Starbucks Coffee Shop: A Strategic Growth Management Plan

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ASSIGNMENT – STARBUCKS
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TABLE OF CONTENTS:
Contents
INTRODUCTION:..........................................................................................................................................3
PESTLE ANALYSIS TO ACCESS POTENTIAL SCENARIOS FOR STARBUCKS COFFEE SHOP:..............................3
ANALYZING THE CAPABILITIES OF STARBUCKS COFFEE SHOP USING APPROPRIATE FRAMEWORK............5
VALUE CHAIN ANALYSIS OF STARBUCKS COFFEE SHOP:..........................................................................5
PRIMARY ACTIVITIES:...........................................................................................................................5
SUPPORT ACTIVITIES:...........................................................................................................................6
APPLYING McKINSEY’S 7s MODEL FOR STARBUCKS COFFEE:......................................................................7
APPLICATION OF THE FIVE FORCES MODEL TO ANALYZE THE COMPETITIVE ENVIRONMENT OF
STARBUCKS..................................................................................................................................................8
APPLICATION OF THE SWOT ANALYSIS AND EVALUATING THE EXTERNAL AND INTERNAL ENVIRONMENT:
.................................................................................................................................................................. 10
AN EVALUATION OF THE DIFFERENT TYPES OF STRATEGIC DIRECTION AVAILABLE TO STARBUCKS.........12
JUSTIFICATION AND RECOMMENDATION FOR THE MOST APPROPRIATE GROWTH STRATEGIES:............13
PRODUCTION OF A STRATEGIC MANAGEMENT PLAN THAT ADDRESSES THE GROWTH STRATEGY:.........13
REFERENCES:.............................................................................................................................................15
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INTRODUCTION:
Starbucks Corporation is a USA based business organization that was established in 1971 in
Seattle. The organization is a premier retailer as well as marketer of specialty coffee across the
globe. The organization employs around 1,82,000 employees across 19000 retail outlets across
69 different nations that are either company-operated or licensed. The product mix of Starbucks
includes premium quality tea, coffee, and different food items along with beverages. The
organization is indeed the largest coffee company with regards to both sales as well as market
share. The below discussion will produce an environmental analysis as well as the strategic
growth management plan depending on the use of various internal as well as external analytical
tools.
PESTLE ANALYSIS TO ACCESS POTENTIAL SCENARIOS FOR STARBUCKS
COFFEE SHOP:
Political :
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The major political imperative faced by the organization is concerned with the process of
sourcing the raw materials that have attracted the politician’s attention especially in the West as
well as in the nations from where the raw materials are sourced. Again there are certain political
imperatives which the company faces with regards to the requirement of adhering to the laws as
well as policies in the countries from where raw materials are imported especially in the
developing nations because of activism as well as increased political awareness. The third
political factors which the company faces is the regulatory pressure within in home market in the
United Nations as a fact of higher scrutiny of the business processes which the MNCs in the
USA are facing. There are contributions from the relationship between the US and coffee
producing nations as well as the political conditions of the coffee producing nations.
Economic:
The major economic driver in the case of Starbucks is the global economic unstability that has
affected the profitability of Starbucks. Price-sensitive consumers have shifted to lower-priced
alternatives instead of curtailing the coffee consumption. The organization, however, has to
adjust with the higher operational cost as well as labor cost since the macroeconomic scenario is
being associated with different failing profitability. Moreover, there are issues of corporate
taxations and the purchasing power as well as currency exchanges across the different markets
where the organization operates (Nguyen 2016).
Socio-Cultural:
Starbucks can provide alternatives that can be priced less but this has to be done without making
any sacrifices in the quality which is the major socio-cultural barrier that the organization
encounters while making an expansion of its consumer base while making an attempt to consider
the consumers from the middle and lower class of the income pyramid. In addition to that, coffee
is considered to be an established beverage in the Western nations and is also becoming popular
in the developing nations especially where it is produced. Moreover, different coffee houses have
become social hangouts for young generations. With the growth in the disposable income of the
developing nations, there has been an expansion of the coffee markets. In fact, presently the
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coffee culture has taken a major shift from the self-made coffee towards single –serve coffee.
