Starbucks competitive advantage

8/9/2019 Starbucks competitive advantage

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I. COFFEE INDUSTRY

1. INTRODUCE COFFEE INDUSTRY

Coffee is an important commodity and a popular beverage. Over 2.25 billion

cups of coffee are consumed in the world every day. Over 90% of coffee

production takes place in developing countries, while consumption happens

mainly in the industrialized economies.

Coffee industry more and more strongly develop with:

After crude oil, coffee is the most sought commodity in the world: Coffee

is worth over $100 billion worldwide. That puts it ahead of commodities

like natural gas, gold, brent oil, sugar and corn.

Coffee farms are the economic livelihood of over 25 million people:

Coffee is grown in over 50 countries in Asia, Africa, South America, Central

America and the Caribbean. And 67 percent of the world's coffee is grown

in the Americas alone.

Coffee shops are the fastest growing niche in the restaurant business. If it

seems like there are coffee shops popping up everywhere around you, youmight be right — coffee shops have a seven percent annual growth rate.

Starbucks, by far America's coffee giant, is the third largest restaurant

chain in the U.S.


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The retail-based segment is confined to the specialty coffee sector,

wherein the coffee beans are sold to consumers directly, either in the

coffeehouses or in retails stores, department stores and supermarkets.

There are Kinds of The Retail Market for Coffee Industry

Instant Coffee Ready to drink coffee Coffee shops

Combo packing

coffee

Triple packing

coffee

Canned Coffee Take coffee-based

coffee shop

Table 1

This table 1 is the coffee industry includes instant coffee, ready to drink

coffee and coffee shops in three kinds at present.

First kind: refers to instant coffee combo or triple package of coffee

powder, then add hot water to drink brew may immediately.

Second kind: ready to drink coffee general vacuum canned or foil

packets of flavored drinks, which means that the drink.

Third kind: coffee shop is based on the major commodities for

profit coffee shops.For our report, we will focus on retail-based segment, and go into detail at

Starbucks- one of largest restaurant chain in the U.S, analysis its performance and

its competition in this industry.


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2. COMPETITION IN COFFEE INDUSTRY

Over the past several years, coffee chains have become more and more

popular among customers who enjoy their coffee to go. This out-of-home retail

market was dominated by the companies Starbucks and Dunkin Brands Inc. with

a combined market share of almost 50 percent in 2011.

The specialty coffee industry competition is, however, not price-based

unlike the other industries. In this particular industry, consumption of coffee is

not dependent on the price of the product or commodity but on the

differentiation between each product and several value adding variables such as

the quality of customer services, brand, brand recognition or image of the

company.

3. WHY DO WE CHOOSE STARBUCKS?

Firstly, Starbucks Coffee Company is the leading retailer, roaster and brand

of specialty coffee in the world, with more than 6,000 retail locations in North

America, Latin America, Europe, the Middle East and the Pacific Rim. Starbucks is

everywhere. Starbucks has more than 16,000 coffee shops in more than 35

countries.

Secondly, coffee industry is special industry which is not sensitive to price

adjustments or movements, just depend on high-quality, the way serve coffee

and image the companies bring to the customer. And Starbucks become more

and more successful in coffee industry thanks to doing well all things above.

Finally, the reasons why we choose Starbucks are Starbucks shows us they

are one of the best global corporation and in coffee industry. Starbucks ispotential case of successful in business. We can research about value chain,

supply chain, logistic and etc. It is the symbol of successful process. Starbucks is

very good topic to improve analysis skill and to compete with global rival or the

local around the world. For all these reasons, we want to choose Starbucks.


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II. GENERAL INFORMATION ABOUT STARBUCKS

1. INTRODUCTION STARBUCKS

In 1971 Starbucks began when three friends: English teacher Jerry Baldwin,

history teacher Zev Siegel and a writer Gordon Bowker opened a store called Starbuckscoffee, Tea and Spice in the touristy Pikes place market in Seattle with the future aimed

of providing coffee to a number of restaurants and surrounding bars and hopes of

creating a « third place » between home and work.

Customers are able to socialize, read, study or enjoy music while drinking coffee.

Starbucks strategically positions each store with hopes of matching the specific location,

helping to create a unique atmosphere. The current international situation for Starbucks

seems to be an emerging part of their business and the reorganization of this is proved

by their aim to become a leading global company through making a difference in

people’s lives all around the word. This goal is quite close to being achieved as proved

the Starbucks current locations in international markets and the successfulness of these

ventures.

The current countries in which Starbucks are located in are: Australia, Bahrain,

Canada, Hong Kong, Japan, Kuwait, Lebanon, Malaysia, New Zealand, Oman, France, and

Taiwan.... But we will focus on USA.

Starbuck’s Strategy for expanding its retail business is to increase its market

share in existing markets and to open stores in new markets where the opportunity

exists to become the leading specialty coffee retailer. In support of this strategy, thecompany opened 647 new stores during the year 2001. At the end of year, Starbucks

had 2,971 company-operated stores.

2. MARKETING ACTIVITIES

Marketing is usually defined as the organization wide generation, dissemination and

responsiveness to market intelligence. This definition at once changes the dominant

paradigm that has defined marketing for decades.

Starbucks is the leading specialty coffee retailer in USA, with over 5000 locations in

22 international markets. Starbucks positions their products on a relatively simple plane.They focus on quality and experience rather than price.

A comparison of specialty drinks with its competitor reveals very minor differences.

Starbucks’s image is one of the key elements in their success. The company has realized

that people don’t only come for the coffee: they come for the atmosphere. People

socialize, read, study, or just enjoy the music while drinking their coffee.


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Knowing this, Coffee shops try to make their stores unique in some way or another

that will create an appealing atmosphere.

Starbucks has less of a distinct setting for their location: instead, they focus on

having plenty of comfortable seating so that people feel welcome to stay longer than

they might have planned. Starbucks also positions each store individually according tothe specific location it is in.

This flexibility has attributed to the great success of the company in the past

decade. Another important part of Starbucks’s positioning is that they are

environmentally friendly. While other retailers position themselves in similar ways, no

one focuses to the extent that Starbucks has.

