Strategic Management: How Starbucks Gains the Competitive Advantage

This report discusses the strategic management of Starbucks, including its competitive advantage in the coffee industry. It covers the company's background, SWOT analysis, Porter's Five Forces Model, and strategies used by Starbucks. The report also explores the concept of dynamic capabilities and core competencies. The document type is an essay or dissertation, and the assignment type is a study on strategic management.

STRATEGIC
MANAGEMENT
“How Starbucks Gains the Competitive Advantage”
1

TABLE OF CONTENTS
1. Introduction..................................................................................................................................3
2. Company Background.................................................................................................................3
3. Competitive Advantage in the Industry.......................................................................................4
Dynamic Capabilities ..................................................................................................................4
Core Competencies......................................................................................................................4
Competitive advantage of Starbucks...........................................................................................4
4. SWOT Analysis...........................................................................................................................5
5. Porters 5 Forces Model................................................................................................................5
6. Strategies used by Starbucks........................................................................................................7
7. Conclusion...................................................................................................................................7
REFERENCES................................................................................................................................8
2

1. Introduction
Strategic management is defined as formulating and implementing the planning, tracking,
and assessing the necessary initiatives which are main for the company to meet it objectives.
Businesses have to continuously assess their approaches and strategies along with the operation
management which help them to take the competitive advantage. In the market many things
related to drinks are segmented, so the supply of drink products according to the demands of the
consumers in markets. It generated high profitability if the supply value chain is maintained. So
many competitors are entering into this sector. Starbucks is the leading brand in the coffee
industry which provided the qualitative coffee products to the consumers. This report discusses
the strategic management of the company including the detail analysis of its strategies for the
growth in the market.
2. Company Background
Starbucks is the leading brand in the coffee house chain and famous worldwide. This is
an American coffee organization which was founded in the 1971 in Seattle, Washington, U.S. It
becomes that much huge that it operates approximately 30,000 stores worldwide (Leskaj, 2017).
The founder of the company Jerry Baldwin, Zev Siegl and Gordfon Bowker as these people
found the coffee culture is increasing and it will gain the competitive advantage in upcoming
years. So they started a coffee store in Seattle and achieves profitability in 1980/ now the key
people of the company are Kevin Johnson (CEO and president) and Howard Schultz (chairman
emeritus). After appointing Johnson as the president of the company in 2018, company leads to
towards success with unexpected growth. The management of Starbucks believes in using
modern business strategies in their operations. The company currently focuses on expand their
business operations in the new market segments of United Kingdom. Business employed
approximately 300,000 employees till 2019 which are called as partners of the company, it
makes them feel nice and important part of the organization. So they serve the customers with
nice behaviour and polite ways which leads to customer satisfaction and maintain loyalty.
Company possess net income US$4.51 billion (2018) and its operating income US$3.88
billion(2018). The company gained £372 million last year from their business operations in the
United Kingdom. It is completely focuses on providing quality products to the customers in this
country. Starbucks main product is qualitative coffee products like hot coffee, cold coffee,
appetizers, coffee latte etc. As they use roasted coffee beans to prepare the coffee, it darkens the
3

coffee taste so due to the second wave movement in which people deny accepting this dark
coffee because it is unhealthy and harmful (Doz, 2017). So the company installs espresso
machines to make instant coffee which is lighter and tastier than before. In recent years company
is lacking to take the competitive advantage so in further section its strategic management would
be studied.
3. Competitive Advantage in the Industry
Competitive advantage is about gaining superiority in the industry by a particular
organisation. They provide same products, quality and taste like the competitors but at low cost
or it can be higher charge with giving qualitative and valued products through differentiations.
Porter has defined the competitive advantage as the main concepts of the value chain framework
in which company can analyse its primary and supportive factors which help them to achieve
success and enhance their sales. To gain competitive advantage business can use different
strategies like differentiation, cost leadership, innovation, technology advancements and
operational strategies (Dagnino, King and Tienari, 2017). If the company has achieved
superiority in the marketplace then it should continue to improve in its products, service,
operational, marketing, management strategies.
Dynamic Capabilities
Dynamic capabilities which ensures that Starbucks protects its assets and valuable
resources for sustaining its future to take huge competitive advantage. The company is
continuousallt working on improving its capabilities for achieving high profit in the market.
These are defined as possible opportunities, managing resources and transforming to acquire
opportunity and lastly competencies renew continuously.
Core Competencies
Core competencies are stated as the process for strategic management in which the
development is progresses by the company to differentiate its product from the rivalries. To take
the competitive advantages the company focuses to continuous evolution of the technology,
knowledge, skills, and important strategies.
Competitive advantage of Starbucks
Starbucks has gained superiority in terms teams to take the competitive advantage but
due to some of inappropriate decisions in the previous years, company had to face failure
4

