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PART 1 ANALYSIS AND DISCUSSION

1. INTRODUCTION

According to Watkins (2007), a business strategy is a set of guiding principles that, when
communicated and adopted in the organization, generates a desired pattern of decision making. In
others words strategy, will define what needs to be done to meet business goals. The following
report aims to strategical evaluate past and current situations and future analysis on Starbucks
International, a company that has grown to become the biggest coffee house in the world since
first became profitable in Seattle in the early 1980s.

2. INTERNAL ANALYSIS

2.1 Historical Analysis


Starbucks first store opened in 1971 in Washington by partners Jerry Baldwin, Zev Siegel
and Gordon Bowker who shared a love of fine coffee and fancy teas. The store was an
immediate success, with sales exceeding expectations. During these first years, the
company only sold roasted whole coffee beans and did not yet brew coffee to sell except
for some samples for clients (Marshall, 2017).
In 1984 entrepreneur Howard Schultz, who had joined the company two years before
convinces the founders of Starbucks to test the coffeehouse concept in downtown Seattle,
where the first Starbucks Caff Latte is served. He went on to buy the company through
his on organization, Il Giornale, from the original owners in 1986 (Starbucks newsroom,
2017). From this point the company began its journey of growth doing extremely well
turning an everyday beverage into a premium product. As of Abril 2017, Howard Schultz
has stepped down as CEO leaving this position to Kevin Johnson.

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2.1.1 Strategic Choices

Porters generic strategies were used as a means of evaluating Starbucks current strategic
stance on competitive level. This model describes how Starbucks pursues competitive
advantage across market scope.

Overall cost-leadership: the company offers lower prices than competitors to a


wide range of customer groups.
Differentiation: the company offers distinct and unique product categories which
cannot be emulated by competitors at a higher price and to a wide selection of
customer group.
Cost focus: the company offers lower process than competitors in niche market.
Differentiation focus: the company offers distinct and unique products categories
wichn cannot be emulated by competitors at a higher price in niche markets.

2.1.2 VMOST
To gain a high level understanding of desired changes in the context of how they fit in with
the strategic and long term vision of Starbucks we developed the VMOST Canvas.

Table 2.1 Starbucks VMOST Analysis

Statement What company is doing Achieved


or not
V-VISION: Making sure they have the best and most unique coffee
To establish Starbucks drink and always keeping a set standard while not
as the premier purveyor afraid to innovate. Achieved
of the finest coffee in
the world while
maintaining our
uncompromising
principles while we
grow.

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M-MISSION: 1. Provide a great working environment.


To establish Starbucks 2. Embrace diversity.
as the premier purveyor 3. Applying the highest standards to their products Achieved
of the finest coffee in 4. Develop customer satisfaction all the time.
the world while
maintaining our
uncompromising
principles while we
grow.
O- OBJECTIVE 1. Quality Coffee: (ethical sourcing of finest beans,
To maintain Starbucks roasting with care, improving lives of farmers)
standing as one of the 2. Partners: Not employees; equity in bean stock
most recognized and (diversity, treat each other with respect/dignity)
respected brands in the 3. Customers: Human connection (lens of humanity) Achieved
world Engage, laugh with, uplift lives of customers
4. Neighbourhood: Store is part of community
(bringing together Partners, Customers and
Community)
S- STRATEGIES OBSERVED Alignment to
Vision and Mission
1. Offer High-Quality products
Leadership position built around coffee by sourcing, roasting, brewing, Achieved
serving handcrafted beverages
2. Be the Employer of Choice
INVEST in partners capable of delivering a superior customer experience Achieved
Health benefits/Equity in Company

3. Maximize Market Penetration


Introduce new products in existing market (Product development) Achieved
Expand into new markets with existing products (Market development)

High quality service (create new occasions to visit stores: New product
offers, new food offerings for lunch, afternoon refreshment and snacks)

4. Brands Growth
Focus on Starbucks brand to unlock profitable growth rarely seen in Achieved
consumer packaged goods internationally.

Build Teavana
Achieved
Create a second major business in tea.
Global tea MARKET is about a $109 billion-dollar industry.

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6. Extend Digital Engagement


Convenience and brand engagement through mobile commerce platforms.
Includes expanding the number of customers participating in My
Starbucks Rewards Achieved
Launching Mobile Order & PAY (47 million in-store transactions in US,
12 million mobile apps users)
Delivery ( Into new selected markets)

T- TACTICS OBSERVED Alignment to


Vision and Mission
Market Saturation:(target every age bracket, small town, rural community,
ethnic neighbourhood, highway rest stop, markets already saturated with
coffee shops)
Innovation: (specialty food and beverage products with broad appeal in Achieved
diverse markets)
Relaxing social atmosphere (Third place experience, Not just coffee)
Strategic locations (cluster stores)
Development of new distribution channels

2.1.3 Product Portfolio


The product portfolio of Starbucks is vast in terms of the product line, while the product
mix may not be that wide of a range but they focus on their main idea of coffee and innovate
new ideas in a creative way.
Coffee: More than 30 blends and single-origin premium coffees.
Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages,
Frappuccino coffee and non-coffee blended beverages, Starbucks Refreshers
beverages, smoothies and teas.
Merchandise: Coffee- and tea-brewing equipment, Verismo System by Starbucks,
mugs and accessories, packaged goods, books and gifts.
Fresh Food: Baked pastries, sandwiches, salads, salad and grain bowls, oatmeal,
yogurt parfaits and fruit cups.

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Consumer Products: divides in two groups


Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattles Best
Coffee brands), Starbucks VIA Instant, Starbucks Coffee K-Cup pods,
Starbucks and Teavana Verismo pods, Tazo tea filterbags, and Tazo tea latte
concentrates.
Ready-to-Drink (RTD): Starbucks bottled Frappuccino coffee drinks,
Starbucks Discoveries chilled cup coffees, Starbucks Discoveries Iced Caf
Favorites, Starbucks Iced Coffee, Starbucks Doubleshot espresso drinks,
Starbucks Doubleshot Energy Coffee drinks; Starbucks Refreshers beverages,
Evolution Fresh bottled juices, Tazo bottled iced and juiced teas.

The BCM Matrix (figure 2.1) explores the growth potential of Starbucks by four
major product categories.

Figure 2.1: Starbucks BCG Matrix

Source: Adapted from starbucks company news (2017)

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1. High (Star): Product categories which display high sales growth and
substantially contribute to overall profits.
2. High (Question Mark): Product categories which display high sales growth,
however only contribute little to overall profits. (Cash Users)
3. Low (Cash Cow): Product categories which display low sales growth but still
contribute substantially to overall profits.
4. Low (Dog): Product categories which display low sales growth and contribute
little (or nothing) to overall profits.

2.1.4 Market Definition and location


With more than 21,500 stores in 62 countries and territories, the Starbucks coffee chain is
the market leader with 39.8 % of the market catalogued as an oligopoly. Table 2.2 ranks
Starbucks competitors.

Table 2.2 Starbucks Competitors

Rank Company Market Strength Weakness Strategic


share options
#1 Starbucks 39.8% In 62 countries and Needs to attain Maintain its
made revenue of the other 2 billion unique standards
13.3 billion US dollars from
dollars competing
countries
#2 Dunkin Donuts 21.9% In 36 countries .53 US billion a Establish more
year made areas in the
world

#3 and Costa Coffee 38.3% In 28 countries 1.85 billion US Establish and


lower and others combination command a
greater market
share.

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2.1.5 Current Competitive Advantage and Product Positioning


Starbucks Current Competitive Advantage is to be considered as: Targeting
As defined by Kotler and Armstrong (2004), where a target market consists of a set of
buyers who share common needs or characteristics that the company decides to serve.
Originally Starbucks, coffee was expensive and they were trying to re-create a new coffee
culture in America and therefore, they had low barriers for entry. Starbucks targeted office
workers, with middle to high incomes, who had a desire to purchase premium products.
When Starbucks was launched, they used marketing mix market as a single segment, using
their services without compromise in quality.

Positioning and marketing mix


A products position is the way the product is defined by consumers on important
attributes such as price, quality, competitor, product class, application, (Kotler &
Armstrong, 2004). Companies tried to position their products in such a way as to
distinguish themselves from the competitors and give them the greatest strategic
advantage in the target market. In the case of Starbucks (figure 2.2) profits from
retaining one long term customer relationship, became the key of marketing and
business. Relationship marketing aims at delight rather than satisfaction of
customers. And Starbucks realised public opinion, even though it takes longer to
cultivate, when energised can help pull the company into the market (Kotler, 1986).

Starbucks Coffee Companys marketing mix (4Ps) supports the companys industry
position as the leading coffeehouse chain in the world. The marketing mix identifies
the main components of the firms marketing plan. Starbucks uses its marketing
mix as a way of developing its brand image and popularity. With the strongest brand
in the industry, the company shows how an effective marketing mix supports brand
development and business growth. Starbucks also changes its marketing mix over
time, thereby emphasizing the need for the business to evolve its various aspects to
maintain competitiveness.

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Figure: 2.2 Starbucks Positioning

Source: Adapted by Author, 2017

2.1.6 VRIO

The VRIO framework was suggested by Professor J. Barney to provide a testing on the
return potential associated with exploiting a companys resources or capabilities (Lynch
2015).

Table 2.3 Starbucks VRIO Framework

Starbucks Resource Valuable Rare Costly Organized Comparative


Capability to to exploit Implications
Imitate
Prime and Strategic Locations Yes Yes No Yes Temporary
In high-traffic, high- Competitive
visibility locations near a Advantage
variety of settings,
including downtown and
suburban retail canters,
office buildings, university
campuses, and in select
rural and off-highway
locations across the world.

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Global Brand Recognition & Yes Yes Yes Yes Competitive


Equity Advantage
The most recognized brand
in the coffeehouse segment
and is ranked 91st in the best
global brands of 2013.
Effectively leverages its rich
brand equity by
merchandizing products,
licensing its brand.

