Expansion strategy of Starbucks

Expansion dodge of StarbucksIntroduction Starbucks as a stool started its note from the course of study 1971 in the city of Seattle in Washington. In its proterozoic stages Starbucks loose four blood lines in the city and the assembly line was looking good. (Starbucks Corporation, 1997). aft(prenominal) some major changes and alterations the fateicipation opened slightly fifty come forthlets by 1989. The focus of the corporation was not only expanding the progeny of stores still similarly at the same snip educate the consumers .(Starbucks Corporation, 1997). But at that nonplusing the owners were reluctant of entering into the main persistence. But in the year 1984, the union precaution acquired anformer(a) umber seller called the Peets cocoa and Tea. (Starbucks Corporation, 1997). Since then the come with adapted galore(postnominal) significant changes in order to establish its dishonor in the international commercialise place.Supply Chain and Expansion Strategy With heterogeneous competitors the persistence is a monopolistic in nature. For that grounds a heavy player like Starbucks is has to depend on the product mix and strategical locations as the main differentiating factor in order to influence impelling consumers affect for their products. For that terra pisseda the marketing strategy that Starbucks adapts suckers only iodin fact segment of customers. This marketing strategy for years has yielded great results for the comp whatever. Starbucks can be considered as the market leader with over $1.3 billion in gross r correctue in the year 1998. delinquent to the complexness of the ne dickensrk it is grave that the management locates the make up centers and allocates the resources accordingly.In order to evaluate the supply concatenation issues it is important to realize the amplification strategy of the firm. The expansion strategy adapted by the firm is primarily increase the market sh atomic number 18 in the sell segment and for that reason t foc enforced on increasing the number of stores.(Berger, Buchman, Chase, Hsu, N.d). It is important to note that Starbucks followed a pattern of store opening strategy in order to form a ne dickensrk. The company adapted a hub and speak model for its regional expansions. Starbucks at the initial stage selected a large city in the region which get out serve the subroutine of a hub and tried to open as many as twenty or more stores in the hub city itself in the first two years. (Starbucks Corporation, 1997). After opening the targeted stores in the hub city the early(a) stores atomic number 18 as well organism opened in the surrounding beas which are considered as the spoke stores. In the year 1995 alone, new stores opened generated average revenue enhancement of US$700,000 in their first year, which is far more than the average revenue anatomy of US$427,000 in 1990. (Starbucks Corporation, 1997). The growth in the gross revenue was mainly ascribable to the growing brand image of the firm. With the increase in the number of stores the complexity of the supply chain increased and this lead to the variant security issues for the firm. For that reason a security team is being introduced in the system which is called the green light Security Platform and it keeps track of the critical facilities , operations at the retail outlets and the besides monitors the activities in the international market. This centrally integrated supply chain model helps the company management to keep track of the proceedings and presage demand so that they can adjust their expansion strategy accordingly. slender Issues and factors affecting import and export The Company faced some obstacles in the farthest two years of operation. The global economic crisis has reduced the liquid income of the mass and for that reason the spending in the industry has reduced. (Starbucks Recent like Store Sales Implication for future growth, 2009). The s tore closing has its other implications. The negative gross gross gross gross revenue figure actually got compounded each draw and quarter and it is mainly contributed by the sudden decrease in demand and the increasing cost component as the company focused on sustaining the expansion strategy. (Starbucks Recent Same Store Sales Implication for future growth, 2009).It has to be noted that about Eighty four percent of the revenue for the company was realized from the retail stores and thus the expansion strategy remained as the subject matter business strategy of the firm. (Berger, Buchman, Chase, Hsu, N.d). Before this drop of the net revenues the company was experiencing a steady increase of 27% per year. In the years 1998-1999 in atomic number 7 America, the company launched about two hundred and ninety three stores was opened and the retail sale nimblely went up by twenty five-spot percent. The other segment of business apart from the retail gross sales to a fault flour ished during that catch. (Starbucks Company 10K, 1998).The major concern for Starbucks is their cost of sales. It has been noted that the cost of sales is as high as 78.8% of the sales revenues and the problem multiplied as the labor cost increased which increased the operating expense of the stores by 37.6%.(Starbucks Company 10K, 1998). In order to handle this situation Starbucks transited its grocery business to kraft which automatically resulted in lower of the operating expenses and as a result there was a net increase in revenues in the persuasiveness sales division by 20%.The main force play of the firm is in the specialty umber market and for that reason it targets a particular segment of the population duration at the same time maintaining its niche. The extensive opining of stores has led to market cannibalization in received regions of the world. The employee training and exploitation program have ensured quality service throughout the globe.There are industry leve l factors that drive the operations of the firm and there is a constant level of risk which affects the business operation of the company.The lack of monomania in the burnt umber supplier segment in Central and southeasterly America is a crucial factor which affects the import of the company. This makes the variable cost to go up and hampers the net profit. Over exporting