1.1. Company Introduction
Starbucks Corporation is an American coffee house chain originating in Seattle, Washington in 1971. The CEO and chairman of Starbucks is Howard Schultz (Forbes.com, 2017). Starbucks operates in 62 countries and is the premier roaster, marketer and retailer of specialty coffee in the world (Google Books, n.d.). It’s also operating 25,447 stores worldwide with 54.5% stores based in USA (Loxel.com, 2017). The first Starbucks store opened outside America was in Japan (1996) and then in the UK (1998).
1.2. Key Issues
One of the key issues that Starbucks faced is that they were accused of “extreme” cutback in labour hours at its US cafes which affected employee motivation and customer service. Howard Schultz (CEO) spoke to one of Starbucks’ baristas about this issue (Fortune.com, 2016).
Starbucks reported that transactions dropped by 2% because of problems caused by mobile ordering (Taylor, 2017).
Since Starbucks opened in the UK in 1998 they earned over £3b in coffee sales and opened 735 outlets but paid only £8.6m in income taxes (Reuters UK, 2012).
2.1. Ethics & Corporate Social Responsibility
Starbucks earned over £3b in coffee sales since opening in the UK in 1998 but only paid £8.6m of income taxes (Reuters UK, 2012). This ruined Starbucks’ reputation in the UK and caused people to boycott Starbucks. Starbucks could’ve used the Ethical Decision Model to improve on this issue with the following steps (Soe.syr.edu, n.d.):
1. Recognise the problem
2. Recognise possible issues involved
3. Analyse relevant ethical guidelines
4. Realise relevant laws and regulations
5. Acquire consultation
6. Think about potential courses of action
7. List consequences of the potential courses of action
8. Decide on what is the best course of action
A lack of ethics & CSR in Starbucks can lead to legal issues, lower employee performance, bad employee relations and bad company reputation. Having good ethics impacts on Starbucks by attracting consumers to purchase Starbucks’ products, making employees want to stay with the company, attracting more employees that want to work for Starbucks and attracting investors and keeping the company’s share price high.
2.2. Leadership
Starbucks was accused of “extreme” cutback in work hours at its U.S. cafes which affected employee morale and customer service. Howard Schultz (CEO) spoke to one of Starbucks’ baristas about this. Jaime Riley (spokeswoman) confirmed that Howard Schultz reached out to members of its 160,000 strong U.S. workforce. She said that there aren’t cutback in labour hours or jobs underway (Fortune.com, 2016).
Motivation is a vital area of Leadership as it increases employee productivity. Starbucks can use Locke and Latham’s Goal Setting theory (Mindgoals.com, n.d.) to increase motivation. There are five goal setting principles which can increase Starbucks employees’ motivation: clarity, challenge, commitment, feedback and task complexity.
Starbucks has a “servant” leadership approach (Greenleaf Center for Servant Leadership, 2015) .This relates to the ‘employee’s first’ approach. Howard Behar developed this feature because he believed that employees who are cared for are the ones who care about customers (Ferguson, 2015).
2.3. Managing Innovation & Change
In January 2017, problems were caused by Starbucks mobile ordering app which made transactions drop by 2% in the most recent quarter (Taylor, 2017). This new technology created bottlenecks because employees found it hard to fulfill orders on time. This issue lead to customers walking out of stores after seeing crowds waiting for mobile pick ups, resulting in Starbucks losing customers.
Starbucks can use 4 P’s of Innovation to contribute to the successful management of the company. They can use Product Innovation by expanding their food range because there isn’t a large selection of food at Starbucks presently. They can also use Position Innovation by setting up drive-thru stores in the UK because in the UK there aren’t Starbucks drive-thru stores.
Managing innovation and change can impact on Starbucks and its industry because increased innovation leads to increased revenue. Companies that perform well when implementing innovation in their strategy grow significantly faster than companies that don’t.
2.4. The global management environment
Hofstede ‘identified five dimensions of culture and sought to measure how people in different countries vary in their attitudes to them’ (Boddy, D. 2012). The five factors are power distance, individualism, masculinity or femininity, uncertainty avoidance, and long term orientation. Power distance highlights inequality of wealth and power. The Middle East has high power distance. In the Middle East the coffee shops had segregated sections for ladies (Boddy, D. 2012). Uncertainty avoidance is a society’s tolerance for ambiguous situations. US has a high score which means companies are open to new ideas. This is shown in Starbucks’ innovation of products. Masculine societies (Japan) show assertive behaviour whereas Feminine societies (Norway) show modest behaviour and interest in quality of life. Individualist societies (UK) underline individual success and responsibility and collectivist societies (Asia) underline loyalty to the group in return for support. Societies like China favour long term orientation and desire future rewards. However, countries like the UK focus on the present rather than the past.
