Starbucks

Strategic Retailing Redesign Group Project: Starbucks

 Shana Moore 

Valeria Gonzalez

Fenil Patel

Angelica Plascencia

Executive Summary 

Starbucks is a known market leader in the coffee industry and is performing well in the market experiencing a tremendous growth where today the firm has more than 30,000 retail stores that are in 78 markets that range from Andorra to Vietnam (Starbucks Corporation, 2020). Starbucks has embraced technology in collecting and exploiting information by adopting mobile apps for the promotion of the company products where the loyal customers are rewarded. The Starbucks app has special features that include providing the store location, facts about nutrition of the products and also the reward and loyalty points. In 1971 is when the franchising of Starbucks was implemented because at that point only a single store in Seattle’s Pike Place Market but later the business expanded to other states and countries. The Company had strategic planning processes from the start and in 1990 is when the company developed its mission statement that is “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.” In 1993, Starbucks proceeded to open its first roasting plant which would help cut production costs and pave the way for the first drive-thru location in 1994. 
The emergence of Covid-19 pandemic has affected the sales of the Starbucks products and this contributed to a decline in the consolidated revenue by 11% to $23.5 billion in the fiscal year of 2020 (2021 Notice of Annual Meeting of Shareholders and Proxy Statement, 2021). At the same time Starbucks also lost its market share where it decreased from 40% in 2019 to 38.4% in 2020. The effect caused by the presence of the Covid-19 pandemic showed that Starbucks needed to consider expanding their digital touchpoints as the means to increase customer engagement with the brand.  
Starbucks is facing competitive pressure that includes the threat of substitution where competitors producing similar products are present in the market satisfying the same need of the customer. The capital and investments needed to start a coffee business is low and this has made it possible to have increasing new entrants in the business that reduces the company market share. Starbucks needs to focus more in branding the firm to be more unique and creates loyalty and recognition. Branding ensures that the customers continue interacting with their usual brand and the emphasis prevents them from changing reference and loyalty (Team Pitchspot, 2020). 
The forces that Starbucks encounter include political influence where the company operates in different countries globally that includes the United Kingdom, Japan, Korea and Indonesia among others forcing the company to adjust to their political situations for success. Starbucks products are much of specialty and premier and this makes the pricing high and this is likely to restrict the low-income customer segment and those affected by Covid-19 pandemic financially. Coffee drinking culture can be developed and this is what Starbucks has been doing and has yielded much in retaining customers through branding. A strong corporate responsibility is the best branding for a firm like Starbucks to attract and retain customers. Starbucks has worked towards implementing technology in its operation like the use of artificial intelligence in obtaining and gathering data for best decision making. Starbucks also introduced the mobile order and pay that allowed its customers to order for their products through the company app (SBUX, 2016). 
Starbucks targets people of both genders that range between the middle and upper class and have the ability to afford higher specialty branded beverages on a regular basis. Starbucks should consider putting more effort on the product quality and also put it under more marketing mix and advertising. The Starbucks communication channel that is characterized by a large marketing communication helps the firm to reach more customers increasing its market share. 

Organizational Overview 
Starbucks is a very well-known leader in the coffee industry. The company has always been good at exploiting information and technological developments. For example, Starbucks has now begun to adopt a mobile app for the promotion of the products also by giving loyalty points to customers well before the competition was able to do so. With the Starbucks app it offers several different features that include where the store location is, facts about the nutrition of the product and as mentioned before rewards and loyalty programs. The Starbuck franchise came about in1971 at this time the company had only a single store in Seattle’s Pike Place Market. Today the company has more than 30,000 retail stores in 78 markets that range from Andorra to Vietnam (Starbucks Coffee Company, 2021).  
In 1982 Howard Schultz became director of retail operations and marketing. During this time Starbucks would move forward in providing coffee to fine restaurants and espresso bars. Howard Schultz persuaded the founders of Starbucks to test the idea of a coffeehouse in the downtown Seattle area, where the first “Starbucks® Caffè Latte” is served. This was the successful innovation that the company still thrives from today. After the company’s transition this gave them the ability to offer full health benefits to part-time and full-time employees in 1988. The company established its initial public offering (IPO) Starbucks went public on June 26, 1992 at a price of $17 per share and closed trading that first day at $21.50 per share (SMC 2020). The company was also the first privately owned U.S company to offer stock programs to its part-time employees.  
As the company was growing in 1990, they had established the first Starbucks mission statement “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.” At this time the company had a total of 84 stores. Today Starbucks mission statement reads “to inspire and nurture the human spirit one person, one cup and one neighborhood at a time” (Mission Statement. Starbucks Coffee Company) and also includes seven specific mission statements targeting partners, customers, stores, neighborhood, shareholders, and environmental. In 1993 Starbucks proceeded to open its first roasting plant which would help cut production costs and pave the way for the first drive-thru location in 1994. Starbucks has been persistently increasing its advertising budget for a quantity of years. The company’s advertising and marketing expenses come to around a total of 378.7 million. This among other things gives Starbucks the competitive edge that they crave. Now, in 2021 Starbucks has 32,660 stores and are continuing to grow (Starbuck Corporation Report, 2020). There are more things that have been introduced and included in the growth of the franchise.

