In to down that cup of Joe
In today’s fast-paced environment, it is almost impossible to imagine a world without caffeine; more specifically, coffee.
We, in the U.S. and comparably developed nations, lead highly caffeinated lives. Whether it is your morning routine to down that cup of Joe before heading to work, or following the ever-evolving specialty coffee trends such as Frappuccinos and cold brews, coffee is a predominant influence in today’s beverage consumption. There is one coffeehouse name recognizable above all the rest. It is impossible today to walk down the street, into a supermarket, or be on social media without seeing evidence of their iconic two-tailed siren logo with its familiar green and white color scheme. Now a household name, the Starbucks Corporation is one of the most widely known specialty coffeehouse chains in the world.
It is renowned by millions for their rich, flavorful roasts and commitment to quality. As a company, it is their constant innovation and strive for brand relevancy that has made them the leader in the global coffee industry. This article aims to illustrate the methods behind the global expansion of the Starbucks Corporation and the challenges of building the company name. Utilizing statistical evidence and addressing researched history of the coffee industry, we will analyze the current social, economical, and global positioning of the brand to provide insight into the inner workings of the company.
We will demonstrate the proprietary managerial functions of the brand that either enhance the current status of Starbuck’s global market or aide in surpassing challenges between the company and consumer. According to an analytical economic article by Janice Feng and information gleaned from the National Coffee Association (NCA), there are three primary types of coffee beans produced: robusta, green, and Arabic. Green coffee beans make up the minority of the market, but according to recent market reports, demand is on the rise. The green coffee industry focuses on utilizing the bean for its medicinal and health supplement purposes.
Robusta coffee is grown in Brazil, southeast Asia, and central Africa. Robusta coffee is the hardiest and cheapest to grow and can most commonly be found in instant coffee brands. Arabica coffee is the more common type of bean produced and makes up around 70% of commercialized product. It is grown most commonly in Latin America, eastern Africa, Arabia, and Asia. Utilizing studies conducted by the National Coffee Association, coffee is recognized as the most commonly consumed beverage in the United States; surpassing even tap water. This being said, the economic impact of the U.S.
coffee industry in 2015 alone reached $225.2 billion. In collaborative studies with the Specialty Coffee Association of America, they found that the impact of coffee in the economy results in approximately 1.
6% of the total U.S. gross domestic product.
This reflects an averaged $74.2 billion in coffee consumption alone. However, these economic activities stretch across all communities; from generating tax dollars and creating jobs in various industries, and spanning from supermarkets to agricultural production. According to the studies, the coffee industry is responsible for around 1,694,710 jobs in the continental U.S., and generates a growing $28 billion in taxes (2015).
Stemming away from the U.S. economy, the International Coffee Organization (ICO) addresses the current global impact of the coffee industry. It is found, according to similar 2015 reports, that after crude oil, coffee is the most sought after commodity in the world. Finland is found to consume the most coffee per capita and the USA ranks fifth globally.
While the beverage is primarily found to be consumed by industrialized nations, over 90% is produced and exported from lower-income and developing communities. According to statistics, coffee farming is the economic livelihood for over 25 million people. It is grown in over 50 countries, spanning from Asia, Africa, South America, Central America, and the Caribbean. While 67% of the world’s coffee is produced in the Americas alone, the top three national producers include: Brazil, Vietnam, and Columbia. In response to the growing global demand, coffee shops have become the fastest growing niche in the restaurant business; reflecting an average 7% annual growth rate.
Leading this expansion, is the international coffee giant, Starbucks Corporation. According to the company’s online site, they boast over 24,000 stores in over 70 different countries. However, the American-based company worked hard over the years to earn their title. Sourcing a Reference for Business company profile, we can address the strategies taken by the Starbucks Corporation to build their beverage empire. The company opened its first storefront in coffee-haven Seattle, Washington’s, Pike Place Market in 1971. It was founded by three friends, George Bowker, Jerry Baldwin, and Zev Siegl, in an effort to improve the quality of post World War II American coffee in comparison to the rich, dark beverage found in Italy.
