How Starbucks Uses Its Operation Strategy In Order To Be Successful In Market

How Starbucks Uses Its Operation Strategy

Background

The first store of Starbucks was established in the year 1971, in Pile Place Market (United States of America). It is one of the leading retailer, brand and roaster of coffee in the world with approximately 13,000 outlets in approximately 40 countries. Starbucks is placed among best 100 brands globally. The company has been enjoying steady increase in both profit and sales in the recent past. It has recorded an operating margin of approximately 11.4% with the figure expected to increase in subsequent financial years.

Executive Summary

The framework for the international operations of Starbucks Coffee Company is establishment of retail stores throughout its outlets globally. There are several strategies that are employed by Starbucks that as enabled it to stay at the top of the brand industry that is normally perceived to be volatile in nature and is undergoing continuous growth. The principle governing the operations of Starbucks is controlled mainly by three strategies: provision of quality product to the customers on daily basis; creation of human connection between the company and the customers; and third place experience.

The following strategies are specifically used by Starbucks in their normal operations across all its branches globally: value chain development strategy which involves creating human connection between the company and its customers through maintenance of its business ecosystem; development of market strategy which involves providing the customers with information pertaining to its products; penetration to the market strategy which involves differentiating and placing its products outdoors of its retail shops globally; concentric diversification which involves releasing into market liqueur, bottled drinks and even ice creams alongside official products; horizontal integration which involves competitor products such as Coffee People and Seattleā€™s best.

The level of competition in the coffee industry is considered to be moderate due to the fact that the green coffee supply is undergoing moderate threat while competitors on the other hand also pose a moderate threat. Other threats that are considered to be mild in nature include; new entrants to the market, substitutes and even buyers.

The strength of Starbucks is based on overwhelming performance in the long run as far as finance is concerned and its loyalty to its customers. It also has several weaknesses such as sensitivity to price in other nations, overreliance on the United States of America for most of its sales and dominance by its corporation.

This paper therefore aims providing analysis of Starbucks operations in the global market. It shows that the company is facing stiff competition in areas such as locations of operating retail stores, marketing and human resource management. From the below presented analysis, this paper therefore concludes that Starbucks is steady firm that has a lot of room for expansion. It should therefore focus much on its long-term performance and gains.

Introduction

Starbucks operates in approximately 39 countries globally; it was established in the year 1971 in Washington. It serves approximately 41 million customers each and every week. When the 2005 fiscal year was concluded, the firm had obtained a profit of USD 780 millions from USD 6.4 billion revenues it has collected. The firm also licensed about 3200 locations globally while it operated approximately 5700 stores.

The firm has a mission which aims at its establishment as the leading purveyor of coffee globally while ensuring that it grows alongside its uncompromising principles. These principles include: provision of best work environment; embracement of diversity; recognition of profitability as an essentiality for future growth; positive contribution towards environment and community; ensuring that the customers are satisfied at all times of operation; and finally ensuring that high standards are achieved in purchasing, roasting and even delivering of fresh coffee to the esteemed customers.

Starbucks has several opportunities in the coffee industry. There has been continuous growth in the premium coffee market thereby presenting Starbucks with opportunities for expansion in the united states America rural areas and internationally. Proprietary and premium foods offering can be used by Starbucks to foster growth in the industry so as to establish stiff competition against fast food hotels and also to enable it obtain joint licensing agreements that may enable it obtain brand leverage in turn. Starbucks has a very strong brand but more still need to be done to ensure that the brand remains relevant in the global market.

The backbone of the Starbucks is the stores that are operated by the company globally which flourish due to strategy of third place experience. The retail stores are aimed at providing the customers with gathering and relaxing places away from offices and homes. The company licenses its brands to other locations and expects the employees to abide by operation procedures of Starbucks. This constitutes approximately 10% of its operations.

Analysis

Internal analysis

Strengths

Starbucks exhibited 23.88 percent return on equity and 16.46 percent return on assets in the year 2005. These figures were twice much greater the nearest competitor and also much higher than that of fast food restaurants.  Starbucks also enjoys the highest profit margin compared to the rest of the players in the market. In addition to that it exhibited the highest P/E ratio in the industry. The table below shows the results.

 StarbucksPeetsCaribouGreen MountainPanera Bread Co.Diedrich
Return on assets16.46%5.66%-3.36%7.43%12.84%-12.66%
Return on equity23.88%7.16%-7.69%12.48%16.84%-29.16%
P/E50.5742.81N/A43.934.76N/A
Profit margin7.76%4.44%-3.39%3.75%7.27%-12.99%

Source http://www.sba.pdx.edu/faculty/daveg/562/Starbucks.pdf

Starbucks has been enjoying increasing trends in the sales of its products as exhibited in the graph below. The graph below shows the projection in the sales between 2003 and 2006.

Weaknesses

Overreliance on the united states market; despite having several stores in 39 countries, the biggest shares of its revenues was collected from united states market with the figure standing at 83.7 percent in the year 2005.

High prices on its products; the price of a cup of coffee stands between $3 and $4 in the market, despite the fact that the price is accepted in United States it faces objection from other nations.

External analysis

Competition

Source http://www.umsl.edu/../starbucks…/starb..

External analysis

New entrants into the market; Starbucks has gathered information and skills that are necessary in combating new entrants into the market. A threat from substitute products has been normally countered by Starbucks through acquisition of the company.

Methodology

The data was obtained from relevant websites and financial journals that are readily available. Some of the information was obtained from financial reports printed in newspapers.

Recommendation

Starbucks has successfully undergone overwhelming growth since its establishment. Starbucks bears its expansion in the market shares to its cooperation with its partners and its relationship with its suppliers. The firm is also enjoying a very strong financial position compared to most of its competitors in the global market. It should therefore take this advantage and buy shares from its competitors so as to reduce price wars and stiff competition.

Reference

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