Starbucks is a popular coffee house chain with numerous establishments across the globe. The company is renowned for the production of excellent coffee like espresso. Starbucks’ strong brand coupled with experience in the coffee business has helped it to exploit the global market. Starbucks faces stiff competition from McDonald’s and Dunkin’ Donuts. Besides, overreliance on the American market puts the company’s business at risk.
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The company is yet to exploit the European and African markets fully. Storey and Kelly (2010) hold that Starbucks can boost its performance by investing in consumer packaged products as well as global expansion. Despite Starbucks having a good strategic growth plan, a lot needs to be done to help it exploit the world market and mitigate risks associated with competition and price volatility.
History of Starbucks
Starbucks is a famous American coffeehouse chain that was established in 1971. The first Starbucks outlet was opened in Seattle. Today, the corporation has over 23,768 stores across the globe (Bussing-Burks, 2009). Initially, Starbucks did not specialize in the sale of espresso and brewed coffee. Instead, it sold coffee beans. Peet’s Coffee motivated two teachers and a writer to establish the first Starbucks coffee shop. Nine years later, Starbucks grew into one of the major coffee roasters in Washington (Bussing-Burks, 2009). The current chief executive officer (Schultz) joined the corporation in 1982. At that time, he served as the leader of the marketing department.
Schultz was responsible for marketing the company. He helped to introduce new flavors, tastes, and campaign ideas to enhance business performance. On a journey to Italy, “Schultz sampled a delicious coffee and relished the refine café culture” (Bussing-Burks, 2009, p. 3). The experience inspired him, and he decided to diversify Starbucks products. When he went back to the United States, Schultz introduced the idea of selling espresso to Starbucks’ leadership.
However, the administration did not buy into his idea forcing Schultz to resign and open his coffee shop. The coffee business succeeded in leading to Schultz purchasing Starbucks. His primary objective was to expand Starbucks to reach the global market. In 1992, Starbucks went public, and within five years, it started to witness exponential growth. According to Bussing-Burks (2009), it reached a point where Starbucks could open a coffee shop each weekday. Currently, the corporation has establishments in over forty countries.
Starbucks specializes in a range of goods. In 1994, the company purchased The Coffee Connection, acquiring exclusive rights to prepare and sell “Frappuccino” drinks. According to Bussing-Burks (2009), Starbucks invested in the production and sale of a “skinny” line of beverages in 2008. The company introduced to the market low-calorie products. A year later, it introduced baked products and salads.
It also started vending instant coffee packets dubbed VIA “Ready Brew” (Harrison et al., 2016). In 2010, Starbucks introduced to wine and beer in some outlets in the United States. Harrison et al. (2016) maintain that the corporation bought Evolution Fresh (a juice company) in 2011 enabling it to venture into sales of fresh juice. Starbucks did not stop the ambition to diversify the product portfolio. Currently, the company sells coconut milk, handcrafted soda, and refresher beverages. The company also sells tea. Other products include Starbucks Verismo and the infamous espresso.
Starbucks faces stiff competition from two main competitors. They are McDonald’s and Dunkin’ Donuts. The three companies compete to dominate the coffee market. According to Harrison et al. (2016), the three companies use diverse strategies to reach target customers. Dunkin’ Donuts is renowned for using traditional forms of advertisement. The company positions itself as a brand that meets the needs of all American clients.
On the other hand, Starbucks leverages verbal communication. Previously, McDonald’s was renowned for the sale of fast foods. However, today, the company has invested in iced and flavored coffees posing significant competition on Starbucks. The company has also enhanced its marketing strategies. As the demand for coffee continues to rise, Starbucks expects to experience stiff competition not only from McDonald’s and Dunkin’ Donuts but also from other upcoming restaurants.
Current Situation of Starbucks in the Market
Starbuck’s ambition is to become the leader in the global coffee market. Lemus, Feigenblatt, Orta, and Rivero (2015) allege that all conditions in the world market appear to support the corporation. Starbucks anticipates changing people’s lives globally. Currently, a majority of Starbucks’ outlets do well in the market. It indicates that the company is in the course of realizing its dream. Starbucks’ performance in the global arena has captivated many international companies.