The coffee culture in the Eastern nations has also shown an upsurge.
Technological:
The technological environment associated with the consumption of coffee has changed a lot.
Previously coffee was grounded in roasteries using grinders. But things had changed a lot now.
With the enhancement of instant coffee and single-serve coffee that is served in little packets are
brewed easily at homes in special devices. These coffee capsules, as well as the instant coffee
packs, have brought a revolution in the technological aspect of the coffee making equipment.
Moreover, biotechnological development in coffee production has also been introduced. In
addition to that, there are advantages from the emerging technology of smartphones and
Starbucks have tied up with Apple to provide app based offers to the consumers. Moreover, Wi-
Fi connections are provided in the outlets so that consumers can perform their work while having
coffee. In addition to that, mobile payments can also be introduced by the organization (Kussela,
2015).
Legal:
It has become essential for Starbucks to have an understanding of the intellectual property rights
as well as the licensing issues while making a new market entry. Moreover, it is also essential for
Starbucks to ensure the fact that it does not run afoul of regulation in the nations from where the
raw materials are sourced and also in the home markets of the UN. Also, there are pressures from
GMO and caffeine regulations both inside as well as outside the UN. In addition to that, coffee
producing countries have also introduced tougher trade and customs rules (Nguyen, 2016).
Environmental:
Environmental stewardship is an essential priority for coffee makers. The production of “green”
coffee is an essential attribute for making an improvement of the brand image among different
consumers as well as environmentalists. The production of coffee is associated with having an
impact on biodiversity, forests, and the use of water. Hence, Starbucks is in a process to make an
active reduction of their environmental footprints. Moreover, there are issues with regards to the
fact that whether the profit margins of the large coffee chains are affecting the farmers who are
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actually growing the coffee beans. Again, the governments of different coffee producing
countries are also making an urge to adopt fair trade as well as environment-friendly practices
(Kussela, 2015)
ANALYZING THE CAPABILITIES OF STARBUCKS COFFEE SHOP USING
APPROPRIATE FRAMEWORK.
This discussion will involve making value chain analysis of the organization and application the
McKinsey’s 7S model.
VALUE CHAIN ANALYSIS OF STARBUCKS COFFEE SHOP:
The value chain will help in understanding and differentiating the useful as well as wasteful
activities in the process of product development.
PRIMARY ACTIVITIES:
a. Inbound Logistics – This involves making a selection of the finest quality coffee beans
from different coffee producing nations in Africa, Latin America, and Asia. The
unroasted beans are directly produced from the farms and are transported from where the
beans are roasted and packed. From here these are sent to the different outlets for
distribution purpose.
b. Operations – The company operates in around 65 different nations either having
company-owned outlets or licensed outlets. Starbucks has around 21,000 stores that
include Starbucks Coffee, Evolution Fresh, Teavana, and Seattle’s Best Coffee.
c. Outbound logistics – There are at all no intermediaries associated with the selling of the
product. Maximum products are sold either by company-owned or licensed outlets.
However, the organization has introduced a new range called single-origin coffee that
will be sold by some specified retailers in the United States.
d. Sales and Marketing – The company makes good investments with regards to superior
quality products and prefers to provide a higher level of consumer service than
aggressive marketing. Moreover, Starbucks also performs need-based marketing
activities in the case of new product launches by distributing free samples in and around
the different Starbucks stores (Peterson, 2017)
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e. Service – The main of the organization is to develop consumer loyalty and this is
attributed by providing customized as well as high-level consumer service at the various
stores.
SUPPORT ACTIVITIES:
a. Infrastructure – This consist of different organizational departments that are essential in
maintaining the operational activities of the various company outlets. The store patterns
are designed well and provides pleasing atmosphere which is accomplished by good
consumer service that is provided by employees wearing green aprons.
b. Human Resource Management – Starbucks’s committed employees are the major
attribute of the organization’s success and growth for the last decades. The employees are
provided with motivation with the aid of different benefits as well as incentives.
