Starbucks Corp.

Table of Contents 1. Abstract ……

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…………………….. 3 Vision statement……………………………………………………………………………………………….. 3 Proposed Mission and Vision Statements …………………………………………………………….. Competitive Forces Analysis ……………………………………………………………………………….. 5 PESTEL Analysis…………………………………………………………………………………………………. 7 External Factors Evaluation (EFE) Matrix ……………………………………………………………… 8 Competitive Profile (CPM) Matrix ……………………………………………………………………….. 9 Financial Analysis …………………………………………………………………………………………….. 0 Internal Factors Evaluation (IFE) Matrix ……………………………………………………………… 11 Starbucks’s TOWS Matrix …………………………………………………………………………………. 13 Starbucks’s Internal-External (IE) Matrix …………………………………………………………….. 14 Starbucks’s Strategic Position and Active Evaluation (SPACE) Matrix……………………… 15 Starbucks’s Boston Consulting Group (BCG) Matrix ……………………………………………… 6 Starbucks’s Grand Strategy Matrix …………………………………………………………………….. 16 Quantitative Strategic Planning Matrix (QSPM) …………………………………………………… 18 Starbucks’s History ………………………………………………………………………………………………….. 2 Mission & Vision Statements of Starbucks …………………………………………………………………. 3 Starbucks’s External Analysis ……………………………………………………………………………………. Starbucks’s Internal Analysis …………………………………………………………………………………… 10 The Matching Stage ……………………………………………………………………………………………….. 13 The Decision Stage …………………………………………………………………………………………………. 17 Conclusions …………………………………………………………………………………………………………… 1 Recommendations …………………………………………………………………………………………………. 22 Starbucks Corporation Case Study Page 0 1. Abstract Starbucks was founded in 1971 by Gordon Bowker, Jerry Baldwen, and Zev Siegl, by opening their first coffee shop in Seattle, Washington. Having succeeded with their first store, they decided to open more branches. Starbucks now, as we all know, is a globally known brand and a premium choice for many. Starbucks is rated by ten Fortune as one of the best top 10 places to work.Starbucks operates through three main segments; United States (US), International, and Global Consumer Products (GCP). The US and International segments offer coffee and other beverages, complementary food, whole bean coffees, and coffee brewing equipment and merchandise, through company-operated retail stores; while the GCP operations sell a selection of whole bean and ground coffee as well as selection of premium Tazo teas, and ready-to-drink beverages. Starbucks is famous for their elevating coffee experience and comfortable ambiance that is designed for socialization.Starbucks’s US operations represent 76% of the company’s total net revenues, while International operations represent 20% of total net revenues, and GCP’s revenues comprise only 4% of total revenues. While revealing continuous growth in revenues, Starbucks’s revenues decreased by 7% to $4. 95 billion and its net income decreased by 72% to $89. 3 million for the 26 weeks ending March 2009. As a result, Moody’s Investors Service has downgraded Starbucks’ credit ratings. Not discouraged by this, Starbucks has plans to open 20 new stores by the end of 2009. . 1. Company Overview 1. 2. Strategic Analysis Overview This case study analyzes Starbucks Corporation from a strategic point of view, our analyses revealed that Starbucks follows a focused differentiation Strategy. Starbucks has scored medium on both external and internal factors analysis with scores of (2. 9) and (2. 84) respectively. Despite showing strong financial position compared to its competitors, its financial performance has recently deteriorated due to the economic recession that struck in 2007.Our analyses also indicate that Starbucks maintains a strong competitive position in a mature industry accompanied with a large market share. Based on the findings of this study, we recommend that Starbucks faces the increased competition by reducing their prices through enhancing the suppliers’ value chain. Starbucks can do that by forming alliances with suppliers and/or integrating vertically by producing coffee beans in order to ensure that quality prevails. By cutting down on costs, Starbucks will be able to provide the same delicious coffee cup for less, thus maintain its profitability margin.Starbucks Corporation Case Study Page 1 2. Starbucks’s History 2. 