Starbucks Corporation can be considered as the largest multinational chain of coffeehouses. The company first opened in 1971 in Settle, Washington, by three students Gordon Bowker, Zev Siegl, and Jerry Baldwin (“Company information,” 2021). In 1981, Howard Schultz, Starbucks CEO, was inspired by the idea of transmitting the Italian coffeehouse culture throughout the globe by expanding the overall reach and scope of the business, which is why he joined the chain.
Industry Type
It is important to note that the company operates in the industry of snack stores and retail coffee. The industry is highly close to the food and grocery retail field, which are targeted as sales of consumables for the customers. It is a competitive area of business due to a relatively low barrier for entry and a limited range for significant differentiation in regards to the product itself.
Position Within Industry
In the case of Starbucks Corporation’s position within the industry it operates, both evidence and common knowledge support the fact that it is a top leader in coffee retail and snack store. It is stated that “Starbucks has about 182,000 employees across 19,767 company operated & licensed stores in 62 countries” (Geereddy, n.d., p. 2). In other words, no other competitor has the similar reach and scope as Starbucks Corporation does in the given industry.
Evolution of Growth
Starbucks started in 1971 with a single store opened by three students and did not plan to expand to becomes a multination corporation until the arrival of Howard Schultz in 1982. The growth of the company was initiated in 1987, where it implemented the coffeehouse concept for the first time (Starbucks Corporation, 2020). Throughout the 90s, Starbucks expanded from 55 stores to 3501, where some of its branches were opening in other countries, and currently, it has 32660 units (Starbucks Corporation, 2020).
Legal Structure
One should be aware that for the majority of its existence, Starbucks was and still is a corporation, which makes it a separate legal entity with its own property and operations. It also has a so-called matrix organization structure, where it mixes a wide range of different, simple, and basic organizational elements to work in conjunction with the main headquarters (Meyer, 2019). It is due to the prevalence of thousands of coffeehouse units.
Organizational Structure
It is important to point out that Starbucks also utilizes a matrix organizational structure across its entire business due to numerous stores throughout the globe. Since each unit operates in a culturally and geographically different environment, the company faces major challenges in regards to the standardization of its operations. Therefore, combining all business structure elements into a matrix ensures that efficiency and effectiveness are put in place.
Organizational Culture
One should note that organizational culture plays a central role in the company’s management. It is stated, “Starbucks Coffee’s organizational culture is a culture of belonging, inclusion and diversity” (Ferguson, 2019, para. 3). In other words, the cultural features are in tune with the interests of the organization since it is itself highly diverse and spread out across the globe, which means unity can only be achieved through inclusiveness.
Management Style
In the case of the management style of Starbucks, the company puts a great deal of emphasis on its employees. It is stated that “Starbucks Corporation has a servant leadership approach, which characterizes the behavioral manifestation of the company’s organizational culture among leaders” (Ferguson, 2019, para. 5). Therefore, the company highly values its employees and aims to lead, focusing on their inherent interests and goals.
Mission
The company has a clear and decisive mission, which encompasses its core aims and objectives as well as illuminates its values. It is stated that Starbucks’ mission is “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time” (“Company information,” 2021, para. 7). Therefore, it reflects the corporation’s focus on its customers, product, and communities surrounding the company.
Vision
The company’s vision is to dominate the market through exceptional service and products and to remain financially strong. It is stated that the vision “is not only to deliver outstanding financial results by offering exceptional and unique products and services but also to create a strong connection with the communities where we operate” (“Form 10-K,” 2020, p. 12). In other words, the business values people and experience more than financials.
Core Values & Competency
The core values of Starbucks are comprised of four main elements. These include creating a culture of belonging, delivering the best service, connecting with transparency, and acting without fear (“Company information,” 2021). In other words, despite its large size and history of success, the company continues to challenge the status quo and remain innovative, which are typical competencies of startups. Competencies include top-quality product and service delivery and the creation of coffee culture.
Macro-Environment
The political factors affecting the company are not solely present in the United States but also in the countries from which the raw materials come, which means that there needs to global awareness of political instabilities. The company needs to follow fair trade policies and regulations in order to avoid scrutiny. In addition, employment laws and tax policies are also major political factors.
Economic Factors
The primary economic factors include inflation rates in the countries of interest, operational costs, labor costs, and currency exchange rates. Since Starbucks operates in several countries, the increased awareness of these economic elements is of paramount importance in order to remain and stay competitive as it is at the moment (“Form 10-K,” 2020). The economic impact of the pandemic also needs to be accounted for to ensure profitability.
Social Factors
The social factors mainly revolve around the problem of quality versus pricing because, in order to reach lower-income customers, the quality of the product needs to be compromised, which can deter the higher-income consumers. In addition, environmentally cautious and aware groups pose a challenge in terms of forcing the company to adopt green policies, such as the reduction of plastic waste-related pollution.
