starbucks essay in microsoft 97-2003
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(BUSI 30565):
Ethical and Strategic Issues in Management: Starbucks
The most consumed drink after water, UK coffee shop sales are well over 1.2 billion pounds
a year. Costa and Starbucks are the most popular coffee shops in the UK, with each having
been visited by around a quarter of all adults during the past three months (Mintel 2008).
Costa has the largest number of outlets, however Starbucks total network turnover sees it
remain the larger of the two, putting it as the market leader. Cafe Nero is the closest rival to
the top two, with the only other sizeable national chain.
FIGURE 1. Leading operators in the UK coffee shop market (Mintel 2008)
% of
outlets
Costa 27
Starbucks 25
Caff Nero 13
The market has continued to grow despite the recession, due to intense advertising and new
store openings of the market leaders, Starbucks, Costa and Cafe Nero.
Figure 2. Financial Indicators of the Market Leaders 07-08 (MINTEL)
Starbucks Costa Caffe Nero
Turnover m
(2007)
286.6 175.1 108.8
Turnover m
(2008)
328.2 216.3 129.3
% Increase 14.5 23.5 18.8
This table reflects the higher sales per outlet and levels of footfall experienced by Starbucks
who give more focus to segmenting niche markets, customer footfall and corporate social
responsibility than their rivals (Starbucks 2011). A growth in the coffee shop markets key
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demographics of both 16-34 year olds and those in the ABC1 category in the next five years
suggest a positive and growing market (Mintel 2009).
A change towards consumer awareness and expectation demands companies to be more
socially responsible; be it in their sourcing, production or dispensing. The main issues that the
coffee shop market face are, fairer sourcing, recycling and as in any retail industry, a concern
with employee satisfaction, i.e. minimum wage.
Ethical Sustainability in Starbucks: Sustainability in economics could be described as conditions,
under which a certain level of production and consumption can be sustained forever.
Starbucks missions statement: To inspire and nurture the human spiritone person, one
cup, and one neighborhood at a time (Starbucks business and ethics compliance policy
2011). This threefold mission statement reflects the three key elements of competitive
advantage to attract (new customers), withstand (competition) and strengthen (market
position). Starbucks focus on niche markets, caring and proactive culture and investment in
stakeholders has made them what they are.
There is no mention of being market leader, price, customer or any business language at all
used in Starbucks mission statement. Instead they pose as a metaphor (one person =
individualistic approach, catering to niche markets, encompassing everyone in a stakeholder
approach, one cup = the quality of their product, and also the recycling and sustainable
initiatives they are so passionate about, and the neighbourhood = society, their commitment
to community stewardship, supplier relationships and the environment). It is also reflective of
their corporate culture, the experience of visiting a store. This all culminates into a highly
focused brand and communications mix for the Starbucks image.
The communications mix is very tight, public relations is very quick to react to media
coverage and issue strategic press releases. Staff are trained to a consistently high level and
instilled with the corporate mandate, you could be anywhere in the world when you step into
a Starbucks, as they all follow suit. A cloned corporate chain but with a friendly face. This
standardisation has help them become the iconic symbol they are today, having just launched
their new wordless logo, it has, put the coffee chain in a select category of companies so
well known that a nameless logo was sufficient for recognition (Andrew Collins 2011).
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Their market position and long term strategies have given them a lot of strength within the
market. Based around Porters 5 forces model, Starbucks strategy of giving the highest
quality products, in a luxurious environment, being ethical and responsible to their
stakeholders, with focus to their suppliers sees only threat of substitution being an issue, as
an external factor such as, a change in trend to drink more instant coffee or cold beverages
could weaken them. To maintain competitive advantage a company must adapt and be
flexible; Starbucks now have bags of coffee beans, freeze dried and instant coffee to take
home and make yourself and have a large cold beverage selection.
