Starbucks Coffee Corporation Strategic Management Case Study Analysis Lisa Ricard 4/28/17
TABLE OF CONTENTS EXECUTIVE SUMMARY
5
EXISTING MISSION
5
OBJECTIVES AND STRATEGY
6
A NEW MISSION STATEMENT
8
ANALYSIS OF FIRM STRUCTURE
9
SWOT ANALYSIS
10
STRENGTH
11
WEAKNESS
11
OPPORTUNITIES
12
THREATS
12
FIVE FORCES ANALYSIS
13
BARGAINING POWER OF SUPPLIERS
14
BARRAGING POWER OF BUYER
14
THREAT OF NEW ENTRANT
15
THREAT OF SUBSTITUTION
15
INDUSTRY RIVALRY
16
CONFRONTATION MATRIX
16
IMPACT/PROBABILITY MATRIX
17
POSITIONING MAP
18
2
EFE MATRIX
19
IFE MATRIX
20
IE MATRIX
21
SFAS MATRIX
22
COMPETITIVE PROFILE MATRIX
23
ASSESSMENT OF FIRMS FUNCTIONAL AREAS
23
MARKETING
23
OPERATION
25
MANAGEMENT
25
BCG MATRIX
27
GE/MCKINSEY MATRIX
28
INDUSTRY LIFE CYCLE (ILC) ANALYSIS
30
SPACE MATRIX
31
GRAND STRATEGIES MATRIX
33
QSPM MATRIX
34
ALTERNATIVE SPECIFIC STRATEGIES & LONG-TERM OBJECTIVES
35
CURRENT FIRM RATIOS
36
LIQUIDITY RATIOS
36
3
LEVERAGE RATIOS
36
ACTIVITY RATIOS
36
PROFITABILITY RATIOS
37
GROWTH RATIOS
37
PRO-FORMAL FINANCIAL STATEMENTS
38
INCOME STATEMENT
38
BALANCE SHEET
39
CASH FLOW
41
WORK CITED
42
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Executive Summary Starbucks Coffee can be considered one o ne of the largest coffee companies in the coffee industry. By occupying almost half of the market sha re, Starbucks Coffee has made a name for themselves. Along with the Starbuck Coffee Brand, Starbucks Coffee owns, Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, La Boulange, Ethos Water and Torrefazione Italia Coffee (Starbucks Company Profile, 2017). This report rep ort analyzes the strategic methods Starbucks Coffee currently is involved in. Then these strategies are analyzed a nalyzed through various strategic matrixes designed to identify new strategic strategies for the company to peruse. The ma trixes include a SWOT analysis, Five Forces analysis, Confrontation Ma trix, Impact/Probability Matrix, Positioning Map, EFE and IFE Matrix, IE Matrix, GE/McKinsey Matrix, Industry Life Cycle, SPACE Matrix, Grand Strategies Matrix, and the Q SPM Matrix. Through the combined comb ined matrixes it can be concluded Starbucks Coffee holds an excellent strategic position, but there can be room to improve upon. Through various investment such as market penetration and product diversification Starbucks Coffee can still claim new profits in an industry that is reaching its maturity.
Existing Mission Starbucks Coffee was started in 1971 as a roaster r oaster and retailer of whole beans, ground g round coffee, teas and spices in a small sma ll store in Seattle’s Pike Place Market (Starbucks Company Profile, 2017). They were named after the first mate in Herman Me lville’s Moby Dick and their logo is inspired by the sea siren from Greek mythology. Now Starbucks Coffee C offee has a customer base of over a million who come every day to purchase quality coffee. As of January 1, 2017, Starbucks Coffee has opened over 25,734 25,73 4 doors inviting their guest to enjoy a delicious beverage or baked good. Starbucks Coffee C offee buys their coffee beans from coffee farms in Latin American, 5
Africa and Asia where their special buyers will select high quality bea ns. Then the master roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast. In 1992, Starbucks went public and was listed on the NASDAQ under the ticker SBUX (Starbucks Company Profile, 2017). They offered their common stocks at $17 per share. B y the close of the first trading day, the stock ’s ’s value rose to $21.50 per share. Starbucks Coffee believes in the importance of a company that can balance between profitability and a social conscience. The company achieves ac hieves this through their practices of ethical sourcing, community involvement and environmental stewardship. Starbucks Coffee practices in responsible purchasing, supporting farmer loans and forest conservation conservation programs. This ensures a better future for the farmers and a more stable climate for the plants. p lants. It also creates a long-term supply supp ly of the high-quality bean that has been used for over 40 years. Currently Starbucks has a range of products that can ca n be used in stores, at home, or on the go. Starbucks Coffee famously sells more than 30 blends of coffee co ffee and even has single-origin single- origin premium coffees (Starbucks Company Profile, 2017). They sell handcrafted beverages, which include espresso beverages, Frappuccino’s, but also smoothies, teas and refreshers. Additionally, they sell merchandise such as coffee and tea brew ing equipment, Verismo Systems by Starbucks, mugs and more. Guest can also a lso enjoy fresh food such as baked pastries, sandwiches, salads, bistro boxes and more.
