Starbucks Losing Coolness: Analysis of Market Saturation Problems

STARBUCKS
IS LOSING ITS
COOLNESS
INDIVIDUAL REPORT
EXECUTIVE SUMMARY
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This report provides an analysis of the problems facing Starbucks both outside and at home, in
connection with market saturation. For this, primary and secondary research was used to analyse the
data, make conclusions and finally make specific recommendations and an action plan for this
situation. Literature review was used under different aspects, for example secondary research was
collected from various publications such as Marketing91, Sage and The Ballance Small Businesses,
which debated this topic. Primary research was used to supplement the knowledge about market
saturation, and all these data were analysed, conclusions and an action plan.
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TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION
1. Background to organisation.............................................................................5
2. Problem/opportunities....................................................................................5
3. Aims and objectives.......................................................................................6
4. Scope and limitations.....................................................................................6
CHAPTER 2 LITERATURE REVIEW
1. Introduction to the literature review...................................................................7
2. What is corporate governance? Definition and structure...........................................7
3. The strategic approach of the organisation..........................................................7,8
4. Explain vision and mission...........................................................................9,10
5. Corporate governance theories........................................................................10
6. Conclusion identifying key elements from the literature review..............................11,12
CHAPTER 3 DISCUSSION OF THE SECONDARY AND PRIMARY RESEARCH
1. Introduction..............................................................................................13
2. How did you collect data? Why did you used that method?...................................................13
3. How did you use the literature review to design the survey?..................................................13
4. How did you administer the survey?.......................................................................................14
5. What was the population definition and sampling strategy?...................................................14
6. How did you analyse the results?............................................................................................14
7. Ethics.......................................................................................................15
CHAPTER 4 CRITICAL REVIEW OF THE RESULTSOF THE RESEARCH
1. Introduction .............................................................................................16
2. Secondary research.....................................................................................16
3. Questions.............................................................................................16,26
4. Conclusion................................................................................................26
CHAPTER 5 RECOMMENDATION AND ACTION PLAN
1. Introduction.............................................................................................27
2. Recommendation from the literature................................................................27
3. How the recommendations link back to the vision, mission and the strategic objectives...27
4. What action and time frame are needed to implement your recommendations?..................28
5. Did your research meet the aims and objectives from chapter one?....................................28
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6. Conclusion..............................................................................................28
REFERENCE LIST.....................................................................................29,30,31
APPENDIX 1....................................................................................................32
APPENDIX 2....................................................................................................33
APPENDIX 3....................................................................................................34
CHAPTER 1 INTRODUCTION
1. BACKGROUND TO ORGANISATION
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According to Encyclopaedia Britannica (2018) in March 1971 in Seattle, Washington, three partners
opened the first Starbucks shop, and later has become the largest worldwide coffeehouse chain.
According to statistics in 2017 Starbucks posted its 22.39 billion US dollars annual revenue, being by
far the leader in this market (Statista, 2018).
Starbucks company is still the biggest coffee shop in the world, having a unique organizational
structure with a strong impact on change, leadership communication and management as well as
variables. As Statista (2019) declared it owns 31.256 stores worldwide, 8.791 company-operated and
6.250 licensed stores in the US (Statista, 2019), of which 995 open stores in the UK (Statista, 2019).
Forbes Magazine (2018) describes Starbucks as being known as "third place", as well as "affordable
luxury", where people of all categories can spend time away from home with friends or colleagues
(Forbes, 2018).
According to LinkedIn( 2019), Starbucks mission is "To inspire and nurture the human spirit - one
person, one cup and one neighbourhood at a time", and the vision statement is "To establish Starbucks
as the premier purveyor of the world's finest coffee while maintaining our uncompromising principles
while we grow ” (LinkedIn, 2019).
2. PROBLEMS/OPPORTUNITIES
As we stated above the subject of this report is the problem that Starbucks faces both at home and
abroad, the market saturation. As Business Insider (2017) writes, "Starbucks on every corner" this
stereotype becomes a serious problem for the company. The large number of stores makes it difficult
for Starbucks to maintain its premium brand name. Market saturation comes together with store
cannibalization where one company store takes away the business from another store, forcing
Starbucks to announce store closing. Also, Starbucks faces growing competition such as Mikel Coffee
Company and McDonald’s (Business Insider, 2017).
For these issues Starbucks corporate governance must implement certain strategies to reduce this
phenomenon. It is known that corporate governance refers to several practices and rules which the
board of directors ensure the transparency, accountability and fairness between all stakeholders and
management, directing the operations and conduct the activities in a company, are backbone of any
successful company (Business Dictionary, 2019).
Good corporate governance goes hand in hand with CSR, which is another business term meaning
that the company must follow the ethics and set law, concerned with the community, environment,
employees and other stakeholders.
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3. AIMS AND OBJECTIVES
The aims of this part of research is to test the customers’ reaction to this phenomenon of market
saturation, and how the cannibalization process can be diminished.
The main objectives are:
 reviewing the literature to see what the negative and positive effects of market
saturation are on customers and make some suggestions
 to conduct primary research on customers understanding of market-saturation
 make suggestions evidence-based on how the company can solve problems.
