APA format for textbook that the case is from: Thompson, A. A., Peteraf, M. A., Strickland, A. J., & Gamble, J. E. (2012). Crafting and executing strategy: The Quest for competitive...

Starbucks Case Analysis
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Table of contents
1. Introduction
2. General environment / industry analysis
2.1 Macro environmental factors influencing competitiveness of Starbucks: Pestel analysis
2.2 Competitive analysis of Starbucks: Porter five forces model
2.3 Industry analysis
3. Company analysis
3.1 Background
3.2 Vision, missions, goals and objectives of Starbucks
3.3 Oganisational analysis
3.3.1 Leadership
3.3.2 Organizational Culture
3.3.3 Organisation structure
3.3.4 Strategy
3.4 Marketing strategy
3.5 Segmentation of the market
3.6 Analysis of Firm Resources
3.7 Core competencies of Starbucks
3.8 Financial analysis
4 Problem analysis
5 Recommendation and implementation
5.1 Recommendation
5.2. Recommendation
5.3 Recommended objectives and goals
5.4 Recommendations for improving competitive position of Starbucks
5.5 Recommended Marketing Strategies and Program
6 Conclusion
1. Introduction
Starbucks is a leading company in global coffee industry. It is known for bringing in
innovative products, customer service aptitude and reaching out to customers through convenient
and easily accessible outlets. Starbucks had a humble beginning with three coffee loving friends
coming together. Since then Starbucks became popular for its high quality, premium roasted
coffee. Under the leadership of visionary Howard Schultz the company went on to grow
manifold and competes with major companies in the fast food industry. The success of Starbucks
has made it a model that the competitors can look up to. Global consumption of coffee and
favorable driving factors makes the industry attractive and Starbucks has expanded across
continents. The consumers of coffee look for product attributes like price, quality, store
ambiance and customer service along with the brand value and store loyalty.
The objective of this assignment is to have an understanding of the external environment
which Starbucks operates. It also conducts a company analysis and understanding of the
functioning and performance of the company. The assignment also conducts an industry analysis
and an analysis using Porter’s five forces model to understand the competitive environment in
the coffee industry. The assignment identifies Starbucks’s mission, vision, organization culture
and organization resources and leadership. It also reflects on the company's problems both
internal and external to the organization. In the end based on the present situation of the
company, some recommendations are made to improve its competitive position and strategic
position.
2. General environment / industry analysis
2.1 Macro environmental factors influencing competitiveness of Starbucks: Pestel analysis
The macro economic factors influencing competitiveness of Starbucks are explained by
Pestel analysis. Pestel analysis includes analysis of political, economic, legal, social,
technological and environmental factors influencing a business environment.
Political factors: The companies in coffee industry involve extensively in import of
coffee beans from different countries and each of these countries has different political scenario
and different levels of government intervention. So the company needs to have a detailed
knowledge of the political turmoil and policy changes in conducting foreign trade.
Legal factors: Laws like antitrust laws, taxation regulations, labor laws, pricing policies
protect the interest of the employees, customers and the public at large. The company needs to
get the necessary permissions and authorizations in order to conduct business. Starbucks also
needs to abide by the local and central government regulations including labor laws, food
handling regulations, and business practices restrictions.
Economic factors: The recent economic factor that affected the coffee industry the most
is the economic recession of 2008-09. Due to recession the costs of the company increased along
with decreasing profit margins. On one hand, the product prices increased while on the other
hand wages remained same and unemployment rose (Bureau of Labor Statistics, 2011). The
situation is presently improving (World Bank, 2010). The companies operating in coffee industry
deals with traditional coffee as well as coffee specialty beverages. By targeting two different
segments of market through the two options, the industry caters to a huge population. During
recession the coffee consumption of US population remained same but customers opted for
lower cost options (Moreno, 2008).
Social factors: Social factors like values, beliefs, lifestyle, culture, demographics,
education and attitudes of people. Starbucks implemented a program called C.A.F.E. to support
the coffee bean growers and ensure their sustainability as a part of their corporate social program
by setting quality standards and improving the supply chain (ICO, 2011). With growing health
consciousness among customers the companies in the industry are adapting their products in
ways to meet the customer needs. Though initially Starbucks insisted on using whole-milk in
their coffee beverage, they had to shift to 2% milk for their beverage preparations. They have
also reduced sugar levels in the beverages to meet the customer demands (Wall Street Journal,
2009).