Aesthetic Appeal and Concepts of Yes Yes Yes Yes Competitive


its Stores Advantage

Their stores are visually


appealing and have a cool
factor attached to them.
Provide free wifi, great
music, great service, warm
atmosphere and provide an
environment of community
meeting spot, which forms a
wider part of the Starbucks
Experience.

Concept of the stores as


being a third place besides
home and work.
Designed to reflect the
unique character of the
neighbourhood they serve in
and environmentally
friendly.

Large Size and Strong Global Yes Yes Yes Yes Temporary
Presence Competitive
Operation in 60 countries Advantage
and largest coffee/snack
retailer
Economies of scale through
superior distribution
channels and supplier
relationships

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Lower input costs

Human Resource Management Yes Yes Yes Yes Competitive


and Company Culture Advantage
Employees provided great
benefits like stock option,
retirement accounts and well
taken care of Knowledge
based employees creating a
healthy corporate culture
Ranked 91st in the 100 best
places to work for by
Fortune Magazine
Great human capital
management couple with
great corporate culture
translates into supreme
customer service

Leveraging Technology and Y Yes No Yes Temporary


Mobile Outlets es Competitive
Starbucks Apps on iOS and Advantage
Android
Investment in Technology

Customer Loyalty and Cult Yes Yes Yes Yes Competitive


Status Advantage
They have a cult following
status among consumers
Loyalty-based programs like
Starbucks Rewards and
Starbucks Card drive
loyalty.
Starbucks Card is a value
card program that provides
convenience, support
gifting, and increases the
frequency of store visits by
cardholders

Good Corporate Social Yes Yes No Yes Temporary


Responsibility Image Competitive
Their stores are community Advantage
friendly, focused on

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recycling and reducing


waste.
They build goodwill among
communities they operate in
Strong Social Responsibility
Initiatives undertaken

The VRIO framework signals s Core competencies for Starbucks:

Global Brand Recognition & Equity


Aesthetic Appeal and Concepts of its Stores
Large Size and Strong Global Presence
Human Resource Management and Company Culture
Customer Loyalty and Cult Status

The Ansoff Matrix depicted in figure 2.3 was developed by Igor Ansoff in 1965 and is used
to develop strategic options for businesses. It is one of the most commonly used tools for
this type of analysis due to its simplicity. The matrix will give managers four possible
scenarios, or strategies for future product and market activities.

Figure 2.3 The Ansoff Matrix

Source: adapted from manifestedmarketing (2006)

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The authors have applied this framework to Starbucks for further analysis of benefits and
drawbacks of the companys recent developments and plans attached to its strategy (Table
2.4).

Table 2.4 Starbucks Ansoff Matrix

MARKET PENETRATION: An example of which Starbucks have started writing


is growing sales of existing products names of customers on coffee cups. The intention of
in existing markets. this is to increase sales as a result of greater customer
satisfaction a personalized touch- customers feel
appreciated.
PRODUCT DEVELOPMENT: An example of this would be Starbucks introducing a
launching new products into an new premium coffee made with rare and exclusive
existing market beans. The existing market is the coffee market and
the new product launched is the rare coffee beans.

MARKET DEVELOPMENT: Starbucks are a great example of this by having


is growing sales by launching existing coffee shops all over the world.
products into new markets

DIVERSIFICATION: Starbucks latest plans to launch a new food range are


is launching new products into a new a diversification strategy because the firm is using a
market, potentially increasing sales by new product to tap into a new market for meals.
a significant amount

2.1.7 Green Strategy

As a company that relies on agricultural products, Starbucks has long been aware of the
importance of ecological views and green strategy:

1. Starbucks LEED stores


The company joined the U.S. Green Building Council (USGBC) in 2001 and
collaborated with them to develop the LEED for Retail program. LEED
(Leadership in Energy and Environmental Design). The company is working to
bring all stores to LEED building standards and ensure that the approach to

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designing, building, and maintaining stores is inclusive of a range of environmental


goals.
2. Recycling and reducing waste
The company is working to shrink environmental footprint and meet the
expectations of the customers by increasing recycling, promoting reusable cups and
reducing the waste associated with cups and other packaging.
3. Conserving water and energy
Conserving the energy and water used and purchasing renewable energy credits,
the company reduce the environmental footprint of operations and help ensure
access to clean water in coffee-growing communities.
4. Helping with climate change
Since 2004, Starbucks been pursuing strategies to address this challenge and help
farmers mitigate the impact of climate change on their farms.

2.1.8 Summary of Historical Analysis

Starbucks has grown a lot since it opened for business in 1971, carrying the concept of
premium coffee and coffee housing to levels of development and innovation that are of the
highest level in the world. This has been possible thanks to a great vison and a key strategy
of product differentiation offering differentiators such as premium product mix, locations,
coffee beverages reputation and supreme customer service. Another crucial strategy for
Starbucks growth has been its international strategies of expanding into key developed
and emerging markets to geographically diversify, and it has been highly successful with
operation spanning 60 countries as portrayed in figure 2.3.

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Figure: 2.4 Starbucks Stores worldwide

Source: The Washington Post. (2013)

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2.2 Financial Analysis

In this section, we shall look at Starbucks financial performance through the breakdown of
the ratios based on the companys financial statements. (Table 2.5)

Table 2.5 Starbucks Ratios

STARBUCKS CORPORATION'S FINANCIALS FOR FISCAL YEAR ENDING


SEPTEMBER OF EACH YEAR
(All USD figures in millions)
Key Ratio's/Accounts 2008 2009 2010 2011 2012 2013
Profitability Ratio's
Revenue 10,383 9,775 10,707 11,700 13,300 14,892
Gross Margin % 19.2 55.8 58.4 57.7 56.3 57.1
Operating Income (USD Millions) 504 562 1,419 1,729 1,997 -325
Operating Income Margin % 4.9 5.7 13.3 14.8 15 -2.2
Net Income (USD Millions) 316 391 946 1,246 1,384 8
Net Margin % 3 4 8.8 10.7 10.4 0.06
Return on Equity (ROE) % 13.2 14.1 28.14 30.9 29.2 0.17
Return on Assets (ROA) % 5.73 7 16 18.1 17.8 0.08
Earnings Per Share (EPS) 0.43 0.52 1.24 1.62 1.79 0.01
Efficiency Ratio's
Asset Turnover 1.89 1.74 1.79 1.7 1.71 1.51
Inventory Turnover 12.1 6.4 7.4 6.6 5.3 5.4
Fixed Asset Turnover 3.5 3.5 4.3 4.9 5.3 5
Days Sales Outstanding 10.9 11.2 9.8 10.75 12 12.8
Days Inventory 30.11 57.3 49.4 55.6 69.3 67.3
Payable Period 15.6 25 22.5 30.3 29.4 25.4
Cash Conversion Cycle 25.4 43.5 36.7 36.1 52 54.7
Liquidity & Financial Health Ratio's
Current Ratio 0.8 1.3 1.55 1.83 1.9 1.02
Quick Ratio 0.3 0.6 1 1.17 1.14 0.71
Debt/Equity 0.22 0.18 0.15 0.13 0.11 0.29
Financial Leverage 2.28 1.83 1.74 1.68 1.61 2.57
Year on Year Growth %
Revenue Growth % 10.3 -5.9 9.5 9.3 13.7 12

Source: All Financials used here are derived from Starbucks10-K Forms

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In the financial analysis of this period the following observations can be made:

The revenue growth of the company has experience a drop of -5.9% during the
2008/09 recession but from then on, Starbucks posted a healthy revenue growth of
from FY2010 to FY2013 with posting a great growth of 13.7% in FY2012 and
currently posted revenues $14.9 billion for FY2013.
The Companys operating income margins have increase substantially from 4.9%
in FY2008 to a high of 15% in FY2012.
Starbucks posted an operating loss in FY2013 and this resulted in a operating
margin of -2.2% for that year and the main reason for that is due to a litigation
charge of $2.8 billion to Kraft Foods for terminating an agreement with them. This
charges is treated as extraordinary event and therefore should be discounted from
the overall healthy operational performance of Starbucks.
Starbucks ROE and ROA have been impressive with 29.2% and 17.8% respectively
for FY2012.
Looking at Starbucks efficiency ratios, Starbucks has gained significant
operational efficiency with impressive asset and inventory turnover ratios with a
low of 1.51 and 5.4 respectively for FY2013.
It must be noted that the companys cash conversion cycle has increase to high 54.7
in FY2013, which is where Starbucks should concentrate on to reduce to attain
higher efficiency.
Starbucks boasts good financial health with low debt/leverage with a debt/equity
ratio of 0.29 for FY2013 and maintains decent current and quick ratios.

We continue the evaluation of Starbucks Financial position using the recognized


international rating system CAMELS depicted in table 2.6.

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Table 2.6 CAMELS Framework

COMPANY POSITION MEASURE STRENGTH


(1-10) WEAKNESS
Capital adequacy Starbucks has about 182,000
employees across 19,767
10 strength
company operated & licensed
stores in 62 countries and had
total revenue of $14.89 billion as
of September 29th, 2013

Asset quality Starbucks has gained significant


operational efficiency with
10 strength
impressive asset and inventory
turnover ratios with a low of 1.51
and 5.4 respectively for 2013.

Management quality Starbucks CEO Howard Schultz


encourages exceptional employee
10 strength
relations.

Earnings Starbucks posted an operating


loss in 2013 and this resulted in a
operating margin of -2.2% for that
year and the main reason for that 7 strength
is due to a litigation charge of
$2.8 billion to Kraft Foods for
terminating an agreement with
them.

Liquidity Starbucks boasts good financial


health with low debt/leverage
10 strength
with a debt/equity ratio of 0.29 for
2013 and maintains decent
current and quick ratios.

Sensitivity to market risk Starbucks may incur risk because


raw materials are supplied from
6 weakness
countries outside of the US.

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2.2.1 Summary of Financial Analysis


Starbucks business strategy and evolution in that strategy are evident in its
financial results. Starbucks management could use this financial analysis to
identify opportunities for improvement, including inventory management and,
perhaps, financial leverage. Starbucks investors could use this financial analysis
to identify areas for further research before buying Starbucks stock.