Advertising marketing which used by Starbucks has also been a key success

factor. Starbucks has found more success advertising on a local level rather than to the

nation whole. The company advertises a lot through print mediums as Starbucks’s target

market tends to be educated people who do more reading than the average person.

Brand marketing

The Starbucks marketing strategy has always focused on « word of mouth »

advertising and letting the high quality of their products and services speak for

themselves. For years, this has been uniquely Starbucks, and it has played a huge part in

making Starbucks Coffe Company a success.

As a result, a significant portion of Starbucks marketing efforts are locally driven and

focus on connecting with the community through sponsorship, events and community

giving programs.

3. THE USE OF IT IN STARBUCKS

While well-known for its caffeinated concoctions, Starbucks has also been

recognized for its innovative use of technology: Starbucks has begun to make

technology a key part of the user experience to improve on brand loyalty, introduce

new products to its consumers, all with the final objective of improving throughput at its

stores. To do this, the company is present on:

Mobile applicationsA key part of the company's effort has been the move to turn its loyalty cards into

mobile payment applications. In 2012, consumers have spent $500 million using mobile

wallet apps with "most" of that spending being done on the Starbucks app. The

company has reported that the mobile app is now used to pay for 10% of all consumer

visits in the US. Total money loaded on to the app (through credit card, or PayPal with


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an automatic reload function) is up more than 100% year over year.

So, Starbucks bet on new technology to make the payments as simple by touching a

phone on a scanner, hoping to encourage customers to make more impulse purchases

while automatically offering coupons or rewards so they buy more.

In fact, payment applications such as smartphone apps increase customer spending

as the consumers often fail to equate virtual money on a smartphone to real money.

Social media :

In June 2010, Starbucks was named the most popular social media brand. Starbucks

social media space includes technology like its website and social media platforms,

including Facebook, Twitter and Foursquare. According to a February 2010 article in

"AdAge," Starbucks was able to use social technology to its advantage and bring

customers back to its stores by giving them an online space to submit ideas and providefeedback on the brand and their experience with it.

With 35 million members in the U.S. Starbuck community on Facebook, the brand

prides itself on being one of the leading brands in this channel. Initially, Starbuck invests

networks by "Starbucks Card Facebook" application to buy a Starbucks coffee visual

(chocolate, coffee, milkshake) via Facebook Credits and offer his friends by posting it on

their wall. Thanks to this fun way, Starbucks 'visibility greatly increases.

On October 28, Starbucks launches gift cards via Twitter. This program, called

"twitted coffee" allows to purchase a gift card of $ 5 for a friend on Twitter. To

encourage consumers to try the program, the first 100,000 person that link their


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accounts with their Visa card will receive a $ 5 gift. On the eve of Christmas, would be it

the beginning of a "new" practice in e-commerce?

Starbucks uses also Foursquare to increase its visibility and "making the buzz."

Indeed, Starbucks organizes raffles among people that use to "check in" at Starbucks

shop via Foursquare. Winners are rewarded with a $ 40 gift card. Starbucks plans to use

Foursquare data less for business intelligence and, more for getting feedback about

what customers like and do not like.


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Starbucks Digital Network :

Starbucks can serve as makeshift office and meeting place thanks to the free,

unlimited Wi-Fi available in its stores. The digital network is a partnership of Starbucks

and Yahoo, and delivers premium content from sites like "USA Today," "Wall Street

Journal," ESPN, and more to laptops, tablets and smartphones. When customersconnect to Starbucks' free Wi-Fi, they're greeted with the landing page for the digital

network that allows to check in with Foursquare, log in to their Starbucks card and

more.

4. IDENTIFY THE RESOURCES, CAPABILITIES AND DISTINCTIVE

COMPETENCIES OF STARBUCKS.

The resource and capabilities of Starbucks can be identify and separate to

tangible and intangible resource.

Tangible resources

Three kinds of tangible resource can be analysis as below:

a. Manpower: Base on the rapidly expanded since 1990s until now, Starbucks

was accumulated thousands of well-trained employee. From level of direct counter

service staff, baristas until managerial level, they are a very strong resource team owned

by Starbucks. Especially their existing CEO Howard Schultz, he is one of the mostsuccessful CEO in the worldwide, was create a new coffeehouse format and implement

for whole Starbucks retail store, and finally got a astounding performance and rapidly

expanding for Starbucks retail store in United States and worldwide.

b. Retail Store: Since 1990s, Starbucks was rapidly expanding and built up an

enormous amount of retail store in the worldwide. In the same time, based on their

sophisticated location strategy, many premium locations was occupied by their retail

stores. The location strategic for retail store become their another main asset and

resource to continue expanding, or at least maintain a leading position in coffeehouse

market.


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c. Financial resources

Net working capital is a measure used to help determine a company’s liquidity,

which is the company’s ability to pay off liabilities when they are due. The net working

capital can be found simply by finding the difference between the company’s current

assets and current liabilities (Accounting-Information). For Starbucks, their current

assets include everything from cash, accounts receivable, inventories and more.

Starbucks’ liabilities are separated into the two common categories of current liabilities

and long-term liabilities. These liabilities include accounts payable, accrued taxes,

insurance reserves and more.

Year Current assets Current

liabilities

Networking

capital

Number of

increase

working capital

2010 $2.76 $1.78 $0.98

2011 $3.8 $2.06 $1.74 $0.76

2012 $4.2 $2.21 $1.99 $0.25

Over the course of one year from 2010 to 2011, Starbucks increased its’ working

capital $760 million. And from 2011 to 2012, Starbucks also increased its’ working

capital $250 million.

Two of the main goals of effective management of working capital are

maintaining a balance of inventories, accounts receivable, cash, and other forms of

revenue to provide profitability and making sure that a company can remain operationalafter paying off current assets. These are the two goals that Starbucks most likely

focuses on when it comes to the effective management of working capital. If Starbucks

did not vigilantly keep track of its product inventory, as well as the individual store

inventory, it could suffer in delivering its product to its customer, which is the base of its


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business. This inventory directly relates to accounts receivable and cash flow, which

Starbucks needs to closely monitor in order to ensure that they are hitting certain

benchmark numbers they need in order to remain profitable and operational.

