Starbucks Development and there Strategy

D Company DHIRU PRASHANT SAH Strategic Analysis of Starbucks
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Worked Together By: D Company
STUDY OF STARBUCKS
Introduction
Agriculture is the largest and broadest sector in Nepal. Almost 60% of Nepalese are engaged in
agriculture sector as the source of income, employment and food and most importantly for their
livelihood. The fact regardless of the growth in agriculture is in slower pace than other business
sector which contributes the less GDP'S. Nepal's unique feature on the basis of agriculture has
added the plus point for cultivation. Moreover in the case of coffee production the proper
identification of value chain within the sector is imperative .Since the production of coffee are
the best source of income generation for most of the livelihoods.
In case of Nepal, this produces the Arabica Coffee on the elevation of 800 to 1600 meters.
According to the source 91% of the coffees which are produced are organic while 9% are doing
farming through firm.
Purpose of the study:
The main objective of the study is to find the possible opportunities and capabilities on the basis
of Nepalese Coffee Industry. The specific objectives of the study are:
1. To identify the consumption pattern and the rate of import and export of coffee in
domestic market and Starbucks Coffee.
2. Promotion of the Nepalese coffee industry.
3. To find out satisfaction level of coffee in Nepalese's market in comparison to Starbucks.
4. To analyze the growth rate of coffee in area and production.
5. To identify and capture possible intervention points in different levels of Nepalese coffee
Scope of the study
Nepal is best known for the coffee production at altitudes of 800 to 1600 meters. The hills in the
hilly area favor the best soil and the kind of moisture for coffee production. Moreover in the case
of Starbucks, it generates the main sources of coffee as Arabica coffee from three key growing
regions, Latin America, Africa, and Asia-Pacific the Asia-Pacific region. Hence the study had
shown common factor and constraints throughout the coffee sector internally and externally. As

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Starbucks coffee is famous in the European market but also it fails in different country so,
finding difficulties to establish in Nepalese market.
Background
The first Starbucks opened in Seattle, Washington, on March 31, 1971, by three partners who
met while they were students at the University of San Francisco: English teacher Jerry Baldwin,
history teacher Zev Siegl, and writer Gordon Bowker were inspired to sell high-quality coffee
beans and equipment by coffee roasting entrepreneur Alfred Peet after he taught them his style of
roasting beans. The company took the name of the chief mate in the book Moby-Dick: Starbuck,
after considering "Cargo House" and "Pequod". Bowker recalls that Terry Heckler, with whom
Bowker owned an advertising agency, thought words beginning with "st" were powerful. The
founders brainstormed a list of words beginning with "st". Someone pulled out an old mining
map of the Cascade Range and saw a mining town named "Starbo", which immediately put
Bowker in mind of the character "Starbuck". Bowker said, "Moby-Dick didn't have anything to
do with Starbucks directly; it was only coincidental that the sound seemed to make sense."
(starbucks)
In 1982, Howard Schultz, the now celebrated CEO of Starbucks, joined as director of retail
operations and marketing. Two years later, Mr. Schultz convinced the founders of Starbucks to
test the coffeehouse concepts in their downtown Seattle store, where the first Starbucks® Caffe
Latte was served.
Again in 1987, Howard Schultz led a group of investors that purchased Starbucks from its'
founders. Since then, Starbucks has become the premier roaster and specialty coffee retailer in
the world. Currently, there are 18,000 stores in 62 countries.
Internal Analysis of Starbucks: VRIO Model for StarbucksV (Value):
Strong Brand Image- Yes, Starbucks has changed the way the world thinks about coffee through
its effective branding. Its drivers for success are social responsibility and ethics, high quality

