It’s not just coffee, its Starbucks
Starbucks: The Complete Picture
It’s funny that we got our report on Starbucks. Just a couple of weeks ago, we were discussing the same news of Starbucks closing down a majority of their outlets because of a news article that I saw on Instagram and forwarded to our Global Marketing teacher, Mr Suman Maharjan.
Although I can safely say that even though most Nepalese people haven’t even tried Starbucks coffee, with exception of people living abroad of course, we can easily recognize the brand and their logo; amazing how much of an impact a global brand can have.
Starbucks is named after the first mate in Herman Melville’s Moby Dick. The name, evoked the romance of the high seas and the seafaring tradition of the early coffee traders.
Speaking of the logo, while the logo has changed a little bit over time since the 60’s, not much has changed of the much icon: the mermaid. The reason the Starbucks logo depicts a mermaid is that mermaids are beautiful creatures, something that everyone desires and aspires and Starbucks wants the same reason to be recognized. The logo, like the name is inspired by the sea – featuring a twin-tailed siren from Greek mythology.
The Starbucks Story
The story began in 1971. Back then they were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market.
Today, Starbucks has to privilege to be connect with millions of customers every day with exceptional products and more than 24,000 retail stores in 70 countries.
Starbucks hopes to do two things: share great coffee with friends and help make the world a little better. It was true when the first Starbucks opened in 1971, and it’s just as true today.
Back then, the company was a single store in Seattle’s historic Pike Place Market. From just a narrow storefront, Starbucks offered some of the world’s finest fresh-roasted whole bean coffees.
From the beginning, Starbucks set out to be a different kind of company. One that not only celebrated coffee and the rich tradition, but that also brought a feeling of connection.
To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.
Leap of the brand
In 1981, Howard Schultz (Starbucks chairman and chief executive officer) had first walked into a Starbucks store. From his first cup of Sumatra, Howard was drawn into Starbucks and joined a year later.
In 1983, Howard traveled to Italy and became captivated with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United States. A place for conversation and a sense of community. A third place between work and home. He 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. It was the best decision he had ever made.
The Starbucks Issue
Despite the phenomenal success, Starbucks has been facing some problems recently; the consequence of which, they are shutting down a number of their outlets. The issues here was that the purpose of Starbucks was not only to provide a great cup of coffee, but a place to relax and a service that they would appreciate. Starbucks was supposed to be more than coffee, it was supposed to be an experience. However, with time and the growing number of outlets around the world, it became difficult to live up to that purpose. They provide amazing coffee with an array of choice and customized at that, no doubt, but it wasn’t the same for customers who wanted to come in for something more than coffee. They have grown, yes; their choices have grown; yes but have they remained consistent to what they really believed in? Not really.
In February, 2007, a leaked internal memo written by founder Howard Schutlz showed that he recognized the problem that his own growth strategy had created: Stores no longer have the soul of the past and reflect a chain of store vs a warm feeling of a neighborhood store.
The Starbucks issues, as discussed in in the case can be pointed out as below:
The early adopters who valued the club-like atmosphere of relaxing over a quality cup of coffee found themselves in a minority
Starbucks introduced many new products to broaden its appeal
Opening new stores and launching a blizzard of new products create only superficial growth
Starbucks’s Solutions to the issue
To deal with this, Starbucks tried to add value by offering Wi-Fi service and creating and selling its own music. Starbucks tried to put the focus back on coffee, revitalizing the quality of standard beverages. Starbucks began to sell packaged instant coffee.
With reference to the leaked internal memo, Howard went into vacation to figure a way out of all this. This was due to the highlights of consumer reviews pointing out that McDonalds’s brew tastes better. He realized employees seemed busy and Starbucks was so popular, they were running out of stock by afternoon at most outlets. It was just not the same experience Howard initially envisioned.
