SYNOPSIS
Starbucks Corporation, originally founded in 1971, but purchased by Howard Schultz in
1987, is the market leader in selling gourmet coffee (Starbucks, 2008). Starbucks main
objective is to establish itself as the most respected and recognized coffee brand in the
world (Fact Sheet, 2008). Starbucks has accomplished this objective and experienced
much success through their competitive strategy of clustering several stores within the
same community and through their distinctive competencies of roasting and selling the
quality coffee while providing high quality customer service. The question is, can
Starbucks continue their market share growth with rising competitors? Should they focus
more on their international operations? Can they continually reinvent themselves to
maintain their strong brand image in the long run?
PROBLEMS
* Overall economic downturn can affect Starbucks market share if management neglects to
address competitors strategies with lower priced offerings as consumers are becoming
more conservative in spending their discretionary income.
* Loss of identity and authenticity focused upon the foundational Starbucks experience,
which, if unaddressed by management, can result in dissatisfied customers, loss of sales,
and decreased market share.
* Considering the economy and increasing domestic competition within the U.S.,
Starbucks must address their less profitable international operations.
SWOT ANALYSIS[1]
INDUSTRY EVALUATION
In the past two decades, the coffee industry has experienced a significant increase in the
demand for premium coffee. Today, about one in five Americans drinks some type of
espresso-based coffee drink each day. The average yearly coffee consumption per capita in
the U.S. is around 4.4Kg. Among these coffee drinkers, the average consumption is 3.1
cups of coffee per day, with men drinking approximately 1.9 cups per day, and women
drinking an average of 1.4 cups per day (Coffee Research Institute, 2006).
The gourmet coffee retail business is structured as an oligopoly. There are a few main
competitors and several smaller competitors selling extremely similar products and
services. The primary competitors in the industry for Starbucks are other specialty coffee
shops (local or other chains) such as Caribou Coffee, Dunkin Donuts, and Panera, and
quick service restaurants such as McDonalds and Burger King. They face intense
competition from these specialty retailers and quick service restaurants to obtain prime
retail locations and qualified personnel to operate both new and existing stores (Annual
Report, pg. 6, 2007). Recently, the gourmet coffee industry in general has experienced
increased competition within and among large competitors in the quick-service restaurant
sector. What causes the quick-service restaurant sector to be such a major competitor of
gourmet coffee retailers is the competitions considerably greater financial, marketing, and
operating resources (Annual Report, pg. 6, 2007). McDonalds in particular has seen the
growth in the gourmet coffee industry and is attempting to gain market share in this sector.
They recently upgraded to a premium drip coffee to which customers responded positively.
They are in the process of introducing into their restaurants lattes, mochas, cappuccinos,
and espressos. Much like Starbucks, they are also offering their customers the option of
different flavorings (MSNBC, 2007). Starbucks believes that their customers choose
among retailers on the basis of product quality, convenience, and service. The entrance of
McDonalds in the market could have a significant impact on the company as well as the
industry overall because industry watchers say that the drinks at McDonalds cost about 50
cents less than those at Starbucks and similar competitors (MSNBC).
The demographic environment within the coffee industry is comprised in the US primarily
of the adult segment of the population. In fact, the National Coffee Association, or NCA,
found that 54% of the adult population of the United States drinks coffee daily (Coffee
Research Institute, 2006). In addition to the 54% who drink coffee everyday, 25% of
Americans drink coffee occasionally. Also, according to a NCA Coffee Drinking Survey,
on average, coffee drinkers spend on average $164.71 per year on coffee. They also
reported that 18.1% of the coffee drinkers in the United States drink gourmet coffee
beverages daily (Coffee Research Institute, 2006). Recently, however, consumers are less
willing to shell out their diminishing discretionary income; this trend can certainly hurt any
companys sales and, ultimately, their bottom line. Sociologically, however, coffee houses,
like Starbucks, are seen as a place to congregate with others. Even in a rushed
environment, consumers are willing to take time to visit their local coffee shop to pick up
their daily jolt of caffeine. Specifically with Starbucks, when one is seen with a cup of
coffee, the brand is so well known that it can and has sometimes been viewed as a status
symbol.
