Starbucks Analysis

Starbucks Company Analysis

Executive Overview

Starbucks is an American coffeehouse chain that specializes in the sale of coffee. Starbucks and all its stores belong to Starbucks Corporation. Starbucks is the most successful and largest coffee company worldwide, with the network of more than 20 thousand stores in more than 60 countries (Reinhard 5). Starbucks sells espresso brewed from its own coffee beans and other hot and cold coffee based beverages. Its stores serve both hot and cold sandwiches, sweets, bakery, and miscellaneous items such as souvenirs with the Starbucks logo. The company’s headquarters are in Seattle, Washington. Starbucks is the example of successful development and management. The purpose of the paper is to analyze Starbucks and its history and to conduct a SWOT analysis.

Company and Industry Introduction

Company History

Starbucks was founded in 1971 by an English teacher Jerry Baldwin, a history teacher Zev Sigl, and a writer Gordon Bowker, who invested $1,350 each, collected more than $5000, and opened a shop selling coffee beans in Seattle (Schultz 15). When choosing the name for the shop, the partners agreed on the name of the hero of Herman Melville’s novel Moby Dick – the first assistant to Ahab, Starbuck (Schultz 20). In 1987, Starbucks got a new owner, Howard Schultz, who bought the chain for $4 million; he renamed his Il Giornale coffee shops to Starbucks, and he named the company Starbucks Corporation (Schultz 18). In the same year, Schultz’s coffee shops were opened in Vancouver, British Columbia, and Chicago (Schultz 25).

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Until 1994, the main goal of Starbucks had remained to be the leading company in the sale of high-quality coffee and the leading coffee brand in North America, which the company successfully achieved. Over 7 years, Howard Schultz had been focused on the company’s growth since he wanted Starbucks to be represented in every region of the USA. Despite the fact that the company’s losses had doubled ($1.2 million in fiscal year 1990), the overhead and operating expenses had increased, and the company had been losing money for three consecutive years, the expansion policy continued (Schultz 30). By the end of 1994, 425 coffee houses had been opened, which positioned Starbucks as the leader in the US market (Schultz 35). In 1994, Starbucks recognized that its coffee market leadership was at the stage of maturity, which led to a slower growth in the profitability of the company. Thus, Starbucks had no choice but to aggressively export its business globally.

In order to operate outside of North America, in 1995, Starbucks created a subsidiary, Starbucks Coffee International, with the registered capital of $1.5 million, which marked the beginning of the opening of its coffee shops in different countries (Lawler, et al. 72). Nowadays, Starbucks is present in many countries, and it employs various modern technologies in its operations. In July 2013, more than 10% of purchases in stores were made from mobile devices through the Starbucks application (Chua and Banerjee 238). Moreover, the company started to use mobile platforms when running the action “Tweet-a-Coffee” in October 2013 (Chua and Banerjee 240).

Currently, Starbucks employs 238,000 people (Starbucks 1). The sales of the company are $20.16 billion, and they are growing annually (Starbucks 1). Starbucks had 21,366 stores worldwide in 2014, and it is still expanding (Starbucks 1). Therefore, Starbucks demonstrates the significant success and growth in sales, number of workers, and number of stores.

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Discussion of Products and Services

Starbucks sells espresso, various cold and hot coffee based beverages, sandwiches, coffee beans, teas, products from flour, appetizers, and such merchandize as coffee makers, cups, and glasses.

In 2008, the company launched a line of low-calorie drinks “Skinny”. As sweeteners, Starbucks offers natural products, such as brown sugar, agave syrup, and honey, and artificial products, such as Sweet’N Low brands, Splenda, Equal (Lawler, et al. 70). Since 2007, the company stopped using cow milk, which contains growth hormone. In June 2009, the company announced a major review of its menu (Lawler, et al. 72). It currently sells salads and pastries without corn syrup, which contains fructose, and artificial ingredients. By introducing such innovations, the company expected to attract customers concerned about their health and/or the price of products.

In March 2009, the company launched a new line of instant coffee bags called VIA “Ready Brew” (Lawler, et al. 75). The first line was presented in New York, followed by the testing of the product and its introduction in Seattle, Chicago, and London. The company asked customers to recognize the version of the coffee served, and most have not been able to distinguish instant coffee from the freshly brewed one.

In 2010, Starbucks started selling beer and wine in some of its stores in the United States. As of April 2010, these beverages are available in several stores, while other outlets have applied for licenses (Lawler, et al. 76). In 2011, Starbucks introduced a cup with a volume of 31 oz (Trenta). In September 2012, Starbucks announced the emergence of the consumer-grade Verismo machine for packed plastic cups with coffee and milk for latte (Reinhard 12).

