Strategic Analysis of Starbucks: Financial Performance and Strategy

This report provides a comprehensive analysis of Starbucks' organizational strategy, focusing on its differentiation strategy, product development, and market development initiatives. It assesses Starbucks' financial performance, including revenue growth, and evaluates the coherence of its strategy in relation to its internal and external environments. The report utilizes SWOT analysis and Porter's Five Forces to examine the competitive landscape, including threats from competitors and new entrants, and the bargaining power of customers and suppliers. The analysis also explores Starbucks' efforts to adapt to market changes, including its digital media strategies and store expansion plans. The report concludes with an evaluation of Starbucks' ability to maintain its competitive advantage and adapt to future challenges.

Influencing
Organisational Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
1. Starbucks strategy...................................................................................................................2
2. Assessing Starbucks strategies in terms of its financial performance.....................................4
b) Overall coherence of Starbucks strategy in terms of its fit with the company’s external and
internal environments and the internal consistency of the strategy............................................5
3. Starbucks operate in the interests of its shareholders or its stakeholders...............................7
4. Threats to Starbucks ...............................................................................................................8
REFERENCES..............................................................................................................................10
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INTRODUCTION
Strategic management is the development of objectives and steps taken by the
organisation’s top authority. It makes decision on the basis of available resources and assess
internal and external environment which affects the company's business operations. It assists in
developing various plans and policies to achieve the objectives of the organisation (Ayub and
et.al., 2013). Starbucks is public limited company which is famous for serving coffee as its taste,
quality and customer experience is different from other restaurants and hotels. It has employed
more than 238,00- employees which has helped them to expand their business routes in other
countries as well.
1. Starbucks strategy
To develop its business, Starbucks has adopted differentiation generic strategy. The main
goal of this company is to make itself different from others. It has used differential sourcing and
resources policies to make its product different from others. Other competitors of the
organisation like McDonald and Dunkin Donuts has given more importance to low costs while
Starbucks has focused on friendly ambience so that people enjoy their taste (Babin, and
Zikmund, 2015). It is continuously doing innovation to make sure that its products are different
from others for long term. The organisation is focusing more on special ingredients and products
so that they can provide better and tasty products to their customers. It has innovated supply
chain in order to meet its generic strategy by searching most appropriate and finest ingredients.
The strategic goal, of Starbucks is to innovate products and supply chain.
Product development strategy:
Starbucks has used this strategy for developing new products for increasing their revenue. It has
started developing different varieties of products like soda and other products. The organisation
has also made efforts in innovating product mix by which it can easily gain trust of its customers
(Baker, 2014). With the help of new items, it has connected various customers with its branch
and cafes which has helped them to increase their business growth.
Market development strategy:
Starbucks has used various marketing strategy to promote its products to the customers. It
has analysed market segment and taste of the people so that it can increase number of consumers
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and increase its revenues. It has made use of social media websites like Facebook, Twitter to
attract more people towards its newly opened cafes in different countries (Andrew, 2017). This
has helped the people and organisation to interact with each other and make effective relations.
(Barrick and et.al., 2015) Further, it has also developed new payment methods to facilitate
transactions and establish customer loyalty. It has launched original Starbucks card, in store debit
card are linked with the company's stores so that they can help the customers to transfer their
amount online and reduces the problem of cash payments.
Further, Starbucks has launched apps and websites of its own to provide online services
to their customers. It has also launched 'My Starbucks rewards' program with the cell phone
payment system in which the consumers are displayed with two-dimensional barcode on their
system which are scanned at the time of purchase (Chin, Hambrick and Treviño, 2013). Most of
the customers have downloaded the apps to make transactions safe and easy. This has assisted
the company to increase satisfaction level of people and achieve desired results.
