Starbucks is worlds number one coffee and coffeehouse company; it has outlets in more than 55 countries. Jerry Baldwin, Zev Siegl, and Gordon Bowker established the first outlet at Seattle, Washington on March 30, 1971 (Starbucks Corporate website, 2011). To maintain the leadership role, the company adopts an effective total supply network. This paper discusses the total supply network adopted by Starbucks.
Total supply network
In the hospitality industry, more specific in the coffee sector, the need to have an efficient supply of materials cannot be overemphasized.
Starbucks adopts an integrated supply chain management where an internal department that pioneers the process; in the market, there are some coffee beans collection points managed indirectly by the company. The system aims at ensuring the company gets adequate supply of coffee and other material used in production at the right time, at an appropriate cost and quality.
The company does not only fetch products in the United States where it has its head quarters, but it has diversified its team to coffee producing countries like in the East African countries where quality coffee is grown.
To maintain good relations with suppliers, the company has a favorable buying price and bases the buying on the quality and the production method as adopted by the farmer. In countries like Ethiopia and Kenya, the company has implemented farmers education programs with the aim of facilitation the production of environmentally friendly coffees.
Quality and efficiency in delivery of coffee beans and other material in the company has the main concern in the system.
The company total supply chain has the following goals:
Objectives SCM;
Quantity goals: Adequate supply of materials in a company when they are needed
Supply of quality materials for various purposes in a business at all times (quality objective)
Supply of materials at a competitive price (price objective) (Ketchen & Hult, 2006)
They should be managed effectively for a smooth running of business.
To ensure that all the goals have been taken care effectively, the company has outsourced some of the services. However, before outsourcing it ensures that the company outsourced has been vetted for integrity, transparency and reliability.
Factors that have affected the organizations decisions regarding which parts of the network to outsource or keep in-house
When outsourcing the company considers the following:
Costs
The company outsources services which if provided internally would not be economical in cost and management.
Risk
Areas that are risky when outsourced are operated internally; such areas include value determination and quality checks. The companys warehousing and quality teams undertake the task on behalf of the company.
Reliability and availability of an outsourcing company
The outsourcing business has a number of players however, the rate of their reliability, varies. The company ensures that it uses the most reliable company operation in an economy. For example, it uses DHL and UPS Logistics Company to transport some commodities from or to other countries (Simchi-Levi, Kaminsky and Simchi-levi, 2007).
How has the organization planned for the location of capacity?
Starbucks has invested heavily in building and maintaining good supplier relations; the company is engaged in farmers empowerment programs and sets its prices slightly higher to its competitors. The approach ensures that the company has quality and adequate coffee supply throughout the year.
Starbucks procurement department looks into five main areas aimed at building capacity within the system, the areas are forward logistics, reverse logistics, international logistics, inward logistics and outwards logistics (Starbucks Corporation, 2010).
References
Ketchen., G. and Hult, T.M., 2006. Bridging organization theory and supply chain management: The case of best value supply chains. Journal of Operations Management, 25(2),pp. 573-580.
Simchi-Levi, D., Kaminsky, P. and Simchi-levi, E., 2007. Designing and Managing the Supply Chain. New York: Mcgraw Hill.
Starbucks Corporation.,2010. Starbucks and Fairtrade Labelling Organizations International (FLO) Announce Next Step in Commitment to Small-Scale Farmers Web. Available from https://stories.starbucks.com/ .
Starbucks is experienced sudden decline in its sales, profitability and earnings after twenty years of phenomenal growth. At the moment the management is pondering whether the cause of the decline is caused by internal factors or external factors and what the best way to respond to these challenges is.
Analysis
Growth has been slowing as indicated by the following.
In the past profits had increased rapidly between 1996 and 2000 for instance profits had increased by between 30-50% (Herriman, Wanikawa, Ichinose, Darak and Chaivan, 2008).
In 2001 profits grew by 20%, in 2006 it grew by 11.5% and grew by 11.3% in 2007; profits for the first quarter of 2007 rose only by 2% (Herriman et al, 2008).
Total assets grew steadily as a result of physical expansion but the company faced working capital flow difficulties that led it to borrow. As a result short term credit had increased from$277m in 2006 to $700m (Herriman et al, 2008). This negatively affected the Companys share price and the companys stock decreased from $20 to $18.
The company has 15700 outlets in 37 countries and planned to have 40000 in the future. The target of stores to open in 2007 was 2400 out of which the company managed only 1342; in January 2007 it closed 100 outlets and later in July closed 600 more.
The target for new stores opened in 2008 had been reduced by 500.
The company was operating in almost all major countries in the world but it had heaviest presence in North America; overall it had 4588 outlets overseas.
There has been change of leadership where the founder and former CEO decided to come back to manage the organization and the board has been reconstituted and new managers hired which could have negatively affected the Company.
The company had recently increased the price of its coffee by $ 0.09 and a recent product survey indicated that customers felt that McDonalds, a competitor offered better coffee than Starbucks. Meanwhile, market capitalization has decreased from $25B to $13.6B (Herriman et al, 2008).
Alternatives
The following are possible actions that could be done to improve the current challenges being faced by Starback.
Refocusing on the Customer again.
Better Management of the Organization; the company needs to institute better methods of control, guidance, and operations to ensure efficient use of resources and to control costs which were rapidly increasing and thereby reducing profits despite physical growth.
