Starbuck Analysis

            Starbucks has positioned itself as the global leader in premium coffee for America and many countries around the world. From its beginnings in Seattle, Washington in 1971 at Pike Place Market in Seattle; the founders Jerry Baldwin, Gordon Bowker, and Zev Siegal have taken the concept of a French coffee shop and grown into a world phenomenon. There are over 17,000 Starbucks stores in the world in fifty-seven countries.  Starbucks has successfully marketed high-end drip brewed hot coffee, espresso-base hot drinks, salads, cold sandwiches, Panini, pastries, and various other products.

Starbucks faces a strategic inflection point as the changes in the global economy impact Starbucks and its customer values and preferences around the world. Its future is dependent on how the top management mobilizes to deal with the downturn in the economy. Strategy for Starbucks with its business strategy must deal with the wide variety of external and internal environments. For the strategic goal with a sustained competitive advantage (SCA) to succeed with Starbucks must take into consideration of the natural parity for Starbucks to maintain its competitive edge with other competitors such as various restaurants and fast food restaurants that serve coffee to its customers.  Starbucks can regain its industry’s edge by restructuring its stores to temporarily lower the prices of their goods over the next three years. Starbucks must continuously reposition and repositioning itself to fend off any competition by competitors.

Market assessment of the current situation with Starbucks economic situation demands they alter their high-end coffee prices. They should concentrate their forces on developing new developing markets in other countries to offset the decline in sales in the United States.

If they redeploy their assets into new potential markets they will be able to hedge against downturns domestically and take a robust route to open new stores overseas. I think that Starbucks is delaying the expansion into foreign markets until they gain clarity of where the world economy is headed over the next few years. Starbucks (SBUX) reports a 13 center per share on revenues of $2.58 billion. They have earned over $.10 a share with its 3% rise from a year ago. They earned 1 cent per share after restructuring charges such as store closures. (Starbucks will restructure and rise once again, 2008). It has closed 600 stores in 2008 to deal with the recession. Starbucks has been facing increased competition from Dunkin Donuts and McDonalds by taking a percentage of the coffee “pie”.

Starbucks with its large organization under the direction of Howard Schultz is striving to restore financial health to Starbucks while maintaining its unique atmosphere that has made it a world leader in serving specialty coffee. (Ostdick) Starbucks with its catering to the middle and upper class has created a permanent presence in America. Their rationale for providing the best coffee has eluded such companies as Denny’s’, McDonalds, and all fast food restaurants until recently. The planning and improvising of Starbucks at its inception has taken the country by storm.

Today, Starbucks has with Schultz at the helm as CEO treats employees better than most companies today. It has an enhanced 401(k), keep health care and create tuition reimbursements, and maintain their ethics and courteous value of a company that has a performance measurement unmatched today. It has taken Porter five force analysis to heart in its approach to dealing with competition.

1.1 Threat of new competition –Starbucks continues to treat the competition head on by providing its patrons with a comfortable and professional atmosphere for its patrons. Many other retailers such as McDonalds and Denny’s’ don’t quite get why a great environment to drink coffee is important.

    1.2 Threat of substitute products or services – Starbucks handpicks its coffee beans and is very discriminating in what coffee beans are allowed to become coffee for their stores. The “knockoffs” still think they can provide sub-standard coffee at inflated prices.  There have been numerous lawsuits with companies trying to use Starbucks’ logo without its permission. Schultz as CEO doesn’t take copyright infringement of its products or services lightly. There are many fulltime lawyers at Starbucks payroll to protect its global interests.

    1.3 Bargaining power of customers (buyers) – Starbucks deals with its customers in a professional and casual atmosphere. They don’t price their coffee out of the realm of true coffee lovers. By not price gouging its customers, people realize that Starbucks is the place to get their morning coffee. In today’s fast paced world people don’t take the time to make a pot of coffee in the morning, due to their hectic and busy lifestyles.

    1.4 Bargaining power of suppliers – Starbucks pays its vendors good prices for its coffee beans internationally. It has online stores and sells everything you can imagine.

    1.5 Intensity of competitive rivalry – It rivalry with Dunkin Donuts is good for consumers. You never want only one company supplying a preferred specialty good such as coffee. Starbucks will be able to demand any prices for their products, within reason. (Mike, 2010).  The rivalry of Starbucks vs. Dunkin Donuts will improve the quality of customers support and lower prices for all parties concerned. No one would ever think of paying $5.00 for a cup of coffee. Starbucks has turned from a fan based phenomena to a daily routine for many people. During this recession many people have cutout or cutback their consumption of coffee in favor of making a pot of coffee in the morning like many millions of Americans have done for centuries. People like the atmosphere of the stores of Starbucks that Schultz has envisioned.