(Ocasio, Laamanen and Vaara, 2018). Company have to close about 379 tea stores, in which
loose-leaf of tea products are still prepared in the Canada, Georgia, Atlanta and other American
countries.
Starbucks have dynamic capabilities to regain its worth they find possible opportunities
in filed of providing juice products, evolution new ways to bring more customers like they apply
customisation in food products in which customer can choose its flavours for coffee. This helps
them to achieve profitability and prosperity in market.
Company have core competencies like they adopt digital technology for the development
of the business. Also, they provide online products to serve better to community. Also, they
install coffee instant coffee machines at their stores. It enhances their sales and market share. In
leadership of the Kevin Johnson company start making new strategies in marketing, and
production in which they improve the supply value chain as they make agreements with the
farmers of coffee beans it less the risk of increment in the investments. Also, they bought farms
for manufacturing coffee beans. By using skills and knowledge of its employees they develop
their criteria of serving people (Boris and Ushvitsky, 2017). They continue to train and motivate
their employees. Mainly they have included in their core competencies are excellent customer
services, product improvement, taking care for its employee expectations and demands and
maintaining its quality of products.
4. SWOT Analysis
SWOT analysis is very helpful in analysis of Starbucks' internal environment. It is mainly
shows the major internal factor of the company like; strengths, weaknesses, opportunities, and
threats. These all factors are discusses below;
Strengths
 The company has great brand value in all around the world. It is a very premium brand in
the food and beverage industry.
 It is to successful in their expansion process. From company's establishment to date the
company built their big coffee cafe empire in the international market.
 The company's marketing team is too active in their marketing functions.
 It has exclusive range of coffee which is very helpful in gaining high competitive
advantage in the international market.
5

 The company has huge experience of food and beverage industry, because it is running
their business operations for the long time.
 It is one of the leading companies which offers premium coffee to the customers.
 It has effective workforce which provide great satisfaction to the customers which
visiting in its cafes (SWOT analysis of Starbucks, 2019). Their communication skills are
most attractive at the workplace.
 Starbucks has attractive coffee cafes in many countries. It always focuses on the perfect
design of their cafes, because it knows attractive cafes are necessary for gain high
customers' attention towards brand.
Impact: Strengths of the company will impact its business environment in positive term,
because the management put more efforts to gain more strengths after knowing current strengths
of the company.
Weaknesses
 The company only focuses on fulfil demands of those customers who are part of the high
income group. Starbucks' coffee is not affordable for the medium and low income group
of people.
 High income group of people are also many time get frustrate when the company charges
high prices for small cups of coffee. It is really charging high prices for their products
and services than other coffee cafes.
 Many environment protection organizations are given statement that the Starbucks
promoting such practices in their operations which harmful for the environment.
 The company loss their high goodwill in the UK's market when it was avoided the
taxation aspect in their operations.
Impact: The management will motivate to remove their weaknesses after knowing
current weak points of the company.
Opportunities
 There are great opportunities for the company to expand their business operations in the
new market segments in all around the world (Oboh and Ajibolade, 2017). In this time
the company runs their operations only in some selected countries. So, here is business
expansion is favourable opportunity to the company.
6

 The social media marketing is become very popular marketing tool for the companies. In
which it is big opportunity for the company to run their advertisement campaigns through
the social media marketing.
 The company also have opportunity to produce a new coffee range for middle and low
income groups. Currently the coffee which offer by the Starbucks is only affordable for
the high income group people. In this case if the company will start produce cheap coffee
for the rest income group people, then it able to gain high market share in the food and
beverage industry.
 There are many new technological gadgets and equipment are comes in the market today.
The Starbucks is able to use them in their operations for save its huge time. Suppose
currently many successful companies are using smart phones, tabs, and laptops for run
their digital marketing campaigns, for taking online orders, for online payments, etc.
 The company also has opportunities to launch new products and services to the customers
(Kasemsap, 2017). In which firstly the company need to hire some highly qualified
employees in the company which has extra ordinary innovation skills. Then with the help
of these employees the company able to develop or innovate new products and services
for the customers.
Impact: According to these opportunities, the Starbucks is able to improve its current
performance in the market.
Threats
 Current market competition in the coffee cafe markets is very challenging for the
company because many coffee outlets providing affordable prices to the customers. Many
customers are choosing these other coffee outlets for their needs, because these outlets
providing quality coffee with cheap prices.
 The company provide premium coffee to the customers. In which it needs to give high
amount of taxation also, because many governments are imposing high tax rate on the
premium products in their particular countries.
 The major competitors of the Starbucks are McDonald's and Dunkin Donuts (Henri,
Boiral and Roy, 2016). These are very challenging for the company, because both are
succeeded in taking Starbucks' market share in many countries with their favourable
pricing strategies.
7

