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03/01/2012

Starbucks Hospitality Organization Paper Example


Introduction

In analyzing Starbucks environment, it is important to identify factors that might in turn affect vital variables that are likely to influence the organization’s supply and demand levels and its costs (Johnson and Scholes, 2002). The “radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization” (Tsiakkiros, 2002). The analysis may serve as framework for reviewing Porter’s Five Forces models to be applied by Starbucks, HK in reviewing of strategic directions such as relating to marketing analysis and position. The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985) and the latter will help Starbucks to break free of unconscious assumptions, to effectively adapt to the realities of new environment.

 

Body

External Environment

For Starbucks, economic conditions are influenced by political and government policy, being a major influence affecting government decisions, other ways in which HK government decisions will affect organizations both directly and indirectly, as they provide both opportunities and threats. Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Thompson, 2002). According to Thompson (2002), government spending can increase the money supply and make capital markets more buoyant. The expectations of Starbucks shareholders with regard to company performance, their willingness to provide more equity funding or their willingness to sell their shares will also be affected. The socio-cultural environment of Starbucks encapsulates demand and tastes, which vary with fashion and disposable income, changes can again provide both opportunities and threats for particular companies (Thompson, 2002; Pearce and Robinson, 2005). Technology at Starbucks can be recognised by various literatures on strategic management (Johnson and Scholes, 2005; Jan, 2002), as part of the organization and the industry part of the model as it is used for the creation of competitive advantage and technology external to Starbucks industry can capture and be used as influenced by HK government support and encouragement

 

PESTEL ANALYSIS

Political

Starbucks does account for political influence such as in the company’s relationships between United States and some countries that produces coffee beans and how Starbucks operations has been accepted in Hong Kong as there is high level of foreign direct investment for doing business environments and that standardization of Starbucks can impose functions of HK government toward Starbucks business. Certain laws and entry modes is imperative to the business in HK presence as there adheres to environment based regulations and HK specific regulations

 

Economic

There is demand for food and beverages in Hong Kong that Starbucks amiably offers, also Starbucks HK customer’s buying power and the impeding process of HK exchange rates and taxation assimilation as for example, Starbucks has been specialty coffee retailer, producing and selling variety of hot and cold beverages, as well as pastries and confections, through 8500 coffee shops across 32 countries worldwide. The company recorded an increase in revenues and profits. It faces the threat of reduction in margins due to rising dairy costs.

 

Socio-cultural

Social as well as HK culture related influences that reflects to Starbucks product and service trends, consumer preferences, changes in HK customers lifestyle and mode of occupation or work base as well as domains of education paradigm for example, Starbucks have global socio cultural presence as it provide effective brand recognition and strong customer base in HK. Starbucks significant rise in revenues and profits provide them with strong financial base and enables it to undertake expansion of the business operation.

 

Technological

Starbucks has been open to advances in manufacturing esp. catering to innovative products and services as well as biotechnology domination and HK agriculture development ways along with comprehensive usability and execution of information technology developments of the organization for example, Starbucks has become disciplined innovator, such as effective management of technology innovation timeline generating consistency in same store sales as the company introduced Frappuccino Blended Beverages as well as Iced Shaken refreshments product line as being launched few years back, Starbucks’ ability to roll out technology oriented products which is in quick time implies to the considerable competitive advantage at Starbucks.

 

Environmental

The global coffee market is in competitive sector, Starbucks must compete against the likes of restaurants, coffee shops, street carts and will have to comply to HK standards and laws that caters to environment processes for achieving balanced marketing and operating resources of Starbucks in HK as entering in the market, Starbucks must be aware of environmental laws in detailed manner, maintain mission and vision of keeping sustainable environment and customer friendly branches that accounts for Starbucks operation success and performance status of becoming one of HK’s leading specialty coffee business.

 

Legal

Thus, with the continued growth of HK coffee market, Starbucks has looked to enter into the HK markets with legal means, such as for instance, some HK areas where there is an established presence of its product lines. Starbucks has targeted clustering units so as to dominate particular areas in HK, as HK business laws are in implantation stature for example; new Starbucks outlets comprises to HK business policies and laws and serves as continued strategy of legal noted clustering and focus on HK stores that have convenient access for HK customers representing legal opportunities for Starbucks to capture an increasing share in HK’s coffee industry markets.