In its initial years, the founding trio aimed to develop their coffee-knowledge and set a standard for manufacturing, product, and taste. Building a cornerstone from famous roaster Alfred Peet’s reputation regarding high-grade arabica beans, roasted to an extreme dark, Starbucks often gave away free cups of coffee in order to hook customers. By 1972, the trio had opened a second storefront in University Village and within a decade had five locations, a roasting facility, and a wholesale business that supplied their roasts to local restaurants. With the growth of the company, many changes began to take place. In 1982, Starbucks hired Howard Schultz to manage the company’s retail and marketing. Around the same era in the company’s development, one of its founders, Zev Siegl decided to leave.
At this time, Starbucks was facing challenges on how to separate its wholesale division from its storefronts. The challenge lied in continuing to promote absolute freshness while still attempting to enter the prepackaged supermarket industry. In order to not compromise quality in order to lower prices, Starbucks relinquished their current stance in wholesale and focused instead on providing directly to consumers superior product. While Starbucks was attempting to dedicate themselves to retailing coffee, their marketing and retail director Howard Schultz envisioned a new initiative. Inspired by the coffee cultures of Italy, Howard Schultz strived to bring the concept of the Italian coffee bar to the U.S.
The founders of the Starbucks Corporation did not share his vision at first and Schultz amicably left the company in order to create his own business model with investments from his previous employers. By the mid 1980’s he had opened several highly successful coffee bars in Seattle, Chicago, and Vancouver. He also hired Dave Olsen, one of the first proprietors for bohemian espresso bars, as a coffee consultant and employee trainer. While Schultz was experiencing success with his endeavors, the Starbucks corporation was at a standstill. They had sold their wholesale line out of frustration with competing products and prices for low quality coffees. Furthermore another founder, George Bowker, intended on leaving the company as well.
Schultz proposed a sale to his prior employers and purchased the entire Starbucks chain for $4 million in 1987. By merging his own chain, Il Giornale, with the Starbucks chain, Schultz was prepared to take the company national. By 1989, the Starbucks Corporation had grown from eleven stores and fewer than 100 employees, to nine new Chicago locations.
Employees were trained by Seattle managers and served coffee roasted in the Seattle plant. Staying true to Starbucks primary initiative and never compromising quality for costs, the corporation faced financial consequences by ignoring the wholesale market. However, the U.S. coffee bar market, at the time unique to Starbucks, grew rapidly.
According to a reference for business report, the sales of specialty coffee in America grew from $50 million in 1983 to $500 million just five years later. By the end of 1988, Starbucks was operating 33 storefronts and was serving mail-order customers in every state. At the time, the company grew solely by word-of-mouth and through Schultz’s aggressive hiring practices. “Hire people smarter than you are and get out of their way”. He brought in industry experts to manage the company’s human resources, finances, marketing, and mail-order divisions. The company’s management teams were comprised of experienced managers from current food industry moguls such as McDonald’s, Taco Bell, Wendy’s, and Blockbuster.
Starbucks initiated a computer network that allowed each storefront to pass their sales information to the Seattle headquarters every night. This allowed planners to spot regional buying trends instantly. In 1990 the company was able to expand again and build a new roasting plant. Schultz’s methods, while costly and risky, fully prepared the corporation for explosive growth as an industry leader. Starbucks reached the East Coast in 1993 and had 275 stores total by the end of the year. By the end of the next, they had expanded to 425.
According to a reference for business report, sales had grown an average of 65 percent annually with the net income growing 70 to 100 percent. It was around this time that they were able to also purchase and merge a 23-store competitor, Coffee Connection for $23 million. They also announced a partnership with Pepsi-Cola to once again enter the wholesale markets, this time with ready-to-drink coffee beverages over coffee grounds.
