Starbucks Supply Chain Managemnt Case Solution

Company Introduction

Starbucks was opened by 3 partners named Gordon Bowker, Zev Siegel, and Jerry Baldwin in 1971. It was located at Seattle in Pike Place Market. They had their focus on selling coffee beans and equipment. Peet was a specialty retailer and roaster of coffee from whom green coffee beans were purchased in first year. Later the beans were purchased directly from the grower. Currently operating in 78 markets, Starbucks is a premier in specialty coffee in the world.

Starbucks deals in high quality coffee, tea & some other beverages. Along with this, they also serve high quality food. These products are sold through several different channels such as food service accountants, grocery and licensed stores. Goods and services of some other brands are also sold along with that of Starbucks. These include Princi, Starbucks Reserve, Ethos, La Boulange, Evolution fresh, Seattle’s best coffee, and Teavana.

Exhibit 1 shows the four regions where Starbucks is mainly operating, along with their respective revenue generation. EMEA and CAP include both licensed and company operated stores. America is the most mature segment of Starbucks having achieved significant scale. Revenues as per the stores are mentioned in Exhibit 2. As of 2018, 52% of the revenues were generated from company-operated stores while 48% revenues were generated from licensed stores. While in comparing to the total net revenue generated, 80% is accounted for company operated stores while 11% by licensed stores. Some other revenues are recorded from the channel development segment, which are generated from the sale of packaged ready to drink beverages including tea and coffee. These revenues are generated from domestic and international sales through retail stores, warehouse club and grocery stores.

Exhibit 3 shows the revenues generated with respect to the products. Starbucks is mainly generating its revenues from beverages, as that is what makes it famous. It is committed to sell fine quality coffee beverage and beans. Almost 74% of the total product revenues are generate from Beverages, in which coffee is main. 20% of the revenue is generated from the food items.

Starbucks although, is not considered as a franchise, but due to its business model (Exhibit 4) and business principles it’s considered a valuable depiction of thoughtful franchising concept. Starbucks has a superior customer care, strong product image and clever marketing which made it a multi billion dollar business. It was a vision of one man, which made Starbucks epitome of entrepreneurial spirit.

Starbucks has proved that a small business can easily conquer the world if operated on the right principles. Starting from a single store, Starbucks is now operating in 6 continents with over 15,000 company operated stores and around 14,000 licensed stores, as of sept 30 2018.

Competitive Landscape

Competitive Advantage

Company Size and Brand Identity

Since Starbucks is the largest coffee company of the world, it need no formal introduction. The first name that comes to mind when the word coffee appears is ‘Starbucks’. It has become a leading coffee chain in the world. Even in countries where it’s hard to penetrate like China, it has about 3600 stores.(Colt, 2019)

Connected customer service

Starbucks believes in providing a connected customer for a long term and satisfied relationship. Rather than just providing the coffee, Starbucks provides an experience that the customer retains, and wishes to visit again due to the emotional attachment developed. Stores of Starbucks are located at accessible locations and are designed with great ambience.  Management of Starbucks believes that employees are mainly responsible for developing positive customer experience. Therefore, several benefits such as training and health care plans are offered.

Starbucks reward card

A Reward card has been introduced by Starbucks, which offers a bunch of benefits. This attracts the customer to return to Starbucks, hence developing loyalty. It has also launched customer experience survey, which allows the customers to share their thoughts regarding their experience at Starbucks. This shows that Starbucks is committed to developing strong and long term relationship with the customer

Finest quality coffee beans

Starbucks is known to be using the finest quality of coffee beans. They often travel in search of reliable supplier who can meet their standards and provide quality beans. Starbucks have also purchased Fair Trade certified coffee and certified organic coffee. Coffee is brewed using a sophisticated Swiss made espresso machine named Mastrena. No matter in what part of the world you are, the taste of the coffee will appear to be the same everywhere.

Implementing Porter’s Generic Strategies:

Three strategies are used to achieve a healthy competitive advantage. These include Focus, Differentiation, and cost leadership.

Differentiation: This is Starbucks core strategy to achieve competitive advantage. They believe in delivering quality products and services, which are valued by the customers and considered unique. This differentiation is provided through providing quality coffee and excellent customer care. Their thoughtfully designed stores also offer an ambience that customer wants to come to, with an experienced operational staff.

Leadership: Starbucks has an honest leadership that focuses more on customer satisfaction rather than generating profits. This creates an environment that is more customer friendly and according to their needs.

Targeting Niche Market: Founders saw a considerable need for good coffee place since majority of the population was looking for authentic coffee beverage, which was naturally processed. They targeted the need of this segment and soon the word of brand’s quality spread out.

Speed of Service:

The management was aware of a segment in population that were office going. Due to this, they had no time for processing coffee or waiting for it on shops.  There had to be a place which can offer quick service coffee while maintaining their quality for the office going people. Starbucks has therefore, focused a lot on their speed of delivery. Starbucks works on reducing time involved in every step and improve the overall efficiency. Baristas are trained to improve their serving and processing speed.

Strong supply chain:

A strongly integrated supply chain system make sure that the coffee cup received by the customer is exact on time and of best quality. Their vertically integrated supply chain is highly supervised.

Starbucks Competitors

Starbucks’ Top Competitors are;

Costa Coffee

After Starbucks, this is the second largest coffee house in the world. It’s the largest in the UK though. It has expanded to 30 countries with over 3000 stores. It has 2000 stores in UK itself. An investment of moving coffee roasters to Essex that incurred the cost of approximately 40 million pounds, which increased the roasting capacity from 11,000 to 44,000 tons a year.

The company’s revenues as of 2016 were exceeding £1.167 billion with a net income of £153 million. It’s advertising through the slogan ‘coffee for every mile’, with the aim of having maximum coffee shops. Costa coffee is probably the only competitor of Starbuck that’s specializes and promotes coffee as their main product. The other brands have combination of products for marketing campaigns. (Bhasin………..


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