It seems as though Starbucks has been working towards achieving these goals.

Starbucks seems to understand the importance of effectively managing its net working

capital, which is why they employ over 500 employees on their finance team, which

includes everything from accounting, auditing, corporate development and more

(Starbucks Corporation). Also, seeing the noticeable improvement in net working capital

over the course of one year, it is apparent that Starbucks is concerned with maintaining

its profitability and ability to pay its liabilities. Also, having working capital in excess of

$977 million demonstrates that Starbucks is very liquid and maintains healthy balance

sheets along with accounting measures.

Intangible resource

For intangible resource and capabilities portion, the continuous growth for brand

equity is Starbucks’s one of the most valuable resource and capabilities while facing

many imitators appear in the coffeehouse market. The unique Starbucks Experience

concept, with an innovative product display and cozy atmosphere, free Wi-Fi service

provided , seasonal themes, promotions etc. makes Starbucks a strong brand that allows

for brand recognition and consumer retention. Base on the world’s most popular coffee

brands, Starbucks also will be deserve many privilege during new market exploiting

time, especially countries outside the United States.

Lastly but not at least, Starbucks had important intangible that made Starbucks

become stronger and stronger is relationship between coffee suppliers, partnerships

and customers. Starbucks also approached loyalty program to get customers to visit

more often and spend more on revamped sandwiches and other food.


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Distinctive competencies

For distinctive competencies of Starbucks, market entry and key success was in

providing high-end quality coffee drinks at affordable prices. This clever blend of unique

quality drinks with a great ambiance and an excellent service made their pricing

reasonable and fair.

III. PERFORMANCE ANALYSIS OF STARBUCKS

1. 3C’S ANALYSIS

a. Company

Starbucks is the largest coffeehouse company in the world. There are more than

13,100 Starbucks store in the word, spanning 40 countries. The stores all sell drip coffee,

espresso drinks, tea, blended drinks, coffee mugs and other accessories.

Interestingly enough, the prices found at Starbucks coffee are significantly higher

than the market average. The higher prices are a direct result of their ingenious

marketing strategy.

Starbucks Corporation engages in the purchase, roasting and sale of whole bean

coffees worldwide. It offers brewed coffees, Italian-style espresso beverage, cold

blended beverage, various complementary food items and a selection of premium teas,

as well as beverage-related accessories and equipment, through its retail stores.In addition, Starbucks Corporation produces and sells ready to drink beverage,

which include bottled beverages, espresso drinks, chilled cup coffees and ice creams.

Starbucks has been a target of protests on issues such as fair trade policies, labor

relations, environmental impact, political views and anti-competitive practices.

Starbucks can be found in many popular grocery chains in the USA as in many airports

big shopping mall metro station and street.

The member of the company’s board of director are : Howard Schultz, Jim

Donald, Barbara Bass, Howard Beahar, Bill Bradley, Melody Hobson, Olden Lee, James

Shennan, Javier Terul, Myron Ullman and Craig Weatherup.


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b. Main competitors

Starbucks main competitors are quick-service restaurants and specialty coffee

shops. There are an abundant amount of competitors in the specialty coffee beverage

industry. The company believes that its customers choose among retailers primarily on

the basis of product service, service, price, and convenience. Starbucks, in recent times,

has experienced drastic direct competition from large US competitors from quick-

service restaurants.

These restaurants have significantly greater marketing and operating resources

than they do. Starbucks is also faced with well-established competitors in the

International markets with increased competition in the U.S. ready-to-drink coffee

beverage market.

While there are many competitors in the specialty eateries industry, Dunkin

Donuts, McDonalds, and Panera Bread are the main players in the industry.

Dunkin Donuts

The first Dunkin Donuts was opened in 1950 in Quincy, Massachusetts by WilliamRosenberg. Today, there are over 13,000 Dunkin Donuts located in 50 countries

worldwide with sales of $6.4 billion in 2006. Dunkin’s headquarters is located in Canton,

Massachusetts.

Dunkin Donuts is known for their doughnuts and coffee. Over the years, Dunkin

has introduced new products such as bagels, muffins, breakfast sandwiches. In order to

compete with the lunch crowd, Dunkin expanded their product menu to include pizzas

and sandwiches. In order to compete with the specialty coffeehouses, Dunkin expanded

their coffee offerings to include flavored coffees, lattes, coolattas, flavored hotchocolate and teas.

McDonalds


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The first McDonald’s restaurant was opened in 1940 in San Bernardino, California

by two brothers named Dick and Mac McDonald. As of December 31, 2007, there were

31,377 McDonald's restaurants in 118 countries serving 54 million people each day.

McDonald’s is the world’s largest fast-food chain restaurant.

While Starbucks is the leader in the specialty coffeehouse market, McDonalds is

becoming an emerging competitor when it first upgraded its coffee in 2006.

McDonald’s coffee sales increased 15% in 2006, and plans to grow coffee sales with the

plan to install coffee bars in all 14,000 U.S. locations. The McDonald's new specialty

drinks, which are now in about half of the company's nearly 14,000 US stores, already,

have a following among some former Starbucks customers.

McDonalds has a larger customer demographic than Starbucks. Starbucks coffee

is considered to be a luxury for the affluent, while McDonald’s caters to families withchildren, teenagers, adults, and senior citizens with it well-established menu offerings.

Like Starbucks, McDonalds has a strong brand recognition and loyal customer base. The

advantage McDonald’s has over Starbucks is that is has a considerably larger volume of

traffic compared to Starbucks. While customers are stopping for a quick breakfast,

lunch or dinner, they may get a specialty coffee to go too.

Panera Bread

Panera Bread was founded by Louis Kane and Ron Shaich in 1981. It was

originally name Au Bon Pain Co., Inc., and later changed its name to Panera Bread

Company in 1998. Today, there are more than 1160 Panera Bread bakery-cafes in 40

states in the U.S and the headquarters is located in Richmond Heights, Missouri.

