The focus of Cost Leadership's strategy is to reduce the cost and increase profits in highly competitive markets. If many firms are making similar products, such as Milk, one with minimum cost overheads and similar quality can make better economic margins over others and will be in a better position to handle market variation and competition. Although Starbucks does not seem to put much effort into Cost reduction, because they invest heavily in farmers and farming technology, and never compromise with the quality of Coffee beans, yet the out lot of efforts in reducing the cost and achieving the synergies. In the early days, Starbucks was a coffee beans seller and there was no concept of coffee bars, as most of the coffee was consumed in household settings. Then in 1983, Howard Schultz traveled to Italy and returned the USA with the idea of having coffee bars and made this almost 100 Billion dollar company with 31,180 stores globally. Most of its business comes from brewing co...
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In this article we will look at the Resource Based View on Starbucks, which means we will evaluate the unique resources held by Starbucks, giving it competitive advantage over competitors and discourage new entrants. Resource Based Analysis depends on two big assumptions: Bundles of Productive Resources: A firm has bundle of resources at their disposal to operate competitively in the market. Elasticity of those Bundles: How difficult or easy it is to get those resources. Broadly these resources further can be divided into four Categories: Financial Capital: Starbucks is competitively cash rich than their competitors. Their current market cap. stands at $99.31 Billion and earned $26.509 Billion in revenue and bagged net income of $3.599 Billion in FY 2019. https://stockanalysis.com/stocks/sbux/financials/balance-sheet/ Physical Capital: Starbucks is expanding globally. They already have 31,180 stores globally of which 51% are company operated and 49% are licensed. Majority, 61...
Mr. Porter gave the 5 Forces model to understand the threats, but now we will look into those threats and options to convert them into opportunities. 1. Environmental Threats as Opportunity: Threat is risk and an indication that there is some work and creative assessment required to neutralize or minimize that threat. Some companies recognize and turn that into opportunity, but many don't even consider to fix it. Blockbuster is one very good example, which never considered Online streaming as threat and gave away that segment to newbie of that time "Netflix". Starbucks is the company of focus in this analysis. Starbucks established its business based on premium coffee and experience, which can be copied easily now, given all the resources are available in market, such as Coffee Beans, Roasting facilities and Processes, Trained Baristas and Employees, established supply chain, finances, and many other. Now when we look at these resourced required to compete with Starb...
1. Threat of Entry a. Economies of Scale: Starbucks currently have 5 roasting facilities and opening a new one in China, which will be biggest so far and will serve approx. 6000 Starbucks in China itself. At this scale, it is very hard for any new entrant to compete with Starbucks on cost. https://u.osu.edu/commoditychaincoffee/manufacturing-page/ https://stories.starbucks.com/stories/2020/starbucks-announces-new-roasting-facility-in-china-extending-its-global-roasting-network/ b. Product Differentiation: Starbucks not only buys best coffee beans out there but also help them grow. They always use Arabic Coffee beans, which are considered best in quality for dark roasting and never mixed them any other type to cut down the cost and increase profit. “Starbucks Arabica beans are different from regular Arabica beans. At every step, we go to grea...