The economic environment is a concern within the coffee industry, as rising dairy and
green coffee prices around the world are pushing up the costs of doing business. The rising
prices can be attributed to inflation and the decline in value of the US dollar in recent
months. The demand in the coffee industry is also slowing; such declines affect the
revenue streams for the industry. The political environment in the US for the coffee
industry is stable. Currently, there are few political implications of doing business in the
industry. However, some in the industry abide by the fair trade laws, which allow for
manufacturers of branded or trademarked goods (or the distributors of those products) to
fix the minimum or the actual resale prices of these goods by those who are resellers
(Fair-trade Law, 2008). Fair trade coffee also bypasses the coffee trader, therefore giving
the producer higher profits. Fair trade coffee growers are guaranteed a minimum price of
$1.26 per pound for their coffee. If the world coffee prices rise above this floor price,
farmers will be paid a small premium $0.05 per pound above market price (Coffee
Research Institute, 2006). This contributes to helping coffee farmers stay out of debt and
provides some stability for both producers and sellers of coffee to an unstable market
(Coffee Research Institute, 2006).
Environmentally, the main negative impacts from coffee production include habitat
conversion, soil degradation, pesticide use, and declines in water quality (WWF, 2005).
The most serious impact of coffee cultivation continues to be the conversion of natural
forest areas into flatlands in order to plant coffee. Unfortunately, a driving force of habitat
conversion is the increasing market for high-grade specialty coffees (WWF, 2005). Many
companies, however, like Starbucks, work with local farmers to ensure the best economic
return and least detrimental environmental impacts as possible.
It is true that recent trends in the coffee industry point to a decline in demand and sales
revenues; in general, coffee shop traffic has slipped amid the sagging economy, rising
energy and dairy costs, and growing competition from cheaper rivals (Fox News, 2008).
However, the decline will most likely pass and the consumer concern over their
discretionary income spending will cease. The specialty coffee industry is still seeing
strong indicators; however, it is important for the industry to make efforts to attract and
keep consumers for the long term. Throughout the industry, the increasing trend in coffee
consumption is predicted to grow by at least 4 percent each year until 2011 (MSNBC,
2007). The trends in the specialty coffee industry include increased competition from
quick service restaurants and the like; this trend will most likely continue. Therefore, it is
increasingly vital that companies like Starbucks work to not only provide a quality product
and service, but also to provide it at a price that is competitive. The industry will continue
to be dominated by the larger players who are able to afford continued rapid expansion and
consumer awareness.
STRATEGIC EVALUATION
Starbucks Corporations mission is as follows: To establish Starbucks as the premier
purveyor of the finest coffee in the world while maintaining our uncompromising
principles as we grow (Fact Sheet, 2008). Along with this, Starbucks has outlined six
guiding principles that serve as their vision as they grow:
* Provide a great work environment and treat each other with respect and dignity;
* Embrace diversity as an essential component in the way we do business;
* Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery
of our coffee;
* Develop enthusiastically satisfied customers all of the time;
* Contribute positively to our communities and our environment; and
* Recognize that profitability is essential to our future success (Fact Sheet, 2008).
Though Starbucks mission statement by itself is somewhat vague, the addition of the six
guiding principles makes a strong statement. The overall mission and vision should not
change; rather, the company should reorder the principles in order to put more emphasis on
the customer than on the employees, which is something implicitly stated throughout their
current strategy, their website, and their annual report. Specifically, bullet number four
should be first, bullet number three should be second, and bullets one and two should be
moved to the third and fourth positions, respectively.
As their mission states, Starbucks aims to be the premier purveyor of coffee in the world.
To accomplish this, Starbucks has created the following overarching goals for the coming
year:
* Better operational excellence at the store level;
* More meaningful innovation to continue to differentiate the store experience; and
* Increased efficiencies and effectiveness in the general and administrative infrastructure,
to become more capable of navigating through the fluctuations in the external environment
