Starbucks Business Development

Introduction

In today’s business world, business development process is increasingly becoming important in the running any business. As business enterprises continue to intensify their efforts in reducing the costs and improving quality and service. Business development process in business is concerned with product production and service, and it entails the task of ensuring the development of a product or services are effective and efficient.

Business development process also involves managing products, distribution of products and services to clients and the examination of the queue systems. Armstrong (2006) describes business development process as “the field of study that focuses on the effective planning, scheduling, use and control of a manufacturing or service organization through the study of concepts that affects the organization”. (Armstrong, 2006)

This business report presents an analytical analysis of Starbucks’ business in terms in business development process, evaluation of the impact of the economic and business development process, and the obstacles which may hinder the business development process in the company. The report will then give a conclusion on the basis of the findings.

Corporation selected

Starbucks Corporation is a big multinational coffee and coffeehouse chain/outlet company which is based in United States. Starbucks currently is the biggest coffeehouse company in the whole world, with a record number of 15,011 stores located in 42 countries. (Starbucks Corporation, 2007)

From where it was established in Seattle, Washington, as only a local coffee bean roaster and seller, Starbucks has rapidly expanded. In the 1990s, the corporation was establishing a new store each workday, a tempo which continued into the 2000s. However domestic expansion has ever since slowed down, although Starbucks continues to spread out in foreign markets.

As at November 2007, Starbucks Corporation had 8,505 company-owned coffeehouse outlets global: 6,793 of them located in the United States while 1,712 are located in other countries and the U.S. territories. Besides, the Starbucks has 6,506 joint-venture or licensed outlets, and 3,891 of them are in United States and 2,615 are in some other countries or in U.S. territories. This thus brings the total number of locations (as at November 2007) to 15,011 worldwide. (Starbucks Corporation, 2007)

Critically examining the business development process

A central part of any successful and efficient of business development is following a procedure of how a company will evaluate a business suggestion or concept, deciding if to continue with the concept and create a business after deciding to go ahead. The five stages below assist formulate a straightforward process one can pursue. The stages are not a strict arrangement to pursue. But they offer important issue that a company needs to address when developing the business.

The Company Background and business idea

The beginning of an innovative business idea or proposal can originate from different sources. The idea may originate from a manager, the board room or a set of producers having a meeting. In spite of circumstances the idea can be assessed and evaluated to determine how valuable it is.

For Starbucks the idea came as a sells and marketing manager on a leisurely The company was started in 1971 by three Seattle business entrepreneurs; Gordon Bowker, Jerry Baldwin and Zev Siegl, and began selling coffee as a whole-bean in Seattle’s Market. The store was named as Starbucks. At 1982, the venture had developed to five coffee stores, a wholesale venture selling coffee mainly to area the restaurants and a small coffee roasting facility.

During the same period, Howard Schultz who was working as a Vice President of USA for a Swedish house-ware, Hammarplast Company in New York, selling coffee to various retailers which included Starbucks. By selling coffee to Starbucks Company, Howard was then introduced to Starbucks founders, who later recruited Howard to bring to the Starbucks Company marketing savvy Howard Schultz was only 29 and freshly married joined the company as the retail sales and marketing manager. After one year, Schultz travelled to Italy Verona, for his first occasion on coffee buying tour.

As Howard leisurely walked through Milan pizzas on one day, he became motivated with a vision, as he observed that coffee drink was an essential element of the passionate culture of the Milan people. He saw that the Italians began their day by taking Italian coffee at a coffee bar, after which they return later in the evening with their friend for more coffee. His research revealed that there were around 1,500 coffee bars in Milan alone and over 200,000 in the entire Italy.

Howard believed then that given an opportunity, Americans could pay a premium price for a first-class cup of coffee coupled by a trendy, romantic surrounding to leisurely take it. Excited about this idea or thought, Howard went back to inform Starbucks’ proprietors of his idea for a nationwide coffee store chain of modelled on the Italian style. However the proprietors were not eager and were not interested in having a cafe business.

Unconcerned, Howard formulated a business plan of his idea, videotaped various Italian espresso bars, and then started searching for financiers. By 1985 April, Howard had established his initial coffee bar, “Il Giornale”, where Starbucks coffee was served. After the success Il Giornale’s, Howard established another coffee cafe in Seattle, later he opened a third one in Vancouver. The owners of Starbucks agreed in 1987 to sell the stores to Howard In 1987 for $4 million, the “Il Giornale coffee bars” were then renamed as Starbucks.

Having a conviction that Starbucks one day would be in each neighbourhood in the USA, Howard put his focus on growth. Howard entered Chicago in 1987 and four years afterwards he established a store in Los Angeles, Howard continued with his ambitious expansion program opened a store in District of Columbia in 1993. He later moved to global markets starting with Canada and then followed with other countries.

