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Starbucks Corporation was established in 1971 in Seattle, Washington. Currently, it is the largest coffee roaster, marketer and seller. It is also the third largest food chain judging by the number of its operating locations. In addition to several brands of coffee, Starbucks offers beer, wine and appetizers. Though a successful business, the company’s operations are affected by both external and internal environment. Internally, the corporation has built core competencies that are driven by skills and expertise of all team members. Additionally, its product differentiation model ensures that diverse beverages and snacks are offered. Staff appreciation, support and training foster achieving of the Starbucks’ objectives which translates to realization of long term goals. Its global presence gives it an opportunity to maintain the market share of over 36 percent in the United States. Further the company locates its coffee house a few blocks from each other in order to penetrate a wider market. Alongside the corporation’s strengths are weaknesses such as selling high quality products at premium prices which favors other coffee houses that offer cheaper alternatives. Starbucks has a potential for expanding to new markets by using technology to create more distribution channels. The external environment for the company is affected by political, economic, socio-cultural, technological, legal and external factors. According to the analysis of external factors, Starbucks has opportunities for growth. However, it is important for the company to address threats in order to thrive in the highly competitive market.
Today’s coffee industry reflects a dynamic change in products and operational strategies. Specifically, the introduction of specialty coffee into the market had transformed the sector and increased competitiveness. Starbucks Corporation (NASDAQ: SBUX), which was established in 1971 in Seattle, Washington, is the world’s largest specialty coffee roaster, marketer, and vendor and the third-largest fast food chain by the number of operating locations. The company runs restaurants in 28,218 locations across the globe. In addition to its signature dark roasted coffees, Starbucks also sells a wide range of other hot and cold beverages, pastries, and snacks. Select locations, which are known as Starbucks Evenings, also offer wine, beer, and appetizers (Nan & Li, 2017; Hota & Newlands, 2017). Moreover, the company licenses its trademarks through multiple channels and markets its diverse product mix with numerous reputable brands within its comprehensive portfolio, including Tazo, Starbucks VIA, Teavana, Evolution Fresh, Verismo, La Boulange, Starbucks Refreshers, and Seattle’s Best Coffee (Geereddy, 2012). A study of Starbucks internal and external environments is one characteristic of a long and versatile journey through the organization’s culture, market dominance, and the development of a brand name that is widely associated with integrity, loyalty, and longevity.
Assessment of the Internal Environment
Every business strategy’s success is largely dependent on the sound evaluation of an organization’s in-house capabilities and resources, which generates sufficient means to determine and capitalize on the strengths while overcoming any identified weaknesses during the strategy formulation phase. Typically, this assessment deals with a company’s business, resources, policies, objectives, and plans, as well as the effectiveness with which they are realized. Vecchiato and Roveda (2010) note that all business entities, regardless of their nature, size, or scope of operations, perform certain key functions, including production, finance, human resource, research and development, and marketing, which should be cautiously planned, coordinated, and executed to achieve effective strategic management. Internal analysis facilitates the identification of the strengths and weaknesses inherent in each of these functions (Morais et al., 2014). Moreover, it allows for the evaluation of the management and the board of directors in terms of their organizational profiles. It seeks to determine the compatibility between a company’s shared values or culture with its strategy, structure, style of management, systems, skills, and staff as illustrated by the McKinsey 7-S model (Ballou, Heitger, & Landes, 2006). Various tools will be used to analyze Starbuck Corporation’s internal environment.
This approach investigates a firm’s internal resources to determine the distinctive features by assessing a company’s competencies, skills, and expertise with regard to the individual members as well as the entire team. This strategy aims at recognizing the definite aspects that make an entity different from others in the industry (Dervitsiotis, 2015). Starbucks’ competencies include the firm’s capacity to leverage its main products’ differentiation tactics by providing a fine mix of premium beverages and snacks. Specifically, the company has built its name around its provision of the best quality dark roasted coffee and other products, as well as the provision of a customized ‘Starbucks Experience’ to every customer (Amir, Indah, & Widayanti, 2018). Over the years, the company has company has demonstrated an unwavering dedication to offering freshly roasted coffee of such superior quality that customers would be indisposed to take anything of lower quality. This trend has also been extended to other Starbucks’ products through strategic partnerships and joint ventures with other exemplary companies, including PepsiCo, Dreyer’s, HP, and Kraft Foods, Inc. for the manufacture or packaging of various products. The company has managed to create a massive following of loyal customers by delivering superior customer service as well as a clean and well-maintained eating environment (Geereddy, 2012; Jain & Singal, 2014). To this end, Starbucks introduced free Wi-Fi hotspots across all its restaurants to allow customers to continue working while they wait for or eat their meals.
The organization’s value-based approach to human resource management has enabled it to cultivate sturdy internal and external relationships, which facilitate the successful deployment of its organic expansion strategy into foreign markets as well as horizontal integration through the creation of alliances and smart acquisitions that foster its long-term goals and objectives (Martinez-Torres, Rodriguez-Piñero, & Toral, 2015). The organization’s support and appreciation of its employees was sufficiently demonstrated when the management premiered offering stock options to part-time workers. Starbucks also established a 24-hour training program to increase workers’ retail skills, customer service, and other proficiencies (Lu, Shih, & Wang, 2016). As a result, the company has the lowest staff turnover rates in the in the sector of 65 percent as compared to the industry average of 150 to 400 percent (Grant, 2016).
