Company analysis of Starbucks Coffee Malaysia

The company chosen for the case analysis and evaluation is Starbucks Coffee Malaysia Company. The company is chosen for the reason of its well establishment in food and beverages industry and business model. There will be 3 sub parts in the company profile of the company which are the history of the company, vision and mission of the company as well as a brief profile of the company in local context, Malaysia.

1.1 HISTORY OF THE COMPANY

The company, Starbucks Coffee was initially incorporated in the year 1971 by 3 entrepreneurs in Seattle where the business of the company is mainly selling whole bean coffee. The company opened its very first location in Seattle’s Pike Place Market in year 1982 where the company had owned 5 stores that sold coffee beans, roasting facilities, and a wholesale business for local restaurants. Howard Schultz, who was recruited in as the Retail and Marketing Manager in year 1982, opened his first coffee bar by the name of II Giornale and bought Starbucks from the original owners for USD 4 million after his new ideas were turned down by the original owners of Starbucks who believe that coffee should be prepared at home and the reason of selling espresso and coffee drinks might distract the company primary focus of selling whole bean coffee.

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After the acquisition, Howard Schultz rebranded his coffee bar from II Giornale to Starbucks Coffee in year 1987 and the business started to expand to achieve the increment of sales by 84% in year 1991 after the company suffered losses because of the overhead and operating expenses increased with its expansion in the first 2 years of its business expansion.

Throughout the years of 1990s, Starbucks Coffee under the leadership of Howard Schultz, the company had expanded and growth rapidly with several efforts done. These efforts done to strengthen the coffee business was the company become the first private owned U.S company that offered stock option program to its part time employees in year 1991, completed its initial public offering in year 1992 under the trading symbol “SBUX”, serving Frappuccino® blended beverages in year 1995, selling its first ready to drink beverage, Frappuccino® coffee bottle drink and opened its first store in Japan in year 1996, Starbucks Foundation was established in year 1997, a tea company, Tazo was acquired in year 1998 and its effort to act responsibly by partnering with the Conservation International on coffee growing methods.

For the years of 20s, Starbucks Coffee Company continued to expand its business and operation globally and responsibly. The company introduced its coffee sourcing guidelines and Starbucks card in year 2001, entering a licensing agreement to sell Fair Trade Certifiedâ„¢ coffee in the countries of its business operation in year 2002, opened its Farmer Support Center, promote Starbucks Coffee Master Program to provide sharing opportunity about coffee in year 2004 and finally between year 2008 and 2009, the company acquired coffee equipment company for its revolutionary Clover® Brewing System and launched the innovative VIAâ„¢ Ready Brew coffee as well as its effort in opening Farmer Support Center and Fair Trade Certifiedâ„¢ coffee.

1.2 MISSION STATEMENT OF THE COMPANY

Starbucks Coffee Company mission statement is “To inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time.” There are six guiding principles which help Starbucks in measuring the appropriateness of its decisions. They are:

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way they do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of Starbucks coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to the communities and environment.

Recognize that profitability is essential to the future success.

However, solely rely on the company’s mission statement to execute its company’s corporate, business and marketing strategies are no longer sufficient to sustain in today dynamic business environment. To sustain in this environment where consumer urges to buy more environmental concern products, Starbucks Coffee Company had its own Environmental Mission Statement that is “Starbucks is committed to a role of environmental leadership in all facets of our business” with the guiding principles as below:

Understanding of environmental issues and sharing with the partners.

Developing innovative and flexible solutions to bring about change.

Striving to buy, sell and use environmentally friendly products.

Recognizing that fiscal responsibility is essential to the company environmental future.

Instilling environmental responsibility as a corporate culture.

Measuring and monitoring the company’s process for each project.

Encouraging all partners to share in the company mission.

1.3 STARBUCKS COFFEE MALAYSIA COMPANY

As mentioned, Starbucks Coffee started its global expansion from year 1996 opening its first store outside of North America in Japan. As at year 2009, the company has total number of 16, 635 stores globally. Operating globally made Starbucks Coffee Company to record a total net revenues of USD 9.8 billion for its business sales and operation. One of the Starbucks Coffee Company global expansion market is Malaysia Food and Beverages Industry.

Starbucks Coffee Company expanded to Malaysia in year 1998. The mode of entry of Starbucks Coffee Company to Malaysia expanding and operating its business is through the mode of licensing. Berjaya Corporation Berhad is the company that obtained the license to operate Starbucks Coffee Company locally. Berjaya Starbucks Coffee Company Sdn. Bhd. is formed and jointly owned by Starbucks Coffee International and Berjaya Corporation Berhad.

