Starbucks a story of growth Case Solution

Abstract

The case illustrates the journey of how Starbucks have become the number # 1, selling brands in US and other 50 countries.The CEO, Schultz, started the company by acquiring Starbucks in 1987. In the following years, the company progressed by offering different types of coffees and different types of other products, like coffee beans in retail stores which was considered as initial business of the company. Down the line, Starbucks has introduced different products under same product line, in whichinstant coffee and one pod coffee became successful, after severalyears of loss. Currently, the company faces immense competition from MacDonald’s coffee, Nescafe and other local players. It also faces supply chain management issues which hinders its bestperformance in the market. In addition, due to expansion, the company has incurred additional operating cost, which reducedthe profit margins and thus further decreased chances of establishing the comeback strategy to regain the market share.Starbucks, under the supervisor and leadershipof Schultz, changes it positioning strategy and opened “away from stores” outlets to encourage and boost sales, followed by non-branded Starbucks products to garb and elevate the sales in lunch hours. Lastly, the case discusses the acquisition of CEP Company, which makes coffeeblending equipment to bring up the quality of coffee it produced in market.

Key Issues

The key issues entailed in the case are the

  • Declining sales, caused initially due to over-pricing of the coffee compared to better tasting street coffee.
  • The management of the supply chain, which got disturbed because of extensive network, causing delay in the delivery, thus hurting the promise of Starbucks to servecoffee in three minute.
  • The intense competition given by big players of the market, like McDonalds and Nescafe, which tasted better and had low price. This cut the market share of Starbucks.
  • Relationshipwith Kraft, seems to be unfruitful, in fact, it decreasedthis sales of coffee packets in retail stores, causing Starbucks lose its brand identity and brand image.
  • The expansion of Starbucks outlets made the company lose its brand value, because of the declining quality and pricing strategy of the company. In addition, it lacked the ambiance and the core value of the Starbucks which was “a third place” to sit and gossip around.The expansion lead to lack the ambiance and feel of the coffee store.
  • The stepping of company into low tier market segment by offering a low price quality, yet maintain its brand value, in order to sustain its positioning and defend its pricing strategy for high end customers.

 

Situational AnalysisPorter 5 forces Model- External Analysis

Bargaining Power of the buyers- High

The bargaining power is very high, because the market is saturated or augmented with many coffee players, who offer same environment, and coffee atrelatively low price.And since the coffee has almost every coffee has relatively same taste with a little variation, the switching of consumer is easy. It also depicts that coffee as a product does notpromote brand loyalty and thus the risk of consumerto switch to other brand is high.

Bargaining power of the Supplier-low

The bargain power of the suppliers is relativelylow. Since, the company is enormous and has strong brand image, many suppliers want to builda network with Starbucks.Moreover, the producers of coffee arelarge, which makes the bargaining power of the supplier low. Also the strong verticalintegration of the Starbucksplays a strongrole in altering the power of supplier. Italmost buys every supplier from machines to the beans, in order to make a highly customized coffee product.Lastly, due to the size and scope of the company, Starbucks offers leverage to the suppliers through free trade agreementwhich makes Starbucks a good choice for suppliers and thus reduces the power of bargaining.

Threat of new Entrant- Moderate to high

The threat of new entrant is moderately high. Since, the company has created a demand for good coffee and a good place in the market, more consumers demand such products at relatively low price. In addition, the set up cost is also not high with bunch of suppliers ready to work with new players.Hencespromoting the risk of new entrant, which will make the competitionintense.

Threat of Rivalry- High

The threat of rivalry is also very high., since the incorporation of coffee as a daily part of the life, and a way to create bonding and relationship. Macdonald andNescafe along with other players have entered into the sea of coffee, withbetter pricing and taste. This causedStarbucks to lower its price and improve its taste. In addition to this, due to easy replication and nature of the product, the market share of the company has been effected.................................

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