 

International Environment

Developing Starbucks marketing strategy and mix can be complex process, due to the dynamics of interests and benefits sought by management as Starbucks undertake global market strategies that allow presence of ideal marketing strategy as for example, integrated marketing mix and product delivery systems that provide Starbucks with international success towards HK coffee market and have become competitive marketplace wherein strategic business plan address to factors that have positive impact on Starbucks services. Internationalization has been research theme in the hospitality industry and its constituents (Burgess, Hampton, Price and Roper, 1995; Clifton and Johnson, 1994). Global strategies should concentrate on entire range of industry environment impacts for example, environmental problems, food and beverages safety and security and or sensitivity to HK coffee business culture, enabling Starbucks to develop amiable international approaches in order for business to fulfil imperative strategic goals and objectives respectively.

 

Internal Environment

Starbucks, largest specialty coffee store chain in the world operates more than 7,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim (www.starbucks.com). Having already expanded to 34 countries, Starbucks expects to eventually operate 10,000 outlets in North America and 15,000 abroad (Gary, 2004). Starbucks is committed to offering high quality coffee and Starbucks Experience while conducting its business in ways that produce social, environmental and economic benefits for the communities in which it conducts business.

 

Industry analysis

 

Porter’s view of competition (Porter’s 5 Forces)

Industry Rivalry

Starbucks competes with variety of smaller scale specialty coffee shops, mostly concentrated in different regions of the country, where Starbucks strives to create an upscale some atmosphere, for example Caribou coffee tried to implement more American feel to their coffee houses by modeling their coffee houses after rustic Alaskan lodges. (Quelch, 2006) and in 2007, Peet's strategy is to differentiate themselves from Starbucks by creating super premium brand by offering the freshest coffee in the market, ensure the freshness of their coffee by delivering "roasted to order" coffee, which involves roasting small batches of coffee and shipping them to the retail shops within 24 hours of roasting (Review, 2007). The impact of industry rivalry force created by the competition between specialty coffee retailers is very high such as contrasted to what it was at the time of Starbucks’ rapid expansion, growth of industry has slowed while the number of competitors within the industry has increased.

 

Potential for New Entrants

The environment in which Starbucks competes, is the potential for new entrants, economies of scale within the specialty coffee industry have increased as the size of the top players has increased. There is numerous cost disadvantages imposed on new entrants that are independent of the economies of scale considerations. As the industry matures, the ability to access distribution channels and select from the highest quality coffee beans has becoming increasingly difficult. Most of the favorable store locations within the larger metropolitan areas have already been occupied by current competitors within the specialty coffee industry. Some companies now have proprietary product technology involved in the production of specialty coffee as well as lower per unit costs due to an experience curve. (Adamy, 2008)  Product differentiation within the specialty coffee industry has moved away from the purely objective and defined traits such as the taste of the coffee, convenience of the stores and prices charged. The industry has progressed toward more subjective traits such as the ambience of the store, the social responsibility of the company and brand identification (Gulati, 2007).

 

Substitute Products

The force created by substitute products in the specialty coffee industry has decreased, companies that presented the specialty coffee industry with a threat in the form of substitute products have actually entered the industry and now compete directly by offering their own premium coffee selections. The primary substitute products still posing a threat to the specialty coffee industry are the caffeinated soft drinks offered by Pepsi and Coca-Cola. However, even these substitute products pose little threat to the premium coffee industry. In the past five years, studies done on the percentage of meals or snacks that included carbonated soft drink as opposed to coffee have shown reversal in consumer preference. Coffee has gradually gained preference over carbonated soft drinks. This is mostly attributed to the health concerns associated with carbonated soft drinks and the new evidence showing coffee as healthy alternative. (Harding, 2000)

 

