Strategic Management Assignment Analysing Strategic Position Of Starbucks

Question

Task:
Strategic Management Assignment Brief
This is an Individual Assignment. You are required to produce an academic/research document maximum 2000 words on the topic: Defining strategic position and managing change in uncertain environments.

It is amazing to see how an age old beverage, coffee, became the second largest fast food brand in the world. This is Starbucks coffee. Starbucks was established by Jerry Baldwin, Gordon Bowker, and Zev Siegl in 1971. They opened its first store in 1971 in Seattle. The three Starbucks founders had two things in common; they were all coming from academia, and they all loved coffee. By 2016 Starbucks were operating in23768 locations worldwide, becoming the second largest fast food company, the first being McDonalds.

Analysts believe that the growth of Starbucks rested on its Strategic capability, Competitive Advantage, and the ways it has managed cultural differences.

Task
Study the cases of Starbucks Coffee and complete the following tasks:

1. Explain Starbuck’s contemporary strategic position and how the position relates to the company’s purpose and strategic capabilities
2. Explain how Starbucks created and sustained its competitive advantage (s) for over fifty years.
3. Critically asses how Starbucks successfully entered new markets in Asia, India and China in particular where “coffee culture” was insignificant

Answer

Introduction
According to the words of Terenteva, Shashlo and Kuzubov (2017) considered in the strategic management assignment, strategic position of a company refers to the choices made regarding the value that the company desires to create for its customers. This strategic position would be a distinguishing factor of a company from its rivals. In this report, the strategic position of Starbucks will be analysed in details. The way in which Starbucks has been adjusting and adapting to the changes in its uncertain business environment over the last fifty years will also be evaluated.

Contemporary Strategic Position of Starbucks
Starbucks is a beverage company, which was founded in the year 1971 by Zev Siegl, Gordon Bowker and Jerry Baldwin in Seattle (Starbucks, 2021). The founders’ love for coffee gave rise to one of the biggest coffee beverage brands of the world. Today, Starbucks is operating in more than 76 countries across the world. The contemporary position of Starbucks can be analysed with the help of the Porter’s five-factor model.

Threats from Entrants: Starbucks faces threat from new companies entering the food and beverage industry. The new entrants offer similar products and services as Starbucks but at a much lower price, which attracts the customers from lower and middle tier income groups (Nurhasanahand Dewi, 2019). Starbucks might be too expensive for the mass population of developing countries to afford. The new entrants can divert the demand for coffee beverage towards their outlets. There is not much restriction or barrier to entry to the food and beverage industry as it faces monopolistic competition. However, it is difficult for the local coffee shops to sustain in a market where there are big competitors like Starbucks. Starbucks has a unique strategic position in terms of its prime product quality, the strategic location of the outlets, store ecosystem, customer experience, etc. The economies of scale and its loyal customer base make it difficult for the new entrants to channelize the customers of Starbucks towards their stores.

Threat of Substitutes: The main product of Starbucks is coffee and there are various substitutes to the drink like tea, water, soft drinks, juice, etc. The social experience at Starbucks could be substituted by the pubs and bars. Consumers could enjoy the taste of coffee by preparing it at home at much lower costs (Baudot et al, 2019). As there is no cost involved in switching to the substitutes of Starbucks, the threat of substation is very high. However, to maintain a stable position in the industry, Starbucks is now selling premium packs of coffee, coffee makers, etc.

Buyers’ Bargaining Power: There are several buyers in the food and beverage industry so no single buyer has the bargaining ability. The industry in which Starbucks operates offers products with vertical differentiation. This makes the customer base more diverse. As the volume of purchase is quite low, the power of the buyer to bargain erodes. However, the buyers have many substitutes available and can switch at zero cost. As per Duke (2018), Starbucks sets its prices keeping the prevailing competitive market rates and price elasticity in mind. The sensitivity of the customers is moderate in case of premium coffee. They pay more money for better quality; however, excessively high priced products are avoided.

