Write an essay of a minimum of 1200 words, addressing the questions and prompts below. Your essay should demonstrate a clear understanding of the key terms and concepts from the READ and ATTEND assignments for this unit. You must organize your work using headings formatted in APA style. The research requirement is at least two scholarly journal articles, and the course textbook. Indicate your research through in-text citations and a list of references.
- Conduct an online search, and write a brief summary of two to three issues of strategic significance that Starbucks has encountered within the past 12 months. Sources used to respond to this prompt should be credible, but not necessarily scholarly.
- Review what Starbucks states about ethical sourcing on its website. Which of the six perspectives on ethics discussed in Chapter 5 of the textbook best describe Starbucks’ ethical sourcing commitment, and why? Which of the six perspectives are opposite of Starbucks’ ethical sourcing commitment, and why?
- Which growth strategies has Starbucks used to become successful in its industry?
- Should Starbucks make changes to its corporate-level strategies during an economic recession? Explain.
SAMPLE STUDENT ANSWER
Starbucks Strategic Issues
Starbucks has been experiencing diverse strategic issues in 2021. However, some of the notable problems experienced by the business in the last financial period include technological and supply chain problems. The business as part of boosting its sales and performances included online ordering as part of its operations. Customers could order their favorite drinks and snacks using their mobile phones. Technology inclusion was supposed to boost the performance of Starbucks. However, it has been a source of ridicule and frustration from customers, who have been complaining of inaccurate orders, delays in orders, and problems with refunds (Duff, 2021). Although mobile-App problems are prevalent, even to established technology companies, the issue worsened for Starbucks in 2021.
The other problem experienced by the firm was the stock-out of crucial items. The company has been experiencing shortages of critical ingredients such as hazelnut syrup, chai tea bags, green iced tea, and toffee nut syrup (Duff, 2021). The shortages were extreme to a point of the business putting on hold 25 menus until the situation improves. The most significant issue causing these problems are the company’s app. The technology tool has experience problems in disseminating accurate information about items present in stores. Consequently, it has led to the problems of customer complaints and stock-out of crucial ingredients.
Starbucks Ethical Sourcing
The six perspectives on managerial ethics could help analyze Starbucks ‘ ethical sourcing. By quoting the exact words of the company from the website, “Our success is linked to the success of the farmers and suppliers who grow and produce our products” readers could be able to pinpoint its sourcing philosophy. The business is keen on ensuring that farmers benefit from their association with the business. Accordingly, the best perspective on managerial ethics that defines the company’s sourcing process is the rights view. According to Parnell (2021), the technique engrosses the protection of individual rights of every stakeholder. The business is aware its products come from diverse locations globally including developing nations. In the case of the latter, exploitation is rife, especially by agricultural agents and other intermediaries. Consequently, farmers in these areas are used to manipulation. The rights view centers on the fulfillment of the goal of each farmer through the protection of their human rights. Starbucks charges exorbitant prices for its products. As part of ensuring the trickle-down effect is achieved, the company has been emphasizing its sourcing policies. Paying producers on time and the right amount is part of efforts to uphold their dignity through sourcing avenues.
Conversely, the self-interest view is the opposite of its sourcing commitment. This method stipulates that the benefit of the decision-maker (company and cooperative societies) is important compared to producers (Parnell, 2021). Starbucks has been keen to incorporate corporate social responsibility as its core activity. The framework roots for the sustainability of all stakeholders associated with the company. Consequently, it is unlikely that the business will focus on making profits at the expense of producers. The self-interest concept is popular in companies, which does not recognize sustainability as part of their growth activities. Starbucks achieves sustainability through areas like sourcing of products. For these reasons, the self-interest view is the least of the perspectives to apply in the case of Starbucks.
Starbucks Growth Strategies
Starbucks is arguably the largest coffee-chain store in the world. The business has been able to popularize a simple practice of coffee drinking into a global brand. The company has been attaining these goals through growth strategies. A proper look at these approaches will be necessary to firms, which are willing to expand rapidly like the business in their respective industries.