Focus on new markets and products; there is need to develop new products that match the needs of these new markets as opposed to offering the standard American menu.
Recommendations
Starbuck should refocus on their customers again; It seems that the top management had focused in the expansionist strategy more than the core needs of providing quality service to their customer. This possibly led to the loss of connection with their customers resulting in reduced sales and consequently profits.
Implementation
This would be achieved through training of partners in the organization to continue upholding high quality of service as well as identifying and instituting new ways to enhance the Starbucks experience (Herriman et al, 2008).
The company needs to improve on its product quality, especially its coffee and offer more food variety to its customers. There is also need for continued innovation, design and redesigning of Starbucks shops. Finally the company needs to continue strengthening its brand image in order to maintain the sense of exclusivity associated with affluent high end of the market that will keep attracting more customers.
References
Herriman, M. Wanikawa, M. Ichinose, R. Darak, S. & Chaivan, Y. (2008). A Crack in the Mug: Can Starbucks Mend it? Richard Ivey School of Business
Starbucks was founded in 1971 by three partners in Seattle, Washington. Originally, only coffee beans and coffee making equipment were sold. The company then grew into six other branches within Seattle. Eleven years after its inception, it was joined by Howard Schulz in the docket of retail operations director. Schulzs visit to Italy made turned around his mind as far the vision for Starbuck is concerned.
Since he was unable to convince his counterparts concerning adoption of the idea he had seen, he left Starbucks for II Geornale. A few years afterwards, Schulz bought Starbuck, merged it with II Geornale and retaining Starbucks name. Two years after that, the company had not only opened more retail stores, but had also expanded its operations to Oregon. At the same time Starbucks employed professionals who would invent strategies to detect regional purchasing trends.
This move bore successful strategies that made Starbuck to give its employees health benefits as it also developed a business rapport with CARE. It is from this time onwards that the company expanded to into at least 14000 locations by 2006. However the companys decisions with respect to expansion have not balanced well with experience. Despite this challenge among others, the company still has an option of spreading its market to other developing economies.
Strengths of Starbucks
First, the company had competent staff. During his time as a retail operations manager, Howard Schulz was not only visionary, but also determined, observant and a team player. After he had toured Italy, he was observant enough to pick a business idea that could prove success to the Starbucks. Even after sharing with his colleagues who turned it down, he still went ahead to explore more strategies that eventually made him buy Starbucks.
After the merger, the rapid growth of Starbucks was triggered by the strategies that had been born by the hired experts. The highly motivated employees also played a significant role in the companys growth. Secondly, Starbucks had high investment in Research and Development. This is manifested in the companys ability to offer diverse benefits and empowerment to its employees such as stock option, leaves, tuition reimbursement and health insurance.
It also indicated in the organizations launch of its hiring strategies that entailed: store managers meeting potential employees prior to real hiring, supply of interview guidelines to hiring managers to enable them assess the suitability of employees even before hiring them, and use of software that kept the database of online applicants.
Through this, the company was able to hire competent staff in a very swift manner. After hiring the right staff, Starbucks could then take its employees through a training schedule that covered customer relations, product knowledge and interpersonal communication.
The third strength was the companys rapid growth. The potential of its business expansion began manifesting even before amalgamation when six additional locations were added. After the merging, the rate at which the company grew was rapid and extended from Seattle to other parts of the world. Fourthly, the company also emphasized on product quality.
This was indicated by employee training that covered product knowledge intensely. Also, between 2000 and 2004, the company entered into agreements with many organizations that are generally concerned with the licensing and quality of coffee to ensure that its products meet international standards. The high rate at which the company penetrated the market also shows that its product was of top quality.
Additionally, the company had a very strong capital base that enabled it to generate a bigger percentage of its revenue from its locations. It was also because of its strong capital base and colossus revenue generation that Starbucks was not only able to open numerous locations, but also invest heavily in Research and Development. Moreover, Starbucks was one of the Fortune Top 100 companies to work for in 2005.
The company is respected for its ability to empower its employees through training, objective hiring, motivation and other forms of empowerment. Besides that, the company is a profitable firm that generated not only high revenue, but also excess profits in 2004 (Danca, 1999). Its ethical values and mission statement is sound and exceptional enough citing environmental leadership.
Weaknesses
As Howard Schulz himself had put it in an email, some of the managements decisions to continue with the creation of new retail locations had been made at the expense of Starbucks experience. For example, whereas the problem of speed and efficiency of service was solved at automatic expresso machines, the visibility of the machines by customers during essential processes of drink making was not fully considered. Use of flavor locked packaging did not only lead towards the loss of product aroma, but also towards the loss of the companys heritage.
The flavor locked packaging was also costly. Another weakness is that the changed store design that was initially done for purposes of gaining efficiencies of scale has changed the general publics outlook of the companys coffee. It no longer reflects the interests that the companys partners have or feel about the product.
There is also inadequacy of equipment in some of the companys stores. For example, coffee grinders, coffee filters and French presses are not available. This may hinder the operations in such stores. The self induced challenges have further led to the emergence of rivals such as other coffee firms, first food operators and even individuals.
The company also lost colossus sales as a result of its inefficient automatic expresso machines. Additionally, the companys food choices menu did not match the public demand. Lastly, the organization has more than 75% of its locations in the United States of America. As such, the company has not spread its risk because there are other foreign economies as well.
