Starbucks Global Expansion and UK Market

1.0 Introduction

Founded in 1985, Starbucks Corporation is a premier coffee brand and a roaster, marketer and retailer of coffee. Since, its inception, the company has successfully expanded beyond its domestic market in the United States to several other countries across the world. Currently the company is identified to operate in 75 countries across the world (Reuters, 2020). The main markets of the company include the United States of America (USA), Canada, China, Japan, South Korea and the United Kingdom (UK). In fact, UK is the sixth largest market for the company in terms of numbers of stores, where it has more than 994 stores in total (Iyengar, 2019). The company is identified to operate large and diverse product portfolio which consist premium quality coffee, hand roasted coffee and several other beverages. Some of the important product lines of the company include cappuccino, latte, mocha, muffins, gourmet coffee, tea and other related products. The company is one of the most successful beverage brands in the world (Bloomberg, 2020). One of the important factors that have influenced its success is associated with its differentiated marketing strategies. The marketing strategies of Starbucks significantly focus on the product quality. At the same time, in the recent years, the company has also been successful in increasing its sales due to its aggressive advertising and promotional strategies. As far as the financial performance of Starbucks in concerned, its UK division recorded the total profit of $213 million during 2018. Additionally, the preceding years also witnessed 60% plunge in the overall profitability of the company in the UK (Selby-Green, 2018; Wood, 2017). Hence, it can be argued that the financial performance of Starbucks in the recent years in UK has not been impressive.

2.0 Analysis of Macro Factors

2.1 PESTEL Framework

In order to analysis the macro factors influencing the Starbucks in the UK, PESTEL framework has been applied below.

Political Factors

Impact of Brexit (Coleman, 2019)

Government plan to reduce the corporate tax to 17% (KPMG, 2019)

Government decision to impose sugar tax (Hayward & Lemanski, 2019)

Economic Factors

Reduced customer confidence due to slow economic growth in the UK (The Irish Times, 2019)

Low inflation rate (Partington, 2019)

Social Factors

Lockdown due to Coronavirus pandemic (Bienkov, 2020)

Increase in the unemployment rate in the UK (Statista, 2020)

Technological

Increase in the sales of household coffee machine in the UK (PR Newswire Association LLC., 2019)

Growing adoption of new technology, such as super-automatic machines (World Coffee Portal Ltd, 2019)

Environmental/Ecological

Increasing focus on business sustainability (Schneider & Wallenburg, 2012)

Responsible sourcing (Schneider & Wallenburg, 2012)

Climate Change and global warming (Schneider & Wallenburg, 2012)

Legal

New and legislation

Employmenstandard t laws

Health and safety laws (Virtual College, 2018)

2.2 Summary of the Key Macro Factors

The PESTEL analysis offered valuable insights a about the challenges and opportunities that the Starbucks is facing or it may face in near future. Accordingly, one of the major macro factors that Starbucks needs to consider is related with the political uncertainty created by the on-going Brexit (Wood, 2017; Coleman, 2019). Accordingly, it may increase the trade-tariff resulting in rising cost of the ingredients used by Starbucks. Nonetheless, the recent announcement of reduction of corporate tax from current 19% to 17% can favourably influence it after tax profit (KPMG, 2019). In addition, rising wages in the UK over the last few years can lead to increase in the operational cost of the company (Partington, 2019). Besides, the reduce customer confidence due to slow economic growth is also an important external environmental factor that Starbucks needs to consider as it may negatively influence the sales of the company (The Irish Times, 2019). Nonetheless, the low inflation rate can bring stability in the cost of the ingredient used by Starbucks (Partington, 2019). It has further observed that there has been a significant changes being occurring in the social environment, which have the potential to influence the performance of Starbucks. Accordingly, the major social factor that has emerged more recently is associated with the challenges created by outbreak of Coronavirus pandemic. The government decision to lockdown the country as a preventive measure to reduce the spread of deadly coronavirus has brought all business in the UK to standstill (World Coffee Portal Ltd, 2020; Bienkov, 2020). This can have a huge impact on the sales and profit of Starbucks. Besides, continuous rise in the unemployment rate may also reduce the purchasing power of the customers and may result in the sharp fall in the sales of the company (Statista, 2020).

Moreover, in the last few years there has been sharp increase in the purchase of coffee machine by the household in the UK. This trend is further anticipated to continue in years to come, which is anticipated to reduce the coffee consumption at Starbucks stores (PR Newswire Association LLC., 2019). At the same time, the growing customer conscious towards environment protection and climate change also have created pressure on the companies like Starbucks to embrace sustainable business practices (Schneider & Wallenburg, 2012). Additionally, the withdrawal from the EU is anticipated to bring changes in the food standards and employee rights, which may create compliance challenge for Starbucks (Virtual College, 2018).

