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CITY COLLEGE INTERNATIONAL FACULTY OF UNIVERSITY OF SHEFFIELD

Strategic plan Starbucks coffee



Executive Summary

The main purpose of the current paper was to develop strategic plan for Starbucks for the future and to analyze the alternative strategic directions compared with the existing strategy. The paper starts with brief description of the company profile and the product line that company successfully offers during their operations history. The second part of the strategic plan analyzes the external environment of the company by analyzing the industry current situation. From the Five forces model we able to move on to ascertain that the industry generally is attractive that lead to a growth of strategy. The external environment analysis identify that company faces a strong competition from competitors from other industries like case of McDonalds and Dunkin Donuts. Also, from the external analysis was identified the success factors of Starbucks that led them to leading position in the industry. The drivers of change are describing the external environment in which the company operates and to which factors company need to pay attention for the future avoidance of challenges. The third section of the assignment analyzes the internal environment of the company there is given high attraction to SWOT analysis in order to understand the company's opportunities for growth and strengths that could increase the strategy's success and implementation. Moreover, in this section was analyzed the strategic issues of the current strategy and capabilities that company contain in order to redesign the operations and achieve the competitive advantage. The fourth section describes the main issues regarding the existing strategy and the results of it and affect on company's performance. The last session identify the alternative strategic directions of the Starbucks and the results from implementation of each of them and forecast the consequences of operation. In the recommendation section is given the potentiality of each strategy and set of advantages and disadvantages by evaluating each strategy.



TABLE OF CONTENTS

EXECUTIVE SUMMARY

1. COMPANY BACKGROUND

1.1 STARBUCKS COMPANY PROFILE

1.2. STARBUCKS COMPANY PRODUCTS

2. EXTERNAL ENVIRONMENTAL ANALYSIS

2.1. INDUSTRY FIVE FORCES (PORTER'S FIVE FORCES)

2.1.1. INDUSTRY RIVALRY

EUROPEAN COFFEE MARKET (HIGH)

2.1.2. BARRIERS FOR NEW ENTRANTS (LOW/MODERATE)

2.1.3. SUBSTITUTE PRODUCTS (DEGREE OF RISK -MEDIUM)

2.1.4. SUPPLIER BARGAINING POWER (LOW/MODERATE)

2.1.5. BARGAINING POWER OF BUYERS (MEDIUM/MODERATE)

2.2. INDUSTRY ATTRACTIVENESS AND MARKET ANALYSIS

2.3. KEY SUCCESS FACTORS

2.4. STRATEGIC MAP/ POSITIONING

2.5. DRIVERS OF CHANGE

3. INTERNAL ANALYSIS

3.1. SWOT ANALYSIS - STARBUCKS CORPORATION

3.2. STRATEGIC ISSUES

3.3. CAPABILITIES

3.4. COMPETITIVE ADVANTAGE

4. EXISTING STRATEGY

5. ALTERNATIVES STRATEGIC DIRECTIONS

MARKET PENETRATION

PRODUCT DEVELOPMENT

DIVERSIFICATION

6. RECOMMENDATION AND FURTHER ACTIONS

CONCLUSION

REFERENCE LIST

APPENDICES

APPENDIX 1. - SWOT ANALYSIS

APPENDIX 2- AMERICAN STARBUCKS MARKET POSITION

APPENDIX 3. - MAIN SUPPLIERS/EXPORTING COUNTRIES OF COFFEE BEAN

APPENDIX 5.- FINANCIAL REPORT FOR STARBUCKS 2012



1. COMPANY BACKGROUND

1.1 STARBUCKS COMPANY PROFILE

The story of Starbucks coffee starts from 1971 from a single store in Seattle's Pike Place Market. From that period the company has been growing at drastic pace and nowadays is the biggest coffee retailer worldwide with millions of customers and 18,000 retail stores in 60 countries (The countries where Starbucks is operating and type of entry is represented below in the Figure 1). The Starbucks name came from the first mate in Herman Melville's Moby Dick and logo is inspired by the sea feature in face of twin-tailed siren from Greek mythology. The customers choose the Starbucks stores for their location in every neighborhood where people enjoy the quality of products as well as the place for meeting with friends and family. Starbucks stores provide an inviting atmosphere and exceptional quality of coffee.

Table 1.