According to Lemus et al. (2015), many multinational corporations have expressed their desire to work in partnership with Starbucks. Therefore, Starbucks can quickly expand its market coverage by partnering with multinational corporations. Variations in coffee prices have affected Starbucks’ performance. Changes in weather conditions have affected the production of coffee in countries like Brazil. Consequently, it has been difficult for restaurants to source coffee. Despite the variations in coffee production, the future of Starbucks looks promising. The company uses an efficient pricing strategy to cushion it from the competition.
Starbucks sells numerous products to reinforce its position in the global market. The corporation is in the process of reinventing the global tea category (Lemus et al., 2015). Starbucks acquired Teavana a couple of years ago. The corporation has already embarked on an innovative program to boost the performance of Teavana. Lemus et al. (2015) allege that two of Starbuck’s Teavana stores are already doing well.
The company has also invested in technology to enable it to reach many customers. Currently, customers can order and pay for products via mobile applications. Lemus et al. (2015) posit that the corporation reports over seven million mobile transactions every week. Starbucks plans to grow its global market. This year, the firm expects to open 500 stores in China. Besides, it plans to introduce its tea brand in India. The current expansion strategy indicates that Starbucks is doing well in the global market.
Numerous forces contribute to Starbucks’ excellent performance in the world market. According to Thompson and Arsel (2004), Starbucks is renowned for its quality. The company has positioned itself as a first-class coffeehouse. Starbucks’ products are of outstanding value, steady across the globe, and uphold environmental standards. Consequently, the company sells its products at premium prices. Thompson and Arsel (2004) argue that Starbucks has a pool of loyal customers despite selling its products at high prices. The company makes a substantial profit that enables it to establish new branches and grow its market share.
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According to Thompson and Arsel (2004), Starbucks has a strong brand. It contributes to the company’s performance. The Starbucks brand is famous worldwide. Besides, the company’s logo is easy to discern and captivates new and return clients. The company locates its outlets in strategic locations, thus reaching many customers. Starbucks has been in the coffee business for an extended period. Thus, it has vast experience in the sector. Bussing-Burks (2009) claims, “the company provides customers with the “Starbucks Experience” (p. 19).
One of Starbucks’ weaknesses is an overreliance on the American market. The biggest share of its profit comes from the United States. Thus, Starbucks may experience slow growth in the case of an economic crisis in the United States. Starbucks depends on client flexible spending. Thus, adjustments in macroeconomic conditions may affect the company’s performance. Bussing-Burks (2009) claims that growth in foreign markets may not help Starbucks to counterbalance losses incurred in the American Market. Lack of established coffee culture in the Middle East, Europe, and Africa inhibit Starbucks’ growth in these regions. The company does not do well in the European market despite the availability of potential clients with a high degree of disposable income.
Notwithstanding the absence of established coffee culture in the European market, Starbucks has an opportunity to expand its business in the region. The American market is already saturated. On the other hand, there is a significant and unexploited market in Europe. The management of Starbucks should look for ways to exploit this market. As people’s income continues to rise, new markets will possibly emerge. Hence, the company should use its financial strength and long time experience to open stores in nations that do not have Starbucks. According to Bussing-Burks (2009), Starbucks has a chance to increase its profit by investing in consumer packaged goods. Besides, selling instant coffee, the company should invest in the sales of home-brewing machines and branded coffee pods.
The major threat that Starbucks faces is competition. According to Patterson, Scott, and Uncles (2010), the coffee business is extremely aggressive regarding quality, price, convenience, and services. Starbucks faces stiff competition from McDonald’s and Dunkin’ Donuts. Additionally, the company encounters competition from small coffee shops across the world. Variation in coffee prices is another threat that Starbucks faces. The company relies on Arabica beans which are quite expensive. The prices of Arabica beans are quite unpredictable. Thus, it is hard for Starbucks to anticipate its profits. A small adverse adjustment in coffee prices may have devastating impacts on Starbucks.
