Analysis and Overview of Starbucks’ Business Model

 

With a global presence spanning 84 countries and a staggering 30,000 stores, Starbucks is often referred to as the “McDonald’s of the coffee world.” Founded in 1971, Starbucks not only specializes in coffee but also provides an array of teas, pastries, and other delectable treats. It creates an inviting ambiance with soft music, offering a peaceful setting where people can gather, socialize, or even work. Starbucks proudly labels itself as a neighborhood hub.

This coffee giant, rooted in Seattle, not only expanded its coffee enterprise but also introduced an entirely new cultural phenomenon, establishing itself as a prominent leader within the industry, both domestically and globally. Currently commanding a 40% share of the U.S. coffee market, Starbucks has found substantial popularity in China, opening a new store every 15 hours, with aspirations to further reduce this timeframe to just 9 hours in the coming three years. In the United States, Starbucks is the sole coffee behemoth with a nationwide presence, while competitors are primarily concentrated on the eastern and western coasts.

Starbucks boasts an annual revenue of $26.58 billion worldwide, with nearly half of its stores located within the United States. The company processes a remarkable 3 million mobile transactions per week and ranks as the second most valuable brand globally, following only McDonald’s. Notably, Starbucks was the pioneer in introducing an entirely new coffee culture and was the first privately owned company to offer health insurance to its employees. What Starbucks has accomplished in the last five decades is an exceedingly rare feat, and it stands as the ultimate aspiration for potential entrepreneurs in the industry.

What Is the Origin of Starbucks?

The history of coffee in the USA dates back to the very origins of the nation, although the concept of coffee shops is a relatively recent development. Coffee shops didn’t gain popularity in the country until the late 19th and early 20th centuries. The demand for coffee began to surge as the expansion of the US railroad network made it more accessible and affordable to a wider audience.

In the 1920s, coffee culture started to provide a social setting for those working in American offices, but coffee shops remained relatively uncommon until the onset of the Great Depression in 1929. During the Great Depression, food banks and soup kitchens began serving coffee and donuts to the hungry population, marking the emergence of the first wave of coffee culture in the United States.

The second wave of coffee culture, which began in the late 1970s, saw people spending a significant amount of time in coffee shops. This marked the gradual evolution of cafe culture as a social concept in the US. In the 1980s, this wave gained momentum and paved the way for the proliferation of coffee chains, with Starbucks seizing the opportunity and becoming a prominent player in this evolving coffee landscape.

When and how was Starbucks established?

The tale of Starbucks commenced in the early 1970s, when three acquaintances — Jerry Baldwin, an English teacher, Zev Siegl, a history teacher, and Gordon Bowker, a writer — crossed paths with a coffee roasting entrepreneur. This knowledgeable roaster imparted his expertise on bean roasting to the trio. Inspired to create their own company, they sought a name that initiated with “St.” Ultimately, drawing inspiration from the novel “Moby-Dick,” they christened their fledgling enterprise ‘Starbucks,’ marking the inception of this renowned coffeehouse chain in Seattle, Washington.

Initially, their inaugural store exclusively sold whole roasted coffee beans until 1976. It was during this time that Howard Schultz entered the picture, recognizing Starbucks’ untapped potential. He joined the company as the director of retail operations and marketing. Starbucks later expanded its offerings to include coffee for upscale restaurants and espresso bars. In 1983, while visiting Italy and observing the thriving espresso bar culture in Milan, Schultz was struck with fresh insights to elevate Starbucks. This led him to envision replicating a similar coffeehouse culture back in Seattle.

In 1985, Schultz launched a coffeehouse chain, which was eventually rebranded as Starbucks two years later, initiating the company’s expansion. New Starbucks outlets began sprouting up, and by 1989, there were 55 Starbucks stores across the United States. Encouraged by their remarkable success, Starbucks took the bold step of conducting an initial public offering (IPO) on the stock market in mid-1992. At that time, the company’s revenue stood at $73.5 million, with a market value of $271 million. The year 1996 marked a significant milestone when Starbucks opened its first store beyond North American shores in Tokyo, Japan. Today, this coffeehouse giant boasts an extensive global presence, with over 30,000 stores worldwide.

Starbucks’ Operational Framework

Starbucks, as a globally recognized brand, employs a unique model that doesn’t rely on customer segmentation. Instead, it caters to anyone seeking high-quality coffee, with a particular focus on the upper-middle-class demographic, evident in slightly elevated pricing compared to competitors. In essence, Starbucks aims at the mass market.

Renowned for its innovative approach to attracting consumers and expanding its brand reach, Starbucks maintains an unwavering commitment to quality, sourcing only premium beans and employing skilled roasters. In addition to its appealing physical stores, Starbucks facilitates orders through a mobile app, streamlining the customer experience and reducing in-store wait times. To provide variety, Starbucks offers an impressive selection of 30 coffee blends and an extensive range of sandwiches, cementing its reputation as a symbol of quality. This entire package is collectively referred to as the Starbucks Value Proposition.

