Business strategy is one of the most important part of every organisation in order to manage every activity involved in production and operational management. The report will cover strategy and strategic management of one of the most famous coffee shop brand Starbucks. In addition to this, the strategy will be assessed in relation to the financial performance and overall coherence of Starbucks’ strategy in terms of its fit with the company’s external and internal environments and the internal consistency of the strategy. Starbucks operation and interest with stakeholder and shareholder will be discuss in this report. The report will finally demonstrate threats does Starbucks faces and strategies to manage them.
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1. Strategy of Starbucks
It can be said that strategy and strategic management are two different things that strategic management is used sometimes as a synonym of strategy but these two are not actually the same. A business strategy is a plan which helps to achieve victory over its competition with other businesses effectively (Lee, 2017). Apart from this, strategic management is known as a process which formulate and implement the strategy made by management or business. Strategy and strategic management is required for all the businesses in order to achieve their goals and objectives that helps to increase production as well as profitability efficiently. There are many short and long term decisions are involved in this in order to accomplish objectives.
Starbucks is an American coffee firm and coffee house chain. Howard Schultz, CEO and chairman of Starbucks corporation, opened the firm annual shareholder meeting in Seattle in 2015. It can be said that the business rise from a single coffee shop store and currently with a global chain of over 22,000 shops with employing almost 2,00,000 people and generating revenues up to $18 billion in 2015. There are two initiatives comprised as strategy by Schultz. First, retrenchment which id done to cancel new store opening and revised the operational activities and other practices related to operations in order to improve cost efficiency and effectiveness. The second thing was the reaffirmation of Starbucks principles and business values including revitalising experience of Starbucks effectively. The main strategy of business is to connect experience of Starbucks to customers emotions that the social commitment played a vital and important role in rediscovery the process. As a result of reconsideration of Starbucks principles and purpose revised the stronger commitment and mission statement towards corporate social responsibility. An environment community and sustainability service program is also shared to include participation of New Orleans after Hurricane Katrina. CEO reviews the operating practices in order to determine consistency with the Starbucks experience and image resulted in decreasing automation of coffee making. In order to speed up the process of coffee making, Starbucks replaced its machineries called La Marzocco espresso which requires grinding for each coffee cup with automatic and latest technology machineries that requires pressing a button (Cammaerts, 2017).
The business also replaced these automatic machineries with the latest coffee machines that is capable of making individual servings from freshly ground beans. In order to increase revenues, Starbucks started toasted breakfast sandwiches with coffee. The extensive use of digital media helps to reconnect with customers such as use of Facebook, Twitter and other social media platform that helps towards promotional activities in order to build loyalty. In addition to this, Starbucks also started a new payment system for its customers that helps to facilitate transactions and increase customer satisfaction as well as loyalty. A store debit card from Starbucks was also launched in 2002 which was linked to a loyalty program offering rewards for customers based upon cumulative purchasing effectively. An innovative cellphone payment system also relaunched in 2011 as 'My Starbucks Rewards'. There are almost 10 million people who downloaded the Starbucks mobile application for transactions which is accounted for 14% of its total US sales. It can be said that the original vision of business reflects their initial mission statement which is to “Establish Starbucks as the premier purveyor of the best coffee in the world while maintaining the principles”.
The strategy is to create a strong brand loyalty while making sure Starbucks will be the first brand comes in a customer mind when he or she wants coffee and even if don't want coffee. Positioning strategy is also an important thing for business to make sure that they are at right place or location for the target audience. Thus, Starbucks is one of the most recognisable brand in the world and the recognition has reached epic heights with the help of marketing strength and commitment towards providing the best coffee experience to keep the brand consistent effectively (Higgins, Stubbs and Love, 2014).
2. Starbucks strategy in relation
A). Financial performance
With effective customer connection, core values and principles and operational efficiency restored, Starbucks returned to the development and growth which can be done by effective management of financial performance. The US market was the best option for Starbucks in order to exploit new revenue opportunities. There are some effective strategies used by business in order to improve and develop their financial performance such as introduction of Via which is a new type of instant coffee, launched in 2009 at a rate of $2.95 for pack of three and $9.95 for 12 individual servings. Via used a patented process which replicate the taste of Starbucks coffee and reached sales of $200 million in less than 2 years effectively. In 2012, business introduced its own pod based home espresso system and also acquired premium juice maker in order to expand retail distribution for both within own stores and to the grocery stores as well. In 2012, Starbucks also acquired San Francisco bakery to distribute pastries and baked products in 2,500 stores at the end of 2013. In addition to this, in 2014 business also introduced its Fizzio Handcrafted Sodas in three flavours made from natural ingredients. These initiatives help business towards growing sales and profitability to the grocery sector. The core strategy was based on exploiting complementarities between Starbucks grocery trade and coffee houses effectively.