Starbucks’ first growth strategy has been aggressively opening restaurants. According to the company’s CEO Kevin Johnson, the business in 2018 was keen on attaining a “growth scale.” The firm achieved this goal by opening additional stores (Wlener-Bronner, 2019). In 2018, the business opened 442 stores, with majorities situated in China (Wlener-Bronner, 2019). The firm was able to close the year with 30,600 stores (Wlener-Bronner, 2019). The move by the business to open many stores is simple, increase the popularity of the brand. A large number of stores means that potential customers where the stores are located have the chance to sample beverages and snacks offered by the firm. In the United States, almost every corner a person could turn will meet a Starbuck store (Voigt et al., 2017). New customers can visit the stores and sample products offered by the coffee chain. The rapid growth strategy is clear with the number of stores opened by the company over its years of operations.
The other growth strategy of the firm is the improvement of its technology. More customers are shifting online for ordering and payment of products. The new wave is boosted by the availability of smartphones and other internet-enabled devices that allow ordering and payment of products. Starbucks has been keen on capitalizing on the new trend. The company has introduced a mobile app, which enables ordering, payment, and monitoring of stocks. Although the firm has been experiencing hitches concerning its app, it has helped maintain loyal customers and attract others. These customers prefer to purchase their products using this app because of the convenience it brings. Technology would be instrumental in the future growth strategy of the company.
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Further, the company has been attaining massive growth through the introduction of new products. New products are crucial in retaining loyal customers and attracting new ones. For instance, the firm, in 2019 in partnership with Nestle launched several Starbucks coffee creamers and Nespresso pods. Consequently, the partnership was responsible for new products on its menu. The dynamic nature of customers meant they welcomed the move by the company. This fact was clear with growths experienced in the US and China markets. The company experienced 7% and 6% growths in the US and China markets after the introduction respectively. The good performances were witnessed because of the introduction of exciting products to its menu. The introduction of diverse products has been crucial in the growth efforts of Starbucks.
The last approach worth mentioning is the improvement of customer experiences at coffee shops and the expansion of delivery. Improvement of customers’ experience at coffee shops would help increase their successive visits. Starbucks has been benefiting from the traffic visiting its shops daily. Delivering products using partners such as Uber is the other approach making the business a force to reckon with, in the food and beverage industry.
Starbucks Changes During Economic Recession
Starbucks must make drastic changes to its corporate-level strategies during recession to guarantee success and growth concerns. The firm must make changes in areas such as pricing and its growth strategies. Starbuck is among the most expensive coffee chains in the world, especially in areas outside the US. The premium pricing serves to attract a specific segment of customers. However, high inflation levels and weakening currencies against the US Dollar mean that Starbucks coffee and snacks are expensive. The majority of its stores within and outside the U.S. are likely to experience a reduction in the flow of customers. The impact of this trend is the reduction of revenues of the company. The management must decide to be flexible in pricing to maintain revenues and customers during this difficult period.
The other area demanding drastic changes during this difficult period is the halt of expansion strategies. Loans are becoming expensive, and there is no assurance that new stores will break even within the stipulated period. Starbucks would risk expensive loans and spiraling expenses if it does not regulate its expansion process. The rising prices of products mean that the coffee chain is likely to experience budgetary problems if it engages in expansion processes as part of its growth strategy. These changes could be temporary depending on the improvement of global economic performances. These changes must be drastic and necessary to safeguard the existence and performance of the business.
References
Duff, O. (2021, November 23). America’s Largest Coffee Chain is Dealing With a Major Operational Glitch. https://www.yahoo.com/lifestyle/americas-largest-coffee-chain-dealing-174509195.html
Parnell, J.A. (2021). Strategic management: Theory and practice (6th ed). Academic Media Solutions
Starbucks. (n.d). Starbucks Ethical Sourcing of Sustainable Products. https://www.starbucks.com/responsibility/sourcing/
Voigt, K. I., Buliga, O., & Michl, K. (2017). Globalizing Coffee Culture: The Case of Starbucks. In Business Model Pioneers (pp. 41-53). Springer, Cham.