Panera’s Mission Statement, “A loaf of bread in every arm.” Their strategy is tocompete successfully in the breakfast, lunch, evening and take-out dinner restaurant

segments.

Panera’s product line consists of baked goods, artisan and specialty breads,

custom roasted coffee and espresso drinks, soups, salads, made-to-order sandwiches


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and gourmet pizzas. In order to compete with the breakfast competitors, Panera will be

offering breakfast sandwiches in addition to bagels and muffins in March 2008.

Panera’s ambiance of casual dining is the closest competitor to Starbucks. Like

Starbucks and Caribou Coffee, Panera Bread offers free WiFi to its customers. Panera’s

pricing is designed so customers perceived good value with high quality food at

reasonable prices which will hopefully encourage repeat customers.

Starbucks Dunkin Donuts Mc Donald’s Panera Bread

Mark

Origin in 1971 in

Seattle,

Washington

In 1950 in

Quincy,

Massachusetts

In 1940 in San

Bernardino,

California

In 1981

Number of

stores

Over 12500 Over 13000 Over 31,000 Over 1160

Product Coffee, Pastries,

Muffins, Cakes,

Sandwiches,

Crisps, Cookies,

Biscotti, Bars

Coffee

bagels, muffins,

breakfast

sandwiches

Coffee

Simple meal

Ice cream

coffee and espresso

drinks, soups, salads,

made-to-order

sandwiches and

gourmet pizzas

Price 4USD 1USD 1.89USD 3.05USD

Consumers

ages

20 up age All range All range 20 up age

Distributionarea

Worldwide Worldwide Worldwide Worldwide

Main Product coffee Donuts Fast food bread


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c. Consumers needs

Starbucks holds around 33 percent of the market share for coffee in the U.S. It

sells almost as much coffee as do fast food and convenience stores combined, even

though it the bulk of its consumers are in cities or upscale suburban areas. Starbucks has

been able to gain such a large share of the market by catering specifically to a well-

defined target audience.

Starbucks’ primary target market is men and women aged 25 to 40. They account

for almost half (49 %) of its total business. Starbucks’ appeal to this consumer age group

through hip, contemporary design that is consistent in its advertising and decor, and

working to keep its products current as status symbols. Customers tend to be urbanites

with relatively high income, professional careers and a focus on social welfare. This

target audience grows at a rate of 3 percent annually.

Starbucks creates a third place for customer. Not home, not work, but someplace

that customers can relax and talk. We use Marketing Strategy (4 P’s) to analysis

Customer needs.

Product: While coffee remains the core product and focus of Starbucks, the

introduction of various new products has expanded the Starbucks product portfolio.

Also, as part of the marketing campaign, Starbucks is making a push for its store

employees to provide customer with exceptional customer service. Now, in Starbucksshop, they also introduce many kinds such as tea, hot and cold beverage or food. That

will make customers have many choices.

Pricing: Starbucks has always offered a range of products that vary in price. With

the economy slowing starting to gain momentum, Starbucks’ main objective must be to

keep prices on par with competitors. In addition, a market opportunity presented itself


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during the recession – at home coffee drinkers. In order to capitalize on this market

segment, Starbucks must price there at home coffee selections closely to competitors

such as Dunkin’ Donuts, while also balancing economic factors such as distribution costs,

fair-market costs, and more. Pricing maybe is the weakness of them. But still make

customers feel their standard will not be lost, the pride still have. Holding Starbuckscups make you feel success.

Promotion: Starbucks will continue to adopt new promotional outlets in order to

reach consumers. An active participation on Web 2.0 platforms, televisions

advertisements, and email marketing will all be utilized to promote products and

initiatives. Initiating contests for customers to participate in will be a main focus. These

can range from coffee bag design contests, to social media contests integrating

platforms such as Twitter. Make customers feel more comfortable convenience when

they come to Starbucks shop.

Placement: The traditional methods of distribution will continue to operate the

placement of Starbucks products to consumers. One area which shall be investigated

further is how to better penetrate alternate retail outlets such as grocery stores, in

order to attract the market of at home coffee drinkers. Also, other potential sites for

warehouses shall be scouted and considered in order to anticipate for potential growth.

And since 1987, Starbucks has opened daily 2 stores.

2. SUPPLY CHAIN OF STARBUCKS

A. Their Activity

1. Local communities:

Africa: Rwanda, Tanzania, Zambia, Ethiopia, Kenya and Burundi.


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Latin America: Guatemala, Costa Rica, Mexico, El Salvador, Honduras,

Nicaragua, Panama, Peru, Bolivia and Brazil.

Asia: China, Papua New Guinea, Indonesia and East Timor.

2.

Suppliers: Through Farmer Support Center and Planned Farmer Support Center

Rule 1. Starbucks is required to have the submitted material tested for

contamination before it is disposed of, after receiving shipping containers of

coffee beans at the roasting plant with the customer seals in place.

Rule 2. Starbucks implemented GPS tracking devices on some coffee

shipment to monitor their progress from farm regions to shipping ports, ensuring

that coffee has not been stolen or tampered with en route.

Rule 3. Starbucks implements rigorous quality control procedures, the

coffee is inspected at various points, sampled at several points, and tested

numerous times to ensure that what arrives in stores is the same coffee that

buyers found at the point of origin.

Rule 4. Starbucks coffee buyers have to travel the world in search of the

best coffees available, even in regions where economic or political instability

create hazards for travelers.

3. Transportation: Using oceans containers to ship green beans to USA and

Europe.

4. Organization:

Step 1: Roast the green beans

The green coffee beans will be roasted and packaged.

Step 2: Move to Distribution centers (DCs).

Finished products will be trucked to the regional distribution center (DCs).

After the coffee is roasted, it will be placed in the warehouse until

required by the production schedule. The coffee is sampled, roasted and cupped to


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make sure it is the same coffee that was purchased. 10% of the bags will be sampled

and compared to the flavor profile that was established from the point of origin.

