Mini-Case on the Starbuck Corporation (SBUX) What Starbucks strategies are best? There is only so much revenue that coffee, lattes, and pastries can bring in, so Starbucks performed SWOT and QSPM analyses and decided to spend millions on three new strategies: (1) provide beer and wine, (2) provide expanded lunch and dinner menus, and (3) provide advanced mobile ordering. Several key factors that entered into this decision were (1) there have been long wait times for customers to get served at many of its locations, (2) company business had fallen off 30 percent after morning breakfast, and (3) rivals Panera Bread, Atlanta Bread, and Dunkin Donuts were expanding their menus and growing revenue 15 percent faster than Starbucks. Starbucks’ five-year strategic plan is to double its U.S. food revenue to more than $4 billion, with wine and beer alone adding $1 billion in 2015. Starbucks’ new food items include truffle macaroni and cheese, Parmesan crusted chicken skewers, bacon-wrapped dates with balsamic glaze, artichoke and goat cheese flatbread, and chocolate espresso, champagne, and raspberry truffles. Starbucks’ new wines include a variety of sparkling, red, white, and rose choices. Starbucks’ new mobile app and coffee truck and delivery trucks help stores anticipate demand, so customer orders are often available immediately. Questions 1. Develop a SWOT Matrix for Starbucks that includes the three strategies and three factors cited in the case. 2. Develop a 3x3 QSPM for Starbucks that includes the three strategies and three factors cited in the case. Which of your three factors received the highest weight? Which of your three strategies was most attractive? Explain. Opportunities 1. Technological Advances with 10% of it’s transactions being made on the mobile application. 2. Expansion into Emerging Markets with 12,000 new stores by 2021. 3. Expanding diversification of product mix and offerings. 4. Partnerships or alliances with other firms 5. New distribution channels. 6. Expansion of retail operations. Threats 1. Company business had fallen off 30 percent after morning breakfast. 2. Rivals Panera Bread, Atlanta Bread, and Dunkin Donuts were expanding their menus and growing revenue 15 percent faster than Starbucks. 3. Competition from lowcost coffee sellers. 4. Imitation 5. Developed Countries Economy and Politics. 6. Increased Competition 7. Price Volatility in the Global Coffee Market and other Ingredients Strengths 1. Strong market position and global brand recognition 2. Extensive global supply chain 3. Diversified business through subsidiaries 4. Products of Highest Quality 5. Customer Loyalty 6. Starbucks Experience 7. Operating efficiency and strong growth leading to superior financial performance 8. Competitive advantage of providing innovative products more quickly in all same retail stores 9. Human Resource Management 10. Goodwill among consumers due to Social Responsibly Initiatives Weaknesses 1. There have been long wait times for customers to get served at many of its locations. 2. Higher price points/ Expensive Products 3. Generalized standards for most products/ A lack of overly unique products 4. Imitable products 5. Over-dependence in the United States market with 85% of 1. 2. 3. 4. 5. 1. 2. 3. S-O Strategies Provide beer and wine (S2, S3, S8, O3, O4) Constantly introducing new innovative products in each store (S1, S8, O3) Continue to increase its revenue by expanding in other countries as well (S7, O2) Build better relationships with big box retailers to get premium shelf space and increase the efficiency of this distribution channel (S8, O5, O6) Further build and retain customer loyalty, by building on beta concept of onthe-go home delivery (S1, S6, S9, O1) W-O Strategies Provide advanced mobile ordering. Use of Technology and Mobile Outlets. (W1, O1) Increase its market share outside its domestic market. (W5, O2) Build up their Tea and Fresh Juice products mix along the same line of their core coffee products. (W3, W4, W7, O3) like Milk and Dairy Products 8. Developed Countries Market Saturation 9. Changing Consumer Tastes and Lifestyle Choices S-T Strategies 1. Provide expanded lunch and dinner menus (S3, S8, T1, T2) 2. Shift its operation elsewhere where it seems to have more potential growth (S1, T6, T8) 3. Mitigate price volatility risky by implementing an effective hedging strategy and diversify its products that do not include any dairy items to avoid the threat of rise in the cost of dairy products (S3,T7) 4. Establishing New Partnerships (S2, S3, T1,T2) W-T Strategies 1. Extend its product line in beverages like providing beer and wine (W3, W7, T2, T9) 2. Tailor its menus and expand to give healthier product offerings in its mix (W4, T1, T9) 3. Focus on getting additional penetration into untapped rural markets (W5, W6, T8) 4. Make significant total revenue being generated from the US alone. 6. Self-Cannibalization through overcrowding like having 8078stored in the US alone. 