Increasing number of stores:
Starbucks is increasing number of stores and cafes in different countries. It is focusing
more on increasing coffee cafe on drive- thrust instead of dine-in restaurants in urban areas. The
main aim of this strategy is to increase store penetration of the organisation. The stores of
Starbucks are mainly built away from home and workplace so that people can enjoy their free
time in relaxed and comfortable environment (Duke, 2017). They have also allowed their
customers to bring their work and complete it in their stores. It has also provided free Wi-Fi
facilities so that they can make consumers to stay longer, purchase more and visit their place
again. Further, it is selling coffee of best quality which helps them to attract more people towards
their cafe.
Differentiation strategy is applied by Starbucks ensures that the company has well
maintained competitive advantage by providing special products and ingredients. This has helped
the company to make various policies and plans in order to make their products differentiated
from their competitors (Ganter and Hecker, 2014). This strategy has helped the company to
innovate and improve its products so that they can maintain their growth. Further, it can be seen
that product development strategy are also related with generic approach as it is also based on
differentiation. To develop market in different regions it can use intensive growth strategy of
market development. This will help them to meet preferences and demands of the customers.
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2. a) Assessing Starbucks strategies in terms of its financial performance
Starbucks is best in marketing and retailing its coffee products. Its main aim is to inspire
and nurture human spirit. It sells high quality of coffee, teas, beverages and variety of food items.
It sells these products through different channels like grocery, warehouse clubs, national food
service accounts, online by its apps and websites etc. It makes its profits and revenues by its
stores, food service operations and consumer packaged goods (Gregory, 2015). It has established
its stores in public areas and non-public areas so that it can provide its services to the people
which are much busy in their work and has taken care of the people which desires to enjoy their
coffee time in relaxed and comfortable mode.
Starbucks has employed more than 200,000 people in its stores and generating revenues
of $1.8 billion in 2015. It has followed turnaround strategy which has two initiatives which has
helped them to increase their overall sale. First initiative was based on retrenchment in which the
organisation has cancelled opening of new stores and focuses on operational activities to enhance
cost efficiency (Harrington and et.al. 2017). It has closed 600 stores in UK which resulted in loss
of 6000 jobs of the people in the country. This has badly affected their revenue as its profit came
from $1.2 million to $10,000 million.
Second initiative is reaffirmation of Starbucks values and principles. It has also included
various plans and revitalizing the Starbucks Experience and reconnecting with the customers.
Reconnection with customers have involved extensive use of digital media and apps of the
company. This has helped the firm to increase its customer base by ten million in 2015. Market
development strategy has helped the company to increase its revenue by 20% (Holland, 2016).
Further, digital media and online website has helped in attracting more customers as it provides
best services like free delivery, discounts and different offers of the products.
Furthermore, after examining six-year growth of Starbucks it can be said that revenue
growth of the company has decreased and experience a drop of -5.9 in recession period of 2009.
After this period, the company has measured healthy revenue growth from 2010 to 2013. It has
increased its growth by 13.7% in 2012 (Keegan, and Campus, 2016). The company has suffered
great loss when closing its new stores in US. It has focused more on increasing its stores in
different areas where they have provided various facilities like Wi-Fi to enjoy their working. It
has also provided the best coffee and food products along with catering services to their
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customers so that they do not have to face any kind of problems and nuisance. It has helped in
increasing their profits and achieving customer satisfaction.
Product development strategy has increased its sale by 30% (Lane, 2014). This is due to
more focus on the company on providing the best facilities to their customers. It’s different and
best quality products has increase their productivity and helped them in attracting more
customers. The company has mainly focused on ingredients and best quality of food and coffee
products so that their consumers will prefer their stores and restaurants and help them to increase
their profits and sale. Observing all these strategies, it can be evaluated that Starbucks has
involved various strategies and development tools to increase their sale by 54.7% in 2013 (Lusch
and Vargo, 2014). It has boost up its financial health with low debts with debt/equity ratio by
0.29 and maintained decent ratios.
b) Overall coherence of Starbucks strategy in terms of its fit with the company’s external and internal
environments and the internal consistency of the strategy.