Country	Type of Entry	Partnership	Date of Entry
Argentina	License	Operadora Internacional Alsea S.A. de C.V.	2008
Aruba
Australia	Joint-Venture	Markus Hofer	2000
Austria	Licensing	Bon Appйtit Group	2001
Bahamas	Wholly-owned	Coffee Cay Ltd	2005
Bahrain	License	M.H Alshaya Co., W.L.L	2000
Brazil	Joint-Venture	Cafes Sereia do Brazil Participacoes S.A	2009
Bulgaria	License	Starbucks-Marinopoulos See, B.V	2008
Canada	Wholly-owned subsidiary	Starbucks Coffee Canada	1996
Chile	Joint-Venture	Operadora Internacional Alsea S.A. de C.V.	2003
China	Licensing/Joint-Venture	Mei Da Coffee Co/Sanghai President Coffee	2000
Cyprus	License	Marinopoulos Holdings, SARL	2003
Czech Republic	License	American Restaurants SP. z.o.o.	2008
Egypt	License	M.H Alshaya Co., W.L.L	2006
England	Wholly-owned	-	1998
France	Joint-Venture	Group VIPS	2004
Germany	Joint-Venture	Karstadt Qualle AG	2002
Greece	Joint-Venture	Marinopoulos Brothers	2002
Hong Kong/Macau	Joint-Venture	Maxim Caterers Ltd.	2000
Indonesia	Joint-Venture	PT Mitra a Diperkasa	2000
Ireland	Wholly-owned	-	2005
Japan	Joint-venture	Sazaby Inc.	1996
Jordan	License	M.H Alshaya Co., W.L.L	2005
Kuwait	License	Alshaya	1999
Lebanon	License	Alshaya	1999
Malaysia	License	Berajaya Group bhd	1998
Mexico	Joint-Venture	SC de Mexico	2002
New Zealand	License	Restaurant Brands	1998
Oman	License	M.H Alshaya Co., W.L.L	2002
Peru	License	Delosi, SA	2003
Philippines	License	Rustan's Coffee Corp.	2000
Qatar	License	M.H Alshaya Co., W.L.L	2000
Romania	License	Marinopoulos Coffee Company SRL	2007
Russia	License	Shaya Coffee Ltd	2007
Saudi Arabia	License	M.H. Alshaya Co,. W.L.L.	2000
Singapore	License	Bonvests Holding Ltd	1996
South Korea	Joint-Venture	Shinsegae Department Store	2000
Spain	Joint-Venture	Grupo Vips	2002
Taiwan	Joint-venture	President Coffee Corp.	1998
Thailand	Wholly-owned	-	2000
Turkey	License	M.H. Alshaya Co,. W.L.L.	2003
United Arab Emirates	License	M.H. Alshaya Co,. W.L.L.	2000

1.2 STARBUCKS COMPANY PRODUCTS

The company as the main goal had the offering of best quality coffee and use ethical supplying practices. The most of coffee supplies come from the farms in Latin America, Africa and Asia. In order to achieve the most possible quality of coffee and flavor the Starbucks roasters carry the balance and rich flavor of beans through the signature Starbucks Roast.

The company offers a large amount of exceptional products with more than 30 blends and single-origin premium coffees that is offered for in-store consumption, at home and on the go offer. Also, the company is famous for its fresh?brewed coffee, hot and iced espresso beverages, Frappuccino coffee and non-coffee blended beverages, Tazo teas and smoothies. Despite of coffee and tea drinks the customers also could find coffee-brewing equipment, mugs and accessories, packaged goods, music CD, books and other gifts. In order to achieve the fulfill customer satisfaction the Starbucks provide also the fresh food like baked pastries, sandwiches, salads, yogurt parfaits and fruit cups



2. EXTERNAL ENVIRONMENTAL ANALYSIS

2.1 INDUSTRY FIVE FORCES (PORTER'S FIVE FORCES)

Source: Five Forces Model by Michael E. Porter (2008).

The five forces model of Michael Porter is used to analyze the industry environment. The idea of five forces is to illustrate analytically the issues concerning the industry environment and to describe the level of industry attractiveness. The model represents the five variables such as industry rivalry, industry suppliers, potential new entrants, substitute products and power of buyers (Henry, 2011). The section below represents an examination and analysis of five variables of the porters model that affect Starbucks specialty coffee industry environment.

2.1.1 INDUSTRY RIVALRY

The industry rivalry of current report represents the competition analysis of North American market and European market of coffee retailers and is based on the data for the above specific markets.

North America market (Degree of rivalry high/increasing)

The degree of industry rivalry is described as high to increasing due to the entrance of new entrants from other industries such as quick-service industry. Specialty coffee industry in the US market changes dramatically due to the growth of consumption the last period of time and attract new businesses to the market. If in the past the Starbucks mostly competed with the small coffee shops or neighborhood stores in nowadays the company faces significant competition from the various size of companies and different segments industry. Almost, the company in the US market follows to be the leader in the market with market share more than 30% and financial capabilities (see Appendix 2.) The identification of competitors for Starbucks is a dilemma for more analysts. The main categories of Starbucks competitors include the premium coffee shop that focuses on the high-quality coffee shop experience such as: Peet's Coffee, Costa Coffee, CoffeeShop Company, Caffe Nero and Caribou Coffee. The second group of competitors is described more as convenience stores rather experience. This group in the market established mostly as fast food stores but they also compete with Starbucks in the coffee retail sales. This group of competitors includes McDonald's, Dunkin' Donuts, Panera Bread, Tim Horton and Krispy Kreme. Furthermore, in a context below is represented a brief presentation of competitors of Starbucks in the American market:

Caribou Coffee

Caribou Coffee Company runs epicure coffeehouses. It mainly offers qualitative coffee and espresso-based brews, gourmet teas, as well as roasted products and other linked products. The company is established in more than 550 coffeehouses; including over 120 franchised operating in USA, whereas the company owns the others. (http://www.cariboucoffee.com/page/1/our-locations.jsp) Furthermore, the Caribou Coffee Company operates as a bean and ground coffee wholesaler. It vends its products to mass merchandisers, airline companies, entertainment and leisure sites, while online customers may purchase Caribou's goods on the web. The company is established since 1992 and its headquarters are established in Minneapolis, Minnesota. (http://www.cariboucoffee.com/page/1/home.jsp). Moreover, Caribou Coffee Company is a subsidiary of Caribou Holding Company limited, which is funded by Yahoo. Comparable coffeehouse store sales increased 3.5%. Net income attributable to Caribou Coffee Company, Inc. was $1.7 million. (http://www.businesswire.com ).

