Strategic and Operational Challenges at Starbucks

1.0 Introduction

Starbucks is a coffee company that is located or having headquartered in Washington. The company is now expanded to many places all over the world. The company is having a high percentage of customers as well as the employment rate is also better in such a competitive environment but some issues exist in the operation and management of the company. One of the major challenges that are faced by the company is dealing with the financial crisis all over the economy. This issue even has forced Starbucks to close many of the stores that it is having all over the world. The strategic challenges also include dealing with competitors as the company is having less cost-advantage as compared to other competitors in the market. The company also lacks the marketing strategy as compared to the other competitors that lie in the market. The report will discuss the strategic as well as operational issues that are faced by the company Starbucks. The report will perform secondary as well as primary analysis for the research for the necessary analysis. The secondary research will be performed using the data from the website and using various analytical frameworks like Porter Five force analysis, SWOT analysis and others. The different research questions will be discussed or listed first and then the analysis is done to identify answers for it. The questions will be related to the different issues or challenges that are faced by the company in all over the world. The analysis will be done through the secondary method as the data from websites and other online resources will be included in it. Then at last the recommendation will be provided to the challenges that are analyzed related to the strategic or operations of the company.

1.1 Research Aim or objective

The primary aim of the research is to identify and evaluate the challenges that are occurring with the organization. The challenges might be related to the operation of the company like fall in the productivity and the high rate of turnover. It will perform secondary analysis to list the primary factors that can be responsible for the issues which are occurring in the company. The aim is to understand the actual impact that the issues are creating in the business of Starbucks Company. The motive of the research is also to critically evaluate the issues through the necessary data or the methods.

The objective of the research is listed below

To identify the strategic or operational issues that occurring in Starbucks Company.

To evaluate the factors that are responsible for the issues like fall in productivity and large number of employee turnover which are occurring in Starbucks.

To understand the impact that is created by the issues in the performance of company Starbucks.

1.2 Research Question

The questions that will arise through the research are discussed as below

What are the strategic or operational issues that are occurring in the business of Starbucks?

What are the factors which are responsible for the fall in operational productivity and employee turnover that are occurring in the business of Starbucks?

1.2 Research Rationale

The different strategic issues like less cost advantage of the company as compared to the other competitors and inadequate marketing strategy is occurring in Starbucks. The financial crisis and strategic expansion of business without focusing much on the image of the brand also put the company less competitive and optimal in the market which creates a large number of obstacles for the business to grow (Lin, 2019). The price of the coffee for Starbucks is higher as compared to other competitors in the market as the company purchases high-quality coffee products which result in creating less cost advantage of the company over others. The company also shows the inadequate concept of marketing in which it promotes the drink cup-by-cup with the group of customers. Thus the advertisement gets end until the customer drink coffee which reduces the chances to attract a large number of valuable customer (Gupta et al. 2018). Starbucks is having a large number of coffee shops located all over the world but is less capable of attracting a large group of customers from it. Thus it lacks the strength to deal with competitors like Dunkin Donuts, McDonald's and Nestle over that place. Starbucks also gets failed in implementing the strategy to expand the business all over the world. It is because the company focused more on increasing the outputs and location but is showing less interest in the brand image as well as the quality. These issues are still making the company less capable to generate profit as well as gaining a competitive advantage over competitors in the market. Therefore it also results in decreasing the rate of productivity of business because of lack of operational strategy. (Sakal, 2018).

2.0 Background

Starbucks is the coffee-company that is operating over 30,000 different locations all over the world. The company used to serve cold and hot drinks, whole-bean coffee as well as snacks that include chips and crackers. Many stores even sell food items that are pre-packaged and hot and cold sandwiches too. The company is first founded in the year 1971 and the CEO of the company is Kevin Johnson. It is found that till November 2019, the company is located or present in more than 6 continents and a total of 78 different countries. The first store of the company is opened on 31st March, 1971 by three partners Jerry Baldwin, Zev Siegel and Gordon Bowker who get inspired to sell high-quality coffee products. The first store of Starbucks was located in "Seattle" from 1971 to 1976. According to the 2019 financial report of the company it is having net-income of total $1.37 billion and the actual market share of the company is $1.12 per share. It is also found that the actual market value of the company gets increased by 41% from the mid of 2019 (Clements, 2019). The company in July 2013 has 10% of total in-store purchases that were made on the mobile devices of customers using the application of Starbucks. It ranked 132 on Fortune 500 largest U.S Corporation in terms of revenue in the year 2018. On the year 2008, Starbucks took an initiative to start the loyalty program for the users who are registered with the services of free-WIFI access and no charges for the iced-coffee and flavored syrups. Starbucks announced officially to purchase Teavana which is tea-based products in the year 2012 (Kumaresan, 2019). The company in order to expand its business has entered Italy in February 2016. Even in order to bring beverages to the doorsteps of customers in the United States, the company expanded the partnership with Uber Eats. It also in the year 2019 has opened one of the biggest stores in Chicago which is having a total of 200 employees working there. It is found through analysis that a total of 3,501 employees are working in total at Seattle, Washington which shows a better employment rate (Sholihah et al. 2016). The company Starbucks has expanded the business in many countries or locations but without focusing much on the brand images. The company determines an essential factor of business as the outputs only but has missed the necessity of brand image in profitability ( Shirdastian et al. 2018). Even the company is accused of selling the products which are unhealthy and because of this reason the company has forced to close in Israel but the company announced that it is closed because of market challenges (Gopalakrishna et al. 2016). Even the operational activities also failed because the company faced criticism in the large number regarding the tax-avoidance which reveals that the company has not paid tax on £ 1.3 billion of sales prior to the year 2012. The company is using plastic-straw on all cold-drinks related products which creates health-issues and the customers are complaining against it. Therefore in order to solve these issues that create obstacles in operation of Starbucks, CEO announced to ban all the plastic straw by 2020 (Weber, 2019). [Referred to Appendix 2]