Situation Analysis

Current Climate and Situation

Starbucks has recently seen a decline in sales due to the current climate and situation; the total consolidated revenues declined 11% to $23.5 billion in the fiscal year of 2020 (“2021 Notice of Annual Meeting of Shareholders and Proxy Statement,” 2021). Additionally, the company’s market share decreased from 40% in 2019 to 38.47% in the following year (Brown, 2019; “Starbucks Corporation (SBUX),” 2020). To mitigate the impact of COVID-19, Starbucks has begun investing in initiatives that will help the company differentiate themselves from competitors and strengthen their competitive advantage. For example, the company aims to focus on investing in digital touchpoints and smaller-format locations (Toplin, 2020, WARC, 2020). These digital touchpoints include mobile orders and the Starbucks Rewards loyalty program who both saw a rise in customer engagement and demand in 2020; almost 90% of sales volumes in the third quarter of 2020 were a combination of drive-through and mobile order-and-pay (WARC, 2020). Starbucks plans to improve and expand digital touchpoints as a means to increase customer engagement with the brand. Moreover, the company is shifting toward smaller-format locations to cater to the recent trend in customer behavior; they “will reorient some North American stores toward takeaway service [they plan] to close up to 400 US and Canadian stores — about 4% of total stores in the market — and instead reopen smaller-format locations with more emphasis on curbside pickup, walk-up counters, and drive-thru offerings” (Toplin, 2020). COVID-19 has affected the coffeehouse industry Starbucks operates in by highlighting the importance of offering contactless ordering options.
Starbucks operates in the coffeehouse specialty retail sector. The sector includes coffee shop brands such as Dunkin’ Donuts. Starbucks top competitors are McDonalds and Dunkin’ Donuts. In 2019, the retail sector reached $47.5 billion, a growth of 3.3% from the previous year of $45.4 billion (Lock, 2021). The coffeehouse industry saw a 24 percent decrease in market value (to $36 billion) during 2020 which reduced Starbucks market capitalization to $77.7 billion in early 2020 (Lock, 2021; “Starbucks Market Cap 2006-2020 | SBUX,” 2021). Although, it is important to note that the company has recently improved its market cap and is currently standing at $130.04 billion as of March 18, 2021 (“Starbucks Market Cap 2006-2020 | SBUX,” 2021). The industry has steered to provide customers with an enhanced experience while interacting with stores using technology. A primary reason for doing so is to prioritize customer health and safety due to the current climate and encourage engagement.
Starbucks competitive pressures include, but are not limited to, threat of substitution, changing buying preferences, and uncompetitive pricing. The company is facing the threat of substitution since more companies are producing similar products that satisfy the same need; the cost to enter the coffeehouse industry is not very high since the initial capital and investments needed are low. However, a main driving force for Starbucks has been its strong branding which has created customer brand loyalty and recognition. Therefore, it is important for Starbucks to continue to invest in branding efforts to ensure continued customer interaction with the brand, with an emphasis on contactless ordering due to changing buying preferences (Team Pitchspot, 2020). The shift to contactless ordering has proven to be an area that can increase the competitive advantage of Starbucks if handled well. Additionally, prices for Starbucks products are 38% higher than competitors; research from Alliance Bernstein, an asset-management and research firm, done in 2018 stated that while Starbucks sales are strong in the morning, they lose out to competitors in the evening when the customer is more price sensitive (Rapier, 2018). Thus, Starbucks must position its products so that consumers are more willing to pay more.

