Major Problems Facing Starbucks

Within the coffee industry Starbucks Corporations has grown from a small shop to a leading coffee distributor, proving to have financial strength and determination to continue growth. With the weakening economy the continued success of Starbucks

Starbucks is dominant coffee brand in North America, which also is well-known worldwide. Established in 1971 as coffee shop oriented to a niche of coffee purists, in late 1980’s it turned to be a constantly growing chain of stores that sold whole-beans and premium-priced coffee to mostly affluent, well-educated customers. In years 1992-2002 company was showing at least 5% annual growth. And by 2002 Starbucks was serving already 20M customers in 5886 stores (both operated and licensed) around the globe, had $3.3 billion net revenues and was opening 3 new stores a day in average.

Starbucks has created a competitive advantage with their product quality by setting themselves apart from their competitors. “The Company has stayed with the upper-scale of the coffee market, competing on comfort rather than convenience, which is the case with its closest competitors, McDonald’s and Dunkin Donuts” (Mourdoukoutas, Panos). Consumers believe they are receiving a better product and experience when they purchase from a Starbucks as opposed to another large food service company that may sell coffee.

starbucks Corp., an international coffee and coffeehouse chain based in Seattle, Washington, has expanded rapidly since its opening in 1971. These outrageous success was due to its well-developed strategy vision which lay out the company's strategic course in developing and strengthening its business. Starbucks is a global corporation that sells authentic coffee in 30 countries, reporting revenues of nearly $5.1 billion in 2006. The main goal of Starbucks is to embrace diversity by applying the highest standards of excellence. Starbucks strives to perfect the relationship with the working class by making the service as fast as possible because they believe that every customer has their own personal rate. One

2) Garthwiate, Craig; Busse, Meghan; Brown, Jennifer; Merkley, Greg “Starbucks: A Story of Growth” Harvard Business Publishing, July 2012.

Starbucks Corporation has been around since 1971. What makes Starbucks unique from other coffee-bar shops is not only their wide selection of products, but the environment they provide to all customers. Starbucks sustains competitive advantage by constantly looking for new ideas, new products, as well as new experiences for guests. Starbucks also offers a selection of music, and unique designed coffee mugs. The company even hires designers to come up with artwork for commuter mugs. Starbucks’ forte is incorporating differentiated features such as their different flavored coffees that no other company offers. They

When Howard Schultz launched Starbucks, its main targets were the competitors and the customers. Schultz’s brand aimed at gaining dominance in the coffee industry in addition creating a Italian coffee shop feel in the United States (Buchanan & Simmons, 2009). The strategy of Starbucks was based on new products, listening to customers wants and ensure future expansion (Buchanan & Simmons, 2009). In creating convenience for customers, Starbucks created stores almost on top of eachother. They hinged on the idea that, they did not want to lose out on a sale if a line was too long. This action, of placing stores in heavy populated areas, basing need on projected growth of an area caused some decline in sales during economic trouble with the economy. The 2007 recession, failure of subprime mortgages, increased competition from McDonald 's McCafe brand, and Dunkin Doughnuts all led to a decline in sales for Starbucks in the fourth quarter of 2007 (Buchanan & Simmons, 2009). To attempt to regain market share and recover after the

Starbucks advertises two essential mission statements. First and foremost, it strives to “establish [ourselves] as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while [we] grow(s).” (Starbucks) Reflective of its mission, Starbucks bases its strategic campaign and communications on six indispensable philosophies; structuring a pleasant work environment in which employees are treated with “respect and dignity,” incorporating diversity in all business aspects, purchasing, roasting and delivering fresh coffee, retaining satisfied customers, giving back to the community and environment, and developing

First, Starbucks has effectively applied the product differentiation strategy. To achieve it, the company has specialized in different product mixes, aligned its business locations to a specific ambiance that suits the context, and varied the customer experience, thus resulting in a higher customer service satisfaction. Further, Coskun, Basligil, and Baracli (2008) note that Starbucks prides in having their customers enjoy a premium service. Therefore, the company’s signature strategy has worked well thus far, as competitors find it difficult to imitate. Second, the enterprise has coordinated its acquisition and portfolio strategy, thus consolidating the market. As discussed in the background chapter, Starbucks has a portfolio network of eight brands under its stable. Third, Starbucks’ international expansion strategy has worked well, with a presence in 70 countries (Starbucks, 2017). These factors, coupled with its financial capability, offer Starbucks an edge over its

Starbucks roasts high-quality coffee beans to make espresso drinks and sells coffee products through multiple retail channels. The company has over 24,000 stores in 70 countries. Starbucks target market is affluent adults ages 18-40. This market segment makes up 49% of the company’s sales. In addition to targeting a specific market, the company employs a differentiation strategy. Along with the high-quality coffee, the company offers an experience within their stores which justifies higher products. Some aspects of this “coffee experience” include free Wi-Fi, friendly baristas, fast service, and comfortable seating. Also, the company relies on new product development as a strategic choice. This includes adding alcoholic beverages and food to its coffee shop. All of this is done with the idea of making the higher priced product worth it for the consumer.

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

Starbucks started in 1971 and by creating a cozy third place to customers beyond home and work and offering a slightly higher price yet fine quality coffee, within 25 years, it had opened just over 1000 stores. In order to maintain its leadership position, Starbucks had continued pursuing growth opportunities by selling Starbucks products through mass distribution channels and expanding its retail footprint. Along with the rapid expansion and success, Starbucks has encountered financial downturn in 2008, and the rise of competitors from both high price independent coffee shops, smaller coffee chains that resembled pre-expansion Starbucks model, to low price fast food restaurants chain McDonald’s and Dunkin’s Donuts has deteriorate the

Starbucks primary weakness stems from the pricing of its coffee in comparison to its competitors. Since Starbucks makes 75% of its profit from coffee (unlike the McDonalds and Dunkin’ Donuts which make most profit from food), it is exposed to rising coffee-bean costs and stepped-up competition from lower-priced competitors.

Following its success in the United States, Starbucks ventured overseas and quickly became a globalization icon. With its rapid globalization strategy, Starbucks expanded from about 5000 stores to an estimated 15,000 stores in 2000 (Groth, 2011). By mid-2000s, Starbucks’ supply chain faced many issues, resulting with challenges of having to fulfill expansion strategies yet minimizing escalating operation expenses. By 2008, Starbucks’ stocks fell by 42% (Schultz, 2011). The rapid expansion took a toll on the sales growth and stretched the limits of the existing supply chain, which then rippled down to erode the customer-valued ‘Starbucks experience’ (Gibbons, 2011).

In addition, the operation management of Starbucks in regards of decision making is one of the main advantage for the company that help them to hide or reduce the effect of cost management, the main focus of the operation management in Starbucks is to gain the loyalty of their potential consumers that are ready to buy the high quality products without the concern of their high prices as it is compare to the other products in the market place. Also, the company promises their loyal consumers to provide high quality products no matter what and it is the only reason that the company has maintain to overcome the effects of the crisis that they had face in the last few years (Wisner, et al., 2015).