Peet's coffee & tea

Peet's Coffee & tea Company was founded by Alfred Peet on April1, 1966. Born in Holland, Alfred Peet was raised in the coffee trade business and moved to America after the First World War. Peet's enthusiasm and devotion turned the coffee & Tea store to a gathering place for coffee devotees, called Peetniks; Peet's store attracted artisan food crafters as well. Due to the large number of coffee-lovers across the nation, Peetniks became extremely popular, especially over the last 4 decades. Even though Peet's Coffee & Tea Company experienced tremendous growth, it managed to remain true to Alfred Peet's norm; an insistent pledge to quality (http://www.peets.com/about-us/our-history). The company is established in more than 190 coffeehouses around the states offering 25 different types of bean and ground coffee, embracing 15 combinations (http://biz.yahoo.com/ic/53/53648.html).

Financial Highlights 2011
Fiscal Year End:	December
Revenue (2011):	371.90 M
Revenue Growth (1 yr):	11.40%

Tim Hortons Inc.

Tim Hortons Inc. is predominantly established in the United Stated of America and Canada in the quick service restaurants industry. It mostly specializes in exceptional coffee, high-quality teas, homemade soups, donuts and other roasted products. On the 30^th of December, the company owned over 4250 system-wide restaurants; more than 3400 in Canada, over 800 in the United States of America and 25 in the Gulf Cooperation Council. (http://www.timhortons.com/us/en/about/profile.html).

Tim Hortons Company is established since 1964 in the market and is headquartered in Oakville, Canada, whereas Yahoo finances it. The total revenue for 2012 was 802 million $.

Same-Store Sales(1)	Q3 2012	Q3 2011	YTD 2012
Canada U.S.	1.9% 2.3%	4.7% 6.3%	2.9% 5.1%

In the table above, it is shown that the Canadian segment increased sales by 1,9% and 2,3% were increased in the USA.

Krispy Kreme Doughnuts, Inc.

Krispy Kreme donuts operate as brand retailer and wholesaler of donuts and packaged sweets, beverages and other. The company operates in more than 20 countries and through the owning and franchising network operates 460 stores. The company business mostly based on production and selling of a large range of products (donuts), including also packaged and unpackaged doughnuts. Like other branded retailers the company offer beverages such as: drip coffees, espresso-based coffees, coffee-based and non-coffee based frozen drinks. (http://www.reuters.com/finance/stocks/companyProfile?symbol=KKD.N). Krispy Kreme Doughnuts, Inc. was founded in 1937 and is headquartered in Winston-Salem, North Carolina. (http://www.krispykreme.com/home).

Revenue	362 million USD (2011)
Net income	7.6 million USD (2011)



Dunkin Donuts

Dunkin Donuts is one of the major competitors of Starbucks through the large business expansion and expanded location of stores and with coffee shop sales market share of 16,1%. The company was established by William Rosenberg in 1950 in Massachusetts. According to the latest fiscal data of 2012 the company operates 7,300 stores in US market and 3,000 stores worldwide. The company has the third place in the US market of market share by achieving 22% of the snack-shop and coffee market. In order to increase their operation portfolio in the coffee market the company expanded their coffee portfolio that includes flavored coffees, latte, chocolate drinks, and tea. The company forecast in a next 20 years to expand their store by 50% (Censky, 2013). Also, the Dunkin Donuts strategies are forced to be fast service, low prices and user- friendlier environment alternative to Starbucks.

McDonald's Corporation

McDonalds is the largest competitors of Starbucks and operates 34,000 restauraunts around the world through subsidiaries and franchising in food service industry. The company offer large variety of fast food products, soft drinks and coffee. The company operates through 119 countries and 14,000 stores in US market.

The company was founded in 1948 in Oak Brook, Illinois. As part of it strategy to take competitive advantage against Starbucks for coffee beverages in an expanding and growing beverage category the company established in 2009 the new McCafe to the market.). McDonalds has the larger market demographic segmentation than Starbucks and the company looks to establish its offerings to the larger demographic, on other hand the company has to enter the affluent segment of coffee offering like Starbucks. The both of the companies have a strong worldwide brand recognition and customer base. The competitive advantage of McDonalds against Starbucks is the large volume of traffic and product variety. McDonalds the last time made some strategic changes and moved from the traditional business model of fast-food offering to the specialty coffee. In 2006 McDonalds implemented to the market their new premium coffee roast version McCafe that is forced to face competition as a brand in front of the Starbucks. The McDonalds also has a low-cost generic strategy for its new brand that is defined as competitive advantage against Starbucks offerings.