Three areas that are critical to Starbucks’ strategic plan are the global expansion, product diversification, and pricing strategy. The game theory offers insights into how corporations can exploit the world market. The theory assumes that competitors in the global market ensure that they make the best moves to outdo their rivals (Solomon, 1999). Thus, for an organization to exploit the world market, it has to anticipate and counter the moves that its opponents make. Starbucks has the potential to increase its profits by leveraging the global market. The American market is currently saturated. Thus, Starbucks cannot continue to rely on this market.
The company requires strategizing on how to capture the European, African, and Middle East markets. The target of the global market is essential to the company’s strategic plan as it would cushion it in the case of an economic crisis in the American market (Patterson et al., 2010). For a company to exploit the global market, it requires understanding the moves that other key players take. Game theory can help Starbucks formulate strategic behaviors that can assist it to change the rules that govern the global market. Expansion of the world market would not be helpful unless Starbucks does not play by the rules of other competitors.
One of the theories that underscore the significance of product diversification is the Ansoff matrix. The model helps organizational leaders to come up with strategic options in product diversification. Currently, numerous companies have invested in the coffee business. As a result, Starbucks cannot continue to rely on coffee alone. The company should embark on a strategic plan to diversify its products.
According to Lemus et al. (2015), product diversification helps a company to exert its power in the market. Additionally, it helps an enterprise to boost its competitive advantage. The rationale for selecting product diversification as a strategic plan is its capacity to cushion a business from potential risks. Currently, the level of coffee production has declined. Thus, Starbucks may lose a significant market share if it is unable to get a regular supply of coffee beans. It underlines the reason why the company should diversify its products.
Rossi and Allenby (1993) hold, “Price is the only element in the marketing mix that produces revenues” (p. 178). Thus, an organization must come up with a good pricing strategy. Currently, Starbucks uses a hedge as a pricing strategy to cushion itself from severe price movements. The Bayesian decision theory holds that an effective pricing strategy helps to boost the competitive advantage of an organization (Rossi & Allenby, 1993).
Starbucks sells its products at premium prices. Even though the current pricing strategy cushions the company from severe price movements, it prevents Starbucks from exploiting a big market. Thus, the company requires coming up with a pricing strategy that caters to all categories of customers. The rationale for choosing a pricing strategy is because it can enable Starbucks to exploit consumers with different levels of disposable income. Currently, the company targets high-income earners.
Measuring the Success of Strategic Plan
An organization can determine the success of a strategic plan by measuring the progress of an enterprise. Storey and Kelly (2010) hold that it is imperative to use the right metrics to determine the success of a strategic plan. In the case of Starbucks, the success of the strategic plan can be determined based on the company’s strategic objectives. One would use financial metrics to ascertain the success of the strategic plan. For instance, evaluation of the company’s cash flow, revenue, and profit for the next three years would tell if the strategic plan is a success.
Starbucks is a renowned coffeehouse brand across the globe. The company has over 23,768 stores internationally. Starbucks encounters stiff competition from companies like McDonald’s and Dunkin’ Donuts. The primary strengths of Starbucks include strong brand, experience in the coffee business, and an active reinvestment plan. The company depends heavily on the American market. Thus, it is vulnerable to slow growth in the case of an economic crisis in the United States. Starbucks can exploit the European and African markets. Besides, the company can invest in product diversification.
Despite the company having a good strategic growth plan, a lot needs to be done to cushion it from the threats associated with competition and price volatility. The company should review its strategic plan to enable it to invest in product diversification and global expansion. Moreover, Starbucks should come up with a pricing strategy that can help it to target customers with different levels of disposable income.
Bussing-Burks, M. (2009). Starbucks. Oxford: Greenwood Press.
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Lemus, E., Feigenblatt, O., Orta, M., & Rivero, O. (2015). Starbucks Corporation: Leading innovation in the 21st century. Journal of Alternative Perspectives in the Social Sciences, 7(1), 23-38.
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