Starbucks takes good care of its workplace which helps in employee retention indicating
a good HR management. The employees are also provided with different training
programs that increase the motivation and efficiency of the staffs.
c. Technology Development – The organization is well known for the application of
technology and technology is applied in both coffee related processes as well as to
connect with the consumers. Starbucks has introduced Apple’s iBeacon System via
which consumers can place an order from the Starbucks’s app via smartphones. The
consumers can also perform office works as well as meeting in the outlets as these are
equipped with Wi-Fi connections. Moreover, the organization has also introduced
myStarbucksidea.force.com where consumers can raise queries and also provide
suggestion and share experiences (Annual report, 2016).
d. Procurement – This is involved with the process of bringing the raw material for the final
product for which the organization’s agents travel different parts of Latin America, Asia,
and Africa for collecting high-quality raw materials in order to provide the good pemium
coffee to the consumers.
APPLYING McKINSEY’S 7s MODEL FOR STARBUCKS COFFEE:
Shared Values – This involves the following :
 Providing employees a good work environment and treat everybody with dignity.
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 While doing the business, diversity needs to be embraced essentially.
 Making an application of the highest level of standards with regards to purchasing,
roasting, and delivering coffee.
 Maintaining customers who are enthusiastically satisfied for all time.
 Making a positive contribution to society and the environment.
 Essentially recognizing that for future growth and success profitability is an essential
factor.
 Having a deep understanding of the environmental problems and sharing the same with
the partners.
 In order to bring organizational change, it is essential to adhere innovative and flexible
solutions.
 Keeping a good measure and close watch with regards to the project activities (Wilhelm,
2016).
Strategy – The strategy of Starbucks is dependent on product differentiation while making a
focus on product quality as well as service. Moreover, the company has also introduced
technological innovations into different business processes and consumers can position the store
as the third place where they can meet their friends and families.
Structure – The company has a divisional organizational set up and caters to geographic
divisions as well as divisions based on brands. The organizational structure is tall consisting of
several important dignitaries in the higher management (Taylor, 2017).
System – There are numerous systems facilitating regular business activities that include
employee recruitment process, development of the team, managing customer relationships,
business intelligence system, etc.
Skills – The organization has a good competitive advantage with regards to the frontline
employees who are both professional and knowledgeable. Moreover, the coffee experiences are
reinforced by making alliances with different partners like grocery stores, hotels, and airlines
industry.
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Staff – The staffs are provided with several package benefits as well as training which maintains
the employee productivity and skill within the retail environment thus controlling employee
attrition and providing employee motivation (Kulkarni, 2013).
Style – Starbucks has an innovative, team-oriented, and flexible management style.
APPLICATION OF THE FIVE FORCES MODEL TO ANALYZE THE
COMPETITIVE ENVIRONMENT OF STARBUCKS
Threats of New Entrants – This threat is moderate for Starbucks. It can be said that barriers are
low and the investment essential to start a coffee shop is not high. The industry is also saturated
and the new players can compete with Starbucks at a local level. Depending on the
infrastructure, quality of the product, and employee efficiency, Starbucks has achieved a larger
market share. But the new brands can attract consumers by offering low prices as the switching
cost is lower. However, the threat also gets eliminated by a huge brand image, market share, and
consumer loyalty. The company’s access to raw materials as well as the suppliers globally is a
major competitive advantage for Starbucks. The threat in this level has somehow increased with
the entry of McDonald’s with McCafe.
Threat From Substitutes – There are essentially higher substitute products with regards to
Starbucks’s coffee brand. The substitutes consist of different types of juices, tea, alcoholic, and
non-alcoholic beverages. Moreover, there are different restaurants and pubs that also provide
good ambiance and quality products and services. In this regards, the switching costs are
negligible. Hence the threat can be explained as moderate to big. However, apart from providing
good consumer service and quality products, Starbucks also sells coffee makers and premium
packaged coffee. These along with the brand loyalty factor lowers the threat from substitute to a
certain extent.
Bargaining Power of Buyers –The size of individual purchase is quite less and hence a single
buyer does not impart influence. Moreover, the coffee brand of Starbucks has a diversified
consumer level, who are mainly sensitive to quality and are also willing to pay high prices for
the good quality product. But, then again the prices cannot be extremely high as consumers will
move to low price brands. In addition to that, Starbucks offers a diverse range of product mix
and depending on these factors the bargaining power of buyer stays low (Basset, 2018).
