Starbucks Business Report - MSc Management Strategy, Spring 2020, BPP

This report provides a comprehensive analysis of Starbucks' business strategy. It begins with an introduction to Starbucks and its market position, followed by an external environment analysis using PESTLE and Porter's Five Forces frameworks. The report then delves into an internal analysis of Starbucks, utilizing Porter's Value Chain, VRIO framework, and a resources, capabilities, and competencies framework to assess its strengths and weaknesses. Competitive advantages of its competitors are also analyzed. The report concludes with recommendations for Starbucks' future strategy and a stakeholder report. The analysis covers various aspects including political, economic, social, technological, legal, and ecological factors, as well as the competitive landscape and life cycle position of the company. The internal analysis examines the value chain activities and the resources and capabilities that contribute to Starbucks' competitive advantage, providing a thorough overview of the company's strategic position.

Name of Programme MSc Management
Name of module Strategy
QAA Level 7
Term Spring
SRN Number BP0230934
Title Starbucks Business Report
Submission Date 28.04.2020
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BPP Business School
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M.S.C Management with streams
Strategy
Starbucks Business report
Student No: BP0230934
Submission date: 28.04.2020
Submission mode: Turnitin online access
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Contents: Page
Part-1
1: INTRODUCTION......................................................................4-5
2: EXTERNAL ENVIRONMENT ANALYSIS………………………………..………. 6-8
2.1. Pestle analysis
2.2. Porter’s Five Forces Analysis
2.3. Life-Cycle Position
3. INTERNAL ANALYSIS OF STARBUCKS…………………………………………..9-14
3.1. Porter’s Value Chain Analysis of Starbucks
3.2. VRIO Framework for Starbucks
3.3. Resources, Capabilities and Competencies framework
3.4.Competitive advantage of competitors
4.RECOMMENDATIONS…………………………………………………………………..15
Part-2
5.STAKEHOLDER REPORT…………………………………………………………….16-17
6: REFERENCE LIST
7: APPENDICES
Part -1
1. INTRODUCTION:
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Starbucks actually doesn't need a comprehensive intro, since it is the largest coffee supplier in
the world. When we think about quality coffee the name "Starbucks" comes to mind immediately.
Jerry Baldwin, Zev Siegl, and Gordon Bowker first founded it in 1971, 3 young entrepreneurs and
coffee lovers, and thousands of shops have sprung up around the world since. Starbucks is also
the leading coffee shop company in the world, with nearly 30,626 retail outlets as of the third
quarter of 2019, followed distantly by such coffee shop chains as Dunkin Donuts with about
10,000 locations, Tim Horton's with 4,300 outlets, and Costa Coffee with about 1,700 stores
worldwide. (Figure:1)
Figure 1 : Total Number of Starbucks Stores Worldwide(Lapitskiy, 2019)
There are two types of outlets operating under the name Starbucks, run by business, and
approved stores. Around 30,000 stores are in operation, 52 per cent own the company and 48
per cent authorised. That's a major factor for investors as the corporation's owned store
generates an average of $1.28 million a year while licenced stores generate $189,000. There are
risks and costs associated with each retail type, but Starbucks allocates dynamically between the
two depending on the geographic position of each store. (2019) (Google.com)
Third wave coffee makers have since the 2000s targeted quality-minded coffee drinkers with
hand-made coffee based on lighter roasts, whereas Starbucks nowadays use automated coffee
machines for efficiency purposes.
Figure 2: Market share of Starbucks and competitors. (Team, n.d.)
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For several years, The company has been battling its rivals – Dunkin' Donuts and McDonald's –
for top spot as a coffee king. According to World Coffee Portal 2020, Starbucks has a total of
nearly 40 per cent share of the U.S. coffee shop market. Dunkin 'has maintained its position as the
second leading chain with 9,570 outlets over the past 12 months, including 309 new (net) sites,
representing a market share of 26 per cent. More than 4,700 U.S - focused caffeine shops now
operate in JAB holding brands. About 78 per cent of U.S. coffee shops are now either Starbucks
locations, Dunkin' locations, or JAB locations. (Daily Coffee News, 2019)
From its sincere start as a coffee roaster located in Seattle, Starbucks has attempted to build a
"second house" for consumers to rest on their way to and from the job. The company has
invested heavily in its brick-and-mortar stores in recent years by increasing its food offerings,
renovating its restaurants and revamping its loyalty programs. If results are any indicator for Q4
2018, the company's approaches appear to work.