1. History Table The table below summarizes the main strategic events that has influenced Starbucks’s evolution and shaped it in its current form. 1971 1972 1982 1993 Starbucks was founded by Gordon Bowker, jerry Baldwen, and Zev Siegl, who joined forces to open a coffee shop in Seattle, Washington. With the success of the first store, the founders opened a second store in University Village, Washington. The business expanded to five stores and Howard Schultz was hired to manage retail sales and marketing.The company ventured into the East Coast market in Washington, D. C. The company entered into a venture with Barnes & Noble to sell its coffee at the bookseller’s stores. 2000 2001 2002 The company had licensed 12 stores and was operating 260 company-owned facilities. Starbucks opened 200 new stores outside of the U. S. , 150 of which were in the Asia-Pacific region, and opened its first stores in Dubai & Hong Kong, and its 100th stores in both Japan and United Kingdom. Starbucks opened a store in Zurich, Switzerland, marking its first venture into continental Europe.Starbucks experienced its first setback when its Japanese operation posted $3. 9 million loss. Despite that, Starbucks opened its first store in Turkey and acquired 129 Seattle’s Best Coffee coffeehouses. Starbucks long-term U. S. expansion goal was set at 50% and Starbucks announced it will eventually open 15,000 domestic outlets, and 30,000 worldwide. As a result of the worldwide economic recession that hit in 2007 and the simultaneous entrance of McDonald’s into the coffee business, Starbucks closed 600 underperforming stores in the U.S. Starbucks plans to add about 20 net new stores to its global store base in fiscal 2009. The company reinvigorated the Starbucks experience by grinding coffee each time a new pot is brewed so that customers smell the coffee aroma all day long. 2004 2008 2009 Starbucks Corporation Case Study Page 2 3. Mission & Vision Statements of Starbucks There is no mentioned mission statement in our case study. “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time. Here are the principles of how Starbucks Corporation elaborates on the above vision: Our Coffee It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done. Our Partners We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity.And we hold each other to that standard. Our Customers When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers – even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection. Our Stores When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savored, sometimes faster.Always full of humanity. Our Neighborhood Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set Our Shareholders We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders.We are fully accountable to get each of these elements right so that Starbucks – and everyone it touches – can endure and thrive. 3. 1. 3. 2. Mission Statement Vision statement the new standard, yet again. We will lead. Starbucks Corporation Case Study Page 3 3. 3. Proposed Mission and Vision Statements Proposed Mission To indulge everyone in a great Starbucks coffee experience with personalized ingredients. Proposed Vision To be the customers’ first choice around the world, providing the best coffee at the most convenient locations with superior customer service all day every day.Starbucks Corporation Case Study Page 4 4. Starbucks’s External Analysis 4. 1. Competitive Forces Analysis The power of buyers (high pressure) Due to the low switching cost of buyers, the bargaining & power of buyers is high since consumers can easily switch between the alternatives that are available in the market without incurring any cost. Competitive rivalry in such industry is very strong, because many competitors provide coffee products with lower prices. Low exit barriers of the market make this pressure also high. The competitive rivalry (high pressure)Picture (1): Starbucks’s competition. The suppliers of coffee beans have high bargaining power due to the importance of the quality of coffee beans sourced. The threat of substitution is considered medium to high, since customers can substitute Starbucks coffee for home/office made coffee either by brewing coffee using coffee makers or using instant coffee. Soft drinks can also pose a threat of substitution for coffee and tea in some cases. The power of suppliers (high pressure) The threat of substitution (Medium- High pressure) Starbucks Corporation Case Study Page 5The threat of substitution is considered medium to high, since customers can substitute Starbucks coffee for home/office made coffee either by brewing coffee using coffee makers or using instant coffee. Soft drinks can also pose a threat of substitution for coffee and tea in some cases. Figure (1): Porter’s Competitive Forces for Starbucks The threat of substitution (Medium- High pressure) Threat of entry Potential Entrants Medium Pressure Bargaining power Suppliers HighPressure Competitive Rivalry HighPressure Buyers HighPressure Bargaining power Threat of substitutesSubstitutes Medium-High Pressure Starbucks Corporation Case Study Page 6 4. 