Starbucks Global Operations

 

 

 

 

 

 

 

 

 

 

Starbucks Global Operations

 

 

 

Dawanna Shannon

Professor Oladele Omosogen

Indiana Wesleyan University

 

 

 

 

 

 

 

Outline

1)      Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2)      Information about Executive Officers of Starbucks . . . . . . . . . . . . . . . . . 5

3)      Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

4)      Economic Variable Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5)      Strategic Analysis & Current Operations of Starbucks . . . . . . . . . . . . . 13

6)      SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

7)      Recommendations and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

8)      Evaluation of Credibility of the Sources . . . . . . . . . . . . . . . . . . . . . . . . .  16

9)      References . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

 

 

 

 

 

 

 

 

 

 

 

Executive Summary

Starbucks Corporation was initially founded in 1971 in Seattle. It's currently among the global leaders in the specialty coffee industry, opening branches globally and diversifying its product offerings to expand its market. The company is now branded as a roaster, premier marketer, and retailer of specialty coffee and other products, including tea and food items. It operates in over 80 counties, signifying its command in the global coffee market (Sari & Hunar, 2015).

In early 2020, Starbucks was operational in more than 70 countries (30,000 locations).

Fig 1: Countries with largest number of Starbucks Stores Worldwide ("Starbucks stores by country | Statista", 2021).

China and United States are the top sellers of Starbucks and they have the largest number of stores countrywide (September 2020). The famous Coffee House has more than 15 thousand stores in its home country (U.S). The coffee chain of Starbucks is progressing rapidly, and it has shown an increase in the number of chains from last 10 years. The Company experiences an increase in profit annually but has noticed a downfall in overall profit in 2009 due to global financial crises. The financial crises have a little impact on the overall profit decrease of the company, but the new outlets are balancing the financial crises as faced by the company by increasing overall sale of the coffee. Positive trend has been observed in the number of outlets in China and predictions are that it can be the next biggest capital for Starbucks.

The number of stores in China are less as compared to US but the overall sale ratio per outlet in China is extremely high. The response rate from each outlet in China is reaching almost 700 percent.

Fig 2: Number of Starbucks Stores in China from 2005 to 2019 ("China: number of Starbucks stores | Statista", 2021).

Figure 2 elaborated the increase in the amount of licensed and company-operated stores from 2005 to 2019. It is predicted from this increase rate in number of stores in China that China could be the next biggest market for Starbucks in future and may yield more profit for Starbucks than U.S.

This report provides a general strategic analysis for Starbucks Corporation. The report explores the background and company overview in the introduction section, typically briefing how Starbucks came into place. The section also provides a preview of the organization in terms of internal and international operations. The following section highlights the strategic economic analysis of the Starbucks Corporation in the reals of domestic and international labor and wage issues, cost reduction through economies of scale, and the tactics and strategies affected by technology. In the domestic and international labor wage issues, the report highlights the company's conduct and adjustments towards its workforce towards ascertaining the Fair Labor Standards Act's standards. In the cost reduction through economies of scale, the report elucidates the strategic advantages attached to economies of scale that have proved worthy for the corporation, in the tactics and strategies affected by technology, the report previews on technological advancement by Starbucks that has added to its competitive advantage like the mobile app and the wireless internet charger system in its stores, along with WIFI and cozy restaurants that have ensured that clients remain loyal and satisfied.

The report explores the company's current situation by analyzing its strengths, weaknesses, opportunities, and threats. It then gives recommendations on some of the best ways to boost the excellent performance of the company.

 

Information About Executive Officers of Starbucks

Name	Age	Position
Kevin R. Johnson	60	President and Chief Executive Officer
Rosalind G. Brewer	58	Group President, Americas and Chief Operating Officer
John Culver	60	Group President, International, Channel Development and Global Coffee and Tea
Rachel A. Gonzalez	51	Executive Vice President, General Counsel and Secretary
Patrick J. Grismer	58	Executive Vice President, Chief Financial Officer
Angela Lis	53	Executive Vice President, Chief Partner Officer

Table 1: List of Executive Officers of Starbucks

 