Figure 3. Porters 5 forces model, Porter 2008
A SWOT analysis of Starbucks reveals that their weaknesses are not so much specific to
them as they are just general market weaknesses such as pressure groups slating coffee shops
for not treating coffee growers well enough. The stigmatism surrounding Starbucks in the
black & gold video is old news now and Starbucks ongoing ethical and fair sourcing
initiatives have more than combated this negative press. Other issues highlighted are merely
potential weaknesses rather than actual ones, such as their standardisation of stores could not
fit everywhere in the world. To agree with the findings from the Porter model, Starbucks
current business model is highly successful and secure for long term strategy and growth, the
main possible threat is from unlikely potential external changes in a trend away from coffee
shops.
Figure 4. SWOT analysis
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Strengths
Market leader price & concept (business model
doesnt have to conform to host country, set their
own culture)
Global dominance, internationally known there
are few high streets in the cities of Europe, Asia or
North America now without the ubiquitous
McDonalds, KFC or Starbucks Crane & Matten,
2010
Strong brand always what is referenced and used
in film/television, etc.
Known for their ethical stance, fairtrade, etc
Starbucks have one of the best sustainable practicein the world Crane & Matten, 2010
Weakesses
Bad press for:
1. corporate chain the exposure to the competition of an
MNC such as Starbuckscan crowd out localenterprises and severely threaten the business of
indigenous competitorsKlein, 2000
2. Unfair trade most of the economic value is captured
by the companies who act as middlemen between
farmers and the consumerglobal corporations that
dominate international coffee industry namely
Starbucks, that the film targets as the main culprits for
causing the Ethiopian farmers misery.Forest, 2007
Price high end, luxury good, there are manycompetitors that ar cheaper.
Unchanging business model doesnt lend itself to all
cultures.
Opportunities
The recession and reduction in consumer spending
could force Starbucks into changing their strategies,
this could welcome a use of adaptation letting them
move into other, non-americanised /western cultures
or change their pricing strategy to reposition them
and not out-price themelves.
Threats
The recession could mean they have outpriced
themselves. With a reduced disposable income, luxury
snacking out will be one of the first things to stop if
people try to save money.
If the media turn, such films such as black & gold
highlighting Starbucks as treating Ethiopian farmers
badly.
The local community could vote with their feet to
keep out large corporate chains over their home-grown
businesses.
Mounting pressures on corporations for being ethical
if laws were introduced regarding recycling,
sustainability and fairtrade sourcing could seriously
damage profit margins and brand reputation (although
Starbucks do more than most with regards to CSR
initiatives).
The key points to be taken out of the PESTEL analysis are that even though Starbucks is the
leader in being socially responsibly in the coffee shop market, if the government decide to taxor ban things such as corporate waste or having ethical ambivalent sourcing, then it still could
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have serious ramifications on Starbucks, both profit and image wise as its progress to change
is steady but slow.
Figure 5. PESTEL analysis
Political
- If the government want a push towards entrepreneurial activities, they might impose larger taxes on MNCs.
- Other countries could impose trade barriers to keep foreign competition out this could reduce/ stop growth.
Economic
- Reduced disposable income equals less spending on luxury / non-essential goods, leading to damaged profit
margins
- Trends towards cheaper, more homely coffee houses
Social
- Corporate chains are damaging to local competition, community could protest against it (like in the case of
Tescos).
Technological
- Improvement in coffee making technology could reduce the need for skilled baristas. Starbucks products
already sell in shops. If you can get the same, unique taste at home, for less money, why wouldnt you?
Environmental
- Trade barriers, fairtrade
Legal
- If laws are brought in to regulate recycling, fairtrade buying, sustainability, etc, a lot of time & money, aswell
as PR damage control would have to b spent changing the processes and practices of Starbucks.
- When moving into other countries, employee ethos might be different due to wage levels affecting motivation,
job loyalty, etc. This could change their business culture.
In the short term, Starbucks keep flexible by updating their product range, by listening to
their customers wants and needs and trying to cater to their different market segments as
much as possible.
