Starbucks Coffee Beans example essay topic

Michael Porter, a Harvard Professor introduces his ideology of the Five Forces model that shapes the competition in the industry. Each force is interrelated and therefore leads into the other to show the elements directly involved in the further success or ultimate success of the firm. Starbucks Coffee Co. throughout its existence since 1971, with its great management team, innovative style of thinking and strong will to succeed in compliance with its mission and vision statements has and continues to overcome its barriers by recognizing such strategic planning as those included in Porter's five forces model. The model includes such components as Barriers to Entry, Supplier and Buyer Power, Threat of Substitutions, and most importantly the Industry Competitors.

Starbucks throughout its existence has addressed each and every one of Porters forces with a positive edge that has greatly contributed to the success of the company. Starbucks took many risks and spent capital that it really did not have. To build a corporation based on intuition and a trip to Italy has undoubtedly paid off in the long run which is evident throughout the year that Starbucks has been in operation. Howard Schultz, CEO and founder of the company, has stuck to his conviction not to "sacrifice long-term integrity and values for short-term profit". He knew if he played his cards right and stuck to his guns it would only be a matter of time that Starbucks would become the world largest coffee industry in the world.

He wanted the company to become and international outlet for coffee consumers which not only included men and woman but also addresses the needs and wants of those of all ages and nationalities, children, students and any other category of people that have and interest in Starbucks diverse product line. With constant dedication to the company's vision and mission statement and believing in the value of market share and name recognition and how critical they are to the success of the company, he was able to achieve his goal within a few years. During this time of course he has been able to open a total of 1,100 stores and continues to do so until this day. Starbucks Coffee Co. continues to address the issues introduced in Porter's Five-Force Model as such: New Entrants (Barriers to Entry in to the Coffee Industry): There are many barriers to entry such as economies of scale where new firms entering the market will have to contend to the competition in the area of price and costs.

The aspiring new firm may have to conform to the economic scales already set for them which may mean high cost and high pricing or may have to result to a cost disadvantage. These disadvantages may effect production, marketing, research and development and many other elements directly related in the determined success of ones company. Product differentiation which ties in brand identification that can and will result in new firms having to spend a lot of capital earnings to break the customer loyalty that has already been established. Brand identification is a result of costly advertising and customer service that a companies plays out to gain the market share needed to bring in a profit. Capital is a must for all startup companies for investment and survival purposes. Capital can create barriers for new entrants because it may not exist for them to make up the lost expenses used to contend to the many other barriers that were previously introduced.

Starbucks because it was always Starbucks took a major risk starting up which costs a lot of capital which of course was made back through much profit and undoubted success. Yes, Starbucks did have to overcome the may barriers listed and it was costly and time consuming but it did pay off in the long run because of the management team and the leadership and eagerness of Schultz. Another barrier may include the access a company has to the distribution of its products. It becomes a major concern when considering how to get the product out to the public to obtain the publicity necessary for increased market share. Starbucks produced a mail-order strategy that delivers the products to consumers all over the country. Starbucks since its kick off has always followed the concept of complete domination.

Starbucks would dominate the area by opening up numerous chains of the company but in doing so would always maintain direct ownership of all stores opened. Many stores did not follow this because they would basically sell their franchise rights to the stores in order to expand rapidly with limited capital. When entering a market one must identify all that is around them and to what extent they are to be considered a threat to the company. This is precisely what Starbucks did. When entering a new area their goal was to introduce their diverse product line, dominate a large portion of the market share by creating relationships and customer loyalty and from there once successful in the acquisition, move on to the international expansion of the company. By expanding the company, further diversification through new innovative ideas for the product line can occur and increase the amount of market share.

Higher coffee costs have also cut into margins, intensifying the competition in what has now become a crowded market. Suppliers (Bargaining Power of the Suppliers): Starbucks believes that consumers choose among retailers primarily on the basis of quality and convenience and to a lesser extent on price (58-7). This brings us into the next force identifying the power of the supplier. Starbucks maintains loyalty not only from its consumers but also its suppliers. Starbucks is a unique type of company because it realizes the value of every aspect of its company and the importance of the contributions of its employees, customers and suppliers most importantly.