The financial challenges and Business operation

Initially the company did not make any profits and its losses nearly was double reaching $1.2 million in 1990 fiscal year from 1989 since overhead costs and operating expenditures swell with the expansion that was taking place. Starbucks made losses for three years straight, and the pressure was tough on Howard.

However, he kept his confidence of not “sacrificing long-term integrity and values for short-term profit.” By 1991 Starbucks sales rose by 84 %, and Starbucks turned very profitable. Come1992 Howard placed the company to the public offering $17 for a share. However, as at present the company has made a lot of profits over the years and its financial base has tremendously improved, thus finance may not be a limiting factor as for now.

Starbucks sells brewed coffee, espresso-based hot drinks, hot and also cold drinks, snacks and products for instance mugs and coffee beans. Starbucks has an entertainment division and Hear Music brand, Starbucks also markets music, books and film. A lot of these items are seasonal or specific to the locality of the store. Some grocery stores sell Starbucks branded ice cream and coffee. The corporation image is one of the main elements to its current success.

Starbucks has recognized that individuals don’t just come for to take coffee; they come for the ambience. People come to socialize, study, read or just to enjoy the music as they drink their coffee. Understanding this, Starbucks try to make its coffee stores unique in one way or another which will generate an appealing ambience. Starbucks also has a distinctive setting for its locations; Starbucks focus on having a lot of cosy seating to make people sense welcomed for them to stay more than they may have planned to. (Fortune.com, 2002)

Business development techniques that assisted the building of their flexible strategy

The competitive advantage of Starbucks comes from the fact that, Starbucks positions its products based upon quality and its image. Starbucks Corporation created the coffee shop revolution in America, and it has had the capacity to be the public instructor on espresso coffee.

Starbucks coffeehouse chain is the leading specialty of coffee retailer in the America, with many locations in around the globe. Starbucks Corporation positions its products on a comparatively simple strategy. They sole centre on quality and experience, instead of price. An evaluation of specialty drinks compared to its competitors discloses very small differences. (Fortune.com, 2002)

The corporation image is one of the main elements to its current success. Starbucks has recognized that individuals don’t just come for to take coffee; they come for the ambience. People come to socialize, study, read or just to enjoy the music as they drink their coffee. Understanding this, Starbucks try to make its coffee stores unique in one way or another which will generate an appealing ambience. Starbucks also has a distinctive setting for its locations; Starbucks focus on having a lot of cosy seating to make people sense welcomed for them to stay more than they may have planned to. (Fortune.com, 2002)

In addition Starbucks positions each one of its store individually in accordance to the definite location it is located. This flexibility approach has contributed greatly to the success of the Starbucks in the past years. Another significant aspect of Starbucks locations is that they are usually environmentally friendly. Though other retailers locate themselves in related ways, none of them focuses to the level at which Starbucks has. Currently consumers appear to respond to those companies that are environmentally friendly who appear to really care about the world. (Puget Sound Business Journal, 1999)

The impact of the economic and business development process on the company

The business culture of Starbucks

Organization culture consists of ideas and beliefs about what types of aspirations members should employ to attain these aspirations. Culture also entails values of an organization, values define the norms of the organization, expectations or guidelines which, prescribe suitable types of conduct by employees in certain situations and organize the conduct of organizational employees towards each other.

Kottler (1992) observers that, organization behaviour is the main motivating force that ensures the success of an organization. (Katter, 1992) Culturally, Starbucks is long term oriented has one of its guiding principle is caring for the environment and the community which are long term aspects. To assist in defining its culture Starbucks has outlined six main principles.

The six main principles of Starbucks are stated at (starbucks.com)

• Provide the best work environment and treat on another with dignity and respect.

• Appreciate diversity as an indispensable element in the manner we do business.

• Relate the utmost standards of quality when making a purchase, roasting and delivering of our coffee.

• Develop passionately satisfied customers at all the time.

• Make a positive contribution to our environment and our communities.

• Identify that profitability is vital to future success. (Fortune.com, 2002)

Organizational structures

Setting up a suitable organizational structure requires a strategic planning and objective of the specific organization by taking into consideration the aspired organization culture, determining on proper organization structure and recognizing the crucial activity areas in the organization. This is a vital fist step in developing organization structure and leadership. Campbell, et al (1970) To Campbell, et al (1970) Organization structure is a way of representing relations in an organization; it shows how groups are interrelated in organization. In many cases organization structure is depicted in an organizational structure chart.

Organization structure of an organization show the current management, communication channels of the organization and how they are coordinated. The vision of an organization can be displayed in the organization structure. Starbucks management structure is a divisional type of structure which allows the corporation to be management to be divided in to department that manages their own activities through formulation their own objectives and goals. This creates internal accountability and competitiveness. However the main office monitors and supervises all the business operations in individual stores to ensure that all conform to a particular standard. Each coffee store headed by a manager, and about 15 baristas. (Hoovers.com, 2007)

Systems and risk management.