3.0 Research Methodology

3.1 Research Type

The research will be done using a secondary method which comprises an analysis of data using the information from websites and other sources of information like company website, financial reports and many others. The reason for choosing the secondary method for the analysis as it will provide better insights into the issues that are occurring in the company using various data as well as reports related to the operations of company Starbucks. The secondary data is easily available over the internet and through it there is a large probability to clarify the actual answers to all the research questions. It is already had been used somewhere in further research and for this reason the chances of accuracy are high in analyzing the data. The competitive analysis can easily be done by using a secondary source of data as compared to primary analysis as it provides an accurate list of competitors that actually exists in the market. The qualitative method will be used for the research as the information is basically accessed without including any survey or questionnaire. The secondary analysis also enhances the existing primary-data which is available over the internet. The inductive research method will be applicable over here and it is because the range of data is collected at first from the websites or the secondary source of data and then after observation it is been illustrated or discussed as the theory. The research is started with the research question and inductive also starts once the research question is been evaluated and then further discusses it in the study. The inductive theory using the existing data over the internet generates or produces new theories and explained it optimally. The secondary data analysis will be useful as it can be time-consuming and also the result can be evaluated from more than one authenticated source. The analysis would also be carried out using the analytical frameworks which can be categorized as Porter Five force analysis, SWOT Analysis, 4 Ps of Marketing and others. This framework will be helpful in generating a better understanding of the performance that the company Starbucks is showing in the market and also to identify that how the productivity of company is falling to higher extent. (Abdel-Basset et al. 2018).

3.2 Research Resources

The different resources that can be used to perform the analysis are summarized as below

Data and information from the official website of Starbucks

Financial and operational report of the company Starbucks

Website that clearly explains the marketing strategy, operational activities of company Starbucks

Official websites of the competitor's company like McDonald's, Nestle and many others to identify the competitive advantage in the market.

4.0 Data Analysis and Findings

4.1 Analysis of Operational and Management Issues of Starbucks

The list of operational issues that are occurring in the business of Starbucks and resulting in decreasing or creating negative impact on productivity are been categorized as below

Less effective application of Mobile order and payment: According to the latest report of the Starbucks the application of mobile order and payment has discouraged a large number of customers and they had to leave without ordering any items (Lam et al. 2016). This problem or issue has created the restriction on profitable productivity of the company (fool.com, 2020).

Large dependence on the U.S. Market: Starbucks derives a large amount of money from the market of the United States. The company is unable to generate revenues outside the U.S market. Therefore once the U.S market falls then the operations can be impacted and the company might have to face a critical financial crisis as well shows negative impact on productivity.

Low Revenue per number of employees: According to the analysis the 5 years average-return on the equity of the company which is 13.65% lower than that of the industry average that is 15.09%. Therefore the company Starbucks can face a financial crisis if that is not managed properly in the future. It also occurs because of increasing number of employee turnover in the company.

Self-Cannibalization through overcrowding: Through an increase in the number of expansion and higher saturation as a result of the overcrowding in markets results in creating self-cannibalization affecting the long term-growth target of the company. It is mostly taking place in the United States where the company operates a total of 8078 stores.

Clash of American/European coffee culture with other countries: The expansion of coffee culture that is followed as international expansion-strategy by Starbucks is not widely accepted by many of the companies. Therefore it results in restricting the impact of high productivity on the business of Starbucks.