Figure 6. Starbucks customer segments profile
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To be sustainable is to meet the needs of the present without compromising theability of future generations (United Nation General Assembly 2010).
Having been voted and winning awards for the most ethical company in the industry,
(Starbucks 2011) Starbucks still faces environmental and social sustainability issues.
Environmentally, pressures facing Starbucks and the industry as a whole are ethical sourcing
issues. This includes farmers pay and rights from the varying countries, deforestation and the
carbon footprint of the product in shipping. Moreover in concern with the carbon footprint is
energy and water consumption and recycling in store. Social issues concerning Starbucks are
their duty by their employees and stakeholders. As the market leaders they have to lead by
example to be doing the right thing as negative media and pressure group attention would be
extremely detrimental.
Figure 7. SWOT Matrix for choice of an environmental management strategy
Ethical sourcing Issues External Factors
Internal Factors Opportunities Threats
(Use strengths to avoid threats)
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Strengths
(use strengths to take
advantage of opportunities)
Use potential buying power to entice new
countries/markets to become available
Continue to improve on 77% of ethically grown
and fair-trade coffee
Help develop the vertical integration of the
supply chain (Sourcing Diversity Programme)
Conclusion: Continual increased investment in ethical
sourcing
Continuing investment in farmers loan
programmes/support centres in Africa
Use global marketing more effectively to advertise
strategy for continuing improvement on ethical
source products Failure = long term negative PR
Conclusion: Redefine current marketing strategy
Weaknesses
(Overcoming weaknesses by
taking advantage of
opportunities)
Slower to cash in on tea drinking market
Missing resources on successful implementation
hard to integrate quickly across all stores
Conclusion: Missed opportunity
Lack of differentiation in products (therefore
focusing on the green aspect)
Increased competition from non specialised
competitors
Market becoming saturated improve customer
base
Conclusion: Increase customer loyalty
(minimise weakness and avoid threats)
We get more customer comments about recycling than any other environmental issue
(Starbucks 2011). Recycling is seemingly the biggest issue for Starbucks currently, as their
other focuses of ethical sourcing and green building etc., are more in their control and they
are on track to make their changes. With the issue of recycling, Starbucks treads a fine line
with giving customers the freedom of choice and being responsible. Starbucks are rolling out
a three tiered program to better their recycling situation. Firstly to produce a take-out cup that
is fully recyclable, secondly to implement front-of-house recycling in the company owned
stores (harder to control the franchises) by 2015, and finally serve 25% of beverages in
reusable server wear or tumblers by 2015 by promoting use of flasks with an incentive
scheme and advertisement of their recycling programme.
At the moment, the majority of cups being used are take-out, throw away cups. This is a two-
fold problem as it is adding to deforestation to make them and landfills to throw them awayas they are not fully recyclable and out of Starbucks control when they leave the store. A
consumer watchdog observed that Starbucks previous target of increasing reusable mug
usage by tenfold by 2010 seems to have been abandoned for its latest initiative of working to
ensure that all of its single use cups will be recyclable by 2012 (Andrew Teasdale 2010).
However, Starbucks states that we served 4.4 million more beverages in reusable cups in
2009 than in 2008 (Starbucks shared planet progress 2011).
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Carrolls CSR Pyramid 1991
Corporate Social Responsibility theory has been a growing trend for the past ten years.
Starbucks take their commitments very seriously and by Carrolls standards fulfil the desired
philanthropic top piece of the pyramid by their outreach programmes and discussions with
local authorities to better recycling schemes as a whole, not just for themselves. Starbucks
aim is to, by 2015 we plan to have recycling available in all storeswhere we control waste
collection and serve 25% of beverages in reusable cups.
For different reasons, both Friedman and Porter disagree with CSR as a workable framework
so to solidify the argument I shall use the very current stakeholder model (Freeman 1991).
Placing Starbucks at the centre, Freemans stakeholder approach is generally regarded as a
basis for ethical decision making, as it attempts to consider all its stakeholders interests when
making a decision.
