Value Chain Analysis (Starbucks)

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Value Chain Analysis (Starbucks)

Primary Activities:

Inbound Logistic:

Starbucks had its agents travelled regularly to coffee – growing countries to establish relationship with growers and distributors. In sourcing green coffee beans, it was increasingly dealing directly with farmer. It normally offered high prices to ensure that the poor small coffee growers have enough money to cover their production cost and for their families. To buy coffee beans, Starbucks used fixed price purchase commitments to limits its exposure to fluctuating coffee prices in upcoming periods and on occasion, purchased coffee futures contracts to provide price protection. Starbuck sourced bean from multiple geographic areas not only allowed it to offer a variety range of coffee to customer but also spread the company’s risks such as weather, fluctuated price, political and economic issues in coffee-growing areas. This enabled the company to predict prices over multiple crop years. In 2003, Starbucks marketed Fair Trade Certified coffee at most of its retail stores through some 350 universities and hotel locations that were licensed to sell Starbucks coffees.


Starbucks was able to expand its market through a number of channels such licensing with a reputable and capable local company with retailing know how in the target host-country to develop and operate new Starbucks stores. Starbucks used a local partner/licensee to help it recruit talented employees, set up supplier relationships, locate suitable store sites. To avoid problems, Starbucks looked for partner/licensees that had strong retail/restaurant experience, had values and a corporate culture compatible with Starbucks, were committed to good customer service, possessed talented management and strong financial resources, and had demonstrated brand-building skills. In additional with Starbuck’s strategy in major metropolitan cities was to blanket the area with stores. Though the new store might generate only few revenue, the management believe ‘Starbucks everywhere’ approach cut down on delivery and management cost, shortened customer lines at individual stores, and increase foot traffic for all store areas. With this store expansion strategy, Starbucks selected a large city to serve as a ‘HUB’; team of professional were located in hub cities to support the goal of opening stores. At the time of equipment needed for new stores, the retail operation group outlined exactly the minimum amount of equipment each core store needed sot that standard items could be ordered in volume from vendors at 20-30% discount. The whole store layout was developed on computer, with software that allowed the costs to be estimated as the designed evolved

Outbound Logistic:

Trying to extend the shelf life of packaged Starbucks coffee to 26 weeks, after the beans were roasted and cooled, the coffee were immediately vacuum-sealed in one way valve bags that let out gases naturally produced by fresh-roasted beans without letting oxygen in and kept in one way valve. However, it removed coffees from its shelves after three months.

Starbuck had eight roasting factories which allowed them to supplied its stores worldwide.

Marketing & Sales:

Starbucks spent only little money on advertising. Mostly it aimed to build its reputation by world of mouths and cup by cup strategy. This strategy proved to be viable since Starbuck’s reputation reached new market even before store opened.

Starbuck had a specialty sales group that provided its coffee product to restaurant, airlines, universities, hospitals, business offices, country club and select retails. This sales group had won many sales agreements for Starbucks such as coffee account at Sheraton and Westin hotels, Wells Fargo to provide coffee service at some of the bank’s locations in California, U.S. Office Product which gave Starbucks an entree to provide its coffee to workers in 1.5 million business offices and so on....
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