Starbucks products that fit the culture of the

Starbucks products that fit the culture of the

Starbucks and its Environment Customers/Consumers Starbucks extends their coffee experience to everyone: kids, teenagers and adults. Part of their success comes from their ability to create new products that fit the culture of the country. In Japan, for instance, Starbucks launched green tea lattes, which later became popular in other countries (Allison). Starbucks is well established in countries like Canada, Japan, and the United Kingdom. In the US alone, Starbucks sells 4 million cups of coffee per day (Horovitz). Their products and services have transformed the way customers view coffee.

Changing the way customers order, Starbucks makes it very chic to purchase custom drinks. Starbucks is like no other coffee shop: the dimmed lights and contemporary background music appeal to many customers. Offering free Wi-Fi, Starbucks provides customers with an alternative study/work space.

They also provide kid-friendly drinks and sizes to make Starbucks a family-friendly place. As an ? embedded brand? (Hoover), Starbucks does not need to rely heavily on advertisements to attract customers. Customers are loyal to Starbucks because of its friendly and consistent customer service.Company/Corporate Partners One of the fastest growing chains in the world, Starbucks is a multination corporation that operates in over fifty countries.

The company has created a brand of passion, relaxation, and great tasting specialty coffee. In partnering with many book and music companies, Starbucks has made itself appealing to many different demographics. The company started in 1971 and went public in 1985.

It is currently traded on the NASDAQ Market and is a Fortune 500 company (US Securities and Exchange Commission, 1).The Starbucks mission is to “inspire and nurture the human spirit—one person, one cup and one neighborhood at a time” (Starbucks Corporation 2010). They work to achieve their mission by being customer-oriented, community-driven, passionate, and caring. The Starbucks culture is quite refined, catering to the upper-middle class citizen who enjoys a friendly and calm atmosphere.

Starbucks obtains customer loyalty through fantastic customer service and well-made products. This combination has created consumers willing to spend over $10,000 per year on coffee.To maintain its success, Starbucks follows six guiding principles: providing a work environment which fosters respect and dignity, embracing diversity in business, applying the highest standards in coffee production and delivery, developing customer relations, contributing to the community and environment, and maximizing profits (Starbucks Corporation 2010). Starbucks is working with several partners to enhance brand equity and expand sales channels and their marketing network. Perhaps different from their rivals, Starbucks strategically refers to all employees as ? tore partners? who can acquire company shares. The company provides health care benefits to both part-time and full-time store partners even during the recession (? Starbucks Corporation Fiscal 2009 Annual Report? , 4). Starbucks strives to foster employee loyalty and well being, as happy ? store partners? help to build a better experience for customers.

Their efforts also help to ensure that their employees’ behaviour is consistent with company goals. A large part of the company’s success is the result of working with business partners around the world.For instance, Starbucks is partnering with Pepsi-Cola and Kraft for the manufacturing and distribution of bottled coffees and teas, such as Frappucino beverages and Starbucks DoubleShot. Playing an essential role in the Starbucks operation, they make up 23% of Starbucks’s specialty revenue (? Starbucks Corporation Fiscal 2009 Annual Report? , 13). In another example, Starbucks is now working with Unilever to manufacture, market, and distribute Starbucks super-premium ice-cream products in the US.In addition, Starbucks is a 50% equity investor in a joint venture between The North American Coffee Partnership and Pepsi-Cola Company (“DATAMONITOR: Starbucks Corporation”, 1). These partnerships have led to a meaningful increase in profits.

Licensed stores, another type of partner for Starbucks, make up a greater portion of the corporation than company-operated stores. According to Starbucks’ Fiscal 2009 Annual Report, licensed stores make up 39% of total Starbucks stores in the US and 62% of Starbucks stores worldwide. 3 As Starbucks continues to expand, more profits and more risks are in store.The corporation’s brand and reputation may be put at risk as the quality of the products supplied by third parties is outside of the company’s control (? Starbucks Corporation Fiscal 2009 Annual Report? , 20). Partnering with farmers and suppliers meant letting go of control over the quality of certain products. In order to retain customers and protect their brand, Starbucks must establish and maintain effective working relationships with reputable farmers and suppliers, which could increase costs. Starbucks is also partnering with Chapters and Barnes & Noble.

