Strategic Audit: Starbucks Corporation

Starbucks Corporation was established in the year 1971 by three partners who came together with the aim of selling high-quality coffee (Starbucks, 2014). The three founders of Starbuck Corporation were Jerry Balwin, Zev Siegl and Gordon Bowker were friends from the University of Francisco (Rafii, 2013). The first shop of the company was established Seattle market, Washington in the United States. The founders sold Starbucks in the year 1987 to a group of investors led by the most celebrated chief executive officer of the company who had earlier worked as a marketing director in the company, Howard Schultz (Rafii, 2013). The sale of Starbucks was the beginning of the company’s growth in the current position it is in the international market. The company has currently expanded it services to not only selling coffee to its customers but also selling more drinks like tea, hot chocolate, and other snacks though their menu is limited. The company currently operates in more than 60 countries and has more than 15000 shops in operation across the planet (Reinhard, 2016).

According to Schultz, the company expanded well and maintained its relevance in the market by adapting quickly to changes in technology.  The company currently has an application used by customers to purchase its products.  “Tweet-a-coffee” promotion in 2013 made a great impact in promoting the company, and it leads to the sale of goods worth $180, 000 (NYCEDC, 2013). Despite the fact that Schultz was not able to convince the founders to sell him the company, he did not lose hope of getting it. He stepped down as the marketing director and went ahead to open his coffee shop but later came back with a group of investors who were able to buy the company.

Starbucks opened their shops in areas that never knew of coffee, and despite other coffee and drinks sellers complaining of about it, Starbucks managed to expand its market and build their customers who came to like their products. Starbucks’s first shop outside of North America was opened in the year 1996 in Tokyo, Japan (Sanburn, 2012). The city was full of competition at that time, but despite all this, Starbucks Company now has many shops in the city today in operation. Starbucks now works with activist groups to champion for the human rights and provide humanitarian aids to the people in America. Starbucks Corporation last year announced that it would bring its first ever original Series called the “Upstanders” targeting the American audience (Rafii, 2013). The main aim of the series will be to air stories of compassion, citizenship, and civility among the American residence. The series is distributed in the company’s mobile application. The company is currently giving this one way back to the society. Despite started low from a single shop, the company is now well known all over the world offering its services to millions of people across all the continents in the earth.

Starbucks industry analysis

Starbucks competes and operates in the retail snacks and coffee industry. The company competes favorably because of it is quick and convenient. In 2009, the industry faced a major slowdown because of the changing customer tastes and the economic crisis causing the revenue in the sector to decline by approximately $25.9 billion (Starbucks, 2013). Before the 2009 economic crisis, the sector had a consistent growth, however, after the economic slump, consumers started eating at home, or deciding to buy cheap items rather than buying high priced coffee drinks (Starbucks, 2013) Since 2008 to 2014, the sector has been growing at a low average growth rate of approximately 0.9% (Susanty & Kenny, 2015). 

Since 2015, the industry has been sustained by improved consumer spending, which is driven by greater confidence and high disposable income in the economic outlook (Susanty & Kenny, 2015). The demand for coffee has increased in the US than most segments in the food service industry because customers continue seeking for convenience and affordable prices. The industry has also adapted to customers preferences that continue changing, especially the ones linked to diet and health. These trends are expected to continue bolstering for the next five years. Starbucks looks to grow at the rate of 3.8 % yearly in the next six years with a potential estimated to reach $37.1 billion returns in the United States (Susanty & Kenny, 2015). Such growth can only be driven by an increase in consumer confidence, improving the economy and expanding menu offerings in the sector. Such growth poses potential growth prospects for Starbucks.

The figure below shows how sales have increased in the fast food industry from 2009 to 2012.

Source: http://www.statista.com/statistics/218829/us-full-service-restaurants-food-anddrink-sales/

The retail snacks and coffee industry is heavily tied to the discretionary spending of customers, though this is not common, it remains sensitive to the growth of the whole economy. When preferences for customers change based on the manner in which they desire for healthier coffee and spend their money,  drive changes in the industry. Labor within the industry has become one of the strongest job creators since the sector depends more on labor due to the need labor input, face-to-face service, and personal service in all operation areas including management, cleaning, acceptance of deliveries, beverage and food preparation and other areas of operation  (Murphy, 2011). For the 10th successive year, the increase and growth of coffee stores remain to outpace the whole economy by increasing the rate of employment opportunities by 3.2% in 2015. However, the industry spends less on labor because most positions in coffee stores require little skills, which can be taken by low-skilled workers and students. 

The annual increase of employees in the retail snacks and coffee industry was estimated to be approximately 71.3% in 2016 versus 63.0% in 2015 (Reinhard, 2016). The major problem that is faced by the industry is high turnover rate due to the high seasonal staffing, which includes college students and teenagers.