Starbucks Market Conditions вЂ" Present And Future

Starbucks Market Conditions вЂ" Present and Future

Starbucks is a multinational coffee and coffee house chain company founded in 1971 and based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 15,011 stores in 42 countries. Starbucks sells drip brewed coffee, espresso-based hot drinks, snacks and items such as mugs, and of course their well renowned coffee beans. This analysis will provide an overview of Starbucks and its industry; examine the current market and future market conditions and suggestions for maximizing the organization’s future profits and growth.

Starbucks has expanded rapidly over the years, opening a new store every workday during the 1990’s. The first Starbucks location outside of North America opened in Tokyo in 1996. In 2003, Starbucks completed the purchase of Seattle’s Best Coffee. Currently there are over 172,000 employees of Starbucks, and the company’s 2007 revenue exceeded $9.4 billion. During this year Starbucks will purchase more than 300 million pounds of beans from Latin America, Asia, and Africa (Laidlaw, 2007).

Starbucks has become a success by believing and following their corporate Mission Statement, which reads as follows: “To provide a great working environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success”.

The unparalleled quality of the overall Starbucks experience is what makes a coffee drinker pay more than $2 for a cup of Starbucks coffee versus the $1 coffee provided by their competitors. In the Early 1960's Americans used to drink an average of over three cups of coffee a day. Today, the average is 1.87 cups a day. A major problem for traditional coffee marketers is that overall coffee consumption is declining in major geographical markets, while the demographics of coffee consumption also are changing. The target market of Starbucks is any person of any age, therefore; cocoa and juices are available for children, blended creamy drinks and teas are available for the non-coffee lovers, and of course, many various types of coffee are available for coffee lovers.

Starbucks faces competition from local bars, coffee bean providers, and other national and international coffee houses. Starbucks also has some special markets such as college universities, healthcare facilities, hotels and casinos and other businesses. Today, competitors are creating a challenge for Starbucks by improving their coffee quality and providing it to customers at a lower price.

Before 1998, supermarkets were considered Starbucks’ main competition, but Starbucks, turned down many offers from supermarkets to distribute the Starbucks brand. After 1998, Starbucks entered into an agreement with Kraft foods and many supermarket chains to sell coffee in the grocery stores.

Internationally, Starbucks is using licensing agreements with local partners in addition to company owned stores. The percentage internationally is about 75% operated by licensees while in North America only about 20%. A key part of Starbucks’ success is the tracking of store and regional buying trends as well as the freshness of the products. Snacks and muffins are donated to charity on daily basis and coffee beans are donated if opened and not sold within seven days.

Starbucks has come under fire regarding unfair labor practices, and on March 7th, 2006, Starbucks signed a national labor board settlement agreement with the US government. Starbucks did not admit that the organization had violated the National Labor Relations Act, but did agree to rehire and pay back pay to employees who claimed to have been released from work duties due to their activities with the Industrial Workers of the World (IWW).

Along with the National Labor Relations Act, there are other government regulations that Starbucks is required to follow. Those regulations include tax laws, food safety guidelines, the Fair Labor Standards Act (FLSA) for the control of child labor, minimum wage, tips, overtime, immigration laws, and the Americans with disabilities Act. In addition to the US laws listed, Starbucks is required to follow the laws of each state that they operate in, and the laws of other countries when doing business outside of the United States.

Recent market research has shown that Starbucks is not meeting its customers' expectations in terms of customer satisfaction in terms of the efficiency and speed of service. Given that there is a strong, positive relationship between customer satisfaction and future potential sales, achieving high customer satisfaction is a key factor to Starbucks' sales growth.

Although customer satisfaction is the key underlying strategic issue, other issues must be considered when evaluating various alternatives. While the importance of these issues may vary, it must be ensured that recommendations do not conflict with the core values, long term goals, and the image of Starbucks. Some important issues include the overall strategy and pricing objectives. Starbucks' long term marketing strategy must not be compromised in terms of Porter's Generic Strategies and Starbucks' pricing objective is based on a Premium Pricing Strategy (high quality and high cost).

Starbucks falls into the market structure of monopolistic competition. This is due to the fact that there are many different competitors in the industry, but the products offered are very similar. The success comes down to consumer brand preference and loyalty, which Starbucks has a strong advantage with.

Starbucks’ primary competitors are Dunkin Donuts, McDonald’s and Krispy Kreme. Due to the success that Starbucks has enjoyed, many different independent coffee shops have also been created to try to tap into the market and compete with Starbucks. Entry into the market is not very difficult because there are very few barriers.

There is no denying that the price of a cup of coffee at Starbucks is much more expensive than a cup of coffee at McDonalds. On average, a drink at Starbucks is $3 to $4, but a large coffee at McDonald’s costs less than $1.50. So, why does Starbucks get more customers? It’s the other elements that the company offers; the atmosphere of the store, the Wi-Fi service, the couches and over-stuffed chairs and the wide offering of bakery products to accompany the cup of coffee. This is