Starbucks' Strategic Management

CASE STUDY: STARBUCKS’ STRATEGIC MANAGEMENT PLAN
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1 Executive summary
This case study analyses the global corporation Starbucks in the coffee industry. The case study seeks to understand the historical development of the company, its current global status and propose potential options that will promote its growth. The paper will research various strategic alternatives that will take advantage of the corporations' opportunities and strengths and strategically minimise the company's threats and weaknesses. The company owns a strong internal position that the company can utilise to capitalise on emerging opportunities that will strengthen its competitive advantage. The paper has identified issues with Starbucks that can be solved using corporate and business strategic alternatives. Due to economic downtimes, the corporation has had challenges adapting to the global shifts in the coffee industry as new entrants join the industry providing low-cost substitute products. The company is recommended to adopt aggressive market expansion strategies after analysing the internal environment using the BCG matrix model besides other aspects of the company background, product portfolio, customers, and financials. Additionally, analysing the external environment using the Pestle model for macro-economic factors and porters five forces for industrial analysis. 
Historical Development of Starbucks
2.1 Introduction
The corporation was founded in 1971 in Seattle, Washington, and has since grown to the leading coffeehouse with many recognised coffee brands in the industry. The company's growth can be explained by its global presence, with more than thirty-five thousand and seven hundred stores in more than eighty countries by the end of its 2022 financial year. Starbucks operates through a retail and franchise business model where 51% of its business operations are through company-operated stores (Petruzzello and Bondarenko, 2023). The company generates revenue mainly from making and selling various coffee and beverages, such as expresso-based drinks, teas, and smoothies. Also, the company offers foods such as sandwiches, salads, pastries, and snacks to its customers. Home-consumption products such as coffee beans, ground coffee, and single-serve products are also sold. 
Starbuck's in-store activities are focused on providing comfort to its customers by offering exemplary customer service and a conducive atmosphere. For instance, the firm offers free Wi-Fi connectivity and ample sitting area that attracts customers encouraging them to spend more time at their stores. Starbucks rewards give its customers exclusive deals and promotions for members, thus promoting its brand loyalty. The business has expanded its operations through product diversification, whereby more beverages have been launched. For example, besides acquiring other companies, such as Evolution Fresh, that offer cold-pressed juices, Teavana's range of teas. The company has partnered with PepsiCo and Anheuser-Busch InBev, which offers ready-to-drink products. Starbucks has also adopted digital ways such as making orders and paying through mobile phones using the Starbucks app as an expansion method to widen its customer base and streamline online and physical store services (Petruzzello and Bondarenko, 2023). Its financial performance in the year 2022 stated that the company generated an income worth 32.5 billion dollars, and its operating income amounted to 4.6 billion dollars. The net sales in the year increased by 11 % from the previous year 2021, as a result of higher revenues generated from the company stores (Petruzzello and Bondarenko, 2023). 
3. Current Global Status
3.1 Findings
3.1.1 Problem identification
Starbucks has international operations globally in the business industry of coffee. Despite its global presence, the company has economic challenges that contribute to its declining sales. This has resulted from changes in consumer preferences and emerging competitive pressure from new coffee brands. Second, the ability of the company to provide local tastes and importance due to cultural diversification. The company hasn't been able to personalise the customer experience by customising its menu. For instance, the company could not enter the Indian market since it lacked information on the existing coffee culture. Third, the company needs to differentiate its product to distinguish it from its competitors (Azriuddin et al., 2020). Hence, Starbucks faces intense competition from new entrants, affecting its market share and profitability. Last, Starbucks needs to utilize technology to improve customer satisfaction by understanding customer needs and expectations. The company has been criticised for failure to operate in ways that promote a sustainable environment, the company faced protests for sourcing palm oil and disposable cups. 
3.1.2 Problem analysis to support findings
           The global economy is in a recession that has impacted the macroeconomic environment under which Starbucks operates reducing its sales. The consumer purchasing power is progressively decreasing with customers changing their preferences by choosing low-price coffee products but still retaining their consumption. In addition, consumers have become more aware of ethical practices thus influencing them to choose from brands that advocate for healthy social and environmental habits. The problems discussed above can be analysed by looking at the company's current status by analysing the company internally and externally. Hence, to better understand the recent corporate performance in the industry, an analysis of the financials will help determine its competitive level. Starbucks' current status can also be assessed by determining its fulfilment of the corporate expectations that can be analysed through understanding the macro environment. 
