A Resource Based Analysis of Starbucks The current economic situation has required that organizations rethink the way that they do business. With people losing jobs and salaries being cut, people are spending money on essentials and opting less and less to spend on the extras. Groceries, rent, housing, transportation, education are of value while grooming, meals out, movies and cups of coffee or considered frivolous expenses. One organization that banks on Americans need to feed their self focused desires is Starbucks Coffee. Starbucks.
Starbuck’s leadership, well aware of the effect that the crisis could have on the company, outlined a plan that included “increased store and operating efficiencies, additional cost reductions and long-term growth” (Starbucks, 2010). As we look well at the assets, skills, capabilities, and intangibles of the company we will develop a better understanding of whether or not their current management and planning approaches are indeed strategic. Starbucks aims to “inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time”.
The company’s strategy seems to have this in mind as they move forward in the spirit of innovation and community responsibility. This paper will attempt to look at the organization from a resource based point of view in an attempt to determine whether the practices have served to profit their company through these difficult economic times. In order to understand the strategies of the company it is important to understand its history. According to the Starbucks website, the first Starbucks store opened in 1971 and was located in Seattle’s Pike Place Market.
Starbucks stores offered a choice of regular or decaffeinated coffee beverages, a special coffee of the day, and a broad selection of Italian-style espresso drinks. In addition, customers could choose from a wide selection of fresh-roasted whole-bean coffees (which could be ground on the premises and carried home in unique containers), a selection of fresh pastries and other food items, sodas, juices, teas, and coffee-related hardware and equipment.
During those early days the company’s retail sales mix was roughly 61 percent coffee beverages, 15 percent whole-bean coffees, 16 percent food items, and 8 percent coffee-related products and equipment. The product mix in each store varied, depending on the size and location of each outlet. Larger stores carried a greater variety of whole coffee beans, gourmet food items, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers, and other accessories. Smaller stores and kiosks typically sold a full line of coffee beverages, a limited selection of whole-bean coffees, and a few hardware items.
In order for Starbucks leadership to discover and devise a plan for successful change that would help them to weather the storm of a financial downturn, it was imperative to identify with what has significance to stakeholders, both internal and external. According to than article from PR Newswire, “creating organizations that are invigorating and meaningful for employees, customers, and other stakeholders offers the only viable formula for long-term business success in the 21stcentury” (“Today’s Most Successful”, 2007).
Starbucks understood the need to become a responsive organization, meaning that they understood the need to understand the needs of stakeholders. Starbucks’ moved to open smaller stores and kiosks and their move to offer their products at other retailers, was evidence that a feedback system was in place. Starbucks engaged in Total Quality Management which is defined as “an integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services” (Organizational Change, 2007, p. 10).
The expectations of stakeholders became a part of Starbucks’ core belief system and as a result the needs of their stakeholders became interwoven with the goals of the company. A resource based view of the company requires that we start by looking at what the core competencies of the company are. The Pearce ; Robinson text defines core competence as “a capability or skill that a firm emphasizes and excels in doing while in pursuit of its overall mission” (p. 171). At the core of what makes Starbucks a leader in the coffee world is their uncanny knack in creating an experience and not just a great cup of coffee.
It is not merely coffee that sets Starbucks apart from their competition, but it is the experience. Starbucks has cornered the market on three key strategies. The first is they have perfected the ability to give consumers a glimpse into foreign cultures by offering coffees from countries such as Kenya, Ethiopia, Columbia, Senegal, and Peru, Starbucks offers the consumer a unique chance to experience places that they may never venture to visit. Starbucks’ Black Apron Exclusive (BAE) blends feature “exceptional gourmet coffees sourced from the best coffee growing regions of the world” (Starbucks, 2010).
Secondly, consumers get a feeling that they are connoisseurs of coffee and not merely customers. By having coffee roasted on site by baristas the consumer feels that he is more knowledgeable about coffee than his non-Starbucks drinking counterpart. In a nation where everyone is striving to outdo the next guy, this is a strategy that works. Lastly, Starbucks has been unswerving in providing a variety of coffee drinks. The Dulce de Leche and Dulce de Leche Frappuccino are perfect examples of this.
