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STARBUCKS HISTORY
Starbucks started in 1971 as a single store in Seattles historic Pike Place Market. From a small storefront, Starbucks offered some of the worlds finest fresh-roasted whole bean coffees. In 1980, Starbucks was well-known as the largest coffee roaster in Washington, with six retail outlets. In 1981, Howard Schultz (Starbucks chairman, president and ceo) who was then a sales representative for one of Starbucks suppliers became fascinated with the coffee roasting company. In 1982 he was hired as head of management. A year later, in 1983, Howard traveled to Italy and discovered the passionate coffee culture and was captivated with the romance of Italian coffee experience. He reveled at how customers would drink coffee for hours, socialize, study or read, and enjoy the trendy coffee house surroundings. He had a vision to bring the Italian coffeehouse tradition back to the United States. He wanted to offer a place for conversation and a sense of community, a third place between work and home. This idea was not supported by original partners at that time. Howard left Starbucks for a short period of time to start his own Il Giornale coffeehouses and returned in August 1987 to purchase Starbucks with the help of local investors. He merged it with Il Giornale to produce the Starbucks Corporation. In 1992, Starbucks became a publicly traded company, with 165 outlets. In 1996, it opened its first store in Tokyo. Today Starbucks Corporation, international coffeehouse chain, is the largest coffeehouse company in the world, with 11,000 stores In the United States and 16,120 stores in 49 countries around the world. Starbucks sells hot and cold coffee drinks, teas, other cold beverages, pastry, snacks, coffee beans and items such as mugs and water bottles. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books and music. Many of the company's products are seasonal or specific to the location of stores. Starbucks is one of the greatest marketing and retailing success stories; in 2003 it made the fortune 500.
VISION, MISSION AND OBJECTIVES Starbucks is a company with a strong purpose; its vision and mission are parts of the companys appeal and success and are represented in their marketing strategy and approach to business. Starbucks vision is to establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employee could be proud of. The companys mission is to inspire and nurture the human spirit one person, one cup and one neighborhood at a time. These are the principles of how Starbucks lives that every day, in the companys words: Our Coffee. It has always been, and will always be, about quality. Were passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done. Our Partners. Were called partners, because its not just a job, its our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard. Our Customers. When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. Its really about human connection. Our Stores. When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. Its about enjoyment at the speed of life sometimes slow and savored, sometimes faster. Always full of humanity. Our Neighborhood. Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive
action bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility and our potential for good is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead. Our Shareholders. We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks and everyone it touches can endure and thrive. This leads to the companys objectives outlines by Howard Shultz during 2011 earnings call: We will leverage the power of the Starbucks brand to broaden the number of channels we serve, expand and deepen the number of products and product categories and increase the number of countries around the world in which our products are sold. We will elevate and expand the Starbucks experience across each of our channels and categories. We will continue to strive to provide our customers and consumers with the Starbucks coffee products they want, whenever and wherever they are and in whatever form they wish. And we will continue to invest and transform what had been a small indirect CPG business into a powerful, fast-growing, best-in-class Global CPG organization (Starbucks Earnings Call Transcript). In addition to that, Starbucks strive to nurture its employee; its objective is to grow by making employees feel valued. One of the companys believes is to share the companys success with the people who make it happen every day by their hard work and loyalty.
Starbucks culture is aligned with the companys mission. From early on its management instilled some key values and guiding principles into the Starbucks culture. The key value in the effort to build a company with soul was that the company never stops pursuing the perfect cup of coffee. Schultz opposes to franchising, so that the company could control the quality of its products and build a culture common to all stores. He was also against selling artificially flavored coffee beans, not to pollute them with chemicals. Furthermore, Schultz didnt want sell their beans in supermarkets because pouring Starbucks beans into clear plastic bins, where they could get old, would compromise the companys distinctive product: fresh, dark-roasted, full- flavored coffee.
Another aspect of the company culture is the recognized importance of pleasing customers. Employees are trained to go out of their way to make sure customers are fully satisfied. Employees are also encouraged to speak their minds to upper management, be vocal about good and bad practices. Management wants employees to contribute to the process of making Starbucks a better company. Overall, Starbucks highly values its employees. Shultz believed that good benefits attract good people and keep them longer and that if you treat your employees well, they will treat your customers well.
Starbucks also gives good attention to its suppliers by helping them technically and financially. It is represented in their fare trade policy and is part of their corporate social responsibility.