Objectives and Strategy When Starbucks Coffee started off fiscal 2016, it was on a strong note (Forebes, 2016). All stores experienced sales growth and future plans for the Asian market were de veloped. For the rest of 2016 and on to 2017 Starbucks Coffee will objectively focus on growing the number of stores, elevating the coffee experience, creating new customer occasions, driving at home 6
coffee share & occasions, building up the Teavanna brand, extending the digital engagement, and establishing new partnerships. Starbucks Coffee plans on changing their t heir in store mix along with expanding their brand (Frobes, 2016). Traditional stores focus on the in store experience, experie nce, but recently Starbucks Coffee has begun opening more drive-thrus dr ive-thrus in the outer edges of urban and a nd suburban areas. Additionally, Starbucks Coffee has developed a few express stores. The aim of this strategy is to increase the company’s store penetration by 5%. The coffee market is expected to see a mini m ini
decline due to the industry being be ing in its maturity phase. Because of this Starbucks Coffee w ants to ensure and position themselves as the most preferred coffee shop. Starbucks C offee intends to expand their stores portfolio by offering a highly customized and elevated e levated experience. The objective of this strategy is to develop independent stores that will offer a different coffee making style. This includes opening four new types of stores which differs in the type of coffee produced, the layout of the store, and even the food served. Starbucks Coffee hopes to address the issue of competition and ubiquity ubiqu ity by delivering their customers the highest quality coffee. For Starbucks Coffee, their lunch hours have been bee n their most profitable part of their day for years (Forbes, 2016). This is due to the inclusion of improved food offerings, more fresh food items with the bistro boxes and sandwiches, and their strength in the te a platform. Starbucks Coffee intends to offer new and innovate food and beverage options opt ions to drive customers in. With the objective of driving the demand for at-home coffee, Starbucks Coffee must grow their t heir consumer product goods department. By partnering with w ith companies like Pepsi in Latin America, Tingyi in China, and Anheuser-Bush, Starbuc ks plans to expand their ready to drink dr ink segment. This segment is forecasted to grow approximately 10% 10 % in the next five years. This strategy
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should allow Starbucks Coffee to claim an additional add itional market share of $1 billion in the premium RTD category. Tevana has become one of Starbucks Coffees biggest drivers of sales (Forbes, (F orbes, 2016). Tevana has contributed about one o ne percent point in comparable sales sa les growth for seven consecutive quarters. This success has lead Starbucks Coffee to br ing the Tevana brand into China and Europe. Since S ince China is one of the largest tea consuming countries c ountries they hope this expansion will give the brand a boost. b oost. In the US, mobile payments comprised compr ised of one-fourths of all of Starbucks transactions. The company’s most recent objective is to drive d igital engagement
through their Mobile Go and Pay equivalents equ ivalents 20% of all mobile transactions. Their objective to create a truly seamless, digital experience seems be successful. Lastly, Starbucks Coffee wishes to establish new partnerships. Their food sales now make up 20% of their revenue. To fully gain off the popularity of these complementary goods, g oods, Starbucks Coffee wishes to work towards establishing partnerships by making food one of their major growth drivers. They are currently testing stores in the western U.S to see if weekend brunch menus would be profitable. Starbucks Coffee has partnered with Italian bakery, Princi and Macy’s Mac y’s to start testing these menu items. Starbucks Coffee believes within the next five years this strategy cou ld help generate 25% of their revenue through food sales.
A New Mission Statement Starbucks Coffee created a mission statement that reflects their view on leadership within the coffeehouse industry (Gregory, 2017). Currently Starbucks Coffee’s website host their most current mission statement which is To To inspire and nurture the human spirit- one person, one “
cup and one neighborhood at a time. Starbuck coffee inspires and nurtures the human spirit ”
through their employees. The company has maintained ma intained a small company culture where 8
relationship and warmth are believed and built bu ilt upon. The customers also experience this inspiration and nurturing through their small company culture. Starbuc ks baristas and customers use their first name to help develop a warm relationship. re lationship. Additionally, the stores are designed to feel warm and cozy hoping to inspire and nurture meaningful and warm relationships. Their mission statement also indicates a personal approach through their one person, one cup, and one neighbor at a time section (Gregory, 2017). Starbucks Coffee hopes to have a meaning impact on every employee that works w orks for them along with every customer that shops with them. This mission will allow them to continually and gradually grow their bus iness through one place or neighborhood at time.
Analysis of Firm Structure Starbucks has a matrix organizational structure which combines different features of basic organizational structures (Meyer, 2017). The organizational structures are broken down into functional structure, geographic divisions, product-based divisions, and teams. T he functional structure is grouped based on their business functions. The HR department, finance department, and marketing department are located at their corporate headquarters. They will issue policies and activates that are applicable applicab le and implemented through all their stores. This structure features a top-down monitoring and control. At the current moment the company has three t hree regional divisions for their global market, China and Asia-Pacific, Americas, and Europe, Middle Mid dle East, Russia and Africa (Meyer, 2017). Within the United States the geographic divisions are broke n up further to include Western, Northwest, Southeast, and Northeast. For the geographical structure each division has a senior vice present. Each store manager has to report then to two supervisors, the geographic head and the functional head. This was developed in hopes of providing geographic support supp ort for geographic 9
needs. Product-based division splits up the structure into three pr oducts, coffee and related products, baked goods, and merchandise. This allows the team to focus on a certain product line. Lastly, the teams structure is designed more for each eac h individual store. The company has the teams organized to deliver their goods and services serv ices to the customers. This allows them to provide an effective and efficient service.
