Introduction:
Starbucks Corporation, an American company was founded in 1971 in
Seattle,WA. It is a premier roaster, marketer and retailer of specialty coffee around
the world. Starbucks has about 185,000 employees across 21,767 company operated
and licensed stores across 62 countries. The product mix includes roasted and
handcrafted high – quality/premium priced coffees, tea, a variety of fresh food
items and other beverages. They also sell a variety of coffee and tea products
and license their trademarks through other channels such as licensed stores,
grocery and national foodservice accounts. Starbucks also markets its products
mix with other brand names within its portfolio of companies, which include
Seattle’s Best Coffee, and Starbucks VIA, Starbucks Refreshers, Evolution
Fresh, La Boulange, Verismo etc.
Industry Life Cycle and Market
Share Concentration:
This industry is in a mature stage with a medium level concentration. Starbucks
and Dunkin Brands make up more than 60% of the market share, giving them considerable
market power in determining industry trends.
Starbucks Core Competency:
The core competence of Starbucks has been its ability to effectively
leverage their cornerstone product differentiation strategies by offering a
premium product mix of high quality beverages and snacks. Starbuck’s brand equity is built on selling the
finest quality coffee and related products, and by providing each customer
a unique “Starbucks Experience”, which
is derived from supreme customer
service, clean and well – maintained
stores that reflect the culture
of the communities in which they operate, thereby building a high degree
of customer loyalty with a cult following
. Its other core competency is its human resource management’s values – based
approach for building very strong internal and external relationships with
suppliers, which drives the successful
deployment of its business strategy of organic expansion into international markets,
horizontal integration through smart
acquisitions and alliances that maintains their
long-term strategic objective being
the most recognized and respected
brands in the world.
Productivity of Starbucks Coffee
Some notable
productivity measures in the company based on the area of operations are as
follows:
Average
order filling duration (Starbucks café productivity)Weight of
coffee beans processed per time (roasting plant productivity)Equipment
repair duration (maintenance productivity)
Starbucks Experience
Starbucks’s strategy in targeting its customers is to position itself
as a “third” place in the lifestyles of its customers. That is to say,
the prototypical Starbucks
customer will spend
their time at
home, at work,
and at Starbucks.
To encourage this
idea, Starbucks locations
are furnished with
comfortable seating, provide
outlets for electronic
equipment, and a
blanket no-smoking policy ensures that all customers are
comfortable in the environment, refer to Figure 2.
Making customers more
comfortable while spending
time in the
stores causes them
to stay longer
and, in doing
so, indulge in
more of what Starbucks has to offer.
As customers linger, they are
more likely to buy a second cup of coffee
or a snack, to pay for Wi-Fi internet
access, to burn
a CD, etc.
In addition to diversify its
product offerings, Starbucks
is also looking
to broaden its
customer base beyond
just young urban
professionals and college
students. Many of
the more recent
adjustments to how
Starbucks conducts its
business are aimed
at accommodating the varied lifestyles
of the not-so-traditional Starbucks
customer.
These include: increased number of drive-thru locations – in locations
with limited parking opportunities, a drive-thru opens up the potential market to include driving
commuters; increased presence in
non-urban locations – the move to expand into these locations
exposes Starbucks to
“middle-America” and could eventually
almost double the
domestic market for
their product; increased penetration
of licensed products; Starbucks at home-
with genuine Starbucks
brand coffees now
available at the
local grocery store and Starbucks for business – contracting to
supply businesses with products
for their cafeteria services, Starbucks opened up
another area of possibilities.
The three main reasons for why customers choose Starbucks are: the
coffee itself, the Starbuck s people who serve the coffee and the experience
gained in the stores.
The coffee product is dark roasted coffee made from high-quality
gourmet coffee beans grown in developing countries. Once the coffee is roasted,
packaged, and shipped to the Starbucks’s retail stores, it’s the baristas who
bring the product to life. The baristas
are trained employees,
referred to as “partners”, who
make a coffee
drink and understand
and explain the
diverse coffee varieties.
To reduce baristas
turnover, Starbucks offers
a wage higher
than the industry
average, health care
benefits, and company stock to its partners. As
stated above, Starbucks
has become a
“third” place for
its loyal customers.
The “Starbucks Experience” begins when a customer walks into a store
that has been designed with the ambiance and spirit of an Italian espresso bar.
