Porters Five Forces Study of Starbucks

Porters phoebe bird Forces Study of StarbucksExecutive SummaryGiven case study maps the post of the attach to in 2009. In this date we allow for date back to a timeline of about 25 years and see how Starbucks developed their bank line. We will alike see the strategies applied and the present situation of the club with the application of Porters phoebe bird competitive forces. Finally we will have a look at the future(a) recommendations to reap a profit from the personal credit linePart 1Starbucks Coffee CompanyFounded in year 1971First headquarter in Seattle USABusiness in 37 countriesExpansion started 1982 with Howard Schultz joinedStarbucks has evolved from macrocosm a $.50 million business to a business that worth $6.4 billionHoward Schultz is the Chairman, President Chief executive officerHistory1971 Pike Place merchandise in Seattle was the first place where Starbucks store was settled1982 Howard Schultz joined the company as grocery storeing and retailing head19 85 Espresso bar concept1987 Schultz purchased Starbucks and merged his business Giornale Coffee House with Starbucks1987 Expands Business in the American market by starting outlets in British Columbia and Chicago1992 With a business comprising of clxv outlets, Starbucks gets listed with its first public stock offering.1996 Expands business to Japan, Tokyo was the first place.2003 Starbucks expansion continues at a robust rate and it translates into a company with 6400 outlets worldwide.2008 Global sparing meltdown resulted loss in profitability, Starbucks decided to shuts down 600 outlets across the world and likewise exits the Australian market.Howard SchultzChairman, PresidentChief executive officerVISION, OBJECTIVES AND MISSION mountain Statement To establish Starbucks as most familiar and appreciated brand in the world and be catch a national business with values and directional principles that employee could be proud ofThe vision statement clearly describes the dream or the future of the company that is to be the worlds most advantageously known cocoahouse and also to be the most appreciated and positively graded brand by all levels of people around the world. The company also focuses its vision to employee satisfactions, so that the employees will be happy.Objectives of StarbucksIs to grow by making employees feel valuedIs to recognize that e precise dollar earned passes through employees handsThe Six principles are observe and dignity attributeDiversity wampumabilitySatisfied customersCommitmentCorporate Values and Business PrinciplesBuilding a Company with SoulOpposing Franchising because of Quality Control and CultureOnly selling coffee beans without artificial flavors.Satisfy customers by all blottos.Employees contribution and involvement in making Starbucks a better companyCorporate Social ResponsibilityEstablish the Starbucks Foundation in 1997A major contributor of CARE, worldwide relief and development organization (Health, Education, and do-gooder aid)Participate in local charitable projects.Provides financial support to community literacy organizations2004 EnviroStars Recognized Leader Award for its community overhaul and environmental activitiesValue filamentStarbucks do not have a vertically integrated supply chain. It always works at increasing its consanguinity with its suppliers through the decorous betray initiativeSuccess Factors for StarbucksFactors which helped Starbucks to gain successStarbucks were the first coffee makers in businessStarbucks started their operation in the year 1987 under Howard SchultzWithin the first five years they had 150 stores.First specialty coffee retailing chain in the market.First move advantage gave Starbucks a reason to establish a value proposition within customers and comes with a unique brand positioning. Profits were huge enough to allow them invest in their expansion purposes.Market look for Starbucks performed comprehensively study for expansion and enter into unsanded markets. 1991 was the year in Starbucks moved to California resulted after a lot of market research. The reason wherefore California people adapt quickly to changing lifestyle and that is the reason of choosing California.Employee Satisfaction Motivation Starbucks played a major role in this aspect. passing motivated and well trained staff resulted the high level of employee satisfaction. Starbucks offered health benefits to their employees for employees who worked more than twenty hours in a week.Starbucks Strategies(1983- 2008)Schultz restored the old and honest employees of Starbucks to give the trump service to the customers.Dave Lawrence was hired as a executive vice presented and charged with leading operation, finance and human resources.In order to increase the market share, Starbucks has severalise itself in providing a unique experience to its customers. In order to create a unique value proposition, Starbucks have created stores with specific themes. Second ly they have a focus on different flavors of beverages to suit