Suppliers’ Bargaining Power: The main suppliers of Starbucks are the coffee bean producers and coffee growers of premium Arabica coffee. The latter is grown is specific areas and so switching to other suppliers is difficult for Starbucks. This gives the suppliers moderate bargaining power. However, Starbucks maintains business following Fair Trade certification and C.A.F.E program (Grabs and Ponte, 2019). This mutual respect for suppliers gives them a feel of harmonious partnership. Considering the size and volume of business which Starbucks gives its suppliers, they automatically lose most of their power to bargain.

Intensity of Competition: The food and beverage industry follows monopolistic competition. As there is no cost incurred by the consumers in switching to the rivals of Starbucks, the intensity of rivalry increases. However, the company maintains its competitive advantage by making its products slightly differentiated from the rivals (Voigt, Buligaand Michl, K., 2017). The premium quality of the products as well as services of Starbucks reduces the pressure of rivalry. However, intensity of competition is aggravated as all the rivals try to increase their share in the market.

Purpose
The strategic position of Starbucks is attributed to its premium quality, the strong financial position among its rivals and a loyal customer base. These generate competitive advantage through which the company intends to inspire the human spirit and nurture it (Starbucks, 2021). They aim at enhancing the experience over one cup of coffee for one person at a time in one neighbourhood. This makes them focused in providing better customer experience.

Capabilities
Starbucks has some strategic capabilities which would differentiate them from their rivals and add to their competency. The company has the capability to generate total revenue summing up to 13.3 billion U.S dollars. This financial standing makes Starbucks a strong brand in the market. The company has also captured a larger market share through the acquisition of Evolution Fresh by entering the juice market which already had premium drinks. The Starbucks Blond Roast is a new addition to the product range of the company. In this way the company keeps updating their range of products as per the market demand. The other capability which has increased the competency of Starbucks is the introduction of Frappuccino drinks that are personalized. The company has also formulated some programs like Youth Action Grants on corporate social responsibility and entered some partnerships (Kang and Namkung, 2018). The partnership with DonorsChoose.org has improved the strategic position of Starbucks.

Sustainability and Competitive Advantage
Starbucks has been in business for the last fifty years. The company is now the second largest in its industry. It is never a smooth journey and sustaining in business successfully for so many years requires great strategies and exploration of competencies to reap the benefits of competitive advantage within an industry. The competitive advantage of Starbucks lies in their new ideas. They have been constantly innovating to enhance their products and services. The outlets offer free Wi-Fi facility, which was not available earlier, as the company likes to update itself with the changing times (Atzori et al, 2018).They have also been innovating in their products. They have started selling coffee makers to coffee sachets to earn sufficient profits in business. The customer experience, which Starbucks offers is their forte. They have specially appointed designers who design the mugs of the commuters. The customers are made to feel connected with the brand. The main business strategy of Starbucks is product differentiation. The company plans its outlets’ location strategically. The traffic pattern, demographics, location of rivals’ outlets, etc. are taken into consideration by Starbucks while planning a new opening. The company intends to increase their visibility with sufficient stores spread across varied locations. The company has beenstrategically planning its acquisitions like Evolution Fresh, Bay Breads and Teavana (Tsai et al, 2020). The geographically spread of Starbucks is another competitive advantage for the company.

Entry of Starbucks in Asia, India and China
The PESTEL analysis would help in developing a better understanding of the uncertain and fast-changing macro-environment of the company and how it managed to enter the F&B industry of India and China.The strategy that Starbucks has emphasized on for entering the Indian and Chinese market where coffee had been insignificant for years include understanding the culture of India and China, being innovative in their products to suit the taste of the people and enhancing the customer-brand connection.

Political factors: The major impact of the political factors is on the raw materials’ sourcing. The politicians of countries from which Starbucks sources its raw materials and some other nations in the Western parts of the world are showing increasing concern about the fair trade practice. As Starbucks is operating in different countries, the company has to adhere to the various laws of those countries. The countries where Starbucks has its stores to the countries from which Starbucks purchases raw materials, the politics as well as regulations of these countries impact the business of Starbucks (Alwaleed et al, 2019). In fact, the regulatory practices within U.S affect the business of the company. Therefore, for smooth business operations political stability of India and China and other Asian countries with which Starbucks has its business connection has been taken into consideration. As per Tsai et al, (2020), the major political factors in India and China which affect the external environment of Starbucks include the tax policies of the countries, the employment laws, etc.

