Starbucks Turns to Instant Coffee in Troubled Times!

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Table of Contents

Executive Summary
Introduction
Conclusion
Reference List

Executive Summary

The Starbucks Company was established in 1971 and since then the company has been committed at providing high quality Arabica coffee. The company has been experiencing slump growth due to managerial and technological advances rivals have been making and this forced its former CEO Mr. Howard Schultz to step back and help the company back to its past glory.

To ensure the company succeeded, Mr. Howard Schultz used both the individual and random decision making models analyzing the problems the company is facing to enable it achieve its goals. The company, like any other, faces challenges and thus there is need for management to check on the challenges so that they do not derail the comeback process.

To recapture its past market share, the company has introduced a new product by the name VIA which is an instant coffee and has received appreciation from the customers and through which it hopes to attract a higher market pool. Although the introduction of VIA is promising, its main misgivings is that it may saturate the market faster than expected and thus lender the equipments used in its processing useless leading to Starbucks incurring losses.

Introduction

The Starbucks Coffee Company was established in 1971 and since then the company has been committed to providing ethically sourcing and roasting the highest Arabica quality coffee in the world. Presently, with the franchise business well spread through out the globe, the company serves as a leader in roasting and selling of specialty coffee around the world.

From the company website as on January 26 2011, the company expects the earning per share to increase up from 1.44S to 1.47$ which reflects a 15% to 20% growth. The company expects the earning per share in the first quarter of the year 2011 to up by 41% compared to the first quarter of the financial year 2010 and in return, this prompted the Board of Directors to declare a 0.13$ dividend per every share owned.

For the report released on January 2nd 2011 after the 2 year restructuring program, the total revenues for the company increased by 8% while comparable store sales increased by 7% and these were driven by a 5% increase in traffic and a 2% increase in average stock. The Christmas Blend and Starbucks Christmas VIA were well appreciated by the customers and this led to the recording of the high results. If the company continues with the present momentum, the earning per share might increase by 15 to 20% compared to last year results.

Decision Making Model

By Howard Schultz stepping down in the year 2000, he used the individual decision making model whereby on his view that the company was performing well, he stepped down and let others run the business but seven years later the Starbucks company was not that promising and thus he took it upon his responsibility to return as the CEO of the Starbucks company so that he could be able to lead it to its former glory before all was lost.

On his return, he used the rationale model due to the given facts; he generated the necessary solutions which he only was sure he could implement (Oliveira 2007). Since his return to the helm of the company, Mr. Schultz noticed that the company had adopted advanced technologies for grinding, he reintroduced the VIA previously known as Jaws which was a form of an instant coffee.

He also had to accelerate the store closure programs in the United States of America in order to correct the over expansion program which prompted his return to the helm. He also intends to introduce discounts. He has also worked on improving the smell in stores by changing the cheese which was used in making breakfast sandwiches (The Economist 2009).

Challenges

Any company no matter how successful it might seem, faces quite a number of challenges and thus Starbucks is not an exception. Among the major challenges facing the company is its competitors in the market. With there being numerous coffee shops all over the world, for example Nestle and McDonalds, it is necessary for the company to keep watch and be aware of what the rivals are doing. Another challenge was brought about by the store closures.

The reasons for closures were cited to be the weak economy in which the USA and the world as a whole were going through. This tarnished the Starbucks brand name as a company for the people as thousands of people who have been employed in these stores lost their jobs. The quality of Starbucks coffee has been another major challenge in particular the espresso coffee now made by using the automatic push button machines.

The quality decline has placed competition from McDonald and the others very stiff. Another challenge likely to face the Starbucks hotel is the increase in costs due to the increased prices of coffee world wide. The rising prices of coffee, beef and other ingredients also remain quite a challenge in increasing the costs which the company will accrue and thus looking for alternative source of raw materials will be an option (Baertlein 2011).

Porter’s Five Forces Model to Outline the Competitive Environment

The competitive environment of Starbucks Company revolves around the five porter forces as there is competitive rivalry between Starbucks and other companies, such as, McDonalds and Nestle. These firms have been a threat to Starbucks Company for quite a lengthy period. The problem about new market entrants is not that major since Starbucks is already a market leader and with it being a household name, new market entrants may offer little if any challenge.

The bargaining power of buyers which forms the other aspect of the competitive environment is not a major challenge as the company has been offering its products at discounted prices in order to secure a higher market share.

The power of suppliers is another major factor and it is quite a challenge since with the expected rise in prices, the company expects that the costs of production will increase and this may lead to the company offering the coffee at a higher price in order to meet its basic production costs. The threat of substitute goods is not that major since tea the major substitute has been in existence with coffee for quite a long time and the consumers are likely to change as long as their demand and utility are fully satisfied.

The porter’s competitive strategies that Starbucks applies are the differentiation strategy. The company offers unique product that are widely valued by customers. The speed at which the company has recovered under Mr. Schultz has been remarkable due to the changes he initiated in the world of brand marketing. The company has managed one of the world’s old products through the art of differentiation and this has led to a lasting value known brand.

Starbucks’ Entry into the Instant Coffee Market In Terms Of the Different Business Orientations

If a company turns out to be market oriented, it organizes its activities products and services to revolve around the needs of its customers. Starbucks Company uses this market orientation dimension in order to reach its always diverse market pool.

However, the entry of instant coffee market is a product orientation which means that the company is developing the instant coffee based on what is good at making or doing rather than what the customer needs. The Americans are not known instant coffee lovers and with the costs of living rising everyday, many might prefer buying coffee and going at home to make for their own rather than incurring the extra cost.

The risks associated with product orientation are that a change of taste or poor reception by the target consumers can lead to Starbucks making losses due to the limited uses, the new equipments might be rendered useless. The other problem is price sensitivity, whereby if the company offers the instant coffee at a higher price than what the consumers are willing to purchase, it might lead to the company making losses due to the fact that low sales might lead to idle resources and thus wasting of resources.

VIA Different From Similar Products Offered By Other Competitors and Its Protection

The Starbucks VIA is a 100% natural roasted coffee in an instant form that it is like a fresh- brewed cup of Starbucks. It is not your ordinary instant coffee, it is full bodied and flavourful. It is made with the highest quality Arabica seeds and it is grinded in a way that it preserves all the natural oil and flavour. To protect it, the company has become a U.S patent pending micro grind technology that preserves the coffee taste and quality (Strabucks Coffee Company 2011).

Will VIA give Starbucks a competitive advantage and help its recovery? Explain

The VIA product will offer a competitive advantage over its rivals in the short run since the customers might buy the instant coffee from the Starbucks in volumes and never walk back to Starbucks again to buy VIA.

They will only be back just to buy those products which cannot be recreated at home but the company risks wasting resources and time involving itself in unnecessary campaigns to re-brand instant coffee when it should have all hands on decks for the falling brand name. VIA will only raise the sales in the short run but the company needs to focus to inward developments for long term success.

Conclusion

By introducing the VIA product, Starbucks Company hopes to reach its already lost market share and increase its sales in order to achieve the much needed growth for the company.

Reference List

Baertlein, L. 2011. Starbucks Sees Higher 2011 Coffee Costs. Web.

Oliveira, A. 2007. Decision-Making Theories and Models: Electronic Journal of Business Ethics and Organization Studies. Web.

Starbucks Coffee Company. 2011. Starbucks VIA(R) Taste Promise Launches in the U.S. and Reinforces Taste, Quality and Customer Satisfaction. Web.

The Economist. 2009. Starbucks: Just Add Water. Web.

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