Opportunities
The company has a strong ability of maximizing available opportunities. For instance, some years ago, in its Santa Monica location, the company helped its clients to create their own music CD. Secondly, the company has new products and services that can be sold in their retail stores such as fair trade products.
Thirdly, the company has the chance to penetrate its market especially in developing countries such as China, India, and Russia among others. Additionally, co-branding with other business dealers in food and drink and franchising to other producers have the potential in Starbucks.
Threats
Whether coffee will continue being in the market or will be replaced by another beverage is uncertain. Secondly, rises in dairy products and coffee products may pose a challenge of market retainability. Since Starbucks establishment, there has been a rise in competitors within the same line of business that may pose a threat to its operations.
Conclusion
Starbucks is a well-established coffee company that has grown rapidly since its inception. The company has not only competent staff, good capital base, strong Research and Development and high product quality.
However, the latest hurdles that Starbucks is experiencing such as competition, home market concentration, and inefficient machines require that company to chat a way forward. Among other strategies, the company should consider spreading its markets to developing countries such as China, Russia, India, just to mention but a few.
Started as a single retail store in coffee business at Seattle, Washington in 1971, Starbucks Corporation now (as of July 1, 2012) has 17,615 coffee chain retail stores spread across 60 countries with a loyal customer base of several millions. The Companys mission is inspiring and nurturing of humanity through serving coffee.
At the beginning, the non-descript store roasted and retailed in whole coffee bean and ground coffee along with tea and spices. Now the companys retail outlets have become gathering places for families and friends for consuming the coffee beverage. In its objective of serving the best available coffee, the company sources its coffee purchases of the best quality from around the world in Latin America, Africa and Asia.
The company serves to its customers at the retail stores, coffee of consistent quality by direct sourcing from the coffee growers in the above said world coffee markets. Apart from serving its own beverage, Starbucks sells a wide range of consumer products in coffee, coffee and tea brewing equipment along with other eatables.
Its brand portfolio consists of Starbucks Coffee, Seattles Best Coffee, Tazo Tea, Evolution Fresh, La Boulange and Torrefazione Italia Coffee . The company was incorporated in November 1985 and was listed on NASDAQ on June 26, 1992 at @ $ 17 per share which closed at $ 22.50 per share on the first day.
As a socially responsible company, Starbucks adopts ethical sourcing of high quality coffee direct from the farmers offering them support loans and forest conservation programs that have ensured long-term supply of coffee beans of consistent quality during the last 40 years of its existence. The companys policy of making its cups 100 % reusable or recyclable by 2015 reflects its environmental commitments.
Starbucks also has community involvement in the neighborhoods of the coffee growers it is sourcing coffee from and it has planned to devote one million volunteer hours every year from 2015 onwards as part of being a responsible neighbor .
The company has promoted its brand so well that the name Starbucks ranks next to the topmost ranking Coca Cola on the Facebook . Recently Starbucks announced launching of its retail chain in Sweden and Norway by 2013 through joint venture with the Norway based restaurant chain Umoe Restaurant Group.
Starbucks results for the quarter ended July 1, 2012 showed net revenues of $ 3,303.6 million and operating income of $ 331.3 million, Total Assets at $ 8,308.9 million and liabilities at $ 2,290.9 million .
Companys sales mix, product wise, at the company owned stores for the fiscal years 2009, 2010 and 2011 is as follows.
Fiscal Year ended
October 2, 2011
October 2,2010
October 2, 2009
Beverages
75 %
75 %
76 %
Food
19%
19%
18%
Whole bean and soluble coffee
4%
4%
3%
Coffee making equipment and other merchandise
2%
2%
3%
Total
100%
100%
100%
Financial Trends for the past five years
2007
2008
2009
2010
2011
Sales (net revenues) in $ billion
9.4
10.4
9.8
10.7
11.7
Operating Income in Millions $
1,054
843
894
1,419
1,728
Operating Margin
11.2 %
8.1 %
9.2 %
13.5 %
14.8%
Earnings per Diluted Share
$ 0.87
$ 0.71
$ 0.80
$ 1.24
$ 1.62
Operating cash flow from operations in millions $
1,331
1,259
1,389
1,705
1,612
Capital Expenditure in $ millions
1,080
985
446
441
532
Year 2011 has recorded the highest annual sales turnover of $ 11.7 billion representing an increase of 11% from last year. The operating income of $ 1.7 billion represents an increase of 22 % from last year. Earnings Per Share of $ 1.62 has increased by 31 % from last year. During the year 2011, company introduced a new brand Starbucks Blonde Roast .
The company has served more than 156,000 hours of community service touching about 60,000 people in about 1,400 community service projects. There was an acquisition of super premium Evolution Fresh in juice segment. During the year, the company returned approximately $ 945million through share buy-back which was more than double that of previous year. Starbucks share price increased by 43 % from last year.
The Company claims that results achieved in the 40th anniversary year have improved its operational foundation and increased customer satisfaction which is a pointer to the development of a robust organization in the future.
Competition
Quick service restaurants and specialty coffee shops are the main competitors. Customers choose their product based on quality, service, convenience and price in which the company is continuing to face competition from quick-service restaurant sector and ready-to-drink coffee beverage market. Business is subject to seasonal fluctuations and hence quarterly results are not comparable.
