IBS 3807

Starbucks globalization ( CAGE, AAA, PORTERS FRAMEWORK)

Submitted By: Aju P Babu

INTRODUCTION

š Starbucks (also the “Company”) first started its business as “Starbucks Coffee, Tea, and Spice” in Seattle’s
Pike Place Market in 1971 by three partners Jerry Baldwin, Zev Siegal and Gordon Bowker, The trio focused
the company’s business of selling coffee beans and equipment to customers and restaurants. In 1982, Howard
Mark Schultz joined the company as director of retail operations and marketing. On one of his buying trips to
Italy in 1983, Schultz came to appreciate the espresso bar and cafe culture of Italy, concluding that, “People
come together every single day and in many cases they don’t even know each other’s names.
PRODUCT OFFERINGS

š Starbucks products today can be broadly classified into specialty coffee, non-caffeinated and caffeinated
beverages, merchandise, and fresh food and snacks. Its coffee portfolio boasts over 30 blends and
single-origin premium coffees, while its beverage products include fresh-brewed coffee, hot and iced
espresso beverages, Frappuccino and non-coffee blended beverages, such as smoothies and teas. The
merchandise products, introduced to further develop the customer loyalty and encourage impulse purchases
in the store, include coffee and tea-brewing equipment, mugs, packaged goods, music, books and specialty
gifts items. In the efforts to keep the customers in its stores for longer periods of time, Starbucks also
introduced fresh food offerings, which include baked pastries, sandwiches, salads, oatmeal, yogurt parfaits
and fruit cups. Starbucks also has a number of brands in its portfolio that it has either acquired or introduced
over time. These products include pre-packaged Starbucks Coffee, Seattle’s Best Coffee, Tazo Tea, La
Boulange and Torrefazione Italia Coffee.
Positioning and strategy

š The Company’s mission in its own words is to inspire and nurture the human spirit – one person, one cup and
one neighborhood at a time. As the Company grew its operations, its objective was to maintain Starbucks’
mission and grow its standing as one of the most recognized and respected brands in the world through
disciplined expansion of their store base, and continued introduction of new products.
š Starbucks coffee sells at a relatively higher price compared to other competitors. Starbucks claims that the
higher prices are due to the high quality Arabica coffee beans it uses in its beverages that are more expensive,
but produce richer and better tasting cup of coffee. The consistency and high quality of its products, as well
as dedication to customer service have generated significant following and customer loyalty and have played
a significant role in its success, especially in the early days.
š As the product, however, became more ubiquitous and competition in specialty coffee
market increased significantly, the Company has been emphasizing constant product
and technology innovation, extensive personnel training, generous benefits packages,
partner relationships, and global environmental and social responsibility as major
differentiating factors from its competition.
Creating competitive edge
Physical resources

š Large number of outlets

š Operation in 40 countries with over 9000 cafes
š HI-tech coffee machines and equipments
Intangible resources

š Techniques to roast and brew coffee

š Large satisfied customer base
š Building employee relationship
š Reputation for having the finest products and services in the world
š Coffee beans ( NARINO SUPRIMO )
š Largest and best known of coffee house chain
Strengths

š Employee/company culture
š Higher than industry wage
š Comparitively lower employee turnover >65% as compared to 150-400% A year in most
fastfood chains.
š Employee benefits such as medical And life insurance, paid vacations, Short and long
term Disability, 30% product discount, Stock option plan, Employee training program.
Porter’s five forces
Power of buyers

š Buyers in this industry are every day coffee shoppers, who have very limited power over
the Company as individuals, but do have some influence as a collective. Beverage prices
have very low price elasticity given the ubiquity of the product in the market and low
switching costs for the buyers.
Power of suppliers

š The Company provides farmers with significant support in their activities through six Farmer
Support Centres established around the world that promote Fair Trade farming and ensure
high quality standards for the product. As a result suppliers grow highly dependent on the
Company’s support and high volumes; situation is further exacerbated by farmers’ inability
to integrate forward into the supply chain due to the lack of roasting or retailing
capabilities.
Power of substitutes

