Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 1To: Howard Schultz, chairman, president and executive officerFrom:Subject: Executive Summary: Starbucks Competitive Position AnalysisIntroductionStarbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees,along with handcrafted coffee and tea beverages and various fresh food items, through itscompany-operated retail stores.The company has three segments: United States (US), International, and Global ConsumerProducts Group (CPG). The United States and International segments both include company-operated retail stores and certain components of specialty operations. The CPG segmentincludes packaged coffee and tea, Starbucks VIA Ready Brew, and other branded products soldworldwide through channels, such as grocery stores, warehouse clubs, convenience stores, andUS foodservice accounts. CPG operates a portion of its business through licensingarrangements and a joint venture with a consumer products business partner.Starbucks is standing as one of the most recognized and respected brands in the world. Toachieve this goal, they are continuing the disciplined expansion of their global store base. Inaddition, by leveraging the experience gained through their traditional store model, they continueto offer consumers new coffee products in a variety of forms, across new categories, andthrough diverse channels. Starbucks Global Responsibility strategy and commitments related tocoffee and the communities they do business in, as well as their focus on being an employer ofchoice, are also key complements to their business strategies.Competitors AnalysisDue to its vertical integration, diversification and success, Starbucks now has manycompetitors.Direct Competition:Starbucks has had to face many competitors in the image of Seattles Best Coffee or Pasqua,but many other brands appeared in the meantime. However, his biggest competitor is Peets,introduced himself on the stock exchange in 2001 and now distributed in supermarkets.United States: Starbucks must deal with regional chains like Peets or The Coffee Bean &Tea Leaf.In Canada: Tim Hortons and Second Cup.
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 2In France, the only direct competitor is Starbucks Coffee Colombus. Created in 1994, the firstFrench channel "espresso bars" which has thirty stores in France and very little abroadNon-direct competition:First, the regional chains like Dunkin Donuts, and most recently, Burger King andMcDonalds, the latter wishing to engage in different types mocha coffee, cappuccino, latte, andcold drinks, fruit juices, smoothies, all these products offered at lower prices. These stores wererepositioned by providing specialty coffee and espresso-based drinks at competitive prices,often playing on an image more accessible and down-to-earth than that of Starbucks."Within an industry, strategic groups togetherorganizations with similar strategic characteristics,following similar strategies or rely on the samecompetitive factors."There are 2 different strategic groups: internationally and regionally:
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 3SWOT AnalysisPESTLE (Environment) Analysis:The PESTLE analysis will be used to identify and understand the important factors Starbucksmust consider in all areas of the business.
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 4
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 5Michael Porter’s five forcesCompetition• Tully’s Coffee, Gloria Jean’s, Caribou Coffee etc.
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 6• Competition nowhere in terms of volume of operations• Competitors selling similar products, incl. specialty coffees & high quality foodThreat of new entrants• Controlled access of distribution channels• Innovation & product differentiationBargaining power of buyers• More options due to no. of competitors• Large variety of productsBargaining power of suppliers• Over crowding of market• Rise in prices of coffee beans• Choose suppliers based on quality, social, environmental & economic issuesThreat from substitutes• Tea• Soft drinks• JuicesStarbucks’ Corporate CapabilitiesStarbucks has numerous capabilities but the ones that allow them to stand apart from theother specialty coffee companies are their market leadership, superior real estate locations, andtheir supply chain operations.Their superior retail locations give them powerful capabilities over their competitors. Theyhave stores that are exposed to areas with much higher foot traffic and better local demographiccompositions. However, Starbucks’ strongest capabilities are in their supply chain operations.
