Starbucks as an Example of the Value Chain Model
The business management concept of the value chain was introduced and described by
Michael Porter in his popular book Competitive Advantage: Creating and Sustaining Superior
Performance in 1985. A value chain is a series of activities or processes that aims at creating
and adding value to an article (product) at every step during the production process.
Businesses aim at enhancing their margins and thus work to change input into an output
which is of a greater value (the difference between the two being the company’s profit
margin). The logic behind it is simple: The more value a company creates, the more
profitable it is. The enhanced value is passed on to the customers and thus further helps in
consolidating a company's competitive edge.
Value-chain business activities are divided into primary activities and secondary activities.
The primary activities are directly related to the creation of a good or service, while the
support activities help in enhancing the efficiency and work to obtain a competitive
advantage among peers.
Let’s take the example of Starbucks (SBUX) to understand this better. The Starbucks journey
began with a single store in Seattle in the year 1971 to become one of the most recognized
brands in the world. Starbucks mission is, per its website, “to inspire and nurture the human
spirit – one person, one cup and one neighborhood at a time.”
Primary Activities
Inbound Logistics
The inbound logistics for Starbucks refer to company-appointed coffee buyers selecting the
finest quality coffee beans from producers in Latin America, Africa, and Asia. In the case of
Starbucks, the green or unroasted beans are procured directly from the farms by the
Starbucks buyers. These are transported to the storage sites, after which the beans are
roasted and packaged. They are then sent to distribution centers, a few of which are
company-owned and some of which are operated by other logistic companies. The company
does not outsource its procurement, ensuring high-quality standards right from the point of
selection of coffee beans.
Operations
Starbucks operates in more than 75 markets, either in the form of direct company-owned
stores or licensees. Starbucks has more than 24,000 stores internationally, including
Starbucks Coffee, Teavana, Seattle’s Best Coffee, and Evolution Fresh retail locations.
According to its annual report, the company generated 79% of its total net revenue during
the fiscal year 2017 from its company-operated stores while the licensed stores accounted
for 10.5%.
Outbound Logistics
There is very little or no presence of intermediaries in product selling. The majority of the
products are sold in their own or in licensed stores only. As a new venture, the company has
launched a range of single-origin coffees, which will be sold through some leading retailers
in the U.S.; these are Guatemala Laguna de Ayarza, Rwanda Rift Valley, and Timor Mount
Ramelau.
Marketing and Sales
Starbucks invests more in superior quality products and a high level of customer service
than in aggressive marketing. However, need-based marketing activities are carried out by
the company during new products launches in the form of sampling in areas around the
stores.
Service
Starbucks aims at building customer loyalty through its stores' customer service. The retail
objective of Starbucks is, as it says in its annual report, “to be the leading retailer and brand
of coffee in each of our target markets by selling the finest quality coffee and related
products, and by providing each customer a unique Starbucks Experience.”
Support Activities
Infrastructure
This includes departments like management, finance, legal, etc., which are required to keep
the company’s stores operational. Starbucks' well-designed and pleasing stores are
complemented with good customer service provided by the dedicated team of employees in
green aprons.
Human Resource Management
The committed workforce is considered a key attribute in the company’s success and
growth over the years. Starbucks employees are motivated through generous benefits and
incentives. The company is known for taking care of its workforce, a key reason for a low
turnover of employees, which indicates great human resource management. There are
many training programs conducted for employees in a setting of a work culture which keeps
its staff motivated and efficient.
Technology Development
Starbucks is very well-known for the use of technology, not only for coffee-related processes
(to ensure consistency in taste and quality along with cost savings) but to connect to its
customers. Many customers use Starbucks stores as a makeshift office or meeting place
because of free and unlimited WiFi. Back in 2008, the company launched a platform where
customers could ask questions, give suggestions and openly express opinions and share
experiences; the company has implemented some of the suggestions, including for its
rewards program, from this forum. Starbucks also uses Apple’s iBeacon system, wherein
customers can order a drink through the Starbucks phone app and get a notification of its
readiness when they walk in the store.
The Starbucks Value Chain Model (SBUX)
The Bottom Line
The concept of value chain helps to understand and segregate the useful (which help in
gaining a completive edge) and wasteful activities (which hamper market lead)
accompanying each step during the product development process. It also explains that if a
value is added during each step, the overall value of the product gets enhanced thus helping
in achieving greater profit margins.