Wake Up and Smell STARBUCKS!

     Starbucks Corporation, doing business as Starbucks Coffee, is an American global coffee company and coffeehouse chain based in Seattle, Washington. It is the largest coffeehouse company in the world, with 23,187 stores in 64 countries. Their products are: roasted and handcrafted high-quality, premium priced coffees, tea, fresh food items and other beverages. They also sell coffee and tea products and license their trademarks through channels such as licensed stores, groceries etc.

     Starbucks primarily operates and competes in the retail coffee and snacks store industry. The core competence of Starbucks has been its ability to effectively leverage its cornerstone product differentiation strategies by offering a premium product mix of high quality beverages and snacks. Their brand equity is built on selling the finest quality coffee and related products, and by giving each customer a unique “Starbucks Experience”, which is supreme customer service, clean and well-maintained stores, thus building a high degree of customer loyalty.

     Its other core competence is its human resource management's values-based approach for building very strong internal and external relationships with suppliers, which drives the successful deployment of its business strategy of expansion into international markets, horizontal integration through smart acquisitions and alliances that maintains their long-term strategic objective being the most recognized and respected brands in the world.

     Starbucks, with its size and scale, has the power to take advantage of its suppliers but under its coffee and farmer equity program, it gives its suppliers a fair partnership status, which gives them moderately, low power. The suppliers in the industry also pose a low threat of competing against Starbucks by forward vertical integration, which lowers their power. Starbucks also forms a highly important part of the suppliers business, due its size and scope, which make the power of the suppliers lower. Thus, suppliers pose a moderately low bargaining power.

Starbucks Founder Howard Schultz

     Starbucks has a significant geographical presence across the globe, maintains a 36.7% market share in the United States and operates in over 60 countries. It is the most recognized brand in the coffeehouse segment and is ranked 91st in the best global brands of 2013. Starbucks effectively leverages its rich brand equity by merchandizing products, licensing its brand logo. Such strong market position and brand recognition allows the company to gain significant competitive advantage in further expanding into international markets and also register higher growth in both domestic and international markets.

     They give the highest importance to the quality of their products and avoid standardization even for higher production output. Starbucks has stores in some of the most prime and strategic locations across the globe. They target premium, high-traffic and high-visibility locations which has earned them a significant competence and advantage to be able to penetrate prime markets. Their stores are visually appealing, being designed to reflect the unique character of the neighbourhood they serve in and environmentally friendly. They provide free Wi-Fi, great music, great service, warm atmosphere and an environment of community meeting, which forms a wider part of the ‘Starbucks Experience’. The main aim here is to make their stores a ‘third place’ besides home and work.

     Starbucks is known for its employees. They are the main assets of the company and they are provided with great benefits like stock option, retirement accounts and a healthy culture. Thus, the effective management of its human resources translates into great customer service. Their stores are community friendly, by recycling and reducing waste, thereby building goodwill among communities where they operate.

     Just as Apple did with iTunes, Starbucks efficiently leverages technology with its mobile application ‘Starbucks App’ in both iOS and Android. They make significant investments in technology to support their growth every year. It has a cult following status among consumers and they have also implemented loyalty-based programs to drive loyalty with the Starbucks Rewards programs and Starbucks Card. The Starbucks Card is a value card program that provides convenience, support gifting, and increases the frequency of store visits by cardholders and integrated with their mobile application.

     The increasing saturation and of the US market makes its international strategy even more important. Starbucks has made an entry into many countries, with India recently joining the list with a joint venture. Starbucks sees a great growth potential in further expanding into emerging and developing markets. They leverage their size, experience, financial prowess and efficiencies. Starbucks recently started to expand their product mix by venturing into the Tea and fresh juice product offerings with a smart acquisition strategy.

 

     One of the key strategies that Starbucks followed since its inception is that of product differentiation with its premium product mix, locations, reputation in coffee beverages and supreme customer service that translated to building a premium valued brand that is costly to imitate for competitors. Starbucks also followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didn’t follow the franchising model and operated company oriented stores and joint ventures in international markets.

     Another crucial strategy for Starbucks’ growth has been expansion into key developed and emerging markets for geographical diversification, and it has been highly successful with operations spanning 64 countries. All these strategies have derived considerable competitive advantage for Starbucks over its competitors.

     Thus, Starbucks is an excellent example of spotting opportunities and making effective utilisation of the same. Their culture is thus that it can adapt to any environment which has helped them grow in so many markets. Efficient management of their human capital and their suppliers, their foray into technology and their supreme customer relationship management have ensured that Starbucks is here to play a long innings in the coffeehouse segment.