build a partnership with firms like Lyft, Spotify and the New York Times to help in its monetization process.

BCG Matrix for Starbucks

QUESTION MARKS Market Share is Low and the Market Growth is High The firm have no knowledge of what to carry out next with the available opportunities; it makes a decision of weighing on increasing the investment	STARS Market Share is High and the Market Growth is High Too The Firm is doing well, there are great opportunities
DOGS The Market Share is Low and the Market Growth is Low as well The Firm is Weak in the Market, the firm struggles to make profits	CASH COWS The Market Share is High and the Market Growth is Low The Firm is doing well however there is no growth within the market due to limited opportunities

Low Market Share High

SWOT Matrix for Starbucks (The Internal Factors)

Strength	Weaknesses
Increased Profitability	There is an Uneven Distribution across the globe
The recognition of the brand	There is also a weakness is the Product Pricing. This is because most of the products by Starbucks are priced in USD. Which most countries having a weaker local currency hence finding it hard to afford most of the firm’s products (Fleisher&Bensoussan, 2015).
The Global Presence	The Sustainability is also another weakness that the brand has shown over time

SPACE MATRIX FOR STARBUCKS

The Financial Strengths

	RATING
1. Any asset of Starbucks is being financed through the equity and is always safe in the case the creditors tend to demand the repayment of the debt. The firm has a debt-to-equity ratio that is only 0.0017	5
2. The firm has experienced an increased returns on the Asset ratio	4
3. The firm has steadily realized income over the years	4

Industrial Strengths

	RATING
1. The firm has continued to experience increased sales on an annual basis	4
2. The Coffee from Starbucks is currently being served in all of the flights within the United States	3
3. The approach of “Starbucks Everywhere” has helped the firm to increase its food traffic around the numerous stores that it has across the globe	5

Evaluation of the Current organizational Structure used by Starbucks

While most coffee shops have continued to operate independently, many belongs to the chain of Starbucks Corporation, which remained to be a vast networks of the houses of cozy coffee. Their structure is different from the corporate structure of the mom and the pop coffee shops. The complication can be blamed on the creation and the maintenance of a sizable brand like Starbucks.

a) Basic Structure

The company has a structure that is not uncommon to many individuals. At the headquarters in Seattle, Washington, there are executives who manage operations. There are the district managers who manages regional stores. The district managers are direct reports to Starbucks Corporation. Each store has a store manager who operates the store. Under the store manager, there are shift supervisors who manages the store in the absence of the store manager. The shift supervisors in the store have the employees, who are nicknamed the baristas .

b) The Licensed Stores

Starbucks does not operate under the franchise system, instead, they work under the forefronts. The licensed stores work under Starbucks Corporation which they have to abide by the guidelines provided by offices at the Starbucks corporate. Starbucks strives to ensure they continue to have control to protect the brand of the company as well as ensure that the company’s name continues to be associated with quality.

c) Partners

Starbucks have continued to refer to its workers as partners. This so to ensure clarity within the employees being integral, regardless of their level in the chain in the success of the company.

d) Responsibility

Being socially responsible is a key principle at Starbucks Coffee Company. Starbucks target is to work ethically with all of the suppliers. Starbucks ensures that its practices are friendly to the environment, along with ecosystem.

The Possible Strategic Alternatives for Starbucks

There are numerous alternatives that are available for the Starbucks due to the saturation in the coffee-bar market. This has resulted in Starbucks to alter the direction in the foreign markets so that the stores can ensure a continued growth.

Concerning the consolidation and the development of the product market, the firm has the following alternatives: Based on the large number of shops that Starbucks has from Americas to Asia, the firm should look for a way of managing the profitability that it has. It can only do this by implementing its policy which should be focused on the constant and the product and the development of the market too. The firm need to take away the much focus that it has on the expansion that is financed by its own cash flow and instead put a lot of consideration of indulging in the franchise agreement or the retailing stock (David, 2013).

Since Starbucks has experienced rapid growth over the years, there is need for the company to launch new market products which will ensures that Starbucks is exposed to a variety of products which will ensure that the requirements of the consumers are met and will also ensure that Starbucks maintains the market share that it has (David,2013).

Recommendation of the Change on the Organization Structure used by Starbucks

Starbucks has adopted a change strategy duped the Transformation Agenda. This entails the numerous changes that the multinational firm communicated to its partners-the employees that will have a focus on the experience of the customers first. They have recommended a change to the production of the breakfast sandwiches that has been warmed within the United States stores, as well as assumed the after sales services of giving free Wi-Fi to their customers.

In conclusion, with the above strategies, Starbucks still has the power at hand to continue with their dominance in the coffee industry.

References

Clark, T. (2010). Starbucks: A Double Tall Tale of Caffeine, Commerce and Culture. 336 pages. ISBN 0-316-01348-X

Renard, M. (2010). "In the Name of Conservation: CAFE Practices and Fair Trade in Mexico". Journal of Business Ethics

Joseph A. (2011). The Starbucks experience: 5 principles for turning ordinary into extraordinary

Simon, B. (2009). Everything but the Coffee: Learning about America from Starbucks. 320 pages. ISBN 0-520-26106-2

Walker, R. (2006). "Consumed: Big Gulp". The New York Times Magazine

Gregory, L. (2015). “Starbucks Coffee and Vision Statement” Panmore Institute

Dignan, L. (2015). Starbucks' digital transformation: The takeaways every enterprise needs to know | ZDNet. ZDNet. Retrieved 7 June 2016, from http://www.zdnet.com/article/starbucks-digital-transformation-the-takeaways-every-enterprise-needs-to-know/

Fleisher, C. S., &Bensoussan, B. E. (2015). Business and Competitive Analysis: Effective Application of New and Classic Methods.

Starbucks & Its Organizational Design. (2016). Smallbusiness.chron.com. Retrieved 7 June 2016, from http://smallbusiness.chron.com/starbucks-its-organizational-design-12857.html

David, F. R. (2013). Strategic management concepts: A competitive advantage approach. Boston: Pearson.

High

Low

Market Growth