Supplier Bargaining Power

With the extensive growth in the specialty coffee industry, supplier bargaining power has changed in numerous ways, when the first Starbucks was conceived, the farmers from whom Starbucks purchased its premium coffee beans were numerous, small and unconnected to one another. Currently, many of the farmers who sell to Starbucks and other premium coffee chains are united by an initiative known as fair trade certified coffee, which was organized by TransFair USA. Starbucks are given the opportunity to advertise their coffee as being fair trade certified if they purchase from coffee suppliers that are democratically owned cooperatives. (Argenti, 2004)  The initiatives were designed to ensure that the coffee farmers would be compensated fairly for their crops. Their increased unity under this initiative worked as a positive externality by increasing their ability to exert bargaining power over their buyers. The fair trade coffee certification is looked at by consumers in their decision of where to purchase their premium coffee. Starbucks comprised the vast majority of sales made by the premium coffee farmers, more restaurants, specializing in array of products than just specialty coffee, have begun to purchase from the premium coffee farmers. Competition increases within the specialty coffee industry, there is greater emphasis on differentiating products through superior quality, coffee beans which are supplied by the farmers are the most important input to the brewing process for a company such as Starbucks, making them increasingly important. For many specialty coffee company's the success is riding on their ability to produce higher quality coffee than competitors, which acts to further increase supplier bargaining power. Starbucks has diminished their ability to play one buyer against another, which decreases their bargaining power. (Lee, 2007). When comparing bargaining power of suppliers today in the specialty coffee industry to the bargaining power of suppliers during 1980s, it is apparent that suppliers are powerful today.

 

Bargaining Power of Buyers

Porter's five forces analysis to be applied to the modern specialty coffee industry is the force created by the bargaining power of buyers, primary buyers in the specialty coffee industry remain individual consumers, who neither engage in concerted behavior nor individually purchase in large volumes relative to the total sales of a corporation such as Starbucks. However, effects of losing one of these buyers to a competitor would not be detrimental to company with sales volume such as Starbucks. (Adamy, 2008) Neither the individual consumers nor the multinational corporations who purchase specialty coffee commit significant fraction of their resources to these purchases makes the buyers less sensitive to price fluctuations and gives the players within the specialty coffee industry more control over pricing. The expansion of the specialty coffee industry created a wider array of competitors who offered high quality specialty coffee The increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and have an enormous selection of retailers from whom they can buy. The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the internet.

 

 

Assessing the firm’s competitive position

 

Competitive strategy searches for favourable competitive position at Starbucks, functioning attractiveness of industry and relative competitive position within that particular industry, as well as alternative activities that an organisation can undertake. "Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition" (Porter, 1985). Competitiveness is the effort and achievement of long term profitability, above the average of the particular industry within which they operate as well as above alternative investment opportunities in other industries. Starbucks is the only competitor in the coffee bar market that has a recognized brand image. The difference between Starbucks and other coffeehouses is that they own all stores and do not franchise. Starbucks store operates in most metropolitan areas and is present in HK and does have direct mail business to serve customers, have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean coffees for the faithful coffee drinkers. Starbucks added light lunch fare to their menu and recently expanded its emphasis internationally as there maybe opportunities waiting in possible joint ventures with other business in HK thus, to design innovative associations with Starbucks' operations.

 

 

Strategic Group

Strategy is located as an emergent set of practices which has distinctive power effects on organizations and subjectivity. Analyses of strategy cannot be reduced either to rationalist accounts of markets and environments nor interpretive understandings of actors' frames of reference. The emergence of 'strategy' as an essential element that needs to be located in specific changes in organization subjectivity, because it is mechanism of power that transforms individual into particular kinds of subjects who secure sense of well-being through participation in strategic practices. For Starbucks, it is clear that there is grounding view of strategy as a rational process, such environment based strategy is highly complex, multi-dimensional construct requiring Starbucks interdisciplinary approaches to research and development. In the hospitality industry, it can be complicated by the necessity to consider the impact of international operations of Starbucks. Starbucks team into such corporate strategy established the premier purveyor of finest coffee in the world, while maintaining uncompromised principles which is ever growing. The firm principle of Starbucks is seen with its maintenance of great and proven work environment for every staff member into the retail stores. Starbucks upholds diversity and promises the highest standards for its products and satisfies customers and gives back to community and environment. Starbucks live by strict growth policy completely dominating market before setting its sights further abroad as the strategy has gained Starbucks the advantage of being one of fastest growing companies there is.  

