Sample Essay on Starbucks Strategic Analysis

1. Abstract
Starbucks is a global organization operating in the retail coffee market. Since 1972, the organization has been a leading seller of coffee products, and stretched its market position for the past two decades. Starbucks operates in 64 countries globally. The leading market position of Starbucks organization is attributed to its market expansion strategies and product diversification. Due to the ever-changing consumer needs and preference, Starbucks has advanced from a sheer vendor of coffee products to providing other infusions, foods, and products. Due to the static market growth of markets in developed economies, Starbucks has penetrated into other emerging economies with a high potential monetary growth. This report provides a strategic analysis of Starbucks organization concerning many opportunities and threats within the organization.

2. Introduction
This report is aims at identifying strategic plans that will lead to the organization’s growth and expansion. The report will provide an analysis in helping the organization evaluate its present strategic position and recommend new stratagem with regards to many opportunities, threats, strengths, and weaknesses facing the company.
Starbucks is the leading coffee organization across the globe in terms of sales and market share. The organization has managed to place itself as an illustrious and efficient provider of high quality coffee products, attracting a large number of customers globally. Starbucks organization was founded in 1971, and it was a sheer retail chain store of coffee, tea, and spices (Garza, 2010). Jerry Baldwin, Zev Seigel, and Gordon Bowker were the pioneers of Starbucks. They loved coffee and exotic tea. Later on, they decided to invest a total amount of US$ 1,350 through borrowed loan in opening Starbucks coffee. In 1985, the organization penetrated into the market by selling brewed coffee under Howard Schulz‘s, the CEO, who recognized a great prospective in selling brewed coffee (Caterora & Graham, 2007). The organization opened a number of stores in Seattle area and stretched out across the United States. Starbucks began opening global stores after its initial public offering (IPO) in 1992.
Currently, Starbucks has established 16, 635 in 50 nations worldwide. The organization has formed alliances with other coffee producers, retailers, and has acquired other emerging competitors, thereby consolidating its market position. Despite the organization’s success, there are a number of challenges that Starbucks has encountered. Direct competitors, such as Dunkin Brands and McDonalds have also come up with many ways of attracting customers in the market. Furthermore, the organization faces a challenge of unknown impact on its expansion strategy in the developing markets on its corporate performance.
3. Starbucks Strategic Profile
Starbucks’ sales increased from US$ 14.9 billion in 2014 to US $ 16.45 billion in 2015 (SBUX Annual Report, 2008). The organization has an estimated 145, 800 employees on its payroll. Starbuck is ranked 16th in Fortunes 100 best organizations. It is also placed in the 310 position in the Fortune 500 world’s largest organizations (Fombrun, 2007).
3.1 Strategic Analysis
Starbucks has incorporated business and corporate level strategies. At corporate strategy level, an organization takes into account the general direction focusing on the long-run objectives. On the other hand, corporate strategy focuses on the organization’s market strategy and income generation in the short-run
3.2 Corporate Level Strategy
Starbucks, as indicated earlier, is a leading coffee organization; a position that it will always fight to defend. This implies that the organization’s long-term strategy is tailored to reducing competition both locally and globally, and expanding market shares. This has caused the organization to undertake numerous deliberate actions to contain competition.
3.2.1 Partnership Strategies
Starbucks has formed several alliances with coffee affiliate organizations that have helped it penetrate into new market segments and ensured growth (Isidro, 2004). The organization has also acquired, directly or indirectly, competing firms such as Seattle’s Best Coffee and Tazo tea, an aspect that has helped it level the competition landscape. In future, the organization is expected to make use of the alliances in order to foster growth in the emerging markets (Larson, 2008).
3.2.2 Global Market Expansion
This program was initiated after the IPO. The original Starbucks global store was opened in Japan. In the subsequent years, several stores were opened. Initially, the organization limited its expansion to developed nations. However, in the early 2000s, the company entered developing nation’s markets despite the slow growth rate exhibited because of low-income levels. In 2008, the organization experienced a financial crisis that triggered it to focus on expanding into the emerging markets, particularly China, India, and Brazil (Bose, 2011). Brazil, for instance, was discovered to be the second largest coffee consuming nation worldwide (Brunson Reed, 2011). India also emerged to be a heavy coffee consumer rivaling China. This strategy is vital if the organization is to realize a promising market growth.
3.2.3 Product Diversification Strategy
The organization has been growing its product assortment over the years to increase sales and reduce declines in coffee consumption. The company has diversified its products to cater for different consumers. In addition, it is also in the process of diversifying its products portfolio in order to upgrade its consumer’s experience.
3.2.4 Market Segment Diversification
With the introduction of different new products, it is inevitable that the organization ventures into new market segments. For instance, Hear Music products enabled the organization to play and sell hip music within its stores. Furthermore, after acquiring of Ethos water, Starbucks reached out to the container water market. Market segmentation diversification is important for Starbucks, as it will make it a fully-fledged chain store restaurant, a feature that is similar to competing firms, such as Subway and McDonalds.
3.2.5 Social Environmental Stewardship
An organization growth is determined by its growing responsibility to the society. Starbuck has realized the importance of this feature and unveiled a Global Responsibility Program. The program is aimed at ensuring its global image is maintained through minimizing environmental footprints. It has, for instance, received several accolades for its exceptional corporate responsibility management.
3.3 Business Level Strategies
Business level strategies entail mechanisms that create demand for the organization’s products to gain a competitive advantage over its competitors.
3.3.1 Strategic Stance
One of the organization’s strategies is product differentiation brought about by a shift in the competition scope. The organization customers are served with different type of foods within its stores. Starbucks has diverted its focus from market orientation to product orientation. The organization strives to improve the quality of its products through sophisticated technological advancements. This infers that the company is process oriented, and a lot of effort and focus is on how the products are made rather than the final product.
