Levels and Types of Strategies, Research Paper Example
Words: 1822Research Paper
Mission, Vision, and Stakeholders
Starbucks’ mission is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” (Starbucks). The company’s vision is “to be the leading retailer and brand of coffee in each of our target markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience.” (Starbucks, November 16, 2012). The primary stakeholders of the company include owners including founder Howard Schultz, management and employees, customers, and the suppliers including coffee bean growers. It is apparent from the company’s mission and vision statements that the company strives to be a leading provider of finest coffee and overall user experience and company’s stakeholders’ play a huge role in making sure the company stays true to its objective. One great example is the company’s CEO Howard Schultz who closed about 7,000 stores for several hours in February 2008 to retrain employees to ensure the quality of the product is not compromised (NPR, 2011). Similarly, the company’s suppliers also help maintain product standards by providing the company with finest quality beans. By being loyal customers and keeping the company profitable, the customers also send the message they are willing to pay premium prices for quality products.
Five Forces of Competition
The five forces of competition are supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry (MindTools). The structure of Starbucks’ supply chain network means supplier power is low. Starbucks sources supplies from several suppliers who must meet Starbucks Supplier Social Responsibility Standards and many suppliers are small local and regional producers (Miranda). Thus, no single supplier has high negotiation power due to the large number of suppliers with whom Starbucks does business but the company has been known to treat its suppliers fairly. Buyer power is high because customers have now several options including Dunkin’ Donuts, McDonald’s, Burger King, and Wendy’s etc. In addition, convenience stores including 7-Eleven also sell coffee. Competitive rivalry is also intense which is not surprising given the huge size of retail coffee industry, worth approximately $28 billion. The annual growth rate of the coffee industry between 2008 and 2013 was 5.6 percent and the growth trend is expected to continue in the near future (IBIS World, 2013). Starbucks might have singlehandedly revolutionized the retail coffee sector but now it faces intense competition from fast food giants such as McDonald’s though the competitors sometimes follow different competitive strategy.
The threat of substitution is also high because not only there are several coffee products available to customers including those that can be brewed at home but a string of other products also pose great competition, especially caffeinated products such as energy drinks. Minor substitutes may include shakes and tea products. The threat of new entry is mild. Many coffee suppliers operate independently, thus, any one with resources could become their customer. But any one intending to compete with current retail coffee market leaders such as Starbucks would require huge capital investments. In addition, it would also take time and huge marketing resources to develop a brand that can compete with Starbucks or McDonald’s that are known to literally every American and a significant proportion of populations in international markets. Similarly, the competition is already tough and major market players have significant resources, thus, any new player will also face low profit margins unless it can successful identify a niche opportunity and builds a loyal customer base.
Strengths: One of the company’s strengths is its brand. Starbucks arguably started the fast food coffee trend and has built a reputation for delicious coffee in a relaxing environment at its retail outlets. This may be why Starbucks is able to charge premium prices for its products which enable it to earn attractive profit margins. Another company strength is its leadership including CEO Howard Schultz who makes sure the company continues to stay true to its heritage and sets the standard for a tasty cup of coffee in a welcoming environment.
Weaknesses: Even though the company’s business model is its strength, it is also its weakness. Starbucks has higher average production costs because it only goes for the finest coffee beans and deals with a large number of suppliers which also prevents the company from taking advantage of economies of scale. Another company weakness is its significant reliance on Americas operating segment (Starbucks, November 16, 2012) which means unfavorable economic conditions or changing consumer lifestyle habits in Americas could have material impact on its financial performance.
Opportunities: Starbucks has tremendous growth opportunities in China and Asia Pacific (CAP) region. The company expects to reach a goal of 1,500 stores in the region by 2015. Another opportunity lies in continuing to grow Seattle’s Best Coffee (Kowitt, 2010) so that it emerges as a strong contender to low-price competitors such as McDonald’s and provide some competitive protection to premium-priced Starbucks brand.
Threats: One of the threats facing the company is the potential commoditization of coffee which will reduce profit margins by making it difficult to charge premium prices over the competition. Another threat facing the company is rising production costs if the number of competitors continue to increase since there will be greater demand for coffee bean supplies.
Given the company’s strengths and opportunities as well as weaknesses and threats, Starbucks management may benefit from devoting more attention and resources to Seattle’s Best Coffee brand. Starbucks has a capable management as well as a CEO with extensive industry experience, thus, they can turn Seattle’s Best Coffee into another valuable coffee brand. This brand may also be easier to expand in international countries where average income levels are significantly lower than the developed countries. Seattle’s Best Coffee brand may also enable Starbucks benefit from economies of scale since quality will not be the major priority, thus, the company could deal with few major suppliers. It may also help the company maintain its profitability through volume and allow the company to be adequately prepared for adverse conditions such as a struggling economy when customers scale back on leisure purchases.