European coffee market (HIGH)

The European market does not differ so much from the American market in case of leading positions of major coffee chain companies. Despite the Starbucks in the market have strong market position another US brands such as McDonalds and Dunkin Donuts. In the European market and especially in the United Kingdom market very strong positions have European coffee brands Costa Coffee and Caffe Nero. The Scandinavian countries are the biggest coffee consumption countries (see chart below).

On other hand, the most of the countries show a positive image of consumption in local small coffee houses. In the European market the consumers mostly prefer the comfortable local coffee shops in front of the large chain. Starbucks made some shifts to overcome these issues through different tactics such as: partnership with local companies that understand better the customer behavior and different location of stores from central high metropolitan areas to urban closer to the customers' home zone (Jargon, 2012). Below is a brief definition of European major competitors in European market.

*The competition analysis for the Dunkin Donuts and McDonalds are described in the North America market competition analysis. The McDonalds and Dunkin Donuts data regarding European market will be presented briefly in the end of the following section.

Costa Coffee

Costa coffee is the biggest after Starbucks coffee shop chain in the world. The Costa coffee is a UK company with 1700 coffee shops in UK and 600 worldwide. The first international store the company opened in 1999 in Dubai and in recent times the large fast expansion shows the success of the company. (http://www.costa-business.co.uk/). The economic results for the 2012 illustrate the growth of sales by 27,5% and profits by 38%( www.bbc.co.uk/news/business-178549). The 2012 success are resulted in sales of 320 million cups of coffee and profits that reached 1$ billion. The company CEO Andy Harrison forecast the further expansion and profits of 2$ billion to 2018, but it still show the competitive difference with the major competitor Starbucks with profits of 13$ billion (http://www.mirror.co.uk/money/city-news/costa-coffee-owner-aims-double-1862449). Costa coffee in a global market chose the low-risk slow market development comparing with fast global expansion of Starbucks. The both of the companies target the same middle-upper customers and differentiate mostly in the location of stores. Costa coffee through the acquisition of the Coffee Nation acquired well established new locations as railway stations and etc.

Caffй Nero

Caffe Nero is an Italian-style coffee shop chain with country-of-origin United Kingdom. The company comparing with others coffee chains is quite new and the history of company starts from 1990 and the in 1997 the company was established as the Caffe Nero in London by Gerry Ford

( http://www.caffenero.com/story/History_01.aspx). In 2004 the company acquired from UK coffee retailer Coffee Republic a developed network of stores in UK and integrated them into company group. In recent time the company operates 600 stores worldwide and the graph below represent the financial performance of the company from 2006-2011.

Source: Caffe Nero source

The financial statement for 2012 of the company illustrates revenue growth of 11.5% to Ј184.6m, from Ј165.6m in 2011 and sales growth of 2.7%. Gross profit was up 7% to Ј44.4m (Ј41.5m in 2011), while EBITDA increased 4.7% to Ј31.5m (Ј30.1m in 2011). Operating profit grew by 10.4% to Ј19.1m comparing with Ј17.4m in 2011

Dunkin Donuts and McDonalds

The Dunkin Donuts are mostly focusing on business expansion and the company are estimated to give a fight to McDonalds and Starbucks regarding the coffee consumers loyalty in a high competitive market and to focuses on Asian market and European market mostly operating in a basic markets in Europe such as Russia, Germany and Spain ( Rexrode 2011, HuffingtonPost). During the recession the Russian and German markets are the economically steady markets comparing with others countries that are in a fifth year of recession are favorable places for investment. During the recession McDonalds in the European market is still show positive steady market growth. The McDonalds net turnover growth passed overall EU GDP growth by 4,6% in 2009. The company mostly expanding their operations to the new emerging European markets such as: Ex-Soviet countries and ex-Soviet bloc countries (Czech Rep., Poland, Romania, Poland and Baltic region)( Orehov, 2012).

2.1.2 BARRIERS FOR NEW ENTRANTS (LOW/MODERATE)

Generally the specialty coffee industry has a steady growth due to the growth of global consumption and customers coffee preferences especially from emerging markets. Almost, the main issues regarding the specialty coffee industry is not to enter, but to maintain in the industry. Each company could enter the current industry; on other hand the premium coffee companies and other quick-service restaurants have done a dominant market presence that makes some barriers for new entrants to overcome the established companies. Switching costs and distribution channels are the main barriers that make shift in degree from low to moderate. Regarding the economy of scale it described as increased due to the growth of main companies in the industry. Also, the large companies such as McDonalds and Dunkin' donuts have a well established distribution channels that give them a competitive advantage which could be low transportation costs and other operating cost in front of new entrants. Despite of the distribution channels the large companies in the current industry have advantage in legal proceedings with the suppliers that give them opportunity to purchase the coffee beans in a lower price than new entrants. The specialty coffee industry in the developed countries are unattractive for new entrants regarding the barriers to find appropriate location for a new store. Most of the stores in a large metropolitan areas are over-saturated by large companies within the specialty coffee industry. In addition, the main players in the specialty coffee industry have more capabilities and product technology regarding the production that give them advantage in cost leadership strategies (Adamy, 2008). Furthermore, the large players of the current industry passed out the main elements of product differentiation such as product quality and variation, location of the stores and price tactics and moved through the CSR policies, ambience of stores and brand recognition (Gulati, 2007). The legal and capital requirements to enter the coffee industry are low, but in other hand is a large issue to overcome main competitors and make business expansion in the current industry.

