Starbucks Company Analysis: More Than a Cup of Coffee

Introduction

The globalization phenomenon has enhanced even further the need for organizations to concentrate their business activities in more than one country. Various interests drive transnational corporations into expanding their markets and operations into foreign countries. This includes the need to widen the profit margins, the availability of raw materials in foreign countries, and the presence of cheaper factors of production within the foreign countries, among other reasons. This paper seeks to discuss in detail about Starbucks Corporation, which is an American firm that operates globally in at least 62 countries throughout the world. The company deals in the selling of coffee, both as a beverage and a whole-bean. In particular, this paper will concentrate on the company’s overall operations, its investment plans, the production sites, as well as its markets and how it selects its choices.

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Overall Operations of the Company

Starbucks Corporation’s main business activity involves roasting, as well as retailing specialty coffee. The company’s country of origin is the United States of America, with the headquarters being located in Seattle, Washington. The firm’s operations, however, are widely spread, with a presence in the Asia Pacific, Latin America, Europe, Africa, and the Middle East regions. The Company has a huge labor force, employing at least 137,000 workers worldwide (Seaford, Robert, and Bradley 38).

During the financial period ending September 2010, Starbucks revenues reached $10,707.4 million. This figure represented a 9.5 percent increase to the company’s total revenues that were recorded in the previous financial period, 2009. In terms of operating profit, Starbucks registered $1,419.4 million during the financial period ending 2010, which was almost three times what the company registered at the end of the 2009 financial period, at $1,419.4. These performances represented a net profit value of $945.6 million during the 2010 financial period, compared to $390.8 million during the 2009 financial period.

The Starbucks Experience

The main strategy applied by Starbucks in targeting customers involves adopting a “third” place position in as far as its customers’ lifestyles are concerned. In other words, Starbucks’ main strategy seeks to convince its customers to choose it as the third most convenient location to spend their times after their respective homes and the workplaces. This idea is enhanced through the furnishing of the Starbucks locations by ensuring comfortable seating, offering outlets for the electronic equipment, as well as observing a blanket no-smoking policy, which provides maximum comfort for all customers within their environment.

Customer comfort ranks high amongst Starbuck’s main strategies. The company’s idea is to ensure that more time of the customer is spent at each of the Starbuck’s locations so that they can experience more of Starbuck’s range of offers. The range of products at each of the locations has been achieved because of diversity and includes snacks, and Wi-Fi internet, among many others (Lin and Pei-Wen 1).

The Coffee

Starbucks Corporation has transformed itself from a mere retail store to a company that is publicly traded. Its operations include importing, manufacturing, wholesaling, as well as running direct mail business. The focus of the company has mainly been on dark roasted coffee, owing to its high quality. This has been the differentiating factor between Starbucks and its other competitors.

Investment Plans

Research and development

Starbucks spends a significant portion of its resources towards financing its research and development practices (Moskowitz 73). The R&D’s responsibilities seek to develop technically food as well as beverage products that can match with the shifting consumer tastes and preferences. This is the core business area of the firm and therefore more attention is needed to ensure that the quality of the coffee is enhanced.

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The annual budgets for Starbucks set aside significant amounts of financial resources to aid the research and development activities. Apart from coffee research and development, R&D efforts are also focused on how to improve the firm’s furniture, its restaurant location’s appearances, as well as training the staff on how to handle customers. Customer service is an important area that determines the success of the firm in the future and thus Starbucks focuses more on this area with the need for ensuring that the customers are fully satisfied.

Sustainability

Starbuck’s main investment strategy involves addressing the aspect of sustainability, especially where coffee production is concerned. Global coffee prices have been fluctuating in the past at alarming rates, threatening Starbucks business operations altogether. The company has sort to address its investment plans by focusing on helping coffee farmers to achieve and maintain a sustainable livelihood. The firm has moved away from the traditional coffee pricing policy, referred to as York C formula pricing, into adopting several new strategies. This includes securing more contracts that are based on out rightly negotiated prices, targeting negotiations on more long-term contracts, increasing the coffee amount purchased from the firms and cooperatives directly, and helping coffee farmers to gain access to more affordable credit.

