Starbucks is the premier global coffeehouse chain that is based in Seattle, Washington. Starbucks offers a wide variety of both hot and cold beverages. The main products from the corporation include full-leaf teas, microground instant coffee, whole-bean coffee, snacks and pastries. In addition, the stores sell packaged food and other items such as tumblers and mugs. The corporation was established in 1971 as a coffee bean roaster in Seattle (Bussing-Burks 19). However, over the years the company has evolved to increase its products and stores worldwide. It has become the best coffeehouse company globally with over 20000 stores based in 62 countries (Woolf 41). Competition and other legal, social and economic factors are the major issues affecting the industry.
The initial Starbucks store opened its doors to customers on March 30, 1971 in Seattle, Washington (Bussing-Burks 21). Jerry Baldwin, Zev Siegel and Gordon Bowker were the founders of the coffeehouse chain. They were academicians who had met at the University of San Francisco as students. Alfred Peet, a roasting entrepreneur inspired and taught the three his unique style of coffee bean roasting. Freshly brewed coffee was not offered by the cup, but samples for tasting were made available. Baldwin and Bowker worked part-time at the shop while Siegel operated the store full time. Their store became an immediate success after it was highlighted by the Seattle Times. Initially, coffee beans were ordered from Alfred Peet, but they later bought a roaster. They set up roasting operations at a nearby building and developed vast flavors and blends.
Four stores had been established by the 1980s within Seattle and profit levels increased rapidly (Woolf 41). Jerry Baldwin replaced Siegel in the management of daily operations after he left. Gordon Bowker maintained ownership of the company but was mainly devoted to his design firm. Howard Schultz, who was the Vice President of operations in the U.S for a Swedish coffee maker and kitchen equipment company, was impressed by the growth of Starbucks. He was interested in joining the company and after a long period of consultation, he was made head of marketing and management of the retail stores. However, he left Starbucks in 1985 to establish Il Giomale coffee bar, which became successful. Gordon Bowker and Jerry Baldwin sold their Starbucks chain of stores to Schultz. The Il Giomale stores were renamed Starbucks and mass expansion began under Schulz.
In 1987, Starbucks expanded to other regions outside Seattle as part of its expansion strategy. British Colombia, Waterfront Station in Vancouver and Chicago were the major areas that experienced expansion in the same year. Starbucks joined the mail-order catalogue business and introduced stores in California in 1991. Stores were also increased at licensed stores in various airports across the United States. By 1992, the corporation had established 165 outlets across America according to Woolf (42). The American coffeehouse market had experienced growth since the stores were established in 1971. In 1992, Starbucks undertook an initial public offering on the stock market. The company sold 12% of shares to accrue over $25 million (Bussing-Burks 66). These funds were set for expansion purposes over the subsequent years.
Starbucks began expansion outside America initially in Canada. However, the company established stores outside North America with Asian prospects. The first store location was based in Tokyo, Japan in 1996. It entered the UK market with the acquisition of the Seattle Coffee Company based in the UK. Starbucks re-branded the 65 outlets to coffeehouses across Britain (Bussing-Burks 83). The company joined the Latin American market in September 2002 at Mexico City and Lima, Peru in 2003. Starbucks also acquired restaurant chain Circadia in California, which were converted to coffee cafes. The company created a company for trading coffee in Lausanne, Switzerland designed to manage purchases of green coffee. However, other businesses for coffee products would be managed at Seattle.
Bussing-Burks states that Starbucks added 150 more stores with the acquisition of Torrefazione Italia and Seattle’s Best Coffee in 2003 (79). The company also increased stores in Oregon after acquiring stores from competitor Diedrich Coffee in 2006. Starbucks also bought Teavana in 2012. Starbucks has established a partnership with Galeries Lafayette for the French market. Strategic partnerships have also been instituted with Green Mountain Coffee Roasters. Market expansion has also been undertaken in China, Russia, Vietnam, Malaysia, Amsterdam, Scandinavia, Middle East and Africa. The expansion of coffeehouse chains has increased the regional and global presence of Starbucks to serve over 20 million consumers weekly (Woolf 41).
