Business Strategy of Starbucks Corporation

Specializing in premier coffee products, Starbucks Corporation was founded in Seattle, Washington in the year 1971. The company has approximately 182,000 employees. Their high quality premium priced coffees, teas, variety of other beverages and fresh food items can be purchased worldwide in 19,.767 stores in 62 countries as well as grocery stores and other specialty markets. Since its inception Starbucks has utilized product differentiation as one of its key strategies. They do this by contrasting their premium product mixes with regular brands, making their locations more attractive and inviting than other coffee shops as well as having an outstanding reputation for excellent customer service.

This combination creates a premium valued brand and a competitive advantage that is costly for competitors to imitate. Another strategy that Starbucks consistently employs is making smart acquisitions and strategic alliances.

Bay Breads, Teavana and Evolution Fresh are a few of the key smart acquisitions made by Starbucks to diversify products. They have expanded internationally by aligning with numerous developed markets in a variety of geographic locations.

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With its many strategies, Starbucks has set itself up to be highly successful which has resulted in a substantial competitive advantage. Starbucks is one of the major competitors in the retail and snack store industry. With a market share of 36.7%, they currently lead the industry. Starbucks expects their growth rate to be 3.9% per annum over the next five years. Premium coffee demands are driven by a variety of factors, including, demographics, the public attitude towards health, coffee consumption, average disposable income, and the world pricing of coffee.

When disposable income increases it has a positive consequence on the revenue of the marketplace. As the economy improves, budgets relax which results in an increased consumption of Starbucks premier coffees (Geereddy 2014). Coffee bean crops have a major influence on both the market cost and the margin of profitably for the industry. Higher crops typically create a decrease in coffee bean prices which results in higher profits due to lower market costs. Another factor in profitability is the consumers attitude towards healthier products, therefore Starbucks has created a shift in the industry to include healthier choices on their menu.

SWOT Analysis Chart

Strengths:

• Strong Market Position
• Global Brand Recognition
• High Quality Products
• Customer Base Loyalty
• Technology & Mobile Outlets

Weaknesses:

• Expensive Products
• Overdependence in U.S Market
• Negative Large Corporation Image

Opportunities:

• Expansion in Products
• New Distribution Channels
• Technological Advances

Threats:

• Increased Competition Consumer taste & Lifestyle Choices
• Price in Global Coffee Market

SWOT Analysis Breakdown

Strengths:

• • Global Brand Recognition & a Leading Market Position. Starbucks has a solid presence geographically across the globe. Its brand is highly known in the coffeehouse sector. With a strong leadership position, Starbucks continues to gain significant competitive advantage as it continues to expand into more international markets.
• High Quality Products- Starbucks avoids standardization by continually to heeding to the importance of the quality of its products.
• • Customer Base Loyalty- Starbucks has loyalty-based programs for their customers.
• • Technology & Mobile Outlets- Starbucks efficiently utilizes advancing technology with mobile applications in “Apple” and “Android” software.

Weaknesses:

• • Expensive Products- Starbucks does differentiate the product with being high quality, however consumers may opt to switch to a competitor’s product when disposable income decreases.
• • Overdependence in U.S Market- A huge portion of Starbucks revenue is generated in the U.S.
• • Negative Large Corporation Image- Starbucks has faced animosity due to a variety of social conflicts and has a both a corporate and social responsibility to tighten its reins on their labor practices.

Opportunities:

• • Expansion in Products- Starbucks has recently added to its menu by adding Tea and Fresh juice to its selections. The additional products offer countless opportunities for the company.
• • New Distribution Channels- To expand upon their delivery system, Starbucks rolled out a beta version called “Mobile Pour”. Starbucks continues to embark on opportunities for the future, by consistently being a visionary and a leader by expanding the merchandise distribution structures.
• • Technological Advances- Investing in a partnership with “Square” has helped Starbucks leverage the increased usage of mobile applications.

Threats:

• • Increased Competition- Dunkin Brads and McDonalds are Starbucks biggest competitors and is by far their biggest threat.
• • Consumer taste & Lifestyle Choices- The shift of consumers making the choice to “get healthy” causes a risk of the coffee culture fading away.
• • Price in Global Coffee Market- There are significate variations in the market prices of high quality coffee beans. This cannot be controlled by any business.

External Evaluation

The economic status of the world changes constantly, which means that when a recession hits, people take a cheaper course of action. To be part of the mobile computing revolution, Starbucks has taken steps to help customers save money. It has worked with “Apple” to introduce discounted coupons via iPhone apps. Starbucks is also cross selling and co-branding, so customers can further enjoy their favorite products. U.S. consumers are becoming more cognizant of ethics, which means they want to choose brands that follow the societal and eco-friendly norms. This consumer responsiveness can be challenging for Starbucks. The most apparent factors that affect Starbucks are socio-culture, economic, technological, legal, environment and political factors. These reasons can hurt any business within any industry.

The list below will show how Starbucks has handled the issues that could arise.

• Socio-culture Factors- Starbucks could offer cheaper products, but this could cause the quality to decrease. This is not what they want to happen.
• Economic Factors- The ongoing global recessions are the external economic drivers. The company must deal with this to the best of their ability.
• Technological Factors- Starbucks is in a great position with this. The benefits of the mobile wave have helped them stay on-top of any issues that might arise.
• Legal Factors- As with any company, Starbucks must abide by laws and regulations and be careful that it does not violate any of them. The company must also ensure that they are following the health authority policies related to caffeine consumption and production.
• Environmental Factors- Starbuck store practices concern activists and international advocacy groups. Starbucks Corporation needs to address these concerns to keep customers happy.
• Political Factors- Sourcing raw materials have caught the attention of politicians and become a major factor.

Starbucks wants to adhere to all the rules and regulations, so they make sure to follow all the sourcing strategies. Ethics and Compliance According to Starbucks, conducting business ethically is vital to survival. Their ethics and compliance support their Mission & Values. They foster a culture that is committed to ethical leadership which helps to protect the company’s reputation and internal culture. This practice allows them to continue to conduct business with high integrity and offers resources to their partners that help everyone involved make ethical decisions during work. They accomplish this by encouraging leaders to initiate ethical business practices. There is also the ability to partner up with the business to guarantee legal risk managing and they inspire partners to voice their questions and concerns.