November 28th, 2012
Starbucks has been the leading retailer of specialty coffee since they opened up their first store in Seattle in 1971. Today Starbucks have over 17000 stores in more than 50 countries, all of them with a commitment to providing the highest quality coffee in the world. In the fiscal year 2011, Starbucks reported all time record net revenue of $11.7 billion. Starbucks is one of the strongest retail brands in the world, which makes them a very interesting company to analyze. In this synopsis, I will try to identify how Starbucks created such a strong brand, and discuss their retail strategy. I look at factors such as, products, location, store experience, and competition and will use empirical research to analyze these factors. Furthermore, I will discuss whether Starbucks have a future in Denmark.
Starbucks sell a small variety of products including beverages, food, whole coffee beans, and coffee making equipment. Their sales mix is very interesting because most of the products do not contribute much to the overall sales. Beverages are by far the most important product, as it constitutes 75% of total sales. While Starbucks do not have a large variety of products, they do have a very broad assortment of beverages. They offer many different kinds of coffees, teas, and hot chocolates, where coffee of course is their specialty.
Location is essential to building a sustainable competitive advantage. In fact, it is arguably the most important factor in retailing. Starbucks have a very successful location strategy that focus on high traffic areas. In addition, if there is one Starbucks, you can almost be sure that there is another one close by, as they want many stores in close proximity. For example, there were more than 100 Starbuck stores in Seattle before they expanded to other regions. Having many stores in the helps increase their overall revenue. This strategy has also proved to backfire a little bit. When the recession hit in 2008, Starbucks were forced to close down 800 underperforming stores in America and 100 internationally. It is also hard to maintain this strategy when trying to expand into another region, which I will discuss later.
The Starbucks stores are central to the Starbucks brand. Nothing in a Starbucks coffee shop is a coincidence. They often have nice furniture, it is always very clean, and they have quiet music in the background. The music is a very important part of the Starbucks atmosphere, according to their own website they are “just as passionate about music as we are about coffee”. Joseph Pine and James Gilmore wrote an article about economic progress going through an evolution stage taking us from the service economy to the experience economy. Starbucks may be a service retailer, but the brand is developed through the experience just as much as it is through the service. When you read about Starbucks mission with their store design, you recognize a lot of points that Pine and Gilmore talks about regarding experience economy. For example, Starbucks write that they believe “a coffeehouse should be a place to find a connection”. Serving quality coffee is not enough to create a brand as strong as Starbucks. There has to be a connection between store environment and products. That is the reason behind the music they play, the overall atmosphere, and even the high-end coffee equipment they sell, that only amounts to 2% of their total sales. All factors contribute to the environment. Starbucks is not just looking for the consumer to buy their coffee; they are looking for the consumer to buy the Starbucks experience. To further analyze the store experience at Starbucks we can use the PAD model. The PAD model, developed by Albert Mehrabian and James Russell, can be described as a psychological environment model. In an article by Robert Donovan and John Rossiter, this model was creatively used to...