Starbucks Case Analysis Case: Starbucks Five Highly

STARBUCKS

Case analysis

Case: Starbucks

Five Highly Relevant Facts

After showing swift initial growth, Starbucks' share price declined 75% within two years.

The strategy adopted by the CEO to address this problem was to radically cut back the company's U.S. expansion and focus on the quality of Starbucks' coffee and customer service rather than increasing the quantity of new stores.

Although the global recession had an impact on Starbucks' revenue, there were deeper and more long-standing concerns about over-expansion and brand dilution due to excessive store density in urban areas.

This has been created by the 'cluster' strategy of expansion favored earlier in the store's growth history. Starbucks is now expanding more slowly and also focusing on its international strategies country-by-country.

Starbucks is diversifying its in-house coffee offerings and its supermarket coffees (including instant coffee), and expanding into the music market.

Three 'key' Issues

Starbucks is perceived as a 'luxury' product by the middle-class. It is not necessary to drink coffee at Starbucks' price point, even though the coffee is not really high-priced enough to be a traditional luxury good. Still, Starbucks must convey additional value to justify the purchase of a beverage.

How can Starbucks compete with the higher-end coffee offered by lower-priced chains such as McDonald's and Starbucks?

How can Starbucks use its mission of corporate responsibility to build and sustain its brand image?

The Firm's Core Competence

Providing coffee perceived to be of high quality, but not so expensive middle-class customers cannot afford it

Providing an in-store 'experience' that is pleasurable, including the smell of the coffee

Consistency and reliability of product

Employees that are knowledgeable about the product and genuinely helpful

A strong sense of corporate responsibility -- Starbucks treats its workers well and also stresses Fair Trade and other ethically-based initiatives.

The Firm's Strategy

Reign in expansion. Trim the 'fat' from the operations, in terms of underperforming stores and domestic and international regions.

Return to a high-quality method of delivery the coffee, rather than focusing on cost-cutting and volume-based profits. Starbucks cannot compete with Dunkin' Doughnuts and McDonald's on price alone.

Retrain workers to improve the quality of the coffee served in-house.

Keep close watch over the quality of the stores internationally.

Do not deviate from coffee as the main aspect of Starbucks' brand (breakfast sandwiches, although they sold well, were discontinued because they interfered with the store aromatics and production of coffee)

One Realistic/Actionable Recommendation