Coffee Industry and Starbucks

Coffee was the second most traded commodity after oil. They were basically two types of coffee: basic and specialty coffee. Specialty coffee was the highest grade coffee available. In the 1960s and 1970s per person consumption of coffee was 2-3 cups which declined to 1.7 cups per person in 1996 in United States. Before the advent of Starbucks, coffee was considered to be a breakfast drink. After the mid-1990s the image of coffee started to change, it was not just considered as a breakfast drink. Coffee became a beverage that could be enjoyed anytime and as a social catalyst. Coffee shops were turning into living rooms, were people relaxed and enjoyed a cup of coffee with their friends and family. Specialty coffee was gaining popularity has people were adopting healthier lifestyle by replacing alcohol with coffee. 

Elements in the Starbucks brand that made it successful

Starbucks is famous for its quality and showcase of lifestyle. From use of Arabica beans to hiring talented people they have everything related to high quality. Global possibilities is one of the main element which made them successful. In 1994 they developed platform for bigger product innovations like bottled Frappuccino. In 1996 it was the manufacturing organization and had great logistics in terms of proprietary, roasting and manufacturing equipment.

They maintained close relationships with their exporters by directly working with them and giving them training. If they had any of the quality or on time delivery problem with exporters they directly worked with them and informed them about it. To ensure quality they have three stages of checking and if they found its not matching with their standard they will not use those beans. The use of blends and varietals used by them to meet their increasing volume of demand maintain quality and quantity.

Roasting and air cooling the beans at a particular temperature and time conditions is very important to Starbucks. It lead to creation of roasting curves computer software which they used for roasting beans at different temperature and time conditions and what it will give at what combinations. After this they pack them in one way valve bags which ensure freshness and let them keep these coffee for 3 months.

Starbucks supply chain operation has forecasting process “who will need coffee and when”. It is very accurate, efficient, and cost effective which let them lead the market. They are using concept of integrated supply.

They are serving four business units- retail store, specialty sales, wholesale channels, mail order business and grocery stores. Starbucks is a third place for people where they can sit back and be themselves. There baristas have basic coffee knowledge and service expertise so that they can answer questions of people who ask for recommendation while having coffee.

They have highest quality merchandise including mugs, grinders with Starbucks logo etc.

They had used concept of clustering and with the help of great design team which can fit its coffee stock in any retail outlet made them real state opportunistic.
Being disciplined in this context was their key value. Introduction of new expresso carts Doppio or kiosks gave them advantage in sales area. They entered the international market before their competitors. Use of specialty sales i.e. agreement with retailers, wholesale market etc. gave them name recognition and potential sales growth. They had partnerships with united airlines, PepsiCo etc. Their venture with Dreyer’s ice-cream, bottled Frappuccino with PepsiCo and entry into grocery channel as well as concept of coffee for home gave them high success.

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Serving their customers through shipment of coffee in a months called as mail order encore helped it a lot in retaining those who were far away from them. Starbucks flat organizational culture that every person from ceo to baristas is its partner not employee helped them as baristas were the ones who were in direct contact with customers, they gave many ideas to grow.

It’s not just a coffee but a place and experience. Howard Schultz purchased Starbucks and this was the major element in Starbucks success.

starbucks

Starbucks is currently leaning towards different diversification strategies because it wants to move away from its present retail centric approach. Scott Bedbury (Senior Vice President of Marketing) stated that Starbucks wants to move towards a “Providing uplifting moments to people” – even outside the coffee shops. This can be predominantly explained by the penetration into grocery chains through products such as bottled Frappuccino and ice cream (Dreyers). By doing so, Starbucks gives consumers of their brand the ‘convenience advantage’ of consuming Starbucks products in different forms and in the comfort of their homes.

Moreover, diversification into other products will give Starbucks access to a different customer bases. For example, at this time this case study is being considered, Starbucks was more prevalent in the States and the company wants to spread out to other geographies. For example, in the top ten countries that consume coffee, 7 of them are in Europe – by tying up with United Airways, Starbucks will have partial access to countries other than America.

Furthermore, the Starbucks image is solidified through the extensive access to different consumers. This is because the more companies endorse/sell/promote their brand, the better they look as a company in eyes of the public.

Diversification moves of Starbucks!

Howard Schultz and his senior management were committed to the Starbucks’ strategy for brand development by expanding the company into different markets rather than concentrating on coffee shop expansion as it would open Starbucks’ to new target customers.

  • Starbucks wanted to enter into ready to drink coffee business and Starbucks’ partnered with PepsiCo to introduce a new product of bottled frappuccino and the PepsiCo readily agreed to it as they saw this as a $1 billion opportunity.
  • In 1995 Starbucks’ partnered with Dreyer’s Grand Ice cream to introduce a new product of coffee ice cream with coffee extracts supplied by Starbucks’
  • Starbucks’ entered into different speciality sales, they partnered with
    • United Airways: to serve Starbucks’ coffee on all their domestic and international flights.
    • Aramark: Starbucks had an agreement with Aramark Food and Services to put up Starbucks’ stores on university campuses and other stores operated by it.
    • Red Hook Breweries: Coffee concentrate was provided by Starbucks’ for brewery’s beer (Double black scout) as an ingredient.
    • Starbucks’ developed a special blend for Nordstrom.
    • Special brand, Meridian was prepared for PriceCostco.
  • Starbucks’ believed that for being a major player in the home coffee segment Starbucks’ coffee needs to be available at supermarkets as it is very convenient to buy coffee for home from the supermarket. Also supermarkets had taken up 70 -80 % of the home coffee business and supermarkets would also be interested as they would be getting higher margins from the merchandise and would also boost their sales

 We hope now you know a little more about Coffee industry and specially Starbucks!

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Coffee Industry and Starbucks

by Nikita Sharma time to read: 6 min
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