In the course of an external and internal analysis the five forces (5F) in the industry comes into play. There are suppliers, customers, competitors, new entrants, and substitutes. We have to consider the macro environmental forces (MF), stakeholder analysis (SA) which comes to

EA=5d+MF+SA. These forces are often opposed to each other in an attempt to disrupt the industrial organizational economics (IO) of such companies as Starbucks. I have seen many companies over the years become complacent such as Eveready Batteries who didn’t think that advertisement was important. Then Duracell came along with their aggressive marketing campaign and Eveready lost a substantial market share as a result. If Starbucks becomes complacent another competitor could come along and take their “thunder”. Nothing lasts forever, as the culture changes.

            The components of the external environment involve Starbucks’ interfacing the government, national, and international economics. The technology, social, demography, energy, and natural environment are dynamics forces that Starbucks has to contend with in the 21^st century. By utilizing its computerized inventory control system it can efficiently keep track of its entire incoming and outgoing sale of coffee beans, Starbucks can efficiently maintain its cost controls for domestic importation and exportation of all its products.

The demography of Starbucks has mandated that it adapt its stores in each of the countries that it opens. Starbucks researches the customs and sociology of every country that Starbuck goes into to meet the economic and social requirements to be successful.  As the company expands it has to expand its organizational structure to contend with its international growth. There are vice-presidents of Starbucks for each its international global operations, divisional, and regional managers along with store manager to overseas each individual store operations. (Marcus, 2011)

            To keep its cooperate image it has to listen to its stakeholders who have a firm commitment for growth to insure that the stakeholders know Starbucks continues to provide high-quality goods and services to its customers. There is an unfortunate side to this in that even though they continue to make profits every year. The stakeholders always want more, more profits, higher sales, and more volume, which translates to inflation of prices as the cost of goods goes up every year. Third-world countries increase their standard of living as the profits from the sales of coffee beans increases the wages of the workers, the cost of shipping, and all other associated costs. There is always a darker side to any company that it is highly profitable. (Schultz, 2010) Kraft and Starbucks has had a fall out due to Starbucks saying that they failed to market its brands of products. Starbucks fails to understand that Kraft has to support many other products besides Starbucks. Kraft has to support Folgers with a 28% market share. Starbucks is starting to realize that Americans are coming back to reality and tightening their money belts as this depression/recession continues. Starbucks management is persistent and has decided to open its own coffee grocery to compete head to head with Folgers and Maxwell House. (Schultz, 2010)

Starbucks doesn’t understand that many Americans will buy the best coffee for the dollar. Most Americans can’t afford to regularly buy Starbucks high end coffee. I know many people that have cut out and reduced their Starbucks intake. It is alike to stores like Niemen Marcus, Saks Fifth Avenue, Bloomingdales, and Macys who take in over $52.4 billion a year, upset when their profits slide during this depression. Starbucks is not only catering to the high-tech workers, Congress, lawyers, and doctors, but also to the average middle class worker. When the economy is down the high end indulgences are the first thing on the list of things to cutback.

Starbucks as it deals with other countries in its international coffee chain has had its controversies with countries such as Ethiopia. There are political ramifications whenever any corporation enters into a foreign country. Starbucks thinks that Ethiopia would conduct trademark violations along with other countries Starbucks hasn’t entered. But, Starbucks is trying to railroad Ethiopia by only paying the coffee farmers 24 cents a pound while charging $3.60 a pound, which is a 1500% markup. I think Starbucks is used to getting what it wants and is willing to crush its competition in any way it can.

In America, power corrupts and absolute power corrupts absolutely. It is only a matter of time that all the countries in the world will realize that every country in the “third-world” countries will eventually make the same wages as all other countries as their respective economies grows, and its educational literacy system, and infrastructure improves. The quality of life for everyone, as it improves will motivate people to demand higher wages, and better living conditions.

We are on one planet in a global community. As world Wikenomics and Macrowikenomics touches everyone on the planet, the internet, and global collaboration is changing the global marketing environment. Starbucks and most large corporations have turned to the internet for marketing, sales, and advertising of their products. Advertising that was dominant in television and radio has shifted to the internet and websites to promote all goods including Starbucks coffees. Some people blame Starbucks for the increase of coffee prices. I think that is partially true, because farmers think that if consumers will pay more for Starbucks coffee beans then they will pay more for all other coffees.

The board of directors for Starbucks has dealt with the closure of stores due to the decline of sales in the United States markets. The unfortunate backlash is akin to HP’s policy of never having a layoff and offering employees less hours instead of closures. The reserves of funds should have been used during the hard times as a saving account for a rainy day instead of closing stores just to appease the stockholders. The stock market is like a double edged blade, there are those that make a great deal of money with majority losing money to the rich due to the speculation nature of the stock market. Many corporations including Starbucks are blinded by the decision to do what is best for the people or the stakeholders in the corporation.

Google would have been a better choice as a company to review its growth and how it treats its employees. It is having fantastic growth is due to its sharing its profits with all its employees by respecting its employees, giving them free lunches, great benefit plans no matter what, allowing employees to work their own hours, working outside, and encouraged to “thinking outside of the box.” Starbucks has been overanalyzed from my research of hundreds of hits of too many online schools doing research of Starbucks success.