In an attempt to improve productivity two
changes were made
in the coffee-making
process: the old
style espresso machines
were replaced with
more efficient ones and the
baristas stopped grin ding coffee before brewing. In an attempt to gain back
market share, Howard Schultz, CEO, is bringing back the old style espresso
machines so the customers can see their drinks while being made. As the
baristas have already started grinding coffee, there is the pleasant aroma of
fresh coffee in the stores as customers walk in.
Stores Location Selection Decision
of Starbucks:
Location decisions are closely tied to an organization’s strategies,
low-cost, convenience to attract market
share, effect on capacity
and flexibility, represent a long-term commitment of resources,
effect investment requirements, operating costs, revenues, and operations,
impact competitive advantage, and importance to supply chains. Location
decisions arise for a variety of reasons such as addition of new facilities, as
part of a marketing strategy to expand markets, growth in demand that cannot be satisfied by expanding
existing facilities, depletion
of basic inputs which
requires relocation, shift in markets, and
cost of doing
business at a
particular location which
makes relocation. Starbucks uses
its own real-estate strategy for locating company-owned stores. When entering a
new market, analysis is made to determine if multiple stores will survive in
order to take advantage of economies of scale. A major customer complaint is
the long lines
waiting for coffee
drinks at Starbucks
stores. Starbucks opens new locations close to busy
locations in order
to relieve the wait in lines and increase service rates. The downside to
this strategy is the new location tends to cannibalize sales from the busy store. When
same-store sales growth for the
busy store is
reported to weaken,
Wall Street reacts
with a decline in
the stock price. To establish a new store, as with Wal-Mart, Star bucks
also experiences resistance from rural communities who feel a Starbucks store
will put the local coffee shops out of business an d change the character of
the rural community. There have been times that Starbucks declined to move into
a new community because of this local resistance sentiment (Schultz and Jones,
1997). Starbucks management is
sometimes able to
reverse this sentiment
by becoming involved
in the community
with donations and
charitable events or
contributions. The tremendous growth of Starbucks, as a mass-market
coffee retailer, can certainly give its ubiquity impression. Traditionally, when a
new store would
open the customers
would come by
word-of- mouth without spending large amounts of money on advertising.
Store Layout Evaluation of Starbucks:
Layout is about
the configuration of
departments, work centres,
and equipment, with
particular emphasis on movement
of work, customers or materials, through the system. Facilities layout
decisions arise when designing new facilities an d/or re-designing existing
facilities. Basic layout types are product layouts, process layouts,
fixed-position layout, and combination layouts which contain hybrid layouts and
cellular layouts. From the beginning the
idea behind the
Starbucks’s stores layouts
was to recreate
the experience in
the espresso bars
in Italy where
customers come in
daily and stand
to enjoy an
espresso drink. Starbucks, however,
found customers want take-out service and a place to sit in the store while
having a drink. Over time, Starbucks has become a “third” place for customers
to go to get away from daily hectic, enjoy a cup of coffee, listen to music, do
some work using the Internet
service, socialize with
friends, and even
hold a business meeting. Young customers
drink lots of
coffee and enjoy
having a place
to go where
alcohol is not
served. Before moving into a
new location, research
is done to
understand the culture,
and art work is displayed
in the stores that
reflect the community’s
culture. Seating layout
is a mixture
of comfortable couch type
chairs, with groupings of
tables and chairs for the store layout for the Starbucks store. The
store layout shows that Starbucks mainly uses the product layout approach where
customers stand in line, going from station to station so to speak, to be
served while interacting with the baristas to place an order. No credit cards
or checks are taken which helps keep the lines moving. During busy times, at
this store, one or two baristas take the order and payment while one makes the
basic coffee and tea drinks and another fills orders at the espresso bar.