Starbucks launches a pair of confections called Dulce de Leche Latte and Dulce de Leche Frappuccino. A 16-oz. Grande latte has a robust 440 calories (about the same as two packages of M;M’s) and costs about $4. 50 in New York City—or about three times as much as McDonald’s most expensive premium coffee. Starbucks Corp. describes its latest concoctions, which took 18 months to perfect, this way: “Topped with whipped cream and a dusting of toffee sprinkles, Starbucks’ version of this traditional delicacy is a luxurious tasty treat. ” (app. -2) Starbucks has consistently given consumers something new and exciting to look forward to in the world of coffee. These three core competencies are what have become the basis for long term competitive advantage for the company. These three have become the Starbucks distinctives. The next step is to look at Starbucks tangible assets, intangible assets and organizational capabilities (p. 171). The leadership of Starbucks has been wise in their decision to travel the world to find exclusive coffee beans and then purchase exclusive rights to many of those crops.
There has also been a large move to expand Starbucks’ customer base. According to the Starbucks website, Starbucks introduced two types of mini-stores. The first was the store within a store meant for supermarkets and business lobbies (i. e. office buildings, hospitals, etc. ) and the second was the self contained portable kiosk. These two innovative ways to make operating more efficient served to improve design models, lower costs and broaden Starbucks’ customer base. Starbucks also uses equipment that competitors are reluctant to invest in. The Linea machine from La Marzocco”, which can be bought for a mere $6,500 per machine, was the espresso machine of choice for the Starbucks franchise (“Starbucks Coffee Company,” 2003). La Marzocco machines are the machines of choice for US Regional, US National, and World Barista competitions – no shabby piece of equipment. Starbucks’ largest intangible resource must indisputably be the loyal consumer. Starbucks offers the customer much more than a cup of coffee. The company offers a place to think and gather; a tastefully adorned atmosphere with comfortable chairs; and a place to imagine.
They offer a place where ‘everybody knows your name. In a blog, one customer relays this story: Three weeks ago I pulled an all-nighter. Around 5am, craving caffeine, I decided it was time for a Starbucks break. I hopped in the car and drove down the street, pulled up outside Starbucks, and noticed the sign was still dark and the lights were off inside. I thought they opened at 5am, but it was Sunday and the store was still closed. I stopped the car, went up to the door to look at the hours so I’d know when to come back, turned around to walk back to the car.
I figured the coffee would have to wait… …until the lock threw and the door flew open and one of my regular baristas noticed me, asked me how I was doing and whether I wanted something to drink. Now, get this (and pay attention Borders, Hollywood Video and other retail folks) … the store didn’t open for another hour! … but he let me in, make me an espresso drink, and didn’t charge me a penny. (He got a very big tip. ) Starbucks “gets” it. (Cage, 2010) And indeed it seems that Starbucks does “get it”. Starbucks also has as a valuable intangible resource its reputation.
According to the Pearce ; Robinson text, reputation includes not only the satisfaction of the customer but the organization’s ability to brand itself well, the known quality of the products and services offered and the company’s reputation with external stakeholders (i. e. suppliers, government agencies, financiers, etc. ). Unlike many competing companies Starbucks has chosen to build the brand one cup of coffee at a time and has shunned the more popular advertising techniques, somehow their strategy worked. Starbucks set out to be the “premier purveyor of the finest coffee in the world” (Thompson ; Strickland, n. ) and they are succeeding at that. The BAE initiative “awards US $15,000 to coffee farmers for harvesting especially unique coffees, helping fund projects that support their communities, the environment and coffee sustainability” (Starbucks, 2010). This initiative opened the door for Starbucks to interact responsibly in the global community. The sale and production of these unique specialty coffees will significantly help economies in poor countries, allowing the coffee farmers to improve their living standard by providing opportunities for education that they might not otherwise have access to.
The Starbucks reputation is solid. The last item to look at is organizational capabilities. According to the Pearce ; Robinson Text, “organizational capabilities are not specific “inputs” like tangible or intangible assets; rather, they are the skills—the ability and ways of combining assets, people, and processes—that a company uses to transform inputs into outputs” (Pearce ; Robinson, 2009, p. 171). According to the Starbucks website, each back of coffee beans is roasted in a powerful gas oven for 12 to 15 minutes.
Highly trained and experienced roasting personnel monitor the process, using both smell and hearing, to judge when the beans are perfectly done—coffee beans make a popping sound when ready. Starbucks’ standards are so exacting that roasters tested the color of the beans in a blood-cell analyzer and discarded the entire batch if the reading wasn’t on target. Clearly their roasting techniques are exclusive. The types of machines used to brew Starbucks coffee was mentioned earlier, clearly another asset that competitors do not have. And lastly, employee satisfaction.