Introduction

Background and company overview

Starbucks Corporation is an American multinational coffee company and house chain. The company was founded in Seattle, Washington, in 1971. It began providing coffee to espresso bars and restaurants in 1982, and after ten years, it completed its initial public offering, which saw it grow to over 165 branches (Sari & Hunar, 2015). Currently, Starbucks is the leading specialty coffee retailer known for its high-quality coffee and food products and an additional strong brand in the market. Apart from its renowned specialty coffee, Starbucks has differentiated its product offering to include cold blended beverages, espresso beverages, snacks, food items, coffee and tea-related accessories, and even music discs (Swan et al.). Most importantly, its brand has penetrated the grocery outlets, including other retail avenues where it offers affordable products. Some of the notable brands established and thrived under Starbucks include Seattle Best Coffee, Tazo teas, Torrefazione Italia Coffee, and Starbucks Hear Music compact discs.  Figures have also continuously shown the economic prowess of the company. As of 2015, the company recorded over 19 million dollars which represented a significant increase of 16.5 percent from the previous years.  Consequently, the company's operating profit at that financial period stood at 3,601 million dollars, representing an increase of over 33 percent.

Data shows that the United States is currently the leading consumer of specialty coffee globally, with approximately 400 million cups of coffee consumed daily by individuals. Today coffee tends to be the second-largest food item that is most valuable and highly traded in most global markets after oil products (Vargas-Hernandez & Ruiz, 2020). The United States is at the forefront of the specialty coffee industry. As per the reports by International Coffee Organization, America imported close to 2.72 billion pounds of coffee between 2001 and 2002 (Torgo & Spers, 2020), signifying how the industry has gained traction within the market. Consequently, U.S. records more than 130 million coffee users, indicating how significant the coffee industry is to the U.S. economy and the world economy at large.

Coffee can be purchased in coffee shops, grocery outlets, and specialty retail stores within the U.S. market. Competition in the coffee industry has intensified due to the low market entry barriers, as this has been a factor to encourage entrants for new competitors into the lucrative market. Due to this, most companies have resorted to differentiation strategies for their existing products to expand and grow their market shares. Starbucks is one typical example of the giant industrial players that have successfully maneuvered in the market regardless of the odds. For instance, the company has highly differentiated its products to offer some of the finest ethically sourced and finely fresh-roasted whole bean coffee to provide its consumers with a unique quality taste that makes it stand out among many market competitors. Besides, it has also committed to creating a unique environment in its coffee shops that give a great experience and a sense of community to customers. Insofar, the company has also acquired other brands and businesses to maintain its competitive advantage in the stiff market, albeit continuously advancing its innovative strategies. Accordingly, it was commended for being the first company in the coffee industry to introduce technology through their ambient and relaxing environments in the coffee shops. The company operates as a public listed company in the global exchange market and is a member of the Fair-Trade citified Coffee Campaign.

 

Economic Variable Analysis

Domestic and International Labor and Wage Issues

Starbucks operates in both domestic and international market environments. For its domestic human resource, the company needs to adhere to the Fair Labor Standards Act's provisions. This act mandates any given company to compensate its hourly contracted employees based on federal accredited minimum wage rates. However, this can vary with some states since some mandate minimum wages that are higher than those outlined by the federal regulations, and in this way, the company will have no option but to compensate more. A failure for the company to adhere to the minimum wage standards provisions while paying its workers might not only attract legal litigations but also dent its public image and reputations along with penalties issued by the government. This implies that either of the states and the federal government takes full responsibility in protecting Starbuck's hourly contracted employees by assuring them specified rate amounts payable on an hourly basis. The state or the federal government can then call for action against Starbucks to comply with the national labor laws' compensation policies. However, the company has a total commitment towards compensating its hourly employees a living wage of as low as 15 dollars per hour based on individual resides. As a multinational company, this area is of great concern. It may attract increased labor costs when the company hires many low-skilled workforces as high worker turnover rates characterize this industry.