Technological Factors
Technological advancements define the modern century, which is why the current technological factors affecting the company are not merely limited to Wi-Fi or the internet. Agricultural developments influence raw material production, which is coffee beans, and biotechnological advancements determine the effectiveness of the company in regards to pollution and product growth efficiency. In addition, various innovative technologies can improve the overall customer experience, such as mobile app use for ordering.
Legal Factors
The key legal factors are centered around the policies and regulations related to caffeine consumption and production. Health experts and relevant authorities also have a close interest in monitoring coffee use and its impact on the public health elements (“Form 10-K,” 2020). It should also be noted that various employment and trade laws can severely alter the performance of the company since it operates in multiple countries across the planet.
Environmental Factors
Lastly, the environmental factors are mainly focused on plastic pollution due to Starbucks’s business format, which relies on the use of cups, straws, and other related items in high volumes. The company cannot underestimate its environmental impact due to its widespread presence, which is why environmental regulations can also affect its performance (“Form 10-K,” 2020). Operational costs might increase with the ban of plastic use, which can reduce profitability.
Financial Analysis
Starbucks Corporation’s revenue metrics were increasing before the COVID-19 pandemic struck the world, which is why the company experienced a sharp decline in 2020 and is still experiencing it in 2021. The revenues for 2018, 2019, and 2020 were $24.72B, $26.509B, and $23.518B, respectively (“Form 10-K,” 2020). Therefore, it is evident that there was an 11.28% decrease in revenue value from 2019 to 2020, which is due to lockdowns.
Operational Expenses
It is important to note the fact that Starbuck’s operational or operating expenses are in tune with its profitability and pandemic-related factors. The operational expenses for 2018, 2019, and 2020 were $20.836B, $22.431B, and $21.956B, respectively (“Form 10-K,” 2020). Thus, there is a 2.11% decrease in operating expenses from 2019 to 2020, which primarily due to worldwide quarantine measures in order to limit the spread of the virus.
Profit Margin
In the case of profit margins, the given metric evaluates the overall profitability of a company by dividing net income by revenue. The profit margins for 2018, 2019, and 2020 were 18.71%, 13.81%, and 2.87%, respectively (“Form 10-K,” 2020). In other words, the corporation was already becoming unprofitable before the pandemic but experienced a severe drop in margins in 2020 due to closures of stores and lockdowns.
Stock Performance
The stock performance metrics of Starbucks have been relatively stable in comparison with other financial performance indicators. Since 2018, the SBUX stock has been steadily growing in price, with stock values of $63.39, $88.13, and $106.98 for 2018, 2019, and 2020, respectively (“Form 10-K,” 2020). In other words, the lockdowns and pandemic-related disturbances did not affect the company in the long term since there is a strong trend of growth.
Latest Market Value
In the case of the company’s latest market value, it is important to understand that estimations might vary based on the approaches. However, in accordance with the current financial report data, the market value of Starbucks is $137.902B (“Form 10-K,” 2020). The given value is indicative of the fact that the corporation is a large one since it is as big as Walmart Inc. or Nike, Inc.
Debt
It should be noted that one of the fundamental financial elements is debt in both its forms because it shows how the company is managing its resources. It is stated that Starbucks has $1.69 billion in short-term debt and $14.66 billion in long-term one, which amounts to total debt of $16.35 billion (“Form 10-K,” 2020). In other words, the company has a large portion of its debt in long-term form, and cash-equivalent adjustments decrease the overall debt value.
Cash Position
The cash position of a company is important to consider as a key financial statement element. It is stated that annual cash flow from operating activities for the years of 2018, 2019, and 2020 were $11.938 billion, $5.047 billion, and $1.598 billion (“Form 10-K,” 2020). In other words, there is a sharp decline in annual cash inflow values, which started prior to the pandemic but reached its peak during the latter.
Liquidity Measurement Ratios
On the basis of the company’s latest report, the liquidity measurement ratios do not seem the most appealing, but it is capable of paying out its short-term obligations. The current ratio is 1.07, the quick ratio is 0.84, and the company has $4.004 billion cash on hand (“Form 10-K,” 2020). In other words, Starbucks is in a relatively good position when it comes to its liquidity and ability to pay its debts despite the pandemic.
Marketing
Starbucks Corporation’s product offerings and lines mainly involve coffee products in various forms and sizes. The majority of its products are offered and sold in the company’s coffeehouses, but it also sells coffee beans on its website. These include Starbucks Veranda Blend, Starbucks Espresso Roast, Starbucks Dark Roast, and Starbucks Medium Roast (“Form 10-K,” 2020). In other words, the company offers a highly specific set of products, which coffee.
Core Products
It is important to note that although Starbucks is attempting to differentiate and be less dependent on its coffeehouses, the core products still revolve around coffee drinks. The coffeehouses sell various forms and sizes of different coffee drinks, such as Americano, Latte, and Espresso. In addition, it also attempts to sell snacks alongside its main product line, but the primary source of income and revenue is coffee itself.
Distribution Method and Strategy
One should be aware that the company has long shifted from relying solely on its company-oriented coffeehouses as the main distribution method. The company is actively involved in developing a wide range of distribution channels, which include joint venture, direct-to-customer market channels, warehouse club accounts, grocery channels, licensed partners, and arrangements with food companies. Therefore, there a number of distribution pathways available to the company.