Impact: The management will take some specific steps to systematically handle these
threats. Starbucks need to implement such new market strategies in their operations for gain
competitive advantage in the market of high competition.
5. Porters Five Forces Model
Porter proposed the model for analysing the competitive forces in every industry. This
helps to evaluating the drawbacks and weakness in the sector.
There are five forces which influences the particular industry
Competition in the Industry
According to this force, the existing competitors in the particular industry are analysed.
Strategies, approaches, their abilities to cut the profit of the company is evaluated. The risk is
dependent on the number of the competitors exist in the market. If the large number of the
competitors are there then it higher the risk of failure or impose losses to the business. To cut
down the market of particular company, competitors create a monopoly related to prices and
offer provided to consumers to attract them (Morden, 2017). Such deals lower the margin of the
business.
Starbucks has lot of competitors in the market like McDonalds, Costa Coffee, Cafe
Coffee Day and Dunkin Donuts which gives them tough competition in the market. So it is
necessary for the company to keep record of the market condition otherwise it may fail to take
the competitive advantage.
Threat of Substitutes
Substitutes is defined as the alternatives present in the market of the products and
services offered by the company. People find the large number of options in their budget, so they
choose them rather than choosing the company's products. Also, they are available in good
quality so it increases the attraction of audience. But sometime people are brand conscious along
with considering the quality and liking toward that products. So this threat is moderate for the
company.
Starbucks has to be aware of the substitutes like fast food restaurants, bakeries, Caffe Pod
Coffee stores which sales the coffee products in which the instant coffee is prepared at home. So
these substitutes might affect the company's sales.
8

Threat of New Entrants
In any industry there is huge scope for the businesses to step into it. In food and
beverages sector, many competitors are entering into market to take the competitive advantage.
As they find the opportunities in this field because this is totally dependent on the taste and
quality of the food and beverages product to become popular and highly demanded in the market
(Levinthal, 2018). But there are some barriers to enter, like requirement of huge investments,
managing supply chain, unique marketing strategies, following the governmental polices and
procedure which takes long time to be completed.
In Coffee industry, new entrants are more interested in entering into market but due to the
brand value of Starbucks and its qualitative products lower the threats from the new entrants.
Bargaining power of Suppliers
Suppliers of raw material for the production of the products and services are important.
They help the businesses to maintain their supply chain. Negotiation power of the suppliers is
dependent on the number of supplies present in the industry. As the large no. of suppliers present
in the industry, it higher the bargaining power of the suppliers otherwise it is lower.
To maintain the quality of the coffee beans they have collaborated with particular
suppliers which provides them good quality of coffee beans. Also, they rented and purchased
lands for their own utilisation in terms to produce raw coffee in these farms. So it decreases the
risk of bargaining power of the suppliers.
Bargaining Power of Customers
This force is major, as the customers are the end user of the products and services. So this
is necessary that they must be satisfied with the company's products and services. In market,
various options are available which motivates them to change their buying decisions (Lane,
2016). So bargaining power of the customers is usually higher. Businesses need to fix the cost of
the products according to the market conditions and demands of people. This understanding
comes with the analysis of the market.
Starbucks is famous brand in the world, mostly people prefer the coffee of this company.
As they involved the new features in their products like customisation and instant coffee
preparation, this enhances their popularity among the people. But customers bargaining power is
usually high because of the availability of various products in the market. This imposes possible
9