Starbucks’ strategy of expanding into international markets

Starbucks expansion to international market is because of the need to gather and increase the company’s market share and increase its financial base. Advancement in technology including communication efficiency and better international relations has contributed to the promotion of international trade.

Increasing competition is another aspect that has enhanced the Starbuck’s international expansion. Through its international marketing approaches Starbucks has been able to meet its objectives. Starbucks management has had an obligation to further propel the company forward thus able to create and maintain a healthy international marketing culture within itself. (The Wall Street Journal, 2001)

Staying away from a franchising strategy

Generally, franchising transfers the financial risks from the Starbucks to an individual business. Subsequently a benefit of Starbucks Corporation franchising would be opening many more new stores which will have less risk to Starbucks Corporation, and make more profits through doing so.

More so the company would have little research and improvement costs since the franchisee is having greater familiarity of the local market where the store is opening in relation to disadvantage of franchising is that Starbucks would have to give up some amount of management over the store, and also the manner it operates. Regardless of the high number of rules and directives that Starbucks Corporation would theoretically have in position for a franchisee, each one of the store would be managed slightly different. In addition, in franchising there is a danger of various stores omitting some of the menu to its standards, and instead picking and selecting what products (coffee equipment, music, books) to avail to the customers.

Through keeping every one the stores corporately owned Starbucks is able to manage and monitor all locations and operations and to ensure high employee relationships and good customer care via steady management, good store operation, and good location environments. (The Wall Street Journal, 2001)

The obstacles that may slow the future development of the company

Competition from imitators

Starbucks’ present and direct competitors in America are Diedrich Coffee and Einstein/Noah Bagel Corporation (Hoovers.com). The rivalry, however, is not evenly balanced. Diedrich Coffee runs 370 coffeehouses located in 37 states and 11 countries (hoovers.com). Einstein/Noah Bagel Corporation runs 460 bagel cafes in America (hoovers.com) Where as Starbucks has got over 4,709 coffeehouse locations in more than 20 countries (Hoovers.com).

Thus it is apparent that Starbucks has hardly any key competitors, and the rivalry has nowhere near Starbucks’ volume of its operations. Starbucks Corporation is the leading coffee roaster and retailer and brand of specialty coffee in the world. However smaller competitors, pose possible threats to the company, and may derail the expansion plan of the company. (Hoovers.com, 2007)

Capital hold up in Expansions to global markets

In its plan entering foreign markets, Starbucks has been using (Foreign Direct Investment) FDI market entry which is the direct ownership of processing, manufacturing or assembling facilities in a target country by a Starbucks company. Hollensen (2004) explains that in FDI organizations can transfer resources to a developing country which has a good customer base and then set up branches in any other regions or areas of the country the resources include; technology, personnel and capital.

However, the disadvantage of this market entry strategy is that it shifts the financial risk from the individual to the corporation. Thus holding up more financial resources the Starbucks would have used to open up more stores, not forgetting that the financial risk is squarely placed on the corporation.

Another setback is that joint ventures require a lot of market research and development expenses since Starbucks do not have enough information of the new markets. This has seen the company investing a lot of many in setting up new braches in foreign countries an aspect that can slow its expansion. (Kamm, et al, 2004)

Increasing product line

Initially the company only sold coffee but over the years Starbucks as increased its product mix as a way of spreading risks and increasing sales. Currently the company has an entertainment division and Hear Music brand, Starbucks also markets music, books and film.

Chart 1: Starbucks vs. Industry

The Chart compares Starbucks stock against the average Special Eateries Industry. As shown in the graph, Starbucks has clearly been a central force of the industry, since the industry average follow precisely the same pattern, just a little below Starbucks, in past five years (2001-2006) (Source: hoovers.com)

Conclusion

Business development involves stating an idea and developing it to a business venture if the idea is viable. Mainly there are five stages that such an idea can go though to successful be implemented. Overall, Starbucks appears to be a well-built and well-rounded company, as a leader in the industry, Starbucks was built from a simple idea and it developed to attest how valuable and feasible that idea was.

The company has built a very strong brand name which has assist Starbucks to gain a substantial greater share of the total market in contrast to its competitors. The management has revealed to have ability to forecast market trends and variations in consumer behaviours. Starbucks Management in addition has fashioned a corporate culture which promotes soaring productivity levels through their proficient employees.

Financially, Starbucks Corporation is stable in spite of its rapid and unremitting growth strategies. Starbucks Corporation has done extremely well in establishing reliable, long-term relations with its suppliers. For most part, as it has been indicated, Starbucks is reasonably very capable in most aspects of its business. In parts where Starbucks Corporation does perhaps need expertise, competencies, or skills, it has formed strategic pacts with companies which are more effective and efficient.

Reference

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The Wall Street Journal, November 6, 2001