2. PESTEL Analysis Political Relationship between U. S and source countries of coffee beans impacts the industry’s operations. The worldwide economic recession that hit in 2007-2009 has adversely impacted the specialty coffee sector. Foreign currency exchange rates and inflation rates affect the revenues of international operations. Consumers of specialty coffee are characterized with high disposable income to spend on fine coffee as described by the specialty coffee association of America.Gourmet coffee consumption changes according to educational level and age. Recent trends has shown that the consuming public are getting more concerned about the Nutrition value of coffee products as those offered by specialty coffee sector. Women and teenage girls are specifically interested in the iced coffee drinks because of its low calorie and high caffeine levels. The Specialty Coffee Association of America (SCAA) has reported that there is a growing popularity for specialty coffee. According to their findings, 16 % of the U.S adult population consumes specialty coffee on a daily basis whereas 63% consume only occasionally in year 2006, growing from 13% and 59% respectively in 2002. In response to technological advances, Starbucks provides electrical outlets and wireless access in some stores for customers who need to use electrical devices. Starbucks also encourages the use of its web site where customers can shop online, search for careers, and much more. There is an increased emphasis on the growing environment of coffee beans.Environmentally responsible farms and the well being of the farmers growing those coffee beans is an issue that is getting more attention from the consuming public. Laws and regulations of the host countries for international stores. Economic Social Technological Environmental Legal Starbucks Corporation Case Study Page 7 4. 3. External Factors Evaluation (EFE) Matrix In order to develop the EFE matrix we have outlined the opportunities and threats for Starbucks as below. International operations are in their early stages of development can be invested in.The increased popularity of specialty coffee, as there has been an increase in daily consumption from 13% in 2002 to 16% in 2006, and an increase in occasional consumption from 59% in 2002 to 63% in 2006. A new trend that has surfaced in the past decade resembled by consumer request for organic coffee. Starbucks faces heavy competition from McDonald’s, 7-eleven, and Dunkin’ Donuts who desire to lure all Starbucks’ customers away to cheaper cups of coffee, this is evident in McDonald’s ad that says “4 dollar coffee is dumb”. Worldwide economic recession and exchange rates pose a threat on Starbucks’s international revenues.The growing concern of the consuming public in the nutritional value of products poses a threat for the specialty coffee sector, the sector needs to adjust its products to adapt to this trend. Key External Factors Opportunities International operations development. Growth of popularity of specialty coffee. Request for organic coffee. Threats The heavy competition and price wars. Worldwide economic recession. The nutritional value of products. Total Weight Rating Weighted Score 0. 80 0. 80 0. 45 0. 50 0. 30 0. 05 2. 9 Starbucks’s Opportunities Starbucks’s Threats 0. 20 0. 20 0. 15 0. 25 0. 15 0. 05 1. 0 4 4 3 2 2 1 Rating: 1 = the response is poor. 2= the response is below average. 3= above average. 4 = superior. The result above of (2. 9) indicates that Starbucks’s response to external factors is moderate which reads into a tricky external position, Starbucks needs to stay alert for any developments that will enable it to benefits from possible opportunities while continuously watch out for possible threats. Starbucks Corporation Case Study Page 8 Competitive Profile (CPM) Matrix Currently competes against four main competitors: Dunkin’ Donuts, Caribou, Krispy Kreme Doughnuts and McDonald’s.Critical Success Factors International Expansion Financial Position Price Competitiveness Advertising Customer Loyalty Product Quality Market Share Total Score Weight Rating Score Rating Score Rating Score Rating Score Rating Score 0. 