 

Market Analysis

Customer satisfaction is the extent to which product's perceived performance matches buyers' expectations. The key to successful and profitable business rests with identifying the needs and wants of the customer and providing goods and services to satisfy these needs and wants. Starbucks, achieve customer satisfaction in HK market, the company should pay particular attention to its customers' cultural preferences and should offer the host market not just coffee but real coffee experience. Starbucks does not implement a fancy marketing plan, such as running advertisements on TV or in newspapers. Starbucks did not spend a lot of money on traditional advertisements in order to attract local customers.  Strategically, Starbucks chose local Chinese people as its target clients in the long run, Starbucks is not selling coffee, but the experience and the western lifestyle of coffee drinkers. Starbucks not only chose high-end office towers and crowded shopping malls but nightclub and bar districts and residential areas as locations for their stores, choosing high-profile location was the most important factor to the success of Starbucks. Starbucks implements its global marketing strategy while also adapting to the local market and promotes itself through coupons, office visits, and free samples to customers, Starbucks spends little on domestic advertising. It considers the store itself the best advertising tool to promote Starbucks. Starbucks offers educational services to its clients on ordering coffee and drinking coffee, Starbucks baristas distribute free coffee samples to people passing by stores in order to attract new clients.

 

Conclusion

Therefore, it is important for Starbucks to always have an update into their external and internal business functioning in order to continue the started success in the industry and have a foundation base as one of the leading coffee specialty business that HK market should look forward to within the coffee industry avenue. Application, awareness and understanding of PESTLE analysis and Porter’s five forces model should be at the core of Starbucks in considering future plans and strategy based options.

 

 

 

References

 

Adamy J (2008) Venti Changes at Starbucks. Retrieved January 10, 2008, from Wall Street Journal: http://online.wsj.com/article/SB119974270198772921.html

 

Adamy, J. (2008) With Starbucks, Investors Need Patients. Retrieved February 4, 2008, from Wall Street Journal: http://online.wsj.com/article/SB120191741501337213.html

 

Argenti PA (2004) Collaborating with Activists:How Starbucks Works with NGOs. Berkeley: Haas School of Business

 

Burgess C Hampton A Price L and Roper A (1995) International hotel groups: what makes them successful?, International Journal of Contemporary Hospitality Management, Vol. 7 No.2, pp.74-80

 

Clifton WJ and Johnson K (1994) A structural analysis of the European hotel sector: a simple case of déjà vu?, International Journal of Contemporary Hospitality Management, Vol. 6 No.4

 

Gulati R (2007) Silo Busting:How to Execute on the Promise of Customer Focus. Boston: Harvard Business School

 

Harding VV (2000) The Starbucks Effect. Boston: Harvard Business School 

 

Jan Y (2002) A three-step matrix method for strategic marketing management, Marketing Intelligence and Planning, Vol. 20 Issue 5, pp.269-272

 

Johnson G and Scholes K (2005) Exploring Corporate Strategy: text and cases, 7th ed. FT/Prentice Hall

 

Johnson G and Scholes K (2002) Exploring Corporate Strategy, 6Th  ed.  FT/Prentice Hall

 

Lee H (2007) Starbucks Corporation: Building a Sustainable Supply Chain. Stanford: Stanford Graduate Business School

 

Pearce J and Robinson R (2005) Strategic Management, 9th Edition, New York: McGraw-Hill

 

Porter M (1985) Competitive Advantage, New York: Free Press

 

Quelch Y M (2006) Starbucks: Delivering Customer Service. Boston: Harvard Business School

 

Review R (2007) Despite Growth, Starbucks Can't Dislodge Local Rivals. Retrieved January 2, 2008, from Wall Street Journal: http://blogs.wsj.com/informedreader/2007/12/28/starbucks-friend-of-the-mom-and-pop-coffee-shop/ 

 

Thompson J (2002) Strategic Management, 4th Edition, London: Thomson.

 

Tsiakkiros A (2002) Strategic planning and education, The International Journal of Educational Management Bradford

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