Starbuck has no official organization chart and does not work with hierarchy structure. It consists of two main departments: functional department that consists of marketing, supply chain, operations, finance and human resources and cross functional teams that consist of local store marketing and marketing campaigns. The decision making process is bottom up process, where the employees are empowered to take decisions without asking the management.
SUCCESS FACTORS Starbucks success can be credited to the following key factors. Great idea, good business concept. Starbucks capitalized on a great concept that hadnt existed before the third place, a coffeehouse as a gathering place. Starbucks created a unique offering that was relevant and differentiated. It turned coffee, an ordinary product into an extraordinary experience. First-mover advantage. Starbucks was the pioneer of the new concept. They were there first seizing the market with the aggressive growth strategy. High-quality employees. Another key factor in Starbucks success is their ability to attract the highest-quality employees by offering a superior healthcare plan and giving equity ownership to all employees. Employee satisfaction is one of the key factors in this success story. Smart partnership initiatives. Starbucks has a history of partnerships (Barnes and Nobles, Pepsi Cola, Dreyers Grand Ice Cream etc.) that allowed it to grow and enter new markets. One of the most important partnerships is with Conservation International that allowed them to create a sustainable supply chain of high quality coffee.
EXTERNAL FACTORS
Despite the success due to its internal factors and qualities, Starbucks like any other company is highly dependent on the external factors of the economic, social, technological and global nature. Starbucks must face such challenges as intense competition, introduction of new products and services by its competitors that would require Starbucks to keep up. Operating costs, raw products, transportation and energy costs that increased drastically during the last years influence the companys profits. Bad economy and market stagnation forced Starbucks to close some of its stores. Changing values and lifestyle of the customers and changes in demographics also have a great influence on the
companys strategic marketing. Starbucks pays great attention to faire trade, environmental issues, and community support and employee satisfaction. Technological changes can effect a companys environment greatly. Starbucks had to keep up with the developing industry by introducing free Wi-fi and various mobile applications.
SWOT ANALYSIS
Strengths Industry market leader Strong financial foundation - Starbucks is Fortune 500 company and shows increasing profits High quality coffee Highest standards in customer service Established logo, developed brand, strong brand equity Valued and motivated employees, good work environment - Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. Social Issues - Starbucks supports many social issues such as fair trade, literacy, clean water and health issues. Globalized. Huge market expansion to China, Brazil, India and Russia Good relationships with suppliers Strong ethical values
Weaknesses Too many products - Starbucks is venturing out of the coffee industry into music, books, entertainment. Too much of brand extension may become harmful to the company.
Highly dependent on the retail of coffee High product pricing, coffee is more expensive then competitors Ever increasing number of competitors Cross functional management, lack of structural hierarchy Poor marketing strategy on advertising
Opportunities Threats Competition (restaurants, street carts, supermarkets, other coffee shops, other caffeine based products) Development of substitute products US market saturation Consumers moving away from coffee toward healthier products Political instabilities in other countries Economic downturn Bad corporate image Overseas expansion Healthy organic products New distribution channels, delivery Services for corporations, big companies New products and services in stores New partnerships
As listed above, Starbucks has a list of threats of economic and social nature. Major strategic uncertainties of Starbucks lay in the same areas. The company will have to prepare itself as much as possible strategically to be able to face the following questions. What will be the future demand for coffee? Will there be any substitute products? Will peoples attitude towards coffee change? How will the global economic and political situation change and how will it influence international market? Will environmental issues influence coffee beans quality and growth? Will technology be replaced?
MARKET TRENDS Coffee market is a hot industry and it continues to grow. People have developed a more sophisticated taste for coffee and the gourmet coffee market has developed. People became extremely brand conscious and have strong preferences for their coffee drinks. The variety of coffee flavors and the way coffee is brewed has increased as well. You can find coffee for any taste. The array of coffee products, hot and cold was never wider. Coffeehouses started to expand their food and snacks menus and offer more organic and healthy choices. Organic trend is one of the strongest trends in food industry including coffee. Customers request organic coffees, which provokes more emphasis by retailers on the beans growing environment. There is also a trend towards healthier alternatives with less whole milk that is being replaced by skim milk, soy milk, or just shortened to a light latte or espresso. The same refers to raw sugar being replaced with artificial sweetener and natural syrups such as Agave syrup. Since most specialty retailers sell whole beans, many stores have added home espresso machines, coffee grinders, and other brewing supplies.