and concentration of retail outlets at some regions hampers the sales per store figure of the company.The major exporting countries for Starbucks are Canada and countries in Europe, while the importing countries of the company are mainly countries of eastern Africa like Burundi, Ethiopia, Kenya, Rwanda, Tanzania and Zambia.Qualitative Techniques The qualitative studies for foretell bequeath use various sources of data and study in order to ascertain the underway position the firm. The two qualitative method used in this excogitate are un meaty market research and the Delphi method.Market Research Coffee a s an industry has now great global level demand and all the coffee bean companies through out the globe provide involution to more than twenty million people. (Coffee in the 21st Century, 2009). It is being sight that coffee as a commodity alone occupies the second position to petroleum in terms of the dollars traded throughout the world. (Coffee in the 21st Century, 2009). A market research results found out that over four hundred billion cups of coffee is being consumed every year. In the country of brazil nut itself over five million people are involved in the industry of cultivating coffee beans. The overall sales premium of specialty coffee in United States of America has now reached a multi-billion dollar level. (Coffee in the 21st Century, 2009).But Starbucks particularly does not operate in coffee industry alone but the industry can be identified as the Specialty Eatery Industry. This industry can be regarded as the part of fare and beverage industry which occupies the l argest segment of disposable income. (Berger, Buchman, Chase, Hsu, N.d). This indicates a Brobdingnagian electromotive force market to capture. The level of competition also increased collectible to the huge scope available after the year 1990. (Berger, Buchman, Chase, Hsu, N.d). The year 1997 recorded an adjudicated ogdoad thousand specialty coffee outlets in the United States. harmonise to the industry analysts the beverage industry at that particular maculation had enough put for about two or three national players, maybe even more. (Starbucks Corporation, 1997). The closest competitor at that time for Starbucks was a Canadian franchisor with many stores in Canada but when compared the coat it was slight than one-third of the total size of Starbucks. (Starbucks Corporation, 1997). The other national level competitor was Gloria Jeans which was also a franchisor of specialty coffees, and its stores are located in most of the malls throughout the United States of America. (Starbucks Corporation, 1997). The other rivals did not have more that two hundred and fifty stores, but there were about twenty small local and regional coffee shop chains that aspired to grow into rivals of Starbucks, most notably New world Coffee, Coffee People, Coffee Station, Java Centrale, and Caribou Coffee. These coffee shops together captured a considerable portion of the market and made the competition tougher. (Berger, Buchman, Chase, Hsu, N.d). The company (Starbucks) also faced huge competition from the nationwide coffee manufacturers like the Kraft General Foods, Procter Gamble and Nestl, the company who were known for distributing the coffees mainly through supermarkets. (Starbucks Corporation, 1997).For that reason the market structure thus can be considered to be a monopolistic one as there are several competitors bring in in the market who are at the same time whirl almost similar kind of products and services. This damps the competitive nature of the market twain domestically and internationally. The competitors used certain parameters to gain the competitive advantages. These parameters are mainly strategic store locations, the product mix and most importantly the store atmosphere. The last parameter actually does influences to a great extent in building loyal customer base.Now there are certain other influences which affect the overall industry. Large coffee producers like draw near and Kraft are constantly being pressed to introduce a voluntary levy on raw coffee beans which is considered as part of a greater bm to promote sustainable development of coffee throughout the globe. The Worldwide Sustainable Coffee Fund headed by the members of the coffee industry has put forward a marriage offer to levy one dollar on every sixty kilograms bag of beans at an international Coffee Organization meeting held in London. (The Future of Coffee industry, 2009). This proposal got informal backing from the seventy per cent of coffee-producing countries all over the world.Delphi system A controlled group of executives were interviewed in order to understand the opinions for them regarding the future purview of the firm. The questionnaire was designed in order to reflect on the opinions of the executives regarding the future and the strategies of the firm. A total of twenty five members were selected for this controlled session.The first statement of the questionnaire stated that the sales revenue of the company will certainly take a unconditional turn. About forty eight percent of the respondents agreed to the statement. The findings also reveal that there are forty four percent of the respondents who are unmindful(predicate) of the future so provided a neutral view. This may be due to the sudden dip in the sales revenue discovered last year, the employees are now not certain of the dramatic comeback.Figure 2 Percentage feedback on question number 1The statement asked about more of a strategic issue for the firm. Th e question asked whether the operating expenses of the firm are hindering the performance or in other delivery controlling the same would improve on the overall turnover.Figure 3 Percentage feedback on question number 2The feedback suggests that the selected executives of the firm do not accept the fact that the operating cost is the main find factor which is hindering the process of growth. They consider that due to the complexity of the business model of the company minor variations are observable in the period of economic downturn otherwise the operating margin is quite upstanding for them.Figure 4 Percentage feedback on question number 3The response to the third statement is a mixed one. The question was regarding the combative