2.1.3 SUBSTITUTE PRODUCTS (DEGREE OF RISK -MEDIUM)

The risk of substitutes products or services in the specialty coffee industry is high and main product could be replaced with a variety of other products outside of the current industry, but in other hand the popularity of coffee increases every year and especially in the emerging markets such as India, China and Russian market and producing countries that could be analyzed as the economic growth of the countries and the recession in the traditional markets (See figure 1- the world coffee consumption between 2000-2010). The main substitutes for coffee beverages are mostly soft drinks and tea products. The soft drinks are identified as primary substitutes and especially the caffeinated drinks as Coca-Cola or Pepsi-Cola. Almost, the last researches show that the popularity and consumption of caffeinated soft drinks fall due to the health issues and society ignorance of carbonated products with a high contain of sugar and other chemical ingredients.

Despite of the soft drinks the tea and hot chocolate is also main substitutes of coffee. The tea preference overcome other substitutes regarding the health issues and the consumers that are interested in a health factors are mostly like to switch for a tea consumption(Euromonitor, “Starbucks Corp in Consumer Foodservice”, 2012). The another substitutes for a coffee and especially the generation “Y” or young people replace the coffee consumption with the energy drinks such as Monster, Red Bull and Rockstar. The young people more and more prefer the energy drinks instead of others beverages and the consumption of energy drinks grow steadily (see figure 2.- energy drink consumption and forecast until the 2016)

To summarize the above analysis, the coffee could be easily replaced by the customer almost the coffee preference over other substitutes and mostly soft drinks are higher and the global consumption of coffee verifies it (Harding, 2000).

2.1.4. SUPPLIER Bargaining Power (low/moderate)

The bargaining power of suppliers is a low, but due to the political negotiations the industry more and more faces the growth of commodity prices on coffee beans. The main suppliers of coffee beans are mostly developing countries that have low political and economical pressure on developed countries which are mostly present the development and establishment of specialty coffee industry companies. The last industry reports (ICO) for specialty coffee industry identifies steady growth of specialty coffee industry companies that increase the demand for the coffee beans. The main suppliers and or exporting countries of coffee and their sales volume are presented in the Appendix A. The economic theory states that high demand for a particular product increase the price (not necessary). For that reasons the large companies like Starbucks in order to have fixed prices and low power of suppliers are negotiating with suppliers with a long-term contract conditions. This kind of contracts passes the financial issues and most of the suppliers are willing to sign a long-term contract without price unpredictability and these switching costs lead the major specialty coffee industry companies to negotiate in their terms by decreasing the bargaining power of suppliers (Lee, 2007). On other hand the suppliers recent years find support from the government and other non-government organizations on sales conditions and charged prices. The support had limited the coffee buyers companies power and gave opportunity for suppliers to operate in fair conditions under FairTrade Labelling Organization that are involved in certification of operation for the both parties. However, the specialty coffee chains used this certification for the brand attraction and advertisement and the coffee products under the signature of FairTrade Organization (Argenti, 2004).

To summarize the above, the bargaining power of suppliers increases and currently could be defined as the medium. Almost, the factors that led to the growth of power of suppliers are: specialty coffee industry growth, Fairtrade organization, suppliers unions and specialty coffee industry competition that led the companies to differentiate their product through quality and superiority. The premium supplies led the suppliers to negotiate in a better trade conditions for them and force the bargaining power of suppliers to a higher level (medium).

2.1.5 BARGAINING POWER OF BUYERS (MEDIUM/MODERATE)

The most important customers or buyers for the specialty coffee industry are the individual customers that are not fully engaged in the purchasing behavior and have low volume of sales. Generally the term “buyers” include both consumers and company's retailers. On other hand the coffee shops have high dependency on customer purchase behavior and sales frequency, but the major players or giants of the industry would not affected in a high level by losing that kind of customers due to the high sales volume and market share( Adamy, 2008). Consumers comparing with firm's retailers are more price-sensitive regarding the undifferentiated products that decrease the switching costs for consumers. The key accounts or loyal value customers have a high influence on firms and could negotiate in a better way and more valuable for them. This category of customers has medium to high level of power and can pressure the retailers and put them into competition by demanding lower prices, better quality and high level of service. The other factor that increases the bargaining power of buyers is the access and familiarity of buyers with industry costs and price levels. The retailers win from the information access the reduction of cost for the market analysis and consumers take the possibility to analyze better the market and to switch to the best offer retailer (Cabral, 2000). Buyers could be pressured by backwards integration and will expand their production vertically and start to produce the suppliers' products by themselves. The meaning of the backwards integration in this case is to cover the uncovered supply and to fulfill demand of buyers (Grant, 2010).

2.2 INDUSTRY ATTRACTIVENESS AND MARKET ANALYSIS

The above Porter's five forces identified the main issues of the industry environment and five variables that defined the industry attractiveness. The International Coffee Organization survey show that the coffee industry and especially specialty coffee industry is growing steadily and the new markets effected the global consumption and introduced the coffee culture.