For the 11th year in a row Starbucks was named among Fortune’s Top 100 Companies to work for. (Starbucks, 2010). According to Fortune’s website, employees cite camaraderie and access to health insurance benefits among the reasons that they consider Starbucks a great place to work. Obviously something they are doing is working. Happy employees are a major part of the formula for future success. The last step is to take the assets and capabilities that have been identified and apply the RBV guidelines in order to identify “which of those resources represent strengths or weaknesses – which resources generate core ompetencies that are sources of sustained competitive advantage” (Pearce ; Robinson, 2009, p. 173). Based upon this very elementary RBV analysis it seems that Starbucks is in a strong position to succeed and excel into the future. The company has branded itself well, made smart moves to locate in areas where they once had no following, ventured to research and develop new coffee flavors and franchise more exotic brands, they protect the company’s profits while maintaining their goal of improving the lives of coffee growers, and they have made their company name synonymous with coffee, just as Kleenex is synonymous with facial tissue.
According to a case study on Starbucks by Earnings figures from the Hoover’s Company website show that even though Starbucks suffered losses during the economic crisis, their net earnings are still within an acceptable range. Income Statement (in thousands)| | 2000| 1999| 1998| 1997| 1996| Net Revenue | $2,177,614| $1,686,828| $1,308,702| $975,389| $697,872| Net Earnings| $94,564| $101,692| $68,372| $55,211| $42,128| Compiled with information from the Hoover Company Site
It seems clear that Starbuck’s strategy to provide new and innovative products and to act as a responsible part of the global community have been instrumental in the company being able to weather the current financial storm. Their success is especially of note because of the company’s strict policy against television commercials and their limited billboard presence. Starbucks coffee is expensive, comparatively speaking. The Starbucks enthusiast, however, is willing to pay the cost for a better quality more exotic bean.
Starbucks steers clear of the more popular advertising gimmicks like television ads and coupons. The Starbucks enthusiast has served the company well because of their loyalty and their own Starbucks evangelism. Starbucks has achieved unconventional success in an unconventional way. They stand by their high quality coffee, they offer great customer service and they take the risk of expanding into new markets when the opportunity presents itself. Their reputation is firm and because they will not succumb to cheaper beans or less effective roasting methods their competitors are left to compete with each other.
Howard Schultz, Starbucks chairman, started the year 2009 by reminding internal stakeholders of his commitment to upholding the company’s core values and principles. His speech at their annual shareholders meeting clearly expressed his desire to maintain customer loyalty through continued innovation and rewards, improve and strive for excellence in their operations, and to aggressively cut costs. “The entire retail sector is operating in a very tough economic environment. While Starbucks has not been immune to the decline in consumer confidence, we are fortunate to have a world-class brand and a loyal customer base,” said Schultz. In this environment it is critical to put our feet in the shoes of our customers. ” Schultz commented further, “We generate strong cash flow, have solid liquidity and are executing rigorous cost-containment initiatives to improve our bottom line. Starbucks will continue to take actions to improve our U. S. business and take advantage of targeted growth opportunities in high potential markets. Integral to this are our efforts to elevate the Starbucks Experience and staying true to our core values.
This focus will help us emerge stronger, more efficient and better able to deliver value to our shareholders over the long term” (Starbucks, 2010). It is an indisputable fact that Starbucks is everywhere whether in the form of a local coffee shop or on the shelves of some retailer. Even when people are moving into a new area of this country they do not neglect to look for the little green circle that signifies that their favorite neighbor is around. Starbuck’s remains “the world’s #1 specialty coffee retailer”, having more than 16,000 coffee shops in 40 countries.
Starbucks is the owner of Seattle’s Best Coffee and Torrefazione Italia coffee brands. The Starbucks name is marketed in grocery stores across the nation and the name Starbucks brands many food and beverage products. “What was once a simple chain of coffeehouses has become a force of nature in the retail business” (Starbucks Corporation, 2010). Starbucks even offers ice cream – made by Nestle’s Dryers. Though slowed by the economic downturn, Starbucks still excels in the industry. When Shultz returned to the helm of Starbucks in 2008 he continued his move toward continuing innovation and a larger global market.
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