Schultz finally realise that international expansion of business is also possible with emerging markets such as China which is a huge opportunity for Starbucks. A total 800 stores were established in China market with 400 in the mainland. The hard work and determination paid off and foundation to get access to real state becomes successful and well in place. India was the next business opportunity and in 2012 Starbucks announced a 50-50 joint venture with Tata global beverages to maintain 50 outlets in India especially in airports, commercial malls and complexes. In 2012 to 2014, some other emerging markets were also included such as Colombia, Morocco, Monaco, Costa Rica, Norway and Vietnam (Atkins and Maroun, 2015). The seven strategy for growth and business expansion were introduced by senior vice president of global strategy.
B). Coherence of Starbucks in terms of internal and external environment
Starbucks faced competition from the top. The Italian coffee roaster was expanding business in the US with the help of franchise arrangements. Effective strategy is required to create a better internal and external environment that helps to compete with others in the market effectively. The single serve coffee pod system was also introduced by Nestle's Nespresso subsidiary.
The performance of Starbucks in terms of its strengths and opportunities is beyond average. This signifies that the firm is showing and putting its internal resources towards optimal uses in order to gain competitive advantage. Competition is one of the biggest threat for business that other firms such as McDonalds introduces high quality coffee with low prices.
Strategy in Congruence with its Internal and external Resources:
The strategy is to focus on matching business resources with the external environment opportunities that helps to analyse performance (Saari, 2014). This will also help to determine how it aligns with internal and external factors effectively.
Porter's 5 force analysis
Threat of new entrant: The firm should make strategies in order to put entry barriers for other businesses. The competition is rising day by day and coffee business is poses a risk of potential competitors. The large scale of production is an advantage for Starbucks.
Threat of substitutes: It can be said that substitutes are available for every product in the market and coffee is one of the common product. Customers have other options like water, juice, tea and coffee from other competitors.
Bargaining power of buyers: It is analysed that the more critical a business product to the quality of buyers product, the less sensitive are buyers towards the price bring charged effectively.
Bargaining power of suppliers: Suppliers power also affect the price of products and services offered by firm in the market. By limiting quality of services they actually charge higher prices. There are not so many suppliers for the coffee machineries or for coffee beans (Pannick, Sevdalis and Athanasiou, 2015).
Rivalry among existing firms: Starbucks does not focus so much on prices instead they are focused on latest innovation, technology and other non-price dimension. The strategy of diversification enable them to add complementary products and services such as food, music, Wi-Fi to their portfolio.
3. Starbucks operate in the interests of its shareholders or its stakeholders
Starbucks operates in both interest of its shareholders and stakeholders. According to Schultz Starbucks is redefining the role of business in society. He said, I wanted to build a kind of firm where you value and respect wherever you came from and whatever your colour of skin and whatever is your education. He wanted to build a business which is linked to shareholder values towards the cultural values that we want to create with our people. The commitment is to provide exceptional shareholder values in order to maintain the brand image. These values are connected with the basis of Starbucks emotional engagement with its consumers in the market effectively. The annual shareholder meeting is organised by business in order to collect information regarding different shares owned by shareholders. This will help to manage the perceived value of shares. The founder and former CEO of Starbucks corporation Schultz is one of the single largest shareholder of its shares with holding over 37.8 million of the coffee giant's. The business stakeholder management approaches are based on various programs for CSR. Starbucks needs account for the demand or interest of stakeholders just because the firm is known for earning profitability but also as a business for society (Broadbent and Poon, 2015). The firm should contribute its best efforts towards welfare and improvement of society. There are different types of corporate social responsibility programs are managed by firm for its stakeholders. The current strong brand image and corporate social image indicates that the firm effort's are effective including stakeholder and its strategies and success.
Employees: The business prioritise employees in its corporate social responsibility and efforts. As a stakeholder, employee demand for better and effective working conditions, higher wages and job security. The business performance towards addressing employees as stakeholder is improved.
Customers: Customers are the main stakeholders for business and the interest of its stakeholder groups is to receive high quality products and services such as coffee. As a popular brand, Starbucks successfully address all the requirement of customers including taste and quality.
Suppliers: The business suppliers are composed of wholesale supply companies and coffee farmer. The core interest of this group is to grow and compensate demand of Starbucks. Farmers and other suppliers enhance their yield in order to provide material.