Suppliers in this case play an extremely important role because they supply the very thing that is keeping Starbucks in business. That important material would be the raw material they seek to make their product, which is the coffee bean. Starbucks only buys from the best because they have identified the substitutes that exist that will be discussed further. As stated further, consumers tend to determine which retail supplier they will buy from depending on the quality of the product and the service. Starbucks takes these things seriously and why shouldn't they if the consumers are the ones keeping them in business. With this said, Starbucks only buys the Arabica Bean for its coffees because it is only the best.

Through much study by the Starbucks team it was noticed that Americans were raised on and therefore used to a commodity-like coffee composed of Arabica beans mixed with less-expensive filler beans. Because of this Starbucks ensures that their coffee products are only made with the best bean (Arabica) which is a high quality bean. The beans are bought from places such as Indonesia, Kenya, and other areas of the world where the most premium bean and best quality can be obtained. Dave Olsen, Starbucks vice president and chief coffee procurer who searches for the beans that meet the standards of the company in quality and richness, performs many tests on the beans to detect such things.

Such tests may include doing things similar to wine tasting by inhaling the steam, tasting the coffee, and spitting it out. By showing a great deal of interest in the beans purchased and giving advice to the supplier Starbucks likes to create a relationship or a bond between them and the supplier. Whether foreign or domestic, mostly foreign, Starbucks continues to treat the foreign market the same as they would their own. Starbucks only has dealings with companies that coincide with the mission and ethical belief set forth in the company. This is important for the success of the company and is why if Starbucks execs see a difference in opinion by a foreign company or market it is addressed immediately and most likely changed. By purchasing in great demand that also contributes to the loyalty of the supplier.

Starbucks found an exclusive Nari no Supremo crop, which grew on eof the best coffee beans in the world. They jumped at the chance and because they promised to purchase the entire yield, the Europeans were outbid and this was an added plus to the production line of the company. When a company can establish a sense of loyalty, trust and a sense of commitment between them and the supplier it becomes extremely beneficial to the company as far as mass production and the quality of the product. Starbucks conducts there business through vertical integration where they acquire other firms that supply them with the inputs needed such as raw materials or with the customers for outputs such as warehouses for finished products. The company operates three roasting and distribution facilities one in the Seattle area and the other in East Manchester Township, York County, Pennsylvania. The company also operates in backward integration because of it acquires firms that are assets to the production process of the products to be sold.

Buyers (Bargaining Power of the Buyer): As said with the suppliers the buyers usually determine the retailer from which are willing to purchase a needed or wanted product according to the quality more than they would so much to the price. The Price is important but with regards to Starbucks, once the customer loyalty is already established, consumers will not mind paying an extra couple of cents for a good quality cup of coffee. Starbucks is unique when it comes to their customers. They want to build a relationship as said earlier by informing and educating their customers regarding the coffee. It explained thoroughly how the different flavors of coffee are produced, what is included in the coffee, and how one can tell if it is good quality bean used in the coffee besides just relying on the taste amongst others things that are explained. This allows the customer to feel as a part of the company and know that their presence and satisfaction is appreciated and valued.

This relationship also successful because of the education given to the employees who in turn educate the customers and help to determine which kind of coffee is best associated with there tastes and preferences. Employees assist customers in making decisions about beans, grind, coffee / espresso machines and to instruct them on home brewing. The physical appearance of the company helps a great deal with the loyalty that Starbucks is trying to establish between them and their customers. If a customers feels comfortable and safe in a setting that represents relaxation than they may not have problem coming back on a steady basis. Starbucks cafes provide a seductive atmosphere, as would be the Italian cafes that are the direct influence of these cafes. The stores are distinctive and sleek in size and small in space compared to full-size restaurants.

