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10 - Vertical Integration Strategies - Starbucks

Starbucks is a world leader in serving Coffee and other hot coffee-based beverages. They become leader not only by serving coffee with smile, but also integrating lot of their backend value-chain functions. According to resource-based approach firms should vertically integrate into business functions in which they currently enjoy a competitive advantage.

Starbucks used this strategy in one of the best ways one company can use. They collaborated with farmers in major coffee producing regions all over the world to produce and maintain required level of production. They made sure that they provide all the technology and financial help to these farmers to produce best quality beans.

Next step would be bringing those beans to roasting facilitates and Starbucks committed people, time, and other resources to optimize its logistics to improve the efficiency of supply chain. This gave Starbucks an upper hand over competition in lowering the cost and improve the quality by directly delivering the beans to roasting facilities.

Roasting is one very important function in for serving best quality coffee and Starbucks have 6 hi-tech roasting facilities. Over the years with feedback from customers and technology, Starbucks have created state-of-the-art highly automated roasting facilities. This automation helps Starbucks achieve the scale, quality, and continuity.  

Now from these roasted beans needs to be delivered to stores in minimum time possible to preserve the coffee flavors and taste. Normal standard is to use roasted beans withing 7 days and keep in dark and cold places. Keeping these norms, Starbucks designed its logistics operations and created a hub-and-spoke model for faster and efficient delivery in each city and big business center.

“In response to those findings, Gibbons and his leadership team devised a three-step supply chain transformation plan and presented it to Starbucks' board of directors. Under that plan, the company would first reorganize its supply chain organization, simplifying its structure and more clearly defining functional roles. Next, Starbucks would focus on reducing the cost to serve its stores while improving its day-to-day supply chain execution. Once these supply chain fundamentals were firmly under control, the company could then lay the foundation for improved supply chain capability for the future.”

https://www.supplychainquarterly.com/articles/438-from-bean-to-cup-how-starbucks-transformed-its-supply-chain

Well I get my coffee from a Starbucks store and initially Starbucks owned all its stores to control the customer experience and coffee tastes. Although now with global expansion strategy Starbucks started licensing store too, but their training and coffee standard are so optimized, they can easily train employee in licensing stores and educate them about the customer experience.

Apart from these supply-chain functions, Starbucks invested heavily in technology and R&D to keep improving the coffee flavors, invent new drinks for non-coffee consumers, develop app for ordering, using reward programs to keep consumers engaged and appreciated, and most importantly taking feedback from customers and using latest data mining tools to optimize the customer experience.

If a consumer company controls so many parts of the supply chain it can help to customize, expand, and react to market conditions quickly. This is a competitive advantage which Starbucks earned and acquired in last 30 years or so by keeping themselves organized and integrated. 

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