Notably, the company had also reviewed some of its workplace practices that included scheduling baristas and other low-skilled workers to late working hours and earlier work opening hours. The schedules were typically posted a week prior, and as observed by Finnigan & Hale (2017), this made it difficult for the group to schedule family time, childcare, or even school and study time. As a result, it saw some of the employees strike against the company in various locations. However, the company managed the situation positively. Since the strike, the company has dedicated itself to offering some part-time employees, especially those with a minimum of 20hours per week, a paid health insurance cover, and payment of their tuition dues, including the regular workers. They take online degrees at selected institutions. Moreover, Starbucks also increased the shift supervisors' wages from the standard minimum wage rates (Pereira, 2017). Insofar, the company resorted to these actions to show social responsibility and show that Starbucks has a will to put the interest of their employees as a priority despite the rising costs of labor. In most cases, Fundamentally, Starbucks accredited the latter initiatives as the reason for the company's significant growth in the stock and profit margins regardless of increased expenses in-store operations and compensation expenditure.

Nonetheless, on an international scale, the most pressing issues faced by Starbucks attributes to the working conditions of the employees in the coffee plantations. Research codifies that requirements for such labor providers can vary in various ways, but most of them are subjected to meager wages, apart from the abysmal working conditions. For instance, one of the reports stated that the Guatemala coffee pickers are conditioned to pick a hundred pounds each quarter with an earning of less than three do days. This is violating the stipulated Guatemala labor laws (Fischer & Asturias de Barris, 2020). Apart from the minimum wages, the workers are also forced to work overtime with no extra compensation. Given that the normal cost of living in this region approximates 312 dollars, this example of coffee workers provides candid reasons why the company must consider purchasing Fair Trade Coffee.

Accordingly, the company has taken a positive shift by considering a hundred percent ethically sourced coffee for its products and created a Coffee and Farmer Equity program to support the coffee farmers. On the international farmers, Starbucks has committed to compensate the farmer better wage rates and an opportunity to buy Fair Trade Certified Coffee. For instance, The Company signed an agreement with Trans Fair USA in 2009, which implied its commitment to offer better wages to its foreign worker. Insofar, this mover earned the company a great value and advantage as its fair-trade initiatives attracted more customers globally.

 

 

Cost Reduction through Economies of Scale

Unlike the other giant competitors in Coffee Industry like McDonald's', Starbucks has taken advantage of trade economies of scale and size to become competitively well-positioned in the market. Economists describe economies of scale as the cost benefits that arise from increasing a product’s output (Bovaird, 2014). For Starbucks' case, the output of coffee is lower, implicating that the input cost must be lower. Similarly, the corporation benefits maximally from the economies of scale arising from its supplier power. For instance, during the purchase of products, the company does not rely on a single supplier but instead source from multiple suppliers. In the coffee industry, the prices of commodities are determined by supply and demand. Given that the market is highly competitive, the company can substitute its products at different price margins. In this way, Starbucks has an easier way of dealing with its suppliers, and this stands to be one of the company's core strengths of protecting its profits.

Nonetheless, corporate social responsibility has been a call for almost all companies in all sectors, which could act as a great way to tap on economies of scale if utilized well by a company. Starbucks has committed fully to reducing negative environmental impacts, a factor that has given it a tremendous competitive distinction from its competitors. Apart from ethically sourced product purchases, the corporation has committed more efforts to reduce its environmental footprints by reducing waste from its business activities and processes. Improvement of the company's manufacturing plants is one notable effort that directly shows commitment towards offsetting any negative footprints to the environment.

 

Tactics and Strategies Affected by Technology

Amongst other competitive factors, Starbucks still leads the way in making the demand for technologies a reality in the Specialty Coffee industry. It has created a demand for technology in its coffee outlets and restaurants by installing numerous wireless chargers in more than 8000 of its stores. Besides, Starbucks has also reached an agreement with Apple to use its iBeacon technology system to enable customers to order in advance and notify the barristers as soon as the customers access the cafes (Pastoll et al., 2014). Arguably, this technology is beloved to help the company achieve its core mission of boundlessly connecting to more customers.

Like any other company, Starbucks also uses social media to connect with its prospective customers and employees. It has pages on Facebook, Instagram, Twitter, and Foursquare. These media platforms further its competitive advantage by keeping the customer base involved to boost customer loyalty to the Starbucks brand. Similarly, the social media pages also provide the company various ways of promoting its new products and services, not forgetting the feedback that customers usually get from the customers on experience with the brand. Such feedback is used to better the products and create a more customized customer experience.

