The business strategies of Starbucks Coffee helped to mold the company into a very successful business model. This case study essay will analyze the specialty coffee café industry, point out ways in which Starbucks achieved sustainable competitive advantage, discuss the competitive position of the business in the marketplace, and lastly it will describe the employee incentives and culture. Grab a “Cup of Joe” and peruse through these hopefully interesting facts about the specialty coffee industry and, more specifically, the popular Starbucks Company.
The craft of the specialty coffee industry has been slowly evolving over the past 65 years, originating in Europe, according to an article called “What is Specialty Coffee?”. The article was posted on the website for the Specialty Coffee Association of America (SCAA) in June 2009. “The concept was quite simple: special geographic microclimates produce beans with unique flavor profiles,”1 which were referred to as specialty coffees. Over the past five decades or so, there was large consumer demand for specialty coffee in America and coffee shops and cafes popped up all over the nation. In the 1980’s, Howard Schultz revolutionized the industry after visiting Milan, Italy, when he brought back his forward-thinking idea of Italian coffee bars in America and, eventually, his company became to be known as the very successful Starbucks.
Specialty coffee in the United States is a growing industry. In 2009, even in the aftermath of the weak economy of 2008, specialty coffee accounted for $13.65 billion in sales that represented one-third of the nation’s $40 billion coffee industry.2 Continued growth is driven by an improving economy. Americans are willing to pay for good coffee. Of the thousands of specialty coffee cafes world-wide, many styles are drive-through cafes. Others are shops that offer a certain atmosphere and provide other amenities such as books available for reading in the café or computers with internet access. Specialty coffee is also served at many restaurants that offer a full food menu and is also in fast-moving atmospheres like airports and fast-food establishments. Whether consumers enjoy their coffee sitting and relaxing or as part of their “on the go” routine, they verify that the demand for specialty coffee is very present. Recently, the industry changed again when personal, single-cup brewing machines appeared and many consumers had one in their homes. This change boosted the sales of packaged coffee beans for home brewing. These changes prove that the Specialty Coffee Industry is still evolving and business is booming.
Currently, the major players in the industry are Starbucks, who was the “undisputed world leader”3 in 2013, Dunkin’ Donuts, Caribou Coffee or Peet’s Coffee & Tea, and McDonald’s. The industry is in a mature stage of the business life cycle with Starbucks and Dunkin’ Donuts comprising more than 60% of the market share.
High company morale and concern for employee welfare; Good training programs
High quality products
Strong relationships with customers and suppliers
Brand equity; Strong market position
Good leadership and management
Maximum R&D: innovative with procurement and roasting
Locations and number of stores
Saturation of many markets
Number of product lines
Price of beans determines market costs and profitability margins
Product can be easily imitated
Publicly scrutinized because large corporation
Broaden product lines
Educate customers on home brewing
Get into Health & Wellness arena
Enter international markets
Sell more packaged coffee
Dunkin’ Donuts and McDonald’s offering a high quality brew at a lower price
Consumers’ attitudes towards health & wellness; Changing tastes
Main competitors have more