Origin and Growth of Star Bucks

Starbucks Coffee Company Introduction & Overview

Starbucks came into being in 1971 and was named after the first mate in Moby Dick by Herman Melville. The first store of Starbucks was opened in Seattle's Pike Place Market. Gordon Bowker, Jerry Baldwin, and Zev Siegl were the first three owners of Starbucks. It is Starbucks' mission to be "an inspiration as well as nurturing force for the human spirit." The coffee beans roasted and later on sold by Starbucks are of very high quality. These beans are also used in making Italian style espresso beverages. The store also sells equipment and accessories associated with coffee, pastries and other edible items that compliment coffee. Usually all these products are sold by the company through retail stores that are operated by the company. The main objective of the company is to make Starbucks the most respected and popular brand around the globe (Nielsen & Mortensen, 2008).

Starbucks can easily be said to be one of the biggest Coffeehouse Company in the whole world. Its stores have a very coffee-house sort of atmosphere with Wi-Fi and couches placed throughout the stores. Starbucks also gives licenses for their stores; however, these licenses are only given to other businesses and not to individuals. For instances, Starbucks has licensed stores to Noble booksellers and Barnes in States. In some of these establishments the atmosphere being provided to the customers is a lot like that of Starbucks itself but there are also placed which just have counters to sell the pastries and coffee. About 90% of the revenue being generated by this company comes from Starbucks stores. The main headquarters of the store is located at the same place where the very first store was opened on 30th of March, 1971 (Mallernee, 2010).

Later on a change in the direction of the company took place when the current CEO Howard Schultz went to Italy and decided to adapt the principles that he saw there in order build and promote the bar culture in Starbucks outlets. Giornale was a new store opened by Schultz by utilizing the ability of Starbucks to provide its customers with quality coffee beans. The assets of Starbucks were taken over by Giornale in 1987 for 3.8 million; the name of the store was also changed to Starbucks Corporation. Presently, the total number of Starbucks stores in approximately 49 countries is 17,133, from among these 11,068 are present in U.S., around 1,000 are in Canada and more than 800 are located in Japan (Mallernee, 2010).

Ethical and Social Responsibilities

Starbucks believes in the fact that it is important for the businesses to impact the communities in which they are located in a positive manner. The trust and respect of neighbors, customers and partners is very important to Starbuck. They keep on making efforts to earn and maintain this respect by behaving in a responsible manner and doing the things which in their opinion are better for the planet as well as the people. There are a number of principles being implemented by Starbucks in order to achieve their mission statement such as efforts being made to understand the problems present in our environment, trying to sell, buy and use the products which are environment friendly as well as sharing the positive information with their partners. There are also some buying policies which have been implemented by Starbucks according to which they purchase their products from the suppliers who also follow the environment friendly policies (Mallernee, 2010)

Environmental Stewardship

It was in 2006 that the business practice ethics were formalized by Starbucks in the manual with the title "Standards of Business Conduct." The manual is a great source of guide for the employees that are referred to as the partners by Starbucks as; these employees are the ones who interact with the customers as well as the suppliers (Mallernee, 2010).

The 'Starbucks Information Security Standards' was also created by the company which helps in dealing with the information and technology present within the company. Lastly, the 'Starbucks Privacy Statement' was created to guide the management of the company in handling the private information regarding the firm. It was in 2010 that Starbucks was recognized for its ethics as; it was noted to be a company that not just has strong vision and mission statements but also implements them in their daily lives (Mallernee, 2010).

Ideation Phase

The process of coming up with new ideas as well as forming the process of generating, developing as well as communicating is known as ideation. An idea is considered to be the most rudimentary part of a thought which can be abstract, visual or concrete. It is for the sake of business value that ideation is done; it can be in the form of improvement in the quality of the already present products, some new service or lesser costs (Geereddy, 2012). Peet's was purchased by the original owner of Starbucks along with Jed Baldwin in 1984. In U.S. The sales of coffee were decreasing in the 1980s however, the sales of specialty coffee improved as a result of which in 1989 the specialty coffee had a 10% market share rather than 3% as compared to 1983(Nielsen & Mortensen, 2008).

In 1992 during the time of initial public offering (IPO) on the stock market, Starbucks had 140 outlets which were generating total revenue of U.S.$73.5 million as compared to U.S.$1.3 million in 1987. U.S.$271 million was the market value of the company by that time and the company was able to raise U.S.$25 million after selling 12% of the company (Nielsen & Mortensen, 2008). By July of 2013 the Starbucks apps on the mobiles of customers were responsible for more than 10% of the store purchases. The "Tweet-a-Coffee" promotion that was launched by the company in October of 2013 was also done by making use of the mobile platform. According to a research that was conducted later on, as a result of all this campaign purchases worth U.S.$180,000 were made by 27,000 people (Mallernee, 2010).