20 0. 20 0. 20 0. 15 0. 10 0. 10 0. 05 1. 00 4 4 2 2 3 3 3 0. 80 0. 80 0. 40 0. 30 0. 30 0. 30 0. 15 3. 05 3 3 2 3 2 3 3 0. 60 0. 60 0. 40 0. 45 0. 20 0. 30 0. 15 2. 70 2 1 2 2 2 2 1 0. 40 0. 20 0. 40 0. 30 0. 20 0. 20 0. 05 1. 75 3 2 2 2 2 2 2 0. 60 0. 40 0. 40 0. 30 0. 20 0. 20 0. 10 2. 20 4 4 2 3 3 1 2 0. 80 0. 80 0. 40 0. 45 0. 30 0. 10 0. 10 2. 95According to the total CPM score of (3. 05), Starbucks is in a leading competitive position in the market against its competitors. The most important threat comes from McDonald’s with a competitive score of (2. 95), followed by Dunkin Doughnuts with a score of (2. 70). The least competitive pressure is posed by Krispy Kreme with a score of (2. 20) and Caribou Coffee which scored only (1. 75). Starbucks Corporation Case Study Page 9 5. Starbucks’s Internal Analysis 5. 1. Financial Analysis 2008 0. 80 0. 48 0. 22 0. 51 0. 22 2007 0. 79 0. 47 0. 24 0. 55 0. 24 2006 0. 79 0. 46 0. 16 0. 32 0. 01 Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Debt-to-total-assets Debt-to-equity Long term-debt-to-equity Interest Coverage Ratio Activity Ratios Inventory turnover Fixed asset turnover Total asset turnover Growth Ratios Growth in sale Growth in net income Profitability Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets Return on shareholders’ equity 55% 5% 3% 5. 56% 12. 67% 58% 10% 7% 12. 59% 29. 4% 59% 11% 7% 12. 7% 25. 3% 10. 32% -53% 20. 86% 19. 2% N/A N/A 14. 98 3. 5 1. 83 13. 6 3. 25 1. 76 12. 24 3. 4 1. 76 Financial IndicatorsThe ratio financial analysis indicates a deteriorating financial position of Starbucks recently; the following are the main highlights: Both Return on assets (ROA) and Return on Equity (ROE) declined at the end of 2008 which means that Starbucks is not using its equity and assets properly to increase its revenue. Retained earnings represent a high portion of their equity structure. In our opinion, Starbucks should have used this resource to finance their expansion and growth instead of leveraging through debt which may be more costly here since Moody’s have downgraded their rating.As we can see in the financial statements the Starbuck’s long term debt grew from $1. 9mm in 2006 to $550mm in 2007, which must be accompanied with incurring an interest expense which is not shown in the income statement. Starbucks Corporation Case Study Page 10 In order to develop Starbuck’s IFE matrix, we first need to gather a list of Starbuck’s Strengths, and weaknesses. Starbucks is rated by ten Fortune as one of the best top 10 places to work. Starbucks ambiance is designed as a place for socialization, to make customers comfortable. Starbucks provides electrical outlets, wireless access, and Starbucks card for customers.In order to show responsiveness to recent economic times, Starbucks adjusted prices of its more popular products. As a response to environmental issues, Starbucks opened a Costa Rican support office for coffee farmers and rewarded environmentally responsible farms to ensure better quality coffee, also made their business more environmentally friendly. Starbucks product distribution and coffee shops locations are at convenient places like, library, shopping malls and etc. R&D is constantly in pursuit of the new products & service that are both trendy & stable.The chairman decided to treat employees as family and called them partners. Starbucks’s continued international expansion as it keeps opening new stores in new countries. In order to reinvigorate the Starbucks experience in the face of heavy competition, Starbucks started grinding coffee each time a new pot is brewed in order that customers smell the coffee aroma all day. 5. 