Business Overview/Current Grand Strategy
Starbucks is one of the most well known coffee giants in the U.S. and it has very interesting history. Most people assume that Howard Schultz is the founder of Starbucks, but he is most certainly not. The real founders of the company were Jerry Baldwin, Zev Siegl, and Gordon Bowker in Washington during 1971. That first coffee shop was not a coffee shop at all, in fact, it was just a store that sold coffee beans and coffee machines. It was not until Howard Schultz was hired as the Director of Retail Operations in 1982 that the idea to serve coffee came about. So, in 1984, a store was opened that served beverages. In 1987, Schultz bought Starbucks from the founders and he is credited with founding the idea of a coffeehouse and building the brand. Schultz is still the CEO today, and he can be given credit for the creation of the Starbucks mission statement, values, and vision (Farfan). Starbucks’ mission statement is, “to inspire and nurture the human spirit-one person, one cup, and one neighborhood at a time.” The company accomplishes this mission through its values, which are stated as, “Creating a culture of warmth and belonging, where everyone is welcome. Acting with courage, challenging the status quo and finding new ways to grow our company and each other. Being present, connecting with transparency, dignity, and respect. Delivering out very best in all we do, holding ourselves accountable for results. We are performance driven, through the lens of humanity (“Starbucks”).” Schultz instilled these values into his company and they are reflected through the stores, employees, and products whenever you enter a Starbucks. This gives each customer a unique experience whenever they swing by a local store to get their specialty cup of Joe. The constant drive to challenge the status quo and to grow every aspect of the company makes it apparent that the coffee giant’s current and future grand strategy is definitely a growth strategy. This is seen through all of its 25,000 stores in 75 different countries, its ever-changing menu, and its drive to have high sales revenue that tops other coffee chain stores (“Starbucks”)(Rowe).
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Starbuck is well known for it’s very diverse product line. From their ever-changing Frappuccino to their basic cup of premium roast coffee; Starbucks has something for everyone. The company does not stop at drinks though, it also appeals to its’ customers through its pastries and other treats, which much like its drinks, vary according to the season. Not only does Starbucks have great customer service, but also their human resources department is excellent. Starbucks offers it’s full-time and qualifying part-time employees great benefits packages that are tailored to fit their needs. From excellent healthcare benefits and discounted stock options to a full ride to Arizona State University, Starbucks is a great company for anyone to start a career with. Outside of its excellent customer service and human resources, Starbucks is rapidly expanding to many other countries outside the United States. Currently, Starbucks has more than 25,0000 stores in 75 different countries with plans to expand (“Starbucks”).
With every company there are weaknesses and Starbucks has it’s own. One of those weaknesses is the expensive price per cup of Joe. After the presidential election in 2016, Starbucks raised the price by 10 to 30 cents on some of their cold drinks, cold brews, and baked goods. This is not the first time Starbucks hiked its prices. In 2015, the coffee behemoth raised its prices between 5 and 20 cents and it raised them again by another 30 cents in July of 2016 (Rowe). The high price of drinks is not the only weakness that Starbucks has. The coffee giant currently has a lot of competition from other chains that are creating drinks that are a knock off for some of its recipes. Companies such as Dunkin’ Donuts and McDonalds have no problem replicating Starbucks signature coffee drinks while offering a much lower price. Such as Dunkin’ Donuts’ Peppermint Mocha Latte that rivals Starbucks’ higher priced latte (“Dunkin’ Donuts”). Another weakness of Starbucks is its major dependence on its main Starbucks stores in the U.S. market. This fact was made clear by the sales growth of some of its Teavana stores. In July, a third quarter report showed that sales were so low that 379 Teavana locations will close by spring of 2018. In the same report, Starbucks stores in China and Asia Pacific had sales numbers that were severely below what was expected. This fact aided in Starbucks’ decision to purchase the remaining 50 percent share of it’s East China business, which would give the coffee giant ownership of 1,300 stores in that region. In a separate deal, the company is going to sell its 50 percent stake in a Taiwanese joint venture, which includes 410 Starbucks restaurants (Whitten). So, do these weaknesses outweigh Starbucks’ strengths? In the future, those weaknesses just might. After the coffee giant’s recent price hike, their fourth quarter figure fell short of their anticipated sales growth by 0.9% (Whitten). This indicates that if they continue to raise prices, Starbucks might indeed loose more customers to their cheaper rivals.
Even though Starbucks has a few internal weaknesses, there are a few external opportunities that could help the company overcome those weaknesses. One of those opportunities would include improvements to their mobile app. In January of this year, mobile orders accounted for 7% of US sales in that quarter, which was up from 3% in 2016. Even with an increase in sales, mobile ordering has also caused problems for Starbucks because they have saw a drop in walk-in customers because of the long lines in front of the pick-up counter due to the mobile app (Taylor). So, some improvements such as separate order pickup lanes might boost sales from walk-ins again. Another opportunity would be for Starbucks to expand more into other countries such as Africa and Asia Pacific. This could bring in more revenue as long as they improve on their products within these countries. Another opportunity that Starbucks could take advantage of would be expanding their food line to include freshly made breakfast and lunch options instead of packaged ones. This would make Starbucks a hard competitor to beat.