Environment: The business has effective CSR programs towards environmentally sound firm. There are currently 90% of supply to Starbucks comes from cafe and certified firms effectively. This figures shows that the firm is effective towards addressing CSR to this stakeholder group.
Investors: Every business must address their investors as stakeholders (Gall, 2017). It can be said that investors have interest in business financial performance which should be effective enough to attract them. The regular expansion and profitability managed by Starbucks indicates the high financial performance.
Governments: The firm should address government interest as stakeholder, considering the global presence of business effectively. All the rules and regulations formulated by the government should be followed in order to run business smoothly.
Shareholders: It can be said that shareholders are principle stakeholders for the business. As an evident example it is possible to consider the Starbucks 'Corporate Governance Principle and Practice for the Board of Director, which in turn, explains that the core basis for the business board of director responsibility implies promotions of the firm and of its shareholder best interest by watching the company activities of the business management effectively. In addition to this, local communities are also involved in this which is a great responsibility for firm in order to achieve better understanding of interests (Johansson, Miller and Hamrin, 2014).
4. Threats does Starbucks face
It can be said that Starbucks is one of the biggest coffee shop business in the world. The core strength of business is depended on its competitive advantage. Company strengths are determined in order to assess and address weaknesses, opportunities and threats. Internal and external factors will help to evaluate these factors and determine significant factors for the firm effectively. There are so many issues and factors which threaten Starbucks business even it is worldwide global and strong brand. The firm should make its approaches innovative to overcome with such threats efficiently. There are some internal strategic factors which produce threaten for the business such as higher price points. Limited products and services and generalised standard for most of the services as well as products. The higher prices of services make them less accessible for the population of middle class family (Lowry and Moody, 2015). In addition to this, products are generalised with corporate standards that will make them less aligned with different cultural demands in few markets. Competition is one of the biggest threat for business that other firms such as McDonalds introduces high quality coffee with low prices.
The focus will be on external factors which reduces the performance of overall business. There are some main threaten for firm such as competition from other industries operating in same sector such as McDonald's and Dunkin Donuts effectively. These firms are providing similar products with low cost and competing against Starbucks products and services. There is also a growing social movement which is supporting independent coffee houses and opposing towards large coffee shops and chain such as Starbucks effectively. Starbucks faced competition from the top. Competition is rising day by day and coffee business is poses a risk of potential competitors. Customers have other options like water, juice, tea and coffee from other competitors (Massa, Farneti and Scappini, 2015).The Italian coffee roaster was expanding business in the US with the help of franchise arrangements. Effective strategy is required to create a better internal and external environment that helps to compete with others in the market effectively. The business is also facing significant challenges because of the global supply chain and is subjected to disruptions in the supply chain because of the local and global conditions. The rising prices of coffee beans also affecting the supply chain of business and prices of dairy products impacting profitability and production. The firm requires emerging markets in order to expand their business and operational activities. The local markets are adopting local coffee shop products and services that the price of Starbucks is higher than the local products provided by domestic market effectively (Arzbächer, Holtgrewe and Kerst, 2017).
In addition to this, the most effective threat on the business is the external environment effect such as political, environmental, social, legal, technological and economical. It can be said that the firm has over 28,000 stores across the world. There are different rules and regulations, environmental factors and cultural differences affect business profitability and production. The firm should manage changes according to the environment of that particular country where the firm is operating its operational activities in order to manage and control business operations that helps to enhance profits and production (Sharma, Mithas and Kankanhalli, 2014). Apart from this, the cost of ingredients and raw materials used to make coffee and other dairy products are increasing day by day along with volatile exchange rates which is also a threat for business. Because of the too many outlets some point Starbucks needs to close their own shops at some locations that they were so close enough to each other and were competing themselves. There are some legal threats in the form of trademark issues and other laws which creates unnecessary costs for the firm. Thus, the firm should make effective strategies and plans in order to manage their threats that helps to increase profitability and production. Corporate social responsibility is one of the important factor which should be addressed by business in order to manage internal and external environment effectively (Collings, 2014).
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It can be concluded from the above report that business strategy is a plan which helps to achieve victory over its competition with other businesses effectively. In addition to this, there are some effective strategies used by business in order to improve and develop their financial performance such as introduction of Via. It is analysed that effective strategy is required to create a better internal and external environment that helps to compete with others in the market effectively. The annual shareholder meeting is organised by business in order to collect information regarding different shares owned by shareholders and interest managed by business. There are some internal strategic factors which produce threaten for the business such as higher price points. Thus, the firm should make effective strategies and plans in order to manage their threats that helps to increase profitability and production.
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