Coffee and Starbucks Essay Example for Free

Coffee and Starbucks Essay?Introduction Starbucks Corporation is an inter depicted object cocoa lodge and deep brown bean berry house chain headquartered in Seattle, Washingston. Starbucks was founded in 1971, when terzetto academicians, began a oddment umber store called Starbucks Coffee, Tea and Spice in Seattle (Starbucks Corporation, 2009). In 1996, Starbucks operated its first international store elaboration in Tokyo, Japan. With current approximately 19,500 stores in 58 countries ( spot xcelerated, 2012), Starbucks is quickly becoming one of the best known strike outs and the largest specialty javahouse company in the world. The Market Demand of CoffeeThe pick out of drinking chocolate in the United States has rose 2 percent in 2011(Perez, 2011). Americans drank 77. 4 billion cups of coffee during a year (Perez, 2011). A statistics showed that the average custom among coffee drinkers in the United States is 3. 1 cups of coffee per day (E-Imports, 2012). With g athering the information and statistics, it has proved the demand of coffee market in the US is extremely gamey. Also, the coffee market is the potential market for rivals entering into. Hence, Starbucks has to attain strong warlike advantages and market demand with its resources and capabilities.Starbuckss Resources and Capabilities An organization has the ability to identifying and determining the matched authority of their resources and capabilities to create competitive advantage. Business resources ar the outputive input or competitive asset that is owned or controlled by the organization (Thompson, 2012). In the suit of Starbucks, the resources and capabilities are coffee bean, store ambience, employee culture, and shufflings and reputations. Coffee Beans Coffee beans are the natural resources of Starbucks. They are one of the most valuable resources for coffee industry.Starbucks was a purveyor of specialty coffee it has seemed top-notch coffee beans to produce high choice of coffee. High quality of coffee beans was usually sourced directly from coffee-producing countries, for instance Kenya, Guatemala and Indonesia. Starbucks was usually acquired the coffee bean at a premium price for suppliers who suited the Starbucks standards, socially and surroundally responsible farming. Starbucks has committed the long term contracts with the supplier in order to protect both companionship with the price and quality of coffee beans.The Starbuckss coffee beans provided a sustainable competitive advantage in the face of active competition. It is due to the high quality and premium coffee beans sourced from other country were uncommon and costly to imitate for opponents. Store Design and Ambience Starbucks was positioned as a third place between beyond home and work with the store design and relaxing ambience. The design of store is provided a comfort and relaxing environment for its costumer. Each detail of likes the course of fixtures, the edges of co untertops and the texture of slate floors was examined to enhance the anomalous ambience and mood of the Starbucks store.With blended the colorful banners and artworks, the merchandise displays, the music and the aromas, Starbucks has created an attractive, consistent and stimulating environment that provided comfort of a home for customer, excellent customer service and quality products as the concept of third place theme (Moon Queich, 2003) cited by (Harveywallbanger, 2012). These elements made the Starbucks experience profound in retaining its customers with the competitive advantage and capture new markets. The store design is valuable by providing a third place theme, a relaxing and conform atmosphere.Besides, it was out of date design in United States as Starbucks is the first fallr to replicate the Italian style coffee store. Competitors are difficult and costly to imitate as the Starbucks has an exclusive In-House architects and designers to ensure the right image and c haracter for each store. Employee Culture A vital dynamic in Starbuckss growth was the human resources, its employee. Starbucks has provided a great work environment around its employees, one of its most important resources and sources of sustainable competitive advantage (Gates et al. , 2011).Schultz believed that a plentiful employee benefits package was a key competitive advantage. Starbucks was the first company to offer all employees, even part-timer, were qualified to get healthcare benefits, participate in the Bean Stock program for bank line option grants. Besides that, Starbucks has offered an extensive training program to each employee that includes a commitment to customer service experience and the knowledge of products (Balaban et al. , n. d). All employees of Starbucks were trained to turn out good customer experiences for retaining customers.For example, they were trained just say yes to customer requests. Starbucks approach towards employees benefited to company ha s maintained the turnover rate at 60-65 percent, while the other national industry turnover is about 150-400 percent a year. The plentiful employee benefit package provides a sustainable competitive advantage to Starbucks. It is added value