Starbucks global strategy
De Wit and Meyer (1998) refer to market tendency towards homogeneous variety and
tighter international linkages as globalization. The need for global strategy is outlined by
the fact that companies are subject to global forces and consumer demands. As a
consequence, firms are faced with a challenge of modifying their existent strategies to gain
and sustain their competitive advantage in a rapidly changing environment. A
well-designed global strategy can help a firm to gain a competitive advantage, that as
identified by Sumantra Ghoshal of INSEAD can arise from Efficiency, Strategy, Risk,
Learning and Reputation (Appendix1). Therefore, to create a successful global strategy,
managers first must understand the nature of global industries and the dynamics of global
competition.
I would like to proceed with my analyses of the global market place, with examination the
young but already well recognized brand world wide * Starbucks. In my research I will
explore on changes in the product, operations, and strategies at Starbucks influenced by the
changes in the global marketplace. Due to word limitation on the essay, please refer to
Appendixes for more detailed information.
“There is untapped potential to grow our company internationally,” Schultz said.
Starbucks is publicly traded — shares are widely held
150 million shares have been authorized, of which 59.6% are on the market.
Howard Schultz, 42, is the founder of the Company and has been chairman of the board
and chief executive officer since its start in 1987. The Company originated with eleven
Seattle stores and less than one hundred employees. Since them the company has grown to
a half billion-dollar company serving millions of cups of coffee per week in one thousand
stores throughout the country, and in 17 countries internationally. Schultz believes his
company will succeed well into the twenty-first century. He states, “One of the things that
you cant measure on a balance sheet or on a financial statement is the soul of Starbucks.”
The Company holds approximately 39 federal trademark registrations in the United States.
They have approximately 44 additional applications pending in the U.S. The Company
currently owns one patent in the U.S. for its coffee on tap system and has several patent
applications pending.
Starbucks prides itself on being a “good citizen” locally and in the various coffee
producing countries. They make significant contributions to local charities that focus on
children, the environment, the homeless, and AIDS research/support.
The Company is organized into a number of business units.
* The Company s North American retail business sells coffee beverages, whole bean
coffees and related hardware and equipment through Company-operated retail stores in the
United States and Canada.
* The Company s international retail business consists of entities that own and operate
retail stores abroad. These two retail segments are managed by different presidents within
the Company and are measured and evaluated separately by senior management.
* The Company operates through several other business units, each of which is managed
and evaluated
independently. These other business units are organized around the strategic relationships
that govern the
distribution of products to the customer. These relationships include retail store licensing
agreements,
grocery channel licensing agreements, wholesale accounts, joint ventures and
direct-to-consume
marketing channels. Revenues from these segments include both sales to unaffiliated
customers and
inter-segment sales, which due to annual report are accounted for on a basis consistent
with sales to unaffiliated customers.
Starbucks and its subsidiaries (“Starbucks” or the “Company”) include Starbucks
Corporation and its wholly owned subsidiaries:
* The Coffee Connection, Inc. (“The Coffee Connection”),
* Starbucks New Venture Company (“Starbucks New Venture”),
* Starbucks Coffee International, Inc. (“SBI”),
Starbucks Corporation and its subsidiaries buy and roast high quality whole coffee beans.
To insure high quality of the product, Starbucks built three roasting plants of his own,
where highly trained and experienced personnel monitors roasting of beans (Appendix C).
Quality standards are so high that entire batch is thrown away after testing if qualifications
differ from acceptable standard.
Later beans are sold in primarily company-operated stores along with fresh, rich-brewed
coffee, Italian-style espresso beverages, decaffeinated beverages, cold blended beverages,
variety of pastries and confections, coffee-related accessories and equipment, and a line of
premium teas. Retail sales brake down is roughly 61 % coffee beverages, 15% whole-bean
coffees, 16% food items, and 8% coffee-related products and equipment. Product mix
varies with the size and location.
Starbucks sees its success sustainability in constant development of its products to bring
new experiences and ideas to loyal customers of their cozy coffee-empire, (Appendix B).
High quality of a product that will appeal to coffee lovers around the world is Stabuckss
main consideration.
A branding strategy must work well with marketing strategy.