Other sustainability programs by Starbucks have seen it introduce new sourcing guidelines for its coffee, where farmers are rewarded for applying sustainable growing practices, supporting projects on health and education financially, particularly those that help farmers and expanding the sustainable coffee category, which reads “Commitment to Origins”. This involves Shade Grown Mexico together with Fair Trade Certified coffees (“Company Brief: Coffee” 17758).

Social Investments within the Origin Countries

Starbucks’ mission statement identifies the need to contribute positively to communities and environments. This has seen the company enter into partnerships with other organizations that share the same concern as that of the company. Thus within the countries where Starbucks purchases its coffee from, the company has managed to make long-term investments, including the building of schools, health clinics, as well as sponsoring the building of coffee processing facilities. These programs are mainly pursued with the aim of bettering the well-being of the families living within the coffee farming communities.

Starbucks has partnered with CARE, for instance, since 1991, to see to it that communities are provided with the necessary relief in coffee, together with the tea-origin countries. CARE programs have been receiving direct funding from Starbucks, which has in turn seen the nonprofit organization assist many people living in Africa, Southeast Asia, and in Latin America.

Addressing Environmental Impact

Starbucks’ mission statement equally focuses on addressing the aspect of the environmental crisis that results from the company’s processing and other business activities. Starbucks collaborated with The Natural Step in 2001 to enable it to determine what its footprint was. The focus of this strategy was to see to it that the firm was eventually capable of minimizing environmental effects that were resulting from the firm’s operations. The resolution made in this regard offered to make changes in areas that saw significant environmental effects, including sourcing, transportation, energy and water consumption, as well as store designs and operations.

Sourcing

Deforestation ends up taking place in the process of acquiring coffee and paper, among other crops. Chemicals like herbicides are also used in the process of growing and processing beverages like tea and coffee. Moreover, there are waste products that are released when producing paper.

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Transportation

The transportation of raw materials, finished products, and people, significantly contribute to global warming. Starbucks, thus, seeks to improve efficiency on fuel consumption by ensuring that only a modest fleet of transport modes are operated. The firm has also established the Transportation Options Program, abbreviated as TOP, for purposes of helping business partners to identify commuting alternatives while shuttling between their premises and the Starbucks headquarters (Fabiano et al. 174). Alternatives include providing subsidies to partners for the partners who adopt the use of commuting alternatives. The available options are “biking, carpooling, and use of public transport instead of private cars” (Fabiano et al. 174).

Consumption of Energy and Water

Starbucks relies heavily on the use of water for its operations. This creates the need for the firm to seek alternatives through which less of the resource can be used in its operations. Equally, a significant amount of energy is also required to sustain the company’s processing and business operations. Thus, the company has sought for ways through which its operations could eventually result in less of the above resources being used for production purposes.

Store operations and design

Starbucks store design currently observes evaluation specifications for the materials used in order to meet the requirements of US Green Building Council, USGBC. Starbucks became a member of the USGBC in 2000 in its efforts to ensure that it incorporates its Leadership in Energy and Environmental Design (LEED). The interior operations have also seen the firm adopt two main techniques that are targeted on waste reduction. This includes using commuter mugs instead of paper cups, and store recycling. Starbucks strategies targeting this area have involved providing a discount commuter mug incentive to customers to eliminate the need for producing more mugs (Fabiano et al. 174).

Production Sites

Starbucks raw materials, which are coffee and tea leaves are acquired in two major ways. These involve purchasing the products from farmers who grow the crops in different parts of the world and producing the crops on private land acquired and run by the firm. Purchasing the crop from farmers around the globe still remains the most viable means through which the firm conducts its business. In this arrangement, the farmers agree to enter into partnership programs with the firm where their mandate is to produce coffee for the firm. In return, Starbucks offers to pay the farmers for their crops delivered to the firm as agreed.

The crops are collected and ferried from the production sites to the roosting sites that are mainly located in the US. These sites are either fully owned by Starbucks or held on lease terms. They are also warehousing facilities and roasting and distribution centers. While the leased properties sometimes fail to achieve fully the Starbucks’ standards, the company’s owned warehouse and roasting facilities, on the other hand, meet specific standards that are set by the company. This includes a layout configuration that includes departments, work centers, and a layout that provides a movement plan for materials, customers, and work. The basic types of layout involve product layouts, fixed-position-layout, process layouts, and combination layouts that contain both cellular and hybrid layouts.