3.1.3 Underlying problems
Internal analysis
Company background analysis
The company was founded as established as a private institution in the year before going public in 1992. The company went public to improve its financial position and global expansion. Share ownership is widely dispersed for managerial control of the organisation, with 37.13% held by the mutual fund owners, 34.8% by other institutions, and 2.51% owned by individual stakeholders (Zhang and Xue, 2022). The company's mission statement describes its intention to fill the human spirit with inspiration and nurture it, while its vision is to establish a leadership position in providing the finest coffee in the world through maintaining unwavering principles as they grow. The company has a set of values that advocate for teamwork, integrity, respect for culture, and perseverance (Zhang and Xue, 2022). The values help in decision making guiding employee activities and interactions with suppliers, customers, and the community they serve. 
The flow of goods at Starbucks starts by purchasing through company agents who select bean farmers from Africa, Latin America, and Asia. The coffee beans selected must meet the set quality standards to maintain strategic partnerships that are long-term and with high-performing suppliers. Export agents will then export coffee beans imported by brokers. The beans undergo quality tests before being roasted and packaged for Starbucks stores worldwide (Bajpai, 2023). The selling process may include selling coffee beans from the stores without engaging retailers or selling to speciality retailers, for example, restaurants or online. The main marketing strategy used by the company is word of mouth which is made more accessible by the high-quality image of the brand.
Product portfolio
The product portfolio can be analysed in detail by applying the Boston Consulting Group’s product portfolio matrix (BCG matrix). BCG matrix. is designed to assist organizations in strategically planning for long-term goals that help in identifying growth opportunities through portfolio product reviews. This model helps investors to make decisions on investing, discontinuing, or developing a product strategically. The BCG matrix is proportioned into four sections called quadrants, the first named the dogs where products that have low growth and market share are classified. The second section is the cash cows representing low-growth market products that have huge markets. (Chiu and Lin, 2020). The third section referred to as question marks contains products that have a high-growth market and low market share and lastly, the star’s section entails a high-growth market with high market share products.
Out of the over 30,000 stores for the corporations, more than half of them are located in the United States. The stores are located in the U.S. Some are operated by Starbucks and the remaining ones have been licensed to operate in the country. Upon the introduction of the second wave of coffee by Starbucks in the industry, consumers had a greater variety to select from. The company’s main product offers comprise both hot and cold drinks and beverages, coffee beans that are whole, instant coffee that is micro-ground expresso, coffee latte, and teas. However, some of its product offers depend on seasons and can be found in specific stores. Most of its stores have Wi-Fi internet installed for customer experience. Analysing Starbucks’ product portfolio using the BCG matrix, therefore;
1 The dog – The company has products such as tumblers, mugs, and t-shirts that have a low market share and growth since they are seasonal and run out of stock within a short period. The brand has been able to position it exclusively such that customers feel proud when using these Starbucks merchandise. The demand for exclusive designs on the merchandise is high such that e-commerce sites have been formed that resell and ship the rare item even overseas to interested buyers (McClure, 2023). Starbucks hasn’t been able to leave a strong business footprint for the merchandise products thus; the products can be classified under the dog section.
2 Star – The company’s grocery business which accounts for 25% of its total revenue can fall under the star quadrant. Starbucks made plans on increasing its food business by 50% in the year 2021, currently, the company is testing its food services and options enthusiastically, for instance, the hot breakfast sandwiches have complemented perfectly the brands coffee offers. Following the rising demand for high protein and healthy snacks and foods, Starbucks developed the video egg bites products that have a 60% growth from 2017 when it was launched (McClure, 2023). Hence, a strategic market segmentation that the company has been able to utilize by targeting its consumer behaviour.
3 Cash cows – The coffee business defines Starbucks as cash cows. Since the coffee business has been the main mainstream for revenue generation since the foundation and has impacted the positive growth of the company enabling its expansion and helping the company generate huge financial benefits. Concurrently, despite strong competitors the likes of café coffee day, Costa coffee, and baristas, the company has managed to maintain its brand loyalty from its consumers. Also, through the coffee business, the company has been able to offer outstanding customer service experience setting it aside from other competitors.
4 The question mark - The most recent business is packaged goods Starbucks signed a deal with Nestle. The business is vertical to the company and through marketing the products of food services and consumer packaged goods by placing them outside the coffee shops strengthens its global presence. The business is classified as a question mark since it has a low market growth and a low market share creating a lot of uncertainties on how it will turn out in the future.