Starbucks Coffee Malaysia opened its first store on 17th December 1998 at KL Plaza in Jalan Bukit Bintang, Kualau Lumpur. The business of Starbucks Coffee Malaysia basically are selling of espresso and coffee beverages, non- espresso and coffee beverages, coffee-related accessories and equipment, gift and merchandise, souvenirs, pastries and confections. To date, in Malaysia itself, Starbucks had more than 115 stores operating the coffee business. In Penang itself, regardless of Penang Mainland or Penang Island, there are around 11 stores, with 2 more stores coming soon in Penang 1st Avenue Mall and Penang Straits Quay.

PART 2 PROFILE OF MARKETING DEPARTMENT

2.1 TOP MANAGEMENT

The top management of Starbucks Coffee Company is leaded by Howard Schultz as the Chairman, President and Chief Executive Officer. His main duty and responsibility is to overlook the entire structure of Starbucks Coffee Company in ensuring each of the members of the company work to towards the mission of the company.

He is also assist and support by the Board of Directors consists of 10 members who have sufficient knowledge, skill and experience in the food and beverages industry. The members are William Bradley, Olden Lee, Javier Teruel, Mellody Hobson, Myron Ullman, Craig Weatherup, Sheryl Sandberg, James Shennan, Barbara Bass and Kevin Johnson.

In Malaysia context, the top management of Starbucks Coffee Malaysia Company is chaired by Tan Sri Dato’ Seri Vincent Tan Chee Yioun, as the Chairman and Chief Executive Officer. The company, Berjaya Starbucks Coffee Company Sdn. Bhd. is incorporated to manage the coffee business and it is one of the Berjaya Corporation Berhad subsidiaries under the Food and Beverages Industry segment. However, Dato’ Robin Tan Yeong Chin, son of Tan Sri Dato’ Seri Vincent Tan Chee Yioun, is the executive director who responsible for Starbucks Coffee Malaysia Company.

2.2 MARKETING DEPARTMENT STRUCTURE

Starbucks Coffee Company marketing department is leaded by the Chief Marketing Officer, Annie Young-Scrivner. The position of Chief Marketing Officer was newly created in September 2009. In Malaysia, there is no clear division of marketing department due to the structure of the subsidiaries company under Berjaya Corporation Berhad. Berjaya Starbucks Coffee Sdn. Bhd. is under the supervision of Dato’ Robin Tan Yeong Chin.

Nonetheless, generally, Starbucks Coffee organizational structure is matrix structure where this structure combines functional and product division together and the employees of these divisions are to report to both these division. In Malaysia, the marketing decision is made from team basis as a result of the matrix structure Berjaya Corporation Berhad had in general. It means every subsidiaries of Berjaya Corporation Berhad are responsible for any decision making process under the supervision of the appointed executive director, in Starbucks Coffee case, the decision is finally made by Dato’ Robin Tan Yeong Chin.

For the perspective of Starbucks store operation, the marketing role falls onto the hand of district manager, store manager and every barista they had in the store to carry out certain agreed marketing decision by the Chairman of Berjaya Starbucks Coffee Sdn. Bhd. In general, the number of barista hired are depend on the size of the Starbucks store, from a minimum of 5 people to a maximum of 10 people for 1 Starbucks store excluding the part time barista.

2.3 FUNCTIONS AND RESPONSIBILITIES

In Malaysia, the execution of marketing decision is relied on District Manager to provide overview of the marketing decision through meeting with the Store Manager and Store Managers are to provide details of marketing decision to barista. For example, a marketing campaign to promote a new introduced Frappucino beverage is delivered from the District Manager to Store Manager during the monthly meeting and Store Manager after the monthly meeting will execute the marketing decision by planning and monitoring barista on the marketing of the new introduced Frappucino beverage. This is the process of delivery on the marketing decision from top to bottom. Also, to ease the execution of marketing decision, shift supervisors are needed to monitor the process.

As District Manager, the functions and responsibilities held on hand are as followed:

Create and maintain customer and partners Starbucks Experience

Regularly and customarily exercise discretion in managing the overall operation of the stores within the assigned district

Modelling and acting in accordance with Starbucks guiding principles

As Store Manager, functions and responsibilities held on hand are as followed:

Ensuring that the Starbucks Service Experience is consistently provided for all customers

Ensuring quality of store operations

Lead and empower positively on store partners

Maximize on financial contribution

As Shift Supervisor, functions and responsibilities held on hand are as followed:

Ensuring service and store standards set are achieved

Assist store manager with daily operating procedures, such as maintaining quality store operations, maximizing financial contributions, and supervising partners development

As Barista, function and responsibility held on hand is to provide customers with prompt service, quality beverages and products.