Moreover Starbucks has a strategic advantage over its rivals including the value of the brand
name, pricing strategy, product range, hospitality, HR strategy, suppliers and the global network,
building and Keeping a long term engagement, Providing related customer experience. Brand
awareness played a significant part in Starbucks' sustainable development. Nonetheless, due to
its focus on quality and customer service, most customers will afford the high prices that it sets.
(Figure:2)
2. EXTERNAL ANALYSIS OF STARBUCKS:
2.1. PESTLE ANALYSIS:
Following the case Starbucks External Environment Examining the macro PESTLE factors as
given below,
Political factors which affect the business of Starbucks Coffee:
Evaluation process PESTLE explains the impact that governments have on companies. Starbucks
faces the following major external influences in its macro-environment:
1. Regional alignment of the markets (opportunity)
2. Improving Government infrastructure funding (opportunity)
3. Developing countries bureaucratic red tape (threat)
Regional integration is an increasing concept and an external factor that allows the company to
grow globally. Moreover, most governments around the world are building infrastructure, which
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gives Starbucks the opportunity to enter more markets or suppliers. In most nations, however,
bureaucratic bureaucratic red tape still exists. This external factor poses a challenge, as
Starbucks is finding it harder to expand business, particularly in developing countries.
Starbucks Coffee Important Economic Factors:
In their macro-environment the company faces the following external economic factors:
1. Rapidly expanding developing nations (opportunity)
2. Declining unemployment rates (opportunity)
3. Rising labour costs in the countries of the suppliers (threat)
Fast economic growth in developing economies and growing unemployment levels give the
business opportunities to increase more revenue from different markets around the world. The
that labour cost in developing countries, however, is an external factor that affects the company
as it raises the company's ingredient spending. The firm is the source of coffee beans from most
of the developed nations.
Social Factors Influencing Starbucks Coffee’s External Environment:
Starbucks must tackle the following social external factors:
1. Growing information about safety (opportunity)
2. Rising middle class (opportunity)
4.Changing habits and tastes for customers (threats)
5. Health and Well-being behaviour. (threats)
6. Rapid growth of developments in technology and advances (threats)
Starbucks has the potential to improve its sales based on rising demand for specialty coffee, due
to a growing coffee community and a growing middle class worldwide. The business also has the
potential to widen its range of nutritious items to draw health-conscious customers to cafés in
Starbucks. Changing customer tastes and desires, Practices in fitness and health have guided food
and beverage industry behaviour, with businesses tailoring their menus to provide a more
organic and healthy product mix. With additional growth sources such as the natural-energy
drinks brand Refreshers and the super-premium bottled juice brand Evolution Fresh, Starbucks
Coffee shop has capitalised on the advancement to attract health-conscious consumers. Rapid
growth in Modern Age technical innovations and technologies has opened up new spaces for
companies to build and exploit.
Technical influences in coffee industry at Starbucks:
Through macro-environment the company faces the following external technical factors:
1. Mobile Transactions Rising (opportunity)
2. Transfers technology to coffee farmers (opportunity)
3. Specialty coffee machines are increasingly available for home use (threat)
Starbucks has the opportunity to improve its mobile apps and connected services to earn more
profits through mobile purchases. The organisation also has the potential to increase the quality
of its supply chain, focusing on the use of modern coffee farmers technologies. The growing
availability of home-use specialty coffee machines, however, is a challenge to Starbucks, as it
increases the supply of Starbucks products' substitutes.
Legal Factors
In their macro-environment Starbucks must tackle the following legal external factors:
1. Public health security (opportunity)
2. GMO Laws outside the United States (opportunity)
3. Growing rules on jobs (threat)
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The company has possibilities to boost its productivity by satisfying food health requirements
and legislation on GMO ingredients. In these aspects Starbucks are already doing well. However,
that employment regulation threatens the company access to the labour market, especially in
developing countries. The external factor also impacts Starbucks by rising human capital
expenses.
Ecological Factors:
The analysis describes the impacts of environmental or economic factors and industry
modifications. In their macro-environment Starbucks faces the following external factors:
1. Enterprise sustainability trend (opportunity)
2. Growing public support for responsible sourcing (opportunity)
3. Growing widespread support for ecologically friendly goods (opportunity)
4. Climate change (Threads)
The sustainability movement of the organisation focuses on systems and processes, which
guarantee minimal environmental impacts. Responsible procurement in relation stresses the
social obligation of companies within the supply chain. Starbucks has potential to boost its
performance in those regions. Increasing understanding of environmental degradation has
driven corporate reform to become environmentally friendly and shift toward a sustainable
business strategy. Starbucks in particular has used its sustainable and responsible procurement
practises to differentiate its products from rivals.
