Executive Summary
Starbucks Coffee Company operates in the food and beverage segment with coffee shops in multiple countries. This report provides an overview of the company and its operations in Singapore with a detailed review of its strategic goals. Further, strategic positions and strategic direction analyses are provided using tools such as SWOT analysis, PESTEL analysis, BCG matrix, and Ansoff matrix. The analysis results demonstrate that the company’s strategy is characterized by the successful implementation of intensive area expansion, product quality control, premium pricing strategy, and marketing tools based on customer loyalty and brand recognition. Critical analysis of the strategy using the SAF framework demonstrates that the company should integrate its opportunities to eliminate threats and ensure a higher level of suitably. Therefore, the recommendations for Starbucks include enhanced product diversification through innovation, pricing strategy flexibility through market segmentation, and continuous brand building and store density expansion.
Introduction
Starbucks Corporation is a large international company that occupies a significant share of the global market in the food and beverage industry. It was founded in 1971 in Seattle and became a public organization in 1993 (Ng, 2011). Since then, the company has significantly expanded by launching coffee shops in North America and overseas. The company’s operations include the production and distribution of coffee beverages and experiences for customers visiting coffee shops. The company is determined to provide its customers with the highest quality of coffee possible at reasonable prices. Moreover, Starbucks is driven by the strategy of social responsibility and community-oriented business, which is the core of the experience-centered and loyalty-building standardized performance across stores. According to the company’s profile presented on its official website, the mission of Starbucks is “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (“About us: About Starbucks,” n. d., para. 6). This mission integrates the core values of the corporation that guide the leadership approaches, strategic development, employee relations, and customer relations.
The company values are performance-driven, with the priorities set on the humans involved in the supply chain and business operations. In particular, unique culture specific to the company’s mission, striving for performance excellence, and accountability for results constitute the core of Starbucks’ values (“About us: About Starbucks,” n. d.). Moreover, “acting with courage, challenging the status quo and finding new ways to grow our company and each other” and “being present, connecting with transparency, dignity and respect” are the elements essential for the corporation’s corporate culture and strategy (“About us: About Starbucks,” n. d., para. 10). Overall, the company now operates within 28,039 stores serving millions of customers globally (“About us: About Starbucks,” n. d.). The largest number of stores is opened in the USA; however, the economic outcomes of the US-based operations of Starbucks have been unstable, unlike the stores located in Asia Pacific countries. Indeed, in Singapore, Starbucks positions itself as “a leading restaurant operator of multiple brands across Asia” (“About us: Starbucks Singapore,” n. d., para. 2). Thus, the strategy employed in Singapore is different from the one used in the USA.
The industry of food and beverage in general and its coffee segment, in particular, is a developing economy sector that is characterized by a high level of competition. Starbucks is one of the strongest actors in the industry due to its significant market share, rapid global expansion, and successful brand building. Leading the market of new consumption practices, Starbucks strives to invest in innovation and product quality improvement to enhance customer loyalty, standardize production, and occupy a solid place in the market. The strategy for continuous expansion and the direction toward quality improvement provides the corporation with a competitive advantage (Chuang, 2019; Smith, 1995). Starbucks competes with coffee shops and fast-food stores, such as McDonald’s, KFC, Coffee Bean, McCafe, and others (Chuang, 2019; Ng, 2011). The leading position is validated by the localization strategy, loyalty-based community building, quality-driven production approach, and the extensive use of product differentiation strategy. The present report integrates the analyses of Starbucks Corporation’s strategic positions and directions in the industry, as well as a critical evaluation of the employed strategies for the generation of recommendations for improvement of operations in Singapore for more effective achievement of goals.
Analysis of the Organization’s Strategic Position in its Industry
The analysis of strategic positioning involves the investigation of the macro and microenvironment of the company. Within the context of the case study, the operations in Singapore have proven to be more successful in terms of competitiveness and bottom-line gains in comparison to the stores located in North America. According to Ng (2011), financial setbacks that occurred in 2008 negatively impacted the US-based operations by closing approximately 600 stores (Ng, 2011). However, at the same time, the company enjoyed successful launching initiatives in Singapore.
The strategy that is used by the company’s management inside the USA and later on a global scale was developed on the basis of intensive expansion. According to Chuang (2019), “CEO Schultz chose a strategy of intensive shop opening and deep farming, that is, using a large number of shops to aggressively cover an area” (p. 100). Such an approach provides both the supply side and demand side goals of the company. The larger the number of stores in an area, the higher the likelihood for customers to attend and easier for them to locate the organization (Chuang, 2019). On the other hand, from the supply perspective, the production of brewing beverages is easy to organize within the standardized approach, which ensures higher profitability of the company.