2.3 Value Chain Analysis

In order to identify business activities that can create value and competitive advantage to
businesses the Value Chain Framework (figure:2.4) as proposed by Michael Porter is a
common tool.

Figure: 2.5 Michael Porters Value Chain

Source adapted from mindtools, (2015)

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The authors have applied this framework to Starbucks activities as depicted in table 2.7

Table 2.7 Starbucks Value Chain

PRIMARY ACTIVITIES
Element Impact Measure Strength
(1-10) Weakness
Unroasted Arabica coffee beans are brought from
Inbound Asia, Africa and Latin America to the US and
logistics Europe in containers via sea. These are delivered to 10 Strength
Starbucks six regional distribution centers ranging
from 200,000 to 300,000 square feet in size.

Starting form recently, Starbucks is exploring the


opportunities to grow its own coffee. Specifically,
since 2013 Starbucks has its first own 240-hectar
coffee farm in Poas Volacno, Costa Rica.

Such a shift in the sourcing of products can increase


the effectiveness of new product development
initiatives for the business as the company will have
a chance of experimenting with developing new
sorts of coffee.

Operations Starbucks operates in 65 countries and there are two


store formats: company-operated and licensed. 10 Strength

As of September 2014, the company had 10,713


company-operated stores and 10,653 licensed stores.

Outbound Customers can purchase Starbucks products from.


logistics company-operated and licensed stores.
10 Strength
Online sales channel is also utilized by Starbucks for
certain range of products such as packaged coffee,
tea, drinkware and drink-related equipment.

In addition, a very limited range of Starbucks


products such as 3-in-1 coffees in sachets can be

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purchased from a set of leading supermarket chains


such as Walmart, Tesco and Sainsburys.

Marketing and Word-of mouth cost-effective form of marketing


sales based on high quality of products and high level of
customer services was traditionally the main channel 8 Strength
promoting the brand for years.

However, rapidly intensifying level of competition


motivated the senior management to reassess the
marketing strategy and Starbucks marketing budget
has been consistently increasing during the last five
years to reach USD 315.5 million for the fiscal year
2014.

Service Superior customer services is the core source of


Starbuck competitive advantage and this particular
primary activity adds an enormous value to the brand 10 Strength
image.

Starbucks baristas are always genially polite and


greet regular customers by their names.

Occasionally, regular customer may get their regular


coffee free of charge at the discretion of baristas as
good gesture and such acts increase the perception of
the service quality to a considerable extent.
SUPPORT ACTIVITIES
Infrastructure This includes all departments like management,
finance, legal, etc which are required to keep the
companys stores operational. 10 Strength

Starbucks well designed and pleasing stores are


complemented with good customer service provided
by the dedicated team of employees in green aprons.
Human The companys committed workforce is considered
Resources a key attribute in the companys success and growth
over the years. 10 Strength

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Starbucks employees are motivated through


generous benefits and incentives.

The company is known for taking care of its


workforce and this is perhaps the reason for a low
turnover of employees, which indicates great human
resource management.

There are many training programs conducted for


employees in a setting of a work culture which keeps
its staff motivated and efficient.
Technology Starbucks is very well known for use of technology
Development not only for coffee related processes (to ensure
consistency in taste and quality along with cost 10 Strength
savings) but to connect to its customers.

Many customers use Starbucks stores as make a shift


office or meeting place because of the free and
unlimited wifi availability.

The company in the year 2008 also launched


mystarbucksidea.force.com as a platform where
customers can ask questions, give suggestions and
openly express opinions and share experiences.

The company has implemented some of the


suggestions given via this forum.

Starbucks also uses Apples iBeacon System


wherein customers can order their drink through the
Starbucks phone app and get a notification when
they walk in the store.
Procurement This involves procuring the raw material for the final
product.
10 Strength
The company agents travel to Asia, Latin America
and Africa for the procurement of high grade raw
material to bring the finest coffee to its customers.

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The agents establish strategic relationship and


partnership with a supplier which is built up after
reconnaissance and communication about the
company standards.

High quality standards are maintained with direct


involvement of the company right from the base
level of selecting the finest raw material which is
coffee beans in case of Starbucks.

2.4 Core Competencies


The analysis of production skills and technologies of Starbucks has defined the following
Core Competencies:
The core competence of Starbucks has been its ability to effectively leverage their
cornerstone product differentiation strategies by offering a premium product mix
of high quality beverages and snacks. Starbucks brand equity is built on selling the
finest quality coffee and related products, and by providing each customer a unique
Starbucks Experience, which is derived from supreme customer service, clean
and well-maintained stores that reflect the culture of the communities in which they
operate, thereby building a high degree of customer loyalty with a cult following.

Its other core competence is its human resource management's values-based


approach for building very strong internal and external relationships with suppliers,
which drives the successful deployment of its business strategy of organic
expansion into international markets, horizontal integration through smart
acquisitions and alliances that maintains their long-term strategic objective being
the most recognized and respected brands in the world.

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2.5 McKinseys 7-S Framework

We analyse Starbuckss organizational design with the McKinseys 7-S Framework (table
2.8), looking at 7 key internal elements: strategy, structure, systems, shared values, style,
staff and skills, to identify if they are effectively aligned and allow organization to achieve
its objectives.
Table 2.8 Starbucks McKinseys 7-S Framework

Element What the company does Measure Strength/


(1-10) Weakness
Hard
Elements
Strategy Starbucks has to be concentrating on the quality of 10 Strength
its products at the same time offering excellent
level of customer services. The main strategy for
the company is to increase revenues through
effectively positioning Starbucks stores as third
place environment.
Structure Flat management structure needs to be achieved 6 Weakness
through de-layering. Specifically, the positions of
assistant managers need to be eliminated within the
stores, after which there will be only three levels of
management store manager, shift manager and
customer assistants, thus considerable amount of
costs can be saved and organisational efficiency
can be increased.
Systems Rather than daily roles among customer assistant 10 Strength
being appointed by shift supervisors, the rotation
system of duties needs to be introduced that will
reduce the potential of conflicts among the
workforce, and the work process would be more
interesting.
Soft
Elements
Skills Necessary training and development programs 10 Strength
need to be organised in a systematic manner and
thus it has to be ensured that all members of the
workforce are equipped with skills necessary to
achieve a high level of customer satisfaction.

Staff Staff. Only capable and promising candidates need 10 Strength


to be employed by Starbucks and employees have
to be provided with growth potential.

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Style Management style within stores should be 10 Strength


changed from Laissez Faire to inspirational
management. In this way a greater number of the
workforce can be effectively motivated for higher
performances with less financial resources.
Shared Currently effective set of values are being 10 Strength
Values promoted by management at Starbucks, however,
more effective initiatives and programs need to be
devised that would ensure these values being
shared and appreciated by all members of the
workforce.

2.6 Summary of Strengths and Weaknesses

Through the group of exercises and frameworks the following summary can be made:

Starbucks strengths
They have a strong brand with excellent reputation and consumer loyalty.
Diverse product portfolio catering to all tastes and ages, including noncoffee
beverages and food items
Excellent customer service and the value of the Starbucks experience
Strong employee relationships
Economies of scale providing superior distribution networks and supplier power
Primlylocated retail stores
They have sufficient capital to meet their expenses.

Starbucks Weaknesses

The company pays 23% more for coffee than market prices
Saturation of the market diminishes longterm growth prospects
No monetary switching costs for consumers
Negative large corporation image
Potential limitations of international expansion due to cultural clashes with
American

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3. EXTERNAL ANALYSIS

For this analysis of the strategic environment the authors will engage in the use of the 9 basic
analytical tools suggested by Lynch (2015), illustrated in figure3.1.

Figure 3.1: 9 basic analytical tools

Source: Adapted by Author, 2017, from Lynch,(2015)

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3.1 Environment Basics


In strategy, according to Lynch (20150), the environment means everything and everyone
outside the organization: competitors, customers, suppliers plus other influential
institutions such as local and national government. Table 3.1 analyses the basic strategic
environment for Starbucks.

Table 3.1: Environment Basics

Element Particulars Strength/


Weakness
MARKET Coffee is the second most commonly traded commodify in
DEFINITION the world.

The US is the worlds largest importer of coffee: Kraft,


Nestle, Procter and Sara Lee are the major roaster Strength
companies.

The coffeehouse industry in the United States was


forecasted to generate more than 32 billion U.S. dollars in
revenue in 2016. Coffeehouses come in a variety of forms
but, traditionally, they are small establishments selling
prepared coffee, tea and other hot beverages.
More recently, many coffeehouses compete with other
restaurants in the limited-service category by serving
baked goods, sandwiches, salads and other snack items.

In the U.S., coffeehouses make up just a small sector of the


vast food and drink industry which expected to see sales of
around 782 billion U.S. dollars in 2016.

The most recent market size data from 20072015 was


gathered by a global market intelligence agency, Mintel.
MARKET Estimations prior to 2007 were gathered by SCAA based Strength
SIZE on data from Mintel, in combination with a review of
selected filings and other publicly available information.

According to Mintel research, the number of specialty


coffee shops in the U.S. was estimated to be 31,490 in
2015.

There are a few ways to look at the market size data over
time. Starting from a birds-eye-view, the landscape shows

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significant historical growth in the last 25 years, with a


steep trend line.

MARKET Market share of the leading coffee chains in the United Strength
SHARE States in 2016 show that Starbucks has the leading position
with 39.8%

MARKET Coffee drinks are immensely popular in the United States,


GROWTH as coffee consumption represents 75 percent of all caffeine Strength
absorbed in this country. This explains in part the 7 percent
annual growth rate of coffee shops, and represents the
fastest growing segment in the food service industry. In
2012, 83 of Americans reported drinking coffee, equating
to a 5 percent growth over 2011.