Start-up to Growth & Expansion

It was in 1996 that in Tokyo, Japan the very first Starbucks location opened outside of North America. In 1998 Starbucks entered the U.K market and at that time they had a total of 83 million USD acquisitions of 56 stores as it rebranded the UK-based Seattle Coffee Company to Starbucks. Mexico City had the first Starbucks built in it in 2002. An experiment was done by Starbucks when they came up with eateries via a restaurant chain known as Circadia in San Francisco Bay. However, soon afterwards these restaurants were converted into the Starbucks Cafes and establishments (Nielsen & Mortensen, 2008).

A coffee trading company was established by Starbucks in the October of 2002 in Lausanne, Switzerland. The purpose of this establishment was to be responsible for the green coffee purchases. Seattle's Best Coffee as well as Torrefazione Italia was bought by Starbucks from AFC Enterprises in April of 2003 for $72 million. Even though the quantity of stores that Starbucks was able to get from this deal were only 150 however, according to the Seattle Post-Intelligencer the wholesale business that was acquired was of a lot more importance (Nielsen & Mortensen, 2008).

It was announced by the rivals of Starbucks, Diedrich Coffee, in 2006 that majority of their retail stores owned by the company will be sold to Starbucks. Diedrich Coffee and Coffee People locations were converted to Starbucks by the company even though the Portland airport Coffee People locations were not a part of the deal (Nielsen & Mortensen, 2008).

Graph showing the growth in the number of Starbucks stores between 1971 and 2011

(Retail and Consumer, 2011).

A website was designed by Starbucks by the name My Starbucks Idea. The purpose of this website was to get the suggestions and ideas of the customers. In May of 2008 Starbucks came up with a loyalty program for the registered users of the Starbucks Card. This program offered the loyal customers with various benefits such as free Wi-Fi, free refills on brew drip tea or coffee etc. (Kotler & Armstrong, 2013). The purchase of Tevana was announced by Starbucks on 14th of November 2012 for a total of U.S.$620 million (Kotler & Armstrong, 2013).

Starbucks carried on with its growth and in 2008 it opened up outlets in Argentina, Bulgaria, Brazil, Belgium, the Czech Republic and Portugal. The expansion continued to take place in Scandinavia and Europe in 2009. Growth kept on taking place in the new markets throughout 2010. In December of 2010 Starbucks was able to open it first ever outlet at sea. This happened when Starbucks collaborated with Royal Caribbean International and opened up a place aboard their Allure of the Seas Royal Caribbean's 2nd biggest ship which is also the 2nd biggest ship in the world (Kotler & Armstrong, 2013).

The Starbucks coffee started being sold in the Norwegian food shops in February 2011 as Starbucks started to sell their roasts to these outlets. It was at Oslo lufthavn, Gardermoen that the first Starbucks opened in 2012. The company made another store in Beijing, China in 2011 at the Beijing Capital International Airport's Terminal 3, international departures hall, this store made the total number of Starbucks stores in China to be 500. The company has a plan to increase their number of stores in China to approximately 1,500 by the year 2015 (Retail and Consumer, 2011).

In August of 2013 Starbucks was able to open its first shop in Danish Superstore which is the biggest retail company in Denmark. The opening of Starbucks stores in Colombia was announced by the CEO of the company Howard Schultz in 2013. The first store will open in Bogota in 2014 while the company plans to open 50 more stores in all the major cities of Colombia in a period of 5 years (Mallernee, 2010). It was further said by Schultz that Starbucks will be working in collaboration with the Columbian Government as well as USAID in order to "enable the local coffee growers to be able to get better produce by sharing their own knowledge of coffee with the farmers" (Kotler & Armstrong, 2013).

It was in 2003 that all 6 of the stores of Starbucks which were present in Israel were shut down because of the strong competition, difficult business scenario and the continuous operational changes, as stated by the management of Starbucks. In 2007 the Starbucks outlet which was located in previous imperial palace was closed. The main reason behind shutdown was the continuous objection of the Chinese people to the opening of an American store which they believed was affecting their own culture. The company made an announcement to shut-down 600 of company owned stores that weren't performing very well and to cut down the expansion plans as well because of the uncertain economic conditions (Nielsen & Mortensen, 2008).