Risk factors
Most of the risk factors described below are beyond the control of the company. These factors have the potential to affect adversely on the companys financial performance.
Some relevant factors are: Lower customer traffic due to the strategies of existing competitors and the ever increasing number of competitors that affect average value per transaction impacting on store sales, net revenues, operating income, operating margins, and earnings per share. Customers switch to lower priced products both within Starbuck and outside Starbucks.
Customers do not readily accept new products or price increases to offset higher cost of inputs. Adverse economic conditions prevailing lead to reduced customer spending. There is general decline in demand for specialty coffee products. Negative publicity and health risks from consuming coffee in general cannot be ignored.
Economic conditions in the US and International markets
Retails derive support from discretionary spending by the consumers and hence companys operations are susceptible to changes in macro-economic conditions prevailing in the US and other countries.
Job losses, foreclosures, bankruptcies, higher energy costs, higher interest rates, higher taxes do impact on the income of the consumer. This directly affects consumption of coffee which is just a beverage. Due to persisting adverse economic conditions, consumers are likely to develop changes in their discretionary spending practices on a permanent basis.
When recession hit the US and global economy in 2009, Starbucks had to close 900 of its stores resulting in the elimination of 34,000 jobs in an effort to earn more revenue with reduced cost of production. It started entering into strategic partnerships in foreign countries in order to reduce upfront investment and to share the risks with the strategic partners overseas.
Future Financial Trends
In spite of recessionary trends, Starbucks has registered 11 % growth in revenues in 2011 as also operating income which increased by 22 %. The companys resilience against the setback it had during the recent recession can be attributed to the brand loyalty which the company has built over the period of four decades.
Studies indicate that a retention of 5 % in customer base leads to an increase of 25 to 75 % in profit and cost of getting a new customer is five times more than the cost of retaining a customer.
Brand image of Starbucks has been positive which aids it to not only intensify its competition but also induce customers to make repurchases. Customer satisfaction is a factor in inducing customers to make repurchases that in turn leads to future growth in revenues and profits of an organization .
Undeclared results show a Total revenue as of September 29, 2012 as $ 13.3 billion as against $ 11.7 bn in 2011. Operating income for 2012 is $ 1997.4 million as against $ 1,728.5 million in 2011. These current trends as revealed by the analysts on Yahoo Finance demonstrate the positive trends in the growth of the company.
It can be safely predicted therefore that Starbucks brand image and customer satisfaction will continue to help the company post positive results in the years to come.
The company selected for investment is in the perishable consumer products industry and notwithstanding any adverse publicity of coffees health risks, sporadic reports on its health efficacy will continue to benefit the business in coffee which is an affordable soft drink for the consumer provided the company maintains its brand image and customer satisfaction.
NehalHesham. (2012). My Starbuks Idea [Case Study]. Web.
Tu, Y.-T., Wang, C.-M., & Chang, H.-C. (2012). Corporate Brand Image and Customer Satisfaction on Loyalty: An Empirical Study of Starbucks Coffee in Taiwan. Journal of Social and Development Sciences , 3 (1), 24-32.
Starbucks Coffee Company has been in operations since the year 1971. The company has shown deep commitment towards ethical business by sourcing the best Arabica coffee for its extensive customer base. The Starbucks Company has existed in China for more than one decade and has more than 600 outlets across the big cities of China.
Due to positive culture, the Starbucks Company has achieved rapid expansion and relatively stable profits despite competition from other brands. This analytical treatise reviews the effects of the external culture on the Starbucks Companys organizational culture and performance in the Chinese market.
Effects of external culture
The Starbucks Company has demonstrated that there exists a complex network behind its formal organizational chart. The teamwork based organization structure actually identifies the hierarchy of the organization structure in order to understand the complex network. In addition, it provides myriad illustrations of persuasive importance of problem definition within communication contemporary context. Also, the strategies of investigation, ramification, and elements of the problem definition are addressed in its chain of command.
The external culture of the Starbucks Company may be categorized as brand culture, corporation culture, and coffee culture. The companys corporation culture has been proactive in promoting transformational leadership and constant staff motivation. The companys organization structure is characterized by servant leadership.
Reflectively, servant leadership is characterized by the ability to demonstrate authenticity, value people, develop people, build community, provide leadership, and share leadership with a team or a unit in an organization. For instance, the branches in China have sales team managers who are servant leaders since their role within the sales teams are to proactively provide direction while participating alongside the team in making critical decisions. As a result, the company has experienced rapid expansion.
The physical structures of the Starbucks organization culture promotes positive relationship between favorable and effective job performance and work environment as attributes of motivation and congenial conditions. The structure encourages security, comfort and safety, and prevailing physical convenience among the staff members.
Measuring factors such as interpersonal relations, working conditions, support and trust, welfare provisions, and work environment has greatly contributed to the organizational effectiveness as well as employees behaviors at the Starbucks. As a result, the company has been in a position to expand its market operations due to efficiency of the staff members.
The Starbucks Company has identified that the key driver of productivity is employees morale. It is revealed that engaged and productive workers are more likely to be creative and interested in their work commitments. Satisfied workers are more eager to create positive results in their work. This element has been embedded in the company unity of purpose symbol designed to create the culture of efficiency and support among the employees. The employees are very proactive and approachable.
