Starbucks Competitive Strategy Case Analysis Project

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It is a case analysis project that about 2500 words. Basic competitive strategy knowledge are required to complete this assignment. Please read the case carefully before start writing it. All other detail requirements are in the attachments. Thank you very much.

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Competitive Strategy Individual Case Write-up Rubric Component / Tasks Problem identification (10) Identifies and summarizes the problem(s), question(s), or issue(s). This dimension focuses on task or issue identification, including secondary or implicit aspects of an issue and the relationships between factors that may be integral to effective analysis. Situation Analysis (60%) Undertakes appropriate quantitative or qualitative analysis. This dimension focuses on the appropriate use of quantitative or qualitative analysis of information to clarify issues and facilitate decision-making. Exceeds Expectations 85 – 100% A / A+ Clearly identifies and summarizes the main problem(s) or decision(s). Identifies secondary or implicit issues. If applicable, notes relationships between factors and how they relate to each other. Provides a comprehensive and rigorous analysis of the situation based on course concepts, tools, and techniques that apply to the situation. Breakdown: Quantitative or qualitative analysis is appropriate, accurate, and thorough. External Analysis (20%) 5-Forces, Macro-Environment, KSFs, overall O&Ts Analysis is used to clarify the issues and facilitate effective decision-making. Internal Analysis (20%) Value Chain, RBV, VRIO, overall S&Ws Where appropriate, evaluates the quality of the evidence provided, where applicable making distinctions among facts, opinions, and values. Strategy Analysis (20%) Bus-level, Functional-level, Overall assessment Options Analysis (10) Integrates the issues using reasonable options. This dimension focuses on the treatment of diverse perspectives and the assessment of contrary views and evidence. Recommendation (10) Identifies and a logical conclusion, implications, and consequences. This dimension focuses on integrating previous dimensions and extending them to draw logical conclusions that solve the problem. Written Communication (10) Demonstrates effective writing, grammar, and organization. This dimension focuses on the quality of the written communication which determines clarity and understanding. Meets Expectations 50 – 84% D–AIdentifies and summarizes the main problem(s) or decision(s), but nuances and critical details are absent or glossed over. Does Not Meet Expectations 0 – 49% Does not attempt to or fails to identify and summarize the main problem(s) or decision(s) accurately. Provides some analysis of the situation based on applicable course material. Provides limited or no analysis of the situation based on applicable course material. Quantitative or qualitative analysis is appropriate but incomplete or partially inaccurate. Analysis has limited ability to help clarify the issues and facilitate effective decision-making. Provides limited evaluation of the quality of the evidence from the case. Quantitative or qualitative analysis conducted is inappropriate, inaccurate, superficial, or nonexistent. Analysis does not help clarify the issues or facilitate effective decisionmaking. Provides no evaluation of the quality of the evidence cited from the case. For every problem, identifies all key options and provides a comprehensive analysis of their pros and cons. Identifies some key options with good analysis of their pros and cons. Identifies an incomplete set of options or fails to adequately discuss their pros and cons. Clearly identifies key recommendations and how they address the main problem. Identifies key recommendations and how they address the main problem. Fails to identify key recommendations and how they address the main problem. Clearly identifies and justifies recommendations based on criteria developed in previous analyses. Writing (spelling, grammar, and sentence structure) are flawless or near flawless. Provides some links between recommendations made and findings from previous analyses. Writing (spelling, grammar, and sentence structure) contain a few mistakes. Well organized; natural flow; no repetition. Few organization or flow problems; little repetition. Fails to adequately link the recommendations made to findings from previous analyses. Major writing problems related to spelling, grammar, and sentence structure. Many organizational or flow problems; very repetitive. Case Introduction In 2015, Starbucks was the undisputed world leader in specialty coffee retail, with over $16 billion in annual revenues (see Table 1). Starbucks had nearly 200,000 employees and over 21,000 Starbucks-branded cafes in 60 countries (about 10,700 of those were owned and operated by Starbucks itself, while 10,600 were operated by licensees and