In July of 2008 approximately 1,000 non-retail jobs were cut down by the company as a part of their plan to boost the profits and bring the energy back to the brand. As a result of these layoffs the expansion and growth period of the company which initially began in the 1990s stopped altogether (Nielsen & Mortensen, 2008).

Marketing Strategy

A few of the methods that have been used by Starbucks to eliminate their competitors and to expand are anti-competitive according to critics. Some of these methods are; deliberately operating at loss, buying the leases of competitors and opening a lot of outlets in small geographical locations. For instance, in the UK market initially Starbucks fast-tracked its expansion by buying out Seattle Coffee Company and then using its influence as well as finance to get prime locations as a result of which, foursome time it was operating at financial loss (Fellner, 2008).

Organizational Structure

Even though most of the coffee houses are run as small independent businesses but this is not the case with Starbucks as, their shops are a part of the elaborate network. The organizational structure of Starbucks is a lot different than the other smaller coffee shops, to a certain extent the large size of this organization and the complications associated with running such a huge business are responsible for this difference in organizational structure. (Geereddy, 2012).

Figure: Organizational Structure of Starbucks (Fellner, 2008)

Basic Structure

The company is overseen by the executives from the headquarters located in Seattle, Washington. The regional grouping of the stores is seen by the district managers all over the country and these managers report back to Starbucks Corporation. Every store has a manger and he/she has a number of shift supervisors. After the shift supervisor comes rest of the employees who are called baristas (Fellner, 2008).

Licensed Stores

Starbucks does license storefront but it doesn't give any franchise. The licensed stores are controlled by the company and have to follow the guidelines and principles of the company; in this way Starbucks is able to maintain the quality of products (Fellner, 2008).

Partners

All of the employees from the person who make the coffee to the one who handles the cash and all of the other workers are considered to be partners in the company. The term "partner" is being used by the company since the beginning to make it clear that the role played by these people in the company is very important (Fellner, 2008).

Responsibility

Starbucks Company preserves social responsibility and intends to deal uprightly with their suppliers. They pay the amount which is well suited for the perfect Arabica coffees in which the suppliers put an endless effort for them to grow properly. The company has also started exercising eco-friendly principles in their activities for example; the used coffee grounds during the summer are preserved for the customers instead of wasting, who would want to use them for their soil as acid (Fellner, 2008).

Management Philosophy:

To have and build a staunch and resolute confidence among your employees regarding your company and to convince them in the execution of the vision is the quality which is found among the best corporate leaders. It should be kept in mind that once the vision has been made clear among your employees, it is essential not to complicate the tactics and the policies which have been announced earlier. For instance one of a main strategy is growth (Nielsen & Mortensen, 2008).

It has been the policy of Starbucks from the beginning even when it was not in its prime time that the employees of the Company will be given the benefit of Health insurance and stock-options. These benefits were provided to even the part-time job employees and it was rare in the U.S. At that time as well. This was the reason the company's employees did not leave the company and worked as a team (Nielsen & Mortensen, 2008).

The owner of the Starbuck believed that just like an artist or a businessperson the work of an accountant and the secretary should also make sense to them. In order to make them indulge in their work it's the company's job to love them and build trust so they can start loving their job. Schultz has always followed this principle of managing his company. Even when Schultz was forced to change his policy of providing the benefits when Starbuck was facing the worst crisis he did not bend down. He was facing pressure from Wall Street, the Directors of his Board and his management team was all convincing him to drop the beneficial for a while. Eventually, Schultz was able to manage everything along with the resources for his employees. He believed that it was because of his employee's hard work that the Starbucks regained its position (Nielsen & Mortensen, 2008).

Innovation

After buying the Starbuck Company in 1987, Harold Schultz restructured the store into a company as it subsists today. "Harold's vision was to create a third place -- a place between work and home, where people would meet over coffee and create community." He wanted to give a face to his plan and held a session where he could create what was in his mind. The result of his brainstorming session came out as a vision of his company which was: We want to be the premier purveyor of the finest coffee in the world" (Bussing-Burks, 2009). Along with this vision, came out a number of superintending rules which were advanced and fresh. They were:

To give an exceptional experience for the customers by providing each customer with one cup of coffee at a time.

The environment should be matchless and this will only be possible if the employees will treat each other with esteem and regard.

The quality of our coffee should never lose its superior quality.

As our company will progress we will return the favor to the communities, the favor they are giving by providing the coffee beans.

The environment of Starbucks should be an ideal situation for workers and every manger and employee will be given equal reverence and honor.