2.2. Porter’s Five Forces Analysis:
New Entrants Threat:
The organisation is facing challenges from both big chains and local coffee shops. The company is
fairly easy to enter, since it is not exorbitantly costly to rent a storefront and equipment, but
overcoming the wealth of existing coffee houses such as Starbucks is a challenge. Together these
considerations make the danger of new entrants a minor concern.
According to (adamkasi, 2020), the 5 per cent growth of the coffee industry is attracting more
new competitors and making the situation easier for newcomers to increase the risk of
newcomers to the coffee market. For information please see Appendix A.
Risk of Substitute:
There are several at-home substitutes, such as Nespresso and Keurig, which budget-effectively
make higher quality beverages. Starbucks attempted to compensate for this by offering packaged
versions of beverages, Teavana tea bags and coffee bean bags, as well as brewing devices such as
the Verismo Brewer and Milk Frother (Starbucks, 2019). See more in appendix B.
Supplier Power:
Starbucks works with some 300,000 coffee bean growers worldwide, due to its size (Sargent,
2018). The variety of suppliers holds bargaining power weak, so if one starts pricing their
product higher than Starbucks is prepared to pay, Starbucks can transfer its supply orders to
other growers. Please see Appendix C,
Buyer's Power:
The business brands itself as cheap luxury but there is still luxury. Consumers are not required to
waste their money on coffee, allowing them the option not to buy products from Starbucks. There
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is also little incentive for customers to turn to an alternative, which gives them a strong
bargaining power. Starbucks isn't going to be able to work without customers. For clarity please
see Appendix D.
Competitive Rivalry Threat:
The moderate to high concern is the possibility of global rivalry, which exemplifies the impact of
four other powers. The strong consumer bargaining power and moderate pressure from new
entrants also keeps the company competitive as there are plenty of incentives for consumers not
to use Starbucks as well as for smaller coffee shops to eat away from the large market share of
Starbucks. See Appendix E
2.3. Life-Cycle Position
An organization’s life-cycle is represented in four levels. Starbucks slides to maturity age. It can
safeguard its position as market share leader in the coffee industry. Starbucks can also enter new
markets owing to the popularity of the brand name with customers (Dempsey, 2018). To avoid
joining the declining cycle the company needs to look at growth prospects and other ways to
reinvest itself.
Figure 3: Life Cycle (Sraders, 2019)
A detailed look at the external environment places Starbucks to continue operations and
potentially consider expanding in a fairly stable setting with brand recognition and sales.
3. INTERNAL ANALYSIS OF STARBUCKS
3.1. Porter’s Value Chain Analysis:
The concept of the value chain is extremely common in the business world. Starbucks does not
take it as a formal, independent system by allocating equal priority to all activities. See Appendix
F.
The list of primary value chain activities as proposed by Porter’s are given below:
o Primary Activities
The company’s key value-chain operations are specifically involved in the manufacture and
distribution of the goods to targeted users.
 Inbound Logistics
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Starbucks buyers purchase the green or unroasted beans directly from farms. These are
transported to the storage sites and the beans are then roasted and packaged. They will then be
sent to distribution centres, companies own some of which are operated by other logistics
companies.
 Operations
Starbucks operates in more than 75 countries, be it in the form of corporate owned direct stores
or licensees. Starbucks has more than 30,000 retail outlets worldwide including Starbucks Coffee,
Teavana, Finest Coffee from Seattle and Evolution Fresh. In the fiscal year 2017, the company
generated 79 percent of its overall net sales from its business-operated stores, while the
approved stores accounted for 10.5 percent, its annual report reports.
 Outbound Logistics
The role of intermediaries in product selling is very limited. Most of the items are sold in their
own stores or only in licenced ones. The company has launched a collection of single-origin
coffees as a new product, which will be distributed through some leading U.S. retailers; these are
Guatemala Laguna de Ayarza, Rwanda Rift Valley, and Timor Mount Ramelau.
 Marketing and Sales
The company spends more in superior product quality and good customer satisfaction than in
aggressive marketing. The company, however, carries out need-based marketing operations,
during releases of new goods in the form of sampling in areas around the stores.
