Starbucks Value Chain

Starbucks as an Example of the Value Chain Model
By PRABLEEN BAJPAI
Updated Jun 25, 2019
The business management concept of the value chain was introduced and
described by Michael Porter in his popular book Competitive Advantage:
Creating and Sustaining Superior Performance in 1985. A value chain is a series
of activities or processes that aims at creating and adding value to an article
(product) at every step during the production process.
Businesses aim at enhancing their margins and thus work to change input into an
output which is of a greater value (the difference between the two being the
company’s profit margin). The logic behind it is simple: The more value a
company creates, the more profitable it is. The enhanced value is passed on to
the customers and thus further helps in consolidating a company's competitive
edge.
Value-chain business activities are divided into primary activities and secondary
activities. The primary activities are directly related to the creation of a good or
service, while the support activities help in enhancing the efficiency and work to
obtain a competitive advantage among peers.
Let’s take the example of Starbucks to understand this better. The Starbucks
journey began with a single store in Seattle in the year 1971 to become one of
the most recognized brands in the world. Starbucks mission is, per its website,
“to inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time.”
Primary Activities
Inbound Logistics
The inbound logistics for Starbucks refer to company-appointed coffee buyers
selecting the finest quality coffee beans from producers in Latin America, Africa,
and Asia. In the case of Starbucks, the green or unroasted beans are procured
directly from the farms by the Starbucks buyers. These are transported to the
storage sites, after which the beans are roasted and packaged. They are then
sent to distribution centers, a few 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 right from the point of
selection of coffee beans.
Operations
Starbucks operates in more than 75 markets, either in the form of direct
company-owned stores or licensees. Starbucks has more than 24,000 stores
internationally, including Starbucks Coffee, Teavana, Seattle’s Best Coffee, and
Evolution Fresh retail locations. According to its annual report, the company
generated 79% of its total net revenue during the fiscal year 2017 from its
company-operated stores while the licensed stores accounted for 10.5%.
Outbound Logistics
There is very little or no presence of intermediaries in product selling. The
majority of the products are sold in their own or in licensed stores only. As a new
venture, the company has launched a range of single-origin coffees, which will be
sold through some leading retailers in the U.S.; these are Guatemala Laguna de
Ayarza, Rwanda Rift Valley, and Timor Mount Ramelau.
Marketing and Sales

Starbucks invests more in superior quality products and a high level of customer
service than in aggressive marketing. However, need-based marketing activities
are carried out by the company during new products launches in the form of
sampling in areas around the stores.
Service
Starbucks aims at building customer loyalty through its stores' customer service.
The retail objective of Starbucks is, as it says in its annual report, “to be the
leading retailer and brand of coffee in each of our target markets by selling the
finest quality coffee and related products, and by providing each customer a
unique Starbucks Experience.”
Support Activities
Infrastructure
This includes departments like management, finance, legal, etc., which are
required to keep the company’s stores operational. Starbucks' well-designed and
pleasing stores are complemented with good customer service provided by the
dedicated team of employees in green aprons.
Human Resource Management

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, which indicates
great human resource management. There are many training programs
conducted for employees in a setting of a work culture which keeps its staff
motivated and efficient.
Technology Development
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
makeshift office or meeting place because of free and unlimited WiFi. Back in
2008, the company launched a platform where customers could ask questions,
give suggestions and openly express opinions and share experiences; the
company has implemented some of the suggestions, including for its rewards
program, from this forum. Starbucks also uses Apple’s iBeacon system, wherein
customers can order a drink through the Starbucks phone app and get a
notification of its readiness when they walk in the store.
Starbucks as an Example of the Value Chain Model
The Bottom Line

The concept of value chain helps to understand and segregate the useful (which
help in gaining a completive edge) and wasteful activities (which hamper market
lead) accompanying each step during the product development process. It also
explains that if a value is added during each step, the overall value of the product
gets enhanced thus helping in achieving greater profit margins.

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Starbucks as an Example of the Value Chain Model

Marketing and Sales

Human Resource Management

Starbucks as an Example of the Value Chain Model

The Bottom Line

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