Moreover, when analyzing the global strategy in general and the expansion into the Singaporean market, one might identify the tendency toward the prioritization of local geographical and cultural features. In particular, one of the strategic aspects employed by Starbucks is “its ordering or “reterritorializing” of the world in terms of its own coffee geography,” according to which the corporation “designates, evaluates, and organizes coffee production according to its own taxonomy of regions (the Americas, the Pacific, and Arabia/Africa), subregions (Central America, East Africa), and countries (Indonesia, Mexico, Kenya)” (Smith, 1996, p. 516). Thus, it is imperative to investigate how such a strategic approach integrates into the macro and micro environments or Starbucks Corporation
SWOT Analysis
Figure 1. SWOT Analysis for Starbucks
As Figure 1 shows, the internal strengths include the ability of the company to build a strong brand name and ensure customer loyalty as the main marketing tool. Indeed, as it was explained by the President of the company, “we’re not a mass marketer … given that we don’t do advertising or traditional marketing, we depend very much on the in-store experience and building loyalty that way.” (Ng, 2011, p. 3). Moreover, the company is characterized by a significant level of global presence, the pursuit of high quality of beverages, and a community-based approach to customer population increase and loyalty-building (Chuang, 2019; Smith, 1995). As for the weaknesses, they include internal competition between stores, which is validated by the company’s expansion strategy. According to company data, “although individual Starbucks outlets may have to compete with one another. As a result, this strategy may help the company to gain a greater market share” (Ng, 2011, p. 2). In addition, the company aligns its operations with the strategy of high-ranking product pricing that limits its customers to upper-class consumers.
Within the framework of external strategic factors, Starbucks’ threats are manifested through growing competition of existing competitors and new entrants. Moreover, the advancement of the coffee industry and the popularization of Western coffee places in the Asian world trigger the emergence of more competitors in the future. In addition, the exposure of the company’s core operations to political, economic, and environmental risks might be significant threats to the company’s sustainable growth in the Singaporean market. One of the threats that the operations of Starbucks Corporation in Singapore is facing now is the impact of the COVID-19 pandemic. The disruptive influence of the pandemic on a global scale has triggered border closing and social distancing measures implemented by many countries of the world. In accordance with the restricting policies, companies close their facilities, thus disrupting their conventional operations. Since Starbucks’s culture is particularly related to the interpersonal communication in the coffee shops and community-based corporate culture, the new conditions might impair the company’s conventional performance. Moreover, the adverse implications of the economic crisis impose profit losses. Even though the company has a significant competitive advantage, there is still a threat from its main competitors – McDonald’s and Dunkin Donuts. Starbucks’ market share equals 2.7%, while McDonald’s has 16.3%. Dunkin Donuts – 2.1% (Statista, n. d.). Starbucks owns 147 outlets in the country, Macdonald has 136, and Dunkin Donuts has only 15 (Statista, n. d.). Undoubtedly, McDonald’s remains the biggest competitor for the company; yet, its primary focus is on selling food, while Starbucks’ specialty is coffee. In addition, Starbucks’ customer service remains on a higher level since it implements techniques aimed at improving customer experience (mobile app and special offers). Moreover, unlike McDonald’s, Starbucks diversifies its beverage line seasonally.
Nonetheless, there are several opportunities that the company might use to advance its strategic position in the market. For example, the company might further facilitate its global presence, open more stores in Singapore, and introduce new products and experiences for customers through innovation. Furthermore, Starbucks has an opportunity to apply segmentation to its target market and apply flexible pricing strategies to include lower and middle-class consumers to its target population.
PESTEL Analysis
The political, economic, social, technological, environmental, and legal aspects of the environment in Singapore predetermine the strategy choices and their implementation for Starbucks Coffee Company. From the perspective of the political environment, Starbucks successfully integrates its operations in the local political setting. The economic environment in the country allows for proper business operations and international cooperation. According to Ng (2011), “Singapore was recently ranked the easiest place in the world to do business and was given the highest satisfaction ratings on infrastructure and government-related factors such as tax structure” (p. 4). Furthermore, within the economic perspective, the current unstable financial situation due to the global economic crisis caused by the COVID-19 pandemic creates a negative environment for the company’s conventional strategy. The social factor involves the cultural and demographic particularities of the country, which are effectively addressed by the company’s strategy that combines globalization practices with localization of business operations (Simon, 2009; Yuniar et al., 2020).
From the perspective of technologies, the company’s prioritization of high-quality coffee farming based on the latest technological advancements and further investment in their promotion allows for Starbuck’s competitive advantage over competitors (Lemus et al., 2015; Starbucks, n. d.). Additionally, the company might use the challenges of COVID-19 to enhance its technological performance to meet the requirements of social distancing via remote ordering or other innovative solutions (“How Starbucks is using COVID-19 crisis to differentiate the brand,” 2020). As for environmental issues, the company is sensitive to environmental change and climate due to the production of coffee on the basis of coffee farming. Finally, legal aspects might be influential in the company’s strategic development due to the regulations of food and beverage business operations by the authorities in the country.