š The number of substitutes available in this market is significant. Alternatives to specialty

coffee depend on the broadness of the market definition and can include anything from
home brewed or office brewed coffees, that tend to be relatively cheap or free, but
inferior alternatives, to other caffeinated beverages like teas, energy drinks, and Coke or
Pepsi sodas
Threats of new entrants

š Barriers into coffee industry are very low, with minimal capital requirements, which results in
significant threat of new entrants.
š With a lot of the equipment available under longer term lease options, new entrants can
spread their entry costs over longer periods of time, decreasing initial capital requirements
even further.
Power of competitions

š Perhaps the power that influences the industry the most, especially in the last decade, has
been the power of rivalry.
š Starbucks has a clear first mover advantage in this market.
CAGE- China & Mode of Entry

š The first Starbucks store located in mainland China was opened in Beijing in January 1999
through a licensing agreement with Mei Da Coffee Co. Ltd. After 2001 when China
embraced the WTO regulations, many western food companies like KFC, Pizza Hut
entered the market. This started to create a change in people’s taste and slowly the
market proved more conducive to the entry of western companies. Since then, the
interest in and appreciation of high-quality Arabica coffee, personalized handcrafted
beverages and the unique Starbucks Experience offered in Starbucks locations in China
has grown rapidly among Chinese consumers
 Year

1999 Beijing

2000 Shanghai, Hong Kong

Adaptation in Chinese 2002 Macau, Shenzhen
market 2003 Ningbo, Nanjing

2004 Guangzhou, Changzhou

2005 Qingdao, Dalian, Chengdu

2006 Chongqing, Tianji, Xian

2008 Wuhan
A traditional tea drinking nation, China
started to embrace coffee in the late 2010 Fuzhou, Jinan, Xiamen
80’s. The growing wealth in the
marketplace created a demand for
Wenzhou, Jinhua, Kunming, Xuzhou, Hefei, Haimen,
gourmet coffee, not just the instant
coffee variety. Starbucks tapped into
the market by integrating the western 2011 Nantong, Taizhou, Langfang, Zhengzhou, Harbin,
products through localization and
Xiangtan, Tangshan, Weifang
adaptation.

2012 Baoding, Nanchang, Huaian, Nanning, Quanzhou,

Qidong

2013 Changchun, Taizhou, Hainan, Taiyuan, Anshan

Starbucks has been successful in introducing and developing a unique coffeehouse experience in
Greater China. The company shares its coffee passion and expertise with customers in China by
encouraging them to sample, savor and enjoy its premium coffee. The human connection has been
and continues to be a hallmark of Starbucks, with partners (employees) working to strengthen that
relationship within and outside Starbucks stores by participating in programs such as the Green Long
March – China’s largest youth conservation movement.

Product Innovations included the November 2007 Starbucks introduction of the Starbucks® bottled
Frappuccino® coffee drinks to Chinese consumers, extending the signature Starbucks Experience
beyond Starbucks stores by making it easier for consumers to enjoy the taste they love at home, at
work, or on the go.
 Adaptation through social responsibility

The connection that Starbucks establishes with the communities in which it operates extends
beyond the daily interactions between barista and customer and is part of the Starbucks™ Shared
Planet™ commitment to community involvement.

In alliance with the American Red Cross, International Red Cross and the Red Crescent (supporting
the Red Cross Society of China), The Starbucks Foundation has provided $250,000 for immediate
humanitarian and long-term recovery efforts since the 2008 Sichuan earthquake.
Conclusion

š The specialty coffee and snacks industry which Starbucks operates in is a mature industry
with limited buyer and supplier power. The number of substitutes available in this market is
significant, while the barriers into coffee industry are low, with minimal capital
requirements, which results in quite significant threat of new entrants.
š Starbucks plans to continue investing in stores, both domestically and abroad. In order to
maintain its competitive advantage, Starbucks will emphasize continued investment in
technology and product innovation. With the goal of leveraging the existing Starbucks
distribution channel to increase the dollars spent per customer, Starbucks will focus on new
product introductions like VIA soluble drinks, K-cups (for Keurig machines), etc.