Starbucks Corporation

INTRODUCTION:

Starbucks Corporation is the one of the fastest growing Coffee companies of the World and it's based in Washington, United States. Starbucks coffee purchase and sells high quality roasted beans with the fresh rich-brewed coffee. And a variety of premium tea and coffee products and equipment thorough different retails stores. Starbucks also sells its trade mark to some retail stores and this practise is known in Starbucks as specialty operation. The Starbucks mission statement is "To inspire and nurture the human spirit, one person, one cup, and one neighbourhood at a time". And the company's objective is to establish "Starbucks as one of the most recognized and respected brands in the world".

Starbucks is currently operating in more than 49 countries with 17000 stores. The total number of employees in Starbucks was 176000 at 28, September 2008. In United States Starbucks has 11,068 (6,764 Company Owned, 4,304 Franchised) stores with the approximately employees of 143000 with 136000 are working in retail sector and other are engaged in administration and management activities.

Starbuck has three main operating segments and the revenue comes from each segment is as: 76% from its operations in United States; 20% from international operations and 4 % from Global Consumer Product CGP 4%. Starbucks generates most of its revenue from retail sector which is 84% of its total revenue and 12% from licensing and 4% from its food services. (Starbucks.com, 2008 Annual Report)

BACKGROUNG AND MILESTONES IN STARBUCKS HISTORY:

Starbucks was founded by three coffee lovers Gordon Bowker, Jerry Baldwin, Zev Siegel in 1971. Howard Schultz has joined the Starbucks in 1982 and the turning point in company's history was his visit to Italy in 183, where he saws a coffee bar culture. He likes the idea and suggests introducing the ready-to-drink coffee in US. Howard Schultz buys Starbuck for $3.7million with its 6 retail stores and 1 roasting plant in 1987.

He comes in Starbucks with a vision of expansion and growth, In 1st staff meeting he said, "All my life I have wanted to be part of a company and a group of people who share a common vision . . . I'm here today because I love this company. I love what it represents . . . I know you're concerned . . . I promise you I will not let you down. I promise you I will not leave anyone behind . . . In five years, I want you to look back at this day and say "I was there when it started. I helped build this company into something great."

Starbucks made a historical growth under the leadership of Howard Schultz and the Starbucks brand was regarded as one of the best known Coffee brand in US. He manages to expand its number of stores from 5 to 115 in next 5 years. 1n 1992, Howard decided to make Starbucks a public limited company and issued shares to general public at $17 per share. The money generated from general public is spent on the expansion of Starbucks overseas, with stores in Japan and Singapore. (A. Thompson, the University of Alabama, John E.Gamble, University of South Alabama)

In 2000's, Starbucks achieved lot of milestones which includes 5000 retail stores, 1000 stores in Asia , 2000 stores in outside USA. In 2008, Starbucks has faced 1st time decline after 16 years of continuous growth as a public company. (Starbucks.com, 2008 Annual Report)

MICHEAL.E.PORTER'S COMPETITAVE FIVEFORCES ANALYSIS OF STARBUCKS:

Michael Porter five forces model used to analyse "an industrial environment and to develop an optimum strategy for success within a given industry based upon specified parameters." (Porter, M.E. 1998)

Applying this model on Starbucks we will analyse the competitive environment in which Starbucks is operating today and it will help us to understand the accurate understanding of the current specialty coffee industry.

INDUSTRY RIVARLY:

The industry rivalry in coffee industry increase dramatically since 1987 and today Starbucks is facing competition from different small scale coffee shops and fast food companies.