The latest ICO survey claim that total consumption in 2012 was 142 million bags of coffee and compared with 2011 in the global consumption is a growth of 2.2% (European Coffee Federation). The exporting countries or producers of coffee had accounted for over 43 million bags of coffee, emerging markets 28 million bags and traditional market more than 70 million bags. The consumption follow the trend and the traditional markets Europe and North America are still dominate in the market. On other hand the emerging markets have higher rated of growth and from 2009-2012 had steady growth of 6.5% (European Coffee Federation).

The five forces model was introduced the attractiveness of industry and to describe the main variables for the industry in a case of Starbucks. The market analysis identify that market is growing, but the five forces model identified some issues that could be identified as unattractive industry by new entrants. The American and European markets are the major markets, but they have a high competition dominated by the major specialty coffee retailers and quick-service restaurants that have a lot advantages against new entrants such as: distribution channels, store saturation, experience, control over suppliers and buyers. Also, the coffee beverages have a high potential to be substituted from other beverages like tea or energy drinks that could be defined as a treat for e new company. The dominant players almost provide growth potential for companies by franchising or licensing. Franchising Coffee has become an alternative route for the new entrants and low-risk for an unattractive industry.

2.3 KEY SUCCESS FACTORS

First in the Market

This was the advantage of the first on coffee industry and the profits was large, so to keep the reputation and the quality at the highest level Starbucks in the beginning did not adopted franchising ,instead the company take in control all new stores(Shultz, 1997). The primary reason why Starbucks use this aggressive rate of expansion without having a significant problem was the strategic decision that made in 1987 to expand in Chicago, IL AND Vancouver and Canada at the same time.

Electronic Catalogue

It was another reason of Starbucks success and it was the best way because the catalogue gives the opportunity to order wholesale packaged coffee beans Starbucks from anywhere in the city . The areas with high concentrations of order then Starbuck open a store, these gives the power through mail catalogue order to obtain the best areas to open a new Starbucks store.

Employee motivation

The key of success of Starbucks is employees of company. To ensure that company follow to support their employees through different programs and how said Howard Schultz “these people are not only the heart and the soul but also the public face of the company ,every dollar earned passes through their hands” and for these reason to keep theme satisfied is the best way to be successful. Starbucks dedicated lot of money and time to obtain and hire the best knowledgeable and experienced employees to keep their reputation stable. At the same time the Starbucks gives the opportunity to their employees the right of equity ownership of company in order to be more loyal and profitable.

Maintain the best quality of coffee beans

The most important factor for Starbucks is the high quality of the coffee that brings them competitive advantage and customer satisfaction. The competitive advantage of the company is achievable due to Starbucks' supply chain and despite the leading position in the coffee industry; Starbucks does not reduce the price of coffee beans from suppliers in order to ensure the quality of supplies. Another reason for the cooperation with suppliers through the development of C.A.F.E practises and the goal of that was to enhance coffee quality and ensure a long term waft of best quality coffee. To achieve all these Conservation international want some principles: to create a sustainable supply chain with high quality coffee from a stable farmers that will not exploited by their partners ,to maintain the environment safe of farmer lamb and at the end to give health care ,security and support to the families of the farmers.

Third Place

It was something that Starbucks manage is the sense of belongings because people isolated from each other and we have a big problem in our days with the isolation ,this problem Starbucks try to defeated in order to start communicate to each other. A Ray Oldenburg, a sociology professor believes that the success of Starbucks is due to the third place that they have created. They offer free wireless to the customers that have a member card and 10% discount these create loyal customer because many of them they can work at Starbucks while they enjoy their coffee. At the same time they can have access to iTunes and to have the opportunity to buy digital music (Searcey, 2008).

Ethical Responsibility

The management levels of the Starbucks Company are responsible for the equity and fairness, the company concerned about ethical practices and try to take place in charity activities. In the coffee industry Starbucks widely implement corporate social responsibility and make action in order to protect the environment, For instance if you take back the cup of the coffee you buy before they make you discount for your new coffee. These are some of the action that helps Starbucks to create more loyal customers. Moreover the company make some action in order to save the world from environmental contamination, for instance the cups of coffee they use are made from recycled materials and the suppliers that they corporate must have some standards like conservation and ethical working conditions from employees .These action make the customers to buy a coffee from Starbucks despite if they pay something more , but they feel that they are feel that they supporting a good cause and they helping to save the world.

The brand image

Brand recognition and brand awareness is something that Starbucks manage, the customers are willing to pay more money to buy a coffee from Starbucks and the reason is not because they buy a high quality coffee but because of the experience that they receive from Starbucks. The brand of the company is a life style and a attitude and it cannot be measured (Joseph Ruiz, 2012).

