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... in revenue and in brand equity. One of the most significant weaknesses, which may prevent Starbucks from realizing their market potential, is the lack of capital necessary to expand their retail stores to meet the growing demand. In order to achieve the estimated growth of 17 % by 1999, Starbucks must leverage its partnership opportunities to defray the infrastructure costs of developing a substantial number of new markets.
The discussion of alternatives to follow considers the potential opportunities for leveraging the strong demand and the limited capital. Another consideration as a result of the analysis is the need to target the market segment that will define the next few decades of specialty coffee consumption. The coffee consumption patterns that are formed between 16 and 24 years of age will surely define not only the current market capitalization pattern, but will likely significantly influence the future demands. With that said, the marketing strategy must include elements which work toward broader exposure and product availability to that age group. A significant threat to the growth of Starbucks in the domestic market is the individual and small chain competitors that overshadow the Starbucks brand in local markets.
It is not currently feasible to place a full service store in each of these local markets due to capital constraints and lack of sales volume. It is critical that Starbucks recognizes and acts upon one of its greatest strengths to compete in these minor, yet growing markets. There must be plans in place to establish low cost operations, such as the kiosks that have been so successful in high volume locations such as malls. In addition there must be a focus on continued development of strategic alliances with partners that have established market share access, notable reputations consistent with the Starbucks name, and existing distribution chains. This approach will minimize the capital required while gaining Starbucks immediate access to minor markets with significant growth potential. The name of Starbucks must be recognized as the choice for premium coffee nationwide.
Alternative 1 - Create a partnership with an automotive manufacturer to license the Starbucks name. Consider the strength of the Starbucks name as a valuable asset. There are opportunities to greatly enhance the recognition of Starbucks while providing marketing value to an automotive manufacturer with the premium quality and link to the more affluent and higher educated consumer that the name of Starbucks brings. The marketing and banking partnerships have been successful for many companies. Consider the brand recognition of Eddie Bauer and the Explorer and Warner Brothers and the Venture. The brand exposure and recognition comes with a minimal or no capital investment, and becomes a moving billboard for the Starbucks name in tens of thousands of markets nationwide.
The marketing strategy may include such upgrades as specialized cup holders and coffee mugs as standard equipment, with a discounted rate on Starbucks beverages. The immediate challenge at hand would be to demonstrate to the automotive manufacturers the value of having the Starbucks name available for vehicle banking and marketing. There may be a reluctance to enter into such a marketing agreement, however, Starbucks must highlight their quality reputation. Quality reputation is an important strength for Starbucks, and also equally important to the automotive business. If there were a segment in JD Power and associates for the quality of a coffee drinking experience, Starbucks would be best in segment! Considering the number of soccer moms and future Starbucks coffee consumers traveling with those soccer moms, the minivan and sport utility segments should be the focus in discussions with the automotive manufacturers.
Alternative 2 - Create a partnership with high school and college cafeterias to license the Starbucks name. Consider the potential market opportunity of being able to be the first premium coffee brand in the hands of every person in the country. In every college, there is a cafeteria at least and many smaller food outlets located in convenient places on campus. With the brand equity that Starbucks commands, it would be beneficial to the proprietor of the facility to consider the opportunity to increase their revenues.
The kiosk market is one that has substantial growth potential, as we consider the need to increase the market penetration while minimizing capital expenses. In an effort to increase the Starbucks brand recognition, it is in the smaller scale outlets that this can be done most effectively. In addition to the market afforded by students, we must also consider similar markets which have two key factors present. The market (or location) should have a population traffic density to support the investment.
In addition, we must target high consumption locations with high customer return rates. In addition to schools, there are opportunities at large employment facilities such as office complexes. A plan must be developed to take advantage of these types of markets. One concern with the student marketing approach may be the reluctance of high school administrators and parents to have coffee marketed to their students. One must consider that the availability of Starbucks coffee may not be through mid-level service kiosks, but instead through automated vending machines. With these machines freshly grinding and brewing the premium brand coffee that Starbucks offers, it would be paramount that the quality levels be guaranteed.
This is a significant area of opportunity for research and development. Alternative 3 - Consider a partnership with a fast food chain to license the Starbucks name. Based on the needs, as stated previously, to grow the Starbucks name recognition and develop new markets at a minimal capital expenditure, it is worthwhile to reconsider the notion of a partnership with a fast food outlet such as McDonalds. The primary challenge is of course to maintain the quality image of the Starbucks name and product line. It is for this reason that the recommendation would be to implement a standardized set of quality requirements necessary to be met by any outlet for Starbucks products. Not all fast food stores are 'maintained' equal.