Coffee retailing becomes more fun and creative. There is an increase of loyalty programs in the coffee retailing as well as in relationship marketing. SEGMENTATION AND CUSTOMER NEEDS Starbucks target segment is higher-income urban crowd or college-educated and young, those ready to pay extra for higher quality products and experiences. Studies show that educated people consume more coffee and are mostly concentrated in urban areas. Starbucks carries products that meet the needs of its target market. Starbucks is very successful in catering to the needs of urban dwellers. Starbucks target group has a fast-pasted lifestyle, young professionals and students on the go need fast and excellent customer service. Since most of the coffee is consumer during morning hours, Starbucks offers breakfast menu for its customers. Again, offered with fast service and in take-out form bagels, baked goods, oatmeal satisfy professionals and student. Teen coffee drinkers are also important to Starbucks - many believe that this segment will be the main driver of domestic specialty coffee consumption in the next few years. As discussed in market trends section, consumers want to be able to taste many types of coffee variations. In addition to that it is important that coffee beans are of high quality and desirably organic. Many people move away from coffee towards healthier choices such as tea. It is important that Starbucks keep those customers by offering various tea drinks. The acquirement of the Tazo Tea Company Starbuck was able to expand its product offerings. Tazo Tea provides a number of premium teas. This allowed Starbucks to better meet the requirements of even more consumers.
COMPETITION AND COMPETITIVE ADVANTAGE Starbucks faces an intense competition from big established companies. All of these specialty coffee chains are differentiated from Starbucks in one way or another. Caribou Coffee is a Minneapolis-based specialty coffee chain. They are similar to Starbucks in their attempt to create a third-place but unlike Starbucks they implement a more American feel to their coffee houses. They do this by modeling their coffee houses after rustic Alaskan lodges. Peets Coffee and Tea Company poses a serious competitive threat. In 2007, the three Peet's locations in the Seattle metropolitan area outperformed all Starbucks stores in the nearby vicinity in same-store sales and store revenue. Peet's strategy is to differentiate themselves from Starbucks by creating a super-premium brand by offering the freshest coffee in the market. In addition to that Starbucks must compete with the two largest fast-food chain companies who have recently entered the specialty coffee market. The first is Dunkin Donuts, who claims to be the world's largest coffee and baked goods chain. Dunking Donuts has put enormous emphasis on their coffee beverages. They serve coffee beverages in an assortment of types and styles including espresso, cappuccino and latte. When Starbucks recently temporarily shut down 7,100 of their stores, Dunkin Donuts responded by extending their hours of operation and offering small lattes, cappuccinos and espresso drinks for $.99. The strongest competitor facing Starbucks is the McDonald's. McDonalds sells coffee with different flavors as well as other drinks under the name McCafe. Both Dunking Donuts and McDonalds offer high quality coffee for a cheaper price. Starbucks coffee is much more expensive than its competitors offers, indeed. However, price is not something Starbucks competes on. Starbucks sustain competitive advantage by providing
customers with unique experience, atmosphere and a third place where people convene to study, work, meet and socialize. Starbucks has built an emotional connection with its customers. As Shults said, our people have done a wonderful job of knowing your drink, your name, your kids' names and what you do for a living. Starbucks competitive advantage also lays in its well-recognized brand name and convenient store locations. Starbucks was the first major coffee chain to go nationwide in the U.S.; most coffee shops are still one-off locations or small regional chains. As a result, Starbucks benefits from extremely strong consumer recognition across the country. Furthermore, Starbucks has been very innovative and adaptive to shifting consumer tastes. Starbucks strength is incorporating differentiated features such as their different flavored coffees that no other company offers. Customer can make their own variation of coffee; it incorporates an element of fun. Starbucks coffee shops are also very fun and unique in design and theme. They study every citys personality and how their products can best fit into the community. Starbucks offers more than a product and service, but the whole experience, lifestyle and connection and that is a strong advantage.
References: Starbucks Corporation. About Us. www.starbucks.com http://www.voteforus.com/starbucksmarketingstrategy.html http://www.mhhe.com/business/management/thompson/11e/case/starbucks-1.html http://academicmind.com/unpublishedpapers/business/marketing/2002-04-000aag-catching-thestarbucks-fever.html http://seekingalpha.com/article/266065-starbucks-ceo-discusses-q2-2011-results-earnings-calltranscript