Starbucks employs various channels to grow its business, including coffee shops, grocery stores, retailers, Starbucks cards, its customer service infrastructure, Starbucks apps, and social media platforms. Its dedicated employees play a pivotal role in maintaining a loyal customer base, not only by crafting and serving products but also by offering exceptional assistance, ensuring ongoing brand loyalty.

Starbucks generates revenue by selling beverages, especially coffee, and food, both in company-operated and licensed stores. It also earns income through royalties and recurring revenue from licenses and packaged goods. To effectively run its global operations, Starbucks invests in well-trained and capable human resources, partners with high-quality coffee farming centers, product developers, and store management.

Key activities within the Starbucks business model encompass continuous product development, customer service, marketing, production, research and development (R&D), and various operational tasks. Starbucks forms strategic partnerships with a wide array of stakeholders, including suppliers across the globe, coffee producers, external trading entities, exporters, retailers, and distributors. Its primary expenditures revolve around administration, operations, marketing, and distribution efforts.

Alternative Coffee Shop Rivals

Starbucks doesn’t stand alone in the market; there are other formidable players in the coffeehouse chain industry. One of its strong competitors is Dunkin’ Donuts, a renowned donut and coffee chain boasting over 12,000 stores across more than 40 countries. Another noteworthy contender is Costa Coffee, a British coffeehouse chain founded a year before Starbucks in 1970, though it was acquired by Coca-Cola in 2019. McCafé, a subsidiary of McDonald’s, is also giving Starbucks a run for its money. Established in Melbourne, Australia, in 1993 by McDonald’s CEO, McCafé emerged in response to the global espresso coffee trend.

The 19th century not only marked the birth of Starbucks but also gave rise to some of its most formidable rivals. Tim Horton’s, a Canadian-based fast-food multinational celebrated for its coffee and donuts, Peet’s Coffee, specializing in coffee roasting, Lavazza, a prominent Italian coffee brand, Yum China, the largest restaurant operator in China, Café Coffee Day, India’s largest coffee chain, and independent coffeehouses are among Starbucks’ significant competitors, each holding their own in various regions around the world. Starbucks faces the dual challenge of competing with these established names and establishing dominance in areas where these competitors are already household names.

Analyzing Starbucks’ Strengths, Weaknesses, and Threats

Strengths: Starbucks boasts an impressive array of strengths in the highly competitive food and beverage industry. As the reigning champion, it currently reigns as the most sought-after brand, raking in a staggering annual revenue of over $26 billion. With a staggering tally of over 30,000 outlets worldwide, the company’s expansion continues at a commendable pace. This growth is underpinned by a meticulously crafted global supply network that spans Latin America, Africa, and Asia, ensuring a steady stream of quality coffee beans. Starbucks maintains unwavering consistency with premium blends and coffee offerings across all its locations. What sets it apart is the methodical approach it employs before venturing into new markets, coupled with a strong commitment to reinvesting its profits in business development. Starbucks takes pride in its workforce, with employees often ranking it as one of the best places to work. Moreover, the company champions inclusivity by offering gender-neutral restrooms, demonstrating its support for the LGBTQ+ community in the workplace.

Weaknesses: Starbucks, however, is not invincible and faces several vulnerabilities. Its pricing structure, higher than that of competitors like McDonald’s, places an extra burden on consumers, potentially giving rivals an edge in the market. The relatively simple nature of its products makes it susceptible to imitation, increasing its vulnerability. A general standardization model, while ensuring consistency, limits its ability to cater to local preferences. Some of its products have gained more recognition than the brand itself, posing a challenge to its overall brand image. Despite its strong presence in developed nations, Starbucks has an opportunity for expansion in emerging economies and diversification of products to align with local tastes. Options include introducing regular coffee offerings and initiating delivery services, tapping into its vast customer base to explore coffee subscription options.

Threats: Starbucks is not immune to the threats faced by businesses of all sizes. Fierce competition looms in the form of coffeehouses offering more budget-friendly options, with multinational giants like Dunkin’ Donuts and McCafe vying for a slice of the market. The ease of replicating Starbucks’ products further intensifies this threat. Starbucks’ dependence on contractors and stakeholders for daily operations complicates supply chain management. The recent pandemic has already hit the company’s revenue, making it challenging to sustain the same level of investment. Rising coffee bean prices add to the mix of concerns, potentially jeopardizing Starbucks’ longstanding brand, established over more than 50 years.

Summarizing:

Overall, Starbucks encounters its share of challenges while addressing its weaknesses, but it’s undeniable that the company has mastered the art of market domination. What began as a small bean roaster in Seattle has evolved into a formidable empire. Central to its success are effective marketing strategies and a robust online presence, which have significantly contributed to its branding and overall expansion. If you’re interested in delving deeper into the intricacies of marketing and enhancing your business’s online presence through a website or mobile app, reach out to our experienced team of marketing experts and developers. You can gain valuable insights into business establishment and marketing techniques from our seasoned professionals.