Introduction to Starbucks and business analysis

Think of coffee, many of us may think of Starbucks. Starbucks company Profile state that Starbucks is one of the largest chains of coffee shops in the world. Now, Starbucks own more than 16,000 outlets in more than 50 countries. Also, they will strive to expand into more countries, to let the people around the world a chance to taste Starbucks.

UK coffee bars still manage to grow 5% in the past 12 months, despite the recession (Weston, 2009). Other than that, Mintel, a consumer intelligence company indicate that the UK coffee market is growing and forecast to be worth £976 million by 2015. This shows that Starbucks still have opportunities to compete in this coffee war.

Next, this assignment will look into Starbucks environmental analysis, the target customer profile and also the analysis of the marketing strategies of Starbucks.

2.0 Environmental Analysis

2.1 Politic

Now there are some changes on the UK government. The Labour Party won the election, and thus became the new leader in UK. The government new policy is to cut cost in public spending.

Other than that, the regulation on printing the nutrition labelling also plays an important point. The Department of Public Health is giving an instruction to Starbucks that they are required to provide the nutrition information to their customers and also label it on their drinks. Also, they need to post the nutrition information in their stores and their website as well. This has cause an opportunity for Starbucks to make some differentiation from other competitors (refer to Appendix 2).

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The National Labor Relations Board has found that Starbucks action of illegally terminating, harassing, intimidating and discriminating against employees then them attempting to unionize was reported in Organic Consumer Association. Then, Starbucks spent million on legal fee to avoid exposing their anti-worker ways. This bad news will directly affect the corporate image and also bring losses to Starbucks.

Starbucks in UK received a tax credit £115,000 in end of 2009. This make Starbucks faces overall loss for the year was £52million (Tax Research UK, 2010).

2.2 Economy

The world is big and unpredictable. Economic will not smoothly all the time. There must be an up and down over a period in the business world. This situation is beyond our control. Table 1 below shows the global GDP rate from year 2007 to 2010.

Table1: GDP rate from year 2007 to 2010, source: IMF report.

Year

2007

2008

2009

2010

GDP rate %

5.2%

3.0%

-0.6%

4.2% (forecast)

The GDP rate at 2009 is the worst, down to negative, -0.6%, which means the recession rate is also very high in this period. Relative to the IMF's (International Monetary Fund) forecast, the economic outlook of 2010 will be very promising. The 2010 GDP rate will increase to 4.2%, recovering from the -0.6%, in year 2009. The economic outlook takes a major role in the Starbucks performance also. In the recession time, Starbucks also faces problems below.

Table 2: Net revenues of Starbucks from year 2007 to 2009

Year

2007

2008

2009

Net Revenue (millions)

$9,411.5m

$10,383.0m

$9,774.6m

(5.9%)

10.3%

According to Starbucks Annual Report 2009 net revenue chart, it shows that the revenues at 2009 dropped by 5.9% compared to 2008. The economy recession has caused a huge impact on Starbucks. This caused Starbucks forced to close more than 600 stores around the world (Allison, 2008). Although the net revenue 2008 has increased 10.3% compared to year 2007, but the operating income was declined 52.2%. This was caused by the stores closure incident, the restructuring cost and also operating expenses. The economic crisis also influences the demand dramatically (Perner, 2010). Consumers cut their demand for Starbuck because of the price of the coffee. The Senior Vice President of Starbucks, Dub Hay claims that Starbucks charge premium price for premium quality coffee to serve their customers. They then decrease the frequency of consuming Starbucks coffee, this influence in Starbucks sales directly.

2.3 Social

The Britain coffee consumption is £730 million for 2009 (RealCoffee.co.uk, nd). For average, a person consumes 500g of coffee per year. Based on The Independent Newspaper, the coffee consumption may drop because of the young generation trend. Nowadays, the young generation (18-24 years old) are less favourable to drink coffee than their elder generation. A research from consumer intelligence company Mintel February 2010 concluded that the market faces the threat of declining the future customer base as the younger generation less interested in the hot beverages than cold beverage. In other words, this may directly affect the Starbucks business if the trend continues. In order to cope with that, Starbucks should find out a way to convert the young generation to everyday users.

According to Edelson (2010) found that drinking coffee and tea in moderation reduces the risk of developing heart disease, people who drink 2 to 4 cups of coffee a day had 20% lower risk of heart disease compare to those who do not drink coffee. This create an opportunities for Starbucks. Also, coffee can improve people's concentration and energy because of the caffeine.

2.4 Technology

Technology plays a major role in business operation. Technologies that facilitate collaboration via electronic means have become an important component of day-to-day life both in and out of the workplace (Brown et al, 2010). Based on Starbucks Newsroom, 20 October 2010 Starbucks announced the launches of the Starbucks digital Network, in partnership with Yahoo! at US stores. This service provides their customers the latest news, entertainment and lifestyle content, this service only available in Starbucks stores. Starbucks Digital Network is the first in-store network in this category, in order to serve a new and fresh in-store experience for their customers.