franchisees). In addition, Starbucks owned the Seattle’s Best Coffee, Torrefazione Italia, Teavana’s Heaven of Tea brands, and more. The company had grown remarkably fast over its short life and was still exceptionally profitable, with a 23.1% return on assets in 2014 (compared to 6.8% at Peet’s Coffee and Tea, 14.0% at Keurig Green Mountain Coffee, 13.4% at McDonalds, and 5.5% at Dunkin’ Donuts). However, its growth had not always been smooth; in fact, Starbucks had shuttered about 900 stores during 2008 and 2009. As its domestic market appeared to be approaching saturation, Starbucks began to focus on growing its international locations and diversifying into other product lines where its now-iconic brand could create value. The History of Starbucks In 1971, three Seattle entrepreneurs, Jerry Baldwin, Zev Siegl, and Gordon Bowher, started selling whole-bean coffee in Seattle’s Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick. By 1982, the business had grown to five bustling stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of U.S. operations for Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Through selling to Starbucks, Schultz was introduced to the three founders, who recruited him to bring marketing savvy to the loosely run company. Schultz, 29 years old, recently married, and eager to leave New York, moved to Seattle and joined Starbucks as manager of retail sales and marketing. One year later, Schultz visited Italy for the first time on a buying trip. As he strolled through the piazzas of Milan one evening, he was inspired by a vision. Coffee is an integral part of the romantic culture in Italy; Italians start their day at an espresso bar, and return with their friends later. There were 200,000 coffee bars in Italy, and 1,500 in Milan alone. Schultz believed that given the chance, Americans would pay good money for a premium cup of coffee and a stylish, romantic place to enjoy it. Enthusiastic about his idea, Schultz rushed back to tell the Starbucks owners of his plan for a national chain of Starbucks cafes stylized on the Italian coffee bar. The owners, however, were less enthusiastic, and said that they did not want to be in the restaurant business. Undaunted, Schultz wrote a business plan, videotaped dozens of Italian coffee bar, and began to look for investors. By April 1986, he had opened his first coffee bar, II Giornale (named after the Italian newspaper), where he served Starbucks coffee. Following II Giornale’s immediate success, Schultz opened a second coffee bar in Seattle, and then a third in Vancouver, Canada. In 1987, the owners of Starbucks finally agreed to sell to Schultz for $4 million. The II Giornale coffee bars took on the name of Starbucks, and a star was born. Convinced that Starbucks would one day be in every neighborhood in America, Schultz was intent on growing the company slowly, with a very solid foundation. He hired top executives away from corporations such as PepsiCo, and he was determined that future profits would be well worth early losses. At first, the company’s losses almost doubled, to $1.2 million from fiscal 1989 to 1990, as overhead and operating expenses ballooned with the expansion. Starbucks lost money for 3 years running. The stress was hard on Schultz, but he stuck to his conviction not to “sacrifice long-term integrity and values for short-term profit.” In 1991, sales shot up 84%, and the company broke into the black. Everywhere Starbucks opened, people flocked to pay upwards of $2.00 and more for a cup of coffee. Enthusiastic analysts began to predict that Starbucks would top $1 billion by the year 2000, but Schultz preferred to play the company’s early successes down, asserting that it is better to “underpromise and overdeliver.” The analysts, it turned out, had underestimatedStarbucks’ success–by 2000, it was taking in over $2 billion in revenues. In the 22 years between 1993 and 2015, Starbucks averaged an annual revenue growth rate of 26% a year. Competition in the Specialty Coffee Segment In the United States in 2012, specialty coffee accounted for 37% of all cups of coffee consumed, and for nearly 50% of all coffee revenue. Though the United States was the single largest buyer of unroasted coffee in the world in 2012, emerging markets were exhibiting strong growth, and many experts anticipated that Brazil would surpass the United States in coffee consumption sometime between 2014 and 2016. Worldwide, independent coffee shops still make up the majority of coffeehouse locations, though prominent chains have emerged in many regions. Starbucks has long held a leading position in its home market, selling over 50% of the specialty coffee purchased in cafes in the United States over the last several decades, and easily dominating local specialty coffee competitors such as Caribou Coffee and Peet’s Coffee & Tea. However, in recent years, Both Dunkin’ Donuts and McDonalds began targeting Starbucks’ growing customer base with coffee offerings based