Starbucks runs 5 DCs in USA and two more DCs in Europe

Starbucks operated with third-party logistics companies (3PLs): 2 in Europe

and 2 in Asia.

Depending on geography, Starbucks use central distribution centers (CDCs)

Starbucks has 33 CDCs in USA, 7 in Asia/ Pacific region, 5 in Canada and 3

in Europe

CDCs carry: dairy products, baked goods and paper items like cups and

napkins.

5. Transportation Out: They create a global map to deliver the coffee and

corporate with their 3PLs

6. Recycling Facilities: Starbucks coffee cups are reusable. It helps Starbucks

to reduce the cost and doesn’t effect to the environment.

7. Customers: Starbucks provide their product through their owned store or

through the supermarkets.

B.

Their Problems

Starbucks is one of the top successful coffee retailers in the world. At the peak of

Starbucks’s growth, they open 2 coffee shops per day in 51 countries. Before they get

this success, Starbucks already get their own problems. Something comes have to

comes, two significant events effect their business

The financial crisis

The quality options from the purveyors

The higher “cost of goods sold” is the significant performance of declines

in sales of Starbucks


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Starbucks began to examine every detail of its supply chain, and found that its

organization had become very siloes and divergently independent. Performance metrics

and objectives differed by organization within the supply chain. In some cases, this led

to competing activities that created unwarranted complexity and performance

deficiencies.

Starbucks faced four key issues:

It lacked a supply chain strategy focused on delivering

enterprise value.

It lacked organization calibration of benefits.

It lacked focus on the right supply chain metrics.

It needed to increase investments in talent enhancement

and acquisition

C. Facing with these problems, Starbucks make plan to remake the strategy.

Starbucks developed a strategic framework that it applied to all aspects of its

supply chain strategy. It identifies the areas of focus for each division, as well as the

level of maturity expected. Further, the company recognized that enhancements to

the way it manages and acquires talent would return significant benefits.

The retailer transformed its supply chain strategy to move from a traditional

logistics mindset to an organization purpose-built to deliver value. The company

wanted its supply chain to accelerate speed to market and enable sales growth.

Starbucks' management challenged the supply chain organization to compress its

cost to serve and elevate its service, while obtaining, training and retaining the best

talent in the business.Starbucks initiated a series of changes that aligned business practices with

activities, as well as organizational changes that allow for a focus and direction to be

placed on each, while avoiding the issues of "silos of excellence".


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Starbucks infused a change in leadership concepts that encouraged change

within its organization. The company's traditional approach led to covering problems

and resolving issues with as little attention as possible. Its shift in leadership

direction now focuses on highlighting problems. Employees understand that their

job is to know what's broken and what needs to be improved, changed or fixed.

Finally, when Starbucks' partners are faced with a challenge they don't know

how to handle, they're encouraged to ask for help. Asking for help isn't looked down

upon. Instead, it's rewarded and encouraged.

D. Reformulating supply chain metrics

Starbucks learned through its transformational process that some metrics

mattered. However, the company also learned that not all metrics mattered, nor

could all metrics lead to improved decisions that would lead to improved

performance.

A key metric for Starbucks is ‘on time in full’ (OTIF), which the company

defines as the state when everything ordered is on time and complete as ordered.

This metric fell to a very low score at the apex of Starbucks' supply chain issues.

Starbucks reports OTIF to be one of the single most important indicators of

cumulative success. When this number moves down, a host of additional metrics will

point to the source of the supply chain's inefficiencies. As the number rises, so do

the improvements to COGS.

E. Training employees

Starbucks employees are encouraged to engage in conversations with

customers while taking their order, while at the same time ensuring that customers

don't have to wait in lines for very long. The idea was to increase the number of

drinks each Starbucks employees can make in an efficient manner, thus reducing the

number of store employees leading to cost savings for the company. The article

highlights how 24% of the annual revenue for the company is in store labor and


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there was room for improvement to lower that number. The following techniques

were employed at a Starbucks location resulting in the reducing the time to make

coffee from more than a minute to 16 seconds.

Moving items closer reduced the movements behind the counter

Altering the order of assembly of the coffee also helped.

Commonly used syrups were stacked away in an easily reachable location

Whipped cream, chocolate, caramel drizzles where moved closer to the

delivery area since it was the last step before serving up the coffee

F. Talent enhancement and acquisition

An area of significant focus for Starbucks is the training, well-being and

productivity of its people. The company has invested in its people for decades, and

increased formalized training and mentoring for supply chain associates to enhance

and accelerate the level of people development. Many companies can make the

same claims. However, Starbucks lifted its efforts beyond typical human resource

(HR) programs and activities.

A key enhancement to its training and recruitment is found in its work with

specific university programs. Starbucks works with a limited number of universities

to help craft and enhance the supply chain curriculum. Several benefits have

occurred through relationships with these universities. As Starbucks case studies are

used in the curriculum, graduating students are familiar with the company, and may

have developed affinities to the brand and aspirations of joining the organization.

This allows the company to attract top talent through these programs. The students

are better prepared to meet the demands of advanced supply chain practices.Starbucks knows the programs and the education that graduating students

attained at these select universities. Further, through these efforts, Starbucks

benefits from interacting with academic thought leaders as they exchange ideas

regarding the next waves of innovation.


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G. My opinion

Starbucks was built depend on successful process. That process is learning

from the failure, Building short-term plan combines with long-term plan. Building

supply chain process depends on experience and capabilities can warrant fluency

process.

3. VALUE CHAIN

Infrastructure: Starbucks

infrastructure includes a

range of general support

activities are required to

support the work of the

entire value-chain”

Human Resource Management : The

Starbucks workforce is duly

perceived to be the most valuable

resources; they are motivated bytangible and intangible incentives.

Technology development :

Starbucks relies on technology

for cost-saving purposes and

ensure the consistency of the

quality of products and

offering a high level of

customer experience in

general.

Procurement : Purchasing

items such as green beans,

raw materials, machinery

and etc. for the production

of final products and

offering services.