to Starbucks because employees will wealthy person the better job performance due to the motivation and courage. It was rare as the Starbucks was the first company provided healthcare benefits and stock option plan.And in like manner, it is costly to imitate for Starbuckss competitors. Brand and Reputation Brand recognition and reputational are essential resources and capabilities to Starbuckss competition advantage. consort to Starbucks Strategy Fortune, Starbucks store traffic has risen between 6 percent and 8 percent a year even in a down economy. Starbucks reputation was growing mostly by cry of mouth rather than spending on advertising. Schultz believed that opening numerous stores helped to build the brand to Starbucks by change magnit ude awareness of the brand.On the other hand, Starbucks also modify its brand and reputation with reasonably Trade Certified coffee and corporate social responsibility (CSR). The company collaborated with CARE and Conservation internationalist to encourage environment responsible methods of growing coffee. These activities would be created the attention and attraction of its customers on the brand of Starbucks. Due with the strength of brand and reputation, Starbucks was achieved sustainable competitive advantages in the specialty coffee segment. Michael Porters Five Forces ModelOne of the powerful and widely assessment tools of an organizations industrys competitive forces is the five forces model, created by Michael Porter. This model embraces that the competitive forces affecting industry achievement go beyond rivalry among competing sellers and include four coexisting sources (Thompson, 2012). The Michael Porters five forces are the brat of entry, the threat of substitutes, the bargaining power of emptors, the bargaining power of supply and rivalry among competing sellers. I will identify the competitive environment of Starbucks in coffee industry by using Michael Porters Five Forces Model.1) Industry Rivalry The industry competition among the existing firms is positioned at the center of Porter five forces model. Rivalry is gradually growing against Starbucks each year as the growing of industry. The growth of industry rivalry has increased due to introduce the new products into the market and differentiate products found on quality, service and selection (Gamble Thompson, Jr. , 2011) cited by (Brown, 2011). With this point, Starbucks has introduced a new trend of having premium coffee and new product of Frappuccino, was greatly differentiated from the competitors.Starbucks also served coffee with the highest freshness standards with FlavorLock bags. Starbucks compete to against two strong orgationation in the fast food industry who bring on op erated coffee beverages and stepped into coffee market, McDonalds and Dunkin Donuts. The competitive threat distri unlessed by McDonalds to Starbucks was referring to the Consumer Reports magazine in 2008 , which rated that the McDonalds the quality of coffee is better and the price is cheaper as compared to Starbucks. The industrys growing has slowed down while the industry competition is change magnitude among existing firms.In short, the force of industry rivalry formed by the competition among coffees industry is characterized very strong. 2) The Threat of New Entrance The second competitive force of Porters model has significant differenced in the late of 80s and the recent competitive environment of Starbucks, is no barriers to entry. According to Porter (2008), barriers of entry are low in the specialty coffee industry. The coffee houses in the United States were about 585 in 1987 and 25000 in 2007. It showed that the new entrants of specialty coffee market was increasing sp eedily in 20 years.Besides that, the specialty coffee market had grown from $11. 5billion (2005) to $12. 27 billion (2006) in the United States. Due to the market demand growing rapidly, it was attracted a number of fast-food retailers, such company as McDonald and Dunkin Donuts. In addition, the product differentiation (included coffee selection, roasting and brewing) is considered weak. With these elements, it can be established that the threat of new entrants in coffee industry is moderate. However, Starbucks has a strong competitive advantage with a well-known brand and image, the quality service and diversity products, and a strong market in the segmentation.3) The Threat of Substitutes Another competitive force of Porters model is the threat of substitutes. The force of substitutes is significant decreased in the coffee market. This is because, there are totally little of substitutes product, such substitute as soft drinks, energy drinks and fruit juices. The principal substi tution of products has posed a slight threat to coffee industry were carbonated soft drinks which introduced by the Pepsi and Coca-Cola company. In the past few years, studies have done that coffee has increasingly obtained the taste of consumer more than carbonated soft drinks.This is probably concentrated the healthy related with carbonated soft drinks, and evidenced that coffee is a relatively healthy preference. (Harding, 2000) cited by (Larson. , 2008) Based on the information and evidence, the threat of competitive substitute products is considered to be weak for Starbucks Corporation. 