Starbucks is not just a morning cup of coffee, it was the sort of place where people remember you. There was this sitcom years ago: ‘Cheers’ with a song that went “sometimes you wanna go, where everybody knows your name’. Starbucks had that vision, a place people could consider their third place after home and work, a place where people knew you, a place where you get served the best coffee with a smile, and a place where you can sip your cup of freshly made coffee in peace. They did take a step there when they put names on the coffee cups of their customers to work with customized orders but it just was not the same thing.
So Howard took a big step. There was replication. In 2008, all Starbucks outlets were closed down for 3 hours to train people, to ensure everyone that from that moment forward would have a great experience makings of coffee review, new machines that gives out more aroma, apps, and social media.
Conduct a strategy check based on the vision set by Starbucks and the strategy adopted by it during its course of action. Conduct a strategic analysis.
Strategic intent, a dynamic process is inclusive of vision, mission, goals and objectives. It is important for a company to be clear about its strategic intent because that would set it apart from other companies in the industry.
The vision of Starbucks is: “to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining uncompromising principles while we grow.”
A vision setting is important because:
A vision inspires action
A vision is a practical guide
A vision helps keep organizations and groups focused and together, especially with complex projects and in stressful times.
To keep up with its vision, Starbucks has always maintained its competitive advantage by being the leader in product innovation.
Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go.
Coffee: More than 30 blends and single-origin premium coffees.
Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages, Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, smoothies and teas.
Merchandise: Coffee- and tea-brewing equipment, Verismo® System by Starbucks, mugs and accessories, packaged goods, books and gifts.
Fresh Food: Baked pastries, sandwiches, salads, salad and grain bowls, oatmeal, yogurt parfaits and fruit cups.
Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattle’s Best Coffee brands), Starbucks VIA® Instant, Starbucks® Coffee K-Cup® pods, Starbucks® and Teavana® Verismo® pods, Tazo® tea filter bags, and Tazo ® tea latte concentrates.
Ready-to-Drink (RTD): Starbucks® bottled Frappuccino® coffee drinks, Starbucks Discoveries® chilled cup coffees, Starbucks Discoveries Iced Café Favorites®, Starbucks Iced Coffee, Starbucks Double shot® espresso drinks, Starbucks double shot® Energy Coffee drinks; Starbucks Refreshers® beverages, Evolution Fresh™ bottled juices, Tazo® bottled iced and juiced teas.
Starbucks business strategy is based on the following four pillars:
1. Offering ‘third-place’ experience: Starbucks stores are effectively positioned as a ‘third place’ away from home and work, where people can spend time in a relaxed and comfortable environment with their friends or alone. “Starbucks stores are meticulously designed to make customers stay longer, buy more, and return for another visit.”
2. Selling coffee of the highest quality: The coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality.
3. International market expansion with the focus on emerging economies: The share of company’s revenues from China/Asia Pacific (CAP) global market segment increased to 14% in 2016 from 7% in the previous year. In total, 2719 new Starbucks stores opened during the last two years.
4. Integrating technology into various business processes. “Starbucks is adamant when it says that the purpose of new technology is not just to improve its website or to process payments quicker for people who are waiting in line” The most notable examples for value creation via technological integration by Starbucks include the launch of Mobile Order ; Pay feature, which allows customers to buy without getting in line, the launch of voice ordering app and “sending text message notifications to customers in the Seattle area when their mobile orders are ready”.
I am very fortunate to have tasted Starbucks coffee and desserts myself. I must say, when it has been stated that Starbucks have a differentiation strategy with their products, they are indeed right. The cheesecake I had there, tasted like nowhere else, but the service, as depicted here was a crowded café with nothing other than waiting a considerable amount of time to get your order and no whereabouts of the said experience.
Why have the Starbucks image subdued? Who are the other competitors and why their strategy is working well than the Starbucks? Conduct a competitive analysis.
The Starbucks image has subdued due to the very fact that with its massive expansion across the world, Starbucks is just another coffee chain that people come for a go to coffee cup or Frappuccino rather than the warm neighborhood experience, there is just not that level of friendliness.