SWOT Analysis
The SWOT analysis is one of the most basic yet important tools used to analyze a firms and industry (Kipley & Jewe, 2014). The T he acronym SWOT stands for strength, weakness, opportunities, and threats. The strength and weaknesses focuses on an a n internal assessment of the functional areas of the firm including management and culture. Opp ortunities and threats focuses on the external environment. With opportunities and threats th is look at the macro or competitive environment and can include factors such as demographics, sociocultural, political/legal, 10
technological, economic, and global. The strength and weaknesses are assessed based on competition versus opportunities and threats where these factors are c ompletely out of the firms control.
Strength Starbucks Coffee Company is a well-established and well branded name. There top three strength included strong brand image, operating efficiency and strong gr owth leading to super ior financial performance, and strong customer loyalty. These factors are considered their strongest strengths because it allows them the ability to drive a higher margin on their profit. Their strong brand image brings their customers to their their place while their operating efficiency allows them to gain a profit on their product margin. Customers Custo mers are coming to Starbucks Coffee for a combination of these strength and will continue to come because of these.
Weakness With any company, Starbucks has a few issues with their production that could be driving dr iving guest away or could be causing caus ing potential guest to shop alternatives. There top three weaknesses include being highly dependent upon one product, dependent upon the American segment, and their higher price points. points. Being highly dependent upon coffee beans could be detrimental in many scenarios. If an embargo is placed on coffee beans, the cost of coffee beans bea ns rises or an environmental disaster occurs and coffee beans production is decreased , Starbucks main stream of revenue is cut drastically. Being dependent on o n the American segment is a weakness since Americans go through phases and trends. Additionally, by not n ot being heavily hea vily invested in other countries Starbucks Coffee is missing money from potential sales. Lastly, hig her price points might drive away customers who just want a cheap c offee and don’t care about the quality.
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Ultimately Starbucks Coffee hopes to overcome these weaknesses through their c ombined strengths and opportunities.
Opportunities There are many potential strategies Starbucks Coffee can explore to br ing more revenue to their company. The top three t hree opportunities identified is expansion in Asia, the Middle East, and Africa, diversification of product mix, and vertical integration. As stated i n their weaknesses, Starbucks is heavily dependent upon America. Since Starbucks Coffee already is in operation in these places the risk with any foreign market is sustainably lowered and they would w ould be rewarded with new sales. By diversifying their product mix, m ix, Starbucks Coffee would not need to be heavily dependent upon the coffee bean and could survive any unforeseen circumstances. Lastly, with vertical integration Starbucks Coffee could ensure quality products and sa ve costs when purchasing their beans since they would be growing it themselves. These are some potential opportunities to solve some issues they are currently facing in their we akness.
Threats The threats Starbucks Coffee is facing are the most m ost important to identify since these are factors they have no ability to control. co ntrol. The top three threats identified are competition from lowcost coffee sellers, the independent coffee house movement, m ovement, and rising cost of the coffee bean. Low-cost sellers are a threat since there is no switching cost for buye rs in this industry. Buyers who simply want a cheap coffee co ffee at a cheap price will w ill go to the low-cost sellers rather than spending more money since the t he opportunity cost is beneficial for them. The independent coffee house movement is a trend with w ith millennial who prefer to go to quality coffee houses instead of fast coffee stores. Starbucks Coffee in a sense is too “mainstream” and p opular which makes
these independent coffee houses more appealing. Lastly, L astly, the biggest issue is the current rising 12
cost of the coffee bean. As stated in weaknesses and opportunity, the rising cost of coffee beans is bad for Starbucks Coffee since their so heavily dependent de pendent upon it. These rising cost will either force Starbucks Coffee to raise their prices or will cut into their margi n. Threats are the most distressing factor since a company could be doing d oing everything right, yet these factors could still cause them to go out of business.
