Value Chain Analysis of Starbucks: A Business Case Study

This case study examines Starbucks' business operations through a value chain analysis. It begins with a brief overview of Starbucks' history, market presence, and organizational structure. The core of the analysis focuses on identifying Starbucks' primary and support activities according to Porter's value chain model, including procurement, operations, customer service, and marketing. The study highlights Starbucks' emphasis on high-quality products, customer service, and technological integration to enhance customer experience and build brand loyalty. The assignment tasks the reader to define Starbucks' primary and support activities and propose improvements to further develop its value chain model. The analysis also references Starbucks' financial reports and its strategic approach to procurement, store operations, and customer engagement. The case study offers an in-depth look at Starbucks' business strategy and value creation processes.

Prepared by: Dr. Karolina Łudzińska - 1
Photos: starbucks.com
Case study: Starbucks
The Starbucks story begins in 1971 along the cobblestone streets of Seattle’s historic Pike Place Market.
It was here that Starbucks opened its first store, offering fresh-roasted coffee beans, tea, and spices from
around the world for our customers to take home. The name was inspired by the classic tale ‘Moby-Dick’,
evoking the seafaring tradition of early coffee traders.
Ten years later, a young New Yorker named Howard Schultz would walk through these doors and become
captivated with Starbucks coffee from his first sip. After joining the company in 1982, a different
cobblestone road would lead him to another discovery. It was on a trip to Milan in 1983 that Howard first
experienced Italy’s coffeehouses, and he returned to Seattle inspired to bring the warmth and artistry of
its coffee culture to Starbucks. By 1987, Starbucks swapped its brown aprons for green ones and
embarked on the next chapter as a coffeehouse.
Starbucks would soon expand to Chicago and Vancouver, Canada, and then on to California, Washington,
DC, and New York. By 1996, they would cross the Pacific to open their first store in Japan, followed by
Europe in 1998 and China in 1999. Over the next two decades, Starbucks would grow to welcome millions
of customers each week and become a part of the fabric of tens of thousands of neighbourhoods around
the world.
Starbucks handles all of the procurement of its own coffee beans, which it sees as one of its
competitive advantages. The coffee buyers appointed by the company select the finest quality coffee
beans from producers in Latin America, Africa, and Asia. The green or unroasted beans are purchased
directly from the farms by Starbucks buyers. These are transported to storage sites, after which the
beans are roasted and packaged. The beans are then sent to distribution centres, some of which are
company-owned and some of which are operated by other logistic companies. The company does not
outsource its procurement, ensuring high-quality standards from the point of selection of coffee
beans.
Starbucks operates in more than 80 markets, either in the form of direct company-owned stores or
licensed stores. (Starbucks does not follow the traditional franchising terms.) The company has more
than 32,000 stores worldwide. It is also the owner of several brands, including Starbucks Coffee,
Teavana, Evolution Fresh, Seattle’s Best Coffee and Ethos Water.

Prepared by: Dr. Karolina Łudzińska - 2
According to its financial reports, the company generated 81% of its total net revenue during the first
half of its 2020 fiscal year from its company-operated stores while licensed stores accounted for 11%.
The company organizational structure includes departments such as management, finance, legal, etc.,
which are required to keep company stores operational. Starbucks employs business managers in its
corporate offices. It also has store managers on site that help oversee well-designed and pleasing
stores complemented with good customer service provided by the dedicated team of employees in
green aprons.
There is very little or no presence of intermediaries in the sale of products for Starbucks. Most of the
products are sold in stores. However, storage and distribution to retail locations are important.
Starbucks invests more in superior quality products and a high level of customer service than in
aggressive marketing. The company aims to build customer loyalty through its in-store promotions,
e.g., need-based marketing activities which are carried out by the company during new product
launches in the form of sampling in areas around stores. High-quality customer service and providing
customers with a unique Starbucks experience have always been a signature retail objective of
Starbucks. However, the company is active on the Internet, has its own channel on YouTube: Starbucks
Coffee, and profiles on social media, such as Facebook, and Instagram.
Service training is a key component of the value chain that helps to make its offerings unique. A
substantial amount of value is created when baristas serve drinks to customers. The committed
workforce is considered a key attribute in the company’s success and growth over the years. Starbucks
employees are motivated through generous benefits and incentives. The company is known for taking
care of its workforce, a key reason for a low turnover of employees, indicating excellent human
resource management. There are many training programs that are conducted for employees in a
workplace culture that keeps its staff motivated and efficient.
Starbucks is very well known for the use of technology, not only for coffee-related processes (to ensure
consistency in taste and quality along with cost savings) but to connect to its customers. Many
customers use Starbucks stores as a temporary office or meeting place due to free and unlimited Wi-
Fi. Starbucks has launched several platforms where customers can ask questions, give suggestions,
openly express opinions, and share experiences. Technology helps implement this feedback, especially
in the area of its rewards program. Starbucks also uses Apple’s iBeacon system, where customers can
order a drink through the Starbucks phone app and get a notification of its readiness when they walk
into the store.
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Value chain analysis can be used to potentially identify value improvement opportunities throughout
various steps of a business cycle. Porter outlines five types of primary activities and four types of
support activities that can be important in value chain analysis.
Imagine that you are the consultants who are to perform a value chain analysis for Starbucks:
1. Define the primary and support business activities of Starbuck according to the Porter
typology of the value chain.
2. What changes and/or improvements could you suggest to Starbucks to further develop its
value chain model?

Prepared by: Dr. Karolina Łudzińska - 3
References:
https://www.starbucks.com/
https://www.cnbc.com/2019/01/07/starbucks-cafes-coffee-business.html
https://www.investopedia.com/articles/investing/103114/starbucks-example-value-chain-model.asp
https://www.britannica.com/topic/Starbucks
Kowitt, B. How Starbucks Got Its Buzz Back. Fortune, [s. l.], v. 180, n. 4, p. 84–93, 2019
Starbucks Corporation SWOT Analysis. Business Source Ultimate. 7/28/2021, p1-7. 8p.