In 1995 they began to break into new markets, supplying coffee for United Airlines flights and launching compilation CD’s available in their storefronts. They furthered this motive again in 1998 by entering a long-term licensing agreement with Kraft Foods, Inc. for the marketing of Starbucks brand whole beans and ground coffee in grocery stores and mass merchandise stores. In 1996 Starbucks Corporation began its expansion internationally. Their first international market stemmed from a joint venture with Japanese retailer and restauranteur SAZABY Inc. and initiated openings in Hawaii, Singapore, and Japan. By 1997, they had more than doubled their market with over 1,412 storefronts and retailers total.
By early 2000, the number of Starbucks in Japan had increased to 100 and they had effectively expanded into the Pacific Rim with the openings of stores in Taiwan, Thailand, New Zealand, Malaysia, China, and South Korea. They had also begun to breach the Middle East with openings in Kuwait and Lebanon. However, it was not until the acquisition of the leading U.K. coffee company, Seattle Coffee Company, for $86 million that enabled them to expand into the European market. In 2001, Starbucks reached continental Europe.
Schultz aimed to have 20,000 storefronts worldwide by 2003. In order to achieve this, he stepped down as CEO in 2000 to become the company’s chief global strategist and passed the title to Orin Smith who maintained responsibility for domestic retail operations and alliances. Schultz would later reclaim his CEO position until transitioning in 2017 to executive chairman and appoint Kevin Johnson to further lead the company.
Concurrently with the rapid growth, the Starbucks Corporation began to face new challenges as media outlets and owners of local coffee shops began to advocate that the company demonstrated overly aggressive and predatory moves into new territories. They argued that local coffee houses were becoming overrun and put out of business by the coffee conglomerate’s exponential growth to every street corner. In response, the company attempted to improve its reputation by improving their advertising techniques. However, the underlying hostility reached a breaking point in 1999 when protests converged into vandalism and destruction of 26 Starbucks locations near their Seattle headquarters. They also faced humanitarian issues in 2000 when human-rights group, Global Exchange, advocated that Starbucks purchased their beans from wholesalers who mistreated and underpaid their workers.
In effort to stave off this new attack, the coffee mogul announced a fair-trade agreement where they would only purchase product from certified coffee wholesalers who paid their farmers a higher than market price for their crop. In the early 2000’s the company’s revenues increased dramatically. According to financial reports, they surged from $2.17 billion in 2000 to $5.39 billion in 2005. Their net earnings increased fivefold.
Initiating this exponential growth, were several new initiatives including the introduction of the reloadable Starbucks Card and Starbucks credit card, non-caffeinated craft beverages, lunch items, hot breakfasts, media bars, as well as the merging of several more smaller coffee and tea brands. Today, the Starbucks Corporation dominates the global coffee and tea scene as the largest international roaster and retailer. According to Bhasin’s 2018 marketing report, they only have four direct competitors in the global coffee market. These, ranked highest to lowest, include: Costa Coffee; McDonalds McCafe; Dunkin Donuts; and Café Coffee Day.
Costa Coffee, stemming from the UK, is the second largest coffeehouse globally with over 3000 stores in over 30 countries. Their net revenue exceeded £1.167 billion in 2016 and is comparable as a brand because of their exclusive dealing and promotion of coffee products. McDonald’s McCafe is becoming a prominent market shareholder because of its backing by the gross number of McDonalds restaurants across the world. In 2015, they had over 4,500 different outlets for their products. Dunkin Donuts, another U.
S. based brand, operates over 11,500 locations spanned over 35 countries. Finally, Café Coffee Day is another global company that began in Asia and has expanded some countries in Africa, Nepal, and the Czech Republic. However, none of these compare to the mass expansion and revenues of Starbucks Corporation’s current 27,339 global locations in now over 75 countries; referenced through Jurevicius’s Strategic Management Insight report. Their initiative to maintain brand relevancy through constant reinvention has aided the coffee giant to satiate consumer appetite for modern innovations such as social media platforms and global awareness.