Five Forces Analysis In 1980, Dr. Michael E. Porter developed a tool for companies to analyze their T his organization’s industry structure through strategic dec ision-making (Kipley & Jewe, 2014). This model was named the Five Competitive Forces Model and was published in his book, Competitive Strategy: Techniques for Analyzing Industries and Competitors. With this model,
Porter has industries identifying their industry structure and the way their company c an change to best meet the opportunities and threats in their their external environment. With this information a company can determine the intensity of competition within their industry and then can ca n determine the profitability and attractiveness of their t heir industry. The five key competitive forces Porter identifies is bargaining power of suppliers, bargaining powers of buyers, threat of new entrants, threat threat of substitutes, and industry rivalry (Kipley & Jewe, 2014). Starbucks Coffee Company C ompany belongs in the coffee industry which wh ich has a couple of power player already in play, not including the new small coffee house movement America is facing (Greenspan, 2017). To ensure e nsure Starbucks Coffee stays on top, they must be successful on their effectiveness in addressing the negative impacts of the five forces of its industry’s environment. When completing a Five Force analysis checklist, it can be d etermined
that Starbucks Coffees have varying intensities or strengths based on their p osition as follows: Bargaining Power of Suppliers is a weak force 13
Bargaining Power of Buyers is a strong force Threat of New Entrants is a moderate force Threat of Substitution is a strong force Industry Rivalry is a strong force
Bargaining Power of Suppliers With bargaining power of suppliers, this looks at the position the seller has over the buyer. In other words, does the company’s supplier have a control contro l over the price of the supply (Kipley & Jewe, 2014)? Due to t o the size of product Starbucks Coffee Company purchases, purc hases, the suppliers power is lessened since they are too valuable of a customer to lose (Greenspan, (Gree nspan, 2017). With Starbucks Coffee, their external factors of consideration include a high variety of suppliers, a large overall supply, and a moderate size of individual suppliers. suppliers. Additionally, Starbucks Coffee has a policy for diversifying its supply chain which he lps reduce the influence of suppliers on the business. Because of this Starbucks Coffee does not need to focus their attention on their suppliers.
Barraging Power of Buyer Similar to bargaining power of suppliers, the bargaining power of bu yers looks at how much the customers can impose pressure on the c ompany’s margins and volumes (Kipley &
Jewe, 2014). With Starbucks Coffee in particular, their the ir external contributing factors include low switching cost, substitute availability, and small size of individual buyers (Greenspan, 2017 ). The bargaining power of buyers is one of the most significant forces affecting Starbucks co ffeehouse movement and cheaper coffee Coffee’s business. With the increase independent coffeehouse house alternatives, customers can avoid going to Starbucks. Substitutes Subst itutes such as at home instant beverages and drinks from restaurants such as McDonalds proves to be important factor factor for 14
Starbucks Coffee. Because of this, bargaining power of customers should be one of the top priorities for their their corporation.
Threat of New Entrant With the coffee industry, the risk from a new entrant is moderate. The force, threat of new entrants, looks at the competition c ompetition within industry by how easy it is for other competitors and companies to enter the industry (Kipley & Jewe, 2014). 201 4). When another companies enters an an industry this can raise the level of competition and market environment thus reducing its attractiveness. When looking at Starbucks Coffees external factors, the ones that determine this risk is the moderate cost of doing business, moderate supply chain cost, and high cost of brand development (Greenspan, 2017). For Starbucks Coffee, C offee, the new entrants have a significant, s ignificant, but not strong effect on business. With new entrants they can ca n compete against Starbucks Coffee with their moderate cost of business and supply chain development. de velopment. However, these new entrants e ntrants will find it difficult to compete with establish brands because of the c ostly nature of developing a strong brand. Because of this the threat of new entrants is moderate this should be a secondary priority for Starbucks Coffee.
Threat of Substitution When there are alternative products with lower prices being offered, a threat of substitution exists (Kipley & Jewe, 2014). The external factors that are currently affecting Starbucks Coffee is the availability of substitutes, low switching cost, and low cost substitutes (Greenspan, 2017). With these substitutions, it could attract a portion of Starbucks Co ffee market share and reduce their potential sales volume. With Starbucks C offee substitution, the substitute good could be another company, but it could teas and sodas which could be sold outside of the coffee industry. There is no switching cost for these goods go ods and these substitutes can cost less 15
than Starbucks products. All these issues combined has made the threat of substitutes a top priority concern.
Industry Rivalry With industry rivalry, this force focuses on the intensity of competition between ex isting companies within the industry (Kipley & Jewe, 2014 ). With a high competitive pressure, this results in pressure on companies’ prices, margins, and profitability for everyone in the industry. The external factors that contribute to Starbucks Coffees are large number of firms, low switching cost, and variety of firms. Starbucks Coffee faces a large number of competitors who have different sizes, specialties and strategies. With a strong c ompetition and low cost of switching, industry rivalry should be a top-priority challenge.
Confrontation Matrix Confrontation Matrix
S1 Strength
Opportunities O1
O2
2
3
S4
O5
1
S6
3 3
T3
1
1
3
3
2
T4
T6 1
3
2
3
2
1
2
2
3
1
1
3
1
3
3
2
1
1
2
3
1
W4 W6
T1
1
W1 W2
O8
1
S7
Weakness
Threats
2
16
1
The Confrontation Matrix is a tool that a company compa ny can use to held further analyze each eac h different combination of the the SWOT analysis (Kipley (Kipley & Jewe, 2014). By using a ranking of 0 to 3, all the squares identified with a 3 are the t he combinations identified as strategically important or interesting. Looking at Starbucks Coffees matrix, position O2-S1 was marked as being strategically important. This means that with the opportunity of product d iversification and the strength strong brand image, Starbucks Coffee should be looking into this strategically. With a strong brand image many customers will be willing to try new products just because they believe be lieve in the value the brand has.
