Starbucks Analysis: Business Model, Operations Management

Introduction

Starbucks is one of the world’s biggest and most well-known companies, with its logotype instantly recognizable to millions of people. Its signature brand of highly sugared coffee drinks and branded reusable cups for many is a lifestyle symbol. Many customers think of Starbucks immediately when thinking about coffee shops. This paper analyzes the business model of Starbucks and some of the reasons behind its overwhelming success. It examines the background and context of the coffee shop industry and discusses the current operations and management practices of Starbucks. It then analyzes said information through the lens of the course content and provides potential recommendations for Starbucks management team.

Background and Context

Starbucks is a coffee shop company that sells coffee drinks and the ultimate brand experience to their customers. It was first established in 1971 as a small corner café in Seattle, but since then has grown to be a multinational firm. The company positions itself as a premium coffee seller, yet its drinks are firmly placed within the limits of mass market. Such mix of exclusivity and availability benefits company’s position in the coffee industry that has taken the consumer culture by storm. Originally a stimulating and mildly addictive substance, coffee became a pillar of the multibillion-dollar industry that, to most, is now a part of lifestyle and an everyday pleasure.

Many coffee drinkers would go so far as to say that their daily cup is one of the day’s highlights. Consecutively, the coffee shops have been perfecting and consistently differentiating their approach to the drink for the last several decades. As the coffee making process and the barista craft has progressed further, there originated a growing demand for fancier and more unusual coffee drinks. Starbucks hence was able to successfully occupy and dominate the niche by balancing well-established favorites with season-themed new items in its menu.

Despite the high levels of market saturation for coffee drinks and coffee shops, Starbucks easily stands out to its customers. Its industry leadership is largely secured by upholding an image of the emblematic Starbucks drink. Product differentiation is at the core of Starbuck’s operation strategy, and arguably the main source of its competitive advantage. It provides its customers with drink options and flavor combinations that would have been unavailable in other cafes.

High variety in the offered drinks and the accompanying snacks and patisserie lead to wider appeal and higher popularity of the overall brand. Other competitive strategies include customer loyalty programs, premium pricing and the introduction of own-brand tools and products for coffee-making at home. The combination of these strategies has shaped the company’s self-positioning as something more, then just coffee.

The company’s values are focused on celebrating equally coffee as a drink and the connections that it helps to establish. Starbucks views its employees as partners in success and is committed to helping them in reaching their full potential. Its mission centers on inspiring and nurturing the human spirit one cup at a time (“Culture and Values: Starbucks Coffee Company”, 2021). The firm’s values are tied to providing the best possible products and services, maintaining the culture of warmth and mutual respect, challenging the status quo and striving for as much transparency as possible. To provide specific examples, Starbucks deliberately hires disabled workers and practices corporate social responsibility.

Operations Management Practices Analysis

One of the main Starbucks’ operation management practices is quality control, that ensures all of the firm’s customers receive the products that correspond to the brand’s high standard. Namely, the brand is currently sourcing its coffee beans only from a limited number of verified suppliers that meet the necessary criteria. These suppliers are part of the Starbucks Coffee and Farmer Equity program, which allows Starbucks to protect them from unfair employment practices and benefits local communities. The quality management is later implemented in the Starbucks retail outlets via the supervised friendly attitude of the staff members.

Location strategy is utilized by Starbucks via taking advantage of urban centers, malls and commercially active districts. As company targets the premium pricing in its pricing strategy, it is not uncommon to place its outlets in higher concentration in relatively prosperous and affluent districts. The firm engages in geographic clustering by positioning several Starbucks outlets in close proximity to each other which drives competitors away. On a more global level, Starbucks is oriented towards continuous expansion with over 15 000 stores in 98 countries worldwide. It has successfully become the leading coffee provider even in countries with difficult to penetrate markets, such as China.

Human resource management in Starbucks is a key part of its organizational culture, with the employee-first attitude. Although, naturally, the Starbucks employees that work in outlets are expected to demonstrate the top-level friendliness to its clients, no power violation or harassment is towards them is tolerated. On the contrary, the management festers an atmosphere of warm and friendly relationships on the workplace. The organizational culture of the brand is formed around its attention to personalities of the team members involved, who nonetheless are brought together by the same vision of the company (Li, 2018).