The high traffic in bookstores has led to a higher volume of sales for the company.In addition to the above channels, the company is working with NGOs to support the purchasing of fair trade coffee beans to reach long-term sustainability. Competitors Many coffee companies are currently in the market, making competition fierce. Although Starbucks has a strong reputation in North America, direct and indirect competitors still pose a threat.

To establish market niche, competitors use location, product mix, and store atmosphere differentiation (Anders). In Greater Vancouver, Starbucks competes with various other coffee shops—many providing coffee at a lower price.Blenz Coffee, Waves Cafe, and Tim Hortons are a few of Starbucks’ direct competitors.

An indirect competitor is McDonalds, who has recently launched McCafe, which aims to provide tasty treats for less. Moreover, competitors commonly provide products which are not on the Starbucks menu. For instance, Blenz offers salmon rolls, lemon soda, and vitamin water from other food manufacturers.

Blenz offers brand reputation; Waves offers longer hours; and Tim Hortons offers lower prices. Strong competition drives Starbucks to differentiate itself from other companies and create value for customers in a unique way.Although Blenz, Waves, and Tim Hortons sell similar products, they do not match Starbucks in global scale. Today, Starbucks has over 13,000 locations in 39 countries, making it a highly recognized brand (Datamonitor). On account of its great locations, Starbucks appeals to a number of mainstream and potential customers (Thompson & John). Furthermore, positioning itself as a luxury brand has given Starbucks the ability to offer its own unique features, such as serving customers special beverages during the holidays. Culture Known as ? the most successful chain in America? (Rein), Starbucks is like no other coffee shop.

They do not just sell coffee; they sell an atmosphere. Starbucks is a social gathering place designed for impromptu and planned meetings, talking with friends, and an ambient study space. They allow customers to express their own identity by providing unlimited choices, especially in its beverages. Customers can choose to personalize their beverages according to their preferences for cup size, type of milk, amount of foam, temperature, etc. (Houle). Starbucks is one of the few consistent chains providing an employee-friendly workplace and actively promoting social responsibility.

With its welcoming environment and long hours, this coffee establishment offers customers not only specialty beverages but also a trendy lifestyle. Demographics Starbucks’ customers are described as the ? Urban Commuter Segment,? which are ? college educated households containing dual income couples? (Tancer). The typical Starbucks customer is between the ages of 35 and 44 and has an income of over $60,000. As the most popular coffee chain in America, Starbucks attracts more female customers than male customers (Tancer).

Social TrendsStarbucks’ success can be attributed to the fact that they follow social trends very closely. With their immensely popular ? My Starbucks Idea,? customers share ideas or suggestions on how to improve their 4 Starbucks experience (Gray). Within this portal, Starbucks launched the ? Starbucks Ideas In Action Blog,? where Starbucks’ employees can respond to customer feedback. The rise of social media has prompted Starbucks to join social networking sites, such as Facebook and Twitter, where it can handle customer issues and complaints, announce news and engage with followers. TechnologyTechnologies are what enable Starbucks to thrive in the competitive coffee industry.

A large part of being a leader in the industry for Starbucks is the store partners’ ability to accurately distribute equipment to efficiently meet consumer demands. Starbucks uses high quality machines for its drinks and treats. One being the Clover® brewing system: ? an innovative design that lets you discover new layers and dimensions within a coffee’s familiar aroma, flavour, body and acidity? (? The Clover® Brewing System? ). This special brewing system helps Starbucks save time and increase productivity.Starbucks extensively uses IT to conduct operations efficiently and improve its supply chain (Allison). Economics The global recession is having a negative impact on Starbucks.

Increasing input prices are narrowing profit margins, and decreased consumer demand is putting pressure on the coffee industry. Traffic in US stores is slowing down due to decreased disposable income, putting stress on the company. Commodities such as coffee, dairy products, and diesel, are inputs that Starbucks heavily relies on. Starbucks uses hedging and other risk control devices to minimize the risk of losses in such price fluctuations (10-K, 36).However, a public statement by Howard Shultz in September revealed that Starbucks will be increasing its prices on select drinks due to ? a highly speculative green coffee market? and ? dramatically increased commodity costs? (? Starbucks Price Increases? ). Arabica coffee beans, grown primarily in Central America, have been facing two seasons of drought, resulting in a decreased supply and 13-year high prices (? Starbucks Price Increases? ).