Impact/Probability Matrix
The Impact/Probability Matrix uses the opportunities and threats from the SWOT analysis to chart potential risk the company can ca n face (Kipley & Jewe, 2014). On the X axis, the opportunity or threat is placed based on its probability risk, which is risk that an event may ma y occur. In other words, this is the probability pr obability of this event actually occurring. The Y axis ax is is where 17
the impact risk for the opportunity or threat is placed. This is based on the size of the impact in terms of cost and impact on the company or other critical factors. For Starbuc ks Coffee, the rising price of coffee beans has a high impact/probability due to the nature of how Starbucks Coffee uses their bean. Since this threat is currently occurring, this event is placed high on the probability side. Additionally, the impact of this this event is big to the company so it too is placed high on the impact side.
Positioning Map
The Positioning Matrix is a graphical representation of where a c ompany is and where its main competitors are within a marketplace (Kipley (K ipley & Jewe, 2014). This is done by comparing c omparing a company based on their price and quality. qu ality. When developing this matrix, a medium med ium or grande sized regular cup of coffee was used to t o compare the stores. Peet’s coffee has the highest price
point but due to the nature and quality of their product they earned the highest spot. Starbucks
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Coffee does have a high quality qua lity product, but their prices are more affordable. McDoanld’s McCafe on the other hand had the lowest price point but there is no quality to their coffee.
EFE Matrix
The External Factors Evaluation (EFE) is another strategic tool which uses the opportunities and threats from the SWOT to evaluate the external environment of the firm (Kipley & Jewe, 2014). In the ratings column, co lumn, these numbers represent the response of the company towards the particular threat. This is based on o n a 1 to 4 scale with w ith 2.5 being average. The weighted column is how the company believes how well of a job they are at responding to the existing opportunity and threats in its industry. The higher the c ompanies EFE score is, the better their current strategies strategies are at capitalizing on their opportunities and avoiding external threats. With Starbucks Coffee’s EFE score of 2.45 they are d oing an average job of this.
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IFE Matrix
The Internal Factors Evaluation (IFE) matrix is similar to the EFE matrix, but focuses on the internal factors instead of external. (Kipley & Jewe, 2014). This matrix is used to identify and evaluate the major strength and weaknesses wea knesses by assessing their relationship in the functional areas of a business. By adding this t his along with the EFE Matrix, a company can ca n evaluate how a company is performing in relation to its competition. The IFE Matrix is set up identical to the EFE Matrix but instead of using opportunity and a nd threats, the strength and weakness are used since this is what is being evaluated. For the total weighted scores, if a company falls below 2.5 2 .5 than this show the company is weak internally. Companies who scores significantly above 2.5 indicate a strong internal position. Starbuck Coffees earned a 2.61 w hich is just above the internally weak threshold. Starbucks Coffee is doing an average job internally.
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IE Matrix
The Internal/External Matrix (IE) takes the EFE and IFE Matrix and combines them to conceptualize the results of the two (Kipley & Jewe, 2014). The IE Matrix plots the results from the EFE and IFE and a nd where the company falls suggests sugge sts a potential strategic strategy the company should follow. Taking the weighted totals from both the EFE and IFE, a score sc ore of 1.0 to 1.99 represent weak positions, 2.0 to 2.99 represents an average a verage position, and a score of 3.0 to 4.0 is strong. Starbucks Coffee combined score places them in box 5. This means they are doing d oing an average job on both matrixes which we identified earlier.
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SFAS Matrix
The Strategic Factor Analysis Summary (SFAS) is a combination of the most important factors identified from External Factors Evaluation and the Internal Factors Evaluation ( Kipley & Jewe, 2014). This SFAS Matrix gives an a n overall strategic position of the company from the combined strengths, weaknesses, opportunities, and threats. This matrix allows the compa ny to condense these factors and reflect on the priority pr iority of each. After they can identify their biggest priorities, but also it allows allows the company to reflect on the duration time for their project. For Starbucks Coffee most of their strategic factors take an intermediate amou nt of time to accomplish. This means they can accomplish these factors within w ithin 3 years which is fast in terms of how long projects normally take.
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Competitive Profile Matrix
The Competitive Profile Matrix is used to help design an offensive or defense strategy plan for the company (Kipley & Jewe, 2014). This is done by identifying the major strength and weaknesses in relation to its main industry competitors. This analysis provides the company w ith important internal strategic information. With Starbucks Coffee, Peet’s Coffee and Dunkin Doughnuts has been identified as their two biggest competitors. Each c ompany has a critical success factor that they excel in. Peet’s Coffee’s coffee beans are free trade coffee which does a
more quality to them than Starbucks Coffee and a nd Dunkin Doughnuts. Starbucks Coffee has the strongest customer loyalty, especially with their rewards program, allowing them to high the highest rating in this section. When looking at the three c ompanies weighted scores, Starbucks Coffee has the highest with Dunkin Doughnuts close behind them and Peet’s Coffee the last.