7. American/European coffee culture clash with that of other countries investments in advertising and marketing initiatives in the face of increased competition in the market (W4, T6) 5. Reducing their prices to penetrate in the foreign market (W2, S7,T3) STRENGTHS: 1. Starbucks has a significant geographical presence across the globe and maintain a 36.7% market share in the United States and has operations in over 60 countries. Starbucks is also the most recognized brand in the coffeehouse segment and is ranked 91st in the best global brands in 2013. Starbucks effectively leverages its rich brand equity by merchandizing products, licensing its brand logo out. Such strong market position and brand recognition allows the company to gain significant competitive advantage in further expanding into international markets and also help register higher growth in both domestic and international markets. Over the years, they have achieved significant economies of scale with superior distribution channels and supplier relationships. 2. Extensive global supply chain: Starbucks had to implement the creation of a single, global logistics system if it wanted to keep up with the demand from stores worldwide. 3. Diversified business through subsidiaries: Starbucks has diversified through investing in subsidiaries such as Teavana, Tazo, Evolution Fresh, Seattle’s Best Coffee. 4. Products of the highest quality: They give the highest importance to the quality of their products and avoid standardization of their quality even for higher production output. 5. Customer Loyalty: Starbucks has cult following status among consumers and they have also implemented loyalty-based programs to drive loyalty with the Starbucks Rewards programs and Starbucks Card. The Starbucks Card is a value card program that provides convenience, support gifting, and increase the frequency of store visits by cardholders and integrated with their mobile application. 6. Starbucks experience: It isn't just about coffee, it's about the Starbucks experience. It's about the atmosphere, everytime one walks in a starbucks coffee shop and feels the warm welcome of the baristas. The continuity of the brand and product also plays a big part on the whole experience. No matter where in the world you go, the employee training is so good that you get the same feel and same taste of your favorite Starbucks drink. 7. Operating efficiency and strong growth leading to superior financial performance: With their revenue growth of 10% in the year 2016, Starbucks has been operating with great efficiency to be able to keep up and maintain the same level of growth in the past. 8. Competitive advantage of providing innovative products more quickly in all same retail stores: When Starbucks offers a new product, it is very well implemented and distributed thoughout all its branches worldwide. 9. Human Resource Management: Every Starbucks employee plays a huge part on the Starbucks Experience. Thus, employee training is also a huge key factor. During training, each employee has to go through the customer walk through to experience what the customers ought to experience. Through this, the trainers make sure that they embed in each employee the passion for coffee which Starbucks is widely known for. 10. Goodwill among consumers due to Social Responsibility Initiatives: The reason why it's so hard to hate Starbucks is that they give back to the community. Their social responsibility strategy is based on three pillars: Community, Ethical Sourcing, and Environment. Starbucks partners with local nonprofit organizations. For every transaction, Starbucks gives $.05-$.15 to these partner nonprofit organizations. WEAKNESSES: 1. Starbucks has been receiving a lot of complaints for its long wait times. Having some customers with really complicated drink orders doesn’t help one bit. Ever since Starbucks has launched its mobile order app, the lines have gotten longer and they have yet to fix this problem. 2. While their high price point was a strength in the previous paragraph, it is also a weakness. The hefty price tags on some of their products (starting even with their most basic coffee options) deter plenty of customers who might otherwise make Starbucks a part of their daily lives. While their premium quality and good ethical values might be attractive, some just don’t have that much money to spend on a cup of coffee. While Starbucks does differentiate their products with being highly quality couple with the whole ‘Starbucks Experience’, in times of economic sluggishness, consumers to have so switching costs to competitor’s products with lower prices and forgo paying a premium. These premium prices could also pose some weakness for it to succeed in developing countries. 3. While Starbucks might be known for their frappucinos, pumpkin spice lattes, and big chocolate chip cookies, they don’t exactly have the most unique market. Plenty of other coffee shops, chains or otherwise, provide similar products and only lose out to Starbucks’ big name. 4. With coffee becoming a necessity, many coffee shops have sprouted left and right and this doesn’t help Starbucks one bit because their products are very much alike. With the same drinks being offered, Starbucks suffers from their products being easily imitated. 