Customers
Starbucks coffee brand has a huge market share of customers in the coffee industry whereby in the U.S. the company owns 57% of café sales. The company has had a consistent revenue increase, however, in 2020 covid 19 affected the company’s revenue despite reengineering its marketing approach such as more drive-through options and advanced mobile apps for making orders to improve customer experience during the pandemic. Therefore, to better understand Starbucks’s customers, we analyse its target market considering the demographics. The company markets to all genders within the age group of 22-60 years mostly living in highly concentrated areas with key developments. Analysing the target market, mostly middle and upper-class people that are learned thus able to distinguish social responsiveness. This class also are occupied with work or businesses thus an engaged part of the population (Bean-Mellinger, 2019). The majority target market is customers that value the Starbucks signature and unique beverages such as shakes, teas, and vegan coffees, also customers that seek health-conscious food options. Looking at the company’s target market analysis, most of its customers fall under the age of 42 on average and are high-income earners. In addition, students in colleges and universities, and professionals working around the urban define the typical Starbucks customer.
The behavioural segmentation comprises customers that have a frequent habit of visiting the stores that are maintained through a rewards program developed in 2019 and has over seventeen million subscribers in the US. The stores provide a meeting environment where professionals can work, however, drive-ins and order pickups have the largest share in making purchases accounting for 80% of orders received. The psychographic segmentation captures professionals with high socioeconomic status with the ability to budget, spare and spend. Such customers value brands, are health conscious and are socially aware of environmental conservation habits (Dudovskiy, 2022). Starbucks developed a reusable cup program in Seattle as a way of protecting its brand as a sustainable company.
Marketing strategy
The marketing strategy involves capitalizing on customer experience. The company was among the first institution to provide free Wi-Fi internet connection in its stores for customer attraction and retention. The mobile ordering and payment app launched in 2015 has enabled customers to make access to quick and efficient services from the company. The app is an important resource for the company since it ranks among the top most used applications in the U.S., besides, customer experience has been personalized through developing Starbucks cups with customers’ names written on it. The other marketing strategy involves adopting ethical practices that promote a sustainable environment. In 1995, the company adopted the green compliance standards thus the company has the potential in staying ahead of upcoming trends (Kim and Park, 2021). Starbucks’ stories launched in 2019 that air the company’s social activities and impact through featuring content and videos in the websites a marketing strategy of humanizing the brand and engaging more customers. Also, the company has invested hugely in advertising, in 2021 it spent 305 million dollars on global advertisement an increase from 258 million dollars from the previous year.
Financial analysis
The company’s financial year starts from October first and ends on September 30. For the year ending September 2021, the company generated revenues worth 29.1 billion dollars most of it originating from the company stores. As compared to the previous financial year the company made a 23.5% increase after a decrease in 2020 due to the covid 19 pandemic. Also, in the same financial year, Starbucks reported shares that were outstanding with a market capitalization of around 137.85 billion dollars and an EPS that was diluted at 3.54 dollars. The shares traded at 117 dollars gave the company a forward share P/E of 34x while the P/E trailed at 33x (Alkaabi et al., 2022). The company plans to formulate a share buyback program that will improve the dividend price and earn over 20 billion dollars for its shareholders by the 2024 financial year.
Before the 2020 covid 19 pandemic the company’s debt structure was favourable, however, the burden has increased since 2019 short term debt has raised with 2.7 billion dollars in 2021. Dents with payment periods beyond one year doubled during the same period with 10.3 billion dollars in 2021 (Alkaabi et al., 2022). This has negatively affected its equity status since the accounting equations show that the liabilities exceed the assets. Further, the enterprise value analysis has been maintained at 154.84 billion dollars due to the increased debts and high stock valuation. In November 2021, the company reported an enterprise value to revenue multiple of 5.33x and an EBITDA multiple of 21.06x.
External analysis
Using Pestle and porters five forces analytical tools to analyse the external forces and explain the external factors that influence its global performance in the coffee industry by analysing the underlying problems with a forensic business analysis that will provide solutions to the challenges facing Starbucks.
Macro environment analysis (Pestle)
Pestle model to analyse the macro environment exposed to Starbucks. Hence, a better understanding of the influence the external factors have on the company’s performance in the coffee market globally.
