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11 - Diversification - Starbucks

Starbucks uses "related diversification" strategy as it offers food items which goes along well with coffee and other beverages. Even within beverages Starbucks has diversified its menu in hot and cold category, coffee and non-coffee drinks, healthy fruit-based drinks and calories heavy crème-based drinks and included tea and sparkling water options to its menu. Starbucks also offers food options for breakfast, lunch, bakery, snacks and sweets, and yogurt and custards. These food items compliment or supplement the customer experience. For e.g. my favorite is beagle with blank-coffee and my wife loves chocolate cake with Cappuccino. Now imagine if Starbucks would just be selling coffee, then it would be just any other coffee place without any clear competitive advantage. Food business is now significant part (20%) of the Starbucks. 

Starbucks also realized the Economies of Scope. It has valuable, rare, and costly-to-imitate resources and capabilities and used these capabilities to vertically integrated other related businesses. Some of the vertical integrations are acquisition of tea company Teavana. Starbucks further advanced Teavana line by introducing Fizzio™ flavored sparkle-based drinks. It also partnered with Groupe Danone for providing juices, yogurt, and yogurt-based smoothies. 

Starbucks used shared activities to achieve Operational Economies of Scope by opening high-tech roasting facilities, supply chain optimization, using hub-and-spoke model for efficient last mile deliveries, and establishing relations with farmers all over the world for best quality beans throughout the year. These operational integrations helped Starbucks keep the proprietary knowledge and skills in-house. Using same facilities and supply-chain network Starbucks also sells packaged coffee, tea and ready-to-drink beverages to customers outside of our company-operated and licensed stores, grocery stores such as Kroger & Walmart, warehouse club and specialty retail stores such as Costco and Sams Clubs, and through institutional foodservice companies such as Target. Starbucks basically used shared activities to 

 

Starbucks also seized the opportunity and diversified its business operations in all over the world in approximately 73 countries with most stores in following cities:


Starbucks is diversifying its business in multiple ways and keeping itself at competitive advantage. This diversifications helps Starbucks grow its business in multiple markets, multiple segments, and multiple avenues. It also also helps Starbucks choose vertical integration strategies to incorporate business which would enhance the customer experience and in-turn improve business. In its core business, Starbucks is just a brewed coffee seller, but Starbucks is much more than that. It is not just a coffee store, but more like a hang-out space with casual and quick options to eat and drink. It appeals not only to the coffee lovers but also families, businesses, young generation, and students. Starbucks is maintaining such a diverse customer base with diverse offerings.  

References:

https://www.fdfworld.com/retail/starbucks-finding-value-product-diversification

https://www.starbucks.com/menu

https://investor.starbucks.com/financial-data/annual-reports/default.aspx

https://rpubs.com/umeshjn/starbucks-stores

https://www.statista.com/statistics/306915/countries-with-the-largest-number-of-starbucks-stores-worldwide/ 

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