5. Overdependence in the US market: Starbucks generates 85% of revenues from US, its domestic market. Being known as an international brand, the organization needs to obtain some revenues from outside the US market. In line with self-cannibalization of the US market with 8078 stores, Starbucks generates a huge percentage of their total revenue from the US and this makes it very sensitive to prospects of the US economy and growth. 6. Self-Cannibalization: By aggressive expansion and high saturation due to overcrowding in the market leads to self-cannibalization and diminishes long term growth targets of Starbucks. This is happening especially in the United States where Starbucks operates 8078 stores. 7. Coffee culture clash: Starbucks coffee culture may not widely accepted in some countries as part of their international expansion strategy. OPPORTUNITIES: 1. Technological advancement can help Starbucks improve its services/ Advances in Technology like applications on androids and iOS. Starbucks has leveraged the use of mobile applications and has an investment partnership with Square, a mobile payments app that is integrated with its Starbucks app. This creates an ease of use process for customers, aligns customer loyalty through reward programs. Starbucks has already set the bar in the industry with this advancement and about 10% of its transactions in the US have been made using mobile applications. This is a growing field and would drive more business to their stores as technology advances. 2. Currently, Starbucks is operating 15,000 international and expects to expand further in countries/ Expansion in Asia, the Middle East, and Africa. Their 5-year global plan is to open 12,000 new stores globally to a total of 37,000 by 2021. 3. Diversification of Product Mix/ Brand Extension: Starbucks carries a powerful brand image and it can leverage it to extend into horizontal lines of its business and also venture into product diversification with keeping brand dilution risk in check. Starbucks recently started to expand their product mix by venturing into the Tea and fresh juice product offerings with a smart acquisition strategy. This provides significant opportunities for Starbucks. 4. Starbucks has partnered with a lot of firms. In 1993, they partnered with the local bookstore Barnes and Noble. In 1996, they partnered with Pepsico. They also partnered with United Airlines to have their coffee served during flights. And they also partnered with Apple to sell music that comes with the whole Starbucks experience. 5. New distribution channels: Starbucks introduced a beta version of a delivery system called Mobile Pour. This presents a great opportunity for the future by expanding their end product distribution systems and could drive more revenue if the implementation is successful. 6. Expansion of Retail Operations: Starbucks currently sell its packed coffee products, iced beverages and merchandizes through large box retailers. This market’s potential is yet to be fully realized and this provides Starbucks great opportunities for the future. THREATS: 1. The Starbucks Evenings program would increase its market reach by including non-coffee drinkers in its clientele. Allowing the company to compete on a stronger base. Studies have also shown that coffee sales usually peak and decline at a certain point in the day. The study showed that 65% of all coffee is consumed during breakfast hours, 30% between meals, and the remaining 5% with other meals (E-imports, 2015). Allowing the company compete throughout the day instead of just in the mornings when coffee drinking is predominant. 2. The rivals, Panera Bread, Atlanta Bread, and Dunkin Donuts were expanding their menus and growing revenue 15%faster than Starbucks. With competitors as such, Starbucks faces a huge threat because their menus aren’t expanding as fast as the competitors’. 3. Fierce competition from cheaper alternatives Low-cost coffee from firms like McDonald’s and Dunkin’ Donuts effectively compete against the more pricey Starbucks products. Dunkin’ Donuts and McDonald’s are two other huge multinational companies which directly compete with some of the products that Starbucks sells. While these companies don’t pride themselves entirely on their coffees and teas, they offer products of a similar quality for a fraction of Starbucks’ prices. Who can tell what consumer forces will favour in the future? 4. Again, with coffee shops sprouting left and right, Starbucks faces a huge threat because their products are easy to imitate. 5. Developed Countries Economy: The political, economic and weather conditions in some countries outside the domestic market like India can adversely affect the business. 6. With coffee shops being a thing these days, Starbucks has been facing a lot of new competitors in the market. 