2. Internal Factors Evaluation (IFE) Matrix Starbucks’s Strengths Picture (2): Starbuck’s card for customers Starbucks Corporation Case Study Page 11 Starbucks’s Weaknesses Starbucks needs a clear strategy to offset the new attacks of competitors.Moody’s Investors Service recently downgraded Starbucks’ credit ratings. Recent closures of less than profitable locations. Starbucks financial statements in 2009 revealed a 47% drop in earnings. Starbucks charges higher price for its coffee than competitors. Having identified the most significant internal factors in Starbuck’s environment, the IFE matrix can now be developed. Key Internal Factors Strengths Its rating as one of the best top 10 places to work in. Its ambiance is designed as a place for socialization. Providing electrical outlets, wireless access and Starbucks card.Adjusting its prices to show responsiveness to recent economic times Making their business more environmental friendly. Its products distribution and coffee shops locations are at convenient places R&D is constantly in pursuit at the new products that are both trendy and stable. The special treatment of employees as partners. Starbucks’s continued international expansion. Reinvigorating the “Starbucks Experience”. Weaknesses Does not have a clear strategy to offset the attacks of competitors. The recent credit downgrading by Moody’s. Recent closure of less than profitable locations.The 47% drop in earnings in 2009 financial statements. Charging higher prices for its coffee. Total Weight Rating Weighted Score 0. 09 0. 20 0. 20 0. 20 0. 20 0. 56 0. 15 0. 15 0. 60 0. 09 0. 10 0. 04 0. 03 0. 08 0. 15 2. 84 0. 03 0. 05 0. 05 0. 05 0. 05 0. 14 0. 05 0. 05 0. 15 0. 03 0. 05 0. 04 0. 03 0. 08 0. 15 1. 00 3 4 4 4 4 4 3 3 4 3 2 2 1 1 1 Rating: 1 = a major weakness. 2= a minor weakness. 3= a minor strength. 4 = a major strength. Starbuck’s total of (2. 84) indicates a good internal position; however it also means that there is a room for internal improvement.Starbucks Corporation Case Study Page 12 6. The Matching Stage 6. 1. Starbucks’s TOWS Matrix Strengths Weaknesses 1. Starbucks’s rating as one of the best top 10 places to work in. 1. Does not have a clear strategy to 2. The ambiance is designed as a place for socialization offset the attacks of competitors. 3. Providing electrical outlets, wireless access and Starbucks card. 2. The recent credit downgrading by 4. Adjusting prices to show responsiveness to recent economic times. Moody’s. 5. Making their business more environmental friendly. 3. Recent closures of less than 6.Its products distribution and coffee shops locations are at convenient profitable locations. 4. The 47% drop in earnings in 2009 places. financial statements. 7. R&D is constantly in pursuit at the new products that are both trendy 5. Charging higher prices for its and stable. coffee. 8. The special treatment of employees as partners. 9. Starbucks’s continued international expansion. 10. Reinvigorating the “Starbucks Experience”. Opportunities SO Strategies WO Strategies 1. International operations 1. Use R&D to develop new products such 1. Reduce prices to appeal to the development. as organic coffees. S7, O3). growing popularity of specialty 2. Growth of popularity of 2. Starbucks ability to expand coffee among adults by forming specialty coffee. internationally should be used to exploit alliances with suppliers. (W5, O2). 3. Request for organic coffee. the early stages of development 2. Aim at 100% of coffee bought by internationally (S9, O1). Starbucks is responsibility grown 3. Starbucks convenient location are used & ethically traded (W1, O3). to appeal to the adult population that in growing their interest in specialty coffee (S6, O 2). Threats 1. Starbucks facing a heavy competition. 2.Worldwide economic recession. 3. The nutritional value of products. ST Strategies 1. Stores design outweighs that of competitors which enables Starbucks to acquire important market share. (S1-S2S3, T1). 2. Adjustment of prices of more products, perhaps the entire menu, in order to better respond to economic recession (S4, T2). 3. Stress out the concern for environmental issues and exploit R&D operation to provide products with enhanced nutritional (S5-S7, T3). WT Strategies 1. Entry into new markets before competitors (W1 , T1). 2. Use promotional offers and discount cards to respond to heavy competition (W5, T1). . To avoid high costs and expenditure of new stores, Starbucks can open coffee kiosks in malls and important streets to for drive thru and walk through customers (W3 , T2). Starbucks Corporation Case Study Page 13 6. 2. Starbucks’s Internal-External (IE) Matrix Based on the outcome of Starbucks’s External Factors Evaluation (EFE) and Internal Factors Evaluation with scores of (2. 9) and (2. 