Starbucks Coffee's organizational weaknesses and market challenges

Starbucks has recently shown profound growth that is tempered by concerns over stores in foreign markets and the rise of a tea culture in the United States. In the past year, Starbuck's revenues have soared, and the number of stores has increased dramatically. On potential cause for concern is a new focus on opening stores in rural and low-income areas, as opposed to the well-established success for high income, urban areas. In the global market, cultural differences have impacted Starbuck's potential success, especially in Japan. The strong coffee culture that played a role in Starbuck's success in America is not necessarily present worldwide. In the U.S. The potential growth of a tea culture may damage Starbuck's hold on the beverage market, especially given that the company faces stiff competition from competitors who may better embody the values of the tea culture.

Starbucks Overview

Recent news shows Starbucks performing well. Revenue for the company increased 27%, and net earnings improved by 46% in the past fiscal year. The growth occurred largely because of a push to open stores on the international and domestic market, and a drive to increase earnings at existing stores. Drive-through stores showed sales that were 40% higher than traditional stores (Warner).

Today, Starbucks coffee shops seem to be appearing on almost every corner. In fact, in the next year, Starbucks plans to open over four outlets each day (Lloyd-smith).

Starbuck's growth is occurring in a market where "many people who live in places like New York, Seattle and Los Angeles think there could not possibly be room for any more Starbucks stores" (Warner). Despite this perceived over saturation in the market, Chairman Howard D. Schultz notes that Starbucks is in the early developmental stages, with a goal to have as many worldwide stores as McDonalds (Warner). Currently, Starbucks has about 8,500 stores worldwide (Lloyd-smith, 2004).

One potential weakness for Starbucks is a new emphasis on opening stores in rural and low-income areas. Traditionally, Starbucks has succeeded in primarily high-income urban environments. It remains to be seen whether stores in places like Hot Springs, Arkansas, with a total population of 8,397 people, will be as profitable (Warner).

Starbucks Worldwide

The potential growth for Starbucks, however, is not ubiquitously good worldwide. The strong coffee culture in the United States seems to play a role in Starbuck's great showing. However, this coffee culture is not necessarily present throughout the rest of the world (Weinberg and Bealer, 2002), potentially limiting Starbuck's growth elsewhere in the world.

In England, Japan, and China tea culture is deeply entrenched. The culture of tea is seen in tea gardens, afternoon tea, and tea shops. This tea culture is associated with elegance and convention, and is often deeply rooted in a country's culture and traditions. Tea is well linked to ancient Chinese emperors, for example (Weinberg and Bealer, 2002).

The deeply entrenched nature of tea culture in countries like England, Japan, and China will likely play a big part in stemming the growth of Starbucks in these countries. Coffee culture is seen as highly Americanized, and associated with energy, sociability, and aggressiveness (Weinberg and Bealer, 2002).

Despite these potential issues, coffee culture and Starbucks have seen significant inroads into countries like Japan and Taiwan. In Japan, coffeehouses are often seen as a place of rest and relaxation. The Japanese coffee market is estimated at about $10 billion each year (Weinberg and Bealer, 2002).

However, this growth is likely to be limited not only by a potential reluctance to the values of coffee culture, but also by a number of practical concerns. For example, space limitations dictate that the average Japanese apartment does not have a coffeemaker. Instead, instant coffee is served at home, and also given to guests. Price and availability also limit the consumption of coffee in Japan. Note Weinberg, and Bealer (2002), "outside of fancy restaurants, which are out of reach for the average Japanese, fine coffee is still hard to find" (p. 145).

Despite the potentially strong market for coffee in Japan, Starbucks has had trouble cashing in on that potential. In 2002, Starbucks in Japan recorded a loss. In the fourth quarter of 2002 alone, the company loss of $3.9 million (Ik-jae).

These losses are largely attributed to Starbuck Japan's failure of effective "culture marketing." Culture marketing can be seen as "heightening recognition by satisfying the customers' urge to experience culture, rather than by pouring money into advertising through televisions or newspapers" (Ik-jae). Marketing campaigns largely failed to cater to Japanese culture and sentiments. Noted an industry analyst, "The dull growth of the Japanese firm is the result of neglecting market research, dispensing with marketing strategies that could capture the hearts of customers, while just focusing on arithmetical growth" (Ik-jae).

In contrast, Starbucks in Korea almost doubled its business volume each year from 1999 to 2003. In Korea, marketing has been linked closely to effective culture marketing. Notes an official for Starbucks Korea, "the best brand in the world does not guarantee success everywhere. It must be accompanied by suitable marketing and localization" (Ik-jae).

Starbuck's plans to open new stores abroad will face the challenge of success in cultures that may be resistant to Starbuck's coffee culture. The company has plans to open 425 new stores abroad in the next year (Lloyd-smith, 2004). One potential weakness for the company is the challenge of adapting marketing to unique cultures.

Coffee and Tea Culture

In the long-term, the coffee culture that Starbuck's relies upon may face a challenge from tea. A growth of the specialty tea market in the United States may be linked to the social connotations of tea. Weinberg and Bealer (2002) write, "The artisans of tea associate it with leisurely conversation and relaxation as opposed to the more frenetic associations with coffee."

These characteristics of tea culture are in strong opposition to the coffee culture that is linked so strongly to aggressiveness, success, and urban cool. Thus, if the tea market encounters strong growth based on the values of the tea culture, coffee companies like Starbucks may face a real challenge.

The potential growth in a tea culture in the United States can also be traced back to a matter of taste. Simply put, many people prefer the taste of tea to that of coffee (Weinberg and Bealer, 2002).