Starbucks, originally a coffee shop from Seattle, America set up on 31 March 1971, is now a well-known coffee chain around the world. After 45 years of operation, Starbucks owned 23, 7768 stores worldwide in 2016, becoming the largest coffee-house company. Starbucks was founded by three partners: Jerry Baldwin, Zev Siegl, and Gordon Bowker. An entrepreneur, Howard Schultz, joined Starbucks in 1982, who after a business trip to Italy, exploring the coffee culture, saw the potential in Starbucks and convinced the owner of Starbucks to implement a variety of Italian styled coffee beverages such as mocha and latte. However this change in business style turned out to be unsuccessful the owners of Starbucks want to remain small rather than becoming a big coffee chain. Shortly after, Howard Schultz left Starbucks and opened his own coffee-house ‘Il Giornale' the next year (Schultz, 2012). In 1987, Starbucks was sold to Howard Schultz and he rebranded his company ‘Il Giornale' to Starbucks and soon it expanded to multiple cities in Canada. Starbucks opened 46 stores in the United States and Canada by 1989 and producing around 900,000 kg of coffee annually (Smith, 1996). By 2013, Starbucks' share price had increased dramatically throughout the years, when the company made use of value creating strategies to constantly increase its market share and diversity of the products to increase its sales (Chua & Banerjee, 2013).
Starbucks has wonderful capabilities of market leadership, superior real estate locations, and their supply chain operations (Larson, 2008). Based on these capabilities, Starbucks is able to develop its own core competencies.
The core competencies of Starbucks are recognized in three areas, customer loyalty, good experience consumption and excellent marketing strategy.
First, Starbucks maintains a good relationship with its customers. Its loyal customers are willing to spend premium price on their products in exchange with good experience. Since 2001, Starbucks has launched Starbucks Card, a prepaid card for buying merchandise in its stores, and has been greatly successful (Duffy, 2003).
Second, Starbucks focuses on providing good consumption experience to its customers by training its employees and creating comfortable environment. Starbucks puts efforts on giving their employees training and benefits to offer better experience to its customers (Miles, 2013). Starbucks always provides a comfortable environment like relaxing music and soft sofas for their customers in every store.
Last, Starbucks is good on marketing products. It has created several products successfully, like Frappuccino, one of its trademarks. Another important product is their mugs. Mugs have become signature products and kind of culture all over the world (Haskova, 2015). Customers can find their classic mugs in different countries, purchase unique mugs in different countries and even cities. For example, in Melbourne, Starbucks sells mugs, which have the word “Melbourne” printed on them.
Business Model Canvas
According to Alexander Osterwalder, ‘Business Model Canvas' is nine building blocks that allow you to describe or design every business model you can imagine, ultimate possibilities, thousand of alternatives. It is divided into customer segments, customer relationship, value propositions , channels, key activities, key resources, key partners, revenue streams and cost structure.
Conclusion: Starbucks in Australia
Despite being extremely successful in many countries, Starbucks fails to compete in Australian market. Australian coffee culture was first introduced back in the 80s, therefore the market was already mature by the time Starbucks entered the country in 2000. From Australians' perspective, the switching cost of changing from local coffee shops to a global chain like Starbucks is quite high. Besides, Australia is a multicultural market, with Starbucks transplantation of its American strategy; it is difficult for the company to survive. (Patterson, Scott, & Uncles, 2010)
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- A marketing analysis suggested that Starbucks mainly focuses on two groups of customers, adult (25-40years old) and young adult (18-25 years old), with medium-high income level, respectively. (HASKOVA, 2015) Therefore, even though the base is broad, Starbucks has segmented its target group to upper-middle class customers.
- Starbucks has a loyalty programme called ‘My Starbucks Rewards'. Members are able to earn points on their spending, order in advanced, use mobile payment, receive birthday reward etc. (Starbucks, 2017) Through the programme, Starbucks does not only obtain short-term benefit, but long-term loyalty as well. (Harris, 2015)
- Apart from selling coffee, Starbucks provides its customers with intimate service and good environment. (MOON & QUELCH, 2003) Hence, both hedonic and expressive values are generated.
- Starbucks sells its products through company-owned stores, online store, supermarkets, and convenience stores. Moreover, some products are distributed through deals with hotels and airlines as well. (MOON & QUELCH, 2003)
- Coffee beans procurement
- Operation: Starbucks operations are divided in to company-owned stores and licensed stores.
- Outbound Logistic: to supermarkets and retail stores
- Marketing: Starbucks relies heavily on word of mouth and social media usage
- Customer Service: Staff manners and service speed
- Human resources: Trained staffs
- Brand: Global trademark
- Stores: Company-owned stores
- Coffee farm: bought in 2013 in Costa Rica
- Pepsico: Starbucks and Pepsico have been collaborating for more than 20years in creating Ready-To-Drink (RTD) coffee.
- Anheuser Busch: Both companies teamed up for Teavana RTD
- Green Mountain Coffee Roasters: Single serve packs strategic partnetship
- Spotify: Allows MSR members special access to Starbucks playlist
- According to past data, more than 50% of Starbucks revenue streams were made up of beverages. (Statista, 2017) However, bakery and other products such as tumbler, mugs, coffee makers etc. were also important parts of Starbucks income.
- Starbucks most significant cost lies in price per pound of coffee beans and operation cost. (Jr., 2014)
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