3.0 Analysis of the Micro Factors

Customers

Technology Savvy customers (Azhari & Bennett, 2015)

Rise in the customer expectations for enhanced customer experience

Reduction in customer loyalty (Forbes, 2016)

Competitors

Strong rivalry in the specialist coffee industry from international brand and local stores (Statista, 2016)

Main competitors of Starbucks include Costa Coffee, Dunkin Donuts and McDonalds McCafe (Statista, 2016)

Rapid adoption of new technologies by the competitors (Seymour, 2019)

Suppliers

Supply chain disruption due to Coronavirus pandemic (Chambers, 2020)

Complexity in the form of numerous outsourced relationships

Distributors

Revamping Company-owned store design and layout (Starbucks Corporation, 2020)

Lack of online retail stores (Kline, 2017)

3.1 Summary of the Key Micro Factors

The analysis of micro environmental factors postulated that there are several potential factors that can have considerable impact on Starbucks. In this regard, the analysis of the customers demonstrated that the customers in the UK have become more technology savvy and are increasing using smartphone and mobile app to order products, which can create pressure on Starbucks to embrace new technologies (Azhari & Bennett, 2015). At the same time, customer’s expectation in the specialized coffee industry is growing, which may not only require Starbucks to improve the quality of the products offered by them but also focus on service quality. Failure to deliver enhanced customer experience can also lead in the decline in the customer loyalty towards the company (Forbes, 2016). As far as the competition in the specialist coffee industry in the UK is concerned, it has been noted that Starbucks is faced with rivalry in the specialist coffee industry from international brand and local stores. Nonetheless, Starbucks is ascertained to face major competitive threat from international brands operating in the UK such as Costa Coffee, Dunkin Donuts and McDonalds McCafe (Statista, 2019). At the same time, these competitors in the industry are also identified to be quickly adopting the new technologies and processes which can also influence the competitive position of Starbucks (Seymour, 2019). Moreover, the changes in the customer habit towards coffee culture in the UK have offered significant opportunity for existing and new players. This may lead to entry of new firms in the industry as the cost of entry to the industry is also low which may further challenge the competitive position of Starbuck in the industry. With respect to supplier, it has been noted that the outbreak of coronavirus pandemic has severely disrupted to global supply chain for coffee beans. The disruption of the supply chain may lead to shortage of ingredients. Also, it has been noted that the Starbucks sources coffee beans mainly from developing countries but the disruption of supply chain can lead to volatility in the prices of coffee beans and may increase the cost for raw materials (Chambers, 2020). Additionally, Starbucks has numerous outsourced relationships with suppliers, which has resulted in complexity in managing this relationship. Such complexity may further reduce its supply chain efficiency.

At the same time, Starbucks is identified to use different distribution channels but it mainly involves the use of company-owned stores for the distribution (Starbucks, 2020). At the same time, it has been noted that companies across different industries are moving towards digitalization and have established online stores to cater the needs of growing online customer base. However, it has been identified that Starbucks does not have online stores so far (Kline, 2017). It has also been noted that Starbucks has closed numbers of stores permanently in the UK, which reflect the reduced ability of the company to generate adequate profit.

4.0 Three Main Target Audiences of Starbucks

Market segmentation relates with a process of dividing heterogeneous market for products and services into small groups of customers based on similar characteristics (Dibb & Simkin, 1991). Through appropriate segmentation companies are able to deliver the greater customer satisfaction as well as attain increase market efficiency. Starbucks have segmented its market based on different demographic, geographic and psychological bases to identify target markets for the delivery of its products and services (Dibb & Simkin, 1991).

Demographic Segmentation: Demographic segmentation relates with dividing markets based on demographic variables such as age and income (Dibb & Simkin, 1991). Based on the demographic segmentation criteria, Starbucks has divided its market grounded on age and income parameters. Accordingly, the target of Starbucks involves young male and female with middle and high income (Bean-Mellinger, 2019).

Geographic Segmentation: Geographic segmentation involves segregation of market based on where the customers are located such as region, country, state and city (Dibb & Simkin, 1991). With respect to geographic segmentation, Starbucks is identified to target audience living in urban areas in the UK (Bean-Mellinger, 2019).

Psychographic Segmentation: Psychographic segmentation is another market segmentation strategy, which involves dividing market based on the criteria such as values, attitudes, lifestyle and interest among others (Dibb & Simkin, 1991). Considering the psychographic segmentation, Starbucks target audience include those individuals who are health conscious and value quality over price (Bean-Mellinger, 2019).

5.0 Starbucks’s Brand Positioning

5.1 Strategic Position

Strategic brand positioning deals with how the customers in the market perceive the product and services offered by the company in the market relative to the products of the competitors in the market (Chowdhury, 2013). Accordingly, Starbucks has been successful in positioning itself as premium coffee beverage brand in the minds of the customers. The company has successfully leverage its innovative and quality products along with superior customer services to build strong brand positioning in the UK’s specialist coffee industry. More importantly, the high quality services offered by the company have enabled it to differentiate itself with its key competitors in the industry as well as deliver enhanced customer experience. Below is the perceptual map of Starbucks relative to its competitors which describes clearly explains its brand positioning in the specialist coffee industry.

