Strategic management of Starbucks Corporation


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". And to achieve this objective Starbucks plans are continues expansion of its retail stores all over the world, with the introduction of new products (Shirisha Ragani, ICFAI. 2005).

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 GCP 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 Annual Report, 2008).


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, as he explained in 1st staff meeting, "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 Annual Report, 2008).


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.


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 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).


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).


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).


Individual buyers are the primary buyers in coffee specialty industry. And there are some buyers those who buy Starbucks coffee in bulks and sell them in their own offices and organizations but buyers bargaining power increase with the passage of time because of all the information available about demand, suppliers cost, quality comparison, cost effectiveness etc. The availability of these information on World Wide Web and journals has increased the bargaining power of buyer in specialty coffee industry (Adamy, With Starbucks, Investors Need Patients, 2008).


In any business, business ethic plays a vital role to boost the business level in the market. There are different types of ethic involved in a business but here we will discuss the ethics of the human resource management. HRM ethics covers employer-employee relationship, Discrimination between Races, Gender, Religion, and Age. It also deals with the issues like sexual harassments (George, 1999).

"Ethics may be defined as the study of what is good or right for human beings. It asks what goals people ought to pursue and what actions they ought to perform. Business ethics studies the relationship of what is good and right for business" (George, 1999).

Starbucks believes that conducting business ethically and starving to do the right things are vital to the success of the company. According to the Hoffman (1992), every person has some social, cultural, moral need to fulfil to achieve satisfaction in work or in general life. Company's ceo Howard Schultz believes that his employees are the success of the company and they should be treated equally and with dignity and he implemented such program to fulfil the needs of their employee so they can give full attention to the company.


"Leadership is a process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task" (Chemers, M. M, 2002).

Leaders have the ability to forecast the business trends and keep ahead from its competitors (Luthans, 1998). Howard Schultz is a transformational leader, after becoming the ceo of the company he completely changed the culture of the company. He implements his philosophy "treat people like family and they will be loyal and give their all" in the company and it really changed the atmosphere of the company.

Howard Schultz gives so much to his employees but he is against the unionism, "if they had faith in me and my motives, they wouldn't need a union" (Howard Schultz, 2005). If we look at the benefits implemented by the ceo for its partners than the above statement shows that he fulfilled his all commitments what he made with his employees so they don't need any union to raise their voice for their need. As a strong leader he give his all to his partners and introduced different welfare and benefits programs so they can give their all to the company.


As a leader Howard Schultz always think about his partners. He introduced different types of monitory and non monitory benefits program to motivate the employees so they can offer their full commitment to the company. He introduced benefits for part time and full time staff. He offered his employee with a work-life balance, Flexibly, Health insurance, dental & vision insurance. He also offered company shares to its employee with the name of 'Bean Stock' and also offer the elderly care program for their parents. These all incentives were design to motivate the employee so they can give there all to the company and the customers.


Turban, Efraim (2002) states "Customer service is a series of activities designed to enhance the level of customer satisfaction that is, the feeling that a product or service has met the customer expectation."

Starbucks always puts their customers at first as they believe customers are the core of any business and they are really concern about their customer care. Starbuck's biggest change however has been in the level of customer service exhibited by their staff. Starbucks designed a special training and development program to fulfil the requirement of their customers. They specially train their front line staff in health and safety, special training in coffee making. Quality is also a big concern to the company as they want to give the best to their customers. For the customers they have a special feedback programs to get the feedback from the customers so they can take action if any complaints are made.


According to above mentioned facts we can conclude that in the actions taken by Starbucks related to their growth and ethical challenges, combined with their sharp focus on transformation, will help to ensure that Starbucks emerge from the current economic environment positioned to deliver on its commitment to shareholders for sustainable, long-term growth.


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