MARKET Coffee represents big business around the world, with


SEGMENTATION some segments offering better business opportunities than Strength
others.
Roasted: The largest coffee segment consists of roasted
and ground coffee, accounting for 76 percent of all coffee
consumed in the world,
Soluble: Another segment consists of soluble coffee, also
known as instant or freeze-dried coffee. The main
competition in this market comes Nescafe, the world's
largest instant coffee brand.
Ready-to-Drink: consists of packaged coffee that requires
no preparation, other than reheating. This type of coffee is
primarily found in vending machines although canned
coffee is becoming more popular overseas.
Specialty Coffee:The current trend in specialty coffees
coffee that consist of more than just traditional coffee
products suggests potential for new products and
markets. Specialty coffee products include cappuccinos,
lattes and espressos along with organic coffees, all which
command premium prices.
Today, more than 40 percent of all coffee is premium-
priced, according to Iowa State University.

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3.2 Customer Analysis and Market Segmentation


The tenet of Starbuck is to create an experience for its customer when they purchase the
coffee, and drink Starbucks would become a part of customer's life. A good customer
loyalty is primary reason for the company to win the market shares, these customers are
divided in three main groups, as depicted in table 3.2.

Table 3.2: Starbucks Customer Segmentation Analysis


Group Details Strength/
Weakness
ADULTS Accounts for almost half (49%) of its total
Ages of 25-40 business. Customers within this range tend to Strength
have high income and professional careers.
This group grows at a rate of about 3%
annually.

YOUNG ADULTS This is the second group that Starbucks targets.


Ages18-24 They bring in about 40% of Starbucks' sales strength
and Starbucks "positions itself as a place
college students can hang out, study, write
papers, and meet people."
They appeal to this group through the growth
of technology and innovative ideas.
The young adult group grows at about 4.6%
each year.

KIDS AND This group accounts for about 2% of


TEENS Starbucks' sales but lots of items are bought Weakness
Ages 13-17 from the parents of the kids.
Starbucks targets this group by offering
certain drinks that appeal to them.

In the process of dividing a market into meaningful, relatively similar, and identifiable
segments or groups, Starbucks uses demographic segmentation (markets by age, gender,
income, ethnic background, and family life cycle) as well as geographic segmentation
(markets by region of a country or the world, market size, market density, or climate) and
psychographic segmentation, which can link with demographics as depicted in Table 3.3.

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Table 3.3: Other Elements of Starbucks Market Segmentation

Element Details Strength/


Weakness
BEHAVIOUR Starbucks values a familiar and comfortable experience Strength
PSYCHOGRAPHIC Mid to higher income, young optimism mindset strength
GEOGRAPHIC High density and or high foot traffic locations. Strength
Near college campuses

3.3 Competitor Analysis

There are indications that the phenomenal Starbucks rein and monopoly has ended and the
new era of coffee industry has begun (figure 3.1) Although Starbucks is still the mayor
player in the market, McDonalds and Dunkin Donuts are the sharks trying take over the
coffee business, which has resulted in Starbucks market shrink.

Figure 3.2: Retail coffee US Market

Source adapted from inevitablesteps (2014)

Many studies are showing that Starbucks competitors (Table 3.4) are becoming more and
more powerful since 2004:
Dunkin began selling premium coffee drinks, it was a direct attack on Starbucks.
In 2009, another front broke when McDonalds launched McCaf. A a game
changer and another direct attack on Starbucks.
Second Cup and Tim Hortons are also keeping up the race.
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Table 3.4: Starbucks Competitors

Company Details

Dunkin Donuts
It was only in 1990s Dunkin shifted from the donut first to the
coffee first model.
In 2006, when Dunkin officially declared war against Starbucks.
Dunkin Donuts introduced new drinks, richer product line,
higher quality and a marketing strategy that changed a lot
because Starbucks mostly relied on Word of Mouth marketing,
while Dunkin chose the traditional advertisements, representing
itself as a brand for all-American consumers.
The focus of Dunkin was to become the-cost-effective
premium coffee seller, to offer the same quality product with
more reasonable prices.
Internationally, in 32 countries, Dunkin has been successfully
serving its customers and the rapid growth of Dunkin is a result
of its store consistency and franchises.
Highlight: In short, Dunkin is the best choice for price-conscious
customers. Most of Dunkin Donuts coffee consumers, are those who are
unhappy with Starbucks customer service and their stingy prices.
Rank: market contender

McDonalds revenue in 2015 (over $26 billion) was higher than


McDonalds Starbucks and Dunkin Donuts.
McDonalds is known for its food chain (theyre rather unknown
for their coffee). Though, when the iced and flavored coffee was
introduced McDonalds coffee started to gain popularity.
When McCaf was launched, Starbucks and Dunkin war was in
its early stages.
McCafs lattes are $2 cheaper than Starbucks.

Highlight: Despite the price advantage, a lot of customers shifted from


Starbucks to McCaf saying, that the lighter taste of McCaf was more
attractive. Plus, saving money is an added bonus.
Rank: market follower

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3.4 Cooperative Environment

To analyse established strengths of cooperation of Starbucks and its environment we have


used the four-link model suggested by Lynch (20015), as depicted in table 3.5

Table 3.5 Starbucks Four-link model

Links Elements Opportunity


Threat
Complementors Companies that produce milk, flour companies, Opportunity
farmers.

Government Links Engagement with local state and federal governments. Opportunity
and Networks Provisions of expertise to regulators, Advocacy
through their government relations function.

Formal Co-operative Starbucks and PepsiCo, Inc have entered into an Opportunity
Linkages agreement for the marketing, sale and distribution of
Starbucks ready to drink (RTD) coffee and energy.
Partnership with multiple companies which promotes
sustainable green environment.

Informal cooperative Starbucks Corporation is an American coffee Opportunity


links and networks company and coffeehouse chain:
Work towards creating a positive and balanced
regulatory environment conductive to sustainable
growth and innovation.
- promotes and defends the specific interests of the
coffee industry
-promotes Coffee and relaxation. A fun way to enjoy
your coffee (Wi-Fi, quiet and comfy area)

3.5 Competitive Industry Environment

For this section we have applied Porters 5 forces framework (figure3.2), which is
conventionally used to identify whether new products, services or businesses have the
potential to be profitable. However, it can be very illuminating when used to understand
the balance of power in other situations.

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Figure 3.3: Porters 5 Forces

Source: mindtools (2015)

This Five Forces Analysis assumes that there are five important forces that determine
competitive power in a business situation. Table 3.6 illustrates this framework applied to
Starbucks company.

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Table 3.6 Starbucks 5 Forces

STARBUCKS 5 FORCES ANALYSIS


SUPPLIER The analysis shows that suppliers do not have Weak
POWER much impact on Starbucks. Force
The large overall supply lessens the effect of
any single supplier on the company.
Also, Starbucks has a policy for diversifying
its supply chain. This policy reduces the
influence of suppliers on the business even
though each supplier has a moderate size
compared to the Starbucks supply chain.

Based on this aspect of the Five Forces analysis


model, Starbucks Coffee does not need to prioritize
the concerns or demands of suppliers.

BUYER The bargaining power of buyers is also Strong


POWER among the most significant forces affecting Force
Starbucks Coffees business.
Customers can easily shift from Starbucks to
other brands because it is affordable to do
so. Customers can also stay away from
Starbucks if they want to, because there are
many substitutes, such as instant beverages
and drinks from restaurants.
These strong factors overshadow the fact
that individual purchases are small compared
to Starbucks Coffees total revenues

This aspect of the shows that the bargaining power


of customers should also be among Starbucks
Coffees top-priority challenges.

COMPETITIVE The analysis shows that competition is among Strong


RIVALRY the most important of Starbucks Coffees Force
concerns.
The company faces many competitors, which
have different sizes, specialties and strategies.
For example, Starbucks faces the competitive
force of McDonalds and Dunkin Donuts, as
well as other specialty coffee companies.

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The strong force of competition is also due to


the low switching cost, which means that it is
easy for customers to shift from Starbucks to
other brands.

Based on this component of the Five Forces analysis,


competition should be among Starbucks Coffees
top-priority challenges.

THREAT OF Substitutes have strong potential to Strong


SUBSTITUTION negatively impact Starbucks Coffees Force
business.
Starbucks customers can easily shift to
substitutes because there are many
substitutes, such as beverages from
restaurants, and instant and bottled beverages
and other goods from grocery stores.
The cost of shifting to substitutes is low
because Starbucks customers do not need to
spend for the shifting process. In addition,
many of these substitutes cost less than
Starbucks products.

Thus, based on this part of the Five Forces analysis,


Starbucks must consider the threat of substitutes as
among its top-priority concerns.

THREAT OF New entrants have significant but not strong Moderate


NEW ENTRIES effect on Starbucks Coffees business. Force
New entrants can compete against Starbucks
because of the moderate costs of doing
business and supply chain development.
However, new entrants find it difficult to
compete against established brands like
Starbucks because it is very costly to develop
a strong brand.

The analysis indicates that the threat of new entrants


should be a secondary priority in Starbucks Coffees
strategies.

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3.6 Key Factors for Success


The Key factors for Starbucks success shall be analysed through the Three Cs Model
(Table 3.6), developed by business and corporate strategist, Kenichi Ohmae.

Table 3.7 Starbucks 3 Cs


THE 3 CS PROVIDING
FACTORS
FOR SUCCESS
Excellent customer services are being adopted as an important source of
Customer competitive edge by increasing numbers of coffee shops.