Starbucks tries to imitate the Italian cafes and espresso bars where customers can sit and drink with their friends. In order to get the high market that Starbucks is in search of, they have located themselves in high-traffic areas such as malls, busy street corners and grocery stores. The employees in these areas are also imitated from the Italian waiters known as baristas, which is Italian for bartenders. Starbucks takes great pride in their customers and values their support and in doing so makes sure their needs are satisfied.

Substitutes (Threats of Substitutes): Starbucks undoubtedly has substitutes but not so much in comparison to the quality of its coffee but there are two main competitive arenas that exist. The first would be the retail beverage and then the coffee beans. Starbucks coffee beans seem to be substituted whole-bean coffee distributed in supermarkets and specialty coffee shops. The premium coffee product distributed by Kraft General Foods, Procter & Gamble and Nestle in supermarkets and regional specialty coffee companies also sell whole bean coffees in supermarkets. Industry Competitors (Intensity of Rivalry): As previously stated above, the other forces all tie in to one force such as this because competition feeds off of the substitutes, suppliers and buyers power, and barriers to entry for new entrants. There are large amounts of competition in the industry because of the variety of coffee introduce to the market.

As discussed, Starbucks likes to dominate an area then move on to a new market. This made it hard for other companies to introduce their products and gain market share because Starbucks had obtained the majority of it. Competitors include specialty coffee restaurants and beverage outlets, Kraft General Food, Procter & Gamble, Nestle, Regional Specialty Coffee Companies, espresso stands, carts, stores, whole-bean coffee sales with franchise operators and independent specialty coffee stores in both the United States and Canada (Second Cup). Second Cup also owns Gloria Jeans Coffee Bean and Brother's Gourmet (located in malls in United States), Seattle Best Coffee, established suppliers in its specialty sales and direct response (mail-order) businesses with greater financial and marketing resources, stores offering coffee stands with them (ex. bookstores, clothing retailers, kitchenware retailers) and espresso carts, competes for qualified personnel to operate its retail stores.

Starbucks also endures competition not only on domestic soil but also foreign especially from Japanese industries which are prominent in Japan: Doctor Coffee Company and the Pronto Corporation. These are well-established coffee chains that Starbucks encounters competitive struggles from. Approach to Competition: In response to the competition, they soon acquired four companies as role models for the way in which they should conduct business: Nordstrom's, Home Depot, Microsoft, and Ben & Jerry's (58-7). Nordstrom's upscale department stores based in Seattle, was used as a model on service and was the basis from which Starbucks employees endured at least 24 hours of training. Home Depot a home improvement store helped in setting new guidelines for managing at high growth. Microsoft a well known corporate technical industry inspired Starbucks to incorporate a program for employee ownership.

This resulted in the implementation of the Bean Stock Plan which is a stock option offered unilaterally to all employees (after one year employees may join a 401 K plan, a vesting period of 5 years which starts one year after the options granted the vast employee at 20 percent every year. In addition, every employee receives a new stock-option award each year and a new vesting period begins) (58-11). This plan helps cut employee turnover that is discouraged by Starbucks. Starbucks seems to have a competitive advantage over other coffee industries because of its ability to have access to raw materials of high quality, employer / employee relationships which is the belief that a satisfied employee contributes a great deal in a successful company (including both foreign and domestic employees).

Starbucks also only acquires companies that comply with the ethical beliefs and standards set forth by the company because it is believed that this is the only way a company merger can survive or be successful in the long-term. When a foreign company does not comply with the standards set forth by them, Starbucks reacts instantaneously. An example of such an instance was in 1995 when they reacted to the neglectful treatment of the workers in Guatemala who were earning less than $3.00 a day, by enforcing a code of minimal working conditions and pay for foreign subcontractors. The company's guidelines call for overseas suppliers to pay wages and benefits that "address the basic needs of workers and their families" and to only allow child labor when it does not interrupt required education (58-11)". Starbucks can be considered a trendsetter not only in products but also in the area of work ethics by sticking to its mission of the company and applying it whether working domestic or foreign. Starbucks is socially responsible and responsive to not only the issues affecting the company and the employees but also to that of the community through which they are able to exist.