Analysis, Pages 9 (2154 words)
Starbucks is the leading seller and marketer of specialty coffee all around the globe. Starbucks opened the first store in 1971 in Seattle, Washington, selling coffee beans and equipment for manufacturing coffee. Howard Schultz, who is the present CEO of Starbucks, joined the company in 1982 and after a vacation in Italy, he brought the culture of Italian drinking coffee in the US. Howard Schultz saw huge opportunities for selling coffee and other espresso products in the US using the Italian style.
Still, he could not sell the idea to Starbucks owners during that time. He ended up opening a coffee shop known as Giornale Stores. Later, in 1987, Howard bought the Starbucks store, and he renamed his Giornale Stores to Starbucks. The company went public in 1992, and in 1996, Starbucks opened the first coffee outlet in North America. Since then, the company has been able to expand in the international arena persistently. By the year 2009, Starbucks had about 17, 000 stores in 56 countries all over the world (Alkema, Koster & Williams, 2010).
However, between 2007 and 2009, Starbucks operations were affected by intense competition and the increased price of coffee beans.
In 2007, the demand was highly affected by the global economic recession.
Starbucks is known as a market leader in the coffee industry, and the company has been enjoying tremendous growth in the last two decades. However, the intense competition in the sector has slowed the growth of the company. Starbucks decided to ignore international operations due to the global recession, high competition, and increased prices of coffee beans. However, in the past three years, Starbucks has improved its financial success, which makes the company reconsider its decisions on global operations (Alkema, Koster & Williams, 2010). The company needs to come up with the right approach that will be used in pursuing global operations, deal with regulatory constraints, geographical scope, and intense competition. Besides, Starbucks needs to analyze key factors from previous experiences in global operations, which will help in facilitating the new strategy of expanding.
Starbucks Company is a well-established brand, and the revenue of the company has been increasing every year by more than 5%. The company is known for its consistency in quality products, a perception built on customers at home and in workplaces. For instance, by 2009, the company had about 17,000 stores in the global market with 10 billion in revenues (Alkema, Koster & Williams, 2010).
The company has a work environment that is valued by its employees because it provides the highest satisfaction rate, which leads to a low turnover rate. Starbucks introduced drive-through service in most of its stores, which benefited its customers from the services offered (Alkema, Koster & Williams, 2010). For instance, the company offers different types of coffee to different consumers depending on income and class, which includes instant coffee and specialty coffee.
The brand equity of Starbucks is very high, which is a source of the strong customer base that enables the company to become highly responsive towards market changes. For instance, since the year 2000, consumers of Starbucks coffee have shown a high preference for the premium and regular coffee, and are willing to pay for higher prices (Glowik, 2017). The company uses high-quality beans, rich flavor, and less caffeine, which makes most of the customers attracted to Starbucks.
Starbuck’s growth declined in performance when it opened many large stores in different parts of the world, which compromised quality. During expansion, the company focused more on profitability and had less focus on customer services. The initial customer-oriented approach towards the expansion, the approach led to the loss of customers due to dissatisfaction (Glowik, 2017). Besides, the price of Starbucks products and services has been increasing over time, Starbucks lost customers to their competitors.
Finally, the marketing strategies of Starbucks have proved to be easily copied by competitors, which reduces competitiveness in the international market. For instance, in countering competition against McDonald’s, Starbucks developed a cheaper alternative; the instant brew-coffee and drive-through service that was imitated by McDonald’s; as a result, there was no huge impact from that strategy, and Starbucks market remained the same (Alkema, Koster & Williams, 2010).
Being considered a top brand of coffee, Starbucks saw a rising demand for coffee consumption globally. This provides the company with an opportunity to market its products and services in different countries around the world. The rapid expansion in retail is an opportunity for meeting demand across the world.
Starbucks can focus on product development and improve its quality further. For instance, the company can use the available technology to improve its products and services and maintain its current relationship with consumers. The demand for specialty coffee has been increasing, which provides Starbucks with an opportunity to enhance its quality coffee and increase customer awareness.
The company can enter the newly developed and developing market to capture the unexploited coffee market and pursue its brand. For instance, the Chinese market is one of the unexploited markets that present a lucrative opportunity for Starbucks due to its size well-developed market.
Starbucks Company has been facing intense competition in the local and international market due to the increase in specialty coffee shops. Most of the shops have been offering coffee at a lower price than that of Starbucks (Glowik, 2017). Following the expansion strategy of Starbucks, there is a consumer mindset that has been developed that the company cares more about their profitability than the needs of consumers, which has made consumers switch to other coffee providers.
The main threat that the company has faced is McDonald’s, which entered the coffee sector and established more than 14,000 coffee stores in the US, and sales of coffee by McDonald’s has been increasing significantly. Besides, the cost of coffee beans that are used by Starbucks to produce specialty coffee has increases, which has greatly affected the prices of Starbucks coffee, and profitability (Alkema, Koster & Williams, 2010). From 2010, the wholesale price of coffee increased, which affected the price and profits in the coffee industry.