Small Scale:

Caribou Coffee is a US based coffee company found in 1992, which compete with Starbucks. They offer the same services like Starbucks, free Wi-Fi in stores, rooms on rent for meeting; quick service etc. Currently Caribou Coffee has 500 stores across US and over 6000 employees with roughly $230 million revenue a year. (Caribou Coffee, 2008)

Another competitor of Starbucks is a Canadian based coffee company named A.L. Van Houtte, which has 100 corporate outlets and franchises. A.L. Van Houtte is serving about 3 million cups every day and operation widely in North America with 71000 workplaces all over the US. (A.L. Van Houtte, 2005)

Large Scales:

Dunkin Donuts is competing with Starbucks on large scale with more than 5500 franchises in US and 80 stores in Canada and 1850 throughout the world with revenue of $5 billion in 2007. (Adamy, Starbucks Upgrades Espresso Machines, 2007)

Starbucks is facing the largest industry rivalry from McDonald. In US McDonald have more than 14000 stores and gross revenue is about $22 billion in 2008. (Adamy, McDonald's Takes on Starbucks, 2008)

The coffee industry has made rapid growth in last two decades and many companies has analyse the profit in this industry and that is the reason Starbucks is facing high competition from small as well as large scale industries. (Adamy, At Starbucks, Too Many, Too Quick? 2007)

POTENTIAL OF NEW ENTRANTS

Potential of new entrants in coffee industry is goes down because of increment in the barriers to specialty coffee industry. At present, the companies like McDonalds and Dunkin' Donuts have access to distribution channels and the have occupied the main favourable places in market. They can distribute high quality products through these channels with effective less cost rates. So we can say that the threat of new entrants is very low because of number of barriers i-e. Distribution Channels, Cost Effectiveness, Favourable Location, Quality Checks. (Adamy, Venti Changes at Starbucks, 2008)

SUBSTITUTE PRODUCTS:

Another force that derives changes business competitive environment in availability of substitute product. The substitute products may be the less expensive products as compare to luxury coffee that Starbucks offers. For Starbucks coffee we can see there are some threats from Pepsi Cola, and Coco Cola companies and from some soft drink companies like Nestle, although these products are not the perfect substitute for coffee but still increment in usage of these products is affecting the coffee industry. But only true substitute for speciality coffee is the basic coffee but basic coffee is not as high quality beverage as specialty coffee we can say that force created by substitute products in specialty coffee industry has decreased. (Quelch, 2006)

BARGANING POWER OF SUPPLIERS:

Because of rapid growth in coffee industry the bargaining power of suppliers increased compare to 1980's.In the past farmers were not connected to each other so their bargaining power was low. Today majority of farmers are connected to each other by an initiative know as Fair Trade Certified Coffee which is designed by Transfair US. The purpose of this initiative is to ensure that farmers will get reasonable return on their crops and we can say suppliers are powerful today. But Starbucks has already made a long term contract with some of suppliers so supplier bargaining power will be less effective for Starbucks. (Argenti, 2004)

REFRENCES:

  1. Adamy, J. (2007, November 15). At Starbucks, Too Many, Too Quick? From http://online.wsj.com/article/SB119508847922393547.html
  2. Adamy, J. (2008, January 7). McDonald's Takes on Starbucks. From http://online.wsj.com/article/SB119967000012871311.html
  3. Adamy, J. (2007, November 26). Starbucks Upgrades Espresso Machines. Retrieved From http://online.wsj.com/article/SB119612072768304542.html
  4. A.L. Van Houtte. (2005). Van Houtte-fine coffee, filtered water, quality teas., from About Van Houtte: http://www.vanhoutte.com/
  5. Adamy, J. (2008, January 8). Venti Changes at Starbucks. From http://online.wsj.com/article/SB119974270198772921.html
  6. Argenti, P. A. (2004). Collaborating with Activists: How Starbucks Works with NGOs. Berkeley: Haas School of Business
  7. Caribou Coffee. (2008). Caribou Coffee. Retrieved January 14, 2008, from About Our Coffee: http://www.cariboucoffee.com/page/1/about-our-coffee.jsp
  8. Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press.
  9. Quelch, Y. M. (2006). Starbucks: Delivering Customer Service. Boston: Harvard Business School.
  10. Starbucks Corporation, September 28, 2008 Annual Report For The Fiscal Year Ended 2008. From www.Starbucks.com
  11. Thompson Strickland, Strategic Management, 11th edition, Case Studies A. Thompson, the University of Alabama, John E.Gamble, University of South Alabama

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