peoples needs.Starbucks have developed the market for specialty coffee industry for America. In this context, Starbucks have created brand awareness and henceforward have created a demand for coffee stores amongst American population. Therefore, they have taken coffee from a commodity market to a specialty item.New logo was invented to match the culture of the Starbucks and Giornale.New espresso machines were equipped and look more Italian than old world nauticalChicago store opened in October 1987 as per expansion schemaIdentifying inability of the customers for having a cup of coffee in the winter season in Chicago, Schultz solved the problem of freshness and quality effrontery by displaceting freshly roasted beans in special flavor lock bags that utilise vacuum packaging technique.Portland, oregon was the next market the company entered. Entered in L.A in late 1991.Opened 15 refreshful stores in 1988, 20 in 1989 , 30 in 1990, and 53 in 1992, producing a jibe of 161 stores in US.Also went for franchising concept to retrieve the cost for new store expansion.In order to make Starbucks a great place to work Schultz original to expand healthcare c overage to include part-time workers.To oversee the expansion cognitive operation Starbucks created zone wise vice presidents to direct the development of each realm and to implant the Starbucks culture in the newly opened stores.Starbucks had created a new subsidiary, Starbucks coffee international, to orchestrate overseas expansion and build the Starbucks brand name globally via license.To accommodate its strategy of rapid store expansion. In august 2002 Starbucks teamed up with T-mobile USA, the largest carrier-owned Wi-Fi services, to experiment withProviding inter displace access and enhanced digital entertainment to patrons at over 1200 Starbucks locations.Part 2Starbucks Performance (Fiscal 2009 Annual Report)Stores Open Store gross revenue Growth(1) Store openings are reported net of closures.(2) Of the approximately 800 total US stores identified for closure, 566 stores and 205 stores were finishingd in financial 2009 and 2008, respectively.(3) Starbucks restructured its Australia market by closing 61 stores in fiscal 2008. Of the approximately 100 International stores (incremental to the Australia closures in fiscal 2008) identified for closure, 41 stores were closed in various markets in fiscal 2009.Net RevenuesOperating Cash Flow Capital ExpendituresCompany revenues decreased from fiscal 2008, primarily attributable to a 6% decline in comparable store sales, comprised of a 4% decline in transactions and a 2% decline in the average value per transaction. Foreign currency translation also contributed to the decline with the effects of a stronger US dollar relative to the British pound and Canadian dollar. The weakness in consolidated comparable store sales was driven by the US segment, with a comparable store sa les decline of 6% for the year. The International segment experienced a 2% decline in comparable store sales.The Company derived 16% of total net revenues from channels outside the Company-operated retail stores, collectively known as specialty operations. The decrease in Foodservice and different revenue was primarily due to thesoftness in the hospitality industry.Schultzs Actions in 2008/2009Retrained all the store employeesThey reduced operating costs by $600m per anumSimplified the product rangeThey Closed 1,000 worst-performing storesIntroduced Fairtrade coffeeStarted advertisingPorters Five ForcesPotential entry of Competitors (Low).DifferentiationCoffee industry companies tries to achieve differentiation in their service qualities through stores ambience, staff and complimentary products. Hence it becomes difficult for new players to imitate the existing business models.Potential development of substitute products (Low)Companies such as Pepsi and Coca Cola have been a threat to specialty coffee retailing from a substitute perspective. In the current situation this threat has been lowered considerablyBargaining power of suppliers (High)Trade PolicyFarmers associations that practice the fair trade policy. In US this initiative is called the TransFair initiative. Users of these are certified coffee beans are regarded as more reputed by customers and hence most companies such as Starbucks are forced to buy from these farmers. This increases the bargaining power of suppliers.DifferentiationBecause of the taste differentiation companies need to procure an assortment of different varieties of coffee beans from different specialize farmers. This results the increase in the bargaining power of suppliers.Rivalry among competing firms (High)It faces tough competition from local baristas due to price fixings. Starbucks is priced higher than these local players. Starbucks faces stiff competition from McDonalds, Dunkin Donuts and a spell of players. Overall the i ndustry is growing but at a slow rate and there are lot of players.CostIn scathe of switching cost, consumers do not pay a high amount when they needs to