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UL Starbucks Research
« on: December 04, 2008, 08:28 AM »

Starbucks Corporation

Starbucks Research Paper
Derek Endres
Buffalo State College SUNY

In 1971, the originally named Starbucks Coffee, Tea and Spices; was founded in Seattle's Pike Place Market. The company has come to be known as the Starbucks Coffee Company. Starbucks is the world leading retailer, roaster and brand of specialty coffee. Stores can be found worldwide in Europe, North America, Latin America, Middle East, and the Pacific Rim.  There are over 9,500 stores operating in 43 countries. It was Howard Schultz in1987 who purchased Starbucks with some local investors. It was on a business trip to Italy that Espresso drinks became the vision of the future for Starbucks.  In 2007, Starbucks had net earnings of over $673 million dollars.
The mission of the firm: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.  There are six principles guiding this mission and they are to (1)Provide a great work environment and treat each other with respect and dignity, (2)Embrace diversity as an essential component in the way we do business, (3)Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee, (4)Develop enthusiastically satisfied customers all of the time, (5)Contribute positively to our communities and our environment, (6)Recognize that profitability is essential to our future success. (i)

Strategic Intent: Starbucks has created an environment and an organization around its employees, one of its most important assets and sources of sustainable advantage. The empowering corporate culture, the exceptional employee benefits, and employee stock ownership programs have aided in crafting an exceptional workforce that takes pride in its work and is treated with dignity. This culture is apparent in all levels of the organization from the everyday staff and managers, all the way to the executives.

Starbucks is continuously striving to provide a great work environment through strong management and benefit packages that surpass industry standards. The firm has also made a point to hire a workforce of diverse personalities ensuring that each employee is outgoing and helpful.  ?We can?t achieve our strategic objectives without a workforce of people who are immersed in the same commitment as management.  Our only sustainable advantage is the quality of our workforce.  We?re building a national retail company by creating pride in?and a stake in the outcome of our labor.? (i)  Quality is essential to the firm at all levels of the value chain and Starbucks makes various efforts to boost the health of its business ecosystem. Lastly, Starbucks is focused on growth and profitability for its long-term future.

The Starbucks mission and principles are encompassed by three major strategic stances: the third place experience, establishing a human connection, and providing quality everyday experiences. The third place experience is created by Starbucks? unique ambience.  Starbucks also strives to maintain a human connection through ecosystem management, sustainable practices, supplier networks maintenance, firm transparency, and innovation. Lastly, Starbucks? customers aren?t united by demographics, but rather by a desire to seek quality everyday experience.  Company-operated stores are the backbone of Starbucks? business. This is where the third place experience is most prevalent. The goal of the retail stores is to offer a place outside of the home and office for customers to relax and gather.

Distinctive Competencies

Superior Quality/Innovation:  Starbucks provides customers some of the finest coffee with first-rate music and a comfortable upbeat meeting place. The company tries to provide its customers with more than just a product, but an experience. Starbucks seeks to maintain Superior quality by offering the coffee connoisseurs a variety of coffee from various growing regions around the world that including regions of Latin America, Africa/Arabia, and the Asia/Pacific. Its professional roasters consider it an art in creating the company's signature roast. Superior Innovation is continuously maintained not only through offering new beverage creations consistently, but the Starbucks Coffee Company seeks the much-valued ideas of its customers. The company leaves the ability to make product suggestions to the company available through its website to continually work on the latest beverage innovation.

Customer Responsiveness:  Starbucks Coffee Company exhibits great customer responsiveness to that of the needs of each customer. Not only can customers order one of the many varieties of beverages offered by Starbucks, but they can also adjust the make of the beverage by having it made how they would care it to be made. The customer's beverage is made however they desire it and handed to them in less than a couple of minutes. All the needs of the customer are met with prompt and quality service. (i)

SWOT Analysis

Brand Image: Starbucks is one among very few companies that has successfully created awareness for the specialty coffee category while maintaining supremacy of brand.  Using cost effective and innovative marketing strategies, Starbucks has successfully created a brand that resonates with almost every segment of the population. It hardly relies on advertising and instead its omnipresent cafes, word of- mouth and appeal of storefronts serve as powerful brand ambassadors the world over. It has been able to build this reputation based on the quality of the products, consistency of service, and an overall excellence in catering to customer satisfaction.  Another aspect of the Starbucks brand that makes it very unique is the intimacy of the brand despite its omnipresence.