on high-quality, Arabica brews at a lower cost than Starbucks’ beverages. With a very large number of existing stores (see Table 1), both competitors posed big threats if they were effective in wooing customers away from Starbucks. Furthermore, Starbucks faced other, more entrenched competition in many of its international markets (see Figure 1 for a breakdown of market share by regional areas). Caribou Coffee Founded in 1992, Caribou Coffee operates 470 coffeehouses in about 20 states and in many international markets (particularly in the Middle East and South Korea). Its 2012 sales were $326.5 million, and then the company was taken private in 2013. Its stores are designed to look like mountain lodges and sell only specialty coffee, baked goods, and coffee brewing supplies. However, like Starbucks, the company also sells roasted coffee to grocery stores and has a licensing agreement to make singleserve K-cups for home brewing using Keurig machines. McDonald’s Founded in 1948 in San Bernardino, California, McDonald’s grew to become the world’s largest quick-service restaurant. Boasting about 36,000 restaurants in 119 countries and $27.4 billion in sales (see Table 1), McDonald’s is probably the bestknown restaurant in the world. Though its menu is most famous for hamburgers and fries, in the last 2 decades McDonald’s has developed healthier food items in response to social pressure mounted against burger chains. In 1993, a McDonald’s licensee, Ann Brown, created the McCafé–a coffeehouse style outlet that would offer high-end coffee beverages similar to Starbucks’. In response to its early success, McDonald’s also introduced a line of special coffee drinks called McCafé into its other restaurants. Dunkin’ Donuts Originally founded as the Open Kettle Doughnut shop in Quincy, Massachusetts, in 1948, founder William Rosenburg changed its name to Dunkin’ Donuts in 1950 and began franchising the shops 5 years later. The popular franchise became famous for its wide variety of doughnuts, and expanded to become the world’s leading doughnut chain, with 11,000 outlets in about 30 countries. Dunkin’ Brands Group also owns Baskin Robbins and Togo Sandwiches, and collectively the chains earned $748.7 million in sales in 2014 (see Table 1). Though it had long offered coffee, the company did not begin offering espresso drinks until 2003. Redefining “A Cup of Joe” Starbucks’ coffee quality begins with bean procurement. Whereas historically Americans had drunk a commoditylike coffee composed of Arabica beans mixed with less-expensive Robusta filler beans, Starbucks coffee is strictly specialty varietals of Arabica beans, and the company goes to great lengths to ensure that only the highest-quality beans are used. Starbucks’ bean procurement standards are demanding, and the company conducts exacting experiments in order to get the proper balance of flavor, body, and acidity. Brews are subjected to “cupping”—a process similar to wine tasting that involves inhaling the steam (“the strike” and “breaking the crust”), tasting the coffee, and spitting it out (“aspirating” and “expectorating”)–to evaluate aroma and taste. From the company’s inception, it has worked on developing relationships with the countries from which it buys coffee beans. Prior to Starbucks’ rise, Americans were notorious for buying poor- quality coffee beans—most of the premium coffee beans were bought by Europeans and Japanese. In 1992, however, Starbucks set a new precedent by outbidding European buyers for the exclusive Narino Supremo Bean crop. This Columbian crop is very small and grows only in the high regions of the Cordillera mountain range. For years, Narino beans were guarded zealously by Western Europeans who prized their colorful, complex flavor. It was usually used for upgrading blends. Starbucks was determined to make them available for the first time as a pure varietal. This required breaking Western Europe’s monopoly over the beans by convincing the Columbian growers that it intended to use “the best beans for a higher purpose.” Starbucks collaborated with a mill in the tiny town of Pasto, located on the side of the Volcano Galero. There they set up a special operation to single out the particular Narino Supremo bean, and Starbucks guaranteed to purchase the entire yield. This enabled Starbucks to be the exclusive purveyor of Narino Supremo, reputedly one of the best coffees in the world. Procurement is not the only area where extreme care differentiates Starbucks’ product: roasting is close to an art form at Starbucks. Unlike most specialty coffee retailers, Starbucks roasts its own beans in its private roasting facilities in California, Nevada, Pennsylvania, South Carolina, Washington, and the Netherlands. Roasters are promoted from within the company and trained for over a year, and it is considered quite an honor to be chosen. The coffee is roasted in a powerful, gas oven for 12 to 15 minutes while roasters use their sight, smell, and hearing