A coffee machine is playing a major role in coffee business. Starbucks was installing 'Clover' Coffee Machine which worth $11,000 in selected shops (Besharian, 2008). The Clover is a machine that can control the time, amount of the bean, temperature, water, to go into it to form a brewed cup of coffee. This machine can produce exactly the same conditions of each of the coffee. This machine can directly maintain the quality of coffee and also shorten the coffee serving time to customers. Thus the barista can serve customers faster.

Starbucks employed USA Technologies RFID-based for the contactless payment terminals in 1 cup brewing machine exclusively for office use (Bacheldor, 2009). "No coins and no bills for this machine, it is purely cashless." says Stephen Herbert, USAT's president and COO. This machine can produce the same taste as the taste of barista brew in the Starbucks stores and can serve their customers better.

3.0 Target Customers Profile

Market segmentation is a process of dividing a market into groups of potential buyers who have similar needs and wants, value perceptions or purchasing behaviors (Bennett, Kassarjian, 1972). Starbucks is one of the successful company because their effectiveness in targeting their customers. Different company may have different strategy to better target their market, and Starbucks is doing well in this sector.

Based on the case study, Starbucks targeting at young, single, high earner, professionals, senior or middle managers, students. Further, Starbucks create coffee bar as a "little bit of heaven", provide oasis of calm and give more classy image. It can conclude that Starbucks using demographic and psychographic on targeting their customers. Demographic segmentation is the most common way for organizations for targeting their consumers market. Starbucks target the young, single, high earners, professionals, managers and students. Starbucks designed the stores as 'the third place', a place for people to relax, where can away from home and workplace. For students, Starbucks provide a place for them to hanging around with their friends and doing their homework and surfing to the internet at the same time. For managers, Starbucks has a corner for them to socialize and discuss some business plan when they need a place that away from their workplace.

Psychographic segmentation involves measuring consumers' lifestyle, which are 'the manners in which people conduct their lives, including their activities, interests, and opinions.'(Bennett, Kassarjian, 1972). Starbucks provide a little place for customers to relax, they can lie on sofas, read broadsheet newspapers and view new age poetry on the walls, just like what they are doing in their home. This gives them a sense of belonging; feel like drinking coffee in their own home. Starbucks not only provide coffee, but also create a "Starbucks Experience". This has become Starbucks selling point. The Starbucks Experience is on the trend of the lifestyle nowadays. All of the Starbucks stores are well decorated to fit customers need by providing them a comfortable, relax, peaceful environment.

4.0 Analysis of Marketing Strategies

There are several strategies that Starbucks is doing currently. First, Starbucks aim to put their stores at everywhere in high traffic. Second, Starbucks also added in store product and features in order to attract current customers to visit them more.Third, Starbucks is now partner with Borders, where Starbucks can operate inside Borders. Thus customers can reading while enjoy the coffee.

Next, Starbucks is now having partnership with several companies. Starbucks launched the bottled Frapuccino and double shot espresso drink which partnership with PepCo. Then, the launching of the new flavoured ice-cream which partnership with Dreyer's. Further, the introduction of coffee flavoured chocolate partner with Hershey. Starbucks also partner with Kraft to introduce the packaging coffee for home brew sold in supermarket, that is the VIA ready to brew coffee.

Starbucks also involve in entertainment business. Starbucks established Hear Music, which produce CD for its own Starbucks label, and also run its own XM Satellite Radio Station. Then, in the Starbucks website, www.StarbucksStore.com sells coffee, tea, coffee making equipment, Compact Disc, gift and collectibles. Customers can select and buy their products through this website.

After summarize from the all strategies mention above, the next step will be the mapping process by using the Ansoff Matrix Model, the results is as below.

Market penetration

Put stores everywhere

Added in store product and features

Operate in bookshops

Product development

Bottled Frappuccino, Double Shot espresso drink (partnership with PepCo)

Ice-cream (partnership with Dreyer's)

Coffee flavoured chocolate (partnership with Hershey)

Market development

Packaging coffee VIA for home brew sold in supermarket (partnership with Kraft)

Diversification

XM radio station

Figure: mapped Starbucks strategies into Ansoff Matrix Model

The Starbucks strategies are more focusing on building the brand awareness and customer loyalty. They also strive to penetrate into foreign country to increase the brand awareness. Starbucks are excellent in choosing the location that in high traffic. Other than that, Starbucks make enhancement of the in-store experience. They also offering the breakfast, lunch and dinner set to customers, they can choose the food according to their preference taste. These factors can increase the customer visit frequency to Starbucks. As the customer visit Starbucks more frequently, thus the sales of Starbucks also directly increase.

The launching of the packaging home brew sold in supermarket will eventually decrease the customer visit frequency to Starbucks store. It is because the customers can brew the Starbucks at home and the taste also same as the Starbucks store's taste. Other than that, the new product such as ice cream and coffee flavor chocolate might not bring much profit to Starbucks because they are still the new player in those sectors. Also, they need to spend more money on the creation of the new product line.

New market

Current market

Current product

New product

5.0 Conclusion

After overview all the factors that mention above, Starbucks seem has a bright future. They still maintain as the leader of the coffee industry. Although the recession has hit Starbucks badly, but Starbucks still have the ability to stand up again. This proves that Starbucks is able to make changes due to different situation. However, generation has changed. Therefore, Starbucks should try to use new strategies to fit the need of different customers.