Pranit Singh Chawla - 000699044

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BUSI1271: Global Strategy: Analysis & Pr Starbucks N Brady, WE Hearne, VJ Torlo

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BU/PG 70.00% 10/01/2012

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Pranit Singh Chawla

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GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

Pranit Singh Chawla - 000699044

Company Overview
The mission of Starbucks is to inspire and nurture the human spirit one person, one cup and one neighbourhood at a time. (Starbucks) The Starbucks coffee company was started in on 1971 when the three academics, English teacher Jerry Baldwin, History teacher Zev Siegel and writer Gordon Bowker opened the first Starbucks coffee outlets in Seattle. All the partners had approximately invested about $1,350 and they had also borrowed $5,000 from the bank to open the first outlet. Since the opening of the Starbucks coffee in 1987 there were a total of nine stores in Seattle and Washington and it has become the worlds best retailer of the speciality coffees with 8812 company owned stores and another 852 stores across 50 countries around the globe till April 2010 with an annual sales of about $10 billion. The CEO of Starbucks, Howard Schultz was proud of the heights Starbucks had attained by 1998 by making exceptional coffee drinks and selling dark roasted beans and coffee making equipment that would allow customers to brew an excellent cup of coffee at home. Starbucks had become one of the best retailing stores of the recent history.Starbucks brand was considered as the best known brand names in America and the company had established itself as the dominant retailer, roaster and brand of special coffee in North America. There were 1,500 stores in North America and the Pacific Rim and a few more were opening rapidly. Sales in the year 1997 were 967 million dollars and profit reached 57.4millon dollars. Since going public in 1992 Starbucks has seen stocks price increase nearly nine fold. The store was named Starbucks, the logo of the company was designed by an artist was a friend to them. The logo was a two tailed mermaid and encircled by the stores name. Baldwin, Siegel and Bowler got the inspiration for Starbucks from Alfred Peet, who had a small store by the name of Peet's Coffee and Tea in Berkeley. Peet's store specialized in importing fine coffees and tea, dark roasting beans the European way to bring out their full flavour and teaching his customers to grind the beans and make freshly brewed coffee at home. Baldwin, Siegel and Bowker were all familiar with Peet's expertise. The Pike's place store had only one employ first Siegel. The other two partners kept their jobs and after their job went to the store to work. The store became an immediate success, with sales that were beyond expectation. Initially each partner kept in touch with Alfred Peet in order to gain more and more knowledge about coffee. Baldwin and Bowker tried new methods with Alfred Peet's roasting procedures and invented their own flavours and blends. A second Starbucks store was opened in 1972.Four starbuck stores were opened by early 1980s in Seattle. The roles of the partners changed too. Siegel left the partnership and pursued other interest. Day to day management was handled by Baldwin as Chief Executive and Bowker remained involved as an owner but also pursued his business of a weekly newspaper.

GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

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The strategy of Starbucks focussed on three aspects, high quality coffee, intimate service and great surroundings. In order to maintain its high quality products. Starbucks remained closely in touch with growers in Africa, South and Central America Starbucks called all its employees "partners". Great pains were taken to train these partners in order to skill them in a way that was necessary to serve best the customers. European style espresso bar atmosphere was created at Starbucks. Their goal was to create ambience through the Starbucks "experience" and making the area comfortable.

Howard Schultz joined Starbucks as the head of marketing; Howard was vice president and general manager of U.S. operations for Hammanplast a company manufacturing stylish kitchen. He noticed that they were getting maxium orders for drip coffee maker. This made him visit Starbucks. Howard was very impressed and hooked by the way Sumatran coffee beans were grounded, put into a cone filter, and pound hot water over the cone and was handed to him. Howard met Jerry Baldwin and Gordon Bowker and was struck by their business philosophy of dust not good coffee but of dark roasted flavour profiles that the founders were passionate about. Top quality fresh roasted whole bean coffee was the company's differentiating feature and a bedrock value. All this made Howard attract to work for Starbucks. Initially the partners agreed but later refused Howard to join the company. Baldwin and Bowker thought that by offering him a job Starbucks would be committed to a new direction and geographic expansion was too risky for which they were not prepared. Howard later convinced them and the job of heading the marketing and overseeing the retail stores was his. Howard Schultz took Starbucks to a new level; he introduced espresso coffee and opened an espresso bar in April 1984. In 1985 Howard left Starbucks and planned to open espresso bars in high traffic downtown locations that would excel the friendly energetic atmosphere. Later Jerry Baldwin offered to invest 150000 dollars of Starbucks money in Howard's project, later Starbucks came to be owned by Hoeward and Giornale's jointly. Howard Schultz became Starbucks president & CEO at the age of 34 years. (Thompson & Shah)

GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

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Pestle Analysis of Starbucks

Pestle analysis is basically a tool that helps organizations in making the strategies which helps the company in understanding the external environment. There are many external factors which affect the company in different ways. The factors which affect the Starbucks company are as follows:Political Factors Majority of coffee is grown in the tropical countries around the globe. So the political factors in the countries from where the company imports the coffee can impact the company in a lot many ways. As globalization has changed the way of doing business all around the world, the company has opened the store worldwide. The political factors play an important role as in every country the political scenario will be different and the company would have to change the strategy accordingly. The company pays high price to the farmers. But if the government changes the export quota and taxes it can be a great impact on Starbucks. Economical Factors The companys operations and performance depends upon the economical situation that is prevailing around the globe. Starbucks was majorly effected due to the economic crisis in the USA in 2009 due to which it had to face great loses and which also led to closure of 800 underperforming and a few stores around the world also. Since the world is facing financial crisis the people are looking for cheap products. Price has become a priority for customers these days. The increase in the inflation rates, the rise in the unemployment, changes in the purchasing powers of the customers and the different taxation in different countries will impact the Starbucks Company. Social Factors It creates a different type of consumer, Different type of products and different type of strategies for all the customers. There have been changing trends and preferences of the consumers which lead to change in the strategies of the company which further lead to change in the products, etc. A cultural connection is created because the company creates flexible products both for the rich as well as the middle class. Technological Factors Use of technology improves operational efficiency of a company. Use of technology helps to increase production as well as customer satisfaction. Starbucks has Wi-Fi in all their stores. It provides music cards which enables people to buy music in their stores. They have a facebook page which tells them about the companies new products and various other things. The use of new technology has helped the company in a lot many ways. The company has also started the points system on every purchase you make.
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Legal Factors All the countries have different legal environment which will affect the operations of the country. Every country has different rules and regulations. Starbucks should know about the laws of the country where they are operating. The employment laws also differ from country to country. Starbucks should follow all the government laws, rules and regulations so that it does not hamper the brand image in that particular country. Environmental Factors The company is involved in recycling and they also try and use majorly renewable sources of energy. The coffee cups they provide are of eco friendly material. Use less water and try and recycle as much as possible. The company has to follow the different environment laws in the countries in which they have business. Climatic changes due to global warming have a serious threat to coffee producing area so Starbucks has addressed to the issue. Starbucks has taken many steps to protect the environment.

Porters Five Forces Model( Porter,1985)

Porters five forces is a very important tool from which the company can analyze the industrial growth and the market development. This also gives the current position of the company and also tells us what it aims in the future. The five forces are as follows: 1. 2. 3. 4. 5. Potential entry of new competitors Potential development of substitute products Bargaining power of suppliers Rivalry among competing firms Bargaining power of Consumer Potential entry of new competitors It basically shows the different competing firms in the market. It refers to a new entrant in the market to give competition to the existing one, the new firm which makes the new entry makes an effect on everyone transacting in the market. Starbucks has many competitors like Costa Coffee, McDonalds, etc. McDonalds added coffee to their menu to enter the coffee market. Potential development of substitute products - The extent of substitution is very high in the coffee industry as there are many alternatives or substitutes which already exist in the market they are juices, cold drinks and the major one is tea. In Asian countries people prefer tea over coffee. To buy bottled coffee is cheaper than to buy a cup of coffee from Starbucks. Bargaining power of suppliers The suppliers in the coffee in the industry are less and the buyers are more in the market. The bargaining power of supplier indirect affects the intensity of competition. There should be a mutual agreement between the supplier and the buyer. E.g. Starbucks went through a situation in 2001 when
GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

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suppliers had increased the price so Starbucks did not have any option and they had to buy it. Later Starbucks had decided to sign an agreement with the coffee bean supplier of the coffee bean. There are fewer suppliers of the coffee machines too. Rivalry among competing firms The primary competitors of Starbucks was restaurants, other coffee houses, etc. Other coffee companies sold packed coffee at the supermarket and other stores at cheaper price than Starbucks. Firms like Peets cafe, coffee bean &tea leaf, Gloria jeans coffee, San Francisco Coffee house. The secondary coffee producers like Mc Donalds, burger king also serve coffee with the food. Bargaining power of Consumers When the customer wants to buy in large quantity then the factor of bargaining power of consumer comes into but in the case of Starbucks being a premium coffee brand the case of bargaining power of consumer is very low.