Inbound logistics: They choose the best

quality of coffee by their standard

mainly from Africa. They establish

relationships with suppliers and

organize the supply-chain

management

Outbound logistics: Starbucks

has traditionally sold directly

their products through its

store. But now a range of

their products are being sold

through supermarkets or

retailers.

Operations: It is conducted in

the world by two ways:

operate directly their stores

and through their represents

with license

Marketing and Sale: Starbucks

heavily invest in marketing

relying on the high quality of

products and high level of

customer services.

Service: High level of

customer services is the mai

objectives of Starbucks. Staf

are encouraged to ensure th

high level of customer

satisfaction


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Starbucks’ value chain system, in the beginning, created additional value on its

products, which the customers are willing to pay for. Hence, the firm is not reluctant to

charge above-market prices for its products. In fact, its customers are not looking for the

prices of the coffee but they are seeking for the quality of the products and brand image

that the company offers. Let us then examine the Starbucks value chain and how it

contributed to the company’s current downfall

In the Starbucks value chain system, its primary activities include raw materials

(coffee beans) procurement from suppliers, storing the coffees to keep it fresh, and an

inventory system to maintain stocks and distribution to all outlets whilst maintaining the

freshness of the beans. It also includes the management of stores/coffeehouses,

marketing and promotional activities, sales and delivery and customer service/customer

relations. These activities belong to the primary activity in the value chain in that it

involves the creation of the product, selling, marketing and distributing the product to

the consumers, and ensuring the continuing relationship with customers and consumers

through service activities such as installation of equipment in stores/coffeehouses,

repair and upgrading of these equipment’s and managing inventory to ensure

continuous supply of the materials (coffee beans). All of these involve the physical

activities that are necessary to perform in creating and selling its products to consumers

and enhancing its brand image/ reputation

The secondary activities, on the other hand, include the firm infrastructure to

support these activities. These are corporate management functions (i.e. management

or administrative planning), accounting and legal work. Also included in the secondary

activities are human resource management (such as personnel skills development and

training), determination of employee salaries, benefits and other emoluments,

technological development (research and development activities, design, automated


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processing system, etc.) These are secondary activities that are necessary to support the

primary activities and to provide inputs and services to manufacture the products.

In the case of Starbucks, as earlier stated, its value activities were at first effective

in that the co-ordination between its primary and secondary activities are carefully

managed, resulting in the creation of added value to its brand or products. Its inbound

and outbound logistics activities, operations, marketing and service activities are

supported with a good corporate management planning, human resource management,

technological development, and procurement activities. For example, the setting up of

stores is well planned. Each location is carefully studied, taking consideration of even

minute and seemingly irrelevant details such as traffic flow, density of people and

demographic characteristics of an area, and careful selection of personnel to be

deployed in each outlet . These are done to support the primary activities that aim to

deliver good quality coffee products to consumers. In the primary activity component,

suppliers are cautiously selected, the distribution of coffee beans to each outlet is

carefully planned to maintain freshness, and each store are designed to exude an

ambience of luxury and comfort for its consumers .Hence, creating the “Starbucks

Miracle” that made the company a leader in the specialty coffee industry for almost two

decades.

Indeed, strategic marketing activities can create additional value to an

organization’s product or brand in that it sets direction to the organization’s relationship

with its customers. Without a strategic marketing plan, a company cannot create more

value to its products or sustain its competitiveness in the long run. As such, Starbucks’

strategic leadership and competitiveness is now being challenged by its rivals who are

more experienced in marketing such as Dunkin’ Donuts and McDonald’s.


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4. PORTER’S 5 COMPETITIVE FORCES MODEL

Michael porter, author of competitive strategy, uses a five forces model to

analyze an industrial environment and to develop an optimum strategy for success

within a given industry based upon specified parameters. The five variables responsible

for the forces analyzed using this model are the industry suppliers, buyers, potential

new entrants, substitute products and the competition among existing firms. And this is

a diamond framework: The five strategy element of Starbucks.

Industry rivalry

HIGH

Competitive industry

with thousands of small

local coffee shops and

cafes.

Several large rivals like

McDonald’s, Dunkin

Donuts.

Threat of new entrants:

LOW barrier to new

entrants, except for high

product differentiation

and cost disadvantage.

Entry of big companies

in US such as

McDonald’s, Dunkin

Donuts.

Bargaining power of buyers

LOW

Consumers are

individual buyers.

Consumers are not

price-sensitive.

High degree of product

differentiation dilutes

buyer power.

Bargaining power of suppliers

LOW

Large number of

potential suppliers to

replace existing ones.

Less concentrated

suppliers.

Threat of substitute

products.

Threat of substitute products

Moderate

High degree of

differentiation offers

less attraction to other

products.

Brand image and

recognition are an

important factor.


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The rivalry between existing sellers in the market

Rivalry among existing competitors is high within the industry Starbucks operates

in with major competitors like McDonald’s, Dunkin Donuts and thousands of small local

coffee shops and cafes.

The rivalry among existing competitors is relatively high, due to the lack of

genuine product differentiation which leads to fiercer competition. Among the strongest

competitors of Starbucks are Mc. cafe, Dunkin Donuts, Gloria Jean’s and Florida-based

coffee chain Brother’s Gourmet Many of the local and regional chains merge in efforts

to grow and better position themselves as an alternative to Starbucks. In addition,

restaurants are picking up on the growing popularity of specialty coffees and have

installed machines to serve espresso, cappuccino, latte, and other coffee drinks to their

customers.

Starbucks also faces competition from nationwide coffee manufacturers such as

Kraft General Foods (the parent of Maxwell House) and Nestle, which distributed their

coffees through supermarkets and specialty coffee companies that sell whole-bean

coffees in supermarkets. Because many consumers habitually purchase their coffee

supplies at supermarkets, it is easy for them to substitute these products for those of

Starbucks.