Assessment of Firms Functional Areas
Marketing Marketing is an essential process in how successful a company can ca n be. Marketing can ca n be described as the process of defining, anticipating, creating, and fulfilling the customer’s wants and needs for products and services (Kipley & Jewe, 2014). By developing good marketing
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campaigns, a company can hope to drive sale, inform consumers about the business, bus iness, and most importantly develop brand loyalty. There are six basic bas ic functions of marketing which help companies develop strengths within their marketing team. These functions include customer analysis, selling products/services, product and service planning, pricing, d istribution, and marketing research. Starbucks Coffee’s marketing strategy has been successful for them allowing them to
develop a strong brand image and a nd loyal customers. This is due in part to their ability ab ility to switch up their marketing strategies over the years. Their marketing technique is individualized to fit the promotion of the Starbucks brand while applying the unique concept it was built on (Starbucks Marketing Strategy, n.d). Three of their top campaigns campa igns include the Perfect Cup of Coffee, Third Place, and Brand Marketing. The Perfect Cup of Coffee campaign focuses on the quality of the product in relation to their price (Starbucks Marketing Strategy, n.d). Starbucks Coffee has a history of placing emphasis on their quality product. Their coffee ma y be priced slightly higher than others, but will leave consumers satisfied with their coffees rich, delicious taste and aroma. The Third P lace strategy was Starbucks Coffee idea of making Starbucks the third place to go in between work and their house. By creating a unique and relaxing experience and atmosphere, Starbucks Coffee realized this is one of their strongest concepts attached to their compa ny in which their customers have found a lot of value in. Lastly, their Brand Marketing is based m ostly on word-of-mouth advertising. This type of advertising is beneficial for the company s ince it is completely free advertising. Starbucks Coffee does this by allowing their high quality product a nd services speak for themselves.
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Operation Operations of a company plain and simple s imple is how an organization or company operates their business. Also known as production, this function is responsible for the operations and productions through a series of production processes. The main main five functions for most companies include process, capacity, inventory, workforce, and quality. For Starbucks Coffee, since they have such a large company for their operation management manageme nt they have six different basic strategies depending on what part of their business is is being analyzed (De'Gain, 2013). These strategies include global strategy, competitive strategy, quality strategy, process strategy, layout strategy, and inventory strategy. All of these strategies were developed t o help Starbucks Coffee reach their objectives, vision, and mission. m ission. The global strategy is Starbucks Coffee idea of expanding expa nding into the global market. In 2001 Starbucks Coffee began entering into joint ventures ve ntures with the local businessmen (De'Gain, 2013). Additionally, they developed a strong expansion campaign. camp aign. There competitive strategy includes factors such as focusing on differentiation by serving niche buyers, bu yers, having unique capabilities to serve needs of target buyer segments, and to become b ecome a large enough to be profitable and offer growth potential. Their quality strategy is very straight forward; they want their products to be of top quality. They use mystery shoppers to ensure this is happening store level but management wise the Starbuck Coffee buyers spend about 18 weeks each year visiting coffee grower and suppliers to ensure their suppliers are of the best quality. These are some examp les of how management ensures their company is at full operational efficiency. e fficiency.
Management There are four basic functions of management: planning, organizing, directing, and controlling (Kipley & Jewe, 2014). Planning P lanning involves the ongoing, comprehensive process that 25
requires management to evaluate where the company co mpany is and where they should shou ld be in the future. Organizing includes an analysis of the different divisions or dep artments to develop an optimal staff, distribution of information, delegation of authority and responsibility, and maintain relationships. Directing oversees the behavior of the staff through motivation, communication, department dynamics, and departmental leadership to help achieve company goals as well we ll as the individual employees own personal or career goals. goa ls. Controlling, the last function, is an ongoing process that involves establishing performance performance standards based on the company’s objectives and
evaluating and comparing actual job performance to establish objectives. Starbucks has a matrix organizational structure which combines different features of basic organizational structures (Meyer, 2017). There organizational structure structure is broken down into functional structure, geographic divisions, product-based divisions, d ivisions, and teams. When CEO Howard Schultz was working for Starbucks he found he had the impulse to micromanage (Lebowitz, 2016). For his management team he recruits top performers and encourages them t hem to step up and push back bac k against him when they don’t agree ag ree with his ideas. He believed the most
important task as a leader was to teach people how to think and ask the right questions.
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BCG Matrix
The BCG Growth Share Matrix was developed in the 1970’s by Bruce Henderson (Kipley & Jewe, 2014). This model classifies classifies products of a company into four four different categories and quadrants based on a combination c ombination of the company’s market growth and market
share relative to their largest competitor. A product or business must have relative strengths to ensure they will be in a dominant d ominant position to be placed in quadrant 3 or 1. The main purpose of the BCG Matrix is to identify id a company has a balanced portfolio of products including highgrowth products as well as low-growth products. This matrix helps managers dec ide which products are selling and can assign priorities. priorities. Quadrant 3 is the star or high growth, high market share section (Kipley & Jewe, 2014). 2014) . Companies who fall within this section have a high market share in a growing grow ing market but they still require considerable resource support. Quadrant 2 is the question mark or high growth, low market share section. Companies here are typically or have new products are found here because be cause buyers have not discovered them yet. They have a high demand but a low return due to low 27
market share. Quadrant 1 is the cash cows or low growth, high market share section. These are companies who that have high market share in a mature market and have competitive advantage allowing for substantial cash flow. Lastly, quadrant 4 is the dog or low growth, low market share section. This should be avoided at all a ll cost and companies who find themselves here should divest d ivest since turnarounds are expensive and unsuccessful. Mapping our Starbucks Coffee their relative market share and a nd market share rate was found from advfn.com. With this information, Starbucks Coffee has been placed in the star section. This a good position for them to be in because it secures them in the best position pos ition allows them strategies to maintain their positioning. The company’s attractiveness is great and their
future competitive position is just as good.
