Posted: November 9th, 2014

FOUNDATION TO BUSINESS STRATEGY

FOUNDATION TO BUSINESS STRATEGY

Read the attached case and write a report that answers the following tasks:-

1.    Identify the PEST factors affecting the industry in USA. Which of the factors are the most important?

2.    Conduct a five forces analysis of the industry in which Starbucks operates.

3.    The Strengths, Weaknesses, Opportunities & Threats (SWOT) of Starbucks.

4.    Do detailed literature review on the need and importance of environmental analysis by organizations.

Starbucks Coffee

Starbucks Coffee, is an American global coffee company and coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 23,305 stores in 65 countries and territories, including 13,049 in the United States, 1,909 in China, 1,555 in Canada, 1,089 in Japan and 927 in the United Kingdom.  Starbucks serve hot and cold beverages, whole-bean coffee, micro ground instant coffee, full-leaf teas, pastries, and snacks. Most stores also sell pre-packaged food items, hot and cold sandwiches, and items such as mugs and tumblers. Starbucks Evenings locations also offer a variety of beers, wines, and appetizers after 4pm.  Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company’s products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores.

History of Starbucks

Starbucks Coffee Company grew from a small, regional business into the undisputed leader in the specialty coffee industry providing an unmatched store experience. In 1971, three atypical businessmen founded Starbucks Coffee, Tea and Spice in Seattle, Washington. Gordon Bowker, Jerry Baldwin, and Zev Siegl shared many interests, but their main reason for starting the company was their love of coffee and tea and their desire for Seattle to have access to the best of it. While attending school in San Francisco, Baldwin discovered Peet’s Coffee in Berkeley and fell in love with the rich, dark arabica whole bean coffee. Baldwin introduced his roommate, Gordon Bowker, to Peet’s Coffee, and after the two moved to Seattle they continued to order Peet’s by mail. Bowker stumbled upon another great store in Vancouver, Canada and would often make the 3-hour trip there from Seattle to buy Murchie’s coffee. While traveling back from one of these trips, Bowker had the idea of opening up a coffee store in Seattle. Baldwin loved the idea as did Bowker’s neighbor Zev Siegl, and Starbucks was born.

The company grew slowly and by 1981 had a roasting plant and four retail stores that sold whole bean coffee in Seattle. That year, Howard Schultz, who was working for a Swedish houseware company in New York, became curious about why Starbucks was buying large quantities of a certain drip coffeemaker. Schultz flew out to Seattle and met with Baldwin and Bowker to learn more about the company. Starbucks captivated Schultz, and by 1982 he had convinced Baldwin, who was running the company, to hire him in marketing. In 1983, Starbucks sent Schultz to Italy. While there, he dreamed of re-creating the magic and romance behind the Italian coffee bar culture by serving espresso by the cup. It took Schultz a year to convince Baldwin and Bowker to serve espresso drinks, but he was allowed to test the idea when Starbucks opened its sixth store in downtown Seattle. The concept was a hit and within 2 months that store was serving 800 customers a day—three times as many as their best-selling whole bean locations.

Schultz urged Baldwin to expand the idea to other stores but Baldwin felt strongly that selling beverages distracted from the core business of selling top quality, whole bean coffee. With financial backing from Starbucks, Schultz left the company and opened his own coffee bar called Il Giornale in 1985. Before its opening, Dave Olsen, owner of the funky Café Allegro near the University of Washington, called Schultz and expressed an interest in joining forces. As it turned out, the two were a great match: while Schultz focused outward to build the company, Olsen understood the operational realities of running a retail café. As the “coffee conscience of the company,” Olsen ensured that Il Giornale served only the best quality coffee using a custom-made espresso roast from Starbucks beans. In 1983, shortly before Schultz left Starbucks, Baldwin and Bowker had bought Peet’s Coffee, and by 1987, made the decision to sell Starbucks’ six retail stores, roasting plant, and corporate name so that Bowker could take a break from the coffee business and Baldwin could focus his time on Peet’s. Although Il Giornale only had three stores, Schultz and a group of local investors bought Starbucks for $3.7 million and changed Il Giornale’s name to Starbucks Coffee Company.