The alternative production sites for Starbucks involve fully owned production farms. The first of this idea was initiated in Costa Rica where the firm acquired a 600-acre farm with the idea of using directly for producing its agricultural raw materials. This strategy has an advantage to the farm in the sense that it enables researchers to be undertaken while at the same time sustaining the production activities. The quality of the coffee produced is also uniform and perfectly meets the company’s specifications and requirement, as opposed to coffee produced from farmers based in different countries in the world.

Destinations of Sales

Starbucks sells its products via its stores, which are located throughout the global market. These stores are either owned directly by the firm or by way of franchising, where third-party owners acquire the Starbucks brand and trademark and run the business according to the standards that Starbucks gives them. The third-party owners pay Starbucks royalties and other agreed payments, in turn, for using its brand name, color, and logo.

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By 2011, Starbucks stores in the Asia Pacific region were 2,334 in total, including both the company owned and the franchised ones (Starbucks Corporation 5). Starbucks main market within this region is in Japan, where the number of Starbucks-branded stores stands at almost 1000. Other international markets in this region include South Korea, Taiwan, China, Philippines, as well as Malaysia and Hong Kong. Indonesia and New Zealand equally fall within the Asia Pacific regional market.

Starbucks Asia Pacific Market

Country No. of Stores

  • Japan 935
  • South Korea 367
  • Taiwan 249
  • China 218
  • Philippines 183
  • Malaysia 121
  • Hong Kong 117
  • Indonesia 109
  • New Zealand 109
  • Total 2,334.

Another significant regional market for Starbucks is the Americas. This also forms part of the firm’s biggest market in terms of the number of stores involved. It entails “three of the North American countries, which are the United States, Canada, and Mexico” (Starbucks Corporation 5). Other countries within the Americas region are also included mainly Brazil and Argentina from South America (Starbucks Corporation 5).

Starbucks’ Americas Market

Country No. of Stores

  • The USA 4,082
  • Mexico 318
  • Canada 284
  • Other 92.

The third regional market for Starbucks involves Europe, Middle East, and Africa regions. Despite this region being the biggest in terms of the number of countries, it is the smallest of the company’s three regional markets. The biggest international market within the region includes Turkey, with a total of 153 stores. Other significant markets include the United Kingdom, the United Arab Emirates, and Spain.

Starbucks Europe, Middle East, Africa regional Market

Country No. of Stores

  • Turkey 153
  • The UK 128
  • The UAE 94
  • Spain 75
  • Kuwait 67
  • Saudi Arabia 65
  • Greece 59
  • Russia 52
  • Other 169
  • Total 862.

Location Choices

In choosing its store locations, Starbucks mainly considers the strategy of the company before eventually selecting on-location sites. Other factors that are considered prior to the decision-making process include low-cost, the available convenience in terms of attracting market share, as well as the resultants effects that touch on flexibility and capacity. The company’s decisions on location choices also seek to consider other additional aspects, such as the enduring commitment of resources, operating costs, revenues, and effects investment requirements. Further, Starbucks considers the actual operations involved, the impact competitive advantage, together with issues that reflect closely on the supply chains. The combination of these factors creates a multivariate constrained maximization problem (Plog, 284).

Starbucks often decide to seek for location decisions in instances where it is faced with certain situations, including the need to add new facilities, pursuing its corporate marketing strategy to enlarge the market, and fulfilling the demand for growth, which may not necessarily be achieved by expanding the existing facilities. In some instances, basic inputs may get depleted, thus forcing the company to relocate its facility or situations where a shift in markets may occur. High costs of conducting business, which may relatively be costly in one location than the other, may also cause the firm to relocate its location.

For purposes of locating stores that are owned by the company, Starbucks mainly relies on its own strategy on real estate. In instances where the firm enters a new market, an undertaking of the analysis is done for purposes of determining whether it is possible to have multiple stores surviving to take economies of scale advantages. Most of the Starbucks stores have been grappling with the problem of long customer queues, with the customers complaining that it takes too before they get served.