Decreased margins will lower Starbucks’ operating margins as well as decrease consumer demand. The majority of Starbucks’ operations are in the US.Therefore, most cash flow activities are transacted in US dollars. Due to the expansion of the US monetary base, uncertainty about the national debt, and lacklustre GDP growth, the US dollar has been depreciating relative to sound foreign currencies and gold—a historical hedge against inflation. Central banks like Canada and England have been slowly increasing their bank rate, one reason for US depreciation (Bank of Canada).

Low interest rates will increase liquidity and provide opportunities if Starbucks wishes to expand. Regulatory EnvironmentThe current US administration is highly regulatory, especially in the foodservice industry (FDA). There are several regulatory bodies that limit what practices Starbucks can conduct. Among them are: ? Federal Trade Commission Act – Also known as antitrust laws, this act bans ? unfair? methods of competition. It aims to keep each coffee retailer honest about the information it provides its consumers, preventing deceptive business practices and preventing mergers between large corporations (Lister). ? FDA – The Food and Drug Administration inspects coffee sold in the US for potentially harmful ingredients.

FDA disapprovals can greatly affect sales and the reputation of companies (Lister). For tax years beginning in 2010, IRC bill Section 199 specifies a substantial tax break for companies that domestically manufacture their goods (Karnis). The bill provides a benefit of 9% of income from qualified manufacturing activities.

While this bill is extremely complicated, Starbucks may find it beneficial to relocate some of its operations onto US soil. Congress noted that food processing is generally an accepted activity, but it does not include activities carried out in retail establishments. 5 SWOT Evaluation PositiveNegative Internal Strengths: ? Product is catered to a wide market which range across many demographics.

? Culture oriented branding ex. Japanese Green Tea Latte ? Strong brand image; created a global coffee brand ? Strong reputation in North America ? Product differentiation: superior customer service and has high standards of coffee production ? High quality of employees training ? Employing part-time employee, indirectly reducing the costs ? Advanced coffee machine to improve its supply chain Weaknesses: ? High prices turn away many consumers ? Potentially limited market—catering to the upper-middle class ?The limitation of production ? Several employees serve customer, not like McDonalds: flow line ? Dependency on third-party suppliers ? Mostly limited to selling coffee-related products ? Previous focus on expansion may not be relevant in the current market External Opportunities: ? Catering to consumers willing to spend more than $10,000 per year ? Tax breaks for domestically manufacturing goods in the US ? Become the coffee fashion trend- Starbucks Culture ? Expanding sales channels and marketing network by working with their business partners: Pepsi-Cola and Kraft ?Gain employee and partners loyalty and high reputation ? Cooperate with Chapters and Barnes & Noble to increase sales ? Occupying the large global scale in the coffee market, and entering in market earlier than their competitors ? Actively following social trends, and joining social networking websites: Facebook and Twitter Threats: ? The risk of food quality supplied by their outside partners. ? High costs of cooperating with reputable suppliers ? Indirect competitors providing tasty treats for less ? Competition from companies focusing on cost leadership and broader markets ?Decline of consumer demand during recessions ? Forecasting risk, like scarcity of coffee beans and fresh food ? US monetary policy causing uncertainty about the US dollar and future of the economy ? High FDA regulation 6 SWOT Specifics Strength: Product differentiation Weakness: High prices Opportunity: Expanding network among corporate sponsors Threat: Competition focusing on cost leadership From the SWOT table, it is apparent that much of Starbucks’ success has come from customer satisfaction.

Their strengths come from building an atmosphere with satisfied employees, which leads to a better customer experience.Starbucks focused on bringing this to a global scale, and is cooperating with other companies like Pepsi-Co, Kraft, Chapters, and Barnes & Noble to widen its market base as much as possible. Why is it trying to do this? Starbucks’ biggest weakness is its prices, which are much higher than other coffee establishments.

Competitors like Tim Hortons, McDonalds, and Blenz are using cost leadership strategies and value to attract a much wider market of consumers. Starbucks doesn’t rely on heavy marketing to gain loyalty in their customers; loyalty comes creating value for the customer.Starbucks’ extensive employee training allowed it to provide consistent customer service, and its focus on quality offers a unique product that is hard to replicate. Starbucks should market itself as being a globally recognized coffee company that sells not just a cup of coffee, but an experience. 7 Work Cited Allison, Melissa.

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