With the need to establish a proactive organization culture, the Starbucks Company has developed a discursive approach in explaining and exploring shared and coordinated actions on roles and channels through which organizational framework functions in the exchange of information formally.
This is of great essence towards understanding its organizational communication. Employees are also allowed to contribute their viewpoints regarding the daily management and operation of the organization. In order for the productivity quotient to become an effective tool, it is appropriate to ensure that workers and the management team both understand the collective perspective of the institution.
The company has three building blocks of learning such as a supportive learning environment, concrete learning processes, and practices leadership that reinforce innovation. The managers play a significant role in setting up the learning environment for their employees. This culture has created an ideal climate for innovation and communication among the employees. This culture is meant to create an ideal climate for innovation and communication among the employees.
The companys team work culture spells the rules of engagement, expected behavior, and repercussions for misconduct. These rules appreciate diversity and uphold integrity in judgment as enshrined in the companys vision and mission statement. In the process, cases of prejudice are minimized as diversity develops into a positive aspect of the organization.
There is more to ethical leadership than the method of leading. Ethical leadership also involves the process of decision making which is dependent on heuristic since it provides assumptions, integration of options, and ethical control. Decision environment often experience dynamics and swings which create short and long term effect on chances of survival for two alternatives to solve a problem.
When faced with a decision dilemma that requires critical assessments, the management of the Starbucks Company resorts to analytical tools that ensure competitive positioning advantage. There is a very fine line between the rationally correct, economically viable, and ethically correct decision. Decisions made by the management team of this company are based on addressing all three aspects and not only one of them.
Specifically, a business cannot survive without the customer who must be made to feel part of the business endeavors to win the aspects of brand loyalty, acceptability and support. An ethical decision made by an ethical leader can be defined as a decision with moral and legal appeal to the wider community. For instance, ethical leadership practiced by the company considers the needs of customers when making decision on the coffee brands and prices within the Chinese market.
Knowing how to improve quality is crucial in growth of business enterprise. The improved quality has greatly rewarded the Starbucks Companys operations in China. Since the production team is permanently employed in the company, they are engaged in the production process to ensure that the company optimizes labor as a factor of production towards efficiency.
This was achieved through quality planning of the use of labor hours of these employees in departments that are related to their specialization. This has improved on the quality of coffee served to customers.
Besides, the marketing team is constantly trained on the latest marketing models to ensure that they give their best in online and offline marketing of the companys products. The HRM team has specialized training on efficient performance among the employees to minimize redundancy.
Quality planning of work specialization is an important policy at the Starbucks Company, which aims to promote long term success in business objectives since it is focused to enhance effective exploitation of human resources. As a result, the company has been able to penetrate the traditional Chinese market without much resistance due to existence of a functional and proactive team.
Conclusion
In summary, the Starbucks Companys organization culture is very friendly, dynamic and proactive. The employees are absorbed and made to feel part of this structure. As a result, they always strive to give their best towards the organization and uphold the existing coffee culture with minimal struggle.
Mergers and acquisitions are the ways for a company to expand. It may presuppose acquiring companies on the national or international levels. This method was particularly popular in the 90s and it is still often used to achieve rapid growth, even though the past years experience had shown that the results of the expansion may not live up to expectations (Papadakis, 2007).
Apart from that, growth may be achieved without mergers and through the creation of new stores in the national market or by entering the international market. It should be pointed out, however, that expansion does not necessarily equal success, mostly due to the numerous issues that arise in the process.
Obviously, a bigger company is harder to control, but this is not the only problem a growing business has to cope with (Schermerhorn, 2010). In case of international expansion cultural challenges arise: for example, the product needs to be adapted to the local market, and this task is not always carried out successfully (Drahokoupil, 2014). In case of mergers, the difficulty of forging relationships between the constituent companies or the problem of corporate cultures clashes may appear (Papadakis, 2007).
In order to predict, avoid or cope with these issues, sound strategies must be created and implemented (Papadakis, 2007). In this paper, both corporate-level and business-level strategies are going to be considered. The former strategy will be described as that devoted to the long-term direction of the business in general, the second being primarily concerned with the way the business is going to make its product competitive in the selected market (Schermerhorn, 2010).
The companies that were chosen for this paper are the Starbucks Corporation and the Sonic Corporation. Both are publicly-owned corporations that operate in the industry of fast-food restaurants and have a prominent position in the market along with several decades of experience. Still, their expansion strategies differ significantly.
Starbucks: a History of Acquisitions and International Marketing
General Information
The first US Starbucks store was opened in 1971 in Seattle. In 1996, the company entered the international market by creating its first store in Japan. At the time, it possessed over 1000 stores (Starbucks Coffee Company, 2014).
Nowadays Starbucks is a tremendously large industry owning over 20,500 stores in North and South America, Asia, Europe, Middle East, and Africa, where beverages (including trademark ones) are offered along with pastry, salads, and other foods (Starbucks Coffee Company, 2014). Apart from that, the company offers tea and coffee blends along with coffee equipment, mugs, books, and accessories for sale.
It would not be an over-estimation to say that Starbucks is flourishing nowadays. During 2014, Starbucks increased its revenues by 11 %, created 1,599 new stores, and although this growth is unprecedented for the company, it cannot be denied that it still has room for expansion (Schultz, 2014).