7. Price Volatility: The rise in dairy prices can be a threat to Starbucks as milk and dairy products usually get 3% or 5% of sales and its consistently increase in prices could affect the company’s operations 8. With market saturation, Starbucks can only gain revenue growth from developing new products to offer its customers. 9. With the changing consumer tastes and lifestyle choices, Starbucks has to keep up by conducting a majority of studies. STRATEGIES A. S-O Strategies 1. Provide beer and wine (S2, S3, S8, O3, O4) Starbucks continues to introduce new products and steadily captures the attention of all age groups. For now, Starbucks’ product line includes: Coffee, Tea, Pastries, Frappuccino beverages, Smoothies. To cater to more groups of customers, they can offer beer and wine. Starbucks’ five-year strategic plan is to double its U.S. food revenue to more than $4 billion, with wine and beer alone adding $1 billion in 2015. 2. Constantly introducing new innovative products in each store (S1, S8, O3) With their advantage of having a strong brand image and being able to quickly have their products in their retail stores, they should expand a diversified product offering and mix by offering new innovative products to keep up with the demands and taste of their market. 3. Continue to increase its revenue by expanding in other countries as well (S7, O2) As the U.S. market gets more saturated, they should venture into other markets to create stronger global recognition of their brand. 4. Build better relationships with big box retailers to get premium shelf space and increase the efficiency of this distribution channel (S8, O5, O6) Another growth sector for Starbucks is its packaged coffee packets and iced beverage products. They have to make sure that their products are visible to their customers but at the same time, they have to maintain their efficiency in operations and in finance. 5. Further build and retain customer loyalty, by building on beta concept of on-the-go home delivery (S1, S6, S9, O1) Starbucks is making efforts at expanding its ready-to drink segment which is forecast to grow at approximately 10% y-o-y in the next five years. Starbucks already holds a 75% market share in the U.S. ready to drink coffee market, and hopes to claim an additional market share of $1 billion in the premium RTD category through its latest partnerships. B. W-O Strategies 1. Provide advanced mobile ordering. Use of Technology and Mobile Outlets (W1, O1) Their mobile apps business drove 10% of the sales in the US, so it would be recommended for further building to stream lining ease of use and payment process which would help drive more customers, decrease wait time in stores and increase efficiency. Integrating Starbucks loyalty program with the mobile application would also be recommended. This mobile application can be available in both apple and android software. The company’s latest endeavor at driving digital engagement, Mobile Go and Pay, is at 20% of all mobile transactions. The initiative is directed towards promoting a truly seamless, digital experience. Moreover, the company can add to its loyalty program from one based on frequency to amount, to decrease order splitting and hassles such as long queues associated with it. Starbucks’ new mobile app and coffee truck and delivery trucks help stores anticipate demand, so customer orders are often available immediately. 2. Increase its market share outside its domestic market (W5, O2) As Starbucks has large market share of about 85% in the US market, they must take advantage of their market expansion to increase its market share outside its domestic market. They can make use of their subsidiaries to increase such market share. Teavana, since its launch, has become one of the biggest growth drivers for the company. It has contributed one percentage point in comparable sales growth for seven consecutive quarters. Its successful launch has led to Starbucks rolling out Teavana in China and Europe. The company is betting on Teavana’s popularity in China, one of the largest tea consuming countries, to give the brand a boost. Further, it may positively impact the sales of premium Teavana brewed and iced teas in Starbucks’ stores, helping increase the average spend per customer on beverages. 3. Build up their Tea and Fresh Juice products mix along the same line of their core coffee products. (W3, W4, W7, O3) Starbucks started off as a coffee shop and it has built its brand to be one of luxury in coffee. Starbucks has moved from the traditional coffee shop but most of its growth in variety has been in the same realm of business, for example, Starbucks introducing products like Products like Evolution fresh juices and La Boulange food, is still closely related to the Starbucks brand. C. S-T Strategies 1. Provide expanded lunch and dinner menus (S3, S8, T1, T2) Since their competitors were expanding their menus, they could also expand theirs to keep at par with their competitors and to increase their revenues in the period after breakfast. Lunch hours, for the company, have been the fastest growing day part for a number of years now. This was driven by improved food offering, more fresh food items around bistro boxes and sandwiches, and strength in its tea platform. Starbucks’ new food items include truffle macaroni and cheese, Parmesan crusted chicken skewers, bacon-wrapped dates with balsamic glaze, artichoke and goat cheese flatbread, and chocolate espresso, champagne, and raspberry truffles. 