Starbucks Coffee Company Transformation and Renewal
Profit & Solutions Management Research Publication
Series
Researched & Written by Deb (Debadip)
Bandyopadhyay
Starbucks Corporation is
an American multinational chain of coffeehouses and roastery reserves
headquartered in Seattle, Washington. As the world's largest coffeehouse chain,
Starbucks is seen to be the main representation of the United States' second
wave of coffee culture. As of early 2020, the company operates over 30,000
locations worldwide in more than 70 countries. Starbucks locations serve hot
and cold drinks, whole-bean coffee, microground instant coffee known as VIA,
espresso, caffe latte, full- and loose-leaf teas including Teavana tea
products, Evolution Fresh juices, Frappuccino beverages, La Boulange pastries,
and snacks including items such as chips and crackers; some offerings
(including their annual fall launch of the Pumpkin Spice Latte) are seasonal or
specific to the locality of the store.
Headquartered in the
Starbucks Center, the company was founded in 1971 by Jerry Baldwin, Zev Siegl,
and Gordon Bowker at Seattle's Pike Place Market. During the early 1980s, they
sold the company to Howard Schultz who – after a business trip to Milan, Italy
– decided to make the coffee bean store a coffeeshop serving espresso-based
drinks. Schultz's first tenure as chief executive, from 1986 to 2000, led to an
aggressive expansion of the franchise, first in Seattle, then across the U.S.
West Coast. Despite an initial economic downturn with its expansion into the
Midwest and British Columbia, the company experienced revitalized prosperity
with its entry into California in the early 1990s through a series of highly
publicized coffee wars. Schultz was succeeded by Orin Smith who ran the company
for five years, positioning Starbucks as a large player in fair trade coffee
and increasing sales to $5 billion. Jim Donald served as chief executive from
2005 to 2008, orchestrating a large-scale earnings expansion. Schultz returned
as CEO in the middle of the 2008 financial crisis and spent the succeeding
decade growing its market share, expanding its offerings, and reorienting
itself around corporate social responsibility. Kevin Johnson took over from
Schultz in 2017, and continues to serve as the firm's chief executive.
Many stores sell
pre-packaged food items, pastries, hot and cold sandwiches, and drinkware
including mugs and tumblers. There are also several select "Starbucks
Evenings" locations which offer beer, wine, and appetizers.
Starbucks-brand coffee, ice cream, and bottled cold coffee drinks are also sold
at grocery stores in the United States and other countries. In 2010, the
company began its Starbucks Reserve program for single-origin coffees and
high-end coffee shops. It planned to open 1,000 Reserve coffee shops by the end
of 2017.[8] Starbucks operates six roasteries with tasting rooms and 43 coffee
bars as part of the program. The latest roastery location opened on Chicago's
Magnificent Mile in November 2019, and is the world's largest Starbucks. The
company has received significant and sustained criticism about its business
practices, corporate affairs, and role in society. Conversely, its franchise
has commanded substantial brand loyalty, market share, and companyThe coffee
industry has significantly changed, and the strategies that conventionally
worked in 1970s and 1980s may no longer work. Traditionally Starbucks purchased
and sold only high-quality coffee at a premium price. However, the coffee
experience that was special in the last decades is no longer unique, and the
company has failed to recognize these changes in customer tastes and
preferences. Additionally, competition has increased, and there are competitors
selling the same quality of coffee at a lower price. Starbuck’s attempt to make
its coffee special will only harm its sales volume as consumers will buy from
competitors (Giovannucci, 2001). Below is a graph for annual revenue
performance per employee in the four major coffee dealers in the U.S.
The coffee
industry has changed and the decision to close 600 stores in 2007 is an
indication that the company needs to change its current strategy. After
conducting an industry analysis with the help of Porter Five Forces, it is
clear that competition and Fair trade have affected our business. The analysis
revealed that the young coffee consumers are not as sensitive to coffee taste
as the elderly users. Additionally, the varieties of beverages have increased,
and they offer alternatives to coffee (Batsell, 2001).
The
analysis indicated that the reasons for the decline in the Starbucks’ sale are
that the older generation that valued the club-like environment over a cup of
coffee has reduced significantly (McClure, 1999). The decision to introduce so
many products affected the trust that customers had on the integrity of
Starbucks’ coffee. Finally, the process of creating new stores was not well
thought-out, and it only created an imaginary growth while the fundamentals of
the business remained the same or deteriorated (Mathew, 2008).
I
recommend closing of more stores, reduce our product lines and change our
target market from the specialty to mass branding.
Closing
more stores in the U.S., China and Europe will help the company reduce
operational costs. The company has been making losses in most of the recently
opened shops, and they should all close. The company needs to sell these
stores so that it can use the money to aggressively market its products and
fund research and development (Pendergrast, 1999).
The company
should reduce its product line to earn back the trust from the coffee lovers.
The perception of the quality of Starbucks coffee has been affected by the many
brands. By specializing in two or three brands will make the marketing
activities easier and cheaper. The company will not have to employ so many
promoters for its coffee (Quelch, 2008).
In the
current market conditions, most customers are sensitive to the product prices
and not the quality. It is essential that the company find ways of reducing the
cost of production of our coffee so that we can decrease the price of coffee.
Our prices should be able to compete with competitors’.
These
changes are critical for Starbucks’ survival and its future performance.
Failure to take these corrective measures will see the company share price
continue to go down, and this may attract a hostile takeover, and the company
will be no more. Competitors are watching keenly into the problems of
Starbucks, and are eagerly waiting for the strategy the company will take so
that they can decide on their next move. Starbucks dominance in the coffee
industry in the past creates a feeling of success among hostile investors. Some
have waited for a long time for the current situation to occur so that they can
take over the company at a cheap price.
References
Batsell, J. (2001). Starbucks Achieves Worldwide Renown
with Some Costs. The Seattle
Times. 83(2), 33-37.
Gill, D. (2013). Starbucks Shares Looking Frothy;
Where is Howard’s Head? Retrieved on 06th June 2015
from http://ycharts.com/analysis/story/starbucks_shares_looking_frothy_where_is_howards_head
Giovannucci,
D. (2001). Sustainable Coffee Survey of the North American Specialty Coffee
Industry. New York Times. 15(2), 25-32.
Mathew, L. (2008). The decline of the empire of Starbucks.
Retrieved on 06th June 2015 from http://www.spectator.co.uk/columnists/any-other-business/852391/the-decline-of-the-empire-of-starbucks
McClure, R. (1999). Starbucks soon to have it Made in the
Shade. Seattle-Post Intelligencer. 3(2), 53-67.
Pendergrast, M. (1999). Uncommon Grounds: The
History of Coffee and How It Transformed our world. New York: Basic
Books.
Quelch, J. (2008). How Starbucks’ growth destroyed brand value.
Retrieved on 06th June 2015 from https://hbr.org/2008/07/how-starbucks-growth-destroyed
http://ycharts.com/analysis/story/starbucks_shares_looking_frothy_where_is_howards_head
For More Research Article
& Vlogs Visit:
Website: http://profitsolutions.tk/
Second Website: https://www.debadip.co
Linkedin Link: https://www.linkedin.com/pulse/starbucks-coffee-company-transformation-renewal-debadip-deb-
#research #data #management #analysis #marketing #marketresearch #analytics #datascience #bigdata #seo #digitalmarketing #dataanalytics #innovation #coffee #transformation #research #management #digitaltransformation #sustainability #retail #ai #strategy #supplychain #data
Comments
Post a Comment