Corporate-level Strategy
Expanding is the word that could be used to describe Starbucks overall strategy. What is more important, there exist opportunities for future expansion. For instance, according to Schultz (2014), China is the fastest-growing market for the company. At the same time, according to Loeb (2013), a Forbes contributor, Starbucks does not blindly expand, but occasionally slows down to focus on the productivity or suggest new products (mostly coffee or tea brands) in order to make sure that the companys name is accepted by the new market.
Apart from that, in his letter to the stakeholders, Schultz (2014) points out a number of other important Starbucks strategy components, including the respect towards companys partners and the intent of maintaining good the relationships with them along with the dedication to innovation (note, for example, mobile commerce that was so readily embraced). All these guidelines help the company in maintaining the high quality of its products which results in the increasing reputation and, eventually, in the physical growth.
Throughout its history, Starbucks developed both naturally and with the help of acquisitions. The companies Starbucks has acquired include Tazo Tea, Hear Music (a music company), La Boulange (a bakery brand), and Coffee Equipment Company (Starbucks Coffee Company, 2014).
Seattle Coffee Company Acquisition
In 2003, when Starbucks owned about 7,000 stores worldwide, it acquired Seattle Coffee Company and received 150 cafes along with two brands: Seattles Best Coffee and Torrefazione Italia Coffee (Robinson-Jacobs, 2003). The Seattle Company business was at least twice as small as that of Starbucks at the time; yet, it was a well-recognised and popular, promising brand that was an alleged rival of Starbucks (Frey, 2003). Therefore, the elimination (or the absorption) of the rival was profitable both in the short run and in the long-term perspective.
Business-level Strategy
Starbucks is a highly competitive brand. It ensures customers satisfaction first of all through the quality of its products which depends on the corporate-level strategy components. Apart from that, the incentives like the free Internet in the stores or the loyalty programs attract the customers attention: for example, My Starbucks Rewards now has more than eight million users (Schultz, 2014). Finally, the company maintains the uniqueness of its brand.
For example, Starbucks started as a coffee store, and, according to Schultz (2014), it has the intention of staying true to our coffee core (p. 3). This does not presuppose giving up the future growth possibilities, of course, but it does indicate a kind of stability and reliability, loyalty, and respect for the brand maintained by the company itself which may provoke similar customer reaction.
Sonic: a Dedicated American Company Developing without Mergers
General Information
Sonic, founded in 1953, is the largest US drive-in restaurants chain: it possesses more than 3,500 stores in 44 US states (as of 2014). It offers the usual menu of a fast-food restaurant: burgers, hot dogs, sandwiches, ice cream; its trademark is the staff of roller skating carhops (Sonic Drive-In, 2015).
The company has shied away from expanding through mergers and avoids attempting to enter the international market. Its slogan, Americas Drive-In technically does not presuppose marketing outside the US. It appears that the company board prefers the steady, controlled but slow expansion that Sonic exhibits.
For example, during the year 2014 the companys sales increased by 3,5%, and 40 new stores were opened. At the same time, according to the data presented by entrepreneur.com, the overall number of the companys units appears to be decreasing (Entrepreneur, 2015). This may be the result of temporary difficulties that are going to be resolved in future. Alternatively, this may be a worrisome tendency that demands changes.
Business-level Strategy
The fact that the growth of Sonic appears to be slowing down may be a signal of it becoming less competitive. Apart from that, the competitive advantages that Sonic possesses in the US, including its reputation, may be not sufficiently appreciated in case the company does choose to enter the international market.
Upon becoming multinational, the company will need to secure its reputation while preserving its brand and specific features (the carhops, the trademark drinks) along with its philanthropy gestures, all of which is going to require vigorous advertising.
While the title of Americas biggest chain of drive-ins is an honorable one, it is obvious that the position needs to be secured. It is especially important in the light of modern tendencies which involve creating international behemoth companies that would not hesitate to acquire a smaller rival.
Corporate-level Strategy
The reluctance of the company to enter the international market could be explained by its desire to stay the Americas number one; at the same time it could be pointed out that the USA is not the only country situated on the continents that bear the name.
The challenge of expanding to these markets can be accepted without any kind of damage to the countrys brand or reputation. At the same time, while the slow and steady expanding, which the company seems to favor, has advantages, it appears, that in the modern market it would be more profitable to attempt for a faster growth.
Possible Acquisition
It has been pointed out by the company holders that Sonic still needs to expand to the Northeastern part of the US as it appears to be underrepresented in the region in comparison to other states. The merger candidate that could be suggested is, for example, the Roy Rogers company, a business possessing about 50 stores that are largely situated in the Northeast of the US (Roy Rogers Restaurants, 2015).
Its menu is similar to that of Sonic, including hamburgers, salads, fast food items. Due to its previous owners mismanagement the once successful chain that owned about 600 stores in the 90s came to possess only 55 shops in 2005 (Koch, 2005). Nowadays, it holds only 50 stores (Roy Rogers Restaurants, 2015).
It appears, therefore, that the company is in need of proper management and, possibly, support which a giant like Sonic can easily provide. At the same time, the number of stores is not particularly impressive which may mean that this acquisition could become a sort of pilot activity for Sonic. It could test this strategy and find out if this kind of expansion is actually an option for the company. Therefore, this merger could be a rational choice for both companies.