Starbucks was a great company, but today corporate greed has blinded it to the truth that Starbucks was a fad during the 1990’s-2005. Know like third-world countries, other companies are taking an increased share every year of Starbucks market due to imitation and innovation at all restaurants, coffee shops, internet cafes, and eventually all fast food restaurants. There are growing pains for any large corporation, some make it, and others fail to cope with global expansion. Time will tell whether Starbucks will survive the changes in the world in one hundred years. We shall see how successful their long term business plan with succeed. Today, millions of Americans are making 50% less in buying power than they did ten years ago. (www.usinflationcalculator.com)

401(k) plans and home equity is gone from most Americans who now have to work past retirement because our Social Security system is a failure and most companies don’t offer the same retirement matching plans of the 1980’s. Higher medical, dental, and other higher insurance rates, and higher gasoline prices, due to our addition of oil, have impacted all Americans, and corporations. Insurance companies are destroying corporate America. They have impacted the profit margin of all major and small corporations with higher insurance premiums due to de-regulation of insurance companies, due to insurance companies and their lobbying of Congress over the decades. If we spent that $5 trillion on infrastructure rebuilding of America we could easily have competed with other countries, with import tariffs. The lower cost of electricity from solar, geothermal, tidal power, and low cost water from more de-Salination plants, low cost food more modernizing centuries old farming techniques around the world would help us all due to the integration of science, technology, and business into the management strategy model.

Starbucks and the fortune five-hundred companies need to reinvest in all of its employees educational and developmental growth and progress in so much as our public school system has failed due to lack of federal funding. Corporation need to increasingly sponsor educational reimbursement programs for their employees to better serve the collective evolution of our society. The more literate that people of a nation are, the more they can contribute. The downside of this is that people as they become more educated increasingly question the judgment of our corporations, and elected officials in their effectiveness to govern us through this difficult time of global manufacturing, and global expansionism.

As China continues with its expansionistic philosophy, Starbucks, and many other corporations will see the stealing of their proprietary inventions, products, and resources to make high-technology goods. When dealing with management strategy in today’s global market we have to be aware of thousands of facts and historical statistics to plan intelligently for our future. The blending of business knowledge with scientific and technological knowledge is a critical problem I see with all online universities. I am an amateur scientist who has spent forty years studying all areas of science, and technology, from genetics, biology, chemistry, mechanical, electrical, mechanical, civil engineering, bio-engineering, chemical engineering, biochemistry, medicine, geology, astrophysics, psychology, and philosophy.  Harvard, John Hopkins University, Yale, and M.I.T. have become aware of this fact that I have blogged about for years. There has to be a balance of science, technology, and business knowledge for the successful CEO and project manager of tomorrow. The failure of affordable degree programs today in business, marketing, and finance is due to the lack of achieving a balance of learning enough about all subjects of science, technology, and business to make well informed decisions for planning the future of corporations in the world coupled with corporations contributing to sponsor the full cost of these programs to increase the assets of their companies known as people. Without well educated people in all areas, who are going to create the new innovations for business tomorrow? A new renaissance of learning and affordable education must be encouraged by increasing the priority in quality education starting in grade school, throughout everyone’s life to help build a better future for everyone where ignorance and financial irresponsibility will be replaced by people able to make educated and intelligent decisions for every day in their lives and to improve the quality of America and the world in general.

Even a corporation such as Starbucks will benefit with a higher percentage of employees.

Works Cited

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Anonymous. (n.d.). Starbucks. Retrieved from Wikepedia: http://en.wikipedia.org/wiki/Starbucks

Ekosso, R. (2012). Starbucks and Ethiopian Coffee: The Bitter Taste of Exploitation. Retrieved from The New Block Magazine: http://www.thenewblackmagazine.com/view.aspx?index=488

Freeman, J. &. (1984). The ecological analysis of business strategy. California Management Review, pp. 26(3), 73. .

Marcus, A. (2011). Management Strategy: Achieving Sustained Competitive Advantage (2nd ed.). New York: McGraw-Hill Irwin. ISBN: 9780078137129.

Mike, B. (2010, Oct 10). The Ultimate Rivalry: Starbucks vs. Dunkin’ Donuts. Retrieved 1 16, 12, from The Bookshelf: http://blog.bookrenter.com/2010/10/the-ultimate-rivalry-starbucks-vs-dunkin-donuts/

Ostdick, J. H. (n.d.). Rekindling the Heart & Soul of Starbucks. Retrieved 1 16, 2012, from Success Magazine: http://www.successmagazine.com/rekindling-the-heart-soul-of-starbucks/PARAMS/article/1272/channel/22

Schultz, E. (2010, 12 08). Kraft-Starbucks Split Could Spawn Bitter Grocery Rivalry. Retrieved 1 16, 12, from Advertising Age: http://adage.com/article/news/kraft-starbucks-split-spawn-bitter-grocery-rivalry/147559/

Smith, K. A. (2004). Teamwork and project management. New York: McGraw-Hill.