Everything happens in view and in control of the customer. The customer watches
the barista grind fresh coffee beans before brewing which is a change that Starbucks
has recently made
to re-introduce the
spirit of the Italian espresso
shops. This spirit or “Starbucks Experience” is more important than the
mere productivity improvement of, for example, the quick opening of a package
of pre-ground coffee. The customer
watches a drink
order being made
while, concurrently, having
a conversation with
the barista. This high-degree of customer contact is enhanced in two ways:
when a barista walks around the store offering samples of products or when a
master barista is holding a coffee seminar or demonstration. The espresso bar
is separated from the area where the drink order is taken, so the customer must
walk to the bar to pick up the specialty drink. The espresso machine located
here is too high which would not allow the customer to watch as the barista prepares
a drink. Had the machine been placed at a lower level, the customers would have
been able to see that the barista is well-trained to prepare an espresso
between 18 to 23 seconds. One of the changes that Starbucks plans to make is to
replace the espresso machines with the old style machines that sit lower. The downside
to this decision is that the old style machines are not as efficient; however, the
customers will be able to see the baristas the drink is being made which adds
to the ambiance of the Starbucks stores and provides the spirit of the Italian
espresso shops. The seating capacity is not adequate during busy times, and
there are only two power outlets for plugging in laptops. The power outlets
that are available are loose from constant use. Many of
the customers, standing or
sitting, are asking
the baristas how management plans to bring Starbucks back
to profitability. The condiments station is checked every 10 minutes for
cleanliness. However, the condiments
station can be
very messy during busy times when the baristas do not
get a chance to check
the front of the
store. In this
layout the condiments
station is not
properly located for
busy times. If
the arrival customers
queue is long, the customers
in need of the condiments
must interrupt that
line to get to the
condiments station. The alternative layout recommended is simply
replacing the condiments station with a product station and widening the
pathway between the espresso station and the product stations located in the
middle of the store, the movement of
customers is enhanced and the queue for orders is not interrupted. The last
shift restocks the condiments for the
morning because the
morning shift has
its own procedures
to complete. Pastries are delivered daily and must be placed
on the shelves before the store opens. Any pastries with defects are returned
for a refund. The pastry station and the newspapers stand are strategically
placed so the customer sees the display while waiting in line. Many times a
pastry purchase is a last minute decision. Cleanliness is a priority
consideration at Starbucks, which is another way it differentiates its stores
from the competition. Bathrooms are cleaned often and accommodate anyone
who wants to use
them, even if they
are not a customer. This happens frequently
in bigger cities because there are very few public restrooms available. Thanks
to Starbucks since no one is turned a way to get relived from this vital human
need. However, the condiments station can be very messy during busy times when the
baristas do not get a chance to check the front of the
store. In this
layout the condiments
station is not
properly located for busy
times. If the arrival customers
queue is long,
the customers in
need of the
condiments must interrupt
that line to
get to the
condiments station. The alternative layout recommended in which
by simply replacing the condiments station with a product station and widening
the pathway between the espresso station and the product stations located in
the middle of the store, the movement of customers is enhanced and the queue
for orders is not interrupted. The last shift restocks the condiments for the morning
because the morning
shift has its
own procedures to
complete. Pastries are delivered daily and must be placed on the shelves
before the store opens. Any pastries with defects are returned for a refund.
The pastry station and the newspapers stand are strategically placed so the
customer sees the display while waiting in line. Many times a pastry purchase
is a last minute decision.
Cleanliness is a
priority consideration at
Starbucks, which is
another way it differentiates its
stores from the competition.
Bathrooms are cleaned often and accommodate anyone who wants to use them, even
if they are not a customer. This happens frequently in bigger cities because there
are very few public restrooms available. Thanks to Starbucks since no one is
turned a way to get relived from this vital human need.
Recommendation for Starbucks:
The following are
recommendations to further improve operations at Starbucks retail stores:
• Widen appeal to many customer
profiles. Early research showed that
the profile of a Starbucks
customer was a
connoisseur, highly-educated, relatively affluent, well-travelled,
technologically savvy, cultured, and interested in the arts. As a result of
Starbucks’s global, mass-marketing strategy, other profiles need to be considered
and catered to.
• Improve housekeeping during busy times.
• Offer more types of roasted coffee after noon.
• Develop other light roast coffees that will bring in customers that
normally avoid Starbucks because of the “bitter taste” of the coffee.
• Offer more types of healthy pastries or light sandwiches.
• Change the layout of the floor so that long lines do not interfere
with customers approaching the condiments stations. Adopt a hybrid layout in
which the advantages of both the product layout and process layout will be
obtained.
By excelling in these areas and improving operations management,
Starbucks can regain market share, and improve productivity and profitability. A
future study of operations
management at Starbucks
can include its
direct mail business
and partnerships. Partnerships
have not always
been successful in
the past due
to Starbucks requirement of
high-quality and reliability
throughout the supply chain.