Analysis of the Organization’s Strategic Direction
Ansoff Matrix
The strategic direction of Starbucks in Singapore might be illustrated through the Ansoff analysis matrix that integrates new and present markets and products. As illustrated in Figure 2, the company might engage in strategies that either pursue new or old markets to products. In the case of Starbucks in Singapore, the corporation demonstrates product diversification to meet the requirements of the local market and consumers. Moreover, the introduction of new products to the present market allows for market penetration, which aligns with the sufficient level of food expenditures of the population in the country and the favorable coffee culture (Ng, 2011). Moreover, the specifics of the Singaporean coffee culture characterized by the high level of consumption of tea in combination with coffee reinforces the applicability of the product diversification strategy.
Figure 2. Ansoff Matrix.
BCG Matrix
Another invaluable tool for strategic analysis is the BCG matrix, which allows for analyzing the opportunities for strategic growth based on available products and services. As shown in Figure 3, the BCG matrix contains question marks denoting high market growth and low relative market share, stars that imply high market growth and high market share, dogs incorporating low market growth and low market share, and cash cows, which are low in market growth but high in market share. According to Haskova (2015), the primary product that generates an abundance of profit, high relative market share, and sustainable competitive advantage is coffee products (cash cows). However, there is a question mark that includes the products, which are steadily integrated into the product line of the company to generate market growth while preserving low relative market share (Haskova, 2015). Thus, strategically, the company pursues both market growth and market share goals.
Critical Evaluation of the Organization’s Strategy
From the point of view of the suitability, acceptability, and feasibility (SAF) of the strategy employed at Starbucks Corporation we can identify their level and how they intersect. The integration of these three factors is demonstrated in Figure 4, which designates that the overlapping of all three parameters ensures the effectiveness and success of the chosen strategy.
Strategy: Market Penetration
- Sustainability: the strategy aligns with the company’s goals because market penetration is its primary focus.
- Acceptability: the company has been successfully entering new markets for more than 20 years, so that the strategy bears no risk (Chuang, 2019).
- Feasibility: this aspect also aligns with the strategy as Starbucks has its franchises in over 80 countries (Chuang, 2019).
Strategy: Company Development
- Sustainability: the strategy aligns with the company’s goals since the development is its core direction. It is suitable to the target market, align with the country’s social, political, and economic environment, the strategy is acceptable and feasible.
- Acceptability: there is a high level of the strategy acceptability because Starbucks is continuously growing and expands its spheres of influence.
- Feasibility: high level of feasibility is also observed due to the fact that Starbucks is open to innovations and new ideas. However, it lacks proper suitability due to the risk factors and threats in the form of rising competition and a high-rank pricing strategy.
Strategy: Product Diversification
- Sustainability: the strategy aligns with the company’s goals since the development is its core direction.
- Acceptability: there is a high level of acceptability because the company’s product line is ever-changing and special items are often manufactured (i. e. seasonal drinks) (Haskova, 2015).
- Feasibility: there is also a high level of feasibility as Starbucks’ creative team and other departments often suggests new beverages and food varieties (Haskova, 2015).
Conclusions
In summation, as the analysis and critical evaluation of Starbucks’ strategy in Singapore have shown, the company successfully implements its brand-building practices in the new market. The company integrates the positive brand name, customer loyalty, community building, and product quality as the elements of standardized production on a global scale. However, the inside competition between stores due to their density, as well as external threats in the form of high competition and exposure to economic, political, and environmental risks, hinder the stability of the company’s advancement in the Singaporean market. On the other hand, the company’s overall strategy is characterized by product diversification, market penetration, market growth, and market share obtainment, which prove to be acceptable and feasible. Given the insufficient level of strategy suitability to the target market and the threats in the external environment, several recommendations might be made to incorporate opportunities.
Recommendations
Firstly, the company should further enhance product diversification with the application of innovative solutions to ensure its uniqueness in the market. It will provide an opportunity for maintaining competitive advantage and outweighing new entrants and existing competitors, as well as will enhance the suitability of the overall strategy. One of the recommendations to address the implications of COVID-19 is to invest in online marketing, remote ordering using technologies, and a continuous launching and development of Starbucks App and a discount program for online purchases (“How Starbucks is using COVID-19 crisis to differentiate the brand,” 2020). In such a manner, the company will manage to cope with the financial threats of the pandemic and recover from the crisis more efficiently.
Furthermore, Starbucks should implement a flexible pricing strategy through the application of market segmentation techniques. It should be based on the economic and demographic analysis of the target market and pursue a more diversified product price range to ensure that mass-market coffee shops do not threaten the market share. Moreover, the successful strategy of intensive expansion should be pursued to open new stores in Singapore and cover more areas with coffee shops, thus popularizing the brand and occupying the market. Finally, further global expansion is encouraged to solidify Starbuck’s presence in the international market.
References
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Lemus, E., von Feigenblatt, O. F., Orta, M., & Rivero, O. (2015). Starbucks Corporation: Leading innovation in the 21st century. Journal of Alternative Perspectives in the Social Sciences, 7(1), 23-38.
Ng, J. C. Y. (2011). Starbucks’ operations in Singapore: Oasis in midst of desert. International Journal of Case Studies in Management, 11(2), 1-21
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Starbucks. (n. d.). Business ethics and compliance. Standards of business conduct. Web.
Statista. (n. d.). Web.
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