Starbucks: Detailed Company Analysis

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Introduction

Starbucks is the largest coffee company globally; it has more than 17,000 stores in over 40 countries in the world. The operation of these stores has been a success to the company and has enabled it to gain roots worldwide as the largest producer of the best coffee products. (Ketcham, 2010, n.pag)

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Starbucks is a company that specializes in coffee products and it started back in 1971 in Washington. The Starbucks Company has continued to grow from one step to the other. It is known as the company which produces the best coffee products in the United States. Starbucks Company just like many other companies in the same market has faced different challenges both in internal operations as well as in external operations. The following study focus on the relationship between the Starbucks Company and the Fair Trade Company and how the association has helped the company positively to achieve objectives. (Ketcham, 2010, n.pag)

Fair Trade labelling organization began after the Second World War and it began as a religious associated organization and a non-profit organization. The company’s major aim was based on the provision of fair labor compensation and enhancing common respect between producers and consumers. In 1999 the company began fair trade certified coffee label, it is through this that the company agreed with the Starbucks coffee company. The fair-trade company’s main focus was to educate consumers and media on the conditions the labor force goes through in the coffee industry. It is through this that the fair-trade company decided to focus on Starbuck Company. (Ketcham, 2010, n.pag)

Expectations from fair-trade labeling organization

The association of Starbucks and fair trade resulted in the adoption of the fair-trade model in Starbucks operations which caused major concerns for the company. Fairtrade aimed to help improve the lives of people around coffee production, whereby they increased the amount paid for coffee beans regardless of the quality. Though this was a good plan it had certain impacts on the operations of the Starbucks Company. (MarketWatch: Drinks, 2009, n.pag.)

Association of fair trade and Starbucks is an advantage for the company though at first, it raised concerns. This has enabled the company to offer good wages for the people working in the coffee industry as well as provide good working conditions for employees. Whenever employees are satisfied it means that the production will be good since they work willingly. This has benefited the Starbucks Company since the satisfaction of employees has resulted in high and quality production of products. This further means improvement in production and sales since quality is one of the essentials of success in any business activity. (Ketcham, 2010, n.pag)

This has also initiated partnerships among the coffee growers, because of such partnerships the company is in a position of getting the best quality of coffee from the farmers since is concerned about the association’s welfare. Partnerships of farmers mean that they help each other in producing quality coffee which means quality end product. (MarketWatch: Drinks, 2009, n.pag)

Fairtrade certified products including the Starbucks coffee products have gained popularity in the market globally. This has also resulted in increased imports of the products. Based on reports it is clear that through this the Starbucks coffee products have increased by 50% yearly, which shows the increase in sales as well as the increase in profits. It shows that the association of the two companies has benefited Starbucks not only socially but also economically. (MarketWatch: Drinks, 2009, n.pag)

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Fairtrade certification also means that the associate companies pay a certain amount of premium that is directed to helping communities and setting up educational opportunities for coffee farmworkers and their families. The association has enabled the Starbucks Company to participate in social activities that concern the communities hence being socially responsible. Participation in social activities for Starbuck Company is also a way of promoting its products in the communities since many of the people purchase the products as a way of appreciation to the company. Also, these activities publicize the company hence many people know the company and products hence increasing products consumption. (Datamonitor, 2010, 29-34)

The association of fair trade and Starbucks Company initiated premium funds which are directed to coffee producers. The coffee producers through their associations they decide on how to use the fair trade premiums they get. The premiums they get they invest in different social activities, for instance, the building of village health clinics, schools, water sources, and training programs for youth and women. Through this association, Starbucks has contributed highly to social activities. (Deborah & Lane, 2003, 78-101)

Economic benefits

The Starbucks Company has also benefited economically from this partnership, this is because it is recorded that through fair trade certified coffee has generated more than $220 million in revenue. This reflects the increase in revenues for the Starbucks Company that works together with the fair-trade company. Working together of the two companies has also generated customer confidence in the market concerning the coffee products produced by the Starbucks Company. (Datamonitor, 2010, 29-34)

The association of fair trade with Starbucks Company has impacted the global economy positively. The reason is that fair trade imports quality coffee from different countries worldwide hence contributing to the development of the global economy; because what they give back benefits the given countries and their farmers. This has also ensured continued growth and success of the coffee industry since without such companies it would be challenging to source quality coffee. (Datamonitor, 2010, 29-34)

Since the fair trade certified coffee sales have continued to achieve success even during the economic downturn as recorded in 2008 and 2009 where it achieved sales worth $4.1 billion. The Starbucks Company expects to continue achieving high sales because of its association with Fair Trade Company. (Datamonitor, 2010, 29-34)

The fair-trade company markets coffee products globally and this is one of the advantages Starbucks enjoys. The products are marketed globally hence high sales which are interpreted as high profits. Also since the fair trade company imports high-quality coffee products, Starbucks is in a position of producing high-quality coffee products. (Deborah & Lane, 2003, 78-101)

Fair trade certified coffee products are highly and competitively placed in the market. Whenever a product has this label is subject to selling at a competitive price. The Starbucks company expects to benefit from this since products will be highly and competitively placed hence being an added advantage to the Starbucks company. This is because this will mean high sales as well as increased profits. On the other hand, the products will market themselves hence the possibility of acquiring a large market share as well as sales. (Deborah & Lane, 2003, 78-101)