Starbucks' primary target market is men and women between ages 25 to


40 and they account for almost half (49 percent) of its total business.
Starbucks' appeal to this age group through hip, contemporary design in
its advertising and dcor working to keep its products current as status
symbols. (Credit, 2017)

Price- The market segmentation for Starbucks coffee is medium to


high. High price for a premium cup of coffee.
Service- Starbucks pride themselves on service. To keep with the
atmosphere of upscale coffee house.
Product- The company assures that the coffee is of a high quality
and better than the competition even though their prices are a little
higher.
Quality- Increasing level of competition in the market is fuelling the
level of customer expectations regarding the quality in general, and
freshness in particular. Starbucks are always trying to push for that
perfect cup of coffee.
Branding- Starbucks created the ideal area for customers to be
connected to them. The new third place. It was not home (1st place)
or (2nd place) work but the 3 rd place to be to socialize, to wind
down, to collect thoughts. A peaceful place in a fast world. (Conlon,
J. ,2015)

Competition Main Competitors are McDonalds, Dunkin Donuts


Cost competition-In order to compensate for the customers lost to
cheaper alternatives like Dunkin Donuts, Starbucks raises prices to
maximize profits from these price insensitive customers who now
depend on their strong gourmet coffee. (Intelligently, 2013)

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Quality- According to (Walters, 2017) Starbucks coffee ranged


between 83 to 84 % in taste and quality. Interestingly intense coffee
drinkers look for coffee 90% and above.
Market dominance- Starbucks then Mc Donalds and followed by
Tim Hortons. (Topic: Coffeehouse industry, 2017)
Service
Low cost operations -The costs of goods sold, depreciation and
Co operation amortization expenses, and store operating expenses have declined
over the last six years, with only general and administrative
expenses rising. This translates into improving margins over time
due to business growth and efficient cost management.
(Marketrealist.com, 2017).This is how they kept themselves a
viable company by re strategizing.

Production output levels. - Starbucks controls 4 U.S.


manufacturing/roasting plants and 1 European. With this
acquisition they were able to process more beans in a less time
period (From 7 day work week to 5 day work week). The
company also stated it reduced its carbon emission as a shorter
production time (green strategy) U.osu.edu. (2017).

Innovation
Digital experience- customers access to Starbucks music on
Spotify and the ability to influence in-store playlists.
Mail order and pay- Here is where customers can place order in
advance of their visit and pick up at chosen store.
Delivery- in 2015 Starbucks started delivery. This grew greatly so
much so they partnered Postmates to help with the orders. 5
Million transactions a month. Innovations, Y. (2017).

3.7 Industry Life Cycle


Starbucks was founded over 20 years before and after that company has rapid
growth so Starbucks is in mature stage of its lifecycle (Figure 3.3).

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Figure 3.4 Starbucks Lifecycle

Source adapted by author 2017

The lifecycle of Starbucks shows the increase of their sales in relation to time or years. The
Company continues to expand the company by acquiring 16000 stores worldwide. Every
day it opens 2 stores worldwide. Almost 85% of its sales come from its stores. So it is
opening new stores at a breakneck pace.6 years ago it had just 1015 stores thats 400
fewer than it built last year alone. (Figure 3.4).

Figure 3.5 Starbucks Expansions

Source adapted from Bloomberg, (2016)

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3.8 PESTEL Analysis


PESTLE is a strategic analysis tool often seen as the most effective analytical framework
to analyse the impacts of external issues.

Table 3.8 Starbucks PESTEL

Elements Impact on company Opportunity/


Threat
The main political factor is about sourcing the raw
materials. This has gathered a lot of the attention from
POLITICAL politicians in the West and from the source countries. Threat
For this reason, the company wants to adhere to social
and environmental norms. It is willing to follow the
sourcing strategies. It gives importance to fair trade
practices.
Another impact is the need to follow the laws and
regulations in the countries from where Starbucks
buys the raw materials. Activism and increased
political awareness in developing countries have made
his essential.
The regulatory pressures within the home market in
the US are also a factor. Multinationals based in the
US are now subject to greater scrutiny of the business
processes. The company must monitor political
stability within the country as well.
Some other factors to consider are:
Tax policy
Employment laws
The ongoing global economic recession is the prime
external economic driver for Starbucks. As I already
ECONOMICAL mentioned, this factor dented the profitability of Threat
Starbucks. This has convinced buyers to shift to
cheaper alternatives. As they did not quit buying
coffee, Starbucks should seek an opportunity here.
The company has to deal with rising labor and
operational costs. The inflationary environment and
falling profitability is causing a lot of stress.
Some other economic factors which can affect
Starbucks are:
Local currency exchange rates

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Local economic environment in different


markets
Taxation level
As already stated, Starbucks can offer cheaper
products but it might have to sacrifice the quality. This
SOCIAL is the main socio-cultural challenge that the start-up
faces. It will expand consumer base to include the
buyers from the lower and the middle-income tiers.
The green and ethical chic consumers are also
concerning. They fret about social and environmental
costs of the brands. Starbucks has to be aware of this
trend.
The baby boomer generation is retiring. This means
spending by older consumers will decrease. Now,
Starbucks will have to tap the Gen X and the
Millennials as customers.
Other socio-cultural factors to focus on are:
Changing family patterns in USA and Europe
Consumer preferences
Changing work patterns
Changes in lifestyles of population
The level of education of the population in
local markets
Changing values among population
Starbucks is in a good position to enjoy benefits of the Opportunity
emerging mobile wave. Its partnership with Apple to
TECHNOLOGICAL bring app based discount coupons is helping it ride the
mobile wave easily.
The company introduced Wi-Fi capabilities in its
outlets already. Internet is important to the consumers.
They can now surf the web and do work while sipping
Starbucks coffee. This is an added value to the brand.
It enhances the overall consumer experience.
Starbucks is also enabling mobile payments. They are
testing this in pilot locations in the US.
Some other technological factors to keep in mind are:
Emergence of innovative technology
Biotechnological developments
Developments in agriculture

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Many Starbucks business practices concern activists


and international advocacy groups. Even the
ENVIRONMENT consumers have expressed issues. So, the company
should take these into account to continue holding
consumers trust.
Some of the other environmental factors Starbucks
should worry about are:
Environmental rules and regulations
Environmental disasters in countries which
produce coffee beans
Global warming and other environmental
issues in a global level
LEGAL Starbucks must ensure that it does not violate any laws
and regulations in the home market and countries from
where they buy raw materials.
It should also stay alert about introduction of caffeine
production and consumption related policies and
regulations by health authorities.
Others factors that might affect the company are:
Introduction of stricter customs and trade
regulations
Licensing regulations related to the industry.

3.9 Degree of Turbulence in the Environment


The environmental forces surrounding Starbucks are analysed in this section (Table 3.8),
accordingly as Lynch (2015) has suggested through the two main measures:

Changeability
Predictability

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Table 3.9 Analysis of Degree of Turbulence

Element Degree of Impact on Starbucks Measure Opportunity/


Turbulence (1-5) Threat
Regulations and laws on
GOVERNMENTAL imports and exports will 4 Threat
REGULATIONS Medium become a major topic in
politics and government
meetings around the globe.

Resources needed to
produce a product in one
country may deplete while
the same resource may be
abundant in another
country.

Countries will be able to


make profit off of their rare
resources; some more than
others.

Technologies dealing with


TECHNOLOGY Medium manufacturing, specifically 4 Threat
seen in the automobile
industry, are already
making a huge impact.

Education of these next-in-


SOCIAL High line employees is finalized 5 Opportunity
and cannot be altered now.
The next five years will be
an enormous indicator as to
what aspects of the
education systems need a
boost and which are
sufficient as is.

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3.10 Summary of Opportunities and Threats

Through the exercises above the following opportunities and threats have been identified.

Starbucks Opportunities:
Starbucks has a strong market share of about 40%.
Starbucks has gone for market extension in beverage category.
Currently, Starbucks is operating 15,000 stores internationally.
Technological advancement can help Starbucks improve its services.

Starbucks Threats
The political, economic and weather conditions in some countries outside the
domestic market.
The rise in dairy prices can be a threat.
Starbucks must be careful of the emerging competition.

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4. STRATEGIC FIT ANALYSIS

A high degree of strategic fit entails a company with the benefits of extensive profitability and
potential yields. This analysis according to can rightfully be a vital influential factor over the
decision making and strategy selection process of a firm.

Table 4.1 Strategic Fit Analysis

Fit Comments
New product development Yes With the record revenues of $11.7
generated in 2011, Starbuck possesses
sufficient amount of financial resources in
order to engage in new product
development in a successful manner

OPPORTUNITIES Increasing the level of Yes Starbucks possesses financial and human
operational efficiency resources to engage in research and
through technological development in order to increase the level
innovation of operational efficiency through
technological innovation
Increasing the range of Yes Necessary amount of expertise and
target customer segment resources are possessed by Starbucks so
that the range of target customer segment
can be increased

Specifically, a range of lower priced


drinks and food need to be added to
Starbucks menu so that individuals with
lower budgets can also be included to
target customer segment

Further damage to brand Yes Effective PR programs can be initiated by


image due to paying no Starbucks so that the negative impact of
taxes scandal the scandal can be minimised
Adverse impact of No Starbucks possesses no tools to impact
changes in the UK changes in UK taxation policies
taxation policy
THREATS Continuing economic No Starbucks management can not address
issues in the EU and the macroeconomic issues in the UK with
UK negatively impacting negative implications on the levels of
the levels of consumer consumer spending
spending

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4.1 SWOT Analysis


The point of a SWOT analysis is to help you develop a strong business strategy by making
sure all business strengths and weaknesses are considered as well as the opportunities and
threats it faces in the marketplace. Table 4.1 illustrates the SWAT analysis for Starbucks.

Table 4.2 SWAT Analysis

STRENGTHS OPPORTUNITIES
1. Successful and popular products lines 1. High growth rates in emerging
2. Access to high-quality Arabica coffee markets (China, India, Brazil)
beans 2. High growth potential of the single-
3. Strong supply chain management serve coffee market
4. Strong intellectual property and R&D 3. High growth potential for flavored
capabilities coffee in the U.S.
5. Strong financial muscle 4. High growth potential for courtesy
6. Strong brand image coffee products
7. Strong customer service
8. Strong and reputable partners
9. Variety of flavours
WEAKNESSES THREATS
1. Overextension of product portfolio 1. High bargaining power of suppliers
2. High prices of products 2. Trademark infringements in emerging
3. Environmental issues markets
3. Increasing competition from local
competitors and new entrants in
emerging markets
4. Saturated market in developed
economies
5. Increasing price sensitivity of
Customers

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4.2 EVR Congruence


We analyse Starbucks through the Balance scorecard (table 4.3)

Table 4.3 Balance Scorecard

STRATEGY INFLUENCE ON MESURES Fit/unf


PERSPECTIVES THE COMPANY it
FINANCIAL Innovation and Revenue Increase the number of new
PERSPECTIVES product Growth products.
development Attract new costumers.
Change to a more profitable
product/service mix.
Fit

Cost Reduce product/service costs


Reduction per unit.
Reduce selling/general
administration costs.

