Starbucks: A Case Study on Market Trends and Business Strategies

Introduction

Starbucks is one of the most successful American companies at present. The company has built a considerable portfolio since its establishment in 1971. As of April 2018, the company had over 28,000 locations in 76 different countries (Thompson, 2019). The company has been experiencing a growth in revenue over the years as it expanded into new markets. They have recorded profits in all the years since 1990 except during the dot-com crash and the 2008 economic crisis. Their commitment to providing customers with quality coffees and their passion for educating customers about the merits and quality of dark roasted, fine coffees has made them a market leader in the coffee business and among the best restaurant chains in the world (Forbes, 2012). The company’s first CEO, Howard Schultz, established values and corporate responsibility that continue to guide the company to date. The leadership has a culture of honesty, and the employees are involved in the decision-making process of the company. These factors have allowed Starbucks to maintain almost steady growth in the close to five decades that the company has been operational. However, recent times have seen the company experience a decline in revenues and profits (Lucas, 2020). Hence, the need to conduct the company’s case study to ascertain the challenges facing that are facing the company. An analysis of the company’s profile, as well as the mode of doing business, indicates that the main problem facing the company is the shifting market trends.

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Analysis

One of the shifting market trends is that more consumers are choosing to stay at home. The restaurant industry was experiencing hard financial times, even before the Covid-19 pandemic. The reason was that people were not going out as much. A study conducted by National Purchase Diary (2017) had predicted an increased number of homestays due to the rising number of retirees and those who work from home. Consumers are turning into couch potatoes because no matter where the food was prepared, no matter where it is sourced, the meals are increasingly being consumed at home. The current business model for Starbucks is not tailored towards attending to that kind of clientele. The stores depend on consumers getting out of home and eating their meals or drinks outside of the home setting.

The changing trend is also fueled by the rise of restaurant deliveries and digital orders. There is a growing demand for food access delivery within the United States, which happens to be the primary market for Starbucks (National Purchase Diary, 2019). The technological advances, coupled with the limited time resources, is causing people to demand convenience. Digital ordering is allowing people to order food or drinks within the convenience of their homes or offices, hence saving time. There are other benefits such as the ability to make an order at one’s own pace, the possibility of earning rewards and points which make the customer feel valued, and the avoidance of waiting lines, which might be experienced at Starbuck stores during prime time.

Alternatives

Specific steps can be taken by the company to stop the decreasing revenues and grow the company. These include:

Start looking for a new market by making more effort to appeal to the younger generations, such as generation Z.

The company can intensify its push for food delivery service as a way to adapt to the changing trend among the younger generation as well as time demands of the modern lifestyle.

Recommendation

Based on the company’s current position, and the options available to it, the recommended course of action would be to embrace the food delivery service to conform to the demands of the younger generation. While studies such as Restaurant Marketing Labs (2017) have pointed out that millennials are eating out more than any other generation, it does not entirely paint a clear picture of where the exact money is going. Brewing artisanal coffee at home is cheaper and more convenient, and so while the generation would like to go out frequently to enjoy a good cup of latte, their economic situation might not allow them to splurge $ 2.75 for a cup of coffee now and then.

Also, unlike their millennial counterparts, Generation Z seems to have an affinity for food delivery service. The majority of them prioritize portability, which means they are looking for the type of drink they can have while on the go (National Purchase Diary, 2019). It is, therefore, beneficial for Starbucks to embrace online food delivery service because it will enable them to tap into the new market, which is generation z, without directly compromising their profit margins. In order to get the millennials to spend more money on coffee, the company will have to reduce its prices, which might not be precisely feasible, especially with the current economic conditions that are facing the company. Embracing digital food deliveries will help them expand, tap into the generation z market, and some of the operational costs such as rent.

Implementation

The implementation plan for the recommendations requires some slight modification to the business model of the company. For many years, the company’s sales and expansion have been driven by two things. The quality of their coffees and the atmosphere of their stores or spaces (Thompson, 2019). However, the new business environment does not exactly provide a conducive environment for these features to thrive. While such factors might have been an asset in the previous environment, they are now a liability. The company is paying for rental space that people no longer use and maintaining a workforce that is no longer needed. The company will have to cut down on some of its costs if it wants to survive.

The first step would be to reduce the number of stores and channel the savings towards marketing their online delivery service. They should also invest in their online platforms to make them user friendly in a way that can appeal to the younger generation. As earlier stated, people are looking for convenience, and a platform that is not user friendly will not be able to compete against other entrants whose business model is geared towards online food deliveries.

The second step would be to change their packaging in a way that can make their beverages and foods highly portable. Americans are increasingly living a lifestyle on the go (Cheng, 2018). Therefore, producing products that are made to support that lifestyle will give the company a competitive advantage and enable them to retain their market share from other entrants, as well as increase their foothold. Changing the packaging will also make it easy to integrate into the food delivery service, which requires portability. The company will need to be innovative on that front.

Finally, the company can seek to bring back some of their earlier business model that allowed people to brew their coffee at home (Thompson, 2019). That includes the selling and delivery of roasted coffee beans to their customers who are enthusiastic about quality homemade coffee. They already have the blueprints and the brand reputation for implementing such a business model. The retailer business model had already been proven to work, as it had provided the company with its earlier success. Such a move will see the company go into the retail business, which would help them grow and increase revenues.

References

Cheng, A. (2018, January 26). There Are Bigger Challenges Facing Starbucks. Retrieved June 25, 2020, from https://www.forbes.com/sites/andriacheng/2018/01/26/there-are-the-bigger-challenges-facing-starbucks/Forbes. (2012). 5. Starbucks. Forbes. https://www.forbes.com/pictures/feji45hfkh/5-starbucks-3/.

Lucas, A. (2020, June 10). Starbucks says it lost $3 billion in revenue in latest quarter due to coronavirus pandemic. https://www.cnbc.com/2020/06/10/starbucks-says-it-lost-3-billion-in-revenue-in-latest-quarter-due-to-coronavirus-pandemic.html.

National Purchase Diary. (2017, December 18). Foodservice Operators Need to Adapt: News. The NPD Group. https://www.npd.com/wps/portal/npd/us/news/press-releases/2017/a-look-into-2018-and-beyond-foodservice-consumers-will-look-for-a-new-level-of-convenience-and-foodservice-operators-will-do-what-it-takes-to-oblige/.

National Purchase Diary. (2019, July 12). Restaurant Digital Orders Grow by Double-Digits. The NPD Group. https://www.npd.com/wps/portal/npd/us/news/press-releases/2019/while-restaurant-delivery-gets-all-the-buzz-digital-orders-overall-grow-by-double-digits/.

National Purchase Diary. (2019, February 21). Gen Zs Are Getting Older and Making Their Mark on Restaurants and Eating Trends. The NPD Group. https://www.npd.com/wps/portal/npd/us/news/press-releases/2019/gen-zs-are-getting-older-and-making-their-mark-on-restaurants-and-eating-trends/

Restaurant Marketing Labs. (2017, July 07). Millennials and Restaurants – [INFOGRAPHIC]. Retrieved June 25, 2020, from http://restaurantmarketinglabs.com/millennials-and-restaurants-infographic/

Thompson, A.A., (2019). Starbucks in 2018: Striving for operational excellence and innovation agility (Case Study No. 29). Tuscaloosa, Alabama: University of Alabama