In 2012, Starbucks introduced a line of ice-freshener drinks Starbucks Refresher, which contain an extract of green Arabica coffee beans. Drinks containing caffeine and fruit flavors became known for the strong taste without any flavor of coffee. In 2014, Starbucks began manufacturing its own line of carbonated beverage “hand-made” called “Fizzio” (Reinhard 14). Besides, Starbucks entered the tea business in 1999 by purchasing US brand Tazo for over 8.1 million dollars (Reinhard 15). In late 2012, Starbucks bought a tea company Teavana for $620 million (Reinhard 15).

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Industry, Competitive Advantage, and International Activities

Currently, Starbucks is the worldwide leader of the coffee industry. The import of coffee in the United States at the beginning of the 20th century has tripled its consumption per capita and has increased to eleven pounds a year. At the end of the Second World War, the figure was twenty pounds. At the end of the 80s, a coffee revolution occurred in the USA due to Starbucks. In 2007, the company increased the number of outlets by 25% (Reinhard 28).  The second largest competing company is Tchibo, which was founded and developed in Germany and has a unique management model that includes a multi-channel sales system. It operates in seven European countries in various formats of coffee bars – from mini-modules and kiosks to full-scale facilities. Out of 800 establishments, 500 are located in Germany, and the company demonstrates a slight growth (Reinhard 29). Other Starbucks’s competitors are Costa Coffee, Segafredo, Caffe Nero, Caffe Ritazza, and Caffe Reviva.

In the course of its existence, Starbucks has established itself as the company that provides quality services. Moreover, the company demonstrates commitment, and it has earned the trust of its clients. The company provides high-quality products and services and effectively implements know-how. For example, Massey created an expertise entitled “Synergistic development program” for Starbucks (Reinhard 45). Of all the coffee equipment, he singled out items that can be unified without prejudice to the designer fantasies, and the company now purchases them in huge quantities. A special computer program allows to include the standard elements in any design to get the diversity and unification at the same time. As a result, the time of the development of coffee shops reduced by 25% (Reinhard 45). Other Starbucks’s competitive advantages are coffee-to-go, Internet services, sustainability, and the promotion of the healthy lifestyle.

Summary of Management Expertise Internationally

Gaining experience in the market, Starbucks optimizes profits by saving on transportation costs, increasing sales, and holding the same type of stores for all marketing activities. Due to the establishment of close and friendly relations with suppliers, distributors, agents, and consumers, Starbucks delivers the same products to all the coffee shops of its network. This policy has led to the increase of the company’s competitiveness in the international coffee market. To strengthen its own brand, in some cases, the company undertakes franchising. Therefore, all of Starbucks’s stores opened in foreign countries are either owned by Starbucks Corporation fully or opened as franchises or joint ventures. However, when customers go to any Starbucks store abroad, they can count on the same high quality.

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Starbucks SWOT Analysis for Global Expansion

Internal Analysis

Starbucks has the following strengths: it is a recognizable brand; both employees and customers are involved in public activity; it offers a wide range of products; and it has the potential for new and innovative transactions in shops. In addition, it has a strong brand image associated with the high quality of coffee and high-quality service. Moreover, Starbucks is constantly growing, and it is able to develop and strengthen the influence of the company in the market. Lastly, diversification can help to prevent the leakage of customers to competing firms.

The main weaknesses of Starbucks are the need for a large customer base and the constant rise of prices. Other weaknesses are the limitation of products in different regions, a major impact of the price of coffee beans on the company’s earnings, loss of customers, and a possible bankruptcy. Moreover, Starbucks’s competitors offer products at lower prices.

External Analysis

According to the external analysis, industry opportunities that offer international growth are the increase in the number of suppliers, the increase of the supply of goods and services, and expansion of retail operations. The co-branding with well-known brands, such as Teavana, is another opportunity. Moreover, Starbucks has an opportunity to grow in new and emerging markets.

One of the international industry threats is that the prices of coffee beans and dairy products rise. Another threat is the violation of the trademark and Starbucks license. Other threats include the inflation in global markets, the negative publicity of the brand in because of conflicts, and the failure to supply the enterprise.

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Management Commitment

Starbucks strongly adheres to its principles, goals, and mission. The mission of the company is to be the main global supplier of high-quality coffee and keeping with the growth and development of its uncompromising commitment to the principles. Its principles are to provide an excellent work environment and treat its staff with respect and dignity, to be positive about diversity, which is an integral part of the business, to adhere to the highest standards of producing goods and conducting services, to work with enthusiasm, to bringing pleasure to visitors, to provide assistance and support to local communities, to contribute to the environmental protection, and to understand that profitability is the basis for the future prosperity.

The long-term goals of the organization are to maintain the leading position in the industry worldwide, to introduce innovative equipment, to increase the number of selling points, to reduce energy consumption, to improve profitability, and to motivate employees. Taking into account the history of Starbucks, its adherence to high standards, and experience in opening stores in other countries, the company’s global expansion will be fast. The ability to take risks is evident in the company’s crisis solving skills and introduction of new technologies.

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