Reference no: EM132736808

CASE STUDY

Starbucks Corporation is known to be the largest coffeehouse organization globally. The company is an American international coffeehouse chain and coffee company having more than 20,891 stores in approximately 62 countries. Its largest store chains are in United States with 13,279, second largest in Canada with 1,324. Moreover, it has 989, 851 and 806 stores chains in Japan, China and United Kingdom respectively.

The primary business of Starbucks is the coffee that is sold in morning hours which is the peak time when drinking coffee is most popular. For many years, Starbucks has struggled attract customers to its stores to consume its products. Beverages including coffee mainly accounts for Starbuck's overall sales; whereas food items contribute to 19% of its sales as of 2013 (Strom, 2013). Therefore, Starbucks aims to expand its business without affecting its core product i.e., coffee business. Although the company is engaged in the expansion of its business since inception, but more diversification is required to gain competitive advantage. Thus, the company sells coffee and related products i.e., cold and hot beverages, micro-ground instantaneous coffee, whole-bean coffee and full-leaf teas on one side, but diversifies its business portfolio by increasing the range and variety of food items that compliment their coffee. These complementary product includes snacks, pastries, cold and hot sandwiches, food items that are pre-packaged, breakfast options, wraps and nutrition food menu. The company's evenings locations now offer a variety of wines, beers and appetizers. Some of the products of the company are also specific or seasonal. The coffee and ice cream of Starbucks are offered at grocery stores. Thus as a result of sharing and bundling these activities, the Starbucks Corporation has increased the revenues as it exploits their positive and strong reputation.

Starbucks has diversified its business in the last two years by acquiring three businesses i.e., Teavana, La Boulange Café and Bakers, and Evolution Fresh juices at a cost of $750 million. This diversification lies within the context of the business without affecting its core business. The savory and sweet pastries of La Boulange Café are offered to its customers in pink paper that are sold through the 10,000 stores in US. Besides this, Teavana will start its tearoom operations at Starbucks coffee house with an aim to create a new way of drinking tea that it did for coffee. However, the company has introduced Evolution Fresh juice throughout the country in Stop-and-Shop stores and whole Foods stores. In addition, there is also Lucite levers placed on the store wall that will permit consumers to blend their own favorite juices to go with salads, soups and sandwiches which is specially introduced for health-conscious customers.

The main propose of diversifying product range for Starbucks Corporation is to gain competitive advantage. Thus, the company has diversified its product range by creating strategic alliances with the best selling confectionary, tea and juices companies which has enabled the company to attract a large number of customers as the customers that were previously visiting stores of Teavana, La Boulange Café and Bakers, and Evolution Fresh juices will now visit Starbucks stores as the products of these are complimentary and alternatives to its products. Adoption of this strategy will also benefit to limit its competition with alternative beverage companies. Moreover, the company could now have a wide range of products for all seasons. Furthermore, this diversification has helped the Starbucks Corporation to reduce its cost and expenses of the value chain thereby creating value to the company. However, it is important for the Starbucks to maintain a strong relationship with all these companies as it is a win-win situation for Teavana, La Boulange Café and Bakers, Evolution Fresh juices and Starbucks Corporation. After the success of this extension in product line, the company plans to expand in new markets particularly in major markets of its operations.

With respect to coffee war with Dunkin Donuts, Starbucks in their annual report has not mentioned Dunkin Donuts as its competitor as the company has left far behind with respect to sales, number of stores and market value. As of 2011, the sales of Starbucks were 10.7 billion as compared to $6 billion of Dunkin Donuts. Moreover, the market value of Starbucks stood at $30 billion whereas $2.4 billion of Dunkin Donuts. Similarly, Starbucks owns more than 17,000 store where as Dunkin Donuts have 9,805 stores (Ovide, 2011).

In contrast, McDonalds seems to be the greatest competitor of Starbucks Corporation as the rivalry between both has tended to be increased with the passage of time. Both the two are expanding its product line in the opposite direction i.e., McDonalds in coffee products and Starbucks in food items, without affecting their core products. According to an article by Jim Probasco (2013) the sales of Starbucks increased by 7% and McDonald's increased by 0.9% during the last quarter of 2013.

Thus, it could be concluded that Dunkin Donuts is not in a position to compete with Starbucks anymore, however, McDonalds if continued its war could eat Starbucks share in the market.

i. Briefly using strategic mind set analyze this case study.

ii. With clear reasons explain other corporate strategies that you would recommend for the Starbucks Corporation.

iii. In your view why is McDonalds considered the greatest competitor of Starbucks Corporation.

iv. Strategic management is for everyone and every organization. Clearly discuss this statement.