Starbucks enjoys significant global presence and had maintained a market share of over 36 percent in the United States as shown in Appendix 1. The company runs businesses in more than 60 countries across the world, and is undoubtedly the most recognized brand in is sector. This strong brand equity allows the firm to license its logo and merchandize products, thereby boosting its revenues. Further, it enables the firm to gain a competitive edge to increase its sales in domestic and foreign markets (Mooney, 2007). Its exemplary supplier relationships and distribution network has allowed the firm to gain economies of scale. The quality of Starbuck’s products is another strength, which attracts customers to the restaurants. The company is also known for its impressive treatment of employees and attractive compensation packages, which include retirement accounts, stock options, and healthy company culture (Jianfei, 2014).
More importantly, the company has mastered a philosophy that entails locating Starbucks coffee houses on all city blocks in close proximity to each other, which allowed it to penetrate a wider market. Virtually all stores are located in prime and strategic locations where they target high-visibility and high-traffic areas near a wide array of settings (Wei, 2016; Reed, 2000). The store’s visual appeal and aesthetic beauty, free wifi, and warm atmosphere make the stores a meeting point for most people. The company’s social responsibility initiatives have created goodwill amongst the customers and created loyalty and a cult following. This is further reinforced by the firm’s loyalty programs, including the Starbucks Card and Starbucks Rewards. Embracing technology through mobile applications expands the firm’s customer base and virtually eliminates all geographical boundaries (Yang et al., 2015).
The close proximity of Starbucks’ coffee houses has been termed as self-cannibalism, whereby the high market saturation and aggressive expansion, particularly in the United States, minimizes any long-term growth targets (Lemus et al., 2015). Further, the firm’s high quality products are sold at premium prices. As such, consumers have to give up the Starbucks Experience in favor of competing products during economic downturns. The prices are also a significant hurdle to the chains growth in developing nations. The large size makes the company prone to excessive scrutiny over issues such as labor practices and corporate social responsibility. With over 8000 stores in the US, Starbucks seems to be over-dependent in one primary region, which ties its performance to the US economy’s growth prospects (Grant, 2016).
International expansion remains the most important strategy for Starbucks. While it has made good progress in some overseas markets such as India, the company still has great prospects for growth in emerging markets. The company could further expand its product mix using its smart acquisition strategy. Leveraging technology can also help the company to create new distribution channels to drive more revenue (Tikson, 2018; Kang, 2016).
Starbucks’ biggest challenge is the growth in competition from domestic and foreign companies such as McDonalds, Dunking Donuts, Pete’s Coffee, and Costa Coffee, among others. The recent price volatility of coffee beans is considerable threat, especially because it is beyond the firm’s control. Moreover, developed markets are already saturated, leaving developing countries as the best prospects for growth (Akgun & Yalim, 2015). However, the company’s products may not sell as well in these markets due to their high prices. Finally, the massive shift to healthy lifestyles may threaten the firm’s future.
The value, rarity, inimitability, and organization of Starbucks strengths can be evaluated using the VRIO framework. These strengths include brand image and recognition, superior supply chain, strategic locations, company culture, global presence, high quality products, and lovely ambience, customer loyalty, leveraging technology, and an admirable corporate responsibility image. A detailed analysis is shown in Appendix 2.
Assessment of the External Environment
Starbucks’ macroeconomic environment is majorly affected by the global economic environment since it affects the purchasing power of consumers. Market research shows that consumers do not reduce their coffee intake but rather they shift to cheaper options. In such a scenario, Starbucks is forced to maintain its market position by offering low priced products. Additionally, Starbucks requires analyzing several political factors before investing in new markets such as political stability, corruption levels, military invasion, intellectual property protection, pricing regulation and employee benefits, among others (Boone, 2017).
Economic growth in developing and increased employment gives Starbucks an opportunity to earn more revenue in various branches across the globe. However, rise in cost of labor in some countries increases the company’s spending since it fetches coffee beans in developing nations which are getting more expensive. Other economic factors that could affect Starbucks include pricing regulation, taxation level, economic environment in different countries and exchange rates for local currencies (Hanson et al., 2016).
The cultures within the society and their way of doing things have an impact on Starbucks’ environment. The company needs to understand the shared attitudes and beliefs and their influence on the market. Social factors that are likely to affect the company include population demographics and skills, culture, education level, leisure interests, and entrepreneurial spirit (Hanson et al., 2016).
Starbucks should not only conduct technological analysis but also consider how it affects the food and beverage industry. When technology is growing slowly, companies have adequate time to adjust while fast paced technological growth gives little time for coping and making profits.
Starbucks requires addressing legal factor GMO regulations, employment regulations and product safety regulations since they have an effect on its external environment. The company should ensure that it does not violate regulations and laws imposed by the countries where they source raw material and those that they have invested in (Boone, 2017).
Starbucks business practices may attract views from international advocacy groups and activists. In some cases, consumers also express issues regarding the environment. The worrying environmental factors include but are not limited to environmental disasters, global warming and environmental rules and regulations.
Recommendations and Conclusion
The international segment is Starbucks biggest area of growth. Emerging markets such as India, Mexico, Brazil, and South Africa are considerable opportunities for establishing new restaurants. The untapped potential in these markets is surprisingly large. As such, the company should grow into these markets by continuing to win customers locally and providing sufficient freedom to management teams to create tailor-made frameworks to suit the context of their regions. The company can also transfer its core competencies country by country to enhance its organic expansion (Corfield & Paton, 2016; Kang, 2016; Chiu et al., 2011). It is also necessary that Starbucks responds to customers’ changing preferences by offering more healthy alternatives on their menu. Notably, the firm spends minimal amounts on advertising budgets. Nevertheless, the organization could benefit from marketing and advertising campaigns in the face of increased competition while adopting new market trends, such as home deliveries. From the PESTLE analysis, it is clear that Starbucks operates in a macro-environment that presents opportunities for growth. However, the company needs to address various threats, especially due to availability of cheaper substitutes. On the other hand, the company may not do much but to avoid violating laws and regulations in different countries.
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