Recognitions:  In 2008, for the tenth time, on a seven-year streak now, Starbucks has been recognized as one of FORTUNES 100 Best Companies to work for. The company shows that it is people that it is concerned for mostly. Not just the customers putting the money in the company's pocket, but the people that are making it all happen.  For five years running, FORTUNE magazine has also labeled Starbucks as one of the Ten Most Admired Companies in America.  These are just a couple of Starbuck?s great achievements.  Over the years, the company has built a large trophy case of honors and achievements. (i)

Strong Financials:  The Starbucks name has become common place in the U.S. and internationally. This popularity is coupled with financial success.  As the Figure below shows (data is for year ended Sep-2008) indicates, Starbucks has reported steady revenues and earnings over the past few years. (ii)  Each year, Starbucks revenue and profit has been growing showing a trend leading to future growth.

    2008   2007   2006
Revenue ($ mil.)   10,383.0   9,411.5   7,786.9
Gross Profit ($ mil.)   5,737.7   5,412.4   4,608.1
Operating Income ($ mil.)   503.9   945.9   894.0

To Fast of an Expansion Rate:  Starbucks currently operates over 7,000 stores in the U.S. and over 1,700 stores worldwide. Such expansion can and has resulted in overcrowding or clustering of stores. People now are faced with limited choices. This can lead to frustration, boredom, and rebellion on the part of customers, giving way to competition that can provide a unique experience with quality coffee.  In addition, such clustering of stores can lead to cannibalism, where the company has to incur the costs of setting up and running two units when the revenue is equivalent to that of one.  New York City is a good example of this.  In spots, you can walk to a Starbucks and see that across the street on the kiddy corner from where you are standing, there is another Starbucks.

A Big Corporate Image: Starbucks continually struggles with backlash despite efforts to seem more connected with the community. In the U.S., its omnipresence and acquisitions have destroyed local coffeehouses. They are perceived by many as the Wal-Mart of the coffee house industry. Some may say that its international growth is that of a corporate colonialism, which can mean the destruction of local cultures and experiences.


Market Presence:  Being the market leader, Starbucks has a great presence.    It has many of the best geographic locations in major metropolitan areas and suburbia locked up. The cost of duplicating Starbucks? real estate would be very high. Starbucks has a similar lock up with many of the fair trade growers as well as other suppliers of high quality beans. There are only so many fair trade coffee farmers to work with and Starbucks has strong relationships with most of them.

Starbucks is one of the strongest brands in the world that is able to deliver a unique experience. Starbucks? products and brand are highly differentiated.  People know Starbucks and are comfortable with the meaning behind it. Furthermore, the company has developed a loyal customer base that is willing to trust the new products including books, movies, and DVDs.

Partnerships:  Starbucks can use its omnipresence to provide new distribution channels for other products as it has done with music, DVD?s, and books through its Starbucks Entertainment division.  A way they have done this is with companies like Barnes&Noble and Nordstrom?s.  Starbucks sets up shop in some locations of these businesses because they are suitable to both parties involved.  Also, the environments in these businesses are suitable to that of Starbucks by providing the third place experience. 

Joint Ventures are pursued by Starbucks as well.  The company has a joint venture with Pepsi.  This has enabled Starbucks to produce successful sales of their Frappucino product in supermarkets.

Premium Quality: By developing their relations with foreign countries, Starbucks has been able to gain exclusive rights to the Nari?o Supremo Coffee Bean.  This is one of the highest-quality beans in the world.  This ensures a higher quality of bean to be used to make a higher quality product.  (i)

Entry Barrier:  There is room for new entry into the coffeehouse market, but new entrants face formidable barriers to entry to compete with Starbucks directly in the coffeehouse segment. Starbucks has developed significant knowhow, skills, and information that would take years for new entrants to create. It is able to interact creatively with customers and partner with suppliers by using this knowledge.  The market is difficult to define and complacency may allow a disruption to occur from a low-end player or new channel of distribution which Starbucks may not be prepared for. The threat of new entrants is low, yet Starbucks should be always prepared.