5.2 Perceptual Map

Based on the above diagram, it can be identified that Starbucks and McDonald’s McCafe are placed at the first quadrant which signifies that the prices of both the brands are high but the Starbucks can be identified to provide more enhanced customer service than McDonald’s McCafe. On the other hand, Costa Coffee and Dunkin Donuts are placed in the third quadrant which indicates that prices of both the brands is low compare to other two brands including Starbucks and McDonald’s McCafe. At the same time, both Costa Coffee and Dunkin Donuts offers reduced customer experience compared to Starbucks.

6.0 Starbuck’s CSR Policies

6.1 Evaluation of the Starbuck’s Current CSR Practices

In the recent times, importance of Corporate Social Responsibility (CSR) has increased across the world and it has become essential for the companies to demonstrate socially responsible behavior. Accordingly, CSR is defined as the commitment made by the business organizations to act in socially responsible and ethically to contribute towards economic development while improving the life of the workforces, local community and society in general (Schwartz, 2011). In the context of Starbucks, it has been noted that company has a well-defined CSR policies and has demonstrated its strong commitment towards adopting socially responsible and ethical business practices. It’s socially responsible business practices include respecting diversity and create business environment, which values and promotes inclusive culture without any discrimination. It also ensures that all individuals in the company are treated equally and are offered with equal opportunities. The company also ensures that its partners and suppliers complies with local and international laws and avoid any conflict of interest (Starbucks Coffee Company, 2013). The CSR practice of Starbucks also places considerable attention on promoting sustainable development. In this regard, the company has demonstrated its firm commitment on ethical sourcing of coffee beans and serve them to customers in the sustainable manner. The company has also established supplier code of conduct as measure to ensure that not only the company but its partners are also socially responsible and ethical business operations. Besides, the company has also been focussing on use of recyclable materials and green packaging to minimise the environmental impact of its operation (Starbucks Coffee Company, 2020). Overall, it can be argued that the company has developed comprehensive CSR policies.

Nonetheless, despite well-defined CSR practices, the company in the recent times have been blamed for indulging in unethical practices. In this regard, it has been noted that incidents of racial abuse and pay gaps are increasing within Starbucks. Recently, transgender barista working in Starbucks store has blamed the supervisor in the store for racial abuse (Cramer, 2020). In another incident a White Starbucks manager has also blamed management of racial abuse and has filed a lawsuit against such unethical behaviour of the management (Fieldstadt, 2019). As noted above Starbucks has comprehensive CSR policies and has demonstrated strong commitment towards adopting the socially responsible practices. For example, the CSR policies of the company clearly stress in the importance of non-discriminatory equal treatment of all individuals. Correspondingly, it would be ideal to state that the company CSR practices are sufficient to deal with the ethical issues such as racial abuse now and in future.

7.0 Recommendations

7.1 Analysis of the Starbuck’s Future Prospects

In order to analyse Starbuck’s future prospects, Ansoff matrix has been applied. According this matrix was developed by Ansoff, which contains grid that compares strategic development directions which the business can follow to attain future growth (Johnson et al., 2008). These directions as identified by Ansoff include market penetration, market development, product development and diversification as showed in figure 1.0 below (Johnson et al., 2008).

In the context of Starbucks, it can be argued that the company can use product development strategy as its main strategy to attain future growth in its exiting market such as in USA, UK and Canada among others. The company can extend its product portfolio of coffee and tea beverages as well as snacks to meet the changing tastes of the customers and capture large customer base in its exiting market. Apart from product development strategy, it can also be suggested to Starbucks to adopt market development strategy as secondary strategic growth strategy. Accordingly, it has been noted that the company currently operates in only in 75 countries in the world. Correspondingly, there is a huge untapped market such as in Asia and Africa for Starbucks which it can enter to increase its sales as well as profit.

References

Azhari, J. E. & Bennett, D. (2015). Omni-channel customer experience: An investigation into the use of digital technology in physical stores and its impact on the consumer’s decision-making process. XXIV AEDEM International Conference, 1-13.

Chowdhury, P. P. (2013). Key strategies and issues of positioning: A review of past studies. American Academic & Scholarly Research Journal, 5(1), 55-66.

Dibb, S. & Simkin, L. (1991). Targeting, Segments and Positioning. International Journal of Retail & Distribution Management, 19(3), 4-10.

Johnson, G. et al. (2008). Exploring Corporate Strategy. 8th edn. Upper Saddle River, New Jersey: Prentice Hall.

Schneider, L. & Wallenburg, C. M. (2012). Implementing sustainable sourcing—Does purchasing need to change? Journal of Purchasing and Supply Management, 18(4), 243-257.

Schwartz, M. S. (2011). Corporate Social Responsibility: An Ethical Approach. Peterborough, Ontario: Broadview Press.