Starbucks : A Competitive Market

As the world’s number one specialty coffee retailer, Starbucks sells coffee drinks, food items, coffee beans, and coffee-related accessories and equipment. In addition, Starbucks sells whole-bean coffees through a specialty sales group and grocery stores. Starbucks has grown beyond coffee into related businesses such as coffee-flavoured ice cream and ready-to-drink coffee beverages. The purpose of this paper is to analyze Starbucks business strategy, customer value proposition, company’s operations and the risks to financial results and reporting in the short term.

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

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 is no doubt a phenomenon in the United States, but the brand wants to expand globally. Opening chains in various global locations such as Japan, Vienna, England; Starbucks wants to reach out to the coffee loving fans everywhere. Nevertheless opening chains globally is not that simple. There are many uncontrollable factors Starbucks need to focus on to make sure they are making profit as well has abiding by the country’s laws and regulations. Going global takes a lot of market research to make sure that the brand will be successful even with uncontrollable factors. Controllable factors can be tailored to fit the needs of each country. Starbucks has to find the happy medium so they don’t lose their identity overseas.

Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”

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Starbucks is a major coffee company that we have in America as well as being expanded around the world. By using the SWOT analysis we noticed how Starbucks is falling apart and what can be used to make the company the way that it is set up. They wanted to continue to grow stores and by the companies wanting to continue to branch out globally by having continuous competition across the world. Another strength that this company has to offer is Starbucks is the leader of the coffee market. It is a strong brand to compete with. It is hard to go against them because they are always thinking outside of the box which is stated on page 211. Another strength that this business has to offer is on page 211 where Starbucks has always strived to be a good neighbor by providing a place for people to come together and by committing to supporting financially in where stores are located.

Starbucks is not only a high-priced coffee shop but it offers a combination of quality, authority, and relative value. Starbucks sets its prices on the basis of a simple idea: high value at moderate cost. When people feel that they are getting a good deal for their money, they are more likely to pay a higher cost. Quality is key. Starbucks has to maintain strict quality controls in its coffee sourcing as well as in its customer service and related products to justify its costs (O 'Farrell, n.d.).

Anyone can enter the coffee industry by just selling coffee, anytime, anywhere. Thus, entry into the coffee industry has low barriers causing a downward sloping demand curve. However, it is Starbucks branding image that has differentiated themselves from other café competitors with their aesthetic appeal and concepts of its stores. Stores are visually appealing and have a ‘cool’ factor about them. Additionally, they provide free wife, great music and great customer service, which draws a warm environment or community to engage in the “Starbucks Experience” (Geereddy, 2015).

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.

For most of its existence, Starbucks had expanded rapidly, but in the few years preceding the downsizing, the company's performance had begun to lag. Former CEO Howard Schultz returned to the helm and began to make a series of changes. When the store closures were announced, the long-term vision for the company was cited as one of the major factors (Wilson, 2008). The rapid expansion had left the company with stores that felt like cookie-cutter chain stores rather than a part of the neighborhood (Quelch, 2008). Contributing to this issue was the fact that the company had opened stores in areas that were not supporting them. Where location and real estate management had been a cornerstone of the company's success as it grew, the rapid expansion of the early 2000s had seen a decline in the standards for locations, and many of the stores slated to be closed were in relatively undesirable locations.

With the financial system in strife, the stock market place tanking, it is imperative to commence your day with an enjoyable cup of coffee to endure some these life challenges. Gratifying everyday moments is just one way that it appears that Starbucks words denotes that they are not retailing solely coffee. They declare to be offering the coffee experience. The coffee bars that promote specialty coffee likewise gives consumers a setting where they can be able to be themselves. Starbucks presents themselves as the third location between home-based and office, where one can exodus, contemplate, study, converse or listen. They have developed into one of the prevalent competitors in the coffee commerce and appears to be still exploring for possibilities to magnify themselves. From a Christian worldview Mark 6:39 states, “Then He commanded them to make them all sit down in groups on the green grass” (NKJ). Therefore, when situations seem impossible for an organization, it is possible when God is included in the plan.

Starbucks is part of a global empire that is continuously growing and which offers a new institution of business thinking. Their way of thinking positioned them on a unique level by the way of which they conduct their business. They incorporated fresh new thinking into strategic, tactical, and operational planning. The company developed a structure that encompassed both horizontal and vertical growth, with control mechanisms set in place. Even with setting such a high standard of business, there are many internal and external factors which can impact the four functions of management of planning, organizing, leading, and controlling.

1. What factors in the global environment provide opportunities or threats for Starbucks? How do Starbuck’s strengths and weaknesses match up to its opportunities and threats?