Asset Improve asset utilization


utilization
COSTUMER The Starbucks Existing Increase loyalty
PERSPECTIVE experience will be Market (US) Increase satisfaction
rd
the 3 place Increase sense of community
between home and Increase customer profitability Fit
work
New markets Increase market share
Social community
online Reputation Environmental effort
rd
Create the 3 place
Good
environmental
reputation.

INTERNAL High Quality Enhance Increase service efficiency and


PERPECTIVE Service Customer quality. Fit
relationship

Enhance Improve complaint resolution


supplier service
relationship

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Operations Increase long term


relationships.
Increase quality and yield of
coffee.
Decrease process costs and
time
Increase process efficiency and
quality

FUTURE High quality Enhance Improve quality of training


PERSPECTIVES customer service employee Attract and retain quality Fit
capabilities employees.

Enhance Maintain high levels of


employee motivation.
motivation

Alignments Alignments of employees


of objectives objective with overall strategy.

4.4 Summary of Strategic Fit


Generally, it can be argued that Starbucks is matching CSFs with an adequate level of
effectiveness to contribute to long-term growth of the company in the Global market.
However, nowadays the company is being heavily criticised in the media due to the tax
row, and this fact can be specified as the most critical issue the management needs to
address in an effective manner.
Moreover, Starbucks marketing strategy has been mainly limited with point-of sales-
marketing and initiating word-of-mouth, and with the lack of effective PR practices and
experiences in place, Starbucks management may find it increasingly difficult to address
possible tax rows. In conclusion, it can be understood that Starbucks is in fit but there must
be a close observation as towards the future.

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PART 2 RECOMMENDATIONS

5. STARBUCKS GENERAL RECOMMENDATIONS

Based on the strategic fit analysis and other evaluations, prescriptive and emergent options for
company to improve competitiveness are listed below:

Starbucks biggest growth has been in its International segment with the emerging
markets of Brazil, India, China, South Africa and Mexico offering significant
opportunities to serve more customers. The company has also made significant entrance
to the Chinese market therefor Starbucks should grow in these emerging markets
remaining relevant to the customer introducing local product mix and price points to the
needs, lifestyles and tastes of each individual market/community.
Starbucks has great growth opportunities in Tea and Fresh Juice products mix. The
Company should build up these products along the same line of their core coffee
products.
As consumer tastes and lifestyle shift towards more snacks and beverages options,
Starbucks should tailor its menus and expand to give more healthy product offerings in
its mix.
There have been wide variations in the market prices of high quality coffee beans and
Starbucks could alleviate this price volatility risky by implementing an effective
hedging strategy like future contracts to lock in their estimated quantity inputs at a low
swing price so that the future costs can be managed better.
The US market is saturated therefor Starbucks should focus on penetrating rural
markets.
The packaged coffee packets and iced beverage products sector has grown and
Starbucks should focus on building better relationships with big box retailers to get
premium shelf space and increase the efficiency of this distribution channel.
Starbucks invest very little in advertising and marketing initiatives due to the arrival of
larger competition from McDonald, Costa and Dunkin, Starbucks should make
significant investments in advertising and marketing initiatives in the face of increased
competition in the market.

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5.1 Starbucks Strategy Recommendation


While analysing the various strategies that Starbucks could adopt to grow, different
elements were considered such as protection of the Companys assets, Rate of return and
liquidity. Based on these factors, the most suited strategy for Starbucks Company at this
point is Market Penetration in Asia continent specifically in India.
In the actual saturated US market Starbucks, must strongly focus on its international
segments. While reports show that all regions will see strong growth in the category of
coffee shops, the Asia Pacific area where India is located, is estimated to have the largest
sales increase in specialist coffee shops, totalling over US$3.7 billion dollars in new value
growth from 2016-2020 (Euromonitor, 2016). This is as compared to North America, at
US$3.3 billion in growth, as well as another US$1.7 billion from Western Europe over the
same period.
Starbucks has already made entrance to this market with its international segment strategy
and it has been part of the Companys biggest growth in the lasts years therefore we make
the strategic recommendation with the understanding that it would be the least costly
strategy for Starbucks and would provide the best return on investment.
In conclusion, based on the strategic audit, a market penetration strategy will assist in
closing the gaps identified and align the Companys vision, mission and environment
thereby improving the performance of Starbucks company.

6. TREND AND SENSITIVITY ANALYSIS

6.1 Scenario
The last decade has been a dynamic time for Coffee Shops globally, with consistent growth
and demand for modern caf experiences driving rapid innovation and growing
competition in the category all over the world. They are several factors to consider in the
actual market:
Coffee shops are the fastest growing restaurant category
Specialist coffee shops were the fastest growing major restaurant category in terms of
global sales, increasing 9.1% from 2014-2015 (Euromonitor, 2016). This growth was
reported to be consistent across all world regions, including those that are mature.

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The largest growth opportunities are being pointed out towards Asia
In this tendency, the reports lean to point the Asia Pacific as the area for the largest
sales increase in specialist coffee shops with a possible totalling of over US$3.7
billion dollars in new value growth from 2016-2020.

Competition is growing quickly, leading to rapid diversification


In terms of geographic coverage, Starbucks and McCafe have truly achieved broad
presence but several international brands are now taking steps toward becoming
viable multi-regional competitors (figure 6.1) and India is one of the mayor targets:

Table 6.1 Multiregional Competitors

The homegrown caf chain, credited with


the start of the coffees hop culture in India,
is perhaps the market leader in terms of
Caf Coffee retail footprint with 1,586 cafs at 220
Day (CCD) cities

This Company has made significant progress


toward a presence in Eastern Europe, Asia
Pacific and the Middle East.
Costa Coffee
UK

The Japanese company has begun


expanding across other Asian markets like
Doutor Coffee South Korea and Taiwan.
Japan

This company has been expanding into


China and the US and has shown intentions
Caffe Bene of moving into India.
South Korea

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6.2 Market definition and market size


The market can be defined as Indias coffee retail market and its size is estimated at Rs
1700 crore plus and expected to grow at a fast pace of over 20% in the recent times. In
addition to India urban centers like New Delhi, Mumbai, Bengaluru, Chennai, Hyderabad
and Kolkata, entry of new chains into tier II and tier III cities is anticipated to emerge as a
major factor driving growth in coffee shops/cafes market in the country over next five
years.

6.3 PESTEL Analysis

An analysis of Indias political, economical, sociological and technological environment is


underlined through a PESTEL framework (Table: 6.1), for a better understanding of the overall
business environment and accordingly design the organizational strategy.

Table 6.2 India PESTLE

Elements Impact on company Threat/


Opportunity
POLITICAL Starbucks will comply the political environment is
greatly influenced by factors such as governments
Threat
policies, politicians interests, and the ideologies of
several political parties. As a result, the business
environment in India is affected by multivariate
political factors.
The taxation system is well-developed and several
taxes, such as income tax, services tax and sales tax are
imposed by the Union Government. Other taxes, such
as octroi and utilities, are taken care of by local bodies.
Privatization is also influenced and the government
encourages free business through a variety of
programs.

ECONOMICAL The economy of India has been significantly stable, Opportunity


since the introduction of the industrial reform policies
in 1991. As per the policy, reductions in industrial
licensing, liberalization of foreign capital, formation of
FIBP and so on, has resulted in a constant
improvement of Indias economic environment. The

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country registered a GDP of $5.07 trillion in 2013


following a further improved GDP growth rate of 5%
in 2014 as compared to 4.35% in 2013.

SOCIAL Starbucks must understand that the rise in Indias Opportunity


ageing population is resulting in a considerable rise in
pension costs and increase in the employment of older
workers.
India has a population of more than 1.2 billion people
with about 70% between the ages of 15 and 65.
Therefore, there are structures with percentages
according to age.
These structures contain varying flexibility, in
education, work attitudes, income distribution, and so
on.

TECHNOLOGICAL Starbucks can continue to update their technological Opportunity


advancement as in India technology significantly
influences product development and also introduces
fresh cost-cutting processes.
India is served with both 3G and 4G technology which
has facilitated several of their technological projects.
Furthermore, the country also possesses one of the
strongest IT sectors in the world, promoting constant
IT development, software upgrades and other
technological advancements. Recently, India has also
attempted to launch their satellites into space.

ENVIRONMENT When it comes to environment, the quality of air in Threat


India has been adversely affected by industrialization
and urbanization, also resulting in health problems.
Thus, there have been establishments of environmental
pressure groups, noise controls, and regulations on
waste control and disposal. Starbucks must convey
with these issues as part of their strategy.
LEGAL In the recent past, a number of legal changes have been opportunity
implemented in India, such as recycling, minimum
wage increase and disability discrimination, which has
directly affected businesses there. Starbucks has
always been centred in ethical practices

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7. RISK MANAGEMENT

For each of the stages they must be the analysis of common risk issues:

Forward-looking risk assessment: which risks is the project facing? What is the potential
cost of each of these risks? What are the potential consequences for the projects later
stages as a result of design choices made now?
Risk ownership: which stakeholders are involved and which risks should the different
stakeholders own? What risk-management issues do each of the stakeholders face, and
what contribution to risk mitigation can each of them make?
Risk-adjusted processes: what are the root causes of potential consequences, and through
which risk adjustments or new risk processes might they be mitigated by applying life-
cycle risk-management principles?
Risk governance: how can individual accountability and responsibility for risk assessment
and management be established and strengthened across all lines of Dfense?
Risk culture: Risk culture: what are the specific desired mind-sets and behaviours of all
stakeholders across the life cycle and how can these be ensured?