The firm’s solution to this problem has consistently been involving opening new locations within busy centers or locations for purposes of relieving the long wait that customers are taken through, as well as increase the service rates. However, this strategy has proved to be of a disadvantage to some extent, in the sense that the new locations often cannibalize sales thus affecting the busy store. This prompts Wall Street to react by occasioning stock price decline in such instances where the busy Starbucks store’s sales growth appears to weaken.

New store locations have been receiving resistance mainly from rural communities. The concerns of the communities include Starbucks driving the locally existing and owned coffee shops into oblivion, as well as influence the rural communities into adopting alien character. This resistance has forced Starbucks in some instances to shelve any plans for introducing new stores in new communities. However, the management has also adopted new techniques that aim to counter the resistance from the forces. These techniques include involving the firm to participate in donations, as well as organize charitable events and contributions.

Corporate Social Responsibility

The Starbucks business strategy involves social corporate responsibility as an important strategy in enabling the company to execute its operations effectively. CSR is particularly intertwined with coffee production by farmers as a way of enhancing productivity and encouraging the development of the quality of life. Starbucks spends a significant portion of its resources to establish social institutions, such as schools to enable farmers education e their children without much difficulty. Starbucks also sponsors the building of amenities, such as roads and bridges for the farmers and their communities to enhance transportation of its agricultural raw material from the farms to the processing centers.

With the growing resistance being offered by rural communities, especially against Starbucks’ expansion program, the company has been forced to adopt CSR as a strategy to minimize such resistance (Kleinrichert 475). The strategy involves financing projects within the rural communities that aim at improving the social welfare of the communities. The Starbucks CSR project has also been in the form of environmental sustainability, where the firm has taken numerous initiatives to ensure it reduces its carbon footprint. The projects have seen the firm engage other environmental groups and organization to help it consume such resources as water and energy efficiently. Starbuck’s store design also adheres to environmentally friendly practices.

Conclusion

Starbucks Corporation is an international firm that mainly deals in the sale of coffee beans and beverages. The firm was formed in the USA and began its operations in the domestic market before expanding further to cover the entire global market. The firm’s operations over the years have been improving, posting profit increases that have continuously provided the firm with the necessary financial capital to sustain its growth.

Part of the company’s main investment plans involves spending a significant portion of its resources on research and development. Additionally, Starbucks has focused more of its attention on promoting sustainability by assisting coffee farmers in their quest to produce high quality and quantity coffee. Fluctuations in coffee prices, which have affected the performance of the company in the past, have also been addressed through the introduction of a new pricing mechanism that seeks to benefit farmers. Several factors determine Starbuck’s new location sites, including the cost of setting up a store, the number of customers within the area, as well as the estimated profitability of establishing and running a store.

Works Cited

“Company Brief: Coffee.” Africa Research Bulletin: Economic, Financial & Technical Series 45.2 (2008): 17758. Print.

Fabiano, Guasti Lima, et al. “Case Study: Starbucks- adding Value to Brand Equity through an Innovative Brand Image.” Journal of the Academy of Business & Economics 9.4 (2009): 174-185. Print.

Kleinrichert, Denise. “Ethics, Power and Communities: Corporate social Responsibility Revisited.” Journal of Business Ethics 78.3 (2008): 475-485. Print.

Lin, Yi-Chin, and Pei-Wen Huang. “Effects of the Big Five Brand Personality Dimensions on Repurchase Intentions: Using Branded Coffee Chains as Examples.” Journal of Foodservice Business Research 15.1 (2012): 1-18. Print.

Moskowitz, Milton R. “Starbucks.” Business & Society Review (00453609) 95 (1995): 73-73. Print.

Plog, Stanley C. “Starbucks: More than a Cup of Coffee.” Cornell Hotel & Restaurant Administration Quarterly 46.2 (2005): 284-287. Print.

Seaford, Bryan C., Robert C. Culp, and Bradley W. Brooks. “Starbucks: Maintaining a Clear Position.” Journal of the International Academy for Case Studies 18.4 (2012): 35-49. Print.

Starbucks Corporation. Fiscal 2011 Annual Report. Web.

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