Position of Stores

The position of the stores is another success factor of Starbucks success it is achievable due to location of stores in every high traffic corner and this is one of their competitive advantages of the company. Because Starbucks are everywhere in the world the have manage to create emotions of belongings ,for example if someone is from USA and go to Greece from holidays if he go to a Starbusks coffee store he knows the coffee if it is good and he knows what to order( Rachel Tepper, 2013)

Innovation

Starbucks from 2008 had created some new products in order to have a competitive advantage in market. Strong competition forced the company to develop a meal and they call it oatmeal in order to respond the McDonalds menu. Furthermore, Starbucks introduced the low-price VIA coffee that is another innovate product from Starbucks (Jenna Goudreau , 2011)

Loyalty programs

Starbucks have created the best loyalty program it is a program for all customer, the more coffee you drink the more reward you receive. The cost of this loyalty program is 25$ fee and include the rewards like 10% discount in every purchase and if you collect some stars you take your reward. The program includes a loyalty card and with this card customers feel that every time they got to a Starbucks store will get their reward. The loyalty program includes and a mobile reward app, and customers can pay from their mobile their order. This is very good program because create a loyal relationship with customers and the company.

Financial Resources

It is another reason of success because Starbucks is the number one speciality coffee retail and it has the biggest financial power from other competitors and these is a competitive advantage because he can advantage of the opportunities of investments and expansion.

2.4 Strategic map/ Positioning

The strategic map or positioning helps the company to develop a market positioning strategy for their products or service. The figure 4 represent the positioning map or strategic situation of Starbucks and competitors in the specialty coffee industry regarding the dimension as quality versus price. The future assumptions according this dimension of strategic position of Starbucks it can be predicted that Starbucks shift to products' higher quality in a higher price in some regions through some competitive advantages in a value chain of company. The main competitors Dunkin Donuts and McCafe(McDonalds) are looking mostly for the quality more that price in order to achieve the Starbucks positions regarding quality.



Figure 4. Positioning map: Quality vs. Price (Present &Future)

Present Future

The figure 5 represents the strategic position of Starbucks in terms of dimension quality versus range of products. The latest partnership and acquisitions of Starbucks illustrate that Starbucks Corporation makes shift to product range diversification and variety.

Figure 5. Positioning map: Quality vs. Range of products (Present & Future)

Present Future



2.5 DRIVERS OF CHANGE

Industrialization

The industrialization and economic boom in emerging markets and especially the BRIC countries are the driving force for the whole coffee industry to expand their business in these countries. For example, India is a country-origin of tea and it was a common beverage for the middle and upper customers, but in recent years coffee becomes more popular and statement of wealth for the upper-middle class in that region (Bose, 2011). The most of developing countries involved in industrialization lead the coffee preference to become a choice for many customers. The industrialization would drive the coffee industry for the next years to the new countries and to the expansion of specialty coffee vendors.

Source: China Daily, 2010. (“BRIC has growing influence in international affairs”)

Product/Service Innovation

Product and service innovation is the one of the major driving forces in each industry and specialty coffee is no exception. The local coffee shops and other small stores offer the large variety of coffee that contributed to Starbucks to overpass the competitors in the market is the extensive Research and Development capabilities. The coffee quality was the most success factor for the company and in order to maintain company need to ensure the future innovation capabilities. Starbucks continually has to analyze their brewing processes and the future of the company in the current industry depends on the company's ability to bring new innovative ideas to the market with distinctive flavors. Despite of the product innovation the service quality also play important role in the current industry that lead the company to innovate in the service quality. The latest innovative idea with store value cards or pre-paid cards that decreased the costs and time in transaction processes (Holmes, 2002).

Collaboration/Partnership

The partnership and alliances has become a crucial factor in the coffee industry and not only in order to survive and growth in a competitive market. Starbucks has the image of the company which is willing to cooperate and highly involved in partnership agreements with other companies like Pepsi, Nordstrom, Kraft and United Airlines. Starbucks also use different alliances and joint ventures in order to expand their business outside the US market and achieve competitive assessment in new markets by collaborating with local businesses through partnership (“International Development,” 2009). The future expansion depends in ability of company to sigh well established partnerships and alliances that would give the company access to innovation, distribution channels and global extension of business.

Image/Lifestyle

The service sector and especially coffee industry is significantly impacted by consumers' perceptions and brand recognition and positioning. The Americans and other countries' consumers spend a lot of time at home and work, that lead the company to develop a convenient and comfortable environment in Starbucks stores called later “Third place”. The company tried to change the customers' lifestyle and perceptions about coffee shop and to make the customers to invest time in coffee consumption inside of the stores. The companies like Starbucks more spend marketing effort in development of inside coffee consumption lifestyle and avoid the coffee on the go.

Environmental issues and Ethics

The environmental issues and ethical practices of doing business affect directly the company growth and performance due to the customers' perceptions and brand image as judgment of the customers. Starbucks has a strategy to become the major retailer of coffee in a global market, but Starbucks does not sacrifice its moral and ethical practices ("Starbucks Shared Planet - Our Responsibility," 2009). The premium coffee quality is also ensured by environmental and ethical practices enhanced by the Starbucks and company embrace the environment through promotion of fair trade with their suppliers. The fair trade with suppliers ensures the premium quality of coffee supplies and from the suppliers' part the sustainable prices and sustainable demand (Davids, 2009).