to judge when beans are perfectly done. The color of the beans is even tested in an Agtron blood-cell analyzer, with the whole batch being discarded if the sample is not deemed perfect. Despite the attention to quality, Starbucks’ effort at bringing a premium coffee and Italian-style beverage experience to the American market could have been lost on consumers had it not invested in consumer education. Starbucks spends far less on advertising than most chain restaurants (in 2014, for example, Starbucks spend $315 million on advertising–just 2% of sales, compared to McDonald’s’ $808 million, or 3% of its sales). Instead, it invests in securing highly visible locations, innovating in its menu, and building an iconic, ubiquitous brand. Starbucks’ logo has evolved from an original, 16th-century Norse woodcut of a visibly topless mermaid to a version in which her flowing hair afforded more modesty (which was crucial for entry into countries with strong cultural taboos around nudity), to the current version which omits the nameplate, permitting Starbucks to symbolize a broader product range than just coffee (see Figure 2). Starbucks also seeks to develop a close connection with customers. Starbucks employees are encouraged to help customers make decisions about beans, grind, and coffee/espresso machines and instruct customers on home brewing. The objective is to create a long-term relationship with customers. In order to create American coffee enthusiasts with the dedication of their Italian counterparts, Starbucks needed to provide a seductive atmosphere in which to imbibe. The stores are sleek yet comfortable. Coffee preparers are referred to as “baristas,” Italian for bartender, and biscotti is available in glass jars on the counter. The stores are well lighted, feature plenty of burnished wood and brass, and sophisticated artwork hangs on the walls. Jazz or opera plays softly in the background. According to Schultz, “We’re not just selling a cup of coffee, we are providing an experience.” Many of the stores offer light lunch fare including sandwiches and salads, and an assortment of pastries, bottled waters, and juices. Starbucks also launched a line of packaged and prepared teas in 1995 in response to growing demand for teahouses and packaged tea. Tea is a highly profitable beverage for restaurants, costing only 2 to 4 cents per cup to produce. Pampering Employees Schultz believes that happy employees are the key to competitiveness and growth. He states, “We can’t achieve our strategic objectives without a work force of people who are immersed in the same commitment as management. Our only sustainable advantage is the quality of our work force. We’re building a national retail company by creating pride in—and stake in—the outcome of our labor.” Starbucks has accomplished this through an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. While Starbucks enforces almost fanatical standards about coffee quality and service, the culture at Starbucks towards employees is laid back and supportive. Employees are empowered to make decisions without constant referral to management, and are encouraged to think of themselves as partners in the business. Starbucks wants employees to use their best judgment in making decisions and will stand behind them. This is reinforced through generous compensation and benefits packages. Starbucks offers an industry-leading benefits package to both part-time and full-time employees. The package includes medical, dental, vision, and short-term disability insurance, as well as paid vacation, paid holidays, mental health/chemical dependency benefits, an employee assistance program, a 401 (k) savings plan, and a stock option plan. They also offer career counseling and product discounts. The decision to offer benefits even to part-time employees garnered the firm a great deal of attention in the press. It was difficult to get companies to insure Starbucks, because they did not understand why Starbucks would want to cover part-timers. However, while many companies scrimp on these essentials, Schultz believes that without these benefits, people do not feel financially or spiritually tied to their jobs. The stock options and the complete benefits package increase employee loyalty and encourage attentive service to the customer. Bradley Honeycutt (director of compensation and benefits) also points out that “part-timers are on the front line with our customers. If we treat them right, we feel they will treat [the customers] well.” Employee turnover is also discouraged by Starbucks’ stock option plan (known as the Bean Stock Plan). Implemented in August 1991, the plan made Starbucks the first company to offer stock options unilaterally to all employees, including part-time workers. After one year, employees may join a 401 (k) plan. There is a vesting period of 5 years; it starts 1 year after the option is granted, then vests the employee at 2 ...
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