7.1 Risks for Starbucks into Indias market

With more than 3100 stores across the country and the industry size of Rs 1700 crore, the
competition is quite intense with very less margin for error. As an example, Costa Coffee
which is world's second largest coffee retailer and has been in India for quite a few years,
has still not been able to find a strong footing and has about only 100 stores after all these
years of operation in the country.

Although the PESTEL analysis done on section 6.3 shows that India has a stable economy,
the economic slowdown of 2009 did hit the coffee retail sector majorly, according to reports
as with incomes and job securities going down, people did become cautious in nature.
(Srivastava, 2014). Industry experts believe while things have started to look up more
recently, consumer approach is still not back to what it was back in 2008. Figure 6.1
illustrates Starbucks risks in the Indian Market.

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Figure 7.1 Indias risks for Starbucks

STARBUCKS AS A FRANCHISER STARBUCKS PRICE

Can all shops serve the high standards?


Starbucks most carefully underline the Will people accept to pay an adequate
importance of training and price for high quality products?
infrastructure for the accustomed Asian culture has a tendency for saving
adequate levels of high standards that money there is a risk of not wanting to
they deliver in other countries. pay the high-end price for Starbucks
products.
COFFEE AS A LIFESTYLE STARB UCKS CONCEPT
PRODUCT

Will the development of coffee as a


lifestyle product go on? Will actual users like the new concept
The actual market of India shows or stay away?
potential of consumers due to on Starbucks has an American oriented
lifestyle products. This can change as stile, which could not be appealing to
the speed of trends have during the costumers.
pasts decades.

Source adapted by author (2017)

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8. STRATEGIC DIRECTION

8.1 Business Strategy


India might be one of the worlds largest coffee producer countries, but the nation as a
whole is still a tea drinker as nearly two third of the population doesnt drink coffee.
(Coffebee, 2015). Further on the coffee demand over the last decade has increased
considerably by 40%, this can be seen as low as compared to the European per capita rate
but still indicative of coffee culture picking up in the country. We strongly believe that the
customers in India will appreciate the added value that Starbucks brings to the coffee-
drinking experience. Therefore, it is key factor that Starbucks maintains its high standards
and procedures to launch new stores in India.
The companys products are unique and are different to the regular coffee established in
India and drinks like the Caramel Macchiato and White Chocolate Mocha, as well as the
popular Frappuccinos (cold drinks), help to differentiate Starbucks from other coffee
houses.
The market penetration strategy in India will grow in proportion to the number of stores
that are opened and the pace at which new stores will open depends on the success of the
initial stores opened. The goal is for this market penetration strategy will be to open 120
stores in a period of 3 to 5 years.
As there are approximately 25,000 Starbucks in the world, the corporation is not a rookie
when it comes to adapting its products to a new market and this experience with the
adequate research must be carried out for marketing purposes in India. Research will be
carried out in order to determine the best way to adapt to this new market so that effective
strategies are suitable, feasible, and acceptable to stakeholders.

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8.2 Suitability to Resources and Capabilities


The initial suitability analysis shall be done through the PEARL framework in table 8.1
below.

Table 8.1 PEARLS Analysis

Element Observation Suitable/not


Suitable
PROTECTION OF Starbucks Brand name is suitable Suitable
ASSETS because it remains a major asset.

EFFECTIVE FINANCIAL Financial structure is suitable because it Suitable


STRUCTURE covers all the cost and interest rates are
good.

ASSET Starbucks employees are trained and Suitable


QUALITY therefor suitable because they remain as
the companys quality assets.

RATES OF RETURN Starbucks has good rate of return on this Suitable


AND COST investment which makes it suitable.
LIQUIDITY There is increase cash flow, the company Suitable
has more net cash therefore it is suitable

SIGNS OF GROWTH There is increase in market shares. Suitable

8.2.1 Suitability to Stakeholders


Starbucks is an advocate of Corporate Social Responsibility (CSR) movements, especially
those pertaining to sustainability in business. In the context of corporate social
responsibility, Starbucks needs to account for the demands or interests of stakeholders,
because the company is viewed not just as an organization for profit, but also as a citizen
of society. The main stakeholders in Starbucks Coffees business are described in table 8.2

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Table 8.2 Starbucks Stakeholders

Element Observation Suitable/not


Suitable
OWNERS Starbucks will continue its growth accordingly to what Suitable
has been established in its vision and mission statements
and will increase in financial terms

EMPLOYEES Starbucks prioritizes employees in its corporate social suitable


(baristas, partners) responsibility efforts. The company would increase work
satisfaction due to increase pay and increase training.
CUSTOMERS Starbucks considers customers as among its top suitable
stakeholders. The interests of this stakeholder group are
high quality service and products, such as coffee and
related beverages.

SUPPLIERS Starbucks suppliers are composed of wholesale supply suitable


(supply firms, firms and coffee farmers. The main interest of this
coffee farmers) stakeholder group is compensation and a growing
demand from Starbucks. Farmers aim to increase coffee
yield to generate more revenues. Starbucks addresses the
interests of these stakeholders through several corporate
social responsibility programs that would be of great
connection with Indias suppliers

COMMUNITY Starbucks has corporate social responsibility programs suitable


AND for environmentally sound business. Group. The
ENVIRONMENT company will connect with communities with these
programs

INVESTORS As in any business, Starbucks must address investors as suitable


stakeholders. Investors have interests in high financial
performance of the company. Starbucks global
expansion and continued dominance in the coffeehouse
industry indicates high financial performance.

GOVERNMENTS Starbucks must address the interests of numerous Suitable


governments as stakeholders, considering the companys
global presence. In general, Starbucks complies with
rules and regulations the market penetration plan
Will improve competitiveness due to compliance with
rules and regulation.

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8.2.2 Summary of Suitability


From the above framework analysis, it is understood that the Strategy is overall suitable.
and that the best way for Starbucks to implement this market penetration in India would be
through Internal development. Starbucks is more than capable of taking care of its needs.
Everything from the coffee grains to the coffee machines, from the pastries to the CDs and
gift items, are handled by the Starbucks Corporation. Market knowledge is a core
competency, as Starbucks is number two in the world for the most chains opened, behind
only to McDonalds. It is to note that for Starbucks first establishments in India they made
close partnership with Tata but although it has proven to be a positive enterprise. Starbuck
essence and culture has been maintained.

8.3. Acceptability
There is little to no risk involved with the method of internal development. Starbucks
Corporation has been grabbing new markets for over twenty years, and seems to have a
system put in place to ensure that all is done to achieve maximum success.

8.3.1 Acceptability of Business Model


Franchising
For the possibilities of franchised locations. Cost of goods sold (COGS) and store
operating expenses are large percentage of sales for Starbucks compared to other
franchises because COGS is so much more prominent in Starbucks' expense
structure, its profits are more severely impacted by changes in coffee bean prices.
This could mean difficulties for the development of this area.
Focus and Branding
While Starbucks is undeniably impacted by the macroeconomic environment, it is
firmly established with a more resilient and less price-sensitive customer base,
which helps to dampen the blows brought on by economic cycles. Starbucks brands
itself primarily as a beverage provider that offers a more typical coffee house dining
experience. Starbucks locations are designed with the comfort of their customers in

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mind. Free Internet access and inviting decor offer a more enticing option for those
looking for a place to read, relax or speak with friends. These factors dont seem to
be an issue for acceptability in India.
Quality
Starbucks has built a more premium brand that offers a more extensive menu and
more product customization, which is reinforced by writing each customer's name
on the side of his cup. The company offers a comfortable and quiet environment
with free wireless Internet access, encouraging customers to stay to socialize, work,
study, browse media or listen to music while consuming their Starbucks product.
Taken together, these factors form a more premium experience and command a
higher price point which could receive rsistance from the India costumers.

8.3.2 Acceptability to Ethics and Social Responsibility


In India, as in many other countries facing similarly large development challenges, the
discourse around Ethics and Social Responsibility is increasingly about the crucial role
corporates can play in bringing about positive change in the area of human development
and social inclusion. (worldbank,2013).
Starbucks has worked in establishing strong ethics thru its organizational environment.
Some of the Companys accomplishments in this area in the last decade include:
Sustainable coffee: Purchasing 65 percent of its coffee in fiscal 2007 through
Coffee and Farmer Equity (C.A.F.E.) Practices, Starbucks program for sustainable
coffee, with a goal of purchasing 80 percent of coffee from C.A.F.E. Practices-
approved suppliers by fiscal 2013.
Paying higher prices: Purchasing only high-quality arabica coffee beans and paying
higher prices that premium quality commands. Starbucks paid an average price of
$1.43 per pound ($3.16 per kilogram) in fiscal 2007.
Fair Trade Certified coffee: Continuing to be the largest purchaser, roaster and
distributor of Fair Trade Certified TM coffee in North America and amongst the
largest worldwide, purchasing 20 million pounds (9 million kilograms) in fiscal
2007.

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Conservation International (CI) collaboration: Announcing a five-year


commitment to CI to address climate change by supporting farmers and
communities who are preserving forests in coffee regions.

These are developments indicate that Starbucks would not have any issue in the
acceptability to Ethics and Social Responsibility common to its functionality.

8.3.3 Acceptability to Technology

As Starbucks has been investing in technology adding mobile ordering, delivery and
partnerships with companies including Spotify and the New York Times to drive loyalty
among Starbucks customers and keep them coming back. Also the company recently
launched a revamped loyalty program and mobile app. This can prove positive to the Indian
market with over 300 million people having access to the internet, India is now the second
most connected nation in the world (after China). According to Techniasia (2016), the
country spent 169 minutes per day on their smartphones in 2015.