Starbucks sells a lifestyle, to customers and employees alike (Appendix E). It has learned
from the experience of Pepsi and others to link its brand to new trends. Therefore
Starbucks success could be attributed to objective to meet their customers needs and
innovate new product offerings.
Selecting a marketing strategy based on a product mix is a key to Starbucks success.
Coffee is the second most traded commodity in the world. As a result, Starbucks is forced
to adopt a high product differentiation strategy. Product differentiation defined by branding
a product and marketing it effectively to target audience. This strategy differentiates
company from the competition, making its product unique, targeting quality, service, and
price conscious customer.
Starbucks distinct branding strategy involves creating a coffeehouse as a place inspiring
customers to socialize. As they managed to set up design teams to constantly innovate and
create better product and store designs (Appendix D). However, expansion is also
beginning to conflict with brand image. The danger with an extensive product mix is a
weaker brand image. Strong competition is always a threat to the companys target market
and thus even with a branding strategy, coffee is an easy substitute if other companies get
serious with their own promotion. Starbucks cannot exclude from others their ability to
walk into any store, study its layout, atmosphere, and product range, and copy the coffee
bar concept. Thus the highest value-added element of the Starbucks formula is not
excludable. It is also hard to charge a premium for coffee if customers can pay less for the
same amount of caffeine and comfort just down the street. Similarly, to compete on costs
Starbucks needs a flexible workforce with low wages and every danger of staff being
poorly motivated, it is hard for such firms to cultivate customer-friendliness. As a result,
Starbucks has long emphasized human-resource policies (Appendix E). So in order to
distinguish themselves from other coffee makers, Starbucks must continue to transmit a
strong corporate identity with their customers. After all, customers that come to their retail
stores are the primary source of Stabuckss revenue.
Starbucks is brand name sensitive, and is seeking to develop partnerships with companies
who share their same commitment to quality. Kraft is a partner to Starbucks marketing
strategy. Kraft handles distribution, marketing, advertising, and promotion for Starbucks.
They distribute products to the grocery, warehouse, and other outlets.
Starbucks retail stores are usually located in high-traffic locations and high visibility areas.
To reduce risk of failure and economic fluctuations properties for the stores are leased.
Brand name recognition of Starbucks therefore comes from people being frequently
exposed to it. As a result, Starbucks carefully selects their market and store locations.
Industry ranking as of April 1, 1999, particularly having coffee products:
BROTHERS GOURMET COFFEES INC Market Capital($000)
The companies above mainly roast, pack and distribute coffee. Their core material: green
coffee beans. Farmer Brothers sells to hotels, restaurants, and fast food outlets. Chock Full
O Nuts is the fourth largest in this industry. It presents instant and specialty coffees such as
LaTouraine and Cains. Green Mountains profile mentioned the two distribution channels it
is focused on – wholesale and direct mail. Like Starbucks, Green Mountain considers
growth with brand recognition and availability of its products. With 246 franchises so far,
Coffee People is the second largest distributor of specialty coffee. Coffee People recently
ventured with Gloria Jeans Inc. None of the latter five companies is able to match the
market capital achieved by Starbucks.
Starbucks management identifies competitors in restaurants, shops, street carts and
supermarkets. Where own machines are being set up to serve espresso, cappuccino, Latt,
and other coffee drinks to their customers. They are also faced with other mail order
suppliers and wholesalers.
Product Supply: Coffee Prices, Availability, and General Risk Conditions
Global supply literature suggests that even though global supply chain allows for cost
reduction, it is much more complex than domestic one, and calls for tight controls. Since
coffee prices are unstable due to weather, export regulations, economic, and political
conditions in the growing countries of Colombia, Sumatra, Yemen, Antigua, Indonesia,
Guatemala, New Guinea, Costa Rica, Sulawesi, Papua New Guinea, Kenya, Ethiopia,
Java; it is not surprising that Starbucks is concerned with the supply and prices of this
commodity.
Starbucks enters into fixed-price purchase commitments and/or purchased futures contracts
to secure the company from danger of price fluctuations and supply shortages. As of
October 1, 2000, the Company had approximately $84 million in fixed-price purchase
commitments which, together with existing inventory, is expected to provide an adequate
supply of green coffee for the majority of fiscal 2001.
Vice president for coffee, travels regularly to coffee-producing countries to built