The volatile market of Coffee: The volatility of the coffee market is one of the major issues of the operation and decline of productivity that is occurred in Starbucks. The quality production of coffee depends on various factors like weather, economic conditions that put a huge impact on the business of the company. The actual price of the green coffee of company is having a high impact on creating the disturbances on company operations (scholar.harvard.edu, 2020)

There are some of the internal issues that are occurring in Starbucks because of the poor strategy that is practiced in the management of the company. This issues that are listed results in increasing the number of employee turnover in company. The issues are listed below

Less support to the employees: The management of Starbucks leaves most of the decisions in the hands of store managers which results in fewer changes that are required for the smooth running of the business. Thus the company gets less support from the staff as they are not supported in an essential decision which business could take. All staff is not invited to share their views on the business policy as most of them have a different point of view to business and thus they feel ragged and useless for the business. It is analyzed that because of lack of support the large number of employee left company and hence it increases the turnover.

Fewer benefits and salary to employees: According to the company the October pay raise of employees has been replaced with the annual raise of January. The Starbucks workers however have confirmed that there is no such raise in salary or any other benefits they have received in the year 2017. The employee thinks that many of their salaries are too low as compared to the work they performed in the company. It is found that Starbucks not offering adequate number of benefits to the employees and the large percentage of it left for better opportunity and benefits in market.

It is also been analyzed that the company is ignoring or remains out of touch with the actual requirements of most in-store workers. Even there are many employees according to whom the company considered or give priority to the needs of customer more than that of well being of employees. The baristas who are working in the company are feeling less supported and working out with frustration and level of discomfort in the organization. Thus the management of the company Starbucks is not focusing much on meeting with all the requirements of employees at work. This results in a large percentage of employee turnover and the company lost many talents through this strategy (businessinsider.in, 2020) . [Referred to Appendix 4]

4.2 Porter’s Five Force Analysis

The Porter Five force analysis is one of the useful tools that can be used to identify the strength as well as the weakness that the organization has in market. It also helps in identifying who are the actual competitors that impact the operations of the company Starbucks. The Porter five force analyses of Starbucks is summarized as below

Threats of New Entrants: This factor is considered to be moderate for the operations of Starbucks. It does not provide many obstacles because of the reputation and long existence of the company in the market. Starbucks usually has captured a large percentage of market share as per their infrastructure as well as in terms of efficiency. The new brands however can attract the group of customers by selling the items at a lower price. The company Starbucks has access to the large number of suppliers who deal globally and therefore for this reason the impact of new entrant entry can be moderate in business or operations of Starbucks. It will also not put much impact on the productivity of business.

Threats of Substitutes: There are a large number of substitutes available for the brands of the company Starbucks. There is a large number of restaurants and coffee houses that provide better quality services at an affordable cost to the customers. The homemade product that is made by the customer is another issue that exists in the operations of Starbucks. It decreases the rate of productivity that the company is getting from selling the products in market as because of decline of active customers.

Bargaining Power of Suppliers: There are chances of low to moderate impact that can be created by this factor in the operations of Starbucks. The company has its own policy to select the number of suppliers and started importing products directly from the coffee farmers without including any third party suppliers. The company has positive relationship with the suppliers. Even the number of suppliers is high and they have plenty of choices in the market (Yeung, 2016). Thus supplier will have the low impact on that of the operations or productivity of Starbucks.

Competitive Rivalry: The factor can impact the operations of the company from moderate to high range. There are a high number of competitors in the market which is having better quality and efficiency in products. It is one of the crucial factors that had impacted the productivity of Starbucks to some higher extent as because of market strength of some of the competitors. However the large percentage of market share and premium quality of product provides the company more edge over the group of competitors like Dunkin Donuts and McCafe. However the industry has a large probability of getting new players in the market which can put an impact on market share (Weber, 2019).

Bargaining Power of Buyers: It impacts from moderate to low to the operations of Starbucks Company. The coffee-brands of the company are having a large number of the customer database. The customers are analyzed to pay high prices for premium products. But still, the prize of products cannot be high and this forces such customers to switch from the services. Thus the power of buyers has the low impact on the productivity or the operation of the company (notesmatic.com, 2020).[Referred to Appendix 3]

4.3 4 P’s of Marketing

The 4P's of marketing is a useful concept that is helpful to determine the marketing strategy as well as the issues that exist in productivity of the business. The products that are sold in the company are capable of attracting a large percentage of customers in the market. The better or optimal 4P marketing concept will also helps in increasing the productivity of the company Starbucks. However, the company has faced many critics regarding the contamination of chemical substances in food items as well of the company which impacts the operational performance of the company to some higher extent. The 4P's of the marketing for the Starbucks is defined or summarized as below

Products: Company Starbucks has expanded its business by adding a large number of new products. The products that are considered to be in the main category of business are Coffee, Tea, Baked Goods, Frappuccino and Merchandise like mugs and instant coffee. It helps in increasing the market productivity by the company Starbucks and thus gaining competitive advantage.