switch their preferences from Starbucks to other coffee shops. Starbucks have lost a number of its customers because of the high prices. Customers opine that they get the same coffee in other places at lower prices.Bargaining power of consumer (Moderate)Loyalty ProgramsRepeated purchases from a champion customer become guaranteed customers are bounded to the organization through Loyalty CardsLow Switching CostIt usually plays a negative factor to the companys growth by increasing the bargaining power of buyers.SWOT AnalysisStrengthStarbucks has proven to give an outstanding performance in customer service and experience. It has its own unique playback songs system which can be utilize to listen to your choice.Starbucks have changed coffee to a recognized beverage. One of the major strategies of Starbucks is that it has never use d high-ticket(prenominal) television advertising campaigns or brand ambassadors to advertise, instead it has relied more on its universally present cafes, word of mouth publicity and the ambience of its stores. It has maintain a high level of service through which it has achieved a consistent level of customer satisfaction.WeaknessCustomers are never loyal to a case-by-case store and keep on changing their stores, because when ever Starbucks enters any international market it opens a large number of stores within close vicinitySales of individual stores are never stable.Because of the recent recession, the levels of same store sales and margins have come down. The fourth quarter results have shown a loss of 70% in the companys net income and share prices have fallen by 33 cents. There has been a closure of 600 stores and lay off for 6700 stores.OpportunitiesAlong with coffee Starbucks has also branched out to produce DVDs, CDs, t-shirts and other proprietary food product offering s. The market for these products has grown considerably and gives a great opportunity to Starbucks for leveraging their brand.Starbucks should also look at exploring some of the emerging economies in South Eastern Asia such as India where the economy is stable.ThreatsThe economic recession is a threat for Starbucks since they had to close down a large number of stores leading to declining profits and large level of unemployment.McDonalds and Dunkin Donuts serve high quality green coffee also which is an be factor on Starbucks growth. Starbucks is facing major challenges from competitors such as McDonalds and Dunkin Donuts.Strategic SynopsisStarbucks faces an extremely challenging fiscal 2009 due to the ongoing economic slowdown. It famed that its customers whitethorn have less money for discretionary spending as a result of job losses, foreclosures, and bankruptcies. Any resulting decreases in customer traffic or average value per transaction will negatively impact the companys fi nancial performance as reduced revenues result in sales de-leveraging which creates downward wring on margins. The company also said it expects negative comparable store sales for fiscal 2009 and that additional restructuring measures may be needed in the future if Starbucks is unable to improve its financial performance.PART 3Customer, Market, Market SegmentCustomer SegmentIts is well known for its coffee as well as the relationships formed with its customers. This targets college students and business people in general, as well as individuals.Target MarketStarbucks us always adult -focused and look forward to betoken to connect with their customers, childrens and communities through different types of advertisements tactics. College age group and post graduates are the big growing market.Market AttractionTargeting adults and young adults is a good weapon for Starbucks because this age level has the same stakes as the foundation that promotes arts, culture, education, and the environment (starbucks.com). The company satisfies their customers through their advertising, support programs and, of course, their coffee.Resources and CapabilitiesA Resources, capabilities and Strategic AssetsEvery company or organization needs and owns certain resources, capabilities or competencies and also assets which are a necessity to endure and prosper globally.The resources consist ofCreating Competitive EdgeIntangible ResourcesRecipeEmployee relationshipLarge customer baseReputation of products and servicesTangible ResourcesLarge number of outletsMachinery equipmentsOperations in 37 countriesRESOURCES CATEGORIESSTARBUCKS RESOURCESPHYSICAL RESOURCESOperation in 40 countriesConventionally taste and environment.Effective segmentation.Supply chain management.Large number of outlets.FINANCIAL RESOURCESTurnover of 46.56 billion in 2009.Gross margins of 4.13 billion in 2009.Profit of 2.1 billion in 2009.HUMAN RESOURCESGreatly competent get force.Young and prosperous.INTELLECT UAL CAPITALReputation for excellenceBrand image built as taste, environment.Strategic capability of StarbuckCATEGORIESSTARBUCK RESOURCESTHRESHOLD RESOURCESsolid supply chain.Young and affluent workforces.THRESHOLD COMPETENCIESQuality.Reliability.Dealings