Starbucks: Transformation & Renewal
Evaluation of the Howard Schultz return-era Starbucks. Uses Porter's Five Forces and SWOT to surface cannibalization, store experience, and substitution risks from 2007 to 2013.
Starbucks in 2008.
Starbucks is one of the most well-known coffee shops in the world. It had about 175,000 employees by September 2008. The Starbucks Coffee Company: Transformation and Renewal case shows how changes affected the struggles the company went through from 2007 to 2013. This is an evaluation case, so the goal is to explain the specific points that led to Starbucks' success, not to make a decision or solve a problem.
When Howard Schultz bought Starbucks in the late 1980s, the industry was small and underdeveloped. Schultz built a global network of stores and created an organization based on Starbucks and its brand. He led his employees by visiting every type of retailer he could and modelling the Starbucks employee experience on the salespeople he liked. He wanted customers to celebrate what the merchant had to offer.
What Schultz noticed in 2007.
In 2007, Schultz was worried that his stores had lost the sense of "Starbucks." Most of his stores had something missing. Something was sapping the aura of the brand, and he noticed small things adding up: customers weren't feeling connected to employees, and employees would forget the names of customers. Schultz felt the Starbucks experience had been worsened and that the company had bigger issues than just the stores.
Starbucks was making a lot of money the year prior, but many stores were not performing as they should have been. New stores were opening every year, and each new store was taking customers away from existing stores. Individual stores still made a profit, but at the system level the company was making money off of bad management.
A category that exploded.
When Starbucks was bought in the 1980s, the industry was small and underdeveloped. During the 1990s, many companies were built on Starbucks' success. The total number of specialty coffee outlets increased from 585 in 1988, to 12,000 in 1999, to 24,000 in 2006.
Competitors at a similar level to Starbucks include McDonald's and Dunkin Donuts. These two had the leverage and resources to rival a company the size of Starbucks. They were also well received: many customers enjoyed going to them.
Threat of substitutes
New entrants into the industry may take parts of Starbucks' market share. Even new Starbucks stores took customers from other Starbucks stores. Substitutes range from small local shops to large competitors like McDonald's. From the 1980s to the 1990s, new substitutes continued to enter the market, and there were soon thousands.
Power of consumers and suppliers
In the coffee shop industry, suppliers provide materials like coffee beans, cups, lids, and coffee machines. Farmers and manufacturers are the main suppliers of coffee shops. Consumers make up 100% of sales, so they are extremely vital to Starbucks' success. The only way to make money is to sell to these consumers.
Strengths, weaknesses, opportunities, threats.
Strengths
- Extremely strong brand with millions of customers around the world.
- High quality products and a long list of SKUs across hot drinks, cold drinks, and food.
- Human interaction is a primary selling point. Cashiers and good customer service are vital to Starbucks' success, and they appear to have maximized their potential in that regard.
Weaknesses
- Single income source. The only source of income is selling their products, while they could be investing in more revenue opportunities.
- Prices are extremely high for a beverage company, which may make customers unhappy paying so much for something they could buy for less.
- The products are not very unique, so customers may change their mind and go somewhere else.
Opportunities
- Invest in other countries where the cost of imports may be cheaper.
- International markets, especially many Asian countries, would be a good investment.
- Branch out to new companies and purchase their brand, increasing market share across the world.
Threats
- Competitors taking market share. The industry has gone from very few players to thousands in a couple of decades.
- Rising prices push consumers away. Consumers will only pay for something they find value in, and if their money is more valuable than the drink, Starbucks loses customers.