Technology

The technological progress in current times dramatically changes the business environment and force companies to take into consideration the technological issues. The technology mostly used by the companies to increase their efficiency, distribution channels, production and marketing communication. The Starbucks has introduced some technological innovations in their production efficiency by introducing automated coffee machines that led to the reduction of time production of a coffee cup. The efficiency is an important factor in customers' satisfaction as the customers in morning times want fast their coffee (Groom, 2007). However, Starbucks efficiency and technology involvement need to be balanced with creating a coffee experience and having an awareness of the customers price-value due to the customers segment that prefer the traditional coffee brewing and manufacturing method. Also, the development and introduction of home coffee machines also affected the Starbucks performance and company need to react to these technological renovations and to monitor this segment as competitor ones.



3. INTERNAL ANALYSIS

3.1 SWOT ANALYSIS - STARBUCKS CORPORATION

The analytical SWOT analysis report is presented in Appendix 1. Below is represented a brief presentation of SWOT analysis in Table 2.

Table 2. - SWOT analysis .

SWOT ANALYSIS
Strengths	· Global presence · Brand recognition · Expanding operating margin · Global retail footprint · Ethical practices · Eco-friendly and environmental practices · Quality of products · Employees and Suppliers relations · Store location · Innovation · Store atmosphere · Financial resources and capabilities
Weaknesses	· High costs of Sales · Dependence on the local market(US market) · Lack of Control( Contract agreement) · High Prices · Protest against Starbucks · Cannibalization of stores · Product Mix (Focusing in a specific products)
Opportunities	· Business expansion · Inorganic Growth opportunities · Entry to emerging markets(India, China, Russia) · Growth of popularity of coffee
Threats	· High Commodity Costs · Legal Proceedings · Intense Competition · Health issues · Economic downturn period · Public opinion

3.2 STRATEGIC ISSUES

The global expansion and local brought to the company some issues concerning the retail stores and operating costs regarding the commodity and rent costs. The real estate issues affected the company's performance and led to the cut back domestic store expansion and to focus on international expansion. While many of strategic issues moved to a right direction the company almost has to address attention to some other strategic issues. Most of the critics criticize the company for their operations conducted by licensing relationships with other companies. The portion of the licensing operations is very small and requires small investment that makes Starbucks not attracted to maintain these relationships. On other hand the global expansion bring issues as culture differences and joint venture or acquisition is the best way to enter new market (Starbucks 2009, “International Development”). In order to maintain high quality of products, Starbucks has to bring more control to their international partners.

Starbucks has a leading positions in the specialty coffee market due to the extensive R&D and innovative ideas concerning beverages and other operations. The company through the global expansion faces some strategic issues regarding the innovation and how to create the worldwide innovation and learning data. Starbucks mostly achieve it through the close relationship with the suppliers, customers, partners and employees (Gulati, Huffman 2008). The close relationship with the Starbucks' employees and rewarding system of them has improved dramatically the company performance, brand awareness and by making every employee company's partner encouraged the worldwide learning.

Additionally the company needs to take into account the strategic issues regarding the macro-economic environment in the traditional markets. The developed countries or traditional market for the Starbucks products are in the recession period and customers become more price-sensitive that force them to switch from the brand to competitors as McDonalds and Dunkin Donuts that have lower prices.

3.3 CAPABILITIES

Starbucks is the market leader in the specialty coffee industry that come out from their high capabilities. The company capabilities such as market leadership, employees, distribution channels and supply chain gave them a competitive advantage in front of the competitors. Their superior distribution channel chain and location of stores in most high traffic metropolitan areas give them advantage regarding the competition. However, the strongest capabilities of Starbucks are in their employees and supply chain. Starbucks supply chain operations are rated as the best in the industry and enable them on-time deliveries (Lee, 2007). Also, their supply chain management system allows them to reduce costs regarding the inventory stock and warehouse. Also, to enforce their coffee quality, Starbucks works directly with the coffee growers in different countries and through supply chain deliver in time the supplies and maintain the coffee bean quality (Moon and Quelch, 2006).

Starbucks employees or “partners” how the company them call are the important factor of company success. The company each recruited employee put in the training process in order to maintain the quality of coffee and to understand the consumer behavior. Also, the employees affect the customer satisfaction and experience and by achieving the friendly environment and knowledgeable employees are the main driving force to brand recognition and awareness. In order to achieve the high capabilities the company enhances their organization culture which lies through six principles such as: self-respect, diversity, highest standards for all the company's operations, customer satisfaction, contribution to community and environmental issues and profitability.

Other crucial factors that affected the company success are financial resources or financial wealth, store environment, premium quality of coffee beverages and global presence (See appendix 4).

3.4 COMPETITIVE ADVANTAGE

The definition of competitive advantage lies through strengths of the organization and includes the combination of skills, processes, knowledge and usually achieved as a result of long-term development processes and experiences (Mayhew, 2010). The competitive advantage also lies through the capabilities of company to offer value product or service that competitors companies difficult imitate easy. Despite all the above the company could achieve competitive advantage through Porter's generic strategies as cost leadership, differentiation and focus. The Starbucks are recognizable brand for their premium products and human resources of the company. The premium quality of Starbucks coffee achieved through the long -term experience and from the combination of employees skills and supply chain processes and experience. Starbucks try to negotiate with suppliers for long-term relationship and agreements by ensuring the quality of raw materials like coffee beans and mostly finest and high altitude Arabica coffee beans (Koehn and Miller, 2008).

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