Bargaining Power of Buyers

Another threat to Starbucks is that their customers have the ability to brew their

own coffee and this is a threat for Starbucks but it is not significant. In the specialty

coffee industry, the largest fraction of buyers is the individual consumers, and they do

not act in unison (Larson 2008). In the specialty coffee industry, individual consumers

compose the largest purchasers of the product and these buyers tend to be less


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concerned with the price of the product (Larson 2008). This decreases their bargaining

power further. Product differentiation in this industry is so high that consumers tend to

look more for the quality of services and the image of the brand than the price of the

product or where did the product’s raw materials come from, or what is the price of the

raw materials, etc. hence, the bargaining power of the buyers are low.

Bargaining Power of Suppliers:

The quality of coffee sought by Starbucks is very high. In 2001, Starbucks

announced new coffee purchasing guidelines for control the power of suppliers. These

guidelines are based on the following four criteria: Quality baselines, social conditions,

environmental concern, and economic issues.

But when the famer became Starbuck’s suppliers, Starbucks has done many ways

to keep long-term relationship with their farmers. They know their long-term success is

linked to the success of the thousands of farmers who grow their coffee. That’s why

they work on-the-ground with farmers to help improve coffee quality and invest in loan

programs for coffee-growing communities. It's not just the right thing to do; it’s the

right thing to do for their business. By helping to sustain coffee farmers and strengthen

their communities, they ensure a healthy supply of high-quality coffee for the future.

They’ve established many support centers to provide local farmers with

resources and expertise to help lower the cost of production, reduce fungus infections,

improve coffee quality and increase the production of premium coffee. Besides, they

also have been giving loan programs to coffee growers, which will help them sell their

crops at the best time to get the right price. The loans also help farmers to invest in their

farms and make capital improvements. Over the years, they’ve committed over $15

million to a variety of farmer loan funds. Starbucks also has new plan to help coffee

farming communities around the world mitigate climate change impact, and support


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resources that can cause a shake-up in the industry, but not yet enough to topple

Starbucks from its current dominant position. With the three big companies’ entrance

into the specialty coffee retailing segment, Starbucks’ position is definitely shaken.

Threat of substitute products:

The threat of substitute products to Starbucks coffee is moderate. An example of

a substitute product would be the premium coffee products available in the

supermarkets. Customers usually turn to substitute products because of convenience

and cost. However, from the coffee quality point of view, Starbuck’s coffee is better.

Competitive threats can also originate from non-coffee related products, such as

tea, juices and soft drinks. People who are coffee-lovers will always stick to coffee, but

people who drink coffee to combat fatigue will drink non-coffee related products

interchangeably. Since there are no natural substitutes for coffee beans, the actual

specific threat is considered to be moderate

Substitute products can be those non-alcoholic beverages such as tea, soft drinks,

fruit juices and energy drinks and other caffeinated drinks. These are sources of

substitute products which the consumers can purchase in place of coffee. However, the

only true direct substitute for specialty coffee is the basic coffee, but the basic coffee is

considered to be a substantially lower quality than specialty and as such does not

present threat to specialty coffee.

On the other hand, whilst there are several potential substitutes, a cup of

specialty coffee is still what consumers prefer to purchase. Product differentiation and

brand image plays an important role in this industry. The specialty coffee products are

different in many aspects from the substitutes. Coffeehouses offer not only a cup of

coffee but the experience of sipping the specialty coffee on a luxurious ambience, such

as what Starbucks is offering. Soft drinks companies and non-alcoholic beverage


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producers are on a mass marketing, selling their products in retail stores, supermarkets

and department stores. Coffeehouses, on the other hand, offer an exclusive place for its

consumers to enjoy their coffee. Hence, the threat of substitute products is not

significant or is not considered a major force in the specialty coffee business.

The best way to evaluate this threat is to ask whether other industries can satisfy

he customer need that this industry is satisfying. This is why image is very important for

Starbucks, as well as the company’s ability to innovate and differentiate.

5. SUSTAINED COMPETITIVE ADVANTAGE OF STARBUCKS

a. COMPETITIVE ADVANTAGE OF STARBUCKS

There are 10 things that we think is competitive advantage of Starbucks

1. Brand and image: Premium coffee beans

2. Well-trained employee. From level of direct counter service staff, baristas until

managerial level, they are a very strong resource team

3. Proximity and Location: Real estate team

4. Social media: Facebook and Twitter

5. Affordability: Paying premium prices for the experience

6. Local market adaptation: Trying to satisfy local preferences through localization.

7. The Finest Coffee Beans

8. A connected customer experience with Starbucks Rewards Card

9. Awareness with 4 factors: Brand, culture, loyalty and innovation.

10. Store ambiance with an unique design, an innovative product display and cozy

atmosphere, free Wi-Fi service provided, seasonal themes, promotions.


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b. STATUS OF STARBUCK IN USA COFFEE MARKET

1. Market share of coffee and snack-shop market in US (2012)

As you can see in the pie, Dunkin' Donuts, who operates nearly 7,000 stores

nationwide, has a market share of 23% within the coffee and snack-shop market. On the

other hand, their leading competitor Starbucks controls 32.6% of the market share while

operating roughly 11,000 stores nationwide and generating approximately $13.2 billion

in sales a year. Dunkin' Donuts and Starbucks both hold large market shares within the

U.S coffee and U.S. industry.

The third one is McDonald’s with 13% market share. Although percent market of

McDonald only accounts for less than Starbucks and Dunkin’ Donut but years in the

future, McDonald's will become real competitors to Starbucks and Dunkin’ Donut. Now,

McDonald's is the most successful fast-food in the world with thousands of stores.

McDonald's also has about 4,200 separate McCafes that are either sectioned off from

the main restaurant or stand-alone locations.

And the others gain a small market share are direct competitor with Starbucks-

Green Mountain Coffee Roasters (Keurig) with market share of 8.4%, Panera Bread with


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7% market share, Caribou coffee with 5% market share. Last 11% market share belong

to Krispy Kreme (which is an international retailer of premium-quality sweet treats,

including its signature Original Glazed® doughnut) and small local coffee shops in USA.

2. Annual Sales/Revenue for Starbucks Corporation

Looking at the graph, the data on revenue’s Starbucks continued to increase each

year. Starbucks is a coffee house which offers unique and high quality coffee around the

world. Today at least one in a hundred cups of coffee served every day. What has

contributed to Starbucks's sustained competitive advantage and success over the past

few decades?