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coffee and customer engagement.
Product Quality- Yes, the firm is known for its high quality goods and wide variety of signature
drinks.
Customer Service- Yes, Starbucks offers outstanding customer service.
Supply Chain- Yes, the firm is able to source the best cocoa worldwide and sustain good quality
with its impressive supply chain.
Friendly Environment- Yes, Starbucks is known for creating the "third place" concept between
work and home. It provides an appealing ambiance and community environment which adds
value to the customer experience.
Global Impact- Yes, Starbucks has over 24,000 throughout the world which strengthens the its
global reach and impact.
R (Rarity): Strong Brand Image- No, majority of companies have this, but Starbucks is at the
top of the game with its brand image.
Product Quality- Yes, Starbucks offers a variety of unique beverages and has made large
investment in this area.
Customer Service- No. While customer service is very common in many businesses, special
focus and investment is required in order for competitors to gain an edge.
Supply Chain- Yes, Starbucks has a greater advantage as it would be very challenging for
competitors to measure up with the firm's high investment and effective strategy.
Friendly Environment- Yes. While other firms can create environments, special focus is required
as well as investment in store interior and staff training.
Global Impact- Yes, Starbucks has made great financial investments toward its market entry
strategies, and it would be very tough for competitors to achieve this amount of global
expansion.
I (Imitability):
Strong Brand Image- No, it would be challenging to imitate, but there is a chance of it happening
in the future.
Product Quality- Not really easy to imitate due to price positioning and operations.
Customer Service- Not really easy to imitate.

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Supply Chain- Not really easy to imitate but could happen in the future.
Friendly Environment- Not really easy to imitate.
Global Impact- Not really easy to imitate due to heavy investment.
O (Organization):
Strong Brand Image- Yes, branding is a pivotal element of the firm's strategy.
Product Quality- Yes, the firm's speciality beverages are very popular and of high demand by
customers.
Customer Service- Yes, its exceptional customer service plays a key role in its success.
Supply Chain- Yes, 99% of Starbucks' coffee is sourced ethically. The firm's
Friendly Environment- Yes, it gives Starbucks a marketing advantage.
Global Impact- Yes, it allows the company to increase revenue and increase brand awareness
worldwide.

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Value Chain of Starbucks
Inbound Logistics
It involves the relationship between the suppliers and include all the activities required to
receive, store, distribute products.
Company agents choosing the coffee beans developing mutual relationship with them,
maintaining the standard quality and develop supply chain. Storage of the products and
maintenance of the inventory are also crucial.
Example: How Starbucks selects and sources high-quality coffee beans.
Operations
Processes for turning the raw materials coffee beans into the final product or service coffee
powder. It include Machinery, packaging, assembly, equipment maintenance, testing , printing
etc.
Starbucks operates in more than 80 markets, either in the form of direct company-owned stores
or licensed stores. (Starbucks does not follow the traditional franchising terms.) The company
has more than 32,000 stores globally. It is also the owner of several brands, including Teavana,
Seattle’s Best Coffee, and Evolution Fresh.
Outbound Logistics
Include all the activities that are required to collect, store, distribute including finished goods,
warehousing, material handling, order processing and scheduling etc. Since the majority of the
products are sold in stores. However, storage and distribution to retail locations is important.
Example: Logistics involved with transporting Starbucks coffee beans (the whole bean product)
to Starbucks stores across the country.

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(starbucks)
Marketing and Sales
Advertising, promotional campaigns, pricing plans and product tiers are all part of this which
Is relevance on word of mouth? It invests more in superior quality products and a high level of
customer service than in aggressive marketing. However, need-based marketing activities are
carried out by the company during new product launches in the form of sampling in areas around
the stores.
Example: Starbucks’ brand image, and the reputation they have cultivated as a premium coffee
product and “second-home” shared space
Service
All the activities are required to keep the products and services work effectively for the buyers. It
may include installation, repair, training, product adjustment. Starbucks aims at building
customer loyalty through its in-store customer service.
Include loyalty card, free wifi, family treatment, personal relation.
Example: Starbucks is known for its high-quality and personalized customer service experience
(i.e. writing your name on the cup)