store expansion strategy adapted by the company. It is being observed that a major percentage of the employees under the control group are not in favor of the aggressive strategy adapted by the firm.Thus the overall qualitative forecasting using the D elphi method suggests that the closed(a) group considers that the sales figure to go up but does not really support the aggressive expansion strategy adapted by the firm.Reasons for selecting the methods The two qualitative methods used for the purpose of the study are secondary market research and the Delphi methods. The first one is useful for gathering information regarding the industry and the competitor analysis of the company which are essential parameters for find out the future or forecasting the sales. The second one is the Delphi method where the responses are summarized in order to understand the view of the employees regarding the future. The point of view of the employees is essential as they reflect on the actual picture of the firm. While the market research surveyed the external environment the Delphi analysis helped in realizing the internal point of view of the employees.Time Series Analysis Apart from the qualitative methods of forecasting quantitative analysis are also required in to estimate and forecast the exact figure of sales that can be estimated. cardinal time series analysis methods are applied in this suit in order to predict the sales figures and also the relationship among the various parameters.Moving Average Method This method simply takes the average of the front figures and forecast the next figures.Figure 5 Sales Forecast for the year 2010 and 2011In this case a span of six years has been interpreted in order to forecast the sales figure. The forecasted figures for the year 2010 and 2011 come to be 8.2 billion and 8.7 billion dollar respectively. It should be noted that these figures is much less compared to the peak sales figure of 10.4 billion dollar that the company gaind in the year 2008. But due to the certain dip in the market conditions and United States economy the net revenue of the year 2009 also dropped. Due to the late drop in the sales figure the forecasted figures of the year 2010 and 2011 are low and it will take certain time for the firm to achieve the previous level. though the last trend is increasing as the forecasted revenue for 2011 is higher that of 201Linear retrogression This method of forecasting is used for determine the causal relationship between predicting parameters and the variable which is depending on the others.Regression Statistics octuple R0.9952172R Square0.9904572Adjusted R Square0.9840953 normal Error256.28309Observations6ANOVAdfSSMSFSignificance FRegression22045129010225645155.68650.000932Residual3197043.165681.02Total520648333Coefficientsmeasure Errort StatP-value deject 95%Upper 95%Lower 95.0%Upper 95.0%Intercept-58.491328663.0271-0.088220.935262-2168.542051.557-2168.542051.557Operating Income0.85365551.1041880.7731070.495786-2.660364.367675-2.660364.367675No of Stores0.56702030.04804511.801970.0013080.4141210.719920.4141210.71992Figure 6 Linear Regression analysis using figures from the year 2004 to 2009In this particular case the sales revenue is the de pendent variable, or the variable which will be forecasted, while the operating income and the number of stores are the predicting variables.The results show that the value of the adjusted R-square is 0.9840953 which gist that 98% of the variation of these two parameters explains the variation in the sales revenue. This reflects on the high predictability rate of these two parameters. Now the forecasting equation that is being derived from this analysis is abandoned byY= -58.5+ 0.85 OI + 0.57 NWhere Y is the sales revenue, OI is the operating income of the firm and N is the number of stores. This provides the model with which the future sales figures can be forecasted. This model provides the causal relationship among the parameters.Recommendation According to the industry analysts Starbucks was a company which can replicate the giants like Nike or Coca-Cola in its own industry segment. In the period 1998 StarBucks was the only company with almost national market coverage in the U nited States of America. The immediate objective at that time for the firm was to have about two thousand stores in operation by the year 2000 and this target was carry through in time. The long term objective was to become the most recognized and respected brand in the world. This goes well with the actual value proposition of the company. The companys efforts to greatly increase its domain were stimulated by the joint ventures with Pepsi and Dreyers and its move to sell coffee in supermarkets. (Starbucks Corporation, 1997). The company was also thinking of a possibility of marketing fruit-juice drinks and candy under the Starbucks label. But prior to any expansion that the firm must adapt, it should consider two crucial aspects. first of all the cost component being so high the company cannot spend radical product line of store expansion in the given situation. Secondly if the company tries to expand its target customer base, it may trend it overall brand and the customers as well as the employees (who have been a major asset for the company) may see this as a reel from the overall value proposition of the firm. This is bound to affect in a negative way. For that reason whichever among the two possible options that the company chooses to increase its sales revenue, it must analyze the long term growth and prosperity of the company. closing curtain The Company must continue on its expansion strategy as it is only way they can increase the sales revenue. Shifting the target base or shrinking the entanglement will cause mate harm for their brand which will again hamper the future sales. Though the threat of competition is huge, still every time the company came out with successful marketing strategy to overcome the situation and it continues with its aim of invariable expansion plans. Quality product delivery along with increasing the network is what the company mainly works on, and for that reason it is expected the company will certainly overcome the current situation and its stock market figures will show positive trend again in the future.