8.3.4 Acceptability using Blue Ocean Strategy


W. Chan Kim and Renee Mauborgne developed the concept of Blue Ocean Leadership
arguing that leading companies will succeed not by battling competitors, but by
systematically creating "blue oceans" of uncontested market space ripe for growth. The
strategy represents the simultaneous pursuit of high product differentiation and low cost,
thereby making competition irrelevant (businessnewsdaily,2015).
In this case Starbucks, has revolutionized the coffee industry not only by changing in terms
of offerings but by creating a coffee culture that many other coffeehouses have tried to
imitate. As this Blue ocean strategy became more a more copied by competitors Starbucks
has moved on to look for other possible Blue Oceans constantly attracting more
customers by adding new products to their drinks menus.
For the expansion pretended in India they must be a close research to the flavours that can
combine with the actual products of Starbucks for a possible product innovations this could

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lead to a Blue Ocean or not. But the search in this area should not be an issue for
acceptability in India that has a culture for innovations.

8.3.5 Summary of Acceptability Analysis


It must be observed that since entering the Indian market, the company has been trying to
take full advantage of the opportunities lying in the increasing income of the middle-class
population in India but as it is a well none fact Indias devotion to tea. In this regard
Starbucks has initially included include tea beverages in local stores, but they do not always
suit local tastes, as they differ greatly from chai that majority of Indians are used.
Starbucks most look into further details and marketing strategies that can wider the general
acceptability of its products. In this case, South India appears to be the more favourable
area as according to statistics from reports made by EOS Intelligence (2027), due to that in
this region the locals have been accustomed to drinking coffee since long before Starbucks
came to the country.

8.4 Feasibility

8.4.1 Internal Feasibility Checklist

Capital Investment Required:


Starbucks already operates around 25,085 coffee shops worldwide, according to
Statista (2016). In 2012, when Starbucks entered India through a joint venture with
local company TATA, the outlined plan was to open 50 stores in a two-year period
in Mumbai and Delhi with an initial investment of $80 million. Our Plan for market
penetration will look to add 120 stores in Indias market, with a timeframe of 3 5
years for the market penetration strategy.
The capital investment needed for the project is viable as Starbucks cash and short-
term investments managed to generate a lot of float in the form of $4.575 billion in

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cash from operations, and a free cash flow of $897.6 million according to the
companys annual statement (2016).

Projection of cumulative profits:


Starbucks first years in India through the joint venture with Tata Global generated
total revenue of Rs171.2 crore in the year ended in march 2015 according to the
annual reports. Those figures were accomplished with a total of 72 stores in India,
which gives an average of Rs2.38 for each store in this market. This gives positive
estimations for our penetration project of 120 stores which should generate
Rs285.6.

Working Capital Requirements


Starbucks must keep a good working capital by improving productivity. With this
project the company will continue to strive to improve things to generate a profit.
Starbucks net working capital is based off of its total current liabilities subtracted
from its total current assets. Their current liabilities are account payables, short/
current long term debt, minority interest and other current liabilities. Their assets
consists of cash and cash equivalents, short term investments, net account
receivables, inventories, currents assets, plant property equipment, and non-
current assets.

8.4.2 External Feasibility Checklist


Costumers respond: for global coffee chains including Starbucks,
costumers are attuned to a takeaway culture, which helps them add margins
at very little cost. In India, however according to several surveys
(Economictime,2015), many officegoers and students go to cafes to relax
and spend hours over coffee and snacks. There has been an overall positive
reaction to Starbucks first venues in India nevertheless, Starbucks in the
development of the market penetration strategy Starbucks must observe
with attention to the costumer behaviour in a market that has been subdued

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over the past few years with consumers not eager to spend amid economic
uncertainly.
Competitors reaction: Starbucks biggest competitor in India is Caf
Coffee Day, owned by the holding company Coffee Day Enterprises Ltd, is
already the market leader when it comes to coffee in India. The self-
proclaimed pioneer of the cafe culture in India, it has more than 1,500
cafes in 200 cities and towns across the country, including 191 in Bangalore
and 185 in Delhi. Starbucks, meanwhile, has just 71. This has been a leap
from the number of outlets in 2014 (figure 8.1) Showing that its reaction
has been to invest in growth and market penetration.

Figure 8.1: Coffee shops in India 2014

Source adapted from Quartz (2015)

Suppliers support: Starbucks procures three percent of the Arabica coffee


beans sold in the world. The company sources these coffee beans from
across the world. The Indian based company Tata Global, has been a coffee
supplier to Starbucks since 2004. Starbucks entered the Indian market in a
joint venture with Tata Global so there is no reason this relationship to
decline as there have mutual interests. Furthermore, Tata has been working
in collaboration with Starbucks to choose the correct harvesting and

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processing methods to improve the quality of the bean. The two companies
have already developed a coffee blend, Indian Espresso Roast, which
highlights the quality of Indian-grown coffee beans. The coffee blend is
highlighted as a signature locally-sourced blend at Starbucks' stores in
India.
Government approval: India tightly regulates foreign-owned retail chains.
Companies that sell only one brand of goods can own 51 percent of their
Indian operations while those that sell more than one brand cannot have any
foreign ownership. Policy makers have recently hinted that they might relax
the policies. Due to this Starbucks entered the Indian market through a joint
venture with Tata Coffee, which owns and operates coffee plantations and
is part of Indias largest business conglomerate. The Tata Group, has helped
Starbucks in numerous ways and the partnership will be positive for market
penetration.

8.5 Summary of Feasibility

Funds are not an issue as Starbucks has the money to invest in new markets. We
have the core competencies, people, and skills to develop a market penetration
strategy in India. The joint venture with Tata is one of the strongest points for
achieving the goals of the project. The key focus are on the experiences of these
first years in the Indias market which have been overall positive.

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9. INTERNAL DEVELOPMENT

Starbucks has consistently made Fortune list as one of the best Companies to work for, which quite
an achievement when it is observed that working conditions in the service and retail industry are
notoriously low paying with long hours Starbucks manages to offer benefits for part-time and full-
time employees as well as higher-than-average salaries for store managers. This is a core element
of Starbucks internal development and indicates the importance of leadership not only in the upper
management team but also throughout the organization. Starbucks must maintain these principles
adapting to the particularities of Indias workplace culture, However the new breed of young
Indian professionals is dynamic, in their ideas and their attitude at work. Workplaces thus adopt
the best practices of different worlds, and in the process, create a better working environment.

10. E-commerce

Green Apron Service


Since 2015, Starbucks has been developing delivery services which in many ways have
been considered a risky corporate endeavour, given the specifics of the companys product
which are made to be served at an above average temperature, and ensuring the warmth of
a beverage or a breakfast sandwich from barista, to car, to customer is not an easy task. As
such Starbucks has created the Green Apron Service that has initially been positive in new
York. For the moment this service is on a pilot level and must be developed furthermore in
the US mature market before taking it to India.

Mobile App
Starbucks has an app for Mobile Order and Pay that can be downloaded with both an iOS
run iPhone device or an Android device. This app allows you to order as if you were
physically at the counter ordering from a barista. The Company has already introduced the
Starbucks India mobile app across the country so users can pay for in-store purchases and
earn Stars through the loyalty program using their mobile device.

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11. Implementation and Control

Implementation according to Lynch (2015), as a strategic key principal Implementation covers the
activities required for an organization to put its strategies into practice.

The basic implementation programme for the Market penetration project proposed would be an
Incremental implementation program that will function accordingly to Starbucks organisational
design that has been implemented in all the companys projects aligned to the vision and mission.

11.1 General Business Plan


The proposed business plan is depicted in table 11.1.

Table 11.1: General Business Model

Elements Impact on company

ENVIRONMENT India has become Starbucks fastest-growing market since the first
cafe opened in 2012 in a partnership with Tata Global.
Since then, the chain has expanded to 84 locations across six cities
there.
The market penetration plan will place India among its five largest
market in 5 years.
Starbucks at the end of the 5-year period will be the leader in coffee
retail business in India
RESOURCES Starbucks partnership with Tata is key to the development of the
project due to its knowledge of Indias market and culture.
Starbucks will continue with the training systems that have been
successful in other markets.
Starbucks international reputation is also a key factor.
PURPOSE To become the number 1 coffee retail company in India.

ENTREPRENEURIAL Increased opportunity for business


BUSINESS Increased opportunities for mayor relationships with other key Asian
markets.
OPPORTUNITY

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TARGET Starbucks primary target market is men and women aged 25 to 40.
CUSTOMERS Young Adults 20-24

DISTRIBUTION The Product would be distributed with the common store strategies
Used in Starbucks venues.

PRICING We will be using competitive pricing, since the market we are


entering already has established price.
QUALITY AND Starbucks is committed to quality of high standards.
SERVICE
REPUTATION AND Starbucks is a worldwide known brand that will attract costumers.
MARKETING
ALLIANCES AND Starbucks entered India with a joint venture with Tata and this
relationship has proven positive and will be continued.
JOINT VENTURES

11.2 Project Management Approach


This strategy will implement a project management approach as underlined in the 4-D
model by Maylor:

Define
Design it
Do it
Deliver it

This model is illustrated in figure 11.1

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Figure 11.1: 4-D Model

sourcehttp://the-happy-
manager.com/articles/project-management-
model/

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11.3 Execution Plan


Figure 11.2 is a Gant chart for the first three years of the Market Penetration Strategy
proposed for Starbucks.
Segmentation Study of Indias Consumers
the coffee consumer cannot necessarily be divided on the basis of income or age.
Higher income consumers do not necessarily prefer better tasting coffee if they are
used to drinking tea. Similarly, younger educated population need not look for good
quality coffee but is more attracted to a better ambience. Survey most be conducted.
Targeting Developments
After the analysis of segments there must be further consideration as to taking the
decision on which segment should be targeted.
Market Mix/Product Development
Starbucks must develop insights on Indias flavours and tea culture.
Analysis of locations
Starbucks must find adequate locations that meet the standards of their stores.
Positioning methodology
Developing an effective positioning strategy is essential for ensuring a brands
recognition and recall. Analysis must be made into the consideration to different
competitive frames of reference taking into account Starbucks immediate
competitors as well as other noteworthy players who have the potential to act as as
spoilsport in penetrating the Indian market.
Marketing
Starbucks must develop several strategic campaigns at different stages of the
project.

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