This can only be achieved through the inclusion and personal attention to the needs and mental state of the employees involved. It has been noted that although the firm’s productivity is ensured at all times, management team also provides the employees with opportunities to improve self-value. The company has even established several non-profit projects to advance their employees’ development outside of the coffee world, with Starbucks College Achievement Plan being the most notable one.

Course Content Application

The key characteristic of operation’s management lies in its attention to the daily processes the firm is engaged in on a permanent basis. It therefore needs to be realistic, relevant and largely all-encompassing to ensure the effective reporting mechanisms of all the areas important for the organization to function (Richey & Ponte, 2021). Starbucks’ operations stated above, such as differentiation, location management and others all provide an exemplary illustration to these concepts studied during the course. For the purposes of this section, however, the concepts are summarized and then linked back to the way Starbucks reflects them in its operations and future goals.

Differentiation refers to an operations management tool that allows the management team to secure and advantage over its competitors. This strategy encourages a consumer to buy a specific brand of product over its alternatives in a generally crowded field. As said earlier, the coffee market is saturated and most of the coffee shops in it act as close substitutes for each other. To secure a special place in customer’s eyes, a firm needs to provide a product that is either unique, or significantly better than most of the options available (Chang, 2020). With Starbucks’ choosing to engage in premium pricing, price competition is no longer an area of its interest, and thus the product differentiation takes the central stage.

Location strategy in operations management involves identifying an optimal location for the company by matching its needs and objectives to the best suitable environment. Multiple factors are considered when choosing the location, including the average income level in the area, the number of competitors, the area’s interest in a company’s industry and even weather.

Furthermore, operations managers pay attention to the available facilities and feasibility of the location, including rent costs and other resource investments necessary to optimize a potential location into a new outlet. Starbucks’ operations managers engage in the location strategy development every time they plan another outlet, which is further complicated by local specifics of the company’s multinational branches.

Human resource management is, perhaps, one of the most important and complicated areas of operations’ management in general, since it deals with the potential employee turnover. Historically the fields of human resources and operations management have been separated for a considerable time, yet in the recent years the overlap became apparent with mutual research in a shared framework. Company’s daily operations are powered by its human resources, and the firm could not function without employees in it. Although the relationship between human resources in organization management and OM’s other areas is yet to be studied in greater detail, this relationship is now acknowledged (Chang, 2020).

For organizations management, human resources provide an insight into the more unpredictable sides of efficiency that could have otherwise been deemed random. In Starbucks this connection is evident with its inclusive and encouragement treatment of employees being woven into the firm’s organizational culture and operations management.

Recommendations

My recommendations for Starbucks would be to continue on with its current strategies, as the firm’s growing revenue and market dominance are a testament to its efficiency. Product differentiation, premium pricing, smart location management and the inclusive and welcoming treatment of employees facilitate the brand’s attractiveness to its target market. Within the current culture of responsible consumption many customers are willing to pay more for a product that was fairly sourced and produced by a well-paid and supported employee. Yet even outside of this trend, the firm’s popularity is largely due to its current operational strategies, namely the product differentiation.

Every time Starbucks releases a seasonal drink, social media are rampaged with images of it, while stores quickly run out. Therefore it would make sense for the company to continue to do what it does best, perfecting its current practices rather than majorly changing them.

Conclusion

In conclusion, Starbucks is the picture of colossal success and industry domination, and has been for a considerable time. For many people, the brand’s titular mermaid is synonymous to the coffee drinking process itself, which is a sign of its great marketing efficiency.

This brand loyalty, however, relies on the skeleton of operations management and organizational culture, that the firm has gotten up to perfection. Its daily operations and management practices reflect the stated corporate values of diversity, inclusivity and inspiration. Furthermore, Starbucks is a testament of a profit-oriented organization dedicating significant amount of funds and effort to the community development. Starbucks is a brand that empowers its employees and customers alike while continuing to develop the classics and the trends of the coffee drinking industry.

References

Chang, W. (2020). Experiential marketing, brand image and brand loyalty: a case study of Starbucks. British Food Journal, 123(1), 209-223. Web.

Culture and Values: Starbucks Coffee Company. Starbucks. (2021). Web.

Li, C. (2018). Consumer behavior in switching between membership cards and mobile applications: The case of Starbucks. Computers In Human Behavior, 84, 171-184. Web.

Richey, L., & Ponte, S. (2021). Brand Aid and coffee value chain development interventions: Is Starbucks working aid out of business?. World Development, 143, 105193. Web.