Starbucks - Industry and Company Analysis

Starbucks - Industry and Company Analysis

Introduction

A steady growth in restaurant sales throughout the 1990's has led to an abundant number of new companies entering the restaurant/specialty eatery segment hoping to grab a share of the market with their particular niche technique. US citizens spend almost half of their expendable income on food, mostly for dining out (Hoover's Online). Changes in lifestyle, trends, and varsity of the food industry have caused changes in the way companies compete in this industry, leading to a dynamic marketplace with a great deal of diversification. As the demand for convenience has made eating out a normal routine for Americans, the demand for specialty food services has increased in recent years (Hoover's Online). It is the goal of a company like Starbucks to obtain as large a share of this market as possible and to grow and maintain that market share in face of intense competition in order to remain profitable.

Market Structure

The market structure for the catering services industry falls into a monopolistic competitive market structure. There are many competitors in the industry competing to sell specialty food and beverage items in retail locations. Coffee is a commodity with marginal differences in quality, texture, and flavor. Companies such as Starbucks are normally price takers and are not able to exert a large degree of influence over the price they can charge. However, they do attempt to influence consumer demand for their own products by positioning their product and promoting different products in areas such as quality, flavor, or atmosphere of the eateries themselves.

Company Overview

Starbucks Corporation purchases and roasts high quality whole bean coffees and sells them along with fresh, rich-brewed coffees, Italian-style espresso beverages, and a variety of pastries (generally purchased from local sources, based on quality and price), confections, coffee-related accessories and equipment through the company-operated retail stores (Zacks).

Starbucks faces two main competitive arenas: firstly, in whole beans, it competes against specialty coffees sold at retail through supermarkets, specialty retailers and growing numbers of specialty coffee stores. Secondly, in the beverage market, Starbucks competes against restaurants and espresso stands. Moreover, the company makes sure that only the highest quality of green beans are used (Starbucks Corporation: Still perking?).

Starbucks strategy is to maximize market its exposure by placing retail stores in high-traffic, high-visibility locations. Because of the flexibility of the size and format of its stores, Starbucks stores can be found in a variety of settings, including retail centers, university campuses, office buildings, and supermarket foyers. The convenient location of its retail stores attract consumers ranging from students and simple coffee lovers to corporate professionals seeking a cup of high quality coffee served in a variety of personalized ways. In particular, Starbucks caters to the somewhat affluent, coffee aficionados, as a big player in the specialty sales and eatery industry.

In an effort to create American coffee enthusiasts with the dedication of their Italian counterparts, Starbucks needed to provide a seductive and relaxing atmosphere and make coffee bars a social destination. The stores are uniform in their decorative styles as well as being smooth, neat and comfortable. Coffee preparers are referred to as "baristas" (Italian for bartender). The daily papers are available as well, creating a relaxing stop for patrons. The stores are well lit; feature plenty of burnished wood and brass with artwork on the walls. Jazz or opera is usually played softy in the background (Starbucks Corporation: Still perking?). Customers that choose Starbucks, as compared with other places where coffee is sold, are generally people looking for a cup of high-quality coffee in an atmosphere that is lusher than the competition can afford. Moreover, they are people willing to pay extra money for coffee with Starbucks brand name because of actual and perceived product benefits.

Starbucks enjoys national awareness as opposite to local awareness that smaller competitors have through agreements with retailers, wholesalers, restaurants, airlines, bookstores to carry Starbucks coffee. Starbucks partners with companies that are leaders in their industry, and have a reputation for success and quality. Therefore, they were able to create an association of Starbucks name with high quality and premium image without high media spending.

Starbucks Corporation was described by Fortune Magazine as one of the "100 Best Companies to Work For" (1997 and 1998) for a number of reasons which differentiate the company from the competition. Starbucks offers its benefits package to both full-time and part-time employees; a package that includes medical, dental, vision and short-term disability insurance, paid vacations and employee stock options. The benefits package promotes long-term dedication and commitment to the company and its implicit ideals. The implementation of this policy has been highly successful for Starbucks. The company empowers its employees to make decisions without having to ask managers for consent. The employees are also encouraged to think for themselves as partners in the business. Schultz believes that these benefits packages decrease employee turnover and encourages them to be attentive in order to satisfy consumer needs (Starbucks Corporation: Still perking?). Consequently, this type of program helps Starbucks retain their employees and maintain the elite quality of their service.

Competitive Analysis

Starbucks has to compete with every outlet a consumer has in order to satisfy their need for coffee specifically and beverages generally. These outlets include other specialty eateries, fast food restaurants, local convenience stores, and any other retail environment that choose to carry coffee or other beverages. Additionally, Starbucks retail stores face competition in trying to sell their whole bean products from coffee bean distributors. These coffee beans are available at local retail establishments, convenience stores, and, most importantly, grocery stores.

Competitors

One of the main differentiating factors between Starbucks and its competitors is Starbucks' use of coffee as their main product to draw customers into stores. Starbucks' competitors maintain coffee market share by selling coffee as a complementary product to their end consumer, focusing

their attention on other