The research questions are:
 what is the opinion of consumers regarding the phenomenon of market-saturation?
 what is the impact of this phenomenon on the business?
4. SCOPE AND LIMITATIONS
Despite its good reputation, Starbucks faces problems such as market saturation and high competition,
which can have a negative impact on the company, so, in my opinion this piece of small-scale
exploratory research is important because it can bring solutions to solve problems, and provide a
platform for an expanded research project.
CHAPTER 2 LITERATURE REVIEW
1. INTRODUCTION TO THE LITERATURE REVIEW
In this section we will discuss the search and evaluation of the available literature regarding the
phenomenon of market saturation in the Starbucks case.
By studying the publications listed below I try to better understand this phenomenon of market
saturation, to find out what the negative and positive effects are, to know what strategy Starbucks
corporate governance can apply.
2. WHAT IS CORPORATE GOVERNANCE? DEFINITION AND STRUCTURE
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As it mentioned above corporate governance refers to the way a corporation is governed, the
interaction between various participants (shareholders, board of directors, and management), and the
way it is proceeding towards. In his book Calder (2008) state that the corporate governance is the
system by which companies are controlled and directed, where the boards of directors are responsible
for the governance of their companies. The board’s actions are subject to regulation, laws and the
shareholders in general meeting, but he also states that the corporate governance framework is
different from one country to another. The basic structure of corporate governance is annual general
meeting, the board directors, the CEO, the other shareholders (Calder, 2008).
The corporate governance structure for Starbucks consists of: Audit and Compliance Committee,
Compensation and Management Development Committee and Nominating and Corporate Governance
Committee, Board of Directors. The directors of Starbucks company have met already the NASDAQ
requirements having a good structure of corporate governance. The board is composed by three
committees, each one has their director and from 2007 the directors amended company’s bylaw to
allow shareholders to participate actively in the director’s election (Starbucks Corporate Governance,
2020).
Corporate governance also contribute to attain the define goals and organizational targets that is why,
component are covered by the management of Starbucks Yermack (2017) stated that responsibility
towards the stakeholder such that management, shareholders, investors, suppliers and government
should maintained or balanced with the responsibility towards the community by defining policies
under this. Corporate government is all about to create a goodwill among society and media that can
be even more as asset for the firm. Hence, transparency in Starbucks should also be consider an
important factor and this shows that having an effective corporate governance will help the company
to meet the define aim.
The effectiveness of corporate governance is also measure through the business ethics, this also assist
to enhance the growth and also promote the trust of stakeholder. Aguilera, Judge and Terjesen
(2018) present their views that the effectiveness of the corporate governance also determine the risk
and benefit of a stakeholder which are related to the firm, also this aim should met the interest of all
stakeholder. Hence, Starbuck evaluate the effectiveness with the five criteria such that transparency,
fairness, stakeholder management, performance measurement and return generated for stakeholders.
Thus, company take a decision by involving all the stakeholder and it has a risk management
committee which also keep determining the whether the decision is good or not. On the other hand, it
also have an audit committee which also monitor the performance of the business and keep updating
the performance level through external auditors. Hence, the fairness of the work is also clearly stated
that it has the standard dividend payout and EPS to the shareholders. Also, company provide initial
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training programs which also assist to let the employees understand about the policies of the company
and also provide equal opportunity to the firm as well.
Thus, it can be stated that Starbucks have effective corporate governance strategy which help
the firm to meet the define aim and treat the employees equally without affecting the overall
environment. As every board have their own responsibilities and that is why, they all perform their
duty and keep set the standards in order to make sure that the define goals are attained or not.
Hussain, Rigoni and Orij (2018) also explain that Starbuck uses Balance Score card in order to
measure the performance level of organization and keep determine the major deviation which shows
the right path. Hence, it can be stated the effectiveness of the Starbuck’s is measure through these five
key element which assist to focus on the company’s overall strength and weakness.
The Starbucks corporate governance is based on four theoretical foundations that includes;
Transaction cost economics, Agency theory, Stakeholders theory and Resource dependency theory
(Ebray, 2020)
3. THE STRATEGIC APPROACH OF THE ORGANISATION, THE MAIN STRATEGIC
OBJECTIVES
As MSG (2019) strategy can be defined as a method or plan chosen to bring about a desired future,
such as achievement of a goal or solution to a problem (MSG, 2019).
According to Business Insider (2017), "One of the biggest benefits of Starbucks could turn into a huge
problem for the chain", indicating that Starbucks is facing this market saturation phenomenon because
there are too many independent coffee shops, which is a threat. At the same time, it says that one of
the strategies it can be applied is to track accurately the cannibalization results and as they are seen
they have an insignificant impact. However, the success of new stores — something Starbucks has
offered as proof against cannibalization — comes at the expense of existing stores in the area
(Business Insider, 2017).
Starbucks strengths are:
- strong brand image being the most popular and strongest brand
- with an annual revenue of $26.5 Billion and profit $3.6 Billion has a strong financial
performance
- growth in stores, more than 31,000 stores worldwide
- quality, taste and standardization offering excellent quality
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