Corporate Strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of business. In the case of Starbucks the corporate strategy they have implemented is unique to their industry which has allowed them to differentiate from their competitors and is summarized best by Howard Schultz CEO of Starbucks, “We’re in the people business serving coffee,” high quality specialty coffee and related products in a European café environment. It is clear Starbucks is in a growth strategy utilizing three key techniques that support its Mission, “to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time”.
Tying in with Starbucks’ Mission, the companies vertical integration with its supply chain from roasting its own coffee in one of two of its plants to its involvement with developing and fostering strategic partnerships with local coffee farmers may be the most important growth strategy the company focuses on. Quality and corporate social responsibility are the pillars of Starbucks; vertical integration is the key component to insuring both of these fundamental characteristics of Starbucks are managed.
Starbucks has created related diversification into wholesale distribution by developing coffee based branded products with Pepsi-Cola and Dreyer’s Inc. that can be sold in grocery stores. The company is also expanding into non-related industries by creating an entertainment division focusing on the music and movie industry. As Starbucks expands diversification will become as important as its vertical integration as it moves through the product lifecycle in the coffee industry. (See Appendix A)
Starbucks has expanded with horizontal integration by acquiring Seattle’s Best Coffee and Torreazione Italia Coffee. With the increased competition and new entrants in the coffee industry horizontal integration may become a greater focus for Starbucks.
Starbucks Business Strategy
At the business level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage. In order to understand the Coffee Industry’s competitive advantage the use of Porters five Competitive Forces Model should be utilized. (appendix b)
Starbucks has gained its competitive advantage by the use of diversification. The company has focused, through vertical integration corporate strategy, on providing the highest quality coffee products in a sustainable practice that is highly identifiable by its customer base. The use of their innovative marketing design with their European Café feel and creative diversification with its products has allowed it to be classified as, “the most dynamic retail brand conceived over the last two decades”
Starbucks faces a high degree of rivalry and a medium degree of buyer power (appendix b). The coffee industry also retains many characteristics of having high Consumer Market Segmentation, which can be supported by the relatively large span in the price for a cup of coffee and the varying degree in which certain coffee chains are found in certain particular geographic regions and outlets. Starbucks has found a way to incorporate a broad strategy attracting a broad consumer despite the high prices of its products. This supports that their differentiation strategy is affective and it is clear consumers can identify the high quality of their products and the overall experience of visiting one of their locations.
With a high threat of new entrants (appendix b) and the presence of high Consumer Market Segmentation, Starbucks’ strong differentiation strategy will allow it to remain competitive in light of this high threat. New entrants will be forced to find creative ways to differentiate themselves in...