Opportunities and Threats for Starbucks (Dess et al,2008)

Opportunities In the beginning success is evident in a company, but every company ha s weakness when entering in a new market. Starbucks expanded its International business by opening 294 new licensed stores including the first stores in Austria, Germany, Mexico, Greece, and Indonesia. Revenues from International customers totalled 458,258,000 us dollars. Starbucks should build its own roasting plant and distribution facility in Brazil instead of shipping beans from Brazil and other south and Latin American countries to the United States. In Brazil coffee is very inexpensive and available in pennies and is even readily available at every nick and corner. A challenge for Starbucks can be that paying 3 to 4 dollars per cup of coffee is normal. The Brazilian consumers perceptions of value should be changed by Starbucks. By adjusting the price list in accordance with the local culture and by building brand loyalty they can achieve the impact of perception of value. Threats Starbucks is facing a lot of threat from the other competitors present in the market. The other coffee brands which are giving Starbucks competition are brands like Costa coffee, Peets, etc. Fast food chain like McDonalds and Burger King have to started serving coffee which are giving completion to Starbucks. Starbucks need to diversify and provide introduce various kinds of other coffee products in the market.

GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

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INTERNAL ANALYSIS OF THE COMPANY

Market Segmentation of Starbucks According to Kotler, Market segmentation means dividing a market into distinct group of buyers with different needs, characteristics or behaviours, who might require separate products or marketing mixes Starbucks main market segmentation was the middle class and high class as it is one of the most premium brands of Coffee available in the market. The main idea of Starbucks was too make their products available at all places where people work, shop or dine. To some extent they were successful. To make it available in the supermarkets and other grocery stores Starbucks introduced the bottled version of coffee in partnership with PepsiCo. To segment Starbucks in bars they came up with Starbucks coffee liqueur. It also targeted non coffee lovers they introduced cakes and cookies.( Bjork,2004) Company Strategy The three main strategies used by Starbucks are overall cost leadership, differentiation and focus. The generic strategy of focus involves a segment. The generic strategy of differentiation means something unique or different. Strengths Several strengths have been brought about to the Brazilian market place by Starbucks. Starbucks mostly purchases premium green coffee certified as fair trade coffee. According to this agreement it is ensured that the local farmers receive a guaranteed price for their harvest above the prices available in the market which helps in improving the economic stability thus Starbucks preserves the best interest of farmers, the economy and the environment. Starbucks passion surpasses all barriers of language and culture. Starbucks has strength of skill and experience in entering new markets. Starbucks business technique is further magnified by its devotion in supporting communities around the world where Starbucks lives and works as well as in the Starbucks coffee producing countries. Weaknesses The most obvious weakness for Starbucks would be that they do not exist in Brazil market place. South and Central American countries are the countries which provide Starbucks with the coffee beans. it is after argued that they need to look for a port folio of countries in order to spread business risk. Another weakness is that Starbucks depends on a competitive advantage, the retail of coffee. This could make them slow to diversify into other fields should the need arise.

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Ansoff Matrix Rapid store expansion plan was adopted by Starbucks and was created by using Ansoff matrix. They were looking for the ideal locations to open the stores. If Starbucks choose a city so there would be less unemployment and more people working so there would be more of consumption. They created a hub in each area. International expansion was so difficult because they did not know the local markets of other countries as they had knowledge about the US markets. There were a number of licensed international stores and less company owned stores. The problem with this rapid growth in certain areas would lead to many stores in one area. Starbucks had chosen rapid expansion as a part of its strategy to expand the brand. Examples: Starbucks introduced bottled version of frappuccino, Starbucks also sold music CDs and coffee mugs. BCG Matrix The main operations of the stores are the cash cows; the innovation and diversity of the products have continued to grow at a large scale but the products may become dogs and stars. Would invest more into coffee related products rather than other ones. Should invest money in the right areas.

Recommendations
To reduce the prices by producing coffee with a little cheaper beans. Special discounts and promotions to increase sales. Should use focus based strategies instead of cost based differentiation. Should increase on coffee based products rather than any other products. Market penetration and development will help increase sales and reduce weakness. Distribute packaging of Starbuck coffee will increase sales.

Bibliography
Starbucks. (n.d.). www.starbucks.co.uk. Retrieved January 7, 2011, from www.starbucks.com: http://starbucks.co.uk/assets/aboutus-companyprofile-q1-2011-final-3-8-11.pdf Thompson, A. A., & Shah, A. J. (n.d.). Starbucks strategy and internal intiatives to return to prfitable growth. 335-337. Dess.G,Lumpkin. G,Eisner,A.(2008), "strategic management,text and cases",4th edition,McGraw Hill,new York,USA Porter,E.,1985.Competitve advantage: Creating and sustsaining superior performance(online)

GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS

Pranit Singh Chawla - 000699044

GLOBAL STRATEGY: ANALYSIS & PR - STARBUCKS