The next few years brought tremendous changes to Starbucks. The company went public in 1992. After the initial public offering, Starbucks continued to grow at a dizzying pace both in terms of store development and new enterprises. Within five years, the number of Starbucks stores grew tenfold, with locations in the US, Japan, and Singapore. In addition to opening and licensing retail locations, Starbucks initiated several successful product and brand extensions, including offering coffee on United Airlines flights, selling premium teas through its wholly owned subsidiary Tazo Tea Company, developing a bottled version of its popular Frappuccino blended beverage with PepsiCo and premium coffee ice-cream with Dreyers, and distributing whole bean and ground coffee at supermarkets through an agreement with Kraft. Starbucks even sold jazz CDs in its retail stores. Starbucks grew its brand into a household name not through advertising, but by word-of-mouth.

The Coffee Industry
Coffee, in all forms, is a billion dollar industry.  The largest consuming regions were the European Union, the United States  and Japan . The industry could be broken into two main categories on the consumption side: mass-marketed and specialty coffee. The four largest companies and their brands such as Procter & Gamble (Folgers), Philip Morris (Maxwell House), Sara Lee (Hills Brothers) and Nestlé (Taster’s Choice), operated almost exclusively in the mass-marketed segment. These companies imported more than 43% of the world’s green coffee, and their products accounted for 35% of world consumption. Due to their size and market reach, these companies had a large impact on coffee quality and consumption patterns. Starbucks, on the other hand, counted among the specialty retailers.

Although several coffee species exist, only two make up the majority of worldwide coffee consumption. They differ greatly in taste, caffeine content, disease resistance, and cultivation conditions. Coffea arabica, commonly referred to as arabica beans, were the oldest beans used in coffee production and accounted for 65% of the world’s coffee supply; 80% of these beans came from Central and Latin America. Arabicas were susceptible to poor soils and diseases and thus required great care in growing. Coffee connoisseurs consider arabicas to be tastier than their counterpart, coffea canephora, also known as robusta beans. These beans evolved around 1850 but only entered the commercial market after World War II. Robusta beans, typically grown in West Africa and Southeast Asia, were easier to grow because they tolerated warmer and more humid climates and a wider range of soil conditions. Experts claimed that although these beans contained more caffeine, robustas were inferior in flavor because of their distinct bitterness. Since robustas were easier to grow and not nearly as tasty, the beans tended to command a much lower price on the market. As a result, robusta beans were primarily used in the instant and mass-produced coffee sold in large supermarket stores. Conversely, premium “washed” arabica beans that went into fine specialty coffees, could attain up to a 30% premium to robustas.

The Specialty Coffee Industry
Between 1962 and 1974, coffee consumption in the United States declined from a peak of 3.1 cups a day to 2.2 cups. One of the main reasons for this decline was the quality of coffee the large roasters were using to make up their blends. Starting in the mid-1950s, American roasters thought the only way to differentiate their product was on price, and they focused on gaining market share through the use of promotions and coupons. As a way to stay competitive, roasters began to include the cheaper robusta beans into their blends to decrease costs. This trend continued throughout the 1960s and 1970s. However, in 1975 a severe frost hit Brazil and green coffee prices soared and remained high for over two years. As a result, the difference in cost between supermarket blends and specialty beans narrowed significantly, while the disparity in quality remained very high. For just a little bit more money, consumers could not only buy coffee that actually tasted good, but also shop in a fragrant store and learn about all the different bean types from knowledgeable roasters. By 1980, several specialty roasters had built up a strong presence in the big cities on the East and West coasts. These roasters created their own trade group called the Specialty Coffee Association of America (SCAA) and quickly grew in numbers. By 1985, specialty coffee accounted for 5% of coffee retail sales and new roasters were opening up shops every week.