Starbucks products have evolved since the introduction of espresso coffee. Products have increased because of social and geographical changes. Increase in health awareness and fitness has led to the development of new brands. Cafes provide sugar-free and lower-calorie coffee that use skim milk. Natural sweeteners are also options to artificial sweeteners. Sweetening products are also designed and produced by the organization such as sugar-free syrup flavors. The menu has changed with the introduction of baked goods and salads. Instant coffee packets referred to “Ready Brew” VIA have flavors such as Colombia and Italian. Wine and beer are sold at some stores in the United States and Canada.
Starbucks has also introduced the Verismo, a coffee machine for single-serve consumer grade coffee in 2012. According to Woolf, the stores also sell yogurt and other milk products. It also announced a 31-ounce cup size called the Trenta as the largest cup size for the stores (42). Evolution Fresh, a juice company, was bought in 2011 to introduce a juice bar chain. The first store was released, in San Bernardino and other stores in San Francisco will be added. Iced fruit flavored Starbucks Refresher drinks containing coffee beans for green Arabica were introduced in 2012. Calorie counts for drinks and pastries are indicated in the menus across U.S stores. More products and brands are set increase for the coffee house chain.
External Industry Analysis
Political, economic, social, technological, environmental and legal factors influence the coffeehouse industry. Globalization has increased interactions among states. Business trends have changed as they differ among states. Market expansion by key players has been undertaken in the coffee industry. Coffee production is also influenced by the laws and regulation of host governments. However, challenges arise with the laws, tax rates and legislation that are distinct for states. Acquisition of business licenses becomes highly difficult for multinationals because of unique local markets. Advanced technology and mass communication have enhanced advertising, products, design, services and organizational structure. Online purchasing has also increased sales in the industry.
The global economic crisis affected states in the developed world and the effects spilled to other countries. Debt crisis in the Eurozone also affected global coffee prices. People are forced to reduce cost as employment and income levels decline. Individuals opt for cheaper products as price becomes the priority. High coffee prices and products have declined in demand while low priced products increase in demands. However, the growth of emerging markets in Asia, Latina America and Africa with the rising middle class provides opportunities for expansion. Social mobility to middle class increases the demand for high-end products. Cultural diversity in Asia, China and Africa, where tea is a major beverage, reduces demand for coffee.
There is a high risk of entry of new competitors in the industry as the start up cost is relatively lower. Companies such as McDonalds have added specialty coffee McCafe in their products to compete with Starbucks. Potential for development of substitutes is also high. Some companies have introduced bottled and canned coffees that are cheap and timesaving. This threatens the sale of coffee served at Starbucks. Collective bargaining power of suppliers is high as they increased coffee bean prices. Mutual agreements between suppliers and Starbucks should be established. The main competitors for Starbucks are specialty coffee cafes, restaurants, cafes, supermarkets and doughnut shops. Competition is intense as they offer cheaper products compared to Starbucks. Consumers do not have a bargaining power with respect to premium coffee. This reduces bargaining power for buyers at Starbucks.
The emergence of new markets has increased investment in regions such as Brazil and China. Technological advancement has led to the introduction of automated systems. These machines have touch screens that allow customers to choose over 280 drink combinations (Woolf 42). Facilities have also improved as stores provide free Wi-Fi internet access to customers. Partnerships have also been established for distinct players in other sectors. Starbucks collaborates with Apple to sell music and Apps on its stores. Court cases have also been issued by Starbucks on trademark infringement. Global environmental degradation has set the agenda for the corporate responsibility programs. Environment friendly activities include recycling, provision of leftover grounds for coffee compositing, reduction in paper napkins and water-saving solutions.
Starbucks has grown from a small regional coffee roaster and coffee beans retailer to an internationally recognized corporation. The company has maintained a competitive advantage in the industry because it focuses on quality. However, the creation of an innovative value chain is essential to counter competition from McDonalds and other competitors. In addition, it must increase the scope of advertising for market expansion. Starbucks’ core competencies of brand name and bistro style remain unmatched in the industry.
Bussing-Burks, Marie. Starbucks. Santa Barbara, California: Greenwood Press, 2009. Print.
Woolf, Emile. “The Case for Google and Starbucks.” Accountancy. (2013): 42-43. Print.