84) respectively, the IE matrix is developed for Starbucks and depicted in figure (2) below. Figure (2): IE Matrix for Starbucks The IFE Total Weighted Score Strong 3. 0 to 4. 0 High 3. 0 to 3. 9 I Average 2. 0 to 2. 99 II Weak 1. 0 to 1. 99 III Medium The EFE Total Weighted Score 2. 0 to 2. 99 IV V (2. 92, 2. 84) VI Low 1. 0 to 1. 99 VII VIII IX Starbucks Corporation Case Study Page 14 6. 3. Starbucks’s Strategic Position and Active Evaluation (SPACE) Matrix Rate 6 5 6 2 4. 75 Environmental Stability (ES) Demand Variability Barriers to entry into market Price range of competing products Rate of inflation Environmental Stability Average Rate -5 -2 -6 -4 -4. 25 Financial Strength (FS) Leverage Liquidity Inventory turnover Working Capital Financial Strength AverageCompetitive Advantage(CA) Product quality Customer Loyalty know- how advantage Market share Competitive Advantage Average Rate -5 -4 -5 -6 -5. 00 Industry Strength (IS) Profit potential Financial Stability Growth Potential Ease of entry into market Industry Strength Average Rate 5 5 6 6 5. 50 X Axis = CA + IS = (-5. 00) + (+5. 50) = +0. 50 Y Axis = FS + ES = (+4. 75) + (-4. 25) = +0. 50 Figure (3): SPACE Matrix for Starbucks Financial Strength Starbucks Competitive Advantage Industry Strength Environmental Stability Starbucks Corporation Case Study Page 15 6. 4. Starbucks’s Boston Consulting Group (BCG) MatrixStarbucks has three operating segments as follows: Starbucks International United States (US) Global Consumer Products (CPG) Those segments are now placed on the matrix as figure (4) below shows. Figure (4): Starbuck’s BCG Matrix Nehal ma tensi t3adleeha The BCG matrix above shows the distribution of Starbuck’s operating segments among different strategic positions. The US segment is located in Cash Cows since it has established a significant market share in a mature market. Starbucks’s International operations’ market is continuously growing, with a high market share compared to competitors, thus, it is located in Stars.The (GCP) segment is located in Question Marks since it has so far gained a small market share in a growing market. Starbucks Corporation Case Study Page 16 6. 5. Starbucks’s Grand Strategy Matrix Based on our analyses, Starbucks operates in a moderate growth market following progressive expansion with more measured caution given the economic conditions, and has a strong competitive position, compared to its competitors. Figure (5): Grand Strategy Matrix for Starbucks Rapid Market Growth Weak Competitive Position Starbucks Strong Competitive Position Slow Market Growth Starbucks CorporationCase Study Page 17 7. The Decision Stage 7. 1. Quantitative Strategic Planning Matrix (QSPM) Based on our analysis above we propose the following strategic alternatives to be evaluated in order to come up with a verdict as to what strategy Starbucks should pursue to improve its performance. 1. Continue opening new locations Strategic Alternatives worldwide Key Internal Factors Strengths 2. Open an increased coffee kiosks in malls and on highways. 3. Reduce prices through cost reduction by improving suppliers’ value chain. AS 3 4 3 4 3 3 2 2 4 2 4 3 3 3 4 TAS 0. 09 0. 2 0. 15 0. 2 0. 5 0. 42 0. 1 0. 1 0. 6 0. 06 0. 2 0. 12 0. 09 0. 24 0. 6 3. 35 Weaknesses Starbucks’s rating as one of the best top 10 places to work in. Its ambiance is designed as a place for socialization. Providing electrical outlets, wireless access and Starbucks card Adjusting its prices to show responsiveness to recent economic times Making their business more environmentally friendly. Its products’ distribution, and coffee shops locations are at convenient places R&D is constantly in pursuit of new products that are both trendy and stable. The special treatment of employees as partners.Starbucks’s continued international expansion. Reinvigorating the “Starbucks Experience”. Does not have a clear strategy to offset the attacks of competitors. The recent credit downgrading by Moody’s. Recent closure of less than profitable locations. The 47% drop in earnings in 2009 financial statements. Charging higher prices for its coffee. weight AS 0. 03 3 0. 05 0. 05 0. 05 0. 05 0. 14 0. 05 0. 05 0. 15 0. 03 0. 05 0. 04 0. 03 0. 08 0. 15 1. 00 4 3 4 3 3 3 2 4 2 2 2 3 3 3 TAS 0. 09 0. 2 0. 15 0. 2 0. 15 0. 42 0. 15 0. 1 0. 6 0. 06 0. 1 0. 08 0. 09 0. 24 0. 45 3. 08AS 1 1 1 4 2 4 4 2 4 1 2 3 4 3 3 TAS 0. 03 0. 05 0. 05 0. 2 0. 1 0. 56 0. 2 0. 1 0. 6 0. 03 0. 1 0. 12 0. 12 0. 24 0. 45 2. 