3.1. Porter’s Five Forces
Starbucks faces strong force of intensity of rivalry amongst competitors because of the large amount of competitors with different sizes, specialties and strategies. The external factors which contribute to this are large number of firms and low switching cost (Greenspan, 2017).
Starbucks faces weak force of bargaining power of suppliers. The high overall supply minimises the effect of any single supplier on the company. The external factors which relate to this are high variety of suppliers and large overall supply (Greenspan, 2017).
Starbucks has a high force of bargaining power of buyers because customers can shift from Starbucks to other brands e.g. Costa Coffee in the UK because it’s more affordable. External factors that contribute to this are substitute availability and low switching cost (Greenspan, 2017).
Starbucks faces moderate force of threat of new entrants because recent entrants can compete against Starbucks due to moderate costs of doing business and supply chain development. External factors that relate to this are moderate supply chain price and high price of brand development (Greenspan, 2017).
Starbucks faces high force of threat of substitutes to Starbucks products. Customers can consider substitutes namely drinks from restaurants, instant and bottled drinks and other goods from the grocery stores. External factors are the accessibility of substitutes and low switching price (Greenspan, 2017).
4.1. Impact of social factors on external environment
Starbucks’ social responsibilities sourcing ethically produced goods, providing education or employment and minimising their carbon footprint. In sourcing coffee, Starbucks uses “Coffee and Farmer Equity Practices, one of the coffee industry’s first set of sustainability standards, verified by third-party experts(Corporation, 2017). environmental leadership ensures ‘Measures evaluated by third-party verifiers help manage waste, protect water quality, conserve water and energy, preserve biodiversity and reduce agrochemical use. (Corporation, 2017). Starbucks is helping support youth employment programmes in Calgary, Toronto, and Vancouver(Corporation, 2017).
4.2. Impact of economic factors on external environment
Starbucks’ quality of coffee is regarded as excellent by customers however their prices has always been high. Starbucks suffered huge losses in the 2008 global financial crisis as consumers searched elsewhere for low-priced coffee shops. By March 30, 2008, their profit dropped by 28% in comparison to the same period in 2007 (Husain et al, 2014). Howard Schultz returned as CEO after time off. Upon returning, he realised that apart from the deteriorating economic condition in the US, the company’s quick expansion distracted it from making its cafes an inviting place with new products (Husain et al, 2014) .
5.1. Generic strategy of Differentiation
The 3 approaches to Porter’s Generic strategy are Cost Leadership, Differentiation and Focus. Starbucks implements Focus Differentiation strategy. Starbucks differs from the other competitors by their unique attributes. Starbucks guarantee value by sourcing high-quality beans from coffee growing areas such as East-Africa and Southeast Asia. Some of Starbucks’ revenue helps farmers improve the quality of lifestyle, education and the environment. Starbucks sets their price range higher than the competitors as with high-price comes high-quality. Starbucks promote customer loyalty by creating Starbucks Rewards Programme which customers can get a free drink. Attaching the customer’s name on the cups makes them feel special-This highlighted recognition and value of customers.
5.2. SWOT analysis
Applying a SWOT analysis to Starbucks highlights external issues. Most of the profits were invested back into expanding by opening new branches. Stores were based in locations based on demographics and traffic patterns therefore CEO Howard Schultz decided the strategy of Starbucks would be to blanket an area completely. Starbucks quickly achieved its market dominance.
Starbucks weakness is High-Price point. A high-price point could be a strength but could be a weakness at the same time because there are numerous low-priced coffee houses namely COSTA and McDonalds.
Threats are competitors that sell a wide range of cheaper products such as McDonald’s and Dunkin’ Donuts.
5.3 Strategy recommendation
The SWOT analysis demonstrates that Starbucks has the potential to maintain competitiveness. Endeavour’s recommendation to Starbucks is the Ansoff Matrix strategy which illustrates opportunities to Starbucks as global recognition, product development and market penetration. Starbucks must exploit opportunities for global expansion to prosper over companies also trying to expand. Introducing new products and co-branding with supermarkets across the world will maximise value and create opportunities. Starbucks should keep devising new ideas and products to differ from competitors. Overall, Starbucks shows potential in becoming a dominant company.
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