3.3.2 Value Chain Strategy
These are functional actions of an organization in charge of generating profits and losses. They are normally divided into production, organizational, and financial strategies. These systems are important facets that ensure the organization achieves its desired goals in the short run.
4. Financial Performance
The monetary performance scrutiny examines crucial financial performance pointers normally called ratios. The most common financial ratios used to determine the financial health of Starbucks are profitability, liquidity, leverage, and operational efficiency. As per 2013, the organization’s liquidity was low, which means that the quick and current ratios had fallen. For instance, 2013 financial ratios trailed 2012 in quick, current, debt ratio, profit margin, and earnings per share. The organization, however, realized more revenues as compared to the previous years.
The severe decline in the financial ratios was because of adjudication finalized with Kraft Foods Global. Inc in November 2013. These negotiations led to the pretax charge to the fiscal 2013-operating amount of $2.8 billion. According to the organization’s financial records, the organization has experienced an overall growth in the financial ratios apart from the loss of the Arbitration to Kraft foods Starbucks. In 2014, Starbucks’ ratios improved because of the resolution in the expansion factor. The constant increase in the liquidity ration of Starbucks organization is an indication of improved ability to settle short-term debts.
5. Macro-Environmental Analysis
In order to effectively determine the effect of macro environment on Starbucks Company, it is important to look at the PESTLE analysis. Focus will be put on the emerging markets with regards to India and China, as they are regarded as great potentials in the future consumption of coffee.
5.1 Political Environment
There is less political influence on coffee products as compared to other markets because they do not have much effect to human health. In China, the government is working to establish a coffee culture within its citizens. This was instigated by the fall of tea bubble in 2008. Many farmers have switched focus to coffee production with the government support (The Economist, 2010). Starbucks have exploited this chance adequately. In 2010, Starbucks signed a memorandum of understanding agreement with Yunnan Academy of Agricultural Science (YAAS) and Peoples Government of Pu’er city to support local farmers to develop coffee growth. Furthermore, the organization, in collaboration with the government, will introduce Starbucks Coffee and Farmer Equity (CAFÉ) practices in China (New Statesman, 2010). These agreements are important in enabling the organization establish a permanent foothold in the Chinese market. The only risk about the Chinese government is unpredictable decisions due to the one party leadership system.
In India, there is also great potential in coffee consumption. The organization is advantaged in exploring the Indian market at a time when the government is attracting foreign investment. Indian farmers are also important in supplying Arabia Coffee beans. Starbucks collaboration with Tata Group is another important element for Starbuck to overcome political barriers.
5.2 Economic Environment
Several western nations were affected by the economic crisis in 2008. Starbucks did not escape the global downturn, thereby experiencing low profits. Raised fixed costs forced the organization to close 600 unprofitable stores (Starbuck Corporation, 2010). Price sensitive clients shifted from the high priced Starbucks products to other affordable competitor’s products. In India and China, the growth rates remained positive because the disposable returns of the nations was not affected during the time of crisis. For Starbucks, investing in nations, such as China and India is an important investment as compared to other western education.
5.3 Social Environment
In 1960s, there was an increase in the coffee culture. At first, coffee was grown in Latin America, South Asia, and Central Africa. The product was thereafter exported to foreign nations, particularly in America. However, the Second World War disrupted this pattern in 1952; the Pan American Coffee Bureau introduced the coffee break, which became part of the American culture (Pendergrast, 2001). Coffee products consumption in India was influenced by the western culture. Increased income and lifestyles have prompted coffee products intake increasing coffee expansion in India. In China, the coffee culture has stretched. Coffee is grown in rural settings of Yunnan but its consumption is heavily felt among the growing urban middle class. The growing coffee culture in these nations is an important macro-economic element for Starbucks organizations.
5.4 Technological Environment
Technological development within the coffee industry has been dynamic. Typical coffee was initially grounded at roasters and homes, while current coffee served is normally brewed through special machines. This is fostered by the evolution of coffee capsules manufacturing machines. The transformation in the technological atmosphere has prompted Starbucks organization to come up with VIA instant coffee and K-cup lines within a single serve coffee market. For instance, nestle, was introduced in the early 2000s, is a coffee product that was triggered by technological advancement.
5.5 Legal Environment
Before any organization ventures into a particular business, it is important to understand the intellectual property laws and licensing issues concerning entering emerging markets. The Starbucks organization, therefore, needs to exploit the intellectual property protection laws. This is vital because the organization’s technological machinery, such as the Starbucks Roast is a crucial component of the organization’s competitive advantage.
5.6 Environmental Environment
Environmental conservation is an important facet for coffee product producers. This is attributed to the manufacturing of pure and fair coffee; an aspect that is positive among the consumers and environmentalists. Furthermore, coffee production is directly linked to negative impacts on the forests and biodiversity. This has triggered organizations, particularly Starbucks to step up their efforts in an attempt to limit environmental footprints. The overall income that farmers from third world nations receive from their produce have been considerably low (Blacksell, 2001). Farmers have been forced to increase their output under mono cropping, an aspect that is delicate to the natural ecosystem. As a result, governments have tried to intervene and urge farmers to adopt ways that are beneficial to the environment. Starbucks organization has established ethical sourcing practices, which bear an environmental responsibility program in order to aid local farmers and protect the environment.
6. Industry and Competitive Environmental Analysis