Internal environment consists of resources and capacity of the organisation. Internal
analysis can be done through SWOT analysis. External environment contains business
atmosphere which directly affect decision and overall performance of the company.
SWOT analysis:
Starbucks has used different strategies which helped them in increasing their productivity
and performance. The company is performing nicely and using its strengths to give tough
competition to its competitors. The firm is using various resources in optimal manner which has
helped them to increase their productivity and hence gaining competitive advantage. It has faced
threats from its competitors like Mc Donald, Tim Horton etc. which are providing best taste
coffee at lower rates (Mason Cole, and Goza, 2017). Further, another major threat which
company has faced from is recession and inflation. This is because customers focus more on
spending their pending needs as compared to premium products.
Starbucks strategy in congruence with internal and external environment
Strategy of the company must be matched with their goals and demands of the customers.
These strategies are also well suited to firm’s resources and opportunities. Porter's five forces are
used to examine how the company will align with internal and external factors.
Porter's five forces:
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Competitive rivalry:
Starbucks has faced strong competition. Different companies and their low switching
cost, has given tough competition to the organisation. The organisation is facing competition
from Mc Donald, Dunkin Donuts etc. (Mburu, 2016). This competition is due to low switching
cost which states that customers easily shift their concerns to other company's brands. Therefore,
the organisation has to take challenges from different companies very seriously so that they can
maintain their effective image in the competitive world.
Threat of entrant:
The organisation has faced problem from new entrants as they are providing the coffee
and food products at lower rate. This has not affected the company's growth as they are very
much powerful and maintained effective image in front of people. The company has faced
problems from its competitors as they have to put more efforts to make different and unique
products (Nguyen, 2016). The main advantage of Starbucks is that it is focusing more on the
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Illustration 1: Porter's five forces
(Sources: Jurevicius, 2013)

quality of their products to provide best taste and choice to their customers. This has helped them
to make effective image on their consumers.
Bargaining power of customers:
Bargaining power of buyers is strong for this organisation. It is based on customers
perception and their groupings to buy the products of the company. Customers bargaining power
is increasing due to low switching costs. Customers interest shifts to other products and services
of different companies as they use various methods to attract them and convince them to use
their goods and services (O'Hara and et.al., 2017).
Bargaining power of suppliers:
Bargaining power of supplier is low for the company as do not affect the functionality of
their business. This has helped them to maintain their reputation in the market as they are
affected by the suppliers which demands more from Starbucks. It has made effective policies to
diversify its supply chain which has helped in reducing the effect of suppliers on business.
Therefore, Starbucks does not have to concern much about supplier demands (Greenspan, 2017).
Threat of substitutes:
The organisation has experienced threat of substitute products. This model has analysed
that duplicate products have enough potential to give strong competition to Starbucks. This has
negatively affected the firm as customers are easily influenced by the products which are similar
to the company's goods like bottled beverages which are similar and provided by every cafe and
restaurants (Reinhard, 2015). Therefore, Starbucks have to consider threat of substitutes at its
top priority.
3. Starbucks operate in the interests of its shareholders or its stakeholders
Starbucks has taken responsibility operations to handle different stakeholder group in
effective manner. The main stakeholders of the company are employees, customers, suppliers,
investors and government.
Employees:
Starbucks has employed thousands of employees in its workplace and manages them
effectively by making various policies. It has provided various facilities and resources to increase
their productivity. It has also provided better working conditions higher wages and effective
working environment to them so that they can put their best efforts in increasing the performance
and meeting the objectives of the company. The company has also provided various scholarship
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programmes and helps in paying their 56% of tuition fees for their higher studies (Schlegelmilch,
2016). This will assist them to increase their knowledge and achieve higher degree which help
them to handle challenging tasks of the company. This has increased the confidence and trusts of
the employees and they have devoted fully in completing their objectives.