Economic factors: The upturns and downturns of the economic cycles affect the business of any company. The global economic recessions like the one during Covid-19, negatively impacted the business of Starbucks. The periods of recession mean lower purchasing power and low probability of people visiting cafes. The nation-specific recessions India and China also adversely affect the profitability of Starbucks (ZENG and LU, 2017). The other economic factor comprises the cost of labour and operations. The inflationary environment is also a problem for the company. Due to the international business, the changes in currency exchange rates affect the business of Starbucks. The majority of the people in emerging markets of India and China have been considering coffee quite insignificant to make good business. Thus, changes in local market conditions also have some impact on the company’s business.

Socio-Cultural factors: The socio-cultural problem, which Starbucks faces in most of the developing nations, is that people do not want to spend much on a beverage like coffee. However, the company does not reduce its price as that would mean compromising with the quality. On the other hand, the smaller companies or start-ups capture the market with low priced beverages. Chinese people have a different taste from the people in U.S. Similarly, the products that would suit the taste buds of Indians will be quite different from China or U.S. Thus, Starbucks has been changing their product mix to suit the requirements of the nation in which it operates. Thus, the tastes and preferences of the people along with the willingness to spend on coffee across the countries influence the business of Starbucks. The concern for the environment and the go green trend is another socio-cultural factor, which Starbucks needs to consider. The demand from the Millennials and Gen X, the family patterns, work-life balance, values, etc. are some of the other socio-cultural factors. Though, the company has a U.S origin, it has modified its approach to suit the Asian market (Purkayastha et al, 2019).

Technological factors: Technology boosts sales and marketing. There are some companies like Apple that have introduced discount coupons of Starbucks based on usage of certain apps. China is a country, which is highly developed in terms of technology. India too is emerging as a tech-friendly nation.As stated by Jo and Kim (2017), the mobile technology has helped the business of Starbucks to flourish. The company has enhanced its customer experience and boosted its sales by providing free Wi-Fi connection to its customers at all outlets. This allows customers to work from Starbucks outlets. The other technological factors that have impacted the business of Starbucks include allowing mobile payments, use of innovative technology in the process, etc.

Environmental factors: To maintain the trust and faith of the customers in the brand, Starbucks has taken the environmental concerns seriously. They have provided aids to the countries, which produce the coffee beans during natural disasters (Azriuddin et al, 2020). The company is working against global warming and other environmental problems at the global level. This has created a responsible image of Starbucks in both India and China.

Legal factors: No company can operate without complying with the legal norms. Thus, Starbucks has to be careful about complying with the legal requirements and not violating any regulations in China or India. As perSong and Kang (2019), the health authorities of various nations have laid certain norms, which Starbucks has to abide by. Custom duties, licensing, etc. are also some of the legal factors.

Values and Culture
Starbucks follows the western culture of U.S. However, to be relevant in the markets of Europe and Asia, it has adapted to their culture, music and art, social habits, cuisine, etc. The organisational culture at Starbucks aims to promote inclusiveness (Goh et al, 2020). They value the ethnic and racial differences across people. The Starbucks Union, a part of the IWW, works towards promoting cultural diversity at workplace. The Union also prevents frequent layoffs and outsourcing to maintain staff welfare. Cultural differences would not be a reason for conflict at Starbucks because after taking its business to international platform, the company has been recruiting employees from diverse backgrounds. This helps the company to understand differences better and adapt to the diversity in each market.

Conclusion
It can be concluded that the contemporary position of Starbucks is stable in the food and beverage industry. After McDonalds, it is the second largest fast food company of the world. The major advantage of operating in Food and Beverage industry is that the demand from the consumers reduces at times but the complete consumption never stops. The continuous flow of consumption takes place for food and beverage items, which fosters business growth and yields higher profits.

References
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