Competitors:  Defining the basis of competition for Starbucks is difficult.  Starbucks brought specialty coffee to the mainstream and now it can be found everywhere like at convenience stores and gas stations.  Competition seems to be defined in two areas: product and venue. If competition lies in the product which would be coffee, then all of the places that coffee is consumed may be a competitor.  This tends to be the main concern of Starbucks.  Its biggest competitors are McDonald?s and Dunkin Donuts. (iii) If competition lies in the coffee experience, then Starbucks may be in competition with only coffeehouses. 

Market Penetration: This strategy has been used increase the market share of products that are currently offered. Starbucks has focused heavily on developing the quality everyday experience and differentiation of the experience as a third place to enjoy its products. Starbucks has also sought to expand the methods of delivering its products outside of the traditional coffee shop. It has opened licensed retail locations inside of grocery stores and formed alliances with companies like Pepsi.

Porter?s Five Forces

Risk of Entry by Potential Competitors:  As stated in the threats, the risk of entry by potential competitors is a low risk in the establishment of a similar business.  When looking in relation to product, there is a moderate risk.  The ability to enter the beverage market can be done with relative ease. 

Intensity of Rivalry Among Established Companies within the Industry:   Starbucks maintains a competitive advantage over places like Tim Horton?s because they offer an ambience that is unlike its leading competitors.  This area of rivalry is low.  When it comes to product, the rivalry is high.  Companies are introducing products that are similar to Starbucks.  This is what McDonalds is doing by establishing a line of premium coffee to cut into the Starbucks market share.

Bargaining Power of Buyers:  Starbucks relies on its customers to purchase the product and keep coming back.  For this reason, Starbucks uses the Nari?o Supremo Coffee Bean to ensure a high quality product for the consumers. (i) This is what helps Starbucks in the establishment of Brand Loyalty.  The bargaining power of the buyers is very high.

Bargaining Power of Suppliers:  The bargaining power of the suppliers is relatively high for Starbucks.  The reason for this is that they are the only one able to receive the Nari?o Supremo Coffee Bean from their supplier in Columbia.  This enables the buyer to have the ability to decide as to the quantity of that which is to be sold and for how much.  It does pose as a competitive advantage for Starbucks in one way which is they are the only one with access to one of the best coffee beans in the world.

Threat of Substitutes:  There are two areas of substitutes that exist that can pose a problem to Starbucks.  The first is the product. Even the product can be further divided into the need for a caffeine boost and the need for a special drink. Looking at both of these, substitutes for coffee include tea, soft drinks, energy drinks, smoothies, etc. Starbucks addresses the threat by selling non-coffee products beverages in its stores as well. It acquired Tazo Tea in 1999 to incorporate a high quality tea into its product line. Sodas and Frappacino blended drinks are also sold. (i)

The second areas of which substitutes exist are at the coffee shop itself. The experience customers receive at the coffee shop can also be obtained at bars and cafes. The experience is providing people a place to hang out and visit with friends. If the experience that one is looking for is to sit and read a book or newspaper then the library or bookstore would provide a decent substitute. Starbucks aims to be a community place or a third place. In regard to this, community centers and churches are substitutes. These are places where people in a community congregate outside of work and home to feel close to and interact with other members of their community. 

Starbucks is a Giant in the coffee industry.  The company has sent the pace for many to follow.  Though they are sometimes perceived has a small business destroyer, like Wal-Mart, they are only focused on bringing the best option to the consumer.  Starbucks is a company in which one should put value in.  The company has a lot to offer and shows great ability for growth.  The past has shown that Starbucks is a competitor that only looks to continue trying to do the very best for itself, its employees, and more importantly, the consumer.


i)  You are not allowed to view links. Register or Login. ? 2008.  Starbucks Corporation.  Last Retrieved, 1, December, 2008.

ii) You are not allowed to view links. Register or Login.  Retrieved 21, November, 2008

iii) You are not allowed to view links. Register or Login. ? 2008. Hoovers.com. Retrieved 21, November, 2008.




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