Environmental Analysis Paper: Starbucks Macroeconomic Forecast The importance of economic indicators to the strategic planning process in any

organization is the ability to benchmark economic conditions that contribute to improve profitability, business growth and market size. Starbucks strategy is to expand globally to provide high quality coffee in convenient and highly visible locations. Despite recent economic setbacks the company is continuing to innovate and extend the business with imaginative new ready-to-drink beverages and expanded packaged coffee offerings (Starbucks Financial release, 2007). Starbucks has succeeded due to several economic factors as well as price elasticity of demand. Price elasticity of demand can be determined by the percentage change in the quantity demanded with the percentage change in price. They should consider household income that people are willing to spend more on food and beverages when household income increases. Starbucks innovation in joint ventures has opened new markets and opportunities increasing product use among different demographics. Joint ventures with Pepsi Company, Dreyer's Grand Ice Cream Inc and inspiring entertainment with the launch of Hear Music have developed Starbucks with great success. Starbucks has shown their values, leveraging market power, resources, and capabilities to achieve returns higher than their competition (Investment Group, 2001). Social and Culture The social factors that affect Starbucks involve the beliefs, values, attitudes, opinions and lifestyles of persons in the external environment as developed from cultural, demographic, education, ethnic conditioning and customers needs and the size of the potential market (Pearce-Robinson, 2004). The Starbucks approach to corporate social responsibility (CSR) includes developing ethical sourcing practices for products such as coffee and cocoa, strengthening their involvement in education programs focu sed on cultural diversity globally, funding water projects in developing countries, and reducing our environmental footprint (Starbucks Corporation, 2007). The company treats employees as the most valuable asset for the company and empowers them to make decisions. They continue to sustain the values of personal dignity, mutual respect, shared success and diverse workforce culture in the organization. Starbucks created an environment accommodation that allows customers access to free wireless internet. Schultz believes that Operating with a social conscience has always been a core purpose and competency at Starbucks (CSR Report, 2007) so, they involved a corporate social responsibility and contributed US $5 million in the establishment of china educational project in 2005. Starbucks also built executive community leadership program to facilitate Starbucks executives service on non profit boards and building community to support neighborhood organizations. To create a positive work environment Starbucks supports two-way communication channels and promotes a respectful workplace culture. One of the many Starbucks environmental efforts includes Global Green's plan to educate individuals, stakeholders, businesses, and governments on how they can take action to address climate change. They conducted an inventory of emissions in an effort to better understand and quantify their environmental footprint. They have used the World Resources Institute Greenhouse Gas Protocol to perform the inventory of major emissions from the company-operated retail stores, coffee roasting, administrative operations and distribution network. They have been working the risks of climate change for their business and reduce GHG emissions (Starbucks Corporation, 2007). Political and Legal Issues Starbucks committed safety environmental procedures to reduce the risk of injuries for both their empoyees and customers. This includes the introduction of anti-slip floor mats in California company-operated stores and introducing new digital brewing equipment and automated espresso machines to reduce the risk of burns for employees. Starbucks abided by all applicable labor laws for their partners and followed International Labor Organizations Declaration of the Fundamental Principles and Rights at Work. The company developed a tax policy that provides incentives for increased productivity as well as providing trade policy for intellectual property, trademarks and promoting transparency to U.S. and foreign governments of the trading relationship. Although the coffee retailing industry is not currently under regulations to add nutritional labeling, Starbucks plans labeling for their food-packaged products and non-packaged items to avoid lawsuits. Customers require nutrition information to be labeled how much caffeine is included for health consciousness (Starbucks Corporation, 2007). Technology and Systems Starbucks helped to greatly improve sustainable coffee farming by providing technology that analyzes soil erosion and water quality. They have proven a strong interest in innovating new technology and machines that are able to dry, roast, package, and brewing their high quality coffee. Recently Apple and Starbucks collaborated to provide new music to Starbucks customers over their in store Wi-Fi service. Starbucks implemented High Jump software from the 3M company which is a global leader in providing highly adaptable, best-of-breed supply chain execution solutions that streamlines manufacturing and distribution from the point of source through consumption (HighJump Software Business Wire, 2006). Demographics Starbucks has to know demographics before attempting to enter new and foreign markets. It is difficult to sell the same beverage to people in Africa that you would sell to people in North America. Starbucks target-demographics is young, urban, college-educated people with above average incomes and a desire to both stand out from and be part of the crowd. Starbucks realizes that proximity to customers is more important than the market coverage of an individual store which is why they have many stores within eyesight of each other in some markets. Competitive analysis Starbucks has to compete with every possible outlet a consumer has in order to satisfy their need for specialty and plain coffee beverages and pastries. These options include home coffee, other specialty eateries, fast food restaurants, local convenience stores, and any other retail environment that chooses to carry coffee or other beverages. Additionally, Starbucks