Starbucks has a ton of competitors but we will only be discussing a few here. To start with, the very issue why the Starbucks image has subdued is the very reason customers are going to other coffee places because to quote it ‘it is just not there’, if they want a go to coffee, they can just go anywhere. Their strategy, while different with respect to their mission is consistent and most competitors like McDonalds’ compete on basis of price and product variety while Starbucks does not operate on low cost leadership strategy.
Starbucks has always maintained its competitive advantage by being the leader in product innovation.
Among the various competitors of Starbucks, let us shed some light on McBrew from McDonald’s which is increasingly becoming popular. I saw an article recently where a customer genuinely put forward his opinion that McBrew is a much better deal than Starbucks coffee because it is more reasonable in price unlike the high prices at Starbucks and he get a McBrew in half of the time it takes him to get coffee at Starbucks. Not good news for Starbucks.
McDonald’s Competitive Advantage
1. Cost Leadership
– Supply chain: McDonald’s buys supplies in bulk and, to get lower prices
– Real Estate: McDonald’s leases land and property they own to franchises
– Marketing: McDonald’s is such a well-known brand name and Ronald McDonald such a well-known mascot McDonalds has to do much less advertising than many other chains to maintain awareness of their brand.
– Strategic/predatory customer selection: McDonalds purposefully aims their brands at kids who can be taught to over-eat fast food and, in addition, serves things like ultra-fatty sauces with salads and fatty foods in general with sugar baked into breads and often soda-only drink selections, all designed to make McDonalds customers unhealthily addicted to compounds in their food.
McDonald’s does not believe in opening its restaurant without any knowledge of the local culture and tastes.
The company caters to a large customers market with varying tastes and thus can’t afford to introduce products without familiarizing itself with provincial preferences in food. For this reason, McDonald’s distributes its products in foreign locations with the help of franchises who are well aware in of that works in their country. McDonald’s doesn’t change its basic product range for any country but tries to introduce certain changes in secondary products in order to make them suitable for local tastes.
SWOT Analysis of Starbucks
Strong brand recognition Products are not localized to customer taste
Clients love the Starbucks atmosphere Not easily affordable in all countries
Starbucks is present all around the world High employee turnover
Superb supply chain management Opportunities Threats
Easy access to new countries Healthier lifestyle trends
Saturation in US Market
SWOT Analysis of competitor #1 Peet’s Coffee and Tea
Able to provide gourmet products to caffeine enthusiasts Peet’s does very little advertising to promote their business.
Peet’s products are not only available at their outlets, but grocery stores as well Not easily affordable in all countries
Because they sell a product that is addicting and invigorating. The business has a chance to woo the next generation of caffeine addicts, and expand an already committed following of costumers. To customers who prefer giving their business to local coffee roasters, the likelihood of them supporting a large corporation is slim.
SWOT analysis of competitor #2 Caribou
High Quality Coffee Not expanding as fast
Great Customer Service Higher price points
Strong Branding Limited market
Amazing local + nonprofit partnerships Huge local/regional following 500+locations in more than 16 states Employee satisfaction Opportunities Threats
Word of mouth Employment rate
Expand globally Competition with other major coffee shops
New food and new drink offerings Diversification of new company by acquiring new markets SWOT analysis of competitor #3 McDonald’s Brew
Second largest restaurant chain in the world giving it strong market share Wide range of menu, including some with very high fat content
High level of standardization in products No national delivery service
World renown brand Equipment maintenance at older restaurants has slowed down service
McDonald’s can make better use of technology to improve its service delivery and connections with customers The continued concerns regarding obesity levels may lead to higher levels of taxation on fast food which would squeeze profit margins.
