Starbucks Competitive Advantage: Starbucks (SBUX) was founded in 1985. It is a famous coffee brand that operates in 98 countries. The company roasts markets and sells premium coffee. It operates through both physical stores and online channels. The number of Starbucks stores is highest in the Americas. In the USA alone, it has 14,000 retail stores. The company is known worldwide for its premium quality and focus on ethics.
It sources its raw materials ethically from suppliers in several countries. The coffee brand has managed a large supply chain. Starbucksis also known for its focus on customer service. The company has seen a lot of success under the leadership of Howard Schultz. It has managed a balanced mix of company-owned and licensed retail stores. The number of Starbucks stores across Asia has grown in recent years. China is the company’s second-largest market.
Starbucks has several important strengths. The company has built some strong sources of competitive advantage. Its global network, premium quality, and strong brand image are its major strengths. The financial performance of the company is strong. In 2018, its revenue rose to $24.7 Billion from $22.4 Billion last year. Take a look at the main strengths which are a source of competitive advantage for the company.
Who Are Starbucks’ Top Competitors?
Luckin Coffee (China)
Costa Coffee (Headquartered in England)
Dunkin Donuts (in some markets and countries, their focus is not on coffee)
Tim Hortons (based in Canada but gradually expanding in the United States)
Competitors specializing in other forms of beverages, mainly tea brands (e.g., countries like China have tea deep-rooted as part of their culture).
Starbucks Strategy and Competitive Advantage
Starbucks maintain a competitive advantage by creating for
New ideas. For example, in the beginning, Starbucks didn’t provide free wi-fi facility. But today because so many coffee shops have free wi-fi facilities so they make the coffee shop have that facility too so that the customers can feel more comfortable.
New products. For example, Starbucks makes a coffee sachet. It almost the same as coffee which Nescafe produced.
New experiences for guests. For example, Starbucks hires its own designers to make artwork for commuter mugs.
Starbucks strategy is a simple saturate the market. By spreading out the outlet location it makes one store not cut the profits of another store. Usually, the stores would be placed on locations based on demographics, traffic patterns, the location of competitors as well as the location of its own stores.
However, the Starbucks strategy went against the grain. Instead of following the trend, CEO Howard Schultz had a different idea. He decided that the Starbucks strategy would be to blanket an area completely. Siding matter about one store cut the profits of another store, the Starbucks strategy focused on heavily increasing the foot traffic in one specific part of town. They think this will reduce the company’s delivery and risk, also the customer doesn’t need to stay in the waiting line for a long time.
For the result of this strategy. Starbucks quickly achieve market dominance. They have more than 20 million customers per week, this is the highest frequency of visiting customers. Since the company went public, sales have risen roughly 20% each year. Even when the rest of the economy seems to be in a slump, loyal patrons keep returning to Starbucks for their regular cup of Joe.
Starbucks using many kinds of entry modes for expanding its business to another country. These include joint ventures, licensing, and wholly-owned subsidiaries. Starbucks gains the advantage of providing access to local partner knowledge by using a joint venture. Also, starbucks shares development costs and risks with Sazaby in addition.
Starbucks uses a licensing way to enter the Middle East because with this mode it allows Starbucks to minimize capital outlays for marketing research and decrease local market expertise. And for the wholly-owned subsidiaries, it offers technology protection and the ability to engage in global strategic coordination.
Starbucks has got a strong brand image which is also a source of sustainable competitive advantage for the brand. It is famous all over the world as an ethical and accountable premium coffee brand. Brand image has played an important role in the profitable growth of Starbucks. Its strong image is also a result of its focus on quality and customer service.
The company sources ethically only from the most responsible coffee farmers. It has also managed a large and strong supply chain that it can source quality coffee from. It follows ethical practices in most areas of business including HRM, customer service, and supply chain management. High-level customer satisfaction is a sign of strong brand equity.
Starbucks is a premium coffee brand. Its pricing strategy is also a key strength. It targets higher-end customers. However, most customers are willing to pay the premium prices it charges because of its focus on quality and customer service. There is competition in the industry. However, Starbucks has a large customer base. Its premium quality and variety give it higher bargaining power and it can charge higher prices.
Large product range:
A large product range is also a key strength of Starbucks. It keeps experimenting with flavors to add to its range of coffee products. Apart from coffee, it also sells teas and snacks. The large range of flavors brings variety to the table. Every customer can have a fulfilling experience and can find his choice from the large range of Starbucks offers. Higher variety has led to higher popularity. This is a distinct feature of Starbucks. A large and differentiated product range is also a source of strong competitive advantage.
Starbucks also enjoys a very high level of customer loyalty. It is a result of its focus on quality and customer service. It has managed every aspect of the Starbucks experience to offer each customer a fulfilling experience. Appetizing coffee choices and a welcoming environment have made it the favorite of millions. Customers keep coming back because the experience is always fresh. High-level customer loyalty means higher profitability and revenue.
Customer service is a source of competitive advantage. Most brands came to recognize it late. However, Starbucks had made it a part of its culture long ago. Right since its foundation, the company has retained an exclusive focus on customer service. It is also a driver of customer loyalty. Starbucks does not invest in marketing.
In recent years, it has started spending on advertising. However, its marketing budget is limited. It focuses instead on quality in other aspects of the business including products, customer service, and supply chain.
Leadership is considered an important strength for any brand. From Microsoft to Apple, Google, and all the most successful brands in the 21st century, each is successful because of its leadership. Howard Schultz is considered a visionary leader. His focus is on ethics and creativity. He firmly believes in ethics. His able and smart leadership has helped the company achieve several major milestones. Today, it is a leading global brand of coffee. Credit for the brand’s success goes to the visionary leadership of Schultz.
Supply chain management:
Supply chain management is also a key strength of Starbucks. The brand is focused on quality. It sources only good quality coffee beans. The company selects its farmers carefully. Only those farmers who follow the best practices are selected as suppliers. The coffee brand is also extremely careful about the beans it sources. Arabica beans are found at higher altitudes.
Starbucks has managed good relationships with its suppliers. It has created some excellent rewards for its suppliers. There are also some rules related to product quality and labor the suppliers should follow. Supply chain management has helped it manage the costs of raw materials. A strong supply chain is central support for its business model.
To grow its relationships with its suppliers, the company is investing in special training and education programs. A strong supply chain is also a source of sustainable competitive advantage for Starbucks.
The large and global store network of Starbucks is also a critical competitive strength. There are 29,324 Starbucks stores open worldwide. This is the largest network of all coffee brands. The highest number of these stores is in the US. There are 14,606 Starbucks retail stores in the US and 17,454 in the entire Americas. The company has also managed a balanced mix of company-owned and licensed retail stores. 52% of the total are company-owned and 48% licensed.
The company has smartly managed its global presence. After the US, China is the largest market for Starbucks. There are 3,521 Starbucks stores in China. Its large retail network is also a source of competitive advantage. The growth of its international network has also strengthened the brand’s advantage over rivals.