The principles were followed diligently and were implicated constantly. They were not just dictated but were followed by every person working in Starbucks (Bussing-Burks, 2009). As they begin to grow, a number of imitators came in the market and Starbucks continued to follow their rules and create the perfect experience for their customers. They considered themselves lucky as the standards of their company were difficult to surpass (Bussing-Burks, 2009). The company then realized the importance of the already set principles as they realized that it was the dedicated employees and the dependable culture that was keeping the experience among the customers.

Culture:

Starbucks has maintained a very principled and strong culture with great customer responses now and then. It has become quite obvious over the years how faithful and content the customers of Starbucks are with their food, service and atmosphere. There is something exceptional about their service and how they treat their customers with extreme care and love (Deresky, 2006). They try their level best to make their customers content with their order whether it is a pastry or a cup of coffee. They guide their customer through the order and what drink they will like the most. The customers visiting Starbucks every day are average Americans coming from every background which includes school teachers, doctors, and workers and stay at home moms (Gilbert, 2008). These customers have a long hard wording day ahead of them and they come around for a cup of coffee to begin their day or sometimes come to put an end to their lengthy day.

The Starbucks Company based in Seattle imposes over five point key behaviors for its workers to make the company successful. The points include that the employee has to have complete knowledge especially about coffee making; he has to be unpretentious, honest, considerate, hospitable and completely dedicated to his work. The important quality of an employee should be customer service especially in a restaurant like Starbucks. For Starbucks you have to learn and be experienced in dealing with customers, said Montes as they come first before business (Gilbert, 2008).

You should never upset any customer; if you find them wrong discuss it afterwards, instead of discussing it in front of the customer. As a result Starbucks pays great regards to its employees which include giving health benefits for free. While hiring there is no incorporation and every store manager is hired based on his abilities. Each manager has to be trained properly so that they can do a better job not just for the company but for their own success as well (Gilbert, 2008).

Stages of Efficiency & Competitiveness:

There are rarely any companies that have emerged in an accomplished manner and have proved themselves to be capable of fulfilling the tastes of the customers. The vital task of an emerging company should be to produce such products for the customers whose importance the customer is able to realize after consuming the product. Starbucks comes in the category of such companies which fulfill the needs of their customers. After tasting the coffee it makes everyone realize the need for it as it has the perfect blend of a morning taste (Fellner, 2008).

Starbucks have based their scheme on core competencies which means the communal learning within the company including organizing various skills. The ability of the core competencies of Starbucks is evitable as it is expert in the harmonizing the marketing strategies, administration capabilities, efficiency in the operations and the management of the human resources (Geereddy, 2012).

Cost leadership, differentiation and focus are the three main approaches which a company should use to be an influence in the industry. The tactic of cost leadership includes the production of high quality yet low cost goods and the reduction of the functioning cost (Deresky, 2006). The manufacturing of exclusive goods and services which the customers receive with uniqueness and value and the company then put top quality prices on the products is the strategy of differentiation. The third major approach is the common strategy of focus which is focused only towards a specific segment of customers. Starbucks uses the third generic strategy out of these three as its focus is solely on the consumer sector (Gilbert, 2008).

The main customers of Starbucks are mainly the well-off and the educated people who visit the shop for coffee and readily pay high prices in order to get the high quality drink. That is why the company's main objective is to stay focused on the customer service area and their services are especially designed to meet the clients' needs properly.

Implementation of Innovations

For any company's growth and to improve its income, innovation is a major factor. The Starbucks Company believes that they have been innovative throughout their history. They say that novelty is in their DNA (Mallernee, 2010). To better understand innovation of Starbucks this paper has grouped it under unambiguous topics which make it easy to understand the innovation which has been efficacious and which has not. In doing so it incorporates a vast number of notions and philosophies (Kotler & Armstrong, 2013).

While going through the growth process it is important to be sure that it occurs in areas of reduction of cost and improvement of the quality (Geereddy, 2012). The Board of members are a valuable source for the Starbucks as they can give appreciated advice regarding cost reduction instead of ideas for organic growth which cannot be expected from them.

The reason for Starbucks' high success is their profound knowledge about coffee. The company will need new employees from outside if the personnel working from the very start with the company lack other required skill and outlook as an outsider (Gilbert, 2008). Schultz has recently made hires from outside as he has been the CEO for long and has never left the organization. It was because of Schultz that the company was able to make this turn around. He also has a deep knowledge regarding this business and has been a chief global strategist (Fellner, 2008).