Wlener-Bronner, D. (2019, July 26). Every Starbucks Growth Strategy is Working. https://edition.cnn.com/2019/07/25/investing/starbucks-earnings/index.html#:~:text=Starbucks%20is%20working%20to%20reach%20customers%20at%20home%20and%20in%20its%20cafes.&text=The%20efforts%20have%20helped%20boost,%2C%20that%20figure%20was%206%25.
SAMPLE STUDENT ANSWER 2
Issues of Strategic Significance
Two days ago, on February 7th,2022, Starbuck dismissed some of its staff in Tennessee, who were linked with efforts to organize a union for the workers (BBC, 2022). For a long time, workers in Starbucks have been making a push to unionize for various reasons. From competitive analysis, the organization offers some benefits that are better than its competitors. Why is unionizing an issue of strategic interest? Labor is one of the essential elements of production. An organization with better workers, who are motivated, is likely to have a competitive advantage, especially on employee performance (Robescu & Iancu, 2016). Therefore, any calls to unionize change the dynamics in terms of negotiating power in so far as compensation is concerned. Having empowered staff could mean a higher cost for the organization in terms of worker benefits. While Starbuck has come to dispute any connection between the dismissal and unionizing, increased rallying of Starbucks workers to unionize across the different states in the US still remains an issue of strategic importance.
On February 10th, 2022, another issue with serious strategic significance occurred in one of Starbucks stores in the city of Wuxi, Jiangsu Province, China. Starbucks was fined, what is considered a small fine of approximately $210,000 by the Wuxi market regulator for violating food safety rules. According to the regulator, two Starbucks stores were found to have adjusted their ingredients shelf-life and used expired ingredients (Global Times, 2022). While the fine may have an inconsequential impact on an industry giant like Starbucks, the negative publicity could spark a fire which could lead to a massive exodus of loyal Starbucks customers to the benefit of its competitors. It is yet to be seen how Starbucks will respond to this crisis which may likely spiral to other outlets across the world if not properly handled.
Ethical Sourcing
Ethical sourcing in supply chain management is the process of engaging in sustainable and responsible procurement activities. It involves the creation of policies on ethical practices that guide all the processes throughout the procurement cycle, including engagement and management of suppliers (Kim et al., 2018). With regard to Starbucks, their ethical sourcing guidelines are aligned towards social and environmental responsibility, which are part of the company’s core values (Starbucks Coffee Company, n.d.). Farmers are their primary suppliers, and their statement on ethical sourcing is centered on them. One of the elements in the statement is the fact that the company focuses on the well-being of farmers when sourcing their produce. Similarly, in an effort toward supporting sustainability farming, the statement with regard to sourcing of coffee beans states that the company has developed ethical sourcing guidelines that help it to purchase coffee that is responsibly grown and ethically traded (Starbucks Coffee Company, n.d). Similarly, the consumer is also a focus of the company’s ethical sourcing guidelines, which is achieved through the procurement of high-quality farm produce.
There are different ethical perspectives, with each perspective having different motivations and views to what is considered ethical. There are four perspectives that fit Starbucks’ ethical sourcing commitment. The first ethical perspective is the utilitarian perspective which states gives priority to anticipated outcomes and consequences when making ethical decisions. In this case, adherence to ethical sourcing acts as a precursor to a sustainable supply of quality ingredients needed by Starbucks and at the same time the wellbeing of farmers. The rights view can also be used to explain the company’s commitment to ethics. In this regard, the rights and wellbeing of the farmers and the society are given priority when making sourcing decisions. The justice view can also be applied, which can be seen from how Starbucks adheres to pre-established conservation guidelines, specifically the Coffee and Farmer Equity (C.A.F.E.) practice guidelines. These guidelines are used across the board when the company is procuring coffee. The justice view posits that all decisions are made based on pre-established rules and guidelines (Parnell, 2021). The last view is the integrative social contracts view which considers the behavioral, community, and prevailing industry factors in decision-making. In this case, organization sustainability and community wellbeing are the factors given priority.
