Starbucks case study

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STARBUCKS CASE STUDY

Starbuckscase study

Fivegeneric competitive strategies

Thefive generic competitive strategies or Porter’s generic strategiesdescribes how a company seeks to pursue competitive advantage in agiven market. The choice of the company’s generic competitivestrategy has huge impacts on its abilities to reach the intendedmarket. A company chose different strategies for different outletsand markets, or one strategy for all its operations. Starbucks usesbroad differentiation strategy as a competitive strategy. This is astrategy that focuses on the broader segment of whole Starbucksmarket. It is important to note that the coffee market is hugelydefined by the coffee drinkers. This means that companies such asStarbucks have to provide what the clients want. Starbucks has beenable to use brand differentiation as a competitive strategy bymeeting the client’s requirement irrespective of how therequirements may be detailed. This has enabled to company to have acompetitive advantage over its competitors. For example, Starbucks isknown for excellent and quality products such the famous espresso.The unique and diversified product offered at Starbucks is animportant aspect of the organization’s competitive advantage. Thecompany has been able to achieve this through partnership with othermajor companies such as PepsiCo, Jim Beam and Tazo tea.

Starbuckssocial responsibility strategy

Starbuckshas affirmed itself as a reputable company through its corporatesocial responsibility. These activities mainly focuses on the welfareof the community in which the company operates and the stakeholders.Starbucks corporate social responsibility activities targets coffeefarmers who supply high quality coffee to the company, theenvironment and the immediate community. This includes ethical andresponsible sourcing of coffee from farmers, adopting environmentalresponsible operations and involvement of the community. Starbuckshas also adopted excellent workplace practices which take care of thewelfare of the employees, who constitute the most important communityin the organization. The company management considers responsible andethical business practices should a principle value in theorganization. The sourcing of coffee by Starbucks is considered to beone of the most sustainable and best paying in the world. The companyis also the leading player in the Fair Trade Certified coffee in theUnited States, North American and the world. Starbucks is also aglobal leader in environmental responsibility through promotion ofgreen building and use of renewable energy. The company is committedtowards reduction of the environmental footprint associated with thecompany’s activities. Additionally, the company seeks to make eachof its outlets the heart of the immediate society. This is donethrough establishment of personal relationships between the companyand its customers as well as the neighbors. For example, Starbuckspromotes economic growth and creates employment in the immediateneighborhoods. Starbucks also supports the local community throughcorporate social responsibility such as donations and company fundedprojects.

Starbucks’financial performance during fiscal years 2007-2011

Thefinancial statement of Starbucks indicates that the companyperformance improved significantly between 2007 and 2011. Revenuesfrom both company operated stores and licensed stores grew from9,411.1 million dollars in 2007 to 11, 700.4 million dollars in 2011.However, this was coupled with a significant increase in the numberof stores and licensed stores countrywide. For example, the companycurrent assets grew from 1,696.5 million dollars to 3,794.9 milliondollars between 2007 and 2011. Although the operating income wasrelatively low in 2008 and 2009, it improved significantly in 2010and 2011. Net income has almost double when 2007 and 2011 data iscompared. As a result, the diluted earnings per share have increasedby 50 percent. The gross margin, a ration of the difference in costof sales and sales to sales has also increased from 10 percent in2007 to 13 percent in 2011. The return on assets has increased from13 percent in 2013 to 17 percent in 2011. The return on revenue hasalso increased from seven percent in 2007 to 10 percent in 2011.

HowardSchultz performance

HowardSchultz performance at Starbucks is relatively good. Over the years,Howard Schultz has been considered as one of the best businessleaders in the modern era. Although he is remember for his exemplaryperformance in the 1980s and 1990s before he left, he is rated amongthe best business executives since he returned to the company. HowardSchultz joined Starbucks as a marketing director in the 1980s. Heoversaw rapid expansion of the company including the acquisitionalthough his ambitions were derailed by frustrations from themanagement. Although he left the company after it became a publiccompany in the early 1990s, he returned as the CEO in 2008 where hehas greatly influenced the performance of the company. Howard Schultzmade a decision to take the responsibility of reviving the dyingcompany. Although Starbucks shares were doing relatively well in theearly 2000s, there had dropped significantly when he took over.Although he did not promise instant success to the investors, he wasable to lead Starbucks into one of the most admired companies in theUnited States. In addition to giving investors values for theirmoney, he is able to take care of the employees’ welfare. Heestablished an organization structure that made Starbucks one of thebest companies to work for through improved workplace environment.

Issuesthat confronted Starbucks in 2012

Starbucksreported a relatively good performance in 2011 financial year and thefirst two quarter of 2012. The most important issue faced by thecompany’s management is maintaining this relatively strongperformance despite the challenges in the economy. Compare to thefirst two quarters of 2011, the 2012 financial year had a significantimprovement of 12 percent increase in operating income. Theperformance of the company had been in an upward trend since thesecond half of 2011. This improved performance was reported in allcompany operated outlet in the United States as well as overseas suchas in China. Maintaining this continues improvement in the company’sperformance was an important issue that confronted Starbucksmanagement in the second half of 2012. Additionally, the managementhad several projects and targets by the end of 2012 financial year.This mainly includes expansion of the company’s operations in theAmericans and other parts of the world. One of the most importanttargets was to open 500 more new Starbucks outlets and stores in theAmericas as well as more licensed stores. Starbucks also aimed atopening 400 new stores and licensed store in Asia and China region.In Europe, Africa, Russia and the Middle East, Starbucks planned open100 new stores by the end of 2012 financial year. Other issues facingStarbucks in 2012 includes achieving a target growth in sales, newstores as well as strong performance in the Consumer Products Groupsegment. This will result into increased earnings per share ofbetween 19 and 21 percent compared to the earning per share in 2011.

Recommendationswould to Howard Schultz to sustain the company’s growth and supportcontinued strong financial performance in the years ahead

Starbuckshas performed relatively well over the years. However, this is not anassurance that the company will continue to perform well in thefuture. There are several things that Howard Schultz and hismanagement team should do to maintain a strong performance andcontinuous growth in revenues. Some of the recommendation toStarbucks management includes more detailed and vigorous strategiesto strengthen the Starbucks brand name. While the company continuesto open more outlets, it is necessary to make the market presencemore aggressive through advertisement and promotion that promotes thequality and superiority of Starbucks coffee and beverages. Productdifferentiation has been one of the strongest points in Starbucksoperations. However, it can be made between, which will improvecustomer experience. As Starbucks continues to expand its operations,it is also necessary to continuously provide new varieties of qualitycoffee and beverages. This will play an important role in attractingnew customers. While new customers have a huge influence on Starbucksperformance, the management should be more focused on retaining loyalcustomers were building customer loyalty. For example, distinctiveloyal customer’s privilege and reward programs can play animportant role in building and sustaining customer loyalty. Majorityof Starbucks stores are middle sized, which has a significant effectson customer experience. To improve customer experience, it isnecessary for Starbucks to consider opening more drive throughstores.

References

Thompson,A. (nd). Starbucksin 2012: Evolving into a dynamic global organization,Case 24.