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Starbucks is the world's largest coffeehouse company that was started in the late 1980's. It has well over 16,900 stores in 50 countries in the world. This includes over 11,500, 1500 and 800 stores in the United States, Canada and the UK respectively.
This company deals in brewed coffee, espresso motivated drinks, coffee beans, pastries, sandwiches and other breakfast related eateries. Through another division, the Starbucks entertainment, the company also deals in music products, books and movies. Stocking for this company is locality specific in that each stores stocks what the locals within its area of operation need. Their brand ice-creams and coffee products are however sold in each and every outlet.
From its earlier founding in Seattle, Washington, as a little known coffee bean roaster and small scale distributor, it has grown to become a Multinational Corporation (MNC). For instance, the early 1990's, Starbucks was opening a new store in many countries every weekday growth pace that overflowed into the ealr 2000's.
Over time, the company has evolved in terms of new ideas and technology to transform the lives of its clientele in terms of ordering and product delivery. The force behind this is the strong workforce who is highly dedicated to make a difference.
The company is really enduring for growth and has been privileged to take over various newer markets in the world that its competitors are yet to enter. The consistency in the managing of the business and to the continued increase in quality assurance have both greatly contributed to the journey to success which was crafted over sixty years ago by its founders guided by four fundamental principles. The business is built on philosophies and values that are deeply held by the leaders and employees and which serve as strategic and moral compasses for generations.
These values indeed compel the company to put the needs of its customers first, with clear outlines on how to treat the employees and other stakeholders. To the stakeholders and investors, the business makes an express commitment to make sound profits through innovation and new ideas, new locality based products and research.
The company has had very qualified and able leadership team. Orin Smith led the company into the early 2000 growth as the President and the CEO from the 2001 to 2005. The chairman of this company was Howard Schultz who later took over as the Presidents and CEO from 2008 replacing Jim Donald. Donald was humbly shown the door following dwindling sales all over the world.
The industry is changing at a break neck speed and therefore it is necessary for Starbucks to put in place strategies for coveted venture opprotunities into the market. There are three main strategies that the company has been using in order to remain relevant in this market. These are expansion, Mergers & Acquisition and low cost operation through Economies of Scale (Kotler, 1999).
External Environmental Analysis
The advances in technology have greatly impacted on the coffee, entertainment and the candy industry both positively and negatively. First, the use of technology in these industries that Starbucks deals in has completely overhauled the manner in which customers make orders and general purchasing. Again the general delivery process and the mode of advertising have been changed significantly. There has been a reduction in the processes for many operations. Gone are the days when companies and retailers just sold products to customers and therefore technology has heightened the research and development to pave way for modern technology in the production and design of excellent products that put the health of customers first, (O'Neill Jim et al 2004).
Technological advancement have seen many companies, like Starbucks, invest heavily in technology in production, distribution and creation of customer awareness. Specifically, the internet has played a major role in these industries given that customers can get their products without necessarily having to go physically to stores. Customers can sample various products online and purchase them online.
This is what is now driving the industry coupled with the efficient technologies used to produce a large number of Generics. The world today is flooded with skilled technical manpower in the pharmaceutical business and therefore large multinationals are no longer required to export skilled manpower to new markets.
The main economic blocs controlling the coffeehouse business are the European Union and the USA which control 88% and 47% of the world's coffeehouse sales respectively. This makes it very necessary for any new coffeehouse venture to penetrate these two markets in order to make huge profits in the long run. The developing world is also contributing to the growth in the economic strength of the industry with the opening up of the economies, courtesy of globalization.
Therefore, these countries have displayed a high potential for further expansion of coffeehouse industry if the players are keen to take the advantage. The most recent developments in this industry indicate that mergers, acquisitions and strategic alliances are taking the centre stage in the development of the coffeehouse and other related businesses taken up by Starbucks.
Socio - Cultural
The Starbucks Company has benefited a lot from the societal evolution and growth within the environments that it operates. The modern society is characterized by major strides in the economic environment and therefore the society has found itself in the midst of a high demand coffeehouse services. For example, the negative medical impact associated with chemicals in hot drinks in the society has forced the hot drinks companies like Starbucks in the world to dig deep into research in order to contain the pandemic and ultimately secure customers' confidence in their products. Starbucks has succeeded in this quest.
The eating habits of many societies has changed with the introduction of junk foods and chemically modified foods. These emerging lifestyles have created a high demand for excellently produced foods and drinks. Starbucks manufacturing plants have categorically addressed these societal concerns with a view to filing the gaps and health fears inherent in the modern society.
Starbucks has three strategic priorities that are meant to increase growth, reduce the operating risk and the improvement of long-term financial performance. These are growing a highly diversified international business, delivering more products which are of value to consumers and lastly simplify the company's business operating model. With the mission of improving the quality of coffee and other related hot drinks by encouraging to drink more even on hours they would not have otherwise done so, Starbucks has been one of the leading players in the industry by offering very competitive products at very competitive prices. The company has invested heavily on advertisement and legal advisories in order to remain very competitive to the tune of over US$562,000. The main source of competitive advantage for Star bucks emanates from the strong capital base and customer loyalty and strength. This, coupled with high company profitability is the key sources of competitive advantage.
Barriers to entry
The coffeehouse industry is very restrictive to new entrants since the barriers to entry and exit are very high. The players in the industry offer highly differentiated products and services which makes the switching costs very high. For example, the industry requires heavy capital investments such as reserves, deposits and securities. The customers have built a lot of loyalty in Starbucks and therefore new entrants will find it hard to penetrate (Strategic Analysis). Any perceived threat in new entrants is met by harsh retaliations in terms of new products, value addition and discounts by the ever zealous marketing team and strategic planning team of Starbucks. This is because the industry is highly profitable and therefore existing players like Starbucks are very sensitive to a new competitor. This has led to numerous legal disputes based on unfair trade policies purportedly adopted by Starbucks. The costs for this legal tussles have been very high.
Buyer bargaining power
The customers in the industry are very powerful given the high levels of competition. Since the fixed costs are very high, the buyers switching costs are relatively low and therefore are able to dictate the terms in the market. The customers have access to all the information on market trends, lending rates and other relevant information and therefore the institutions are always struggling to acquire and retain clients. Starbucks has been able to command its customers trust in recent years. Customers across the world are very price sensitive and therefore tend to favor established companies like Starbucks with relatively low prices and offering highly differentiated products and services.
Since there are not many suppliers in the coffeehouse industry in many countries, the supply power of Starbucks is very strong and market authoritative. Starbucks has access to the crowded labour market and therefore can attract talented and innovative workforce to support its strategies. The employees are unionized and have a high bargaining power (reference can be made to Starbucks employee union). Starbucks also has a high cost of the inputs to differentiate its products.
This company strongly depends on the high market demand and the high investments in capital to adopt a low cost model which has given the company a high competitive edge. Although the challenge of the competition is real, Starbucks has remained on top of its competition by adopting various strategies as discussed earlier.
The rising cost of raw materials and the scarcity of the same have also threatened the future of Johnson in that this leads to high production costs and high operating costs.