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Starbucks Operation Strategy Essay

I. Expand its product offerings and enter new market segments * Starbucks expanded to pursue sales of products in a variety of distribution channels and market segments. Products were marketed to restaurants, airlines, hotels, universities, hospitals, business offices, country clubs, and select retailers. In the airline industry, Starbucks coffee was served in flights United Airlines and United Airlines. Packets of Starbucks coffee along with coffee making equipment were made available in each room in Hyatt, Hilton, Sheraton, Radisson and Westin Hotels.

Coffee service was also provided in several Wells Fargo banks in California. Foodservice distributors such as Sysco Corporation and US Food service started handling the distribution whole bean and ground coffees and other Starbucks products to hotels, restaurants, office coffee distributors, educational and health care institutions and other such enterprises * The North American Coffee Partnership, a joint venture worth PepsiCo, was made to create bottled or canned coffee-related products ready for mass distribution through Pepsi channels.

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Its first product, the Mazagran, was a failure. Later, they decided to create a bottled version of the Frappuccino that quickly became a big hit. After which, a shelf-table version of the Frappuccino was introduced which made quite an impact. The sales of these ready-to-drink beverages reached $125 million in 1997 and achieved national supermarket penetration of 80 percent. The partnership also introduced a line of chilled Starbucks Doubleshot espresso drinks in the United States in 2007.

In Japan, Starbucks partnered with Suntory to sell the double shot dinks while they partnered with Arla Foods to sell the product across the United Kingdom. * The two companies entered into another joint venture, the International Coffee Partnership, which was created to introduce Starbucks-related beverages in country markets outside of North America. One of its first move was to begin the marketing of the Frappuccino in China. By 2010, sales of the Frappuccino products reached $2 billion annually worldwide. -In order to enter the ice cream industry, Starbucks partnered with Dreyer’s Grand Ice cream to make a new line off coffee ice cream made and distributed by Dreyer’s under the Starbucks name.

The company eventually discontinued the arrangement withe Dreyer and entered into an agreement with Unilever to manufacture, market, and distribute Starbucks-branded ice creams in the US and Canada. The pints were readily available in supermarkets while the novelty ice cream bars were also available in several convenience stores. Starbucks began selling the music it played in its stores after two years of research. The Starbucks tapes/CDs became a significant addition to the company’s product line.

The company acquired Hear Music to enhance its music CD offering capabilities. Hear Music media bars, was introduced which offered custom burning at selected Starbucks stores. It also gave customers the option of downloading music from the company’s 200,000+ song library and if they wanted, have it burned onto a CD for purchase. After partnering with Apple’s iTunes, Starbucks was able to offer a Pick of the Week music card at its 7,000 stores in the US that gave the customer a chance to download it at iTunes. Nevertheless, the company still continued to offer CDs with handpicked music and new CDs featuring particular artists managed by Starbucks Entertainment in conjunction with Concord Music Group. Starbucks was also able to identify and sell books for sale by partnering with the William Morris Agency. The eight Grammy Awards it received as well as having three number one books on the New York Times best-seller list proved Starbucks’ success.

Kraft Foods was licensed by Starbucks to market and distribute whole bean and ground coffees in grocery a mass-merchandise channels. In return, Kraft managed all distribution, marketing, advertising, and promotions and paid Starbucks royalties based on a percentage on net sales. Starbucks’ FlavorLock packaging guaranteed product freshness and the price paralleled those sold in Starbucks’ retail stores. * Starbucks as part of its product line expansion acquired Tao Tea, Seattle’s Best Coffee and Ethos Water.

Seattle’s Best continues to operate as a separate subsidiary while Starbucks and its partners handled Tazo Tea and Ethos Water. For Tazo Tea, its line of superpremium Tazo teas were marketed and distributed by Kraft while the ready to drink beverages were managed by PepsiCo and Unilever. For Ethos Water, PepsiCo handled its products as part of its joint venture with Starbucks. * Starbucks Coffee Liqueur and Cream liqueur were invented in partnership with Jim Bean Brands. The products were sold in bars, liquor stores, and restaurants.

The coffee liqueur was the number-one-selling new spirit product in 2005 but the cream liqueur had an estimated 22 million consumers in the US market, which was three times the size of the coffee liqueur category. * In order to satisfy demand for more wholesome food and beverage request for non-coffee drinkers, Starbucks started offering fruit cups