Starbucks’ corporate level strategy is diversification, both in terms of products and regions. Starbucks’ mainstream product may be coffee but the company also sells other products such as tea products, bakery products, and fresh food items. Similarly, Starbucks’ most valuable market is Americas but the company also operates in other regions it classifies as Europe, Middle East, and Africa (EMEA), and China and Asia Pacific (CAP). Product diversification enables the company to offer more choices to customers and attract them to the stores. Similarly, regional diversification provides ample growth opportunities. Starbucks business level strategy is differentiation. Starbucks mission statement makes it clear that the company places a huge emphasis on product quality and user experience.
In order to devise an effective communication plan to make the strategies known to all stakeholders, Starbucks have to take into account the communication channels used by different stakeholders. Social media has a deep penetration in Americas and continues to gain ground in Starbucks other markets, thus, it is an obvious choice to interact with customers and emphasize the fact that Starbucks competes on quality and experiences and not on prices. Other communication channels to reach customers may include TV and print media. In order to reach suppliers, the company could make use of its corporate website as well as local newspapers in countries from where it outsources coffee beans. In addition, local trade organizations and government agencies may also be quite valuable in communicating with coffee bean growers since many of them may have little or no access to electronic and print media. Corporate website, training programs, and company messaging boards may be the best avenue to reach employees and remind them of the importance of staying true to Starbucks’ core values.
Each non-employee director of Starbucks is expected to hold at least $480,000 in the company’s common stock (Starbucks Corporation). This requirement helps align board of directors’ interests with that of the shareholders and increases the probability that the board members will do their job properly. Another governance mechanism employed by Starbucks authorizes the company to recover compensation or awards given to executive officers if such gains resulted from fraudulent activities or material negative restatement (Starbucks Corporation). This mechanism increases the probability that the management works towards maximizing shareholders’ long-term interests.
Starbucks is being led by Howard Schultz who arguably holds the same status in the retail coffee sector that Steven Jobs held in the technology sector. Mr. Schultz has been a longtime veteran of the coffee industry and his ability to successfully lead the company despite growing competition demonstrates he understands customers and the markets quite well. The market has taken notice and the company’s stock price had increased from the high of $33.15 during Q1 of 2011 to a high of $54.28 by Q4 of 2012 (Starbucks, November 16, 2012). The company is still primarily dependent upon Americas for the bulk of its sales revenue and may benefit from hiring executives with strong local knowledge and experience in markets that hold tremendous growth potential such as CAP. Rising sales in international markets will help Starbucks lower its reliance on Americas and achieve greater geographical diversification.
Corporate Social Responsibility (CSR)
Starbucks has fared quite well when it comes to corporate social responsibility (CSR). First of all, all the employees get full health insurance benefits and stock awards (Fortune). This increases employees’ loyalty to the company and also inspires them to go out of their way to help the company achieve its short term and long term objectives. It also helps the company keep its turnover rate and costs low. Similarly, Starbucks pay fair prices to coffee bean growers under Fair Trade agreement and also guides them to adopt sustainable business practices. This not only improves the working relationship between Starbucks and its suppliers but also provides positive goodwill to the company in local and international markets (Kaye, 2008). Customers are also willing to provide more business to Starbucks because the company’s values are in line with their own personal values.
Fortune. (n.d.). 2012: 100 Best Companies To Work For. Retrieved September 27, 2013, from http://money.cnn.com/magazines/fortune/best-companies/2012/snapshots/73.html
IBIS World. (2013, May). The Retail Market for Coffee in the US: Market Research Report. Retrieved August 27, 2013, from http://www.ibisworld.com/industry/the-retail-market-for-coffee.html
Kaye, L. (2008, May 8). Starbucks, the CSR Whipping Boy. Retrieved August 27, 2013, from http://greengopost.com/starbucks-the-csr-whipping-boy/
Kowitt, B. (2010, May 25). Can Starbucks still be Seattle’s best if it grows by hyping Seattle’s Best? Retrieved August 27, 2013, from Fortune: http://money.cnn.com/2010/05/25/news/companies/starbucks_seattles_best.fortune/index.htm
MindTools. (n.d.). Porter’s Five Forces. Retrieved August 27, 2013, from http://www.mindtools.com/pages/article/newTMC_08.htm
Miranda, K. (n.d.). How to Become a Starbucks Food Supplier. Retrieved August 27, 2013, from http://smallbusiness.chron.com/become-starbucks-food-supplier-12691.html
NPR. (2011, March 28). Starbucks CEO: Can You ‘Get Big And Stay Small’? Retrieved August 27, 2013, from http://m.npr.org/news/Books/134738487
Starbucks Corporation. (n.d.). Corporate Governance Principles and Practices for the Board of Directors. Retrieved August 27, 2013, from http://globalassets.starbucks.com/assets/82bc5ba9797e4b3e956ff53d6781ef39.pdf
Starbucks. (November 16, 2012). Form 10-K. Seattle, Washington: Starbucks Corporation.
Starbucks. (n.d.). Our Starbucks Mission Statement. Retrieved August 27, 2013, from http://www.starbucks.com/about-us/company-information/mission-statement
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