Starbucks Corporation

Course: MBA (Banking & Finance)

Module: Directing to Business
Subject: Strategic Management
Tutor Name: Dr. Emanuela Todeva
PROJECT:

Starbucks Corporation
Howard Schultz (ceo)

GROUP : 8

TEAM MEMBERS:

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Question 1: Please, analyse the competitive forces that drive changes in the corporate
environment. Outline key events in corporate history - as milestones for the company
development, and the impact of environmental factors.

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”. 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

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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).

BACKGROUND 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, 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."

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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).

The Starbuck historical achievements are explained in the following diagram.

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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:

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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

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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).

BARGAINING POWER OF BUYERS:

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

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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).

Q2: Please describe, What are the ethical challenges to your firm, including questions
related to governance, leadership, customer care, quality, and social welfare of the
employees.

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 thing
are vital to the success of the company. Company’s ceo Howard Schultz believes that
his employees are the success of the company and they should be treated equally and
with dignity.

GOVERNOR’S LEADERSHIP APPROACH IN STARBUCKS:

“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.

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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.

SOCIAL WELFARE OF THE EMPLOYEES:

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 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.

CUSTOMER CARE:
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

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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.
CONCLUSION:

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REFERENCES:

1. Adamy, J. (2007, November 15). At Starbucks, Too Many, Too Quick?

http://online.wsj.com/article/SB119508847922393547.html.

2. Adamy, J. (2008, January 7). McDonald's Takes on Starbucks.

http://online.wsj.com/article/SB119967000012871311.html.

3. Adamy, J. (2007, November 26). Starbucks Upgrades Espresso Machines.

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.

http://online.wsj.com/article/SB119974270198772921.html.

6. Adamy, J. (2008, February 2). With Starbucks, Investors Need Patients.

Retrieved February 4, 2008, Wall Street Journal:
http://online.wsj.com/article/SB120191741501337213.html.

7. Argenti, P. A. (2004). Collaborating with Activists: How Starbucks Works with

NGOs. Berkeley: Haas School of Business.

8. Caribou Coffee. (2008). Caribou Coffee. Retrieved January 14, 2008, from
About Our Coffee: http://www.cariboucoffee.com/page/1/about-our-coffee.jsp.

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9. Chemers, M. M. (2002). Cognitive, social, and emotional intelligence of

transformational leadership: Efficacy and Effectiveness. In R. E. Riggio, S. E.
Murphy, F. J. Pirozzolo (Eds.), Multiple Intelligences and Leadership.

10. George, Richard T. de (1999). Business Ethics. Prentice Hall. ISBN 0-13-
079772-3.

11. Luthans, F. & Stajkovic, A. (1998). Self-efficacy and work-related performance:

A meta-analysis. Psychological Bulletin, 124, 240-261.

12. Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries

and Competitors. New York: The Free Press.

13. Quelch, Y. M. (2006). Starbucks: Delivering Customer Service. Boston: Harvard

Business School.

14. Starbucks Corporation, September 28, 2008 Annual Report For The Fiscal Year
Ended 2008. www.Starbucks.com.

15. Shirisha Ragani, 2005, .ICFAI (Center For Management Research) case study
reference no: 405-021-1.

16. Thompson Strickland, John E. Gamble, Strategic Management, 11th edition,

Case Studies A. Thompson, The University of Alabama.

17. Turban, Efraim (2002), Electronic Commerce: A Managerial Perspective,

Prentice Hall, ISBN 0131854615.

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