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Starbucks Is Faced with the Challenge of Decreasing Global Revenue Streams, Down-Sizing or Closing 600 Stores While Trying to Maintain Its Past Profitability Margins

Essay by   •  February 4, 2013  •  Case Study  •  611 Words (3 Pages)  •  1,677 Views

Essay Preview: Starbucks Is Faced with the Challenge of Decreasing Global Revenue Streams, Down-Sizing or Closing 600 Stores While Trying to Maintain Its Past Profitability Margins

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Issue: Starbucks is faced with the challenge of decreasing global revenue streams, down-sizing or closing 600 stores while trying to maintain its past profitability margins.

Situational Analysis: The most significant Porter force impacting Starbucks is the relationship with their buyers. While they don't have explicit bargaining power, many have stopped purchasing their coffee or switched to a less expensive competitor due to the global financial crisis impacting most consumers. The "Starbuck Experience" is a luxury item and these are typically the first types of expenditures customers reduce or eliminate. There is little threat of new entrants to the market, outside of smaller local coffee shops. For over a decade, there seemed to be little competition for them until McDonald's entered the market. However, most clients remained loyal to the experience rather than a fast-food alternative. While there are definitely substitutes for coffee, most specifically tea, they could also be extended out to other caffeinated drinks like soda; Starbucks already carries most of these items. Starbucks has also created excellent relationships with their suppliers and only works with reputable growers. As mentioned previously, the main threat to Starbucks the global reduction of sales due to the recession. Additionally, they have become a victim of over-expansion, which is forcing them to reduce market penetration and staff. There are still opportunities for them, including renewed relationships with environmentally friendly coffee growers, expansion of their brand identity.

Starbucks has built a brand that not only sells coffee and other snack items, but also an experience for their customers. They are tech-savvy and offer Wi-Fi in most locations with outlets for laptops. The interior is typically more upscale with pleasing music in the background. They also put a lot of pride in their baristas and create an interaction this makes people want to come back. From a weakness perspective, they have suffered from over-popularity, which has caused locations to be overwhelmed, which negatively impacts the speed of service and the very experience they are trying to create.

Key Success Factors: To succeed in the coffee shop industry, companies must have several key items in place. First, established relationships with suppliers (whether whole bean or ground), so you always have product available. Second, have a variety of offerings including hot and cold coffee, tea, water and some food selections. Finally, a strategic location is essential to maximize customer accessibility.

Strategies: At the functional level, Starbucks excels in creating the experience for the customer. This ranges from the overall atmosphere of the shop, extensive product knowledge by their staff and providing complimentary products to their coffee. At the business level, they focus on customization and therefore demand higher prices. A customer can



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