Environmental Forces Analysis

Political

Since Starbucks operates in various countries around the world. It is important for the company to monitor the political stability of the countries they operate in. Currently, Starbucks has stores in countries such as China, Canada, Japan, Korea, United Kingdom, Mexico, Turkey, Taiwan, Indonesia, Philippines, Thailand, and many others (Lock, 2021). The company must comply and adjust with the political situations in each country to be successful. Any political disruption may affect Starbucks business activities in any given country.

Economical

Since Starbucks has positioned its products as premier and specialty, their pricing is high. Consumers may have financial restrictions limiting their interaction and engagement with Starbucks products. For example, in 2020, the company was estimated to have lost around $3.1 billion in revenue due to the economic downturn many faced due to COVID-19 (Lucas, 2020). The main reason behind this being that many individuals were struggling financially due to being furloughed, cut hours, etc.

Social

The consumption of Starbucks products is dependent on the social conditions in which it is operating. Coffee culture is well-established in most developed countries with many individuals having more than one cup of coffee a day. The second most traded commodity is coffee; global coffee consumption is expected to grow 1.3% annually (International Coffee Organization, 2021; James, 2016). Starbucks invests in research and development when planning store locations and product offerings since each country has different views on coffee-drinking. Furthermore, Starbucks is aware of the importance of having a good brand image in gaining and retaining customers, so they have invested millions of dollars in programs aimed to help local communities (“Starbucks expands initiatives to advance opportunity, equity and inclusion in the communities it serves,” 2021). The company is building a strong brand image by highlighting its corporate responsibility.

Technology

         Starbucks has implemented new technologies in its business strategies to drive growth and sales. For example, the company uses artificial intelligence to gather data on every transaction that is made. Also, customers can receive personalized order recommendations through a learning platform in Microsoft Azur (Sokolowski, 2019) Moreover, Starbucks introduced its mobile order and pay in 2014 which allowed customers to order through the company’s app (SBUX, 2016). Starbucks aims to create a more memorable experience between its stores and customers by using technology to build brand awareness and loyalty (through ease of access, etc.).

Environmental

In 2020, Starbucks has increased environmental sustainability efforts to improve brand image. For instance, some key areas the company is focusing their environmental efforts on are: creating partnerships between environmental companies, introducing plant-based food and reusables, reducing its carbon emissions, waste output, and water impact. Starbucks has partnered with companies such as Quantis and World Wildlife Fund to measure and track progress of environmental sustainability activities. They have also spent two decades in a partnership with Conservation International working towards the achievement of sourcing 99% of coffee through Coffee and Farmer Equity practices (Warnick, 2020). Moreover, by 2030 the company aims to be environment-friendly by “expanding plant-based and environmentally friendly menu options; shifting from single-use to reusable packaging; investing in innovative agricultural, water conservation and reforestation practices; looking for ways to better manage waste (including food waste) in stores and in communities; and developing more eco-friendly operations, from stores to supply chain to manufacturing” (Warnick, 2020). Furthermore, the company plans to reduce carbon emissions and waste by 50% and conserve 50% of water currently being used for business activities by 2030 (Warnick, 2020). By increasing environmental sustainability efforts, Starbucks is improving its brand image, which impacts customer behavior, and taking steps to protect the natural resources it depends on to stay in business (coffee, sugar, etc.).

Legal

Starbucks has had past conflicts over the years in the various countries they are operating in. For example, in London they were fined by the Westminster Magistrates Court for leaving trash bags on the street past collection times (Al-Othman, 2016). The company must make sure to be aware of and adhere to the various policies and regulations of the countries they operate in since they can incur additional operating costs if rules are violated. Additionally, the company must make sure their food and beverages are in accordance with the food and health safety regulations in the countries being operated in.