Using the fast food restaurants' own surrogate data, Starbucks could conduct an approval investigation into each of the stores. If the ability to serve Starbucks coffee is marketed to the potential store as a privilege, then the demand for the premium name would become that much greater within the chain. Other pros to the alternative are Starbucks' ability to take advantage of the supply chain management already in place for a company the likes of McDonalds. In addition the investment in a full service store is prohibitive to get the Starbucks product and name into many smaller markets. However, the investment into the approach using a fast food partnership is minimal.
As the US market becomes more focused on decreasing the amount of time spent on areas that do not contribute to their quality of life, it is increasingly important to be positioned to deliver the Starbucks products in a manner that is ultimately convenient for the customers. One may argue that there is the need to maintain the Starbucks experience at the full service coffee shops, and it is agreed that this is the case. However, Starbucks must be able to cater to the same customers when time and availability doesn't afford the ability to purchase from a full service store. Starbucks cannot afford to have its dedicated consumers straying to other brands for convenience, as much as it needs to increase its market penetration to those who have not yet had the Starbucks quality experience. Plan of Action Background and Supporting Info (not in final paper) Issue Analysis (It is not expected that this will be in the paper. ) Facts - 1.
Had turned down McDonalds' bid for partnering (p 1). 2. Coffee is 2 nd most traded commodity next to oil (p 1). 3. Two types of coffee, basic and specialty (p 2). 4. Specialty coffee companies deal with exporters, not directly with growers (p 2). 5. Coffee consumption is on the rise (p 4). a. 1985 U.
S. ranked 10 th in coffee consumption. b. Between 1975 and 1985, U. S. consumption was flat, whereas coffee consumption rose dramatically in Europe and Asia (p 3). 6. 22 % of U.
S. consumers purchase specialty coffee. a. They are relatively affluent. b. They are educated. 7.
Two types of specialty coffee, flavored and non-flavored (Starbucks has sold non-flavored). 8. Grocery stores have accounted for 81 percent of specialty coffee sales. 9. "Second Cup" is Starbucks largest competitor in the specialty coffee industry. a. They sell coffee and snacks. b. They franchise their stores.
c. They acquired Gloria Jeans (who majored in sales of mugs and whole beans). d. They have alliances with food service companies and airlines. 10. Starbucks does not franchise is stores. 11.
Starbucks is focusing on the Asian-Pacific market to enter the global market (p 14). 12. Supermarkets hold 70 % to 80 % of the home coffee business and want Starbucks on their shelves (p 15). 13. Starbucks is a "flat-structured" organization. 14. Starbucks's tock is steadily rising with a split in 1995 (p 19; Ex. 7). 15.
Starbucks has been growing rapidly. Expressed Opinions - 1. Starbucks is not competing well against small and individual competitors in local or regional markets. 2. Starbucks' leadership is questioning whether its is "overextending" in its quest for growth. 3. Four consumer trends affecting specialty coffee sales: a. Life-style.
b. Socializing. c. Belief that coffee is an affordable luxury. d. The consumer is more knowledgeable about coffee. 4.
Coffee image is changing from it being only for breakfast to it being an anytime beverage. 5. Starbucks is to be not just coffee, but an experience. 6. Retail system is Starbucks' anchor of its brand-building strategy, this can "catapult" Starbucks beyond its roots (by a report from Merril-Lynch). 7. Grocery store sales are not essential for survival, but are necessary to remain a major player (Orin Smith, p 15). 8.
Supermarket merchandising will pull customers out of lower priced categories of coffee to the higher priced specialty coffee brands (p 13). 9. "Starbucks' has executed its strategy to near perfection (quote from an investment company, p 19). 10. Starbucks expects to have 2, 000 retail stores by the year 2000. My Opinions - My opinions are embedded in the "Issues Analysis" section of the paper. Assumptions - 1. Coffee sales in specialty stores will increase from 19 % to 54 % by 1999 (see Facts # 8). 2. Starbucks estimates a growth of 17 % by 1999 (p 5). 3.
Starbucks expects a lower cash investment to open future stores (see Exhibit 4). 4. Starbucks expects to increase its number of stores on the Asian-Pacific Rim from 13 to 100 by 1999 (Ex. 5).
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Research essay sample on Specialty Coffee Coffee Consumption