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 7These operations are superior to competitors in the specialty coffee industry for a few primaryreasons:• Starbucks transportation rates are the best in the industry;• Both their bakery distribution model, coupled with their sophisticated forecasting process,enable them to accurately identify where coffee is needed and when. This allows them tomake appropriate and on-time deliveries;• Their complex manufacturing and distribution process allows them to maintain stronginventory turns as compared to competitors in the specialty coffee industry;• Their ability to protect the integrity of their coffee beans from the detrimental effects ofoxygen and time through a closed loop system of packaging.Key CompetencesThe global strategy of Starbucks is to provide costumers with more than a cup of coffee:Core competences help to provide firms with a ‘competitive advantage. They are used toachieve a strategic advantage through activities, skills or know-how, and basically a generalexpertise in the development of the product. This advantage will provide value to customers.For Starbucks, these competences include the knowledge of where the finest coffeebeans are grown, the knowledge of how best to prepare them in order to make the best
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 8cup of coffee and also the knowledge of how best to approach a foreign market as, of alltheir industry competitors, they are the most successfully globalised.Next, Starbucks’ steadfast support to its employees is another one of their corecompetencies. They were the first company to offer stock otions to part-time employees. Inaddition to this, they have outstanding customer service which is the result of educating itsworkforce by providing at least 24 hours of training for each new employee. The trainingincludes teaching them about the history of coffee, customer service, retail skills and “brewingthe perfect cup”. It is very evident that they care for their employees. Because of this, Starbuckshas one of the lowest employee turnover rates in the industry. Lastly, it’s drive to beeverywhere is definitely of one their core competencies. This has worked very well forStarbucks and has penetrated a wide variety of market and locations.Competitive Life CycleStrategic RecommendationsIncrease International ExpansionThe first and most pressing action which Starbucks should take is to reduce their USexpansion efforts. In the US, the specialty coffee industry has entered the mature stage. One ofthe qualities inherent to the mature stage of the industry lifecycle is overcapacity. Any significant
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 9expansion efforts in an environment where overcapacity is present will be met with failure. Byreducing their expansion efforts in the US, Starbucks can redirect the capital saved into theirinternational expansion efforts. For example, Starbucks currently operates roughly 16,000 storeswith 10,000 in the US and 6000 internationally.Rewards ProgramHoward Shultz has referred to a strategy he calls “segmentation,” as being one of theinitiatives he will use to reach new consumer segments. However, if Starbucks pursues their“segmentation” strategy they risk degrading the most significant competitive advantage theypossess: their brand image. By selling a discounted specialty coffee at Starbucks’ locations, theoverall brands image could be degraded and an un-winnable price war with McDonalds andDunkin Donuts becomes more likely. Starbucks should concentrate on creating more elaboratediscounting techniques to employ with their most frequent customers. This both eliminates thepotential degradation of the Starbucks’ brand and increases the bond customers will experiencewith Starbucks. Additionally, a rewards program will encourage customers to visit Starbucksmore often and will dissuade them from visiting competitor stores, such as McDonalds andDunkin Donuts, which seem unlikely to offer reward programs.Rent Out Meeting Space and Install Free Wireless InternetNext, Starbucks should create a more business and technology friendly atmosphere in itsstores. With the advent of the Internet and the ever increasing array of electronic productscapable of accessing it, there has been an increasing shift in consumers work locations fromoffice buildings to home offices. These meeting spaces should be accompanied with the additionof free wireless Internet access throughout every Starbucks store and printers accessible to thecustomers, which are color capable and reasonably priced. The meeting space should beoffered at a per hour rate while the printers should charge per copy.CD BurningIn addition to free wireless Internet access, Starbucks could equip stores with a CD burningdevice to allow customers to burn copies of the online albums they purchase within Starbucks ata small fee.Increase Connection with CustomerOne way in which Starbucks has always differentiated itself from its competition has beenthrough the emotional connection formed with its customers. Starbucks could implement digitalpicture frames in all store locations and upload local customer photos and perhaps evencustomer supplied family photos, which are appropriate in nature, upon request. Currently, themajority of Starbucks stores have latte machines that are positioned in such a way as to block
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 10the baristas from viewing the customers and vice versa when the barista is in the act of makingthe latte. These latte machines should be lowered so as to give the baristas a demonstrationkitchen of sorts.Continually Improve the CoffeeGiven the specialty coffee market’s transition into the mature stage of the industry lifecycle, itis important to maintain a reputation for the highest quality coffee in the industry. To ensure thequality of their coffee, Starbucks should continually analyze their brewing systems and practicesand consider renovations.Becoming More Environmentally FriendlyAlthough many efforts are being made at Starbucks to enhance their image as beingenvironmentally friendly, as is true for all modern corporations, they still have much room toimprove, thus, further differentiating themselves.
Foundations of Business StrategyDarden School of Business – University of VirginiaIrene Cláudia Mendes Martins 11BIBLIOGRAPHYwww.starbucks.comhttp://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannualhttp://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_strategic_analysis_tools_nov07.pdf.pdfhttp://www.slideshare.net/ezendu/strategic-analysis-6365371http://www.slideshare.net/avinav2712/starbucks-1085483http://www.academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag-catching-the-starbucks-fever.html