Starbucks Swot free essay sample

Starbucks was founded in the early 1970’s. Jerry Baldwin, Zev Siegel, and Gordon Bowker were three academics that came together to found the first Starbucks, named for the coffee loving first mate in Moby Dick. The company was founded in Pike Place, a Seattle marketplace over looking Puget Sound. Starbucks began as a shop selling only coffee beans. In the first twelve years, the founders had built Starbucks into a retail and wholesale business with its own roasting facility. A man by the name of Howard Schultz was hired in 1982 as the head of retail sales and marketing. He opened the first coffee bar in 1984. Though the bar was successful, he was unable to convince the founders to expand more into this area. Schultz had left Starbucks and opened his own coffee bar, II Giornale by 1987. Schultz pulled together some investors and bought out Starbucks from its founders. This new enterprise became the Starbucks Corporation. The company’s first year of profitability did not come until 1990. In 1991, Starbucks opened its first store in Los Angeles, and its first airport location at Seattle’s SeaTac International Airport. Starbucks was taken public on the Nasdaq National Market in 1992 to fund further expansion efforts. By the end of 1992, the number of stores reached one hundred sixty five, including seventy-three cafe locations inside Barnes and Nobles bookstores. Starbucks signed a national contract with Sheraton Hotels in 1994. Starbucks began selling compact discs and formed an alliance with Chapters, a Canadian chain of bookstores in 1995. The total numbers of locations at the end of 1995 had reached six hundred and seventy six. In 1996, Starbucks began to expand their locations internationally starting with Japan and Singapore. Starbucks has continued its global expansion over the years into China, Germany, France, Greece, Indonesia, and many other countries. Starbucks has also continued to expand its product range by joining with Dreyer’s Ice Cream and Jim Bean brand to introduce Starbucks flavored ice cream and liquor. They acquired TAZO, a Portland based Tea Company, and launched the Hear Music media bar. They also sell whole beans and ground coffee to hotels, airline retailers, and restaurants. The strengths of the Starbucks corporation include its global presence, reputation, brand image, workplace, ethics, and clustering of its locations. Starbucks widespread global presence has provided extensive brand recognition. It has also provided a strong customer base with the atmosphere they have built into all of its locations. It has more than 13,000 locations globally. The company has built a global coffee brand and a reputation for serving fine products and the great service given to customers. Starbucks has created a brand image that strongly appeals to Americans. They took common coffee and turned it into an elitist product. Starbucks is known as a company that values its workforce. The company has a generous and comprehensive employee benefits package. The benefits include stock options, health care, career counseling, training programs, discounts provide for all workers, full and part time. Starbucks has very strong ethical values, and are known as a company committed to being a leader in social responsibility. They only buy their coffee beans from reliable sources that do not abuse their workers. A unique strength that Starbucks possesses is the clustering of their locations in high traffic areas. They depended on the basis that an important driver of business is the convenience of location. Using a focus on locations that have convenient access to drivers and pedestrians, Starbucks has clustered its stores to dominate particular areas. Surprisingly, this has not shown to decline the business of the existing locations in that area. The weaknesses of Starbucks include a reliance on the US market, dependence on innovation, dependence on competitive advantage, problems in some international locations, and undermining of its image. Starbucks has a majority of its locations inside the United States of America. They should look to generate more profit from their international locations in order to spread the business risk. Starbucks also has a dependence on their beverage innovations. Their US store’s sales growth has been driven by innovation, this may falter over time, and have seriously adverse effects on the company’s performance. The company is dependent on their main competitive advantage, the retailing of coffee. Their competitive advantage is being infringed upon more now than ever and this could make them slow to diversify into other interests. Starbucks has also been facing problems in some of their international locations. The difficulties include a number of failed store openings, cancellation of some of their joint ventures, and cultural differences. The ending of some of its joint ventures has caused others in the same region to end the relationship with Starbucks also, affecting the growth prospects in these regions. There have also been some problems with their retail outlets in China, which ended in removing Starbucks from some locations in China. Starbucks has begun to undermine its own image. They had taken out their hand-operated machines and replaced them with automatic machines to speed up service. By doing this they have tarnished the image that the company was passionate about coffee, and great care of service. Starbucks opportunities include new products and services, expanding their global market, coffee market growth, and new ways of advertising. Starbucks is known for their ability to introduce new products and services that can be retailed in their cafes. They have introduced media bars, CD burning services, and many other services into their cafes. They have expanded their beverage selections joining with other brands to introduce Starbucks liquors and bottle coffee drinks into the mass market. Co-branding with other manufacturers to present Starbucks named products has great potential, because of the name recognition that Starbucks has created. The coffee markets in other countries are expanding. This gives Starbucks an opportunity to expand further into countries that are large in urban populations and have growing economies. The specialty coffee market is expanding. Starbucks has basically created the specialty coffee market and therefore, hold a good percentage of the current market share in the specialty coffee market. If they can keep their hold on the market, many opportunities for further growth can be expected. In the past, Starbucks has depended on their baristas and word of mouth advertising. This year for the holiday season, Starbucks began a mainstream TV advertising campaign, the first in the company’s history. Starbucks threats have increased in the last few years. These threats include many new competitors, the declining US economy, rising production costs, unpredictable coffee markets, and the nature of people. Mom and pop stores and Dunkin Donuts were Starbucks biggest competitors in the coffee industry, but they catered more to common coffee flavors without much variety. McDonald’s has announced their plans to open nearly fourteen thousand coffee bars inside their current locations. They will be Starbucks biggest competitor. The declining US economy and otential threat of recession will make Americans look harder for better prices, not for image. Starbucks image is that of an expensive and elitist brand, McDonald’s image is of affordability and convenience. In rough times, Americans are known to choose more reasonably priced chains. This is a significant threat to Starbucks. The rising cost of production necessities is also a problem. Prices for food commodities are risin g to an all-time high in America. This has forced Starbucks to pass this cost on to consumers with two price increases in the last year for its products. Another threat that Starbucks faces is that of the unpredictability of coffee markets. Starbucks requirement for quality coffee beans makes them vulnerable to many uncontrollable factors in other countries that grow coffee beans. These factors can include everything for the weather to the political climate of those countries. This could potentially cause serious disruption to the company’s operations. People in general are a fickle bunch. Specialty coffee drinks could be replaced by any new product that comes on the market at any time. In conclusion, I believe that the company is headed in the right direction at the present time. They have fired the Jim McDonald, the chief executive for the last few years, who has lead Starbucks into their first serious crisis. Howard Schultz will retake the lead at Starbucks. Starbucks shares are dropping, and the number of customers bring served has dropped for the last two years in a row. They have announced plans to close nearly one hundred low performing locations, and cut back on the new store openings that had been planned for this year, though they will continue to open new stores outside the United States. They are also getting rid of some of the food offerings, because of customer complaints that the food smells have taken away from the coffee aromas. I believe that these are all goods steps for Starbucks to take. They are also trying a few things I believe will not work. Starbucks has run a one-dollar coffee special at some of its Seattle locations. I think by doing this they are continuing to demolish they image. If they try to compete with the prices of chains, such as McDonalds, they lose the elitist image that brought them so much growth in the beginning. I believe they should stick with the image that has made them a strong force in the market place. I believe that Starbucks should institute sales, but in a way that would bring back their former glory. A happy hour special for example could bring in business away for bars and into the coffee bar. For the people getting off of work and looking for a place to unwind, Starbucks could offer happy hour specials that would cater to the after work crowd. Starbucks has the locations and atmosphere to make it a socializing occasion. This could open up a completely new market place for Starbucks.