When applied to Starbucks business model this is their approach across the supply chain,
from the community ethos of caring from everyone to their coffee bean farmers, to their niche
market customer, minimize environmental impacts across our supply chain, minimize
deforestations by using innovative ways to grow more (Starbucks 2011). To further show
this model is working order, Starbucks dont just consider their direct stakeholder but indirect
groups to, for instance the surrounding community. Starbucks work with local governments
and bodies such as the U.S. Green Building Council (USGBC) to apply Leadership in Energy
and Environmental Design or LEED (Starbucks Shared Planet Goals & Progress report
2009). Concerning Starbucks main environmental issue they are trialling front-of-house
recycling in several US stores with aims of bringing it over here.
Philanthropic desired (by
society)
Ethical expected (by
society)
Legal required (by
http://www.usgbc.org/http://www.usgbc.org/ -
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A criticism could be that a lot of Starbucks initiatives are being rolled out in the US and
Canada only. However, their business model of ethical stewardship has given big ethical
credentials in the UK aswell as US, being cited as doing more for fairer farming than the fair-
trade label. Pressure groups that once made such films as black & gold citing companies
such as Starbucks as bad corporations are a thing of the past and heated discussions between
Starbucks chief executive Howard Schultz and politicians such as Peter Mandelson have been
mended having Schultz labelled as a business guru from which others could learn.
(Starbucks goals and progress report 2009)Starbucks is committed to a role of environmental leadership in allfacets of our business.
We fulfil this mission by a commitment to:
Understanding environmental issues and sharing information with ourpartners Developing innovative and flexible solutions to bring about change Striving to buy, sell and use environmentally friendly products Recognizing that fiscal responsibility is essential to our environmentalfuture Instilling environmental responsibility as a corporate value Measuring and monitoring our progress for each project Encouraging all partners to share in our mission
Starbucks are perfect advocates of the triple bottom line, (Elkington 1998) by not just being
concerned with adding economic value, but social and environmental aswell. Economically their
strength and focus of their long term commitments and solidarity amongst their communicated
message have seen them stay the market leader and it looks as if they will for the foreseeable future.
Socially and environmentally they are the industry champions, doing more for ethical sourcing than
fairtrade and ensuring staff are getting treated fairly and above minimum wage. However much more
can still be done to make sure they are as carbon efficient as possible in their sourcing, energy
efficiency in stores, and most importantly their recycling scheme.
The problem facing Starbucks with the cups situation is that they want to please everyone at
once which of course is impossible, to succeed in their attempts to get to 25% reusable cups
being used by 2015 they need to engage their stakeholders more to help them along their
way. If I were the public relations or sustainability manager, I would give more attention to
Starbucks initiatives through advertising at least in store. If people dont know about it, how
can they help? To give an incentive to use your own/buy a Starbucks reusable flask, they
could bring the discount offered in the US and Canada to the UK and to launch it initially,
perhaps create a media event where they give away/heavily discount the flasks, i.e. when you
buy any tall drink get a flask for only 1. The most significant difference would be if all
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take out cups were completely recyclable and then the focus could be given to further work
with districts authorities to improve recycling facilities/capabilities.
When spreading oneself to thin, often the case is you end up not covering anything properly, I
think it might be beneficial to narrow the focus of their recycling strategy by prioritising what
the most important change would be, impact wise. Applying Virtue ethics to the situation,
this strand of ethics born within the likes of Plato and Aristotle makes the applicant find a
balance between their vices (normally seen as weaknesses) and their virtues (good points).
As a business, Starbucks has to adhere to customer wants and be profitable, i.e. take enough
to be successful, yet also do what is right to the environment when you can (getting rid of
excess) by giving enough back to be philanthropic. It seems that Starbucks also have a
deontological underpinning of seeing it as their duty and responsibility to do the right thing.
This theory is fine up to a point, however it is not easily adhered to in a business
environment, as business duties can conflict with moral duties; hence why my suggestion of a
more balanced, virtue ethics would be more suitable in my opinion.
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