Starbucks’ key competitors are the quick- service restaurants and forte coffee shops. In the coffee industry, there are numerous competing firms, especially the coffee beverage industry. According to Starbucks, there is a fundamental belief that clients choose the retail stores based on product service, cost, and suitability. In the recent years, the organization has faced stiff competition from quick service restaurants in the United States. The restaurants are well placed, especially in terms of marketing and operating resources. Below are the main competitors in the industry.
6.1 Dunkin Donuts
William Rosenberg established dunkin Donuts in 1950 in Quincy, Massachusetts. Currently, the organization has more than 13, 000 stores spread across 50 nations. Dinkins’s main office is located in Canton. The organization is known for its donuts and coffee. However, over the years, the organization has incorporated different products, for instance, muffins, bagels, and sandwiches. It also serves pizza and different coffee flavors to compete with the lunch crowd and coffee houses respectively (Dicarlo, 2004).
6.2 McDonalds
Two brothers, Dick and McDonald, in San Bernardino, California, opened McDonald’s first restaurant in 1940. The organization has spread all over 54 countries opening over 31,377 restaurants globally. Furthermore, it serves an approximated 54 million people on each day. Globally, it is ranked the biggest fast-food chain restaurant. In as much as Starbucks is the leading coffee specialty firm in the market, McDonalds is one of the fiercest emerging competitors. It has invented new drinks that have considerably massive clients. About demographics, McDonald has a bigger coverage than Starbucks.
6.3 Panera Bread
Louise Kane and Ron Shaich formed Panera Bread in 1981. Panera Bread has established over 1160 bakery cafes in the United State. The firm has a strong mission statement “A loaf of bread in every arm” and a strategy that aims at competing successfully in the breakfast serving, lunch, evening, and dinner restaurant subdivisions. Panera Bread provides a variety of product lines, such as baked foods, bread, roasted coffee, soups, and salads among others. The organization has also introduced breakfast sandwiches to keep up with competition from other firms. Its provision of casual dining is the major aspect competing Starbucks.
Starbucks’ main rivalry is felt directly in supermarkets, line retailers, and increased coffee stores and restaurants. The intensity of competition among these firms has increased, and the organizations are improving their business position. This may force some of the firms to reduce prices, introduce new products, and increase marketing to have a larger customer base. The pricing of products amidst the competing firms usually varies. Starbucks has noticeably high prices as compared to other organizations. In case of a new entrant into the market, the prices tend to decline in order to compete for market share. This reduces the profitability of the firm.
Starbucks’ physical locations have been an important feature in its quest to gain a competitive advantage. The stores are found in busy and accessible locations prompting a wide range of customers. Additionally, the stores are also located in downtowns, shopping malls, and within coffee related buildings and colleges or university campuses. This provides an easy access to customers.
Furthermore, the firm has strongly invested in information and technology systems as part of its supply chain management, point of sale processing, and in performing other business transactions. This provides an effective and reliable management of production, distribution, and sale of products. Chances of sales of distribution delays are minimized, thereby providing it with an upper hand over its competitors.
Starbucks organization makes use of its human resource effectively. Employees are subjected to the organizational laid rules and regulations and comprehensive operating procedures. There are also training opportunities to employees. The organization realized the importance of growth and expansion, an aspect that is steered by improved knowledge, skills, and the ability of the organizational managers to retain competent workers (Theodore, 2002). This ensures that the organization provides both quality services and products to customers, thereby maintaining a competitive advantage. The main role of the organization’s employees is to offer pleasure to all its customers. As a result, the organization provides a relaxed environment where the relationship between clients and workers makes it stand out from the rest of coffee serving stores.
There is also a wide variety of alternate products for Starbucks’ products. These may also be referred to as competing products. The organization faces a threat of substitution product because of a new product and change of consumer consumption trend that causes a high demand for the product. For instance, coffee products, such as Monster and Red bull proved to be among big coffee products that attracted many consumers. In response to this, Starbucks offers a large array of superior and fair coffee products that counter competing products.
Starbucks has also minimized advertising costs as compared to its competitors. According to Schulz, experience is important than advertising. In an article within the Businessweek.com, Schulz emphasized that conventional advertising has no significant consequences to advertising (Holmes, 2008). The store of experience within the organization has been the growth-driving actor. Schulz attributes this to the quality and flavor of coffee products together with the sore design. Staff training is also another element that Schultz believes in with regards to the brand image of Starbucks organization. The organization has, therefore, chosen to spend millions of money on advertising to increase employees’ benefits. This important factor makes the organization’s products and services effective as compared to its competitors.
7. Conclusion
Currently, Starbucks is one of the major renowned organizations globally. However, as a big organization, there are several internal and external issues that the firm needs to handle in order to maintain the high profile globally. There are key issues that affect the organization directly. The organization has several strengths, weaknesses, opportunities, and threats, especially from other competing firms. Starbucks, therefore, needs to be updated with several dynamics that are changing the business world in the business model and product range.
Starbucks is a global powerhouse in the coffee sector with a large customer base. Currently, Starbucks should be worried about its prices with regards to the prevailing economic conditions affecting the whole world. The high prices may cause a decline in the demand of its products. Many people will not spend their limited income on premium coffee on the realization that they can get other substitute products from competing firms, such as McDonalds and Panera Bread.
Incorporating all the strategies within the business and corporate level, in addition to the macroeconomic environment of the organization is an important framework for further growth and expansion of the organization. This will help the organization remain a major force in the coffee shop market.