2. Shift its operation elsewhere where it seems to have more potential growth (S1, T6, T8) Due to economic/political instability in some countries that affect the business operations. However with its strong global image, Starbucks can shift its operation elsewhere where it seems to have more potential growth. 3. Mitigate price volatility risky by implementing an effective hedging strategy and diversify its products that do not include any dairy items to avoid the threat of rise in the cost of dairy products (S3,T7) Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of high quality coffee beans. Starbucks could mitigate this price volatility risky by implementing an effective hedging strategy like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a greater extent. As for dairy products and milk, they can offer a diverse product mix and offering to have it as another source of revenue and reduce in terms of cost on milk and dairy products. 4. Establishing New Partnerships (S2, S3, T1,T2) Food sales now represent 20% of Starbucks’ revenue and has been consistently contributing almost a percentage point to comps. Further, the company has found that each day part is far below its saturation level in terms of food offerings. To fully leverage off the gaining popularity of its complementary coffee and food menu, the company should work towards establishing partnerships and making food one of its major future growth drivers. D. T-W Strategies 1. Extend its product line in beverages like providing beer and wine (W3, W7, T2, T9) Starbucks, when faced with growth of competitors and changes in their customers’ tastes and lifestyle, need to extend its product line in beverages. Every loyal Starbucks customer knows that Starbucks comes out with new flavors of coffee every year. They also rotate their popular flavors during the holidays, like pumpkin spice, gingerbread, peppermint, etc. They shouldn’t limit to introducing new flavors but they should also offer other beverages. Starbucks’ new wines include a variety of sparkling, red, white, and rose choices. Venturing from non-alcoholic drinks to wines and beers is a transition that a few would struggle with. 2. Tailor its menus and expand to give healthier product offerings in its mix (W4, T1, T9) The shift of customers toward healthier products and the risk of coffee culture vanishing, represents a future threat for Starbucks. With this, they should expand their product offerings that meets their customers’ needs and demands. 3. Focus on getting additional penetration into untapped rural markets (W5, W6, T8) With the saturated U.S. Market, Starbucks should expand the brand internationally. They had already started such process and they can have possible growth in potential markets to penetrate like emerging and developing markets in Asia, Europe and Middle East. 4. Make significant investments in advertising and marketing initiatives in the face of increased competition in the market (W4, T6) From their Annual Report on Form 10-K, we can see that Starbucks invest very little in advertising and marketing initiatives. It would be recommended that Starbucks make significant investments in advertising and marketing initiatives in the face of increased competition in the market. 5. Reducing their prices to penetrate in the foreign market (W2, S7,T3) There is a consensus among customers and industry analysts that Starbucks coffees and other beverages and foods are more expensive compared to the products the majority of other coffee house chains in most parts of the U.S. It is understandable that this is the result of their product differentiation and capitalization of customer loyalty. But this may alienate certain segments especially those markets in countries that are experiencing economic difficulties. Thus, to penetrate a foreign market, they must start going with a lower price for such markets. References: http://www.mba-tutorials.com/marketing/swot-analysis-marketing/1760-tows-analysis-matrix-ofstarbucks.html https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks-growthstrategy/#1a02202a3d71 http://research-methodology.net/starbucks-swot-analysis/ https://www.fool.com/investing/general/2015/06/19/swot-analysis-of-starbucks-corporation-sbux.aspx http://inevitablesteps.com/swot-analysis/starbucks-swot-analysis/ https://iknowfirst.com/starbucks-swot-analysis-starbucks-swot-analysis-for-2017 http://pestleanalysis.com/swot-analysis-of-starbucks/ http://panmore.com/starbucks-coffee-swot-analysis http://damieteoyibo.weebly.com/uploads/5/4/9/1/54913487/starbucks_evenings_-_final.pdf http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Starbucks_Corp_.aspx#.WY-2wukRXIV https://investor.starbucks.com/financial-information/annual-reports/default.aspx