All while maintaining their original goals of promoting “the romance of the coffee experience”. Even with accelerated growth, they attempt to maintain a localized, home-style persona in their storefronts. Their goals and purpose is clearly dictated on their site through their mission statement, “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time”.
They further elaborate upon this through cultured values: “With our partners, our coffee and our customers at our core, we live these values:Creating a culture of warmth and belonging, where everyone is welcome.Acting with courage, challenging the status quo and finding new ways to grow our company and each other.Being present, connecting with transparency, dignity and respect.Delivering our very best in all we do, holding ourselves accountable for results.We are performance driven, through the lens of humanity.”This clear, publicized statement from Starbucks’ official website, is a promise from brand to consumer that the corporation is constantly fighting to uphold. Referencing their official website, one of Starbucks Corporation’s primary endeavors has always been to “…build a great, enduring company that strikes a balance between profitability and a social conscience”.
As previously addressed with the initial growth and scandals over mass expansion and humanitarian issues regarding product sourcing in the early 2000’s, Starbucks has since strived to commit to being an ethically responsible company. Today, they maintain a “holistic” approach to sourcing high quality product. This entails not only responsible purchasing practices, but also public support of farmer loans and forest conservation programs in the countries where coffee is produced.
They also aim to create a green, environmentally-friendly face for their storefronts by promoting water conservation, recycling, and green construction. More recently, Starbucks took a $10 million initiative to develop fully recyclable and compostable cups in order to reduce their carbon footprint. Furthermore, in a July 2018 press release, they announced that they will also be eliminating the distribution and manufacturing of their iconic green straws globally by 2020. Not only is the Starbucks Corporation ethically inclined, they also strive to create customer loyalty by fostering thriving communities wherever they reach. According to an article published by the National Business Research Institute (NBRI), the company received a #4 ranking for the best customer experience (2011). From their startup, they aimed to change the consumer experience by changing the mindset from a place to buy quality coffee towards a place to experience quality coffee.
Their brand appeals primarily to working professionals aged 25-40 and account for almost half of the total business; according to Alam’s TechFee official article. However, in today’s modern society, age range does not clearly define their target market. Starbucks customers share a wide variety of characteristics and the brand’s success stems from constant analysis and flexibility over ever-changing trends. Not only does the company appeal to the affluent professional with discretionary income, but they have also adapted to appeal to the socially conscious, health oriented, tech-savvy, and the on-the-go urban markets. According to further research from the NRBI, there are three key components for their success: atmosphere, continuity of product and brand, and employee satisfaction and training. According to their website, Starbucks employed approximately 277,000 people worldwide as of October 1, 2017.
Howard Schultz believed that in order to promote customer satisfaction, employee satisfaction needed to be prioritized. It is part of the Starbucks persona that customers, upon entering any given location, are greeted with a smile and friendly attitude. In West’s 2017 NBRI analysis, Starbucks maintains high employee satisfaction by offering competitive hourly wages, health benefits, and stock options. According to the Starbucks Corporation website, they also offer the Starbucks College Achievement Plan which enables all employees with the opportunity to further their bachelor’s education with full-tuition coverage through Arizona State University’s online degree programs. Finally, concurrent with their mission to nurture and inspire the human spirit, the company takes an extra step and refers to their employees as “partners”, thus increasing the employees sense of worth to the company.
Today, Starbucks is a global household name. Their emphasis on expansion through consumer relations and innovation is a model for businesses striving to succeed. With a mass variety of products stemming from their original pursuit, quality coffee, Starbucks manages to appeal to a broad consumer base through hot and cold beverages, fresh food, merchandise, and at-home coffee products. The Starbucks Corporation is an empire built upon “..
the art of perpetual renewal while remaining true to their heritage”. The brand inspires a sense of community and connection between its patrons.