8. References
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<<http://www.catalogs.com/info/food/the-history-of-starbucks.html>.
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Blacksell, G. (2011). How green is your coffee. Retrieved January, 27, 2016.
Bose, N. (2011, January 13). Starbucks signs pact to enter India. Business & Financial
Cateora, P. R., Graham, J. L. (2007). International Marketing. New York: McGraw-Hill Irwin.
Chart&t=5y Coffee Review. Retrieved February 01, 2011, from
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Dicarlo, L. (2004, March 22). Dunkin’ Donuts Vs. Starbucks – Forbes.com. Information
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Isidro, I. (2004). Learning from Starbucks: 10 lessons for small businesses [Electronic version]. Power Home Biz. Retrieved online: http://www.powerhomebiz.com/vol144/starbucks.htm
January 30, 2011, from http://finance.yahoo.com/q/bc?s=SBUX Basic
Larson, R. (2008). Starbucks a strategic analysis: past decisions and future options. Brown University.
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Pendergrast, M. (2001). Uncommon Grounds: The History of Coffee and how it transformed the World.London.Texere.
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9. Appendices
9.1 Appendix 1: Industry Structure
Life Cycle Stage Mature
Revenue Volatility Medium
Capital Intensity Medium
Industry Assistance None
Concentration Level Medium
Regulation Level Medium
Technology Change Low
Barriers to Entry Low
Source: IBIS World Report
9.2 Appendix 2: Products
Product Categories
Beverages Food Packed and Single served Coffees Coffee Making equipment
 Bottled drinks
 Brewed coffee
 Evolution fresh
 Chocolate beverages
 Espresso beverages
 Frappuccino blended beverages
 Kids drinks
 Smoothies
 Teas
 Iced teas
 Starbucks refreshers beverages
 Bakery
 Starbucks petites
 Bistro boxes
 Hot breakfast
 Sandwiches, paninis and salads
 Yogurt and fruits
 La boulange
 Evolution harvest Profile
• Blonde roast
• Medium Roast
• Dark Roast
• Flavored coffee
• Seasonal favorites
Form
• Whole bean coffee
• Ground coffee
• K-cups coffee
• Pods
• Verismo
Espresso
• Macchiato beverages
• Latte beverages
• Americano beverages
• Espresso beverages
Starbucks Reserve Coffee
• Zambia peabery
• Terranova Estate
• Kona Coffee Parry Estate
• Sumatra blue battack
• Sun dried Ethiopia Yirgacheffe
• Finca Nuevo Mexico
• Brewing Machines
• Coffee presses
• Coffeemakers
• Espresso machines
• Grinders
• Teapots and teakettles
Other Merchandise
• Hot Cocoa trets
• Mugs and Tumblers
• Music CDs
• Starbucks gifts