4) The Bargaining place of Suppliers The bargaining power of supplier has changed in some(prenominal) ways through the widely growing in the coffee industry. Starbucks was purchased it premium coffee beans from the farmers that were numerous, small and unconnected during the late 1980s.In the recently years, coffee beans suppliers were junction by Fair Trade Certified coffee and acted like a large entity. Specialty coffee companies were making the coffee beans suppliers gradually important by seeking greater quality of coffee to compete the competitors in the market. The coffee beans suppliers today are more power, with increased joint and increased importance upon high quality coffee beans. Starbucks has work out with the coffee beans suppliers into continuing fixed-price commitments in order to ensure an adequate supply, which decreased the supplier bargaining power. (Larson, 2008) 5) The Bargaining Power of buyersThe last element of five forces model is the bargaining power of buyers. The force of the buyers bargaining power is defined to the buyers faculty to force down prices, and seek for higher-quality products and services (Porter, 1998, p. 24) cited by (Larson, 2008). The bargaining power of buyer in specialty coffee segment is considered high, since two strong competitor of Starbucks, McDonalds and Dunkins Donuts have offered the lower prices. However, Starb ucks has introduced the several new products and high quality of coffee, highly differentiated to maintain consumers satisfied and away from competitors in the coffee market.Thus, the buyer bargaining power has offset and became moderate. The Summary of Michael Porters Five Factor In summary, the coffee market faces very strong forces from the industry rivals but it obtains weak forces from the threat of substitutes. Besides, the other three forces are considered as moderate. Generally, the impact of the five forces is moderate in the specialty coffee industry. Therefore, Starbucks is able to obtain the paragon revenues in the coffee market with operated effectively and efficiently. Starbucks Generic Strategy.There are three successful generic competitive strategies that organizations can apply to achieve their competitive strategies, included overall cost leadership, differentiation and digest, defined by Michael Porter. Overall cost leadership scheme implies an organization to apply lower overall be to attract consumers. The differentiation generic strategy contains the creation of service and product as being valuable and unique for the industry. Focus is the last generic strategy, which aims a certain market of a product line (Porter, 1998, p. 38) cited by (Larson, 2008).However, Starbucks are suitable the broad differentiation strategy of the five generic competitive strategies nowadays. This strategy allows Starbucks to serve a broader customer base with the differentiation of product and service (Grant, 2009) cited by (Brown, 2011). This approaches to retain and attract as many consumer with the generally product mix. Starbucks had the unique skills, products and services reputation with the distribution segment of specialty coffee industry. For instance, Starbucks was fathered an icy-blend of dark-roasted coffee and milk, named Frappuccino.This drink was a hit with $54 million sales in the first year on the national market. In addition, the high- quality standards and strong employee culture of Starbucks were known well in the specialty coffee industry. The high-quality coffee beans are purchased from Fair Trade Certified, considered a differentiation product to other competitors. The employees of Starbucks were also trained to have strong customer experience. In the differentiation strategies, Starbucks have strengthened the brand and reputation for quality and creative flair. Starbucks Strategy Options.Starbucks is able to create three strategic options for sustaining competitive advantage and further growing the business by having evaluated its forces. The three strategic options for Starbucks are that variegation, enlargement and merger. 1) Diversification The diversification of a business is that introducing new products and offering new services to the industry. There are two way of diversification for business, be related or unrelated. Starbucks is suited to attempt related diversification, reflecting more associatio n with the specialty coffee industry.Schultz believed that the company has lacked on blockbuster products, only the variations of products. Starbucks has a successful product diversification in the history with launched coffee and tea beverages, brewing and serving equipment, roasted coffee beans, music and gifts. The introduction of savory products such as cake, donut and muffin is a successful diversification as it can be combined with the existing product and core product, coffee. The diversification strategy is a good option for enhancing Starbucks growth and competitive advantage. 