As we know, in 1991, Jay Barney established four criteria that determine a firm's

competitive capabilities in the marketplace. These four criteria for judging a firm's

resources are:

Are they valuable? (Do they enable a firm to devise strategies that

improve efficiency or effectiveness?)

Are they rare? (If many other firms possess it, then it is not rare.)

Are they imperfectly imitable (because of unique historical conditions,

causally ambiguous, and/or are socially complex)?


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Are they non-substitutable? (If a ready substitute can be found, then this

condition is not met?)

When all four of these criteria are met, then a firm can be said to have a

sustainable competitive advantage. We will analysis whether Starbuck is sustainable

competitive advantage or not in next part.

c. STARBUCK IS SUSTAINABLE COMPETITIVE ADVANTAGE OR NOT

For 4 questions above, we can answer that: valuable, rare, costly to imitate and

non-substitutable. All four of these criteria are met at core competencies of Starbucks.

We have done a table about analyzing core competencies related to these criteria.

For all analysis that we made, show that Starbucks acquires attributes that allow

it to perform at a higher level than others in coffee industry. Starbucks can obtain a

competitive advantage by implementing value-creating strategies, not simultaneously

being implemented by any current competitor. Their strategies are rare, valuable, and

non-substitutable. Sustainable, competitive advantages are advantages that are not

easily copied and, thus, can be maintained over a long period of time. The competition

STORE

AMBIENCE

Design

Music

Atmosphere

Wi-Fi

AWARENESS

Brand

Culture

Loyalty

Innovation

Valuable: Considered the third place for its customers

Rare: Unique store atmosphere

Costly to imitate: More than money to imitated

Non-substitutable: High degree of DIFFERENTIATION

offers less attraction to other products.

Valuable: A connected customer experience with long

term relationship- loyalty

Rare: Just a few companies have the same reputation

Costly to imitate: Time, Know-How, Financial support

and experience.

Non-substitutable: Brand image and recognition are an

im ortant factor.


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must not be able to do it right away or it is not sustainable. Developing a sustainable,

competitive advantage requires customer loyalty, a great location, unique merchandise,

proper distribution channels, good vendor relations, a reputation for customer service,

and multiple sources of advantage. There are all things are always on Starbucks strategy.

So, Starbucks will have an advantage in the marketplace which will last until the

criteria are no longer met completely and also earn higher profits than other

competitors with which it competes.

6. SWOT ANALYSIS

External environment

OpportunitiesNew markets : The opportunities of attending in new markets is one of biggest

opportunities of Starbucks. While Starbucks now operates in more than 50 countries,

they are still in the early stages of international growth.

New products and services : New products and services can be retailed in their

cafes, such as fair trade products. These are some examples which Starbucks gained

profit out of them. In 2004 the company created a CD, and customer can create their

own cd now.

Co-branding : co-branding with other manufacturers of food or drinks is an

opportunity

Threats

New entrants : there can be new competitors which would sell coffee with lower

not original coffee beans but also with lower price and that can reduce Starbucks sell

Rises in the cost of coffee beans : there can be rises that can affect Starbucks

business

Natural Disasters : that can affect the coffee price

US market saturation : there are a high number of Starbucks there so the market

become saturated

Internal environment

Strengths

Profitability : it’s a very profitable organization.

Brand Recofnition : It has established logo, highly developed brand, intellectual

property, strong internet and media presence.


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Weaknesses

Sustainability : Starbucks has a reputation for new product development and

creativity. However they remain vulnerable to the possibility that their innovation may

falter over time due to the lack of internal focus and diversity in innovations.

High Operating Cost : The organization has very high expenses to maintain theiroperations

Product pricing : Starbucks is considered to be an expensive option when

compared to their competition and this is directly influencing their success.

IV. CONCLUSION

Starbucks strategy is fairly simple: increase the perception of high quality of a

commodity product, adapt stores to the consumers’ lifestyle, and covers its existence

areas completely.

Starbucks demonstrated in the past its strength and ability to sustain growth

even during recession, and while analysts believe that Starbucks growth will slow down

with regard to its past, but the company still growing.

Starbucks continues to keep its customers happy and rely on non-traditional

means of attracting new customers; that is the Starbucks strategy.

Weaknesses ans Threats are consequences of any natural business but Starbucks

is still on the top and it has proved that they are qualified to stay as the best coffee

producers till the moment. Their main strength was the huge profit and their main

weaknesses were about product pricing.

Competitors are not affecting Starbucks that much since Starbuks is still in the

top and it knows the right flow and strategy to stay on the top.Starbucks has to find a strategy to build the foundation of products with lower prices to

ensure productivity and customers’ loyalty.


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V. RECOMMENDATION

1. Starbucks should continue to open new locations worldwide, especially

developing country.

2. Increasing using marketing from 1% to 10% at least.

3. Reduce the perception of there is no competition out.

4. Extend its menu selection to include drinks related to particular cultures.

5. Increase selection for children’s drinks.

6. Starbucks should continue in its path of utilizing social media in

communicating with customers

7. In order to save mother earth out from current situation, Starbucks may

try to sell coffee with cup which can be reused again, encourage consumer to bring back

the cup by giving them a small discounts or some free snack. This can protect the world

from continuously become warming; Starbucks can also improve the image and increase

the profits too

8. Starbucks has to think about new product/services, they should use their

brand name which is attractive for most of the people to establish new products and

services as well


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VI. REFERENCES

1. Wikimedia: The free Encyclopedia

http://en.wikipedia.org/wiki/Economics_of_coffee

http://en.wikipedia.org/wiki/Starbucks

2. The Statistics Portal

http://www.statista.com/topics/1248/coffee-market/

3. Yahoo!FINANCE

http://finance.yahoo.com/news/Competition-Coffee-Industry-wscheats-

3771514415.html

4.

Starbucks

http://www.starbucks.com/

5. Google information

Starbucks competitive advantage

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