Place: The Company operates mostly in coffeehouses and cafes and also through a mobile application and through retailers. However it is analyzed that the online marketing through mobile application is not that capable to gain productivity at the earlier stage. The strategy to introduce selling products through mobile apps has faced many difficulties like there are large numbers of customers who switched or sign out without purchasing any products and even the transactional errors are also reported by many customers.

Promotion: The different strategies that are used for the promotions of products are through word of mouth, Sales promotion, Advertising and Public relations. The advertising and public relation is used for increasing the productive capacity of company. It is been analyzed that the company is using Public relations strategy in the wrong manner and that does not bring any success for the company. The example can be "Race Together" public relations which were criticized by most of the users [Referred to Appendix 1].

Price: The Company Starbucks basically uses a premium strategy for pricing. The coffee products are most expensive in the company as compared to other products or menus in business as because of the higher demand for it. The high pricing however also decrease the productivity as the customer started switching to the competitor’s store. The price of coffee products is even higher than that of McDonald's premium roast and which bring high image to the company in market. (panmore.com, 2020).

4.4. SWOT Analysis

The SWOT Analysis of the company Starbucks provides a better understanding on the strength as well as the weakness of it. Through it a better analysis of issues in productivity of Starbucks can be done and also recommendations can be provided. The SWOT analysis for Starbucks is been summarized as below

Thus from the SWOT analysis of Starbucks the different issues that are occurring in the operations or the problems that are creating fall in the productivity or employee turnover are analyzed. The strategy of selling brand products at a higher rate impacts performance of the company. The issues like European tax avoidance also one of the issues that impact the operation of the company over different locations and Starbucks gets subjected to fall in productivity as compare to other competitors in market. Starbucks gets criticized for selling the chemical contaminated products and which results in forcing the company to close many stores over the world that impact the management and operations of the company to some higher extent. The less benefits or poor increment in salary even the company promised to do so have turned the employee turnover rate to high percentage in Starbucks. (starbucks.com, 2020).

5.0 Conclusion and Recommendation

Starbucks is one of the popular retailers of coffee business which is having total of 182,000 employees which is operating in 19,767 companies that is located in 62 different countries. The company is however having some of the critical issues in getting better productivity like high competitive rivalry as well as criticism that occurs because of chemical contamination of toxic substances in coffee. The company also had faced criticism and punished because of European-tax avoidance which impacts the operations of the company to some higher extent. The company also unable to provide better well being to the staff or workers and this causes an increase in the number of employee turnover. It is analyzed that company Starbucks primarily focused on coffee production but they need to think about tea and fresh juice products also as it can provide better growth in the market. However the company has a potential number of suppliers as well as buyers in the market and for this reason it shows better competition in the market.

Recommendation

There are various lists of recommendations that can be suggested to the company Starbucks in order to improve the productivity of business that is falling and also to decrease the turnover rate of staff is listed below

The company focusing mostly on promoting the coffee products and it should also start focusing on tea and fresh juice products as it has high opportunities as well as growth in the market. It will helps in increasing the productivity of business which is falling because of certain issues.

Starbucks must start focusing on building a relationship with the big box retailers so that the efficiency in operations can be improved and the company also can have a better competitive advantage which is one of the biggest threats in business. With the change in the supplier the company can have more access to the resources in time and it increase the chance of getting more customer as well as impact the positive productivity within company.

The selling of products through online mobile apps has impacted 10% of the sales for the company in the United States. Therefore it is recommended that the company must ease the process of transactions and order so that it can drive more customers or simply makes it user-friendly. The company must add some advanced features so that personal information or transactional records cannot get stolen.

This issue of European tax avoidance is one of the dangerous threats for the fall of productivity in Starbucks and the company needs to overcome it as soon as possible. Starbucks must try to avoid issues like European Tax-avoidance by paying every sales tax in accurate time as it can have negative impact on the customers.

If the company wants to improve employee retention rate then the management policy must provide optimal benefits to the staff or workers as only workers can take the company to high level market.

Instead of giving power to store manager the high authority must takes decision so that the employees can gets supported and they feel comfortable and motivated in workplace.

This selling of product with chemical contamination has decreases the productivity of products for the company Starbucks in market. The company must check the products before serving it to customers as the chemical contamination might take the life of customers.

The company must start to focus more on other countries like India, China as compared to the domestic market in the U.S only as it will helps in attracting more customers and also to impact the graph of overall productivity. The U.S market might slowdown then the company if not operate effectively in other location can subject to loss.

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