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Bargaining Power of Suppliers – With regards to Starbucks, the supplier can only apply low to
moderate power on the organization. Starbucks as a brand has its own supplier diversity norms
which it applies to choose its suppliers. Another major policy followed by the organization is the
ethical sourcing which involves ethically sourcing coffee across the globe. Moreover, the
organization is also growing directly with the farmers which helps in gaining good control over
the supply chain. The company has essentially eliminated the mediators and sources directly
from the farmers. In addition to that, the organization has also developed good relationship with
the cocoa farming communities helping them to derive maximum profit. The organization’s
excellence with regards to supply chain management has lowered the bargaining power of
suppliers (Starbucks report, 2013).
Competitive Rivalry - The intensity of competition from the rivals are moderate to high. This is
because of the fact that there exists monopoly competition and several organizations competing
for gaining market share is also wide. Moreover, the barrier for making entry as well as the exit
is also small. The competition is lowered for the organization because of its highest market share
and this is followed by Dunkin Doughnut and McCafe. Starbucks makes use of the product
based differentiation and premium quality, which provide a certain edge over the competitors.
Although the industry has matured and there is a high number of players still there is room for
new entrants that will add more to the competition as the initial investment amount for a coffee
business is low.
APPLICATION OF THE SWOT ANALYSIS AND EVALUATING THE
EXTERNAL AND INTERNAL ENVIRONMENT:
Strengths Weaknesses
Popular and successful product line.
Access to higher quality raw materials.
Supply chain network is strong.
Stronger brand image globally.
Good quality consumer service and reputed
partners.
Provides a lot of variety with regards to flavor.
Stronger market position and good consumer
Higher product price.
Environmental problems.
The product portfolio is over-extended.
Over-dependence on the US market.
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loyalty base.
Well designed and technologically advanced
stores.
Excellent goodwill because of CSR activities.
Opportunity Threat
Growth opportunities in emerging markets like
India, China, Brazil, etc.
Good growth potential with regards to the
single-serve coffee market.
Growth potential with regards to flavored
coffee in the US.
Brand Extension.
New distribution channels.
Expanding retail operations.
Issues of trademark infringements in the
emerging market.
Competition from the local competitors.
Saturated markets with regards to developed
nations.
Increasing price sensitivities affecting
consumers.
Change in the consumer’s lifestyle and taste
(Haskova, 2015).
Now depending on this SWOT analysis, a TOWS analysis can be demonstrated to essentially
provide a strategic focus
Opportunities Threats
Strengths SO
Making use of the brand and
financial power to make
expansion in the emerging
markets.
Making utilization of the
strategic partnerships to make
an expansion with regards to
the single-serve coffee market.
Making use of the brand
ST
Making utilization of the
stronger supply chain to make
a reduction in the bargaining
power of suppliers.
Making a good focus on the
quality, consumer service,
strategic alliance, and brand
image to combat with the
lower price strategies of the
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image, consumer service, and
high product quality to make
penetration into the courtesy
coffee market.
competitors.
Making use of the intellectual
property to make penetration
within the niche market
segment.
Weaknesses Redirecting the focus towards
making a profit in the niche
segment in order to eliminate
product portfolio
overextension.
Making price adjustments to
an affordable level in order to
serve the middle-class
consumers in the developing
nations.
WT
Elimination of the
unprofitable products in order
to avoid overextension of the
product range in order to make
exploitation in the niche
segment.
Lowering the price in contrast
to increasing price sensitivity
of the consumers (Mindtools,
2014).
AN EVALUATION OF THE DIFFERENT TYPES OF STRATEGIC DIRECTION
AVAILABLE TO STARBUCKS.
The evaluation of the different types of strategic direction can be done with the help of Ansoff’s
matrix explained below.
1. Market penetration – The organization should make a choice of the aggresive expansion
in of this strategy with regards to the emerging market. This can be justified as the
organization already has a strong competitive position that can be used in the fast-
growing market. Moreover, Starbucks should make use of its strengths in order to
develop the market in emerging economies like India and Brazil. Moreover, it is also
recommended to make an entry in the new market with the aid of the strategic partners as
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