95 SUBTOTAL Starbucks Corporation Case Study Page 18 Key External Factors Opportunities Threats International operations development. Growth of popularity of specialty coffee. Request for organic coffee. The heavy competition. Worldwide economic recession. The nutritional value of products. weight 0. 20 0. 20 0. 15 0. 25 0. 15 0. 05 1. 00 AS 4 3 3 3 2 3 TAS 0. 8 0. 6 0. 45 AS 3 3 2 TAS 0. 6 0. 6 0. 3 AS 3 3 3 4 4 2 TAS 0. 6 0. 6 0. 45 1 0. 6 0. 1 3. 35 6. 67 0. 75 3 0. 5 0. 3 3 0. 45 0. 15 2 0. 1 SUBTOTAL 3. 05 2. 80 SUM TOTAL ATTRACTIVENESS SCORE 6. 13 5. 75 1= not attractive. 2= somewhat attractive. 3= reasonably attractive. 4= highly attractive. The following are the three suggested alternatives: Strategic Option 1: Continue opening new locations worldwide. International expansion is a trend that is becoming strategically important for an international corporation such as starbucks in coping with competition. Starbucks already has a significant number of stores in different countries; however, there are still multiple locations that remain untapped.If Starbucks reaches those locations before competitors, it can gain a first mover advantage. Strategic Option 2: Open an increased number of coffee kiosks in malls and on highways. This is due to the lowered operating expenditures which will be significantly reduced as a result of the smaller rental space and number of employees needed for operations. However, this alternative limits Starbucks’s menu to the main popular drinks only due to smaller size. Strategic Option 3: Reduce prices through cost reduction by improving suppliers’ value chain.Since the biggest drawback for starbucks against its competition is its higher prices borne by its higher costs that are mostly driven by starbucks’s vision to provide high quality specialty coffee; Starbucks can form alliances or fix contracts with its suppliers to improve their value chain, starbucks can even engage in backward vertical integration for this purpose. When costs are reduced, eventually prices can be reduced while maintaining the same high quality of coffee without a loss in the profitability margin, hence, competitors will become less of a threat.Starbucks Corporation Case Study Page 19 According to the result of the QSPM matrix above, the best strategic alternative for Starbucks to pursue is strategic option 3, which is to reduce prices through cost reduction by improving the suppliers’ value chain, with a total attractiveness score of (6. 67) compared with (6. 13) for strategic option 1 and (5. 75) for strategic option 2 . This outcome comes reasonable to us for many reasons: 1. It helps Starbucks to better cope with the economic recession that has reduced the disposable income for many individuals. . It also helps Starbucks d improve their financial performance by reducing the cost of raw materials (coffee beans). 3. It minimizes the impact of competition, especially the rivalry from McDonald’s since price difference is reduced. 4. It enhances Starbucks’s image as consumers will feel that the company has reduced its prices while maintaining the high quality of its coffee in an attempt to accommodate to the reduced budgets of individuals due to recession, hence, customer loyalty will be enhanced. Starbucks Corporation Case Study Page 20 8. ConclusionsThe analyses of Starbucks Corporation indicate that their current strategy is focused differentiation. According to our findings, the company operates in a highly competitive industry. The pressures coming from Porter’s 5 forces are mostly high according to our external analyses. It is established that Starbucks currently possess an important position in its industry; however, it faces the threat of losing that position due to increased competition and the worldwide recession. Therefore, Starbucks needs a clear strategic vision to guide it through these hard times in order to overcome those threats it is currently facing.The input stage has led us to conclude that Starbucks has significant strengths, however lacking the strategic vision that sets a clear path for it. Starbucks response to external factors was at (2. 92), while it was (2. 84) as a response to internal factors, with both scores indicating moderate response and placing the company at the middle of the IE matrix grid. The SPACE matrix indicates that starbucks has a good financial position in a strong industry, and the GSM matrix indicates that Starbucks