Taking Sides: Starbucks Case Analysis

Taking Sides: Starbucks Case Analysis

Today, when people say "Wake up and smell the coffee" they are not talking about home made coffee. They are actually talking Starbucks, the world's #1 specialty coffee retailer, because it is located everywhere. Starbucks was founded by Howard Schultz in 1985 under the name I l Giornale Coffee Company and changed its name to Starbucks Corporation in 1987. The company is headquartered in Seattle, Washington. Starbucks operates and licenses more than 8,000 plus coffee shops both here domestically in the United States and internationally. Starbucks Corporation sells brewed coffees, espresso beverages, cold blended beverages, food items, teas, branded coffee drinks, a line of ice creams, and a line of compact discs through its retail stores. In addition, its stores offer pastries, sodas, juices, games, and seasonal novelty items, as well as coffee-related accessories and equipment, such as coffee grinders, coffeemakers, coffee filters, storage containers, travel tumblers, and mugs. The brand name is so well known that Starbucks markets its coffee through grocery stores and licenses its brand for other food and beverage products. Through the case study for Starbucks Corporation, the team will display detailed information to argue on the side that the company has sufficiently satisfied all adaptability in the three external environments.

Remote Environment

The key arguments in support of Starbucks environmental adaptability, as it pertains to the remote environment, are product availability and orders taken via internet and telephone. Since 1990 Starbucks has grown from 17 coffee shops in Seattle, Washington to 5,689 outlets in 28 countries on three continents. Future expansion includes plans for an additional 1,200 new outlets of which 400 will be built overseas. Starbucks expects to double the number of its stores worldwide, to 10,000 in three years.

Starbucks continues to be an innovative company and has recently launched Starbucks Express, which is a program that blends java, Web technology, and faster customer service. With Starbucks Express, customers can pre-order and pre-pay for beverages, pastries, and merchandise via telephone or on the Starbucks Express Web site and their order will be ready and waiting when they arrive.

The strongest argument against Starbucks environmental adaptability involves anti-American sentiment and lack of cultural insensitivity. Starbucks founder, Howard Schultz, has damaged his company's image by inappropriately expressing his personal beliefs in a public forum. Mr. Schultz has flown to Israel to meet with Foreign Secretary Shimon Perez to discuss the Middle East crisis. Mr. Schultz also expressed his view of the Palestinian's position in a Seattle synagogue, which led to protests at the Starbucks outlets located in Kuwait, Lebanon, Oman, Qatar, and Saudi Arabia.

Industry Environment

Starbucks business strategy is of market dominance and being a market leader in selling coffee products, food products, and accessories such as cups, Starbucks has grown tremendously. In the United States and Canada alone, there are 4,247 stores open. For example in Seattle, there is a Starbuck's outlet for every 9,400 people and in New York there is one for every 12,000 people. Because of its size and brand name, its marketing strategy is to cluster locations close together domestically to increase total revenues and market share. Their strategy is to dominate a local market, and absorb losses at existing stores as new stores are opened. While this strategy has proved to be effective, there are drawbacks to this strategy. Since Starbucks has saturated the marketplace by a high concentration of clustered locations, sales can conceivably become lower by as much as 30 percent at existing outlets. Through its saturation, it is becoming harder to grow the business domestically.

Starbucks leadership uses aggressive business tactics to keep competitors out of the marketplace. It prefers to pay more than market-rate rents to keep competitors out of a location. In one Seattle location, it offered to pay nearly double the rate to the landlord to put a coffee shop in the building. In addition, Starbucks would rather pay rent on an empty store location so a competitor such as Tully's could not move in.

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