The global perspective of Starbucks revolves around the expansion strategy, whereby the company is persistently focused on opening many coffee stores in the international market to exploit the available opportunities. Between 1993 and 2009, the company experienced substantial growth in the global market. By the year 2007, the company had expanded in more than 56 countries globally and had established about 17,000 stores (Alkema, Koster & Williams, 2010). The company started in the US market and expanded in the global market after it was perceived that the domestic market is saturated. The first move of the company on a global perspective on expansion was to expand into Canada in early 1990. Beginning, 1996, Starbucks began to expand into distant countries such as Japan, Taiwan, Thailand, Singapore, and many others.
In the expansion strategy, the global perspective of Starbucks is focused on maintaining its core services and products, and adjusting to local demands in the host nations. For instance, the company began to offer tea in China and Japan and excluded the siren in the countries that are dominated by Muslims (Alkema, Koster & Williams, 2010). Starbucks knowledge obtained in the host market by using various modes of entry, such as using the local partners and the use of joint ventures.
In the process of internationalization, Starbucks used an aggressive model to increase sales in the existing markets and open new stores in new markets (Alkema, Koster & Williams, 2010). However, the company realized that the model that worked in the US was not feasible in global expansion. Besides, the company realized that there were cultural conflicts between their retails practices and those of other regions; whereby, many cities were against the establishment of Starbucks as a way of protecting their coffee shops from the trend of internationalization (Mason, Cole & Goza, 2017). Due to the experienced resistance, the company had to develop ways of adapting to the global market by looking for support from local residents in the host countries.
Starbucks can stop focusing on the expansion strategy and begin to concentrate on ways of refining stores that already exist. For instance, Through differentiation strategy, Starbucks should focus on their coffee stores to increase their competitiveness in the industry. Through differentiation, consumers will be able to see the value of their money, and they will start consuming Starbucks coffee, and the revenue will also rise (Alkema, Koster & Williams, 2010). The company should focus on the re-designing of the current stores to ensure their stores are large in accommodating its costumers by improving the décor of its stores to match the culture of the host nations ( Mason, Cole & Goza, 2017).
Finally, Starbucks has an alternative in lowering the price of its coffee to be close or equal to the price of its competitors. The company has lost many of its consumers as a result of the high cost of its coffee. Even though they claim that the quality of their coffee is worth the high prices, the cost is too high compared to the prices of its competitors such as McDonald’s (Mason, Cole & Goza, 2017). This alternative will help in gaining market share in bringing lost consumers and obtaining different social groups.
Starbucks is much aggressive in internationalization, trying to expand too fast to the extent of not reassessing its market position, which eventually led to negative effects on the performance. The most important factor that Starbucks should consider in internationalization is balance by endeavoring to build a strong foundation in the regions they want to establish new stores. It is recommended that Starbucks should begin by tapping rural markets. In the rural market, Starbucks will be accommodating middle-income earners because they are the majority in the rural market (Alkema, Koster & Williams, 2010). This will help to counter competition from McDonald’s and Tim-Horton that have gained massive market share due to low price coffee. This recommendation would help the company to reassess the best way of maintaining the brand image and expanding its market to accommodate the new segments.
It is recommended that Starbucks consider using social media platforms maximally like its competitors to advertise its products and services and enlarge its consumer base. Starbucks competitors such as McDonald’s have been using social media technology to adverse their services; therefore, Starbucks should identify areas to utilize social media to increase awareness of its products in the domestic and international markets (Wen, 2016).
It is recommended for the company to focus on newly developed markets such as China that have significant opportunities. The important thing is to strategically expand not only on the number of stores and outlets they can open, but on building a competitive brand in the international market, and weather all cultural barriers that can impede their growth. Finally, it is recommended for the company to come up with new ways of increasing customers’ loyalty through product offers or services provided to customers (Wen, 2016). Therefore, if the company cannot manage to lower the prices of coffee, it should develop a better way of improving customers’ loyalty, such as offering free coffee on weekends and holidays.
The internationalization of Starbucks has been established through the number of countries added to its portfolio or opened stores. The success of the company, locally and internationally, was legendary. However, the company received several criticisms for cannibalizing turnover for other stores that were closely related, diminishing the quality of the products, and driving small independent competitors out of the market. However, Starbucks was badly hit by the global recession in 2007, which made the company re-embark to its rationalization programs in 2008, where nearly 1000 stores operated were closed. In 2010, CEO Howard Schultz began to look forward to a new approach to internationalization because the world was recovering from the economic downtown, and the growth prospects of Starbucks were improving. At this point, Starbucks was faced with new strategic decisions of resuming its international expansions. The expansion strategy is still going on, especially in developing markets that have tremendous potential for growth, such as Japan and China. However, the road for internationalization of Starbucks has been faced with problems such as cultural differences, high competition in the global and local markets. Starbucks should focus on maintaining its quality and experience to sustain the base of its customers; and, their quality coffee is the only way to sustain its future in the market.
- Alkema, R., Koster, M., & Williams, C. (2010). Resuming internationalization at Starbucks.
- Richard Ivey School of Business.
- Glowik, M. (2017). 4.7 Case study: Starbucks. Global Strategy in the Service Industries:
- Dynamics, Analysis, Growth, 156.
- Mason, A., Cole, T., & Goza, N. (2017). Starbucks: A Case Study of Effective Management in
- the Coffee Industry. Journal of International Management Studies, 17(1).
- Wen, S. (2016). Marketing strategies: Starbucks in China.