March 2, 2013
As the world’s number one specialty coffee retailer, Starbucks first opened in 1971 with a single store in Seattle’s Pike Place Market. As of July 1, 2012, they had 17,651 retail stores in 60 countries.
This report will look at Starbucks organizational goals; current and past business strategies; relevant functional strategy and how they link to the effectiveness of their business/competitive strategy; various risk management issues; and the role the Board of Directors plays in relation to risk management.
Starbucks Strategic Goals
Starbucks broad strategy is to grow into a global coffee empire both through its retail outlets and in consumer packaged items. In addition to its financial and growth strategies, they have taken aim in targeting the pop culture medium by focusing on the music and movie industry.
Starbucks is also very committed in linking its goals with its values. All their goals must align with its global responsibility, ethical sourcing, environment stewardship, and community involvement initiatives.
Starbucks Business Strategy
Using Porters generic competitive strategy, Starbucks is that of differentiation. They have created a unique experience; provide high quality coffee in many locations which separates them from their competition. Starbucks has benefited by appealing to almost every customer demographic.
VIA, their instant coffee line, straddles differentiation and low cost- leadership. While it is a low cost and convenient alternative to Starbucks regular coffee, it is still unique from other products in the market. The in-store gifts and brewing utensils are in the focused differentiation category as they cater to the coffee lover, and are unique items found only in the Starbucks stores.
Three specific strategies are as follows:
Rapid Store Expansion Growth-
Starbucks announced in December 2012 plans to open 3,000 new stores by 2017. Domestic will account for 50% with the remaining international expansion.
Focusing on pop culture by branching into music, movies, and mobile apps.
Joint ventures with Pepsi, Kellogg’s and Dreyer’s ice cream.
Acquisition of Ethos Water and Hear Music.
Starbucks cards used as gift and customer loyalty cards.
The original strategy of Starbucks was closer to the generic strategy of focus with an importance on differentiation within the particular target consumer segment.
Marketing: place (distribution)
Starbucks main marketing strategy is for customers to consider it as their place after home and work, which guarantees customers visiting the shops several times. It also customizes its positioning according to the specific location it is in, by designing the location based on its local appeal.
Starbucks has invested considerably in its partners (employees) by introducing comprehensive training programs, and offering benefits, such as medical and stock options. While the industry turnover rate is about 200 percent, Starbucks maintains a turnover rate of only 60 percent. Due to this low turnover, Starbucks has lowered their training time and costs. Starbuck recognizes that without its partners they cannot deliver on its mission of “satisfied customers all the time”.
Starbucks is following this major trend of moving towards multimedia Direct Marketing Solutions and Web-based models. Customers can buy products, load gift cards, and link to music through their website. They offer mobile apps which enable you to pay right from your Smartphone. Most Starbucks locations have WI-FI for consumer needs and the MIS department is linked to its suppliers.
Types of Risks
Some of the major sources of risk, which Starbucks faces today, are as follows:
1. Ability to remain profitable by opening so many locations in close proximity to one another. This represents an operational risk by