Target Market Analysis 
The target audience for Starbuck is women and men in the middle to upper-class who have the ability to afford higher priced beverages on the regular. Starbucks is a retailer that focus on product and place elements of the marketing mix. As we all know the marketing mix is made up of the four P’s – product, place, price, and promotion. Companies pick to pay attention to one or two factors as their sources of competitive advantage in accordance to their business strategy (SBUX 2020). This strategy has been very successful for the Starbucks company. Over the many years this company has done very well with targeting the more high-end customers. With this current strategy it has helped the company become more profitable and continue to grow at a very rapid pace as they began to celebrate its 50th anniversary (Starbucks Stories, 2019). The company is one of the most noticeable brands in the world, I’ve seen several while traveling the world on many occasions.  The company has a multi-million-dollar budget to spend on marketing which gives them a very competitive advantage. 
Therefore, Starbucks advertising and marketing mix should focus on product issues through supplying ingredients and beverages of excessive pleasant and supplying respective stages of service. The business should use this to control the type of attraction they give off to potential customers. With the ability to attract more high-end customers Starbucks competitive benefit in a way that stores are typically placed at high-traffic, high-visibility locations. Starbucks or also known as the world’s greatest coffee retailer, by looking to target men and women from upper and also middle-class customers who have the ability to pay for a highly priced Starbuck product/s for ordinary consumption. While manufacturer awareness with shoppers requires consistency and repetition, companies like Starbucks has to understand that is it vital to keeping you brand known and having a stand-alone voice for itself. If your brand continues to be the topic of discussion it is very likely that the impact of the brand voice is strong. It is my suggestion that using different types of the marketing mix methods such as, mono-segment, standby and also adaptive product positioning methods will give them the enchantment to the wants and wishes of the target group. Starbucks advertising communications mix uses a large range of marketing communications channels. Some of them are things like print and media advertising, income promotions, public members and direct advertising in a built-in manner to communicate the advertising message to the goal customer (Bergstrom 2018). Starbucks has been persistently increasing its advertising budget for a quantity of years. Another very important channel of marketing for Starbucks would be social media. In the current climate that we are in today social media rules the advertising market. Today’s generation uses it as not only a means of communication but also as a search engine in a way. Hashtags are often used when shopping and looking for the next best thing. This is a tool that I believe will benefit the company using all of its social media outlets.

Retailing Strategy

Competitive Advantages and Marketing Positioning

Starbucks competitive advantages include: excellent customer service, sustainable sourcing and production, product innovation, and vertical integration chain. The company offers excellent customer service through its employee training and customer feedback system. Additionally, they have implemented sustainable sourcing and production initiatives through the use of technology (ie: mobile app, etc.) that have helped streamline business processes such as market observation and new product development. The company has been successful through flexibility and product innovation. For example, based on the season, Starbucks introduces new drinks such as the pumpkin spice latte. In comparison to competitors, the company’s vertical integration chain has allowed the business to maintain a large market share (10.1%) since it has allowed them to manage their own supply chain (Kader, 2020). On the other hand, it is recommended the company focus more efforts on creating an experiential online space for customers. Through online personalization, the company can increase the amount of customers reached and encourage customer-store interactions. 
Furthermore, the market positioning of the company is to deliver quality coffee, a great customer experience, and offer innovative products. They have positioned themselves as a seller of premium coffee (made with 100% Arabica beans) with an emphasis on creating a memorable experience when customers interact with their store. Through research and development efforts, the company has been able to introduce new innovative product offerings that have become a staple of the business such as the pumpkin spice latte (Khan, Yusop, Baharudin, 2018). It is recommended that the company revamp how it delivers a great customer experience and introduces new products. For example, to increase customer interaction with the store, the company can hold events aimed at promoting its operational goals (ie: being environment-friendly, providing premium coffee, etc.) and hosting activities for customers to be a part of the business (ex: competitions to create a new Starbucks drink). 

Consumer Value Proposition

The consumer value proposition for Starbucks is creating a great customer experience. They have found success in developing a home away from home through the format and layout of their stores. Customers can visit any Starbucks store and experience their coffee in a comfortable, friendly setting. Additionally, the company has created a strong brand recognition and has built a loyal customer base. The brand’s logo, the siren, is a recognizable symbol of the company; customers can easily recognize the logo and the company associated with it. Moreover, through its loyalty rewards program and consistent quality of coffee, the company has strengthened the loyalty of their customer base (Kader, 2020). Starbucks should focus on the source of their coffee beans and make sure it aligns with its operational values. For example, the coffee beans should be ethically sourced and its farmers should be properly compensated. Additionally, they should increase efforts to recognize their suppliers as a means to strengthen their supply chain relationships and increase supply chain transparency with its customers. 

Merchandise Assortment Planning

The current merchandise assortment planning of Starbucks was developed with the customer experience in mind. The merchandise sold by Starbucks was developed through customer analytics and evaluating current market trends. For example, the company began selling its most popular coffee grounds in bags when the market trend indicated the customers’ desire to make coffee at-home (Favaro, Romberger, Meer, 2009). It is recommended the company increase efforts to evaluate and analyze customer trends to figure out what products are most wanted from customers and respond accordingly. Additionally, they should invest in assortment planning analytics to identify emerging trends in order to get ahead of their competitors and be able to capitalize on them beforehand. 