Political factors
Starbucks experiences challenges in getting raw materials due to political issues from the source country. Hence, driving the attention of politicians from the West. Hence Starbucks should comply with social and environmental norms when sourcing products. Second is the need to adhere to the laws governing the countries from which raw materials are sourced. The need for social transformation and political awareness in developing countries has guided the development of new policies. Also, the US has a regulation that controls business processes to ensure political stability (Pandey et al., 2021). Hence Starbucks should consider adhering to trade policies, employment laws, tax policies, health and safety guidelines, and international relations.
Economic factors
Economic factors such as the global recession impact the profitability of the company. Economic recession influences the buyers’ decision to find cheap alternatives. Also, labour and operations costs increase due to inflationary rates that increase the price of raw materials and high interest on borrowed capital. Global companies are also affected by the fluctuation in the exchange rates that might affect the pricing and revenue transition. Disposable income and customer confidence influence customer spending as consumers with more disposable income spend on non-essential products such as specialty coffee and beverages which reduces when the economy is under recession (Pandey et al., 2021). The availability of low coffee products creates competition for Starbucks impacting its pricing and market share. New market entrants and competition reflect Starbucks’ performance.
Social and cultural factors
The socio-cultural factors influence customer preferences, lifestyles, demographics, and market trends. To offer cheap coffee Starbucks might consider compromising the quality of the product. However, this helps in widening its market segment by targeting middle and low-income earners to purchase their product. Starbucks should also accommodate customers that are observant of corporate social responsibility and who can object to a company’s operations if it is not ethical. Additionally, changing its target customers since the old retiring generation has reduced coffee consumption with younger generations developing the need to prefer coffee (Pandey et al., 2021). Due to cultural diversification in countries where Starbucks operates, Starbucks should develop local tastes to meet the need by adopting culturally appropriate strategies for those segments. The world is now conscious of health and wellness that will need Starbucks to develop foods and beverages that promote wellness such as organic ingredients, low-calorie drinks, and no-sugar alternatives. Ethical consumption affects customer purchasing decisions thus the need to trade fairly, seek a supply chain strategy that is environmentally friendly, and promote its brand and attract customers with ethical minds.
Technological factors
Technology can positively impact the operations of Starbucks by integrating digital trends that are emerging with technology. For, instance the mobile wave can be integrated by partnering with Apple and developing a discount-based mobile application. Considering its existing Wi-Fi resource, the company can install internet to allow customers to browse through as they take coffee, hence, adding value to its brand and enhancing customer experience. Technology can also enable the company to take advantage of e-commerce to achieve an on-demand delivery platform that improves customer experience through convenience and speed (Smithson, 2021). The strategy will expand the company’s market reach by capturing the online market through distributing products and its services at the doorstep.
Starbucks should also consider integrating automotive and robotic technology. For instance, an automated coffee dispenser, self-service desk, and barista technologies can maximize efficiency and help the company increase its profit margin through reduced labour costs. Internet of Things (IoT) and data analytics can enable Starbucks to analyse customer behaviour and determine customer preferences to produce the right product for customers and monitor the supply chain effectively. Starbucks should also invest in digital marketing and social media advertising through the platforms for customer engagements and product promotion. Digital marketing helps to elevate its brand presence and a strong online presence for attracting more customers. Adopting innovative technologies that will help reduce environmental hazards. Starbucks can acquire energy-efficient equipment and renewable energy resources and avoid solid waste mismanagement in the stores and supply chain (Smithson, 2021). Finally, the company should ensure that customer data is protected from cybersecurity. Keeping customer personal and financial data confident and integrating data security software thus guarding the company’s overall reputation.
Environmental factors
Environmental factors also significantly impact the operations of Starbucks. Climate changes affect the global coffee business, the coffee bean product for instance is susceptible to temperature and rainfall while coffee crops yields, quality, and supply chain can be interfered with by altering the pricing of the company. Some water processing methods might be very intensive rendering inadequate water supply for coffee; hence, strategic conservation methods will supplement environmental impacts that can be adopted by the company (Smithson, 2021). Starbucks operations involve waste generation from packaging such as cups lids and straws. The company should be sensitive to the environment and adopt waste management methods such as recycling and reusing such as recyclable cups and sustainable packaging methods and sorting. Also, carbon gas emissions should be minimized through energy-efficient technologies and practices in the stores. The company can acquire renewable energy sources that reduce greenhouse gas emissions along wit...