Starbucks Risk Factors Essay
Starbucks Risk Factors
Major risks in Starbucks at domestic region and its potential solution: Starbucks faces 3 major risks and challenges which leads to the declining profit rate. According to Starbucks researches there is a mismatch of their policies with customers’ expectations. They thought that they can increase their profit by increasing their stores day by day but they fail to provide customers satisfaction. Their prices are still high than of the competitors and they failed to satisfy the newer generation. The organization has a strong presence in the United States of America, one of the challenges that Starbucks faced in USA is market saturation which can be overcome in focusing on international or global marketing. But Global expansion poses huge risks for Starbucks. For one thing, it makes less money on each overseas store because most of them are operated with local partners.
While that makes it easier to start up on foreign turf, it reduces the company’s share of the profits to only 20 percent to 50 percent. Japan, which was the largest overseas market for Starbucks followed by United Kingdom, started facing decline in their profit rates. In the mid-2000s, the chain was doing great, opening a store a day, branching into new territories like South America. The design team had opening new shops down to a science or at least a kit of parts that made it easy to launch a cafe with as little risk and time as possible. In 2007, the economy went south, and so did some of Starbuck’s business. In 2008, the company closed around 600 shops, prompting a change in senior leadership, and ultimately a change in design thinking. As Starbucks growing abroad and expanding its business, they will face two main obstacles with the local partners which are SRC and their competitors using their own cultural values, experiences, and knowledge as a basis for decisions.
The solution in my opinion is the new strategy that Starbucks starts using for designing more local-seeming stores some of their stores which will localize some stores according to the place they are existing in by dedicating Starbucks designers to make a new layout for certain stores and localize it. Bill Sleeth, Starbuck’s vice president of design for the Americas explains. He wants to make the world’s largest coffee house feel like a neighborhood haunt by making a good design. for example, wall & floor layouts have been modified to accommodate a store’s clientele. And making demographic researches for choosing new locations & consumer behavior researches before they start opening branches everywhere even if they found it busy places and can bring new business opportunities.
They must make Operators search for locations where such market cannibalization can be avoided. As it expands, Starbucks faces another big risk: that of becoming a far less special place for its employees. Starbucks faces slumping morale and employee burnout among its store managers and its once cheery army of baristas. Stock options for part-timers in the restaurant business was a Starbucks innovation that once commanded awe and respect from its employees. But now, though employees are still paid better than comparable workers elsewhere—about $7 per hour many regard the job as just another fast-food gig. Dissatisfaction over odd hours and low pay is affecting the quality of the normally sterling service and even the coffee itself, say some customers and employees.
Also, payments made to the employees do not match with the work load they have to suffer at work. And that affects the store managers and baristas work and that opposes with the company being modeled around enthusiastic service that could have dire consequences for both image and sales. Due to their aggressive marketing strategies they have grown their rivalry and lost potential customers. In my opinion, Starbucks have to try to increase the level of employees’ satisfaction by increasing their salaries, providing initiatives, bonus and other allowances to deliver on the company’s positioning and their mission which is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. “Because when the employee isn’t satisfied and overloaded that affects the performance of the employee and then the customers get affected.
Therefore, it affects the whole company performance they have to take care of the frontline employees and don’t put all the money and investment in expansion. The company must invest in their employees as well because if they’re having loyal happy employees they will have a loyal happy customers. Another risk and the toughest challenge in the home market is attracting the next generation of customers. Younger coffee drinkers already feel uncomfortable in the stores because “They either can’t afford to buy coffee at Starbucks, or the only peers they see are those working behind the counter,” says Mark Barden, who conducted the research for the Hal Riney & Partners ad agency. Although the innovation that the company used and that it’s called the world’s largest Wi-Fi network—include Mobile International in which the Customers sit in a store can check e-mail, surf the Web, or download multimedia presentations without looking for connections or tripping over cords. They couldn’t attract the younger generation who can’t pay for the coffee.
They don’t feel wanted in a place that sells designer coffee at $3 a cup. The main reason for the declining profit rate for Starbucks is due to mismatch of their policies with customers’ expectations. Starbucks thinks that they can increase their profit by increasing their stores day by day but they fail to provide customers satisfaction. Also, according to researches that was done on consumer behavior it seems that some don’t like the Italian words “like: Venti…etc” and they are just fine with “small, medium & large” Their prices are still high than of the competitors and they failed to satisfy the newer generation.
The company knows that they are facing hostile reception from its future customers (Generation x). In my opinion, the solution is that they should reposition their product according to the customers’ needs as the coffee is the core product for them to serve and they sell it with high price in which the younger generation can’t afford. So, if they want to target the younger generation, they can serve other products besides coffee to attract them because they have limited product profile. So, there must be customization for this segment and researches should be done to know what’s this segment preferences and start to do different programs or discounts for younger generation.
Finally, Starbucks have to try to increase the level of employees’ satisfaction by increasing their salaries, providing initiatives, bonus and other allowances. They have to study the controllable and uncontrollable factors that they face while entering global market. “Innovations” and “Investment” are the key factors for them in the long run. They must make marketing researches to target young generation segment and to know their preferences. Through study of PEST and SWOT analysis that can be very effective in maintaining their leadership worldwide.