Conclusion
While expansion may not necessarily mean success, Starbucks is an example of a company that has managed to grow significantly with and without the help of mergers. At the same time, Sonic appears to have reached some kind of a ceiling as the one-nation market it has chosen becomes insufficient for its future expansion. It is obvious that the international market holds many opportunities. Still, to become successful in this field, it is necessary to develop and implement consistent international strategies and secure the newly created markets.
References
Drahokoupil, J. (2014). Decision-making in multinational corporations: key issues in international business strategy. Transfer: European Review Of Labour And Research, 20(2), 199-215. doi:10.1177/1024258914525563
Papadakis, V. (2007). Growth through mergers and acquisitions: how it wont be a losers game. Business Strategy Series, 8(1), 43-50. doi:10.1108/17515630710686879
Three main advantages factors helped Starbucks to achieve success. First, the global coffee selling industry was large, and the product was freely available in every part of the world; with the low cost of production, the commodity was also affordable, which made using it as the primary product an important cost-saving factor. Moreover, the coffee consumer market has always been characterized by its width and stability, as many people around the world love coffee.
Lastly, some of the countries were famous for having their own coffee-drinking culture, which gave Starbucks a possibility to expand all over the globe, using joint venture schemes and licensing to move into new markets. Nevertheless, most of the time, Starbucks failed to outrun the local market leader. With the only exception of Thailand, where Starbucks had achieved full control of the market and soon bought out the main competitor, expansion to foreign markets made the company face challenges it could not quite overcome, constricting it to stay one step behind the local market leader every time.
Market Analysis
For instance, in Asia-Pacific countries, including China and Japan, Starbucks believed it would be unable to achieve the success it had hoped for due to the countries cultural factors. Both China and Japan, as well as some other Asian Countries had well-established tea cultures, and people did not drink coffee nearly as much as they drank tea. Moreover, the companys market research showed that the smoking ban in Japan would affect the sales of coffee. However, both concerns turned out to be misleading. The smoking ban turned out to be advantageous for Starbucks, and in both countries, there were promising outlooks for future development.
Conclusion
Another challenge for Starbucks occurred when it had entered the European market. In Europe, the coffee marked had already been well-established, with certain market leaders, many of which were Italian coffee companies. Entering the European coffee market as a new challenger proved to be difficult; however, the company took a risk and became relatively well-established in some of the European countries.
Entering the Latin American coffee market was nonetheless difficult, particularly because the country has always been among the leading growers of coffee, and thus there were a lot of established local competitors. Despite being unable to achieve stable competitive positions in both regions, the companys persistence and effective marketing could help to win over the customers and make a larger market share over time (Moffett and Kannan 3).
References
Moffett, M. H., & Kannan R. (2003). Planet Starbucks:(B). Thunderbird, The American Graduate School of International Management.
Starbucks values its internal resources, especially its employees, and works to empower individual people while enabling teamwork. Communication is also a major factor that is promoted by the company, as well as innovative thinking. Furthermore, the organizational culture is well-developed and focuses on quality, customers, and some other key aspects of Starbucks philosophy (Qian and Xing 30). It would be recommended for Starbucks to preserve its human resource management approach to engage employees and ensure effective and efficient teamwork that would produce the best results possible.
Communication
There is not much negative information about the brand. The main drawback that was found during the analysis is that Starbucks does not seem to use the mass media extensively. However, the media are a major opportunity for communication (Strausbaugh 252-253). Starbucks has a good marketing strategy, and its target audience is already well-defined. Also, Starbucks effectively customizes its services and products (Qian and Xing 31), which implies that it can do the same with messages. The company should use these assets and enhance its current communication strategy by engaging a variety of media channels for improved management of its public image, as well as any conflicts or negative information.
Solution
Currently, Starbucks has multiple opportunities for expansion, including the African market, but this option may have its problems. The right place is extremely important for marketing (Strausbaugh 9). Therefore, Starbucks should be careful with its next steps and test the African markets ability to be profitable. In particular, Starbucks should check the opportunities in specific countries and regions and open a small number of stores or cafes in the most suitable ones. If they are successful and the demand for the product grows, expansion is possible. From the perspective of politics, the solution requires additional attention to the governmental activities in the region, which can foster or hinder the companys expansion. Starbucks has some experience with managing governmental claims and restrictions, so it is prepared for the task.
Political Influence
Starbucks can be a major political player due to its size and revenues, which affect the welfare of the regions where the company opens its shops and cafes. As a result, Starbucks can have some political leverage, which it has demonstrated, for instance, by expressing its support of refugees in response to President Trumps suspension of refugee admission (Boak par. 1). However, the same example also shows that such actions can result in the company being boycotted by some of its supporters and partners if they have different perspectives.
Starbucks needs to manage its external resources carefully and avoid antagonizing important partners, but it should uphold its brand and reputation as a socially responsible organization. Therefore, the company should proceed to employ its power to advocate for and promote agendas that are in line with its values. The advocacy needs to be strategically aligned: it should be designed to strengthen the brand and attract loyal customers with similar values (Tingchi et al. 187-189). The engagement of additional stakeholders and external resources will help the company to support its agendas. The problems that can arise should be managed in accordance with the above-discussed communication strategies.