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External Environment Analysis
(coffee market study)
Various internal and external factors can affect the functioning of a business or the value of the
brand. PESTLE is a management framework used to analyses the external factors affecting
projects, brands or businesses. Each factors for studying Starbucks are explained as follows:
Political: This refers to the government tax policies, regulations and business regulation policies.
Starbucks need to adhere to sourcing strategies and focus on fair trade practices when sourcing
raw materials. They must follow all laws and regulations in the countries they operate. Starbucks
has been criticized for oblique tax payment.
Economic: Economic factors impacts on Starbucks like exchange rate, currency, rate of interest,
etc. Starbucks faces rising labor and operational costs, varying economic environments in
different markets and varying taxation levels.
Social: Starbucks faces consumer preferences that are constantly changing as well as changing
values, work patterns and lifestyle and population demographics. If target market is ethnic
group’s changes can affect the business.
Technology: Rapid technological progress and innovation. Starbucks using latest technologies to
achieve greater customer satisfaction. It started capturing the online market through app and Wi-
Fi facilities on its local stores. Improvement in production technologies helps in more efficient
production of raw materials.
Legal: This factors encloses laws relating to wages and employment. Employment taxation
changes, working practices regulations are also some factors effecting star bucks business.
Environmental or Ethical: Starbucks need to follow environmental protection regulations, CSR
polices. It should act in consideration that it do any harm towards the environment.
Prospects of coffee industry in Nepal (khabarhub)
Agriculture is regarded as the largest and broadest sector in Nepal. Coffee is one of the top
traded agriculture commodities of the world. As an indication of growing coffee culture in
Nepal, coffee production has increased in the recent years. According to National Tea and Coffee
Development Board, around 600 tons of coffee is consumed in Nepal every year, of which

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around 500 tons is domestically produced. Nepali coffee sector gained special attention from
domestic and international markets after private sector involvement in processing, marketing,
trading and exporting increased significantly after 2000s. In order to promote research and
extension for increasing the production of fresh cherry, Government of Nepal established Coffee
Research Program in Gulmi in 2013. Currently, coffee production in Nepal has been extended to
41 districts occupying 2,600 hectares of land that directly involves approximately 32,500
farmers. Kavre, Panchthar, Sindhupalchowk, Lalitpur, Nuwakot, Lamjung, Gulmi, Syangja,
Kaksi, Palpa and Arghakhachi are top coffee producing districts, occupying 65% of total
plantation area and 67% of total production.
In spite of the wide coverage in terms of the districts, coffee production in Nepal is not
promising yet. According to the statistics received from the department, Nepal managed to
export coffee worth 99.63 million last year. Nepal exported readymade coffee worth Rs 4.46
million whereas the Rs 95.48 million was earned by exporting coffee seeds. Thus, though Nepal
has a better chance of earning big through coffee export, the production is far below the local
consumption. Some possible reason are as follows:
 Lack of technical knowledge and technical manpower
 Scarcity of modern equipment and quality medicine
 Lack of proper training for business promotion
 Lack of enough field visits
 Farmer’s inaccessibility to the good market
Strategic formulation of starbucks
Today, starbucks is known as the largest coffeehouse company in the world, connecting with
millions of customers everyday with exceptional products and nearly 18000 retail stores in 60
countries and is ranked 308 amongst the Fortune 500 companies.
The subsequent part of this report will discuss in detail regarding the hierarchy of strategic
formulation process to enter Nepal by means of three leading strategic models which are
institution based theory, Porter’s industry based model and resource based approach.
Analysis

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Strategy formulation comprises the planning and decision making which leads to the
establishment of the company’s goals and the development of a strategic plan (Hodgetts-
Luthans, 2005). These includes identifying external opportunities and threats into their long term
objectives and therefore, generate, evaluate and select the strategies that best fit strategically for
the company.
TOWS Analysis (Matrix) of Starbucks
Strengths
• Starbucks has a strong brand presence, which is leading as a global organization with more
than 16,000 retail stores in 48 countries across the entire world.
• Best known for its high quality and services.
• Strong brand loyalty.
• It provides an atmosphere of sophistication, calmness and style that represents its own
functional and emotional benefits to consumers.
Weaknesses
• Starbucks generates 85% of revenues from US, its domestic market. Being known as an
international brand, the organization needs to obtain some revenues from outside the US
market.
• Starbucks relies more greatly on creating innovation in beverages, at the time of economy
slowdown it will be risky for the company as to how long they will be able to sustain.
• Starbucks faces some difficulties internationally, as one of its market expansion failed
miserably like Japan so this affects the international growth of the company.
Opportunities
• Starbucks has a strong market share of about 40%, this is beneficial for the company to
expand ahead globally specifically as a coffee market.