retail stores face competition in trying to sell their whole bean products from coffee bean distributors. These coffee beans are available at local retail establishments, convenience stores, and most importantly, grocery stores. Starbucks has strong incentives to be overly innovative in new-product development in order to keep their marketplace dominance. Introducing distinctive offerings is often the easiest way to compete for shelf space, protect market share, or repel a potential rival's attack. Managers evaluating opportunities to build competitive advantage should link strategies to value chain activities that exploit low cost, product differentiation and rapid response competitive advantages. In an effort to increase its competitive edge, Starbucks is launching new breakfast sandwiches along with their normal morning offerings to compete with their rivals. This move was largely seen as an effort to combat improved coffee offerings from fast food giants McDonalds and Burger King. Starbucks has a very complex product line on the surface: customers can customize their lattes, coffee, by size, type of milk, temperature, and flavor additives but all the variations are based on a standard platform. Assessment of Market The market structure for the catering services industry falls into a monopolistic competitive market structure. There are many competitors in the industry competing to sell specialty food and beverage items in retail locations. Coffee is a commodity with marginal differences in quality, texture, and flavor. Companies such as Starbucks are normally price takers and are not able to exert a large degree of influence over the price they can charge. However, they do attempt to influence consumer demand for their own products by positioning their product and promoting different products in areas such as quality, flavor, or atmosphere of the eateries themselves (Starbucks CSR Report, 2007). Strength Starbucks Corporation has established a successful differentiation over the competition and a value proposition that has met with an ever-increasing amount of success in the coffee industry. Starbucks is strong in the specialty coffee arena thanks to a positive brand image as well as strong finances and a steady cash flow. Starbucks uses innovative and cost effective marketing strategies to build its image that helps in increasing customer awareness as well as acceptance of products and services. Establishing brand presence within the marketplace has been one of the strategies which Starbucks has mastered through the u se of the mermaid logo, previously developed brands, copyrights, trademarks and patents. Through their popularity worldwide Starbucks is able to stay dominant by providing the highest quality coffee for the price. Starbucks has recorded strong cash flow and financial performance that help the companys growth. Starbucks integrates its corporate culture with its surrounding. At all levels of the company, Starbucks partners strive to be good neighbors and active contributors in the communities where they live and work. The Starbucks Foundation has begun to mobilize as a communityminded entity serving the impoverished communities and supporting childrens welfare, educational projects, AIDS outreach and neighborhood organizations. Starbucks has developed mutually beneficial and trust-worthy long-term relationships with business partners (Starbucks CSR Report, 2007). Weaknesses The Starbucks corporate weaknesses are expensive pricing strategy, heavy reliance on the domestic market, narrow product mix, low revenue per employee and constantly changing market trends. Starbucks must deal with these weaknesses in order to remain a competitor in the retail market and a successful company in the industry. Starbucks utilizes a costly pricing strategy that has had an adverse affect on consumers forcing some to seek less expensive coffee choices in a tough economy. The lack of product choices has made some consumers choose Dunkin Donuts or McDonalds for flavored coffees and more food choices. Starbucks has taken the lack of product diversification into consideration by providing teas, non-fat specialty drink alternatives, salads, fresh fruit and sandwiches. These improved choices can fit in with most health conscious lifestyles which may stop consumers from visiting the less healthy competitors. (Starbucks CSR Report, 2007) Opportunities Starbucks has identified many potential opportunities as well as growth in the coffee market including new products and market expansion. Expanding Starbucks internationally is an opportunity that deserves particular attention due to the already saturated domestic market. Serious marketing and research must be done prior to investment being made in such international arenas, but the potential profitability is tremendously powerful. Starbucks has expanded its beverage categories by making contract with the wine and spirits group Jim Beam Brands to develop and market a Starbucks branded coffee liqueur drink. Starbucks is targeting 15,000 international stores in the next few years and expects major expansion potential in China and India. Threats Starbucks Corporation is highly competitive within their industry, but has several major vulnerabilities that can be harmful in the future. Perhaps the biggest threat to company is that the supply and prices of coffee experience high volatility. Green coffee bean prices are subject to substantial price fluctuations, generally caused by multiple factors including weather, political and economic conditions in the producing countries, and other supply-related matters. Another major threat to the corporation is their aggressive growth strategy, relying on the successful expansion of stores and the continued profitability of existing stores. (Starbucks CSR Report, 2007) This was recently proven when the company announced the closing of some 600 stores in a somewhat surprising announcement. Long-Term Objectives Starbucks sells high quality whole bean coffee, coffee beverages and other products including Tazo Tea, Hear Music, CDs, Ethos Water, Starbucks Liqueurs, as well as a variety of foods and dairy items globally. Its steady growth and thriving business can be attributed to the development and pursuit of its corporate strategy. To establish the companys overall strategy, Star bucks must abide by their external and internal environments, including facilitation by social responsibility and core competencies, adapting their tactics, and understanding their resource capabilities and supply-chain operations accordingly. Starbucks continues to focus on expanding their existing store base across current markets with a particular focus on China (Starbucks Corporation,