 Services
They strive to create customer loyalty through customer service. Starbucks' retail goal, as
reported in its annual report, is to "be the leading retailer and coffee brand in each of our target
markets by selling the finest quality coffee and related items, and by offering a special Starbucks
Experience to each customer.
o Secondary Activities
The support activities play a significant role in organising and promoting the operations of the
primary value chain. As discussed below, Starbucks may also benefit from the study of its
supporting activities.
 Firm infrastructure
This includes departments such as management, accounting, law, etc., which are necessary to run
the company's stores. The team of professionals of green aprons staff delivering outstanding
customer service complements the well-designed and satisfying stores Starbucks has to offer.
 Human resource management
Committed workers are often seen as a crucial factor in the company's growth and progress over
the years. Jobs working at Starbucks are motivated by generous incentives and benefits. The
organisation, which represents good human resource management, is known to care for its staff,
a key cause for low employee turnover.
 Technology development
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The organisation is also well known for using technology not only to connect with its customers
for coffee-related processes as well. Many consumers are using Starbucks stores as a portable
office or meeting place, which contributes to free and unlimited Wi-Fi. The company launched a
website back in 2008 where consumers will be able to ask questions, provide feedback and freely
share opinions and exchange experiences.
3.2. VRIO Framework for Starbucks:
V (Value):
Quality brand identity- The business has changed the way the world thinks about coffee, with
its strong branding. The drivers for success are social responsibility and ethics, high-quality
coffee and customer interaction.
Quality goods- The Company is associated with high-quality products and a large variety of
signature beverages.
Customer Service- Starbucks provides excellent customer service.
Supply Chain- The Company can purchase the best cocoa worldwide with its impressive supply
chain, and maintain good quality.
Environment friendly- The Business is known for creating the "third place" concept between
work and home. It provides an enticing atmosphere and cultural environment, which adds value
to the customer experience.
Global Influence-Throughout the world, Starbucks has over 24,000 that enhance its global
presence and impact.
R (Rarity):
Quality brand identity- Most companies do have that, but Starbucks is at the top of the field
with its brand identity.
Quality goods – The Company provides a variety of unique drinks and has made substantial
improvements in this field.
Customer Service- Although customer service is quite normal in many companies, special
emphasis and investment is needed to gain an advantage for the competitors.
Supply Chain- The company has a distinct advantage because it will be very difficult for rivals to
compare with the high expenditure and productive strategy of the company.
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Environment Friendly - Although other firms may build environments, there is a need for
special emphasis as well as investment in interior store and staff training.
Global Influence- Starbucks had already made huge financial investments towards their market
entry strategies and it would be very difficult for competitors to achieve this amount of global
expansion.
I (Imitability):
Quality brand identity- Imitating will be difficult, but there is a possibility that this will happen
in the future.
Quality goods - Owing value positioning and procedures not really easy to imitate.
Customer Service- Maybe not so convenient to imitate.
Supply Chain- Not easy to emulate but may happen in the future.
Friendly Environment- Not quite simple to copy.
Global Influences- May not imitate because of strong expenditure.
O (Organization):
Quality brand identity- branding is a crucial component of the company's strategy.
Quality goods - the specialty drinks of the business are very common and high customer
demand.
Customer Service- its outstanding customer service plays an significant part in its performance.
Supply chain- 99 per cent of Starbucks' coffee comes from ethical sources.
Friendly Environment - It offers a strategic benefit to Starbucks.
Global Influence-it helps the organisation to raise sales worldwide and raise brand recognition.
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Figure 4: VRIO Analysis of Starbucks (Google.com, 2019)
3.3. Resources, Capabilities and Competencies framework:
Starbucks has gained a leadership status in the coffee industry. This has built a distinct
competitive edge in the coffee industry.
Brand Identity: The Company is considered a user-focused brand. This is a symbol on which
customers are positive. There are many factors that have helped Starbucks create a distinct and
powerful equity brand.
Users loyalty: The rival brands are also focusing on price, customer service and marketing to
increase their consumer base. Starbucks has, however, invested in new products, concentrating
on customer service. Those goods have helped capture the hearts of consumers and achieve
higher consumer loyalty.
Supply chain: The company imports their cocoa from some of the world's finest suppliers.
The popular Arabica coffee originates solely from higher-altitude farms. Furthermore, the
company has only built a responsible supply chain and sources from responsible suppliers
supplying matchless quality coffee beans.
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