PART 3 MARKETING MANAGEMENT PRACTICES

3.1 STARBUCKS COFFEE MALAYSIA BRAND POSITIONING

According to Mullins and Walker (2010), brand positioning can be defined as the image that the marker intends to put into the consumer mindset comparing with other brands and the ways the brand is placed in the consumer mindset. It can be said as the way a company would like the consumer to see of its company product or service.

In the case of Starbucks Coffee, the company had positioned the brand into the mindset of its consumer as “Third Place” environment. The “Third Place” environment refers as the place other than workplace and home that an individual can visit to relax, gather or socialize with friends and family. Therefore, Starbucks store is often decorated and filled with warm and comfortable climate such as nice sofa, Wi-Fi services, music and books offered to consumer.

Additionally, Starbucks also positioned its brand of a quality-oriented product and services. Quality product refers to its finest coffee beverages and service refers to its environment, professionalism of its barista in brewing the finest coffee and the way its treat the customer. Starbucks Coffee understand the important of brand positioning in the consumer mind as the customer will not revisit if the product or service offered would not satisfy their taste and preference on coffee.

3.2 Michael Porter Generic Competitive Strategies

Starbucks Malaysia is operating its business in the local food and beverage industry by adopting the Michael Porter Generic Competitive Strategies which intends to specify the company game plan to compete in the industry while maintaining its competitive advantage over its rivalry.

The company in Malaysia is practicing the differentiation strategy. Commonly, Starbucks is well known for its quality of coffee. It has its high quality sources of coffee bean and plantation. These made the company different from the local company that do not serve quality but price as they main advantage. The company is differentiating the nature of the business from local coffee company such as Old Town White Coffee. Starbucks developed the concept of Third Place to sustain its consumer by inserting the perception of Starbucks Coffee store as their third place other than working environment and home. It intends to generate the sense of belonging of its stakeholders and thus enhancing the relationship with them, retaining them and attracting new potential non-coffee market.

In brief, Starbucks Malaysia is operating the business in Malaysia using the differentiation strategy in term of quality of the coffee provided and the comfort environment offered to its consumers to enjoy the life other than working and home environment.

3.3 Corporate Social Responsibilities Strategy

Today, operating in the dynamic business environment, company has to response shortly to consumer taste and preference. Environmental issues have now becoming a concern for consumer before making purchase decision. They are now more aware and alert than before seeking environmental information about a company’s product contributing their efforts to preserve the environment.

Starbucks, as one of the world leading coffee company, is facing controversy of coffee towards the health of human being. For this reason, Starbucks Malaysia, has adopted the corporate social responsibilities strategies as one of their marketing management practices before the issue is highlighted widely. Starbucks Malaysia has its decaf coffee powder to reduce the impact if caffeine towards the health of its consumer. Consumer can order coffee brew from caffeine or decaf coffee powder. Additionally, Starbucks Malaysia is also offering its consumer choice of milk to brew the coffee. Consumer can either order their coffee using low fat milk or low fat soymilk.

In term of stakeholder interest, Starbucks Malaysia treats their employees as partner by offering them comfort working environment. The employees can take a short break after a working hour of 5 hour, free beverages to reward its employees daily up to 5 cups of beverages. Starbucks Malaysia also is committed to the origin of the coffee product, the environment and the communities. Lots of efforts done to realize the corporate social responsibilities strategy to ensure the confidence of consumer towards the company such as Coffee Sourcing Guidelines, Conservation Coffee, Fair Trade Certified Coffee, Organic Coffee, Starbucks and CARE as well as their global corporate social responsibilities reporting which further address the stakeholder’s interest of environment and community in details.

It is clear that Starbucks widest use of marketing tool is through word of mouth marketing as customer will help the company to share and spread the quality product offered. However, for the reason of coffee health and environmental and communities concern nowadays as a result of globalization, consumer nowadays demand more on the product that they purchase. They demand more on intrinsic value that they could enjoy buying a company’s product while extrinsically enjoying the product of the company.

In the case of Starbucks, to provide finest quality of coffee signify that the premium price placed for its coffee and this will slowly weaken down its competitive position in the market especially during global financial meltdown. To overcome or slower the process, the company switch the focus of the consumer on price but to raise their awareness on Starbucks efforts done to the environment and community in reflect on their premium coffee price compare to the competitors. As a result, corporate social responsibilities strategy is nowadays a good marketing management practices that a company can adopted to sustain its market position and share in the industry.

PART 4 MARKETING MANAGEMENT ISSUES

4.1 INTERNAL MARKETING

Starbucks Coffee marketing strategy is through word of mouth to market its beverages. The initial step to foster this marketing strategy is through its partners or barista. They are given several benefits in working with Starbucks such as employee stock option, free beverages and staff purchase discount of merchandise. By practicing this marketing management practices, it spread the brand image of Starbucks of being a responsible and caring company to its partners and barista. It is a mission that Starbucks intends to achieve in the business.