By the 1990s, specialty coffee in the United States had become mainstream. Although overall coffee demand grew by only 1% in the US during the 1990s, this was not the case for specialty coffee. From the mid 1980s until the late 1990s, coffee imported by specialty roasters grew from 1 million to over 2.7 million bags. By 1999, specialty coffee accounted for more than 22% of coffee volume and approximately 37% of total US coffee sales. Beverage retailers were the fastest growing distribution channel in the specialty industry as witnessed by the number of people who claimed they drank specialty drinks. In 2013, 175 million Americans professed to drinking espressos, cappuccinos, lattes or iced/cold coffees, up from 80 million in 1997.
In response to this trend, many of the large coffee manufacturers acquired small roasters as a way to participate in the specialty coffee boom. For example, P&G’s purchase of Millstone and Nestlé’s purchase of Sark’s Gourmet Coffee were executed as an attempt to maintain market share. Although American consumers were not drinking more coffee, over the years, they had shifted their consumption patterns to drink better and more expensive beans.

Starbuck’s Challenges & Future
Starbucks has pursued rapid expansion both at home and abroad. Today, Starbucks boasts more outlets around the world, and has no plans to slow the growth. Starbucks has proven so popular in Japan, where sales per store are twice as high as in the United States, that the company plans to add more over the next few years. The company moved into China. A joint venture with Germany’s largest department store company, KarstadtQuelle, is helping Starbucks push into Germany. The company plans to open new stores in many countries as part of a long-term plan in continental Europe. And in Canada, Starbucks has partnered with Interaction Restaurants. Starbucks’ strategies have long been criticized as risky, but there’s no arguing with success. Many analysts think the company has the flexibility and management strength to continue to grow and prosper. The success is mainly due to the people work for Starbucks. Many of Starbucks’ managers have years of experience from such companies as Burger King, Taco Bell, Wendy’s, and Blockbuster. Equally crucial to Starbucks’ success are the “baristas” who prepare coffee drinks. Starbucks recruits its workers from colleges and community groups and gives them 24 hours’ training in coffee making and lore—a key to creating the company’s hip image and quality service.

When customers go to Starbucks, they are buying not just a great cup of coffee, but an experience. In a new store in Beijing, for instance, customers line up daily to have a barista dispense jolts of java from a “Mercury machine” strapped to his back. Starbucks also emphasizes listening to customers and giving them what they want. One reason the company agreed to a deal allowing Interaction to run storefront outlets in Quebec was to ensure that Starbucks adapts to local market needs, particularly in Montreal, which already has a strong coffee culture and vibrant local competitors.

However, Starbucks’ sales were going down. The declining economy following the September 11, 2001 terrorist attacks, financial crisis, changing customer tastes hurt sales even more. However, this does not worry top managers of Starbucks. To them, meeting such challenges is just part of the job. It wants to turnaround its business by providing customers with the distinctive ‘Starbucks Experience’ and building on Starbucks legacy of innovation. However, a very important question is: Is Starbucks still the romantic coffee shop it used to be?

Structure of the report

1.    Introduction: brief of the company (Starbucks) and the country (USA). Then what will be in the report.

2.    Literature review: on the need and importance of environmental analysis by organizations. The number of word should be not less than 625 words. It should be in general not about Starbucks. You can speak about macro and micro environment.

3.    Analysis and discussion of the following:-

•    The PEST factors affecting the industry in USA. Which of the factors are the most important?

The PEST should be done for the country (USA). For example: P : how is the political situation and how its effects on the industry….ect. E: for example: how is the GDP of the country for the last five years and do compare. Also, inflation and do graph for it…ect. S: life style, eduction and its effect of awareness of drinking coffee…ect. T: machines, process, production….ect.

•    Conduct a five forces analysis of the industry in which Starbucks operates.

Mention all the five of the industry to know who is your suppliers for example and if it is high, medium or low. Mention the reason if it is high, medium or low. After you finish analysis you have to mention if it attractive or not and why?

•    The Strengths, Weaknesses, Opportunities & Threats (SWOT) of Starbucks.

It should be done for the company. S: for example: brand, quality, market leader, people blend….ect. W: : for example: premium price, dependency on coffee…ect. O: : for example:  market expansion, product expansion….ect. T: for example: competition….ect.

4.    Conclusion:  for example what you learn from the report…ect.

5.    References: it should be Harvard Style referencing used. It should be from published articles…ect.

Very Important Notes:- The number of words should be 2500 words. Also, the analysis can be from outside of the case given. Moreover, citation should be written on the paragraph and explanation in any analysis written.

PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT 🙂