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• Starbucks has gone for market extension in beverage category by introducing Starbucks
coffee liquor drink linked with Jim Beams brand.
• Currently, Starbucks is operating 15,000 international and expects to expand further in
countries like Russia, China which will further increase its revenue growth.
• Technological advancement can help Starbucks improve its services.
(Panmore)
Threats
Starbucks SWOT Analysis
Strength
 Strong brand image
 Strong financial
performance
 Growth in stores
 Extensive
international supply
chain
 Moderate
diversification
Threat
 Competition with low-
cost coffee sellers
 Competition with big
outlets
 Imitation
 Independent
coffeehouse
movements
 Controversy on
California warning
Opportunities
 Expansion in
developing markets
 Business diversification
and Products
 Specifications Introduci
ng new products
 Partnerships or
alliances with other
firms
Weakness
 High prices
 Imitability of products
 Generalized standards
for most products
 European Tax avoidance
 Procurement Practices
 Recall of Products

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• The political, economic and weather conditions in some countries outside the domestic
market like India can adversely affect the business.
• The rise in dairy prices can be a threat to Starbucks as milk and dairy products usually get 3%
or 5% of sales and its consistently increase in prices could affect the company’s operations.
• Starbucks must be careful of the emerging competition especially in the domestic market, any
major competitor can hit the market, therefore Starbucks must be competitive on all levels to
retain its position as the world’s leading coffee retailer.
Proctor five focus model of STARBUCKS:
Porter’s Five Forces model is a simple and yet effective tool used for analyzing the level of
competition in an industry. It helps to analyze how the business itself is positioned relative to its
competition and its competitive strength. The tool was named after Michael E Porter who
developed it. It is used to analyse five important forces that shape competition in the business
world. Especially, this analysis becomes highly relevant in the global environment and in the
case of large firms. Following is an analysis of the five forces that influence the competitive
position of Starbucks in the industry: (wikipedia)

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Threat of New Entrants
 High economies of Scale
 Brand Awareness
 No Special Knowledge needed
 Low Investment
Porter’s five focus Model of Starbucks
Rivalry among
Existing Competitors
 More Competitors
 Mature Market
 Similar Products,
High Quality Food
 High competitively
Future with coffee
Bargaining
Power of Suppliers
 Moderate size of
individual suppliers
 High variety of
suppliers
 Large overall supply
Threat of Substitutes
 High substitute availability
 Low switching costs
 High affordability of substitute
products
Bargaining Power of
Buyers
 Low switching
costs
 High substitute
availability
 Small size of
individual buyers

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Conclusion
Starbucks is one of the famous coffee industries which are established with the ides of few
friends. It has grown in different place with their brand name. Though it is famous in the
American society, it has to suffer lot to establish in other country. The different strategy is
needed to needed to be set before establishing in the new society. It has also got failure in
different country due to proper research and strategy.
The taste, Preference, Quality etc. should be proper identified by any company before
establishing the company for the further growth. Starbucks expanded their branches in new
location without the market strategy due to which it has to suffer huge loss for the failure. The
proper identification of the customer, their taste, Preference etc. should be properly studied
before opening their outlet in other country or in other location.
Works Cited
coffee market study. (n.d.). Retrieved 2020, from www.gninepal.org: http://gninepal.org/wp-
content/uploads/2018/10/Coffee-Market-Study-Report-2018.pdf
khabarhub. (n.d.). Retrieved 2020, from english.kabarhub.com: https://english.khabarhub.com/
Panmore. (n.d.). Retrieved 2020, from www.panmore.com: http://panmore.com/
starbucks. (n.d.). Retrieved 06 10, 2020, from www.starbucks.com: https://www.starbucks.com/
wikipedia. (n.d.). Retrieved 2020, from en.wikipedia.com: https://en.wikipedia.org/wiki/Starbucks

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