Source www.starbucks .com

9.3 Appendix 3: Organizational Chart

Source: Personal design
9.4 Appendix 4: Starbucks Corporation’s Financial Overview
Key Ratio’s/Accounts FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
Profitability Ratios
Revenue 10, 383 9,775 10,707 11,700 13,300 14,892
Gross margin % 19.2 55.8 58.4 57.7 56.3 57.1
Operating Income (USD Millions) 504 562 1,419 1,729 1,997 -325
Operating Income Margin % 4.9 5.7 13.3 14.8 15 -2.2
Net Income (USD Millions) 316 391 946 1,246 1,384 8
Net Margin % 3 4 8.8 10.7 10.4 0.06
Return on Equity (ROE0% 13.2 14.1 28.14 30.9 29.2 0.17
Return on Assets (ROA) % 5.73 7 16 18.1 17.8 0.08
Earnings Per Share Eps (EPS) 0.43 0.52 1.24 1.62 1.79 0.01

Source: The Financial figures used are derived from Starbucks10-K Form for Fiscal Years ended 2008 -2013.

9.5 Appendix 5 List of Starbucks Product Mix

Starbucks Major Products
• Coffee
• Blonde Roast
• Medium Roast
• Dark Roast
• Flavored Coffee
• Seasonal Favorites
• Seasonal Favorites
• Handcrafted Beverages
• Fresh brewed coffee
• Hot and iced espresso beverages
• Frappuccino coffee and non-coffee blended beverages
• Smoothies
• Tazo teas
• Merchandise
• Coffee-and tea-brewing equipment
• Mugs and accessories
• Packaged goods
• Music
• Books
• Gifts
• Fresh foods
• Baked pastries
• Sandwiches
• Salad
• Oatmeal
• Yogurt parfaits
Source: Global Data from Starbucks Website