Other than the above, the company has also incorporated technology through the mobile payment app that is availed for both android, iPhone, and blackberry devices. The app is widely used across the corporation's outlets. Although the app is free, the customers need Starbucks's card number to register on the app, and after registration, funds can be loaded to the card for easier purchase (Li, 2018). The app can also facilitate the company's reward programs whenever customers make purchases through the points and stars that they can later use to purchase or receive free products. This has been a great strategy of keeping the consumer base loyal to the brand. Significantly the app can as well be used by stockholders in monitoring the ordering patterns of customers, making it easier for the company to strategically suitable direct marketing for them.

Finally, Starbucks Corporation has also maximized the advantage of using the Internet of Things. It has significantly helped the company update ovens and coffee machines to ensure that programming standards are similar. The edge of this technology is that it ensures that when food items are put in the store, they will instantly be heated t the required temperature in all its locations (Tien, 2017). It is also a good strategy of knowing what either is working or not in the stores. Generally, all these technological appliances deployed by Starbucks have greatly accorded the advantages over most competitors, leading to their economic growth.

 

Strategic Analysis & Current Operations of Starbucks

Strengths, Weaknesses, Opportunities, and Threats

SWOT analysis can also be an effective tool for ascertaining Starbucks' current position in the Coffee industry. Notably, cooptation has a lot of strengths. Owing to its technologies, Starbucks can use it as an advantage to its competitive strength. The company has an app for smartphones and other mobile devices that have been used to target customers through loyalty programs. The app has provided be valid for customers in making order and purchase for their products. Another significant advantage of the company lies in its strong customer connections. The strong brand that the company has in the market has created a substantial bond with its customer base through value-additional services like Wi-Fi and access to the Starbucks Digital Network. Consumers are also liberated to share their experiences through accessories and purchase appeals. Multinational companies commanding a tremendous financial position is a sign of stability, which could serve as a concrete strength for Starbucks.  The company has enjoyed success and economic growth for over decades, making it economically stable.

 

Albeit having many strengths, Starbucks also suffers some weaknesses. The company's major weakness is its pricing, which has been used against it by its fierce competitors like McDonald's. Besides, the company has also been involved in illegal proceedings with food company Kraft Foods Group. The latter took a case against Starbucks in the federal court to prevent the termination of distribution agreements that the duo had consented to. Starbucks has also been criticized for abuse in some of its workplace practices. A notable one is the opening, where an employee is expected to stay up late at night at work and still report to work early the following day, and this is one of the issues that led to strike by its workers. Generally, the weaknesses do not outweigh the corporation's strengths, implying that the company is still solid.

On another concern, examining strategic opportunities is also ideal for such a situation. Insofar, internationalization seems like the best opportunity for the company now. Most countries are still experiencing growing economies, like the Asian nations, characterized by the rapid rise of upper and middle-class individuals. The other opportunity is on the expanding office coffee marketplace. Finally, on threats, the company currently faces intense competition. According to research, Starbucks presently has competition in all its markets and channels. With the rise of companies such as Dunkin Donut, McDonald's, and Panera Bread offering similar products at affordable prices.

 

Recommendations and Conclusions

Although Starbucks is caught in the tangle of controversial workplace practices and escalating labor costs, its overall strategic plans have phenomenally worked out for it. There are still chances for improving, as this will go by the suggestions below. First and foremost, it's highly recommended that Starbucks deploy aggressive and modern market campaigning strategies to help bring back its brand to the light ahead of its competitors. The competitors have made it more intense by offering similar specialty coffee drinks at relatively lower costs to gain a market advantage. Therefore, Starbucks can re-embark on aggressive advertising and marketing campaigns to strongly communicate their added value and benefits to be a loyal consumer. Accordingly, the marketing campaigns should focus on communicating their significance and unique quality that makes the brand sell better.

Additionally, although the company has set a modest outlet with cozy furniture, the company must consider solving the problem that comes along during peak hours. It's recommended that the company find ways to sort the challenge of insufficient sitting space by customers. In line with this, the company should consider building larger cafes that can accommodate customers comfortably. The other recommendation is that Starbucks should believe in investing more into the coffee market since opportunities still exist. With this, it can be deiced to solicit for partners in other industries to gain more loyal consumers by availing its products in such premises.