Conclusion
Based on the prior analysis, the following recommendations can be offered to Starbucks. As a largely successful company, it needs to preserve many of its methods, including its attitude to organizational culture, human resource management, most of the elements of its marketing strategy, and its approach to advocacy. However, it can also benefit from engaging more mass media channels. Regarding the current situation, the companys expansion into the African market needs to be executed with caution and attention to the political implications.
Qian, Yang, and Tu Xing. Starbucks VS Chinese TeaStarbucks Brand Management Strategy Analysis in China. International Business and Management, vol. 12, no. 1, 2016, pp. 29-32.
Tingchi, Matthew, et al. The Impact of Corporate Social Responsibility (CSR) Performance and Perceived Brand Quality on Customer-Based Brand Preference . Journal of Services Marketing, vol. 28, no. 3, 2014, pp. 181-194.
Starbucks new apple crisp macchiato joins pumpkin spice latte on the fall menu
examines;
introduces;
The American coffee company Starbucks and A new product;
Apple crisp macchiato.
The article Starbucks new apple crisp macchiato joins pumpkin spice latte on the fall menu examines the American coffee company Starbucks and introduces a new product into the market. The autumn menu offers apple crisp macchiato; the decision to add a new flavor is based on fruity flavors such as apple, which go well with both cold and hot drinks.
The companys concept
Constantly updated menu.
The need to release an autumn menu every year requires constant updating; this concept is beneficial to the company.
The Difference
The article
Specific information.
Does not represent the entire cycle.
The acquainting purpose.
Neutral-formal style; expert opinions.
The chapter
Summarizes all the processes described.
Provides complete information on the topic.
The informative purpose.
Scientific.
Comparing the article and the chapter, the following differences can be noted. The article provides specific information; the chapter summarizes all the processes associated with the development and implementation of the product. Speaking about the product life cycle, the article does not represent the entire cycle due to the format of the information presented. The chapter, because of the function it performs, provides complete information on the topic. The purposes of the information provided in the article and the chapter differ; it is possible to determine the informative purpose of the chapter and the acquainting purpose of the article. Narrative styles also differ: the article has a neutral-formal style, expert opinions are also presented, and the style of the chapter materials is scientific.
The coffee chains perspective
The time limit of the seasonal line.
The ability to order the drink both hot and with ice.
Managing risk through diversity.
The coffee chains perspective is to manage risk through diversity; as the company is constantly expanding its product portfolio, its goal is to diversify risks and add value to the firm. The uniqueness of the version prepared with the taste of apple and brown sugar is the time limit of the seasonal line and the ability to order the drink both hot and with ice.
Market Saturation
The longer a product has been on the market.
The more likely it is to become saturated.
The ability:
To attract customers.
To increase the companys value by introducing new products.
The longer a product has been on the market, the more likely it is to become saturated. With a limited supply, a well-known coffee chain can attract customers and increase the companys value by introducing new products.
The target audience
People aged 25-40:
urban dwellers with relatively high incomes;
professional careers;
focus on social welfare.
The R&D team was inspired to explore autumn flavors beyond pumpkin for a new drink, focusing on the spicy baked apple as one of Americas favorite fruits, according to research firm Datassential (Lucas par. 7). Consumer analysis of the product reveals that the primary target audience for Starbucks is in the 25-40 age group, presumably urban dwellers with relatively high incomes, professional careers, and a focus on social welfare. The company is reaching out to this age segment by supporting the brand of its products, one of which will soon be the new apple crisp macchiato.
Work cited
Lucas, Amelia. Starbucks new apple crisp macchiato joins pumpkin spice latte on the fall menu. CNBK, Web.
Starbucks has extremely positive financials through 2020. The companys revenue grew annually until 2020, while the gross margin also increased while the cost of goods sold remained at the same level (Starbucks Corporation, 2021). This fact signals that the company is very competent in dealing with production resources, constantly finding an opportunity to save money without harming its quality and revenue growth. Nevertheless, the companys operating expenses are growing in proportion to its revenue, which can be said about operating income and net income. The companys operating cash flow dropped significantly by the pandemic but returned to 2019 in 2021 (Starbucks Corporation, 2021). Profits from the direct activities of the company were naturally suspended due to the restrictions imposed around the world, many coffee shops had to be closed, and the company did not develop the home delivery system to the required extent.
The cash flow from financial activity in 2019 was shallow, going strongly into negative values. Since 2019, judging by the significantly increased indicator of total liabilities, the company received a large loan, increasing its debt (Starbucks Corporation, 2021). The indicators showed big jumps just against the backdrop of financial injections and the crisis in a pandemic. Starbucks buys long-term assets in roughly equal amounts every year based on negative investment cash flow. Compared to its competitors Dunkin Donuts and McDonalds, Starbucks has better investment cash flow indicators, which speaks to the effectiveness of their long-term strategy. Nevertheless, Dunkin Donuts reacted better to the pandemic, maintaining the growth rate of cash flow from operating activities, and McDonalds in this indicator has exceptionally high values that have not fallen for many years (JM Smucker Cash Flow Statement 2005-2021 | SJM, 2021, McDonalds Cash Flow Statement 2005-2021 | MCD, 2021). Free cash flow reflects both the short-term and long-term capabilities of the company, increasing the need for increased working capital. The calculations are presented in Table 1.