GE/McKinsey Matrix
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The GE/McKinsey Matrix is similar to the BCG growth share matrix since they both map the company on a grid gr id to show their performance relevant to the industry (Kipley & Jewe, 2014). This matrix was developed in the 1970’s a lso by was designed by a consulting group c alled
McKinsey designed to screen the multiple SBUs for General Electric. The G E/McKinsey Matrix uses nine cells instead of the BCG’s four to further explore the relationships of the company. The GE/McKinsey Matrix looks at the industry attractiveness and business unit strength to d etermine its positioning. Starbucks Coffee according to the GE/McKinsey G E/McKinsey Matrix has a medium level of industry attractiveness, but their BUS is very high. This places p laces them in a position for investors to want to invest in their company.
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Industry Life Cycle (ILC) Analysis
Every company and industry goes through a five phase process known as the industry life cycle (Kipley & Jewe, 2014). Keeping Keep ing an eye on various industries it has been shown that companies go through periods of growth then the n interrupted by periodic recessions and recoveries which shape the products and companies c ompanies in the industry. Some industries will experience continued growth while others will see their growth slowed down and e ven decline. This growth curve typically describes the evolution of need demand and can be subdivided into four phases: emergence, accelerated growth, decelerating growth, maturity, and decline. The emergence period is a turbulent time when w hen an industry is born and many aspiring asp iring competitors are seeking to capture leadership (Kipley (K ipley & Jewe, 2014). Accelerated growth is when the surviving competitors are most profitable and the demand dema nd typically outpaces the supply growth. Decelerated growth is the early sign of saturation and t he supply begins to exceed demand. A mature industry is where the saturation is reached a nd there is a substantial overcapacity. Lastly, with a declining industry the demand de mand is either lowered and nonexistent. This can be due to economic e conomic factors, demographic factors, rate of production obsolescence, or product consumption.
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Starbuck Coffee’s industry is the coffee and casual drinks industry. This industry is in the
earliest stages of maturity. Around every corner a coffee co ffee house, or a restaurant that sells coffee is found. A consumer does not need to drive more than 5 minutes m inutes to get coffee in an urban populated town. Since coffee is an inelastic item there will always be a high demand for coffee. Because of this the coffee industry will most likely never see a de cline in demand.
SPACE Matrix
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The Strategic Position and Action Evaluation (SPACE) Matrix is used to determine what type of strategies a company should invest in (K ipley & Jewe, 2014). The Space Spac e Matrix has four quadrants and indicates whether a firm should follow an aggressive, aggress ive, conservative, defensive or competitive strategy. The SPACE Matrix looks at the financial strength and competitive advantages compared to the environmental e nvironmental stability and industry stability. stability. Combined these factors are considered the four most important determinants of an organ izations overall strategic position. Going clockwise starting in the top left quadrant the sections represent conservative, aggressive, competitive, and defensive (Kipley & Jewe, 2014). After completing a SPACE analysis on Starbucks Coffee, their totals plotted them within the aggressive quadrant on the matrix. To follow an aggressive strategy, Starbucks Coffee can consider c onsider backward, forward or horizontal integration, market penetration, market development, product de velopment, and diversification. When completing the SWOT analysis, EFE, and IFE earlier, these were all identified as opportunities for the company.
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Grand Strategies Matrix
The Grand Strategy Matrix is used with the SWOT Matrix, Space Ma trix, BCG Matrix, and IE Matrix to create different and alternative strategies for a compa ny (Kipley & Jewe, 2014). 201 4). A company is placed within one o ne of the four strategy quadrants with each quadrant containing conta ining different sets of strategies. The Grand Strategy Matrix places companies between competitive position and market growth. In the top right quadrant companies placed here have a very strong strategic position. Companies placed in the top right quadrant need to look at their present approach since they are unable to t o compete in a growing industry. Companies in the lower left quadrant compete in a slow-growth industries and have a relatively weak competitive position. Lastly, companies placed in the lower right quadrant have a strong competitive position but the industry itself is slow growing. Starbucks Coffee is found with Quadrant I which is in the upper right hand corner (Kipley & Jewe, 2014). Starbucks Coffee should concentrate c oncentrate on developing their existing markets through market penetration and market development. Additionally, Add itionally, they can develop 33
their current products through product development. Companies Compan ies that typically fall within Quadrant I have an excessive amount amou nt of resources so perusing backward, forward, or horizontal integration might be the most effect method.
QSPM Matrix
The Quantitative Strategic Planning Matrix (QSPM) is a high level strategic management approach that objectively evaluates possible strategies based on prev iously identified external and internal critical success factors (Kipley & Jewe, 2014 ). This provides a company with w ith an analytical method for comparing alternative actions using the inputs from the EFE Matrix, IFE 34
Matrix, and the CPM, and matching matc hing the results with the results from the SWOT, SPACE, BCG Matrix, IE Matrix, and Grand Strategies Matrix to decide objectively among a lternative strategies. The QSPM identifies the relative attractiveness of various strategies based upon the impact of which external and internal critical success factors are improved up on. For Starbucks Coffee, product development and market pe netration were identified as the most important strategic alternatives for the company to look into. When looking at the cumulative scores of product development versus market penetration, market penetration is clearly more important strategically. A lot of the SWOT analysis identified issues that could be solved through the strategic move of market penetration.