Target Audience
The company’s target market can be considered relatively young since 90% of its income comes from two distinct age groups. The largest market is comprised of adults between the ages of 25 and 44, and the second largest group includes people between the ages of 18-24 (“Form 10-K,” 2020). In other words, these metrics are indicative of the fact that the company is sustained and driven by sales made by younger adults and adults.
Main Competitors
It should be noted that the industry of coffee drinks and snacks is a highly competitive one. The main competitors of Starbucks are Dunkin Donuts, Tim Horton’s, McDonald’s, and other popular local coffeehouse chains. In the case of the latter, it can vary since, in some nations, local coffeehouses can become the primary competitor, whereas, in other ones, the larger multinational chains pose a threat.
Geographic Reach
Starbucks Corporation can be considered as a highly omnipresent company with its reach covering Africa, the Middle East, Europe, China and the Asia Pacific, and the Americas. It is important to note that Starbucks failed to succeed in Australia due to local customer specificities as being more demanding for higher coffee quality and predominance of local competitors. However, the company still has a high degree of reach on an international scale.
Advertising and Promotion Strategy
The corporation of interest primarily utilizes a multi-channel promotional strategy, where it mainly uses in-store displays, social media channels, and a core website. The company also actively uses print media, direct marketing, event marketing, sales promotions, and public relations to stay visible. In other words, the enterprise does not limit itself to a limited number of promotional channels and utilizes all effective means of marketing measures.
Pricing Method and Strategy
One of the most interesting abilities of the given can be observed in its approach towards pricing. Starbucks utilizes a value-based pricing method in order to capitalize on its brand and customer-perceived image. Value-based pricing is a challenging approach, which focuses on consumers’ willingness to pay for products rather than actual costs, but Starbucks employs precise and accurate customer analysis to achieve the desired outcome.
Positioning Strategy
The company’s positioning strategy is primarily focused on its customers and their experience. In other words, Starbucks wants to provide the best customer service on a global scale with the goal of ensuring superb customer satisfaction by combining a high-quality product with a higher quality of service. In addition, it prioritizes employee satisfaction as well in order to avoid public scrutiny, such as the case of Amazon.
Value Proposition
The core value proposition of the company is tightly tied to its positioning strategy, where the emphasis is put on customer experience by connecting with them through a wide range of methods. For example, writing down a customer’s name on a cup is among numerous examples of how Starbucks wants to achieve such a connection. It might not have the highest quality coffee, but service is the factor that defines the company.
Differentiation Strategy
The process of differentiation is a critical one for Starbucks, which especially true due to the effects of the pandemic. It ensures that the company can be sustainable, which is achieved through the prioritization of both product quality and customer service. Unlike other coffeehouses, Starbucks wants and strives to become “the third place,” where the company wants to become a go-to place after one’s work and home.
Customer Relationship Management
Customer relationship management or CRM is a set of methodological tools, which are designed to help companies to organize their relationships with their customers. Starbucks utilizes simple customer apps, 2D barcodes, gift card programs, and loyalty programs in order to ensure that customers are rewarded for continuously choosing Starbucks over other coffeehouses. In other words, the company is leading the market through the integration of innovative methods.
SWOT Analysis
The key strengths of the company are highly effective loyalty programs, brand image, international presence, quality standardizations, and employee treatment. The weaknesses are procurement practices, high imitability, and relatively high prices. The opportunities are enhancing online channels, delivery, coffee trends, and developing markets. The threats include the pandemic and related lockdowns, economic recessions, a high degree of imitability of customer service, and smaller local coffeehouses becoming more appealing.
Recommendations
The given thorough analysis allows one to conclude that Starbucks is currently in a relatively good position. The plan of action is that the company needs to survive the effects of the pandemic with minimal losses, which why closing unprofitable branches should continue, but the servant leadership needs to persist as the main catalyzer of sustainability (Ferguson, 2019). In addition, the high imitability of its service needs to be countered by high-quality product offers, which is achievable since customers are willing to pay higher prices. The company should also be more proactive online to have an even stronger internet presence.
Conclusion
In conclusion, it is evident that Starbucks’s key to success was its aggressive expansion and brand image development. Although such measures worked for almost 50 years, the major disturbances, such as the pandemic, need to be accounted for through more extensive differentiation. The company is large enough to be able to take in the losses, but more online channels need development in order to reduce high imitability and reliance on physical stores.
References
Company information. (2021). Web.
Ferguson, E. (2019). Starbucks Corporation’s organizational culture & its characteristics.Panmore Institute. Web.
Form 10-K. (2020). Web.
Geereddy, N. (n.d.). Strategic analysis of Starbucks Corporation [PDF document]. Web.
Meyer, P. (2019). Starbucks coffee’s organizational structure & its characteristics. Panmore Institute. Web.
Starbucks Corporation. (2020). Timeline [PDF document]. Web.