Nevertheless, in Malaysia context, the response on the marketing management practice is not effective and efficient. The main issue with its internal marketing is the incapability or inappropriate individuals hired to carry out the marketing objective behind the marketing management practice. Store manager hired to handle the store could not carry out the duty and responsibility effectively and efficiently. Some of the stores are not profiting and the climate to work is not harmony such as Prangin Mall Starbucks.

Additionally, due to the incapability of store manager, the operation of store is managed in an unorganized manner where there are conflict between store manager and shift supervisor, conflict between shift supervisor and barista, bad service quality offered to customer and also unprofessional of barista preparing coffee to customer. This slowly will contribute to the bad brand image of the company since its main marketing management practice is through word of mouth marketing strategy to promote the company.

4.2 MARKETING MIX

Starbucks Coffee, a company in Malaysia where often receive comment on their marketing mix. Starbucks Coffee always being tagged as overprice on their coffee product. For example, a Grande size of coffee cost consumer about RM 10 to RM 12. The price is relatively high compare to other coffee company such as Old Town White Coffee. This is an issue to Starbucks in Malaysia for the niche market of coffee lover and non-consumer market especially during global financial meltdown where the issue will be magnified and discussed. Moreover, for its years of experiences in the industry since 1971, the company should have achieve the experience curve and economy of scale in producing coffee beverages, the price of coffee beverages rightfully should be able to adjust to a more affordable level but yet they are offering standard but overpriced coffee beverages.

Furthermore, it is rare to see a commercial of Starbucks on the mass media such as television. Even though Starbucks is utilizing the electronic media such as website and Facebook to promote their product, but the mass media where a company product can easily reach to consumer knowledge is still television or radio in Malaysia. For this reason, to discover new market or to penetrate the existing market, Starbucks will face barriers. Also, this is affecting the consumer product purchase decision as if consumer perceived coffee as beverages that may cause harm to their health, the sales of drinks will decreased since nowadays the element of healthy and environmental friendly are being much aware and highlighted in consumer purchasing decision.

4.3 MARKETING CAMPAIGN

Being a whole wide known brand of Coffee Company, Starbucks success not only due to its finest quality of bean coffee and standard brewing knowledge, skills and experience, but also on its successful marketing campaign carried to enhance the brand. Unfortunately, in Malaysia context, it is lack of initiatives done to enhance the brand.

Comparing the international websites and local websites of Starbucks, it is easy to identify several have and not between the international and local Starbucks websites. There is no Starbucks Card in Malaysia but there is Coffee Bean Card in Malaysia. It is convenience to purchase Starbucks product online but in Malaysia context, this feature is not added into the websites. There is also a My Starbucks idea websites for consumer feedback and response towards the company. Sadly, in Malaysia Starbucks website, these features are not added into it. The only reason that caused to this issue is the ownership between Berjaya Corporation Berhad and Starbucks International as the share held by Berjaya Corporation Berhad only 50% while the other are with Starbucks International.

4.4 THE “THIRD PLACE” CRISIS

Starbucks Coffee is being proud of the concept of ‘Third Place” brand position strategy it had for its coffee business. The company inevitably achieve its objectives and goals to provide quality coffee beverages. In Malaysia context, it is a popular place to visit to for gathering, chatting and even meeting or direct selling. Consumer treats Starbucks Coffee as a place of their interest rather than a place for them to relax or gathering. But, due to the rapid changes in business environment and the advancement of Information Technology, people are getting busier than before and a place to stop by to relax and gather seems to be wasting time. The scenario even worst when the product priced a higher price compare to other of its competitors.

Additionally, in Malaysia, to tap on the fast and busy working life, Starbucks Coffee Malaysia had started off the Drive-Thru concept of Starbucks Coffee to fulfill the needs of consumer buy their coffee on the way of their road path to work, for example, Starbucks Coffee had its Drive-Thru in Setia Alam, Shah Alam and Setia Tropika, Johor Bahru and this had indirectly itself weaken down the brand positioning concept of “Third Place”.

4.5 THE RISK OF GENERIC STRATEGY AND CSR STRATEGY

Michael Porter Generic Competitive Strategy and Corporate Social Responsibilities (CSR) Strategy are both effective and common strategies to use in a business. Both strategies help to differentiate a company from its competitors. Michael Porter Generic Competitive Strategy focus on either low cost, differentiation or focus strategy while Corporate Social Responsibilities (CSR) Strategy focus on the environmental and communities contribution.

Nonetheless, these strategies need to weight balance between one and another. Over concentrate on both strategies might impose impact on price. Price will rise as a result of cost development on product to differentiate from competitors rise or the contribution to environment and communities cost being transfer to the burden of consumer.