and relationship with its employees and customers.UNIQUE RESOURCESHi-tech coffee machines equipments.Extraordinary labour forceCORE COMPETENCIESTechnology.Speed of production.Known as The Best coffee providerB Structure, Culture and organizational knowledgeThere are very less companies who can boast to be as consistent as Starbucks in hurt of attracting the customers which is always adjusting itself for the demand of the time with seamless quality and efficiency. The registration which is the company is willing to accept all the time is what makes it different from the rest.Their philosophy of the Starbucks is to provide product which are marvel of taste but also come with value and satisfaction.B STRATEGIC CHOICEIdentification o f Strategic OptionsAnsoffs Product/Market MatrixConsidering the approach of STARBUCKS they should continue to go with what they are doing currently. It means go to what they do best. I think that they do need to enter new markets for themselves and in particular ASIA. Currently STARBUCKS is not one of the most commonly used or known brands in ASIAN region. To pin point the region the areas to focus must be China and South Asian markets.STARBUCKS has set its sights on Chinese Niche market with view of the massive growth in Chinese economy and the wealth generated. Working in China would also mean that they will be able to work with the best available technology and also the fast growing consumer market that exists within China.Other region of interest can be South Asian emerging markets and in particular India who are enjoying a massive boom in economy and also buy power.In my opinion the strategy used needs to be Business to Customer or B2C as this strategy has already served STAR BUCKS Group very well in the past.The benefit of the strategy will be that it will be Product driven and will also maximize the value of the transaction and addition they will have larger target markets. This will also ensure that there will be a single step buying process and will enhance brand identity and also the brand image will also work as an extra helping hand for the company. B2C strategy will ensure the brand loyalty and also will promote emotional buying decisions which will base on status, price or may be desire.RECOMMENDATIONS FOR ACTIONStarbucks should continue with its operation in the growing economies and markets and diversify themselves to new markets where ever possible. As most of markets of Europe and America are at a stage of maturity, the realistic option for growth is diversion to new markets. The markets of Europe and America are older and also are very conventional for the Starbucks and it also has developed a brand loyal segment of customers behind them. T hat is the reason they need to consolidate the work they have so far put in to the emerging markets and consumers.To put the strategy into action STARBUCKS needs to consider the below stated aspects so that the transition or change over to new markets is as smooth as it can get.The timing is one of the major aspects which need to be taken care off or estimated beforehand. Since company already has its plants based in INDIA and CHINA they still need to develop them further to enhance production and meet the growing demand of a growing market and also a growing consumer base. The time it will take for them to either acquire or go into further and further of franchise growth model. The other important type of strategy in which STARBUCKS has been largely successful is by creating their 100% subsidiaries in the emerging markets so that it becomes a strategic asset for the company and would usually mean that it will be cost effective manufacturing by producing it in developing countries w hich means that they will have relatively less expensive labour at their disposal in comparison with already developed countries and markets.The constraints for company can be the rise in prices of raw materials will emphatically impact pricing and positioning of the brand.They will also have to work extensively to keep up to date with taste of consumers and also their preferences in terms of product. Another factor can be the potential of the markets suggested will definitely appeal to the competition and it might trigger a price war and barbarous rivalry amongst the industry players.The fluctuation in international business will also affect STARBUCKS in particularly the international currency market.This strategic plan may be able to help STARBUCKS achieve a safer journey ahead and they will be able to sustain a strong beachhead in the world.Starbucks should continue to open new locations worldwide. Starbucks is extremely dependent on its domestic success, and yet has a variety of countries it has not explored opportunities in. However, it is recommended that Starbucks tread lightly and with caution, insuring halal social and cultural analysis before plunging into a country. This is apparent in the fact that Starbucks was forced to close three retail stores in Singapore stick up year.