Technological factors: Technology in coffee industry is important in the areas of
customer interaction, product innovation and customer service experience. Technology improved
communication and interaction of the company with its customers through smses, emails, and
social networking sites (Buckstein, 2010). Increasing use of internet has reduced the advertising
costs of the firm. With changing customer tastes and preferences, the company focuses on
product innovation with the help of technology through the implementation of new processes and
equipments. The companies using advanced technology equipments like bean roasters and
brewing machines has improved efficiency and competes better with its competitors. It also
influences the customer experience in the store as Starbucks provides Wi-Fi internet facility in its
stores in order to attract customers to remain in the store for longer time (Oliviera, 2011).
Environmental factors: Macro-economic environmental events affect the business. For
sustainable growth of coffee beans environmental factors play an important role.
2.2 Competitive analysis of Starbucks: Porter five forces model
Porter’s five forces model analyses the competitive position and competitive advantages
of a company based on threat of new entrant, bargaining power of buyer, bargaining power of
supplier, substitutes and competitive rivalry (Porter, ME 2008). Based on these parameters
Starbucks is assessed below.
Threat of new entrant: The threat of new entrants in coffee industry is medium. This is
because the switching cost of the customer to another brand is very low. The new companies can
also leverage in the existing supply chain in the industry. The existing firms in the industry have
high customer loyalty, high product innovation and leverage on the economies of scale which
would be difficult for new firms to achieve initially (Datamonitor, 2010).
Bargaining power of Buyers: The supermarkets account for majority of the business of
the firms. Being large chains these companies have higher bargaining power and so negotiate
with the company on prices and shelf space. But retailers also require stocking the differentiated
products based on brand image, quality, and taste even though they are costly. In case of such
products the buyer’s bargaining power is low.
Bargaining power of suppliers: The coffee industry gets its primary supply of coffee
beans from Africa, South America, and Asia. The cultivation of coffee beans requires certain
climatic conditions which are available in these parts of the world. The countries in these areas
are usually poor economies or emerging economies and their agriculture sector is unorganized
and the quality of their produce is not distinguished. This reduces the bargaining power of the
suppliers. The prices of coffee beans are determined by the demand and supply position giving
suppliers moderate bargaining power (Datamonitor, 2010).
Substitutes: Substitutes depend on the availability of similar products that serve similar
purpose as that of coffee. With increasing presence of substitutes the profit margins of the
company decreases as a cap is set on the prices. Culture and customs influence the coffee
consumptions habits of people. Though some customers would prefer soft drinks to coffee
beverages, the coffee drinking population is so huge that it does not affect the firm (Datamonitor,
2010). So the threat of substitutes is low in this industry.
Competitive rivalry: The major competitors of Starbucks are Nescafe, Dunkin’ Donuts,
Folgers and Gloria Jean’s. Product innovation and product differentiation based on the quality of
coffee, and customer service (Thompson and Shah, 2010). The competition increased further
with declining sales of high end products at high end stores (Moreno, 2008). The companies in
this industry strive hard to establish their brand to gain market share. So, competitive rivalry in
coffee industry is intense.
2.3 Industry analysis
An estimated 150 million people of the population of US drink coffee and 89 percent of
them opt for brew coffee at home (Thompson and Shah, 2010). An average coffee drinker
consumes little above 3 cups of coffee daily (Moreno, 2008). This huge volume of coffee
consumption has led to the growth of coffee sales at retail outlets and supermarkets. Both low
cost products and premium brands are brands available in this industry. Howard Schultz of
Starbucks introduced the concept of an Italian Espresso bar in the country. Ever since the
specialty coffee retailing has grown to comprise 20 percent of the total coffee industry
(Thompson and Shah, 2010).
The coffee industry is made up of three divisions- coffee roasting and manufacturing,
ground and instant coffee sold through supermarkets and coffee house espresso bars. The
economic variables that impact the dynamics of this industry are market share, market growth
rate, differentiation and product innovation, competitive rivalry and globalization. The driving
forces that shape the coffee industry and bring competitive changes in the industry are product
innovation, changing societal concerns, attitudes, and lifestyles and growing buyer preference for
differentiated products (Thompson and Shah, 2010). The companies in the industry constantly
strive for innovating new products based on customer demands in order to attract consumers and
differentiate them from the competitors. With increasing health consciousness among customers
the companies are introducing healthy alternatives. Differentiation gives companies a
competitive advantage (Thompson and Shah, 2010). Customers preferring a differentiated
product will travel to a particular store to obtain the product. To make these driving forces work
for the benefit of the company, the company needs to have large amounts of capital, expertise
and know how to innovate new products and differentiate. Globalization drives a company
explore new markets and new target customer segments and increase the market share.
Globalization provides enormous opportunities to companies for market expansion.
The key success factors that influences companies be competitive are the company
strategy, product features, capabilities etc. The identification of these success factors reduces the
risks of failure of a company (Thompson and Shah, 2010). The primary...