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Starbucks is the largest buyer of fair trade certified coffee whereby it constitutes 10% of the global fair trade coffee market. This means that the companies coffee products from the Starbucks company are the best since they use coffee that is certified for production. (Datamonitor, 2010, 29-34)

The switch of Starbucks Company to fair-trade certified coffee products has contributed greatly to a global annual payment to coffee farmers who operate in small farms. This is a great achievement since most small-scale farmers for long have been paid lowly hence their standards of living being very low. This shows the global commitment of Starbucks to improving global fair-trade standards. (Argenti, 2004, n.pag)

Starbucks is looking upon fair-trade to improve purchases to a higher level; this is because fair-trade has access to the best-certified coffee globally. This is as a result of the Starbucks shared planet and fair trade certified espresso which took place in the United Kingdom and Ireland. An increase in coffee purchases means increased levels of production increase in sales and revenues hence the switch being of importance to the Starbucks Company. (Argenti, 2004, n.pag)

The Starbucks Company had planned to close almost 30 stores globally due to poor performance. But association with the fair-trade company has enabled it to improve performance hence closure plans for the stores have been canceled. This shows that fair-trade company has helped Starbucks to a great extends in improving production efficiency. Also, it has enabled the Starbucks Company to stand during challenging economic times. (Datamonitor, 2010, 29-34)

Competitive advantage

The Starbucks Company has achieved several advantages which give it added advantage over its competitors. For instance, with the introduction of Café Express, the company has set up a program to be delivering products directly to consumers. The products are shipped from the company to the consumer’s residence within the shortest time possible. This has given the company a competitive advantage over the other coffee companies. (Datamonitor, 2010, 29-34)

The Starbucks Company has adopted a basic strategy that enables it to maintain loyalty in the market. Also, the strategy enables the company to repeat business in the target market. The strategy focuses mainly on hiring and training decent and knowledgeable counter servers. The highly trained personnel offer high customer care which gives the company an added advantage, when customers are attended in a good manner they are happy and they are motivated. (MarketWatch: Drinks, 2009, n.pag)

The company also has been educating customers about the company’s products i.e. the specialty coffee drinks and other assorted products. Together with this, the company offers customers the opportunity of going out and interact with other customers worldwide as they enjoy their coffee drinks. This has given the company a competitive advantage over many other coffee producers worldwide. (Argenti, 2004, n.pag)

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Willingness to pay

The Starbucks Company through association with fair-trade company has achieved great willingness to pay its associates. For instance, the company has been in a position of paying its employees salaries which are significant as per the current economy. Also, the company increased its pay to the coffee associations which has enabled them to improve their standards of living. On the other hand, the company’s customers have expressed their willingness to pay for the products because of the high quality associated with the products through the fair trade coffee certification. (Argenti, 2004, n.pag)

Costs

The costs which the company used to incur have been minimized through the association with the fair trade coffee certified. The company no longer incurs great expenses of resourcing for the coffee instead this is done by the company at a fair cost. The other advantage associated with this is that the company can get high-quality coffee at the same minimal cost. Also, marketing costs have been reduced since the association with Fair Trade Company markets its coffee products and are known to be of high quality. (MarketWatch: Drinks, 2009, n.pag)

Relationships

Starbucks association with the fair trade company has enabled the company to improve relations to a great extend. The relationship between the company and its workers were improved greatly; this is through the company paying its workers better salaries. This strengthened the relationship hence the company being able to get the best quality of coffee from the farmers. Also, participation of the company in social activities has continued to improve its relations with the community hence promoting its products in the market. (Datamonitor, 2010, 29-34)

Five forces

The company has succeeded in conquering the five forces in the market hence its success in the market. It has achieved the suppliers’ power through its association with fair trade whereby it is not associated directly with the suppliers; it gets its coffee through the fair-trade company. On the issue of substitutes, it has been able to stand out from the rest of coffee producers and tea through the production of high-quality coffee drinks. Also, this has been possible through the maintenance of employees whereby they are treated as partners in the business. (MarketWatch: Drinks, 2009, n.pag)

The company has been able to achieve buyers power through the production of high-quality coffee products. The quality of the products attracts many customers, also the company has been involved in educating customers on the company’s high-quality products. In addition, it has been offering customers opportunities of having their favorite coffee products in an outside conducive environment. (Datamonitor, 2010, 29-34)

Problems of standards of certification and NGOs

Though at first, the company was uncomfortable with some of the standards which were set by NGO’s the company later complied. Some of the problems faced include companies not being ready to adhere to the set standards. For instance, issues to do with human rights in regards to working conditions and salaries. Also, the company is forced to follow certain standards which it is not used to, in case of Starbucks it was forced to purchase coffee from Fair Trade Company. Simply because it was accused of paying farmers low prices for the coffee they purchased. (Argenti, 2004, n.pag)

Works Cited

Argenti, Paul. “Collaborating with activists: How Starbucks works with NGO’s.” California Management Review. 2004. Vol.47. No.1.

Datamonitor. “Company Spotlight: Starbucks.” Drinks MarketWatch. 2010: pp. 29-34.

Deborah, Leonard. & Lane, Tunes. “The Power of Activism: Assessing the Impact of NGOs on Global Business.” California Management Review. 2003: Vol. 45/3 pp.78-101.

Ketcham, Tomas. “Fair Trade Coffee- a Status Report [expanded Version].” Green money journal. 2010. Web.

MarketWatch: Drinks. Drinks industry update. 2009.

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