The perspectives that are opposite to Starbucks’ ethical sourcing commitment include the religious perspective which is founded on religious convictions. In the company’s ethical commitment, there is no indication where religious perspectives are captured as a basis to inform their decision-making. The second one is the self-interest view, which gives the interest of the company priority in ethical decision-making (Parnell, 2021). In this regard, Starbucks’ ethical commitment gives priority to the farmers, consumers, and community at large, and not its own personal interests.
Growth Strategies
There are a number of growth strategies that Starbucks has used so far to become successful. The first growth strategy is the market development strategy. This is a strategy that involves aggressive growth in new markets using the same products (Bang & Joshi, 2010). Since its establishment in the early 1980s,’ the company has significantly grown. Currently, the company has over 30,000 stores in over 78 countries. However, this strategy comes with different challenges including adapting to new socio-cultural issues and managing political and legal factors in the countries it is currently operating in.
Another strategy used by Starbucks is the product development strategy. Product development strategy involves coming up with new products that resonate with a particular market. Starbucks has been developing new products that offer variety to its customers in a bid to elevate their coffee experience. For Starbucks, product development strategy is done in a bid to achieve higher sales revenue.
The third strategy is the market penetration strategy. Market penetration strategy is an effective strategy when developing a company’s consumer base, resulting in higher levels of sales. It involves introducing the product mix of the company, to seemingly unexplored markets or where the company has a weak presence (Bang & joshi 2010). For example, Starbucks has been growing its branches in different African and Middle Eastern countries. The company has been using market penetration strategy to sell its brand within those countries, opening new stores in a bid to tap into the unexplored consumer base.
Starbucks has also used an external growth strategy, mainly forward integration through its acquisition of coffee retailer, The Coffee Connection, in a transaction that cost over $24 million (Forbes, 2021). Forward integration involves the acquisition of a company that controls business activities that are downstream of the value chain (Parnell, 2021). Starbucks has also been conducting cost restructuring to its current business strategy in a bid to reduce over half a million dollars in expenses. This change will have a significant impact on the company’s revenues and profit margin.
Changes to Corporate-Level Strategies
After a period of intensive growth and positive financial performance, it may be wise for the company to reassess its strategy in a period of economic recession. During an economic recession is it usually advisable to cut down on the rate of expansion, especially in existing markets. Therefore, taking a break in the market penetration strategy could be ideal for the company to prevent possible backlash in terms of lower sales levels. The company should also consider acquiring new companies capitalizing on its stronger capital structure. Most companies divest during economic recess and acquiring such companies in anticipation of better times could present a competitive advantage for Starbucks. However, prudence should be taken when making acquisitions.
References
Bang, V. V., & Joshi, S. L. (2010). Market expansion strategy–performance relationship. Journal of Strategic Marketing, 18(1), 57-75.
BBC. (2022). Starbucks fires organizers as union threat grows. https://www.bbc.com/news/business-60312013
Forbes. (2021, June 30). Let’s look at Starbucks’ growth strategy. Forbes. https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-look-at-starbucks-growth-strategy/
Global Times. (2022). Starbucks violates food safety rules, fined 1.36m Yuan by Wuxi Market Regulator. Global Times. https://www.globaltimes.cn/page/202202/1251922.shtml
Kim, S., Colicchia, C., & Menachof, D. (2018). Ethical sourcing: An analysis of the literature and implications for future research. Journal of Business Ethics, 152(4), 1033-1052.
Robescu, O., & Iancu, A. G. (2016). The effects of motivation on employees performance in organizations. Valahian Journal of Economic Studies, 7(2), 49-56.
Starbucks Coffee Company. (n.d.). Ethical sourcing. Starbucks Coffee Company. https://en.starbuckscoffee.cz/responsibility/ethical-sourcing