2007) Protection of coffee growers to achieve future supply Starbucks makes long-term relationship with their suppliers by supporting suppliers development and focusing on creating supplier performance improvements that can be aligned with Starbucks values. Starbucks makes available to its suppliers access to credit to improve their operations and education for their children. These practices create affinity between the farmers and Starbucks to secure the companys future supply of coffee beans. Starbucks buys coffee with premium prices that gives reward performance for suppliers, and focus on producing higher quality coffee beans. In order to maintain high quality coffee, they ensure coffee production protection from workplace hazards, achieve coffee growing and processing standards, offer higher incomes and expand employments and education opportunities for producers (Starbucks Corporation, 2007). Keep the Brand Image and Remain Innovative Starbucks brands are well positioned to engage particular niche markets in consumers' minds. Brands at each level of the hierarchy contribute to the overall equity of the portfolio through their individual ability to make consumers aware of the various products and foster favorable associations with them. The company makes excellent use of many kinds of marketing activities including media advertising, promotions and sponsorship. To sustain its competitive advantage, the company implemented a new storefront feature to keep customers in the store. At the new Starbuckss Hear music coffeehouses, customers are able burn Compact Discs, use listening stations to explore musical recommendations all while enjoying Starbucks food and beverage offerings. In 1995, the company joined forces with Dreyer's Grand Ice Cream to introduce Starbucks Coffee Ice Cream. In 1996 through a joint venture with Pepsi-Cola Company, Starbucks introduced bottled Starbucks Frappuccino coffee drink. To date, each of Starbucks coffee innovations, including Starbucks DoubleShot espresso drink, remain the top products in their respective categories (Jim Beam, 2005). Today, Starbucks Liqueur is generating strong consumer demand that lead to a successful market in restaurants, bars and traditional retail outlets (Starbucks Corporation, 2007). New Market Strategy Starbucks strategy is to maximize market its exposure by placing retail stores in high-traffic, high-visibility locations. Because of the flexibility of the size and format of its stores, Starbucks can be found in a variety of settings, including retail centers, university campuses, office buildings, airport terminals and supermarket. Starbucks is available in the United States and 22 international markets with over 5,000. For its non-pedestrian customers, Starbucks has increased its focus on drive-thru retail stores. New objectives of the organization could be to scale back the retail areas of the store, and gain a new focus on environmental issues. They have established specialty operations, joint ventures, internet cafes and shopping, and global expansion. In addition, the company planed the expansion of Starbucks coffee bars in both Albertsons and Safeway stores (Investment Group, 2007). Financial Analysis Starbucks earning shows total net revenues growth of $4.1 billion in 2003, 5.3 billion in 2004 and 6.4 billion in 2005. The Chairman, Howard Schultz mentioned that the company was striving to achieve total net revenue growth 20 percent contributed mainly through the expansion of new stores. Starbucks has set its visions on entering new markets internationally to achieve their growth. Today, they have expanded lunch programs to a total of 4,150 stores and introduced the ability to warm and provide hot breakfast sandwiches to stores across the nation. The company has already opened licensed locations in North America, Latin America, Europe, the Middle East and the Pacific Rim and licensing arrangements particularly in China. Recently, the company committed $5 million to support educational programs in China enforcing its mission to be one of the most respected corporate social brands. In its support of various social affairs, Starbucks has positioned themselves as the de-facto name in the coffee market as well as earning a good reputation among business community. They built a sustainable network of suppliers around the world by conducting social, environmental and economic benefits for their partners in which it does business (Starbucks Corporation, 2007). They have rewarded farmers by paying premium prices to ensure a sustainable supply of high-quality coffee and long-term relationship with them. In order to create Fair Trade Certified coffee, they developed new distribution channels by providing technology, financing aid to the farmers and demonstrated the guidelines of Coffee and Farmer Equity (C.A.F.E) Practices. In addition to its supply chain, the company engaged joint ventures to distribute the bottled Frappuccino coffee drink, Cream Liquers, a line of Super Premium ice-creams and Double Shot coffee drinks. Innovation of Super Premium Tazo Teas and Compact Discs from Hear Music enhance the Starbucks experience through best of class products (Starbucks CSR Report, 2007). Conclusion Starbucks has established themselves as the premium purveyor of the finest coffee in the world and a business forced to be reckoned with. The company was able to offer Fair Trade Certified Coffee, community contributions, and Green House Gas Emissions studies while making monster profits in a highly competitive market. Starbucks also places a high value on partner and customer satisfaction and sustaining market growth. They also developed long-term objectives that are aligned concurrently with its mission statement. Starbucks has achieved this growth by developing a goal to become the leading retailer and brand of coffee in each of its target markets. Starbucks has become the most recognized and respected brand with strong consumer demand due in no small part to their rapid market expansion and global operating strategy. References High Jump Software (2006) HighJump Software Introduces Labor Management Solution. Retrieved July 12, 2008 from website http://www.globalbeveragegroup.com/about/news/press/?UID=286 Investment Group (2001). Starbucks Coffee Company: Retrieved on July 10, 2008

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