Alternative Specific Strategies & Long-Term Objectives Analysis from all the matrixes together has determined that Starbucks Coffee is currently strategically doing well. This doesn’t mean here isn’t room for them to improve to enhance the company’s brand and wealth. One of the main issues most matrixes identified is a need to invest
in product development and market penetration. pe netration. Starbucks has a variety of products within store operation include merchandise and baked goods. They have venture into the at home market by selling products such as their coffee and teas for at home enjoyment and the ready read y to drink line. By investing in selling other products such as their tumblers tumb lers or accessories at local groceries they could see a potential increase in sales. Additionally, Add itionally, if Starbucks Coffee is feeling completely confident, they could potentially enter a new industry to diversify their company portfolio. Additionally, the matrixes identified market penetration as the biggest strategic strategy to peruse. This is due to the fact that Starbucks Coffee has already expanded their brand into parts of China, Asia-Pacific, Europe, Middle East, Russia Russia and Africa. By expanding their network of stores in these areas will be important because it will open up new revenue re venue streams 35
for the company. Additionally, it will increase Starbucks Coffee’s brand name. Globalization is
at its peak and Starbucks Coffee should utilize ut ilize this in order to successfully grow their brand overseas.
Current Firm Ratios Financial Ratio Analysis is often used in strategic planning to calculate how a firm is preforming based on the balance sheet, income statement, and market valuation (Kipley & Jewe, 2014). These ratios provide the company significant s ignificant information about the performance of the firm. By analyzing the financial position of the company, these ratios can help identify companies that will survive or companies who will eventually fail. There are five different types of ratios that can help a company c ompany determine this; liquidity leverage, activity, profitability, and growth. All ratios were collected from ADVFN.com on Thursday April 27th, 2017.
Liquidity Ratios This measures a company’s ability to meet short term obligations. Current Ratio: 1.0 Quick Ratio: 0.7 Net Working Capital: 1.49
Leverage Ratios This measures the extent to which a company has been financed by debt. Debt to Equity Ratio: 0.61
Activity Ratios This measures how effectively a company is using its resources
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Profitability Profitabili ty Ratios This measures the overall effectiveness as shown by the retunes generated ge nerated on sales and investment. Gross Profit Margin: 60.1% Return on Investment: 19.7% Return on Assets: 21.0% Return on Equity: 48.2% Return on Invested Capital: 31.0% EBITA: $4,279,900
Growth Ratios This measures the company’s ability to grow in the industry.
Earnings Per Share: $1.91 Mil
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Pro-Formal Financial Statements
Income Statement
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Balance Sheet
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Cash Flow
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Work Cited Dalavagas, I. (2016, January 11). SWOT Analysis: A nalysis: Starbucks Corp. Retrieved April 28, 2017,
fromhttp://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Starbucks_Corp_.
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De'Gain, L. (2013, June 28). The T he Operation Management Strategies of Starbucks. Retrieved April 28, 2017, from https://www.slideshare.net/LulettaGain/final-starbucks-24693769 https://www.slideshare.net/LulettaGain/final-starbucks-24693769 Greenspan, R. (2017, January 31). Starbucks S tarbucks Coffee's Five Forces Analysis (Porter's Model). Retrieved April 28, 2017, from http://panmore.com/starbucks-coffe http://panmore.com/starbucks-coffee-five-forces-analysis e-five-forces-analysis
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Gregory, L. (2017, January 31). Starbucks Coffee's C offee's Vision Statement & Mission Statement. Retrieved April 28, 2017, from http://panmore.com/starbucks-coffe http://panmore.com/starbucks-coffee-vision-statement e-vision-statement
mission-statement
Lebowitz, S. (2016, March 03). 2 brilliant br illiant management strategies Howard Schultz Schu ltz used to build the Starbucks coffee empire. Retrieved April 28, 2017, from
http://www.businessinsider.com/management-strategies-of-starbucks-ceo-howard
schultz-2016-3
Let's Look At Starbucks' Growth Strategy. (2016, September 19). Retrieved April 28, 2017, from
https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks
growth-strategy/2/#8f8a9bc57816
Lombardo, J. (2017, January 31). Starbucks Coffee C offee SWOT Analysis. Retrieved April 28, 2017, from http://panmore.com/starbucks-coffee-swot-analysi http://panmore.com/starbucks-coffee-swot-analysiss
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Meyer, P. (2017, January 31). Starbucks Starbuc ks Coffee Company's Organizational Structure. Retrieved April 28, 2017, from http://panmore.com/starbucks-coffee-company-or http://panmore.com/starbucks-coffee-company-organizationalganizationalstructure Starbucks Company Profile. (2017, January). Retrieved April 28, 2017, from
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Starbucks Marketing Strategy Unconventionally Effective. (n.d.). Retrieved April 28, 2017, from
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