Strategy and Environment

Strategy and Environment

Introduction

With the development of economic globalization, “fast food” becomes a more and more substantial industry in the business world, which adapts to the pace of people’s life. Each organization spares every effort to stand forward the competition due to the fierce competition. In this article, we focus on the “Starbucks”, a prevailing coffee manufacturer in recent years.

In 1971, a coffee bean retailing store named Starbucks was opened by Jerry Baldwin, Zev Siegl and Gordon Bowker in order to sell specialty whole-bean coffee in Seattle. And the name "Starbucks" was from mate Starbuck in the novel Moby Dick. In the decade, Starbucks had five stores and a small roasting facility in Seattle till 1981. In 1982, Schultz joined Starbucks as marketing manager. In 2001, Interbrand (a brand management consultancy) had named Starbucks as one of the 75 global brands of the 21st century. In 2002, Starbucks had 5689 outlets in 28 countries. By early 2006, Starbucks had more 11,000 stores around the world. Starbucks had turned coffee from a commodity into an experience to savor. (Business Management Updates and Resources [online])

Starbucks has been struggling amidst a faltering economy, its own rapid growth (international expansion and growing presence in 43 countries) and increased competition from cheaper rivals. Starbucks wants to turnaround its business by providing customers with the distinctive Starbucks Experience and building on Starbucks legacy of innovation. (Business Management Updates and Resources [online])

Strategic Issues

To the drinking industry, the soul of keeping the brand forever is the “experience”, rather than the “flavor”, which means a lot to every corporation. “The Economist” illustrated that Starbucks, the largest coffee shop chain all over the world, faces the same problem in developing itself, which is repositioning the customers’ experience of it. So far, Starbucks are devoting itself to letting the customers feel something different and something new.

According to the researches already done, since Starbucks was built up at the beginning of 1970s, it has been recognized as the customers’ third home, other than their own houses and workplaces. Those bright and clean tables and comfortable chairs, together with the aroma of coffee from brewing the coffee beans, also the convenience that the customers can freely charge their laptops and music players, give the “Starbucks experience” it used to have. However, with the increasing number of the branches, quantities of automatic coffee machines are taking the place of the ones done by hand, also the counters that supply drive-through in order to meet the need of the customers who are driving, began to sell food, drinks, even CD, which forced the “Starbucks experience” to disappear gradually.

The CEO (Chief Executive Officer), Howard Schultz pointed that the main reason from the decline of “Starbucks Experience” was that the number of Starbucks shops increased sharply from only 1,000 to 13,000 within ten years. Other people considered their brand has been commercialized, and the customers hadn’t had enough enthusiasms to appreciate every moment of their coffee any longer. He suggested that Starbucks should re-find its origin. Nevertheless, his advice apparently was opposite to the aim of 40,000 branches expected by the organisation.

"We are excited to offer our customers this delicious assortment of warm food options that represent the very best ingredients and product innovations that Starbucks has to offer," said Gretchen Bartkus, Starbucks regional food manager. "We are responding to our customers' requests to be able to purchase a warm breakfast sandwich or pastry along with their Starbucks beverage and we are confident that these new offerings will enhance their Starbucks experience." (Starbucks Coffee Company [online])

In January 2008, Starbucks announced that it will stop selling warm breakfast sandwiches. The reason: the egg, cheese, bacon and ham competed with the coffee aroma in stores. Perhaps to re-ignite the emotional attachment with customers and restoring the connections customers have with Starbucks coffee, brand, people and stores. A three-hour training session for all employees on making espresso was also scheduled. (Business Management Updates and Resources [online])

In 2008, Starbucks will open hundreds fewer U.S. stores than initially planned and will close about 100 poorly performing domestic stores. It will ramp up its expansion overseas to increase the profitability of Starbucks outside the U.S, even redeploying a portion of the capital originally earmarked for U.S. store growth to the international business. Also, in February 2008, Schultz announced 600 job cuts (about one-third who worked at the company's Seattle headquarters in the US) in an e-mail to Starbucks' more than 170,000 employees, calling it a difficult decision aimed at sharpening the company's focus on customers. Some analysts felt the move was to remove bureaucracy and lower costs. (Business Management Updates and Resources [online])

Starbucks’ Environment

Compared with other same type of companies, such as McDonalds, when McDonalds was exploiting the high level market intensively, Starbucks was try to turn the clock back. Commercialized made the company’s image built up toughly less unique. A piece of American authority consuming magazine was written that the mark of McDonalds had been higher than that of Starbucks. Moreover, some researches indicated the first place of customers’ loyalty of Starbucks had been replaced by Dunkin’ Donuts (an American donuts brand).

According to Porter’s Five Force Model, the environment of an organisation can be analyzed from five aspects: bargaining power of suppliers, bargaining power of buyers, threat of potential new entrants, threat of substitutes, and threat of competitive rivalry.

As Starbucks applies to the model, in my part, the aspect that influences Starbucks most is the threat of competitive rivalry whose key issues are as follows: If the companies are of similar size, rivalry increases; if market is growing slowly, rivalry