Overall, Starbucks is a robust multinational corporation that can further grow in the coffee industry. From the analysis, the corporation is on the right path. It has made tremendous strikes in recognizing the need to offer competitive wages to its workers and blend innovative technology in the business chain. However, it does not mean that it has reached its maximum best as there are more opportunities and areas of improvement crucial for its further economic success. For instance, expanding the business and differentiating the products can be beneficial to the company as both recession and competition threat proof. Starbucks should maintain its market uniqueness to enjoy a more competitive advantage and significant economies of scale.

 

 

 

 

Evaluation of Credibility of Sources

The sources mentioned to conduct the research are the annual report of Starbucks and work of other authors in the same domain. The global increase in the number of outlets and indication of China to be the next largest market for Starbucks is analyzed and adequate literature review is provided to support the data. The sources are authentic and reliable because the information presented by these sources is also quoted by other authors in their work. The dependability on the work of credible authors is adopted throughout the research to support the validity of the research. The annual report and the statistics are fetched from trusted sources. The pdf report of Starbucks available at https://s22.q4cdn.com/869488222/files/doc_financials/2020/ar/2020-Starbucks-Annual-Report.pdf formed the basis of this research and provided a better understanding regarding Starbucks.

 

 

 

 

 

 

 

 

 

 

 

 

References

1)      Starbucks stores by country | Statista. Statista. (2021). Retrieved 4 April 2021, from https://www.statista.com/statistics/306915/countries-with-the-largest-number-of-starbucks-stores-worldwide/.

 

2)      China: number of Starbucks stores | Statista. Statista. (2021). Retrieved 4 April 2021, from https://www.statista.com/statistics/277795/number-of-starbucks-stores-in-china/.

 

 

3)      List of Executive Officers of Starbucks. S22.q4cdn.com.(2020). Retrieved 4 April 2021, from https://s22.q4cdn.com/869488222/files/doc_financials/2020/ar/2020-Starbucks-Annual-Report.pdf.

 

3)      Bovaird, T. (2014). Efficiency in third sector partnerships for delivering local government services: the role of economies of scale, scope and learning. Public Management Review, 16(8), 1067-1090.

 

4)      Finnigan, R., & Hale, E. J. M. (2017). Working 9 to 5? Unionization and work variability, 2004-2013 (No. WP-2017-002). Max Planck Institute for Demographic Research, Rostock, Germany.

 

 

5)      Fischer, E. F., Victor, B., & Asturias de Barrios, L. (2020). Quality versus solidarity: Third Wave coffee and cooperative values among smallholding Maya farmers in Guatemala. The Journal of Peasant Studies, 1-18.

 

6)      Li, C. Y. (2018). Consumer behavior in switching between membership cards and mobile applications: The case of Starbucks. Computers in Human Behavior, 84, 171-184.

 

 

7)      Pastoll, C., Rochwerg, T., Vlaar, B., & Compeau, D. (2014). Starbucks canada: the mobile payments decision.

 

8)      Pereira, S. (2017). Disrespecting the Minimum Wage: How States Limit the Opportunity for Restaurant Workers to Support Themselves. Themis: Research Journal of Justice Studies and Forensic Science, 5(1), 6.

9)      Sari, N., & Hunar, R. S. (2015). Analysis Method of Transfer Pricing Used By Multinational Companies Related to Tax Avoidance and Its Consistencies To The Arm’s Length Principle (Case Study: Starbucks Corporation). Journal of Business Strategy and Execution, 8(1), 70-96.

 

10)  Starbucks Corporation has also maximized the advantage of using Internet of Things

 

 

11)  Swan, G. C. Y., Isa, M. B. M., Siddiq, M. S. B., & Razak, U. A. The External Environment and Its Effect on Strategic Marketing Planning: A Case of Starbucks Malaysia.

 

12)  Torga, G. N., & Spers, E. E. (2020). Perspectives of global coffee demand. In Coffee Consumption and Industry Strategies in Brazil (pp. 21-49). Woodhead Publishing.

 

 

13)  Vargas-Hernández, J. G., & RUIZ, I. E. V. (2020). Global Trade of Coffee and its Economic Effect in the Value Chain. Review of Socio-Economic Perspectives, 5(4), 51-64.