fluctuation in the sales of their coffee products. So they have to continue improve in their
products and services which help them to achieve customers loyalty and earn high profitability.
6. Strategies used by Starbucks
Business strategies which the Starbucks implemented in their operations are very
productive. With the help of these strategies the company gained large customers base in
international market. There are some major strategies which used by the Starbucks are mentioned
below;
Selling Quality Product: This is one of the major business strategies of the company. The
Starbucks is always focuses on selling quality coffee to the customers. In which the customers
are also satisfied with products and services of the company (Szwejczewski, Sweeney and
Cousens, 2016). It is very helpful for the company to boost their business in global market.
Specially in the European countries, because people in these countries are ready tom pay any
cost for buy a quality product. So, the company taking huge advantages with this strategy by
providing quality products and services to the customers.
Mergers and Acquisition: The company also using this strategy at the high scale for expand
their business operations in the intentional market. The company already acquired many coffee
outlets. With the help of this strategy the company is able to gain large market share in the food
and beverage industry. The Starbucks also gaining effective competitive advantage in the global
market with the support of this strategy.
Employ Technology: The company is highly implemented various technological gadgets at their
cafes and operational offices for saving their useful cost and time in operations. The company
using the technology specially in their marketing operations. It is also operational their social
media handles and pages with these gadgets. The top-level management of the Starbucks is
completely understood the role of technology the current time (Dudovskiy, 2017). The IT team at
the Starbucks is responsible for employ this technological aspect within the company.
Providing Experience of Richness: Customers which visit in the company's coffee cafe are
highly gaining richness experience, because the company provide very premium products and
services to them. The price of their coffee is also very high. So, rich people feel well during buy
this coffee, because this provides experience of richness to them.
Innovation: The research and development department of the Starbucks is very active in
innovating and developing new and exclusive range of coffee. The company is highly focused on
10

the innovation strategy for always offer new version of the coffee for maintain its high brand
value in the market. This strategy also helpful for the company to beat their major competitors in
the same industry. The company provide specific fund also to their research and development
department for produce such coffee range which help in gain high people attention in the
international market.
7. Conclusion
It can be concluded that the Starbucks has great brand value in the global market. The
company systematically following the terms of dynamic capabilities and core competencies in
their business operations. The company gaining high competitive advantage in the market by
using these terms. On the basis of SWOT analysis the company specially need to focus on their
weaknesses for improve them. There are many opportunities are also mentioned for the
Starbucks related to the business expansion and marketing techniques. The company currently
has effective business strategies, but it still needed to improve them. The main reason behind the
last statement is, there are many competitors are working with the company in same market. So,
here is major responsibility of the top-level management of Starbucks to improve or develop
their current business strategies to beat their competitors in the food and beverage industry. The
company continuously need to innovate new range of the coffee for maintain their exclusiveness
in the global market.
11

REFERENCES
Books and Journal
Boris, V. P. O. G. O. and Ushvitsky, L., 2017. Strategic management in universities as a factor of
their global competitiveness. International Journal of Educational Management. 31(1).
pp.62-75.
Dagnino, G. B., King, D. R. and Tienari, J., 2017. Strategic management of dynamic growth.
Doz, Y. L., 2017. Strategic management in multinational companies. In International Business.
(pp. 229-248). Routledge.
Henri, J. F., Boiral, O. and Roy, M. J., 2016. Strategic cost management and performance: The
case of environmental costs. The British Accounting Review. 48(2). pp.269-282.
Kasemsap, K., 2017. Strategic innovation management: An integrative framework and causal
model of knowledge management, strategic orientation, organizational innovation, and
organizational performance. In Organizational Culture and Behavior: Concepts,
Methodologies, Tools, and Applications(pp. 86-101). IGI Global.
Leskaj, E., 2017. The Challenges Faced by the Strategic Management of Public Organizations.
Revista» Administratie si Management Public. «(RAMP). (29). pp.151-161.
Levinthal, D. A., 2018. From Strategy to Strategic Organization. Behavioral Strategy in
Perspective. 39. p.71À77.
Morden, T., 2017. Principles of management. Routledge.
Oboh, C. S. and Ajibolade, S. O., 2017. Strategic management accounting and decision making:
A survey of the Nigerian Banks. Future Business Journal. 3(2). pp.119-137.
Ocasio, W., Laamanen, T. and Vaara, E., 2018. Communication and attention dynamics: An
attention‐based view of strategic change. Strategic Management Journal. 39(1). pp.155-
167.
Szwejczewski, M., Sweeney, M. T. and Cousens, A., 2016. The strategic management of
manufacturing networks. Journal of Manufacturing Technology Management. 27(1).
p.124.
Online
Dudovskiy, J. 2017. Starbucks Business Strategy and Competitive Advantage. [Online].
Available Through: <https://research-methodology.net/starbucks-coffee-business-
strategy-2/>.
SWOT analysis of Starbucks. 2019. [Online]. Available Through:
<https://penmypaper.com/blog/swot-analysis-of-starbucks/>.
12