Starbucks: Organizational and Environmental Pressures

Overview of Organizational and Environmental Pressures

Starbucks is one of the world's most profitable food-based companies, but it has experienced many challenges in recent years. In 2008, Starbucks announced a radical shift in its market super-saturation policy, under which it had been opening stores literally across the street from one another. It closed 600 stores domestically in an effort to respond to criticisms about product and service quality (Linn, 2008). Quality rather than quantity became the focus, aimed at justifying the higher price tag on what was advertised as an affordable luxury — a positioning that was being undercut by cheaper, very similar competition from Dunkin' Donuts and McDonald's. The organization shifted its focus to expansion abroad, seeking to take advantage of untapped markets and to be a "first mover" in the coffee markets of Europe and East Asia. "Today Starbucks is in 62 countries around the globe," including India and China (Loeb, 2013). "Currently there are more than 3,000 stores in China, and it is one of the fastest growing countries for the [Starbucks] Company. In the first fiscal quarter of 2013, the China/Asia Pacific segment alone achieved sales of $214.3 million, an increase of 28% over the previous year, with comparable store growth in the region" (Loeb, 2013).

The company's three key organizational pressures during this period were: closing unprofitable U.S. stores following a phase of unwisely swift expansion; expanding internationally to support its business model by moving into new areas and outflanking competitors; and maintaining its ethical commitments — including worker health insurance, other employee benefits, and Fair Trade Coffee sourcing — while remaining profitable. On the environmental side, Starbucks faced inexpensive competitors such as Dunkin' Donuts threatening its market share, the challenge of adapting to local markets where coffee is not a universally beloved commodity, and the ongoing need to justify its higher price point through consistently high levels of quality.

International Expansion and Brand Adaptation

This international expansion has required tailoring the Starbucks experience to local tastes. In many of its Asian locations, including China and Japan, Starbucks offers a more extensive array of tea-based beverages and less sweet, more savory foods to honor the local palate. Starbucks has also marketed itself as a brand, not merely as a beverage. "One of Starbucks' key marketing strategies is to provide customers with an exceptional experience. The chic interior, comfortable lounge chairs, and upbeat music are not only differentiators that set Starbucks apart from the competition, but also have strong appeal to younger generations who fantasize about Western coffee culture as a symbol of modern lifestyle" (Wang, 2012). This approach has allowed the company to position itself as an aspirational destination rather than simply a coffee retailer, which is particularly effective in emerging markets where Western brands carry significant cultural cachet.

Financial Performance and Strategic Outlook

Starbucks' shift to international expansion, combined with the greater diversification of its products, has proven very profitable for the company. "The Seattle-based coffeehouse chain raised its outlook for the year, saying it now expects per-share earnings of $2.62 to $2.68 and revenue growth of 10% or greater. The company had boosted its earnings view in January to $2.59 to $2.67 a share and backed its prior outlook for at least 10% revenue growth and global same-store sales rising in the mid-single digits" (Armental & Jargon, 2014). In short, Starbucks has much to gain by leveraging its current financial position.

Exploiting the middle-class market of the developing world while still meeting the needs and demands of consumers within the United States is essential. Starbucks must retain its core brand identity — defined by the pleasures it offers consumers of affordable luxuries, both in its beverages and its in-store amenities — or it risks being outflanked by less expensive competitors. It must also establish a strong foothold in the ever-evolving consumer markets of India and China, the world's largest growth opportunities. Additionally, the company must actively counter any criticism of its self-described sustainability and ethical commitments, given that these elements have become central to the Starbucks brand image.

References

Armental, M., & Jargon, J. (2014). Starbucks profit rises as sales increase. The Wall Street Journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702303380004579521601565594542

Carter, C. (2008). Starbucks ordered to pay more than $100 million in back tips. Huffington Post. Retrieved from

Linn, A. (2008). Starbucks to close 600 stores in the U.S. NBC. Retrieved from http://www.nbcnews.com/id/25482250/ns/business-us_business/t/starbucks-close-stores-us/#.U9OHiWNDxUo

Loeb, W. (2013). Starbucks: Global coffee giant has new growth plans. Forbes. Retrieved from http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-global-coffee-giant-has-new-growth-plans/

Wang, H. (2012). 5 things Starbucks did to get China right. Forbes. Retrieved from http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/2/