Introduction
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 Starbuck’s 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 company’s 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 company’s 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: Seattle’s 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 customer’s 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, “America’s 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 company’s 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 company’s 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 America’s 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 America’s 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 country’s 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 owner’s 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
Entrepreneur. (2015). Sonic Drive-In Restaurants Franchise Information.
Frey, C. (2003). A grande deal for Starbucks. Seattle Post-Intelligencer.
Koch, D. (2005). Roy’s Franchisee Triggers Rebirth. National Real Estate Investor.
Loeb, W. (2013). Starbucks: Global Coffee Giant Has New Growth Plans. Forbes.
Papadakis, V. (2007). Growth through mergers and acquisitions: how it won’t be a loser’s game. Business Strategy Series, 8(1), 43-50. doi:10.1108/17515630710686879
Robinson-Jacobs, K. (2003). Starbucks to Buy Rival Seattle Coffee Brands for $72 Million. Los Angeles Times.
Roy Rogers Restaurants. (2015). Company Information.
Schermerhorn, J. (2010). Management. Hoboken, N.J.: John Wiley & Sons.
Schultz, H. (2014). Annual Letter to Shareholders from Howards Schultz.
Sonic Drive-In. (2014). Corporate Profile.
Starbucks Coffee Company. (2014). Company Information.