increase its sustainability through providing appropriate recycling facilities which may assist with its attempts to become a more responsible business Economic threats to the organization also need to consider the risk of slowing growth in the world economy which may also be seen in the fast food sector
Competitive Profile Matrix (CPM) for Starbucks
Starbucks Peet’s Coffee
And tea Caribou Coffee McDonalds’s Brew
Success Factors Weight Rating Weight
Score Rating Weight
Score Rating Weight
Score Rating Weight score
Advertising 0.05 4.00 0.20 2.00 0.10 2.00 0.10 4.00 0.20
Product quality 0.20 4.00 0.80 3.00 0.60 4.00 0.80 3.00 0.60
Variety 0.10 4.00 0.40 3.00 0.30 3.00 0.30 4.00 0.40
Competitiveness 0.20 2.00 0.40 3.00 0.60 2.00 0.40 4.00 0.80
Financial position 0.05 3.00 0.15 2.00 0.10 2.00 0.10 4.00 0.20
Customer loyalty 0.10 3.00 0.30 3.00 0.30 3.00 0.30 2.00 0.20
Global expansion 0.10 3.00 0.30 2.00 0.20 2.00 0.20 3.00 0.30
Customer service 0.20 3.00 0.60 4.00 0.80 3.00 0.60 3.00 0.60
Total 1.00 3.15 3.00 2.8 3.3
All this being said, Starbucks has also taken a step forward by introducing a sippy cud lid as a step towards environmental concern. This was done to avoid the use of plastic straws that are harmful for the environment.
While I could see from their website that Starbucks has indeed placed emphasis on things that matter like environmental concern and scholarships for their employees, it is budging from their mission that has crumbled their ground.
Where did Starbucks go wrong? Why has the chosen format of growth model gone wrong? Conduct a product life cycle analysis.
A product life cycle comprises of 4 stages of a product which are
Starbucks is at the late growth stage of its product life cycle. Competition appears with similar products in specialty coffee thus, Starbucks has to defend market share while maximizing profit. They can do this by making certain changes to their marketing mix strategy.
At this stage, price is a distinctive factor for Starbucks as many customers regard it as expensive and find other brands more reasonable. To get over this, Starbucks are providing Starbucks awards and rewards. A repeat customer is enticed by gift cards and rewards systems such as the Starbucks Gold card. Members of this elite club of coffee drinkers receive coupons on regular purchases in addition to every 12th drink free.
The Starbucks strategy went wrong in front of McBrew or McCafe, blooming drinks from McDonalds’ because Starbucks while they were focusing on product differentiation and expansion could not remain consistent with replicating their said coffee experience in the first place. As a result, people began to prefer drinks from McDonalds’ because they were more reasonable and took less time.
The fast food chains and coffee houses in the states are based on two growth models namely: the franchise model and the standard retail model. Starbucks has historically used the standard retail model. This model is also called the company owned model. Initially the purpose of using this model was the belief that if Starbucks used franchises they would not be able to deliver the true experience of Starbucks and they did not want that. To this day, the majority of its net revenue is generated by the retail locations the company owns. However, with time, Starbucks has been loosening its grip with its licensing and using parts of its franchise model to expand itself.
The chosen growth model has not been working for Starbucks in a way because, while their competitors have reached in the global market wider, Starbucks is in a 50: 50 state which means that while 50% of the outlets are company owned, 50% of the outlets are franchises.
Starbucks has not been able to enter many developing countries like Nepal, because of its high prices as aforementioned. Starbucks are available in five sizes: short, tall, grande, venti, trenta. The least expensive coffee in the states is $2.Given that they enter developing countries, like Nepal, in the near future imagine how expensive drinks could get and an average Nepali would not like to pay more than NRS 500 for a single cup of coffee.
Keeping in mind the current scenario and their business model, with respective to their stage in the Product life cycle, it would be best if Starbucks implement the competitive strategy. They need to cut down their prices a little bit, spread to market they have yet to conquer and they cannot do this with their ridiculously high prices. They need to replicate their coffee experience. Hence, the main reason of so many Starbucks outlets being shut down so that they can focus on the delivery of the initial experience.