Starbucks the Company That I

Starbucks

The company that I am writing about is Starbucks. Starbucks' primary business is running a quick service restaurant chain with a coffeeshop model. The company is the third-largest quick service restaurant in the U.S. By sales, and has a major international presence (Oches, 2012). In its 2011 Annual Report, Starbucks describes its business as "the premier roaster, marketer and retailer of specialty coffee in the world, operating in more than 50 countries." At present, the U.S. is the largest market, followed by the United Kingdom, Canada and China. Starbucks feels that the Chinese market will be the second-largest market for the company by 2014 (Starbucks, 2012).

Starbucks faces a unique challenge in that its core U.S. business is shrinking, as evidenced by successive rounds of store closures including 310 stores closed in 2011 (Oches, 2012), while simultaneously managing rapid growth in overseas markets, especially China. Not only is the Chinese market critical to the success of the company today, but as China becomes more important and the U.S. business plateaus, the challenge will be to define the company going forward. The company is also facing a number of competitive challenges. While it has first-mover advantages in China, it is facing competition in China from conglomerates like Nestle (Doherty, 2012) that could threaten the company's planned growth trajectory in China.

Managing growth might seem like a good problem to have, but if growth is managed poorly, the company could face hard times in China, or even a market exit. Starbucks has been forced to pull back from markets before as the result of botched growth strategies (Israel and Australia being two). In addition, poor growth management in the United States not only led to hundreds of store closings over the past five years, but a significant erosion in the company's brand value in the process. Customers began to find that the stores had become cookie-cutter, lacking the warmth and comfort that was a hallmark of the Starbucks experience (Quelch, 2008). The Starbucks Experience, as the in-store experience is known within the company, is essential to the success of a coffee chain in tea-drinking China (Wang, 2012). Thus, it is imperative that the company management growth properly, or it will blow the biggest opportunity in the company's history. Yet the company also faces challenges associated with the experience being too successful, with customers staying for hours without buying anything (Baertlein & Jones, 2012).

The company therefore must devise a growth strategy that will allow it to meet its objectives for growth in China. This strategy cannot, however, come at the expense of the Starbucks experience, but at the same time the success of the experience must also be addressed -- it needs to generate revenue, not just visitors. Simultaneously, Starbucks needs to address weakness in the domestic market, increased competition around the world and must confront the issue of its identity given that the Chinese market is the company's revenue and growth focus for the coming years.

The CEO is the person responsible for setting the generic strategy of the company. Starbucks has faced the competition problem before, most notably with the entry of McDonalds to the coffee shop market in the U.S. several years ago. Starbucks initially backed away from its premium positioning to match McDonalds, but then shifted back to premium positioning in order to ensure that it was differentiated. This is the approach that Starbucks needs to use with Nestle as well. Starbucks has a better product, and given the high price of the Nestle product Starbucks also has a better value proposition. These both need to be the focus of the company's marketing efforts.

The bigger challenge is with respect to positioning in China. For now, Starbucks benefits from being a foreign firm, and many Chinese enjoy the company's stores as an embodiment of American lifestyle, something that upwardly-mobile Chinese aspire to. There are other coffee chains in the country, but none of them are American, so Starbucks has an edge there. However, in more fashionable areas of Beijing there are Chinese coffee shops that offer their own take on a relaxing coffee shop experience. Starbucks must position not only against foreign competition and traditional Chinese tea culture, but against the inevitability of a Chinese-grown competitor. As CEO, I would recommend that Starbucks double down on the American-ness of its experience. This gives the company an edge that cannot be easily matched. However, the company must also work with its local franchisees to ensure that it leads trends, rather than follows them, as Chinese competitors emerge. Many of the new competitors will emulate the more successful aspects of Starbucks' business model, so branding and brand protection are going to be critical elements of the company's expansion strategy going forward. Starbucks must enter the remaining major Chinese markets, and ensure that its brand becomes well-established, and work with local legal authorities to uphold the integrity of the brand as best as possible.

The COO is responsible for the tactics that will bring about the growth strategy. The first recommendation for the COO is to ensure that reliable financing is available. Much of the growth in China early on for Starbucks was financed by the cash cow operations in the U.S. Given that the U.S. business has effectively plateaued, the COO needs to ensure that the Chinese subsidiary is self-financing or that local partners have access to local financing.

The second issue is with regards to logistics capabilities. Starbucks needs to ensure that it has the ability to produce the decor and acquire the equipment needed to growth in China. Perhaps more important is finding good managerial talent, something that China often imports from Taiwan and Hong Kong. It is recommended that Starbucks open a teaching academy in China that will allow it to train managers within its ranks. The company can therefore use foreign managers to run the education program, and then use the local talent it has developed. Some of the other issues, like people staying too long, are less critical and will not significantly affect the trajectory of growth in China, but money and talent are key constraints to growth that must be addressed.