2) ExpansionThe expansion of an organization can be within a country and into an abroad market. Starbucks should reduce their expansion efforts in the United States and focus to expand its business into new countries to further internationalize it. The Economist stated, While Starbucks has expanded so have its rivals. The firms home market seems to have reached saturation point. With the rapid expa nsion, Starbucks is oversaturated in the United States. Therefore, this strategy option is suitable for Starbucks as the United States coffee market is reaching saturation point.If Starbucks has to go further growing and expanding, the international expansion is one of the best strategies for Starbucks. 3) Merger and Acquisition According to Investopedia, it defined as a merger is an alliance of two organizations while an acquisition is the attaining of one organization by another. The strategy of merger and acquisition sets out to accomplish the alike goal, by increased broad customer base, market share and corporate strength of business. In the history, Starbucks has merged with Dreyers Grand Ice Cream to develop super premium ice cream and acquired a premium tea company, Tazo LLC.In the case study of Starbucks, there states that there were about 25000 coffee houses in the United States in 2007. The merger and acquisition of small specialty coffee retailers will enhances the mar ket position, market share and competitive advantage of Starbucks. This is a strategy that will exploit opportunities whilst avoiding threats to further growing and expansion of Starbucks. Recommendations The first and most important process which Starbucks should take is to pick at the efforts expansion in the United States.According to Starbucks strategy Fortune, a new store will often cannibalize about 30% of the sales of a nearby Starbucks. The continuing aggressive of expansion in the United States by opening as many new stores of the same area is an act to cannibalize store sales. The reason why Starbucks should diminish their expansion plan is the coffee market has reached the saturation in the US. The overcapacity of expansion plans in a location will be met with failure to an organization. On the bum of all the evaluation and evidence referred for the strategy options, the recommendation is to further expand internationally.Starbucks can convey the remained investment int o international development plans by reducing the expansion plans in United States. The expansion of international market offers a supreme target with three fundamental objectives. The first reason is the lack of awareness of coffee market in many countries which represent the prospective market share. For instance, Starbucks currently opens approximately 20,000 stores with 13,000 in the US and 7000 in foreign countries. The total coffee consumption per person in the US has lowered much than many countries, such country as Finland and Italy.With gathering the information, this proves that expand internationally, there is a massive coffee drinking population and potential market share to be selected. (Starbucks Corporation, 2008) cited by (Larson, 2008). Another reason that international expansion offers an ideal prospect is that the expansion of product innovation. For example, Starbucks has announced their Tazo tea brand into the Japanese market. And, Tazo was brought into the Unit ed States market as it was a successful trial in Japan. Tazo green tea has brought a success to Starbucks as it was a national drinks and showed that the power of brand in North America.Starbucks could have to evade the assay of brand reputation as more forward-looking products should run a trial in international markets. Since the markets have yet visible to Starbucks for a period time, it is possible to avoid a great risk with affecting the brand reputation. Therefore, Starbucks has great competitive advantage in the markets with expand intentionally. The last reason of international expansion is to increase the brand reputation. Building brand image is key factor to an organization as the brand will affects an organizations sales and position in the market.For example, in case of Starbucks, the company has increased revenue from $7. 8 billion in 2006 to $9. 4 in 2007, along with an increase in brand value. In order to recover the exclusivity of Starbucks brand, Schultz would fo cus the expansion of international countries and slow down the expansion of the United States. Therefore, the international aggressive expansion will help to strengthen its brand image and regain a strong competitive advantage for Starbucks. In a nut shell, I am highly recommended a strategy decision to Starbucks is that expanding into international markets.International countries have represented the ideal potential market shares with the high demand of specialty coffee. By applying this strategy, Starbucks will continue to be the leader in the specialty coffee industry and further regain and strengthen its competitive advantage. Furthermore, it also gains the customer satisfaction in the international markets. International expansion is the way to move forward.Reference Balaban, S. et al. (n. d) Management 600 Starbucks Coffee Company. http//cobweb2. louisville. edu/faculty/regbruce/bruce/cases/starbucks/starbucks. htm Accessed on 7 April 2012.Brown, H. 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