BBA7 G1 -Starbucks Case study Université Lille 2 Droit et Santé
In the following case study, the brilliant journey of Schulz as the CEO of Starbucks will be analyzed. Moreover, the culture of Starbucks followed by the components that are likely to affect it in the near future will be discussed. Other than that, factual details will be discussed regarding the expansion both in India and China. Besides that, a description of the three Porters’ Generic strategies with respect to Starbucks will be explained. Furthermore, the strategic initiatives adopted by Schulz, issues faced by the company and possible remedies will be included in the analysis.
1. Analysis of Schulz’s journey in Starbucks
Howard Schulz initiated his journey with the company as a mere worker under a Swedish coffee manufacturer named Hammer Plast. During that time, Schulz was the marketing and sales head leading a team count of 20. At that time he observed the business of a small shop called Starbucks dealing with a business of plastic cone filters.
After that, he visited the shop in Seattle and met with three promoters. He was left impressed at their business knowledge and vision. After a year, Schulz could join as the director in the domain of retail marketing of the company in 1982. Within a very short time, star bucks started supplying coffee beans to espresso bars and coffee shops. Schulz was overwhelmed after looking at the emotion of lavish Italian coffee shops where customers can relax and gossip over a cup of coffee. After returning to the USA he decided to expand Starbucks to a chain of coffee shops. In 1987 Schulz successfully bought Starbucks from the three promoters and named it Starbucks Corporation. He gradually opened a chain of stores in Vancouver, USA and China. Within a couple of years, it became the best seller of coffee in North America. After 1996, Schulz entered the markets of Malaysia, Japan and slowly started capturing global markets. After 2000, he remained Chairman and strategist of the company and gave the position of CEO to Oren Smith. However, after 2008, Schulz made a return to fix the waning sales of Starbucks. After that, the franchise retained its old recognition and prestige in the global world. In 2017, Schulz ended his brilliant journey of CEO by handing over all the responsibilities to Kevin Johnson.
2. Background of Starbucks’ culture
The culture of Starbucks is inspired by the relaxed coffee culture derived from the Italian coffee shops. Schulz the pioneer of this coffee chain was fascinated at this Italian culture. He has incorporated this thought into his business. The main culture embedded in Starbucks is to provide people with a cosy place where they can relax and have refreshment. The café culture mainly attracts office goers and professionals who after an entire day can relax somewhere having snacks and coffee. The main fundamental notion of Starbucks is to do something beyond selling coffee beans which are socialization among the community over a cup of coffee.
3. Influence of the environmental conditions that will impact the growth of Starbucks
The word of mouth advertising policy with the help of existing customers will have an immensely positive impact when it comes to the growth of the franchise. Lots of revenue can be saved which can be invested for increasing the quality of the coffee beans and other food items. On the negative side, the increase in the number of competition from the other food chains and coffee chains like McDonald's and Café Coffee Day might slower the growth rate of Starbucks in the upcoming years. In order to prevent their global market share, Starbucks need to bring more innovation in its environment, technology and food items to continue its superiority in the market.
4. A. Factors responsible for the growth of Starbucks
There exist many factors that lead to the rapid growth of Starbucks as a franchise all over the world. First and foremost is the concept of a unique coffee shop where people can come and talk to one another. Besides that, the company treats its employees with humanity and compassion. Respect and dignity are shown to them in every aspect of their services. Apart from that, the CEO of the company always wanted to establish a system-oriented business instead of a person-oriented one. Another important factor for the growth of Starbucks is the unique environment created by the staff on the other side of the counters who stays always motivated.
Apart from that high-quality training process is conducted to keep all the working staff updated with the culture and value of the enterprise. The best part of Starbucks business lies in the fact that they never advertise through media. Instead, it focuses to deliver the best customer service that will eventually create word of mouth through the existing.
4. B. Mutual aspects of Starbucks’ expansion between India and China
Today China is the second-largest growth market for Starbucks in the entire world. However, the entire journey was not easy. Initially, Schulz had to research about the preferences of the Chinese people when it comes to taste and culture. In order to build a strong market, Schulz decided to educate the Chinese about the basic difference between Latte and the American style black coffee. The menu has been modified according to the likings of the Chinese market. Apart from that, the Starbucks store is built following the Chinese designs. Despite the construction costs were high; it became a huge success as people of China started loving it. As per the current growth rate, Starbucks is expected to open 5000 outlets in China by 2021.
Starbucks applied the same strategy when it came to expanding their markets in India. Similar to what they do China, the company reinvented their menu according to the likings of the Indians as Indian people are mostly tea lovers instead of coffee.
Starbucks focused on bringing out flavoured iced Tea and “Teavana” for the Indians. Besides that, it has also introduced Indian food items like “Murg Kathi wraps” and “Chicken Makhani” to suit the tastes of most of the people. Based on their business, Starbucks aspires to open 500 outlets in India by 2021.
5. Three Porter’s generic strategies followed by Starbucks
Starbucks follows the policy of focus differentiation to capture niche markets in the United Kingdom. In order to implement this strategy the prime focus of Starbucks is to keep competitive pricing of the products to compete with the other native cafes. Apart from that, the strategy of focus differentiation also aims to bring innovation and uniqueness in the menu of Starbucks. With the help of competitive pricing, the main emphasis of the company is to expand their business all over the UK by opening more number of outlets.
6. Strategic initiatives taken by Schulz
The most successful strategy undertaken by Schulz for the growth and development of Starbucks is in the advertising department. Right from the very early days, Starbucks’ strategy was to build a loyal customer base. Instead of doing paid advertisements, the company focused on increasing its brand name with the help of customers. Apart from that Schulz and has pioneered the concept that Starbucks would represent as the “third” place of dwelling after office and home. The innovative notion of a well-furnished café where customers can sit, enjoy and relax over snacks and a cup of coffee became a great success as a business strategy. Besides that, the premium quality of coffee and food provided to the customers is one of the most successful techniques adopted by Schulz. The grooming of the baristas or the staff on the other side of the counters are so pleasing and heart-warming that customers feel to revisit again and again. The training program for Starbucks is very systematic and futuristic. Apart from that, Starbucks follows blue ocean strategy to capture new markets in new countries. Another major strategic success of Starbucks during the tenure of Schulz is because of competitive pricing strategy.
7. Strategic issues and recommendations
First of all, Starbucks has been facing challenges in “pay online and grab the food from the store” process. As a result of this, it is creating queues in the outlets of USA wasting the time of the customers and leaving them frustrating. Moreover, it is slowing down the average number of sales rate per hour. Other than that the sandwich of the Starbucks also sometimes do not complement against the aroma of the coffee. After the massive increase of the entire customer base, the staffs in the outlets are overburdened with their duties. In order to stop this problem, Starbucks need to open more outlets and training process must be more frequent and efficient. Furthermore, food quality must also improve with time and further new items must feature in the upcoming menus to keep the loyal customers intact.
After detailed study, it can be understood that Schulz has played a key role in upholding the brand name of Starbucks. In order to maintain its prestige in the international market, Starbucks needs to focus on innovation in food items, open more outlets and maintain its competitive pricing.
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