Customers:
Starbucks considers its customers as an essential resource because they are the main
source of their economy. It has made various policies which benefits them and increase their
trust and confidence towards the products of the company. It has provided high quality of
products and facilities to gain the satisfaction level of the customers. The organisation has also
developed friendly environment in their cafe to provide them the best facilities (Uysal and
Katipoglu, 2015). Barristers have also made more interaction with the customers to meet their
demands. Therefore, Starbucks has successfully meet the interest of this group.
Suppliers:
Main suppliers of Starbucks are coffee farmers and wholesale supply companies. The
main objective of this stakeholder is to increase demand and raise their revenues. The firm has
fulfilled the interest of all stakeholders by making different social responsibility programs.
Further, it has helped the company to maintain the requirements and trust of these stakeholders
so that they cannot have to face problems in manufacturing products. They also ensured that all
the funds and payments are already cleared and they are provided their responsibilities to meet
the requirements of the company (Watson, 2013). Therefore, the firm has addressed the interest
of the suppliers.
Investors:
Investors plays an important role in maintaining the performance of the company.
Starbucks has fulfilled the interest of investors by promising them their growth and benefits. The
main aim of these investors is that company will perform better and expand its business
operations. However, the company has faced great loss in 2007 due to recession but it has
recovered the loss and gain back the confidence and trust of investors (Wei, 2016).
Government:
Starbucks has followed all the rules and regulations of the government and paid all taxes
and tariff plans of it. It has also supported the government in making new policies and programs
to regulate peace in the country. It has faced criticism in Europe due to tax plans of the
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government but it has exploited tax advantages by expanding network of locations in different
countries of Europe (Wu, Straub and Liang, 2015). Therefore, the firm has done efforts and
helped the government in fulfilling their objectives.
Shareholders:
Shareholders looks for high financial performance of the company and invest their money
according to company's profits. The organisation has maintained their loss and profits very
effectively which has helped them to achieve trust of different shareholders. Starbucks has
enhanced its performance many folds by providing the best customer service. This has helped to
increase satisfaction level of consumers (Yarbrough and Yarbrough, 2014). Further, this has
helped them to increase their performance and hence win the confidence of shareholders.
4. Threats to Starbucks
The organisation has faced various threats which have affected the business operations of
the company. Different threats which the firm is facing are defined as follows:
Increased competition:
The organisation has faced strong competition from Mc Donald, Dunkin brands and
Costa coffee and other coffee stores. These firms is providing duplicate products of the company
at lower price and people are also shifting their interest towards these companies to meet their
requirements.
Price volatility in the global market:
Starbucks cannot control fluctuation in prices of high quality coffee beans and other
products. This changes in price will affect the revenue of the company as it cannot increase or
decrease the prices of their products frequently (Yunna and Yisheng, 2014). Therefore, it has to
bear loss when prices go high.
Developed countries market saturation:
Increased market saturation will increase tension for Starbucks as its investments will go
in vain and it will not be able to make profits. Further, this will adversely affect their revenue as
products will not be purchased by the customers as they will spend more on their pending needs
which will reduce their profits.
Changing customers tastes and lifestyle:
Major threat of the company is that, lifestyle and standard of people are changing and
they are focusing more on healthy and nutritious products. Risk of coffee and tea are less
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preferred by people. This has adversely affected the business profits of the company (Gregory,
2015).
Economy of developed countries:
Economic crises in developed countries have poorly affected the business growth and
revenue of the people.
Different ways in countering these threats:
The organisation can reduce these threats by making effective strategies. It can use
various plans which helps them to maintain their performance in the worst situations like
recession, economic crises etc. It can analyse trends and choice of people in which it is going to
establish its new business (Holland, 2016). Furthermore, Starbucks can make various plans and
policies to increase its productivity and reduce their losses. The organisation can increase its
productivity by determining government rules and regulations of different countries before
expanding their business.
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