As with every company, Starbucks has its threats. One of those threats is a possible increase in the price of coffee beans. As of this year, coffee beans are costing $1.49 per pound, which is a price hike of more than 15 percent from last year. This is due from a low supply and a high demand from growing consumption in the U.S., China, and India (Berr). This could cause more price hikes for all of Starbucks drinks in the future, thereby causing a loss of more customers. Another threat is a possible shift of customer’s lifestyles. With an increase in diseases such as diabetes type 2 and heart disease, more people are opting for lower calorie options. Even though some of Starbucks’ drinks do contain fewer than 200 calories, most of them are topping out at well over 300 calories. For example, their Iced Peppermint White Chocolate Mocha that is 360 calories (“Starbucks”). Another threat would be the emergence of independent coffee chains such as Moe Joes. These coffee chains have lower drink prices and many deli options that are made in house. With Starbucks’ high prices and lack of fresh food options, many customers could shift to independent coffee chains (Taylor). So, when looking at the opportunities and threats that Starbucks faces, does the opportunities outweigh the threats? Not really. If Starbucks does not stop raising prices and it does not change its menu to include healthy, fresh options, then the coffee giant could indeed fall. Many people are switching to other chains such as Dunkin Donuts. Here in Greenville, many people love our independent chains that are located downtown. In fact, you see more people in Coffee Underground and Spill the Beans than in the two Starbucks that are located on the lower and upper ends of downtown. This is probably from the fact that Spill the Beans also sells ice cream and Coffee Underground has many community events that are free to attend. This shows that smaller coffee chains can win Starbucks’ customers if they provide the right environment and an intriguing menu.
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After taking an in-depth look at Starbucks I believe that they have a growth strategy because they are very focused on expanding market shares, number of employees, number of customers, and sales revenues. This strategy might benefit them now, but in the future it might be their downfall considering how customers are taking their constant price hikes. Increasing prices will only be a means to an end because eventually the coffee giant will price their beverages too high for most people to afford. This is why I believe that they would benefit from a cost-leadership strategy and a differentiation strategy. If Starbucks were to take on a cost-leadership strategy, they would have lower prices than competitors and they would target a wide market. This would bring in more customers that could not afford Starbucks before, thus taking a lot of business from other chains. With the increase in foot-traffic, Starbucks would have an increase in revenue that is possibly higher than what they are achieving with their higher priced products. Starbucks would profit further it were to combine the cost-leadership strategy with a differentiation strategy (Kinicki and Williams 176, 177). With this strategy they could expand their product line to include more unique foods and beverages that would be hard to imitate. For example, they could start serving breakfast and lunch sandwiches, soups, salads, and pastries that are made fresh from organic foods. For their drinks, they could variate their seasonal varieties more each year instead of bringing back the same ones and they could also spice up their other beverage recipes. This in itself would make Starbucks a more formidable opponent for any restaurant chain trying to win the “coffee war”.
Key Things Learned
By doing this SWOT analysis, I have learned a few things about my favorite coffee brand that I did not know about or had even heard about. For example, I didn’t know that they actually provided a full ride to Arizona State University to their full-time employees. I also didn’t know that they provided health insurance to their part-time employees that work at least 20 hours a week. This was very surprising because I have never heard of another company doing this. It’s wonderful that they can give this to their employees. Another thing that I learned was that Starbucks had been raising prices throughout last year. The last time I heard of a price hike was well over a year and a half ago. My normal Iced Skinny Vanilla Latte stayed at its all time price of $5.14, so I’m assuming that the price hike did not include the lattes or I would have been going elsewhere. Another thing that I didn’t know until I did this SWOT analysis was that Starbucks was closing 379 of its Teavana stores because they are loosing money. I had no clue that Teavana was having problems because they always seem packed when I pass the one located at Haywood Mall. So, after discovering this, I do believe they would be better off lowering their prices and expanding their product line if they plan on keep their customers.
- Berr, Jonathan. “Sorry, coffee fiends, prepare to pay more for your java.” CBS News, CBS Interactive, 12 Jan. 2017, www.cbsnews.com/news/sorry-coffee-fiends-prepare-to-pay-more-for-your-java/.
- “Dunkin’ Donuts.” Home| Dunkin’ Donuts, www.dunkindonuts.com/en.
- Farfan, Barbara. “The Truth Behind the Real Founders of Starbucks and Their Mission.” The Balance, 21 Oct. 2017, www.thebalance.com/starbucks-mission-statement-2891826.
- Kinicki, Angelo, and Brian K. Williams. Management: a practical introduction. McGraw-Hill Education, 2016.
- Taylor, Kate. “Starbucks’ biggest competition isn’t Dunkin’ Donuts – it’s your neighborhood hipster coffee shop.” Business Insider, Business Insider, 10 Mar. 2017, www.businessinsider.com/starbucks-competition-independent-coffee-shops-2017-3.
- Taylor, Kate. “One of Starbucks biggest strengths is becoming a huge problem for the chain.” Business Insider, Business Insider, 27 Jan. 2017, www.businessinsider.com/starbucks-mobile-ordering-problems-2017-1.
- Rowe, Dominique. “People Aren’t Very Happy with Starbucks’ Quiet Little Price Hike.” Fortune, 22 Nov. 2016, fortune.com/2016/11/22/starbucks-price-hike-2/.
- “Starbucks – The Best Coffee and Espresso Drinks.” Starbucks Coffee Company, www.starbucks.com/.
- Whitten, Sarah. “Starbucks earnings in-Line with Street estimates, closing all Teavana stores.” CNBC, CNBC, 27 July 2017, www.cnbc.com/2017/07/27/starbucks-third-quarter-earnings-report-2017.html.
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