Pricing Strategy

The average cup of Starbucks coffee a customer pays is $3.15 while the average across all coffee selling stores is $2.99 (Goodwin, 2020; Settembre, 2019). It is recommended that the company look for ways to reduce the price. Since they aim to sell premium coffee, the cost of coffee beans cannot be changed and/or improved. Therefore, the company must focus on reducing business costs in other areas such as cups and syrups. As a result, customers of different demographics will be more likely to purchase coffee at Starbucks since the price would be lower. 

Location Strategy

Starbucks is known for strategic clustering of their stores in the same geographic location. For example, a Starbucks store could be located on each corner of the same street. The company has implemented this location strategy in order to deter customers from purchasing from their competitors. Since Starbucks stores are easily accessible, customers are more likely to buy coffee from the company. Additionally, Starbucks stores are generally located in urban centers or densely populated/trafficked areas (Gregory, 2017). It is recommended that Starbucks keep implement the location strategy of strategic clustering with the addition of opening stores in rural areas. By opening stores in lessly populated areas, Starbucks will gain the patronship of the residents since they will be one of the few coffee sellers in the area. Although, they will not reach a wider customer pool, since they will not be located in a densely populated area, they would gain the constant interaction of the residents with the store. 

Customer Profile, Segmentation Strategy, and Customer Satisfaction Requirements

The customer profile of Starbucks is generally individuals that meet either one or more of the following: high income or high spenders, urban, between the ages of 22-60, in the workforce, and socially-conscious (Bean-Millinger, 2019). To reach more potential customers, it is recommended Starbucks complete an evaluation of the age groups or demographics that least interact with the company and develop strategies to increase engagement. Furthermore, the company’s segmentation strategy is divided into four major areas: geographic (region and density), demographic (age, gender, lifecycle stage, and occupation), behavioral (degree of loyalty, benefits sought, personality and user status), and psychographic (social class and lifestyle) (Dudovskiy, 2017). It is recommended that the company segment the market based on the social groups that pose the largest potential of revenue and increase efforts to gain their partisanship. Additionally, based on the different demographics of individuals that purchase Starbucks products, the company can develop and introduce products that are tailored to certain demographics (ie: younger generations like Gen Z prefer iced drinks in comparison to hot drinks, etc.). The customer satisfaction requirements for Starbucks are the following: great quality, diverse/customizable product offerings, and excellent customer service. To further differentiate themselves from their competitors, it is recommended that Starbucks invest in introducing new ways customers can customize the drinks being offered (through the introduction or creation of new syrups or sweeteners). For example, the company can create a new syrup flavor such as cotton candy flavored syrup. 

Retail Customer Communications Strategy

Starbucks has a retail customer communications strategy utilizing customization, social media platforms, and various environmental efforts aimed at promoting sustainability. Currently, customers have placed an emphasis on corporate responsibility. Therefore, it is recommended that Starbucks incorporate the customers expectations into their operations such as being environment-friendly and giving back to the community. This will strengthen and improve their current brand image which will then impact customer loyalty and engagement with the brand and its affiliated products. 

Store Format or Management Required Change(s)

Starbucks has mostly focused on offline space efforts to deliver their products. With today’s environment (ex: COVID-19, etc.), it is important Starbucks begins to invest in growing their online presence. One way they can do so is by personalizing drink suggestions to the user when they visit the company’s website or mobile app when they begin an order. By doing so, they are showing that they care for the buyer and aim to create a more interactive experience for them. The company would reach a wider audience by expanding and improving their current online presences since more individuals use the internet than buy-online. They have access to a wide array of new technology such as virtual reality to utilize and capitalize on the benefits it can bring in promoting their products. 

Expected Financial Results

By implementing the suggestions listed above, Starbucks can gain new customers and strengthen their current customer base. As a result, a rise in store sales is expected. With a continued emphasis on creating great customer experience through the improvement of current operational processes, Starbucks can expect an increase in the number of customers interacting with their brand and strengthen their current relationship with recurring customers. It will take time for the initial investment in these improvements to be recovered.

Brand Extension Strategy

Starbucks offers a variety of products such as hot drinks, hot coffees, cold drinks, bakery items, and lunch items. The drinks the company offered are customizable depending on the individual purchasing the drink. Thus, a new product Starbucks can offer on a national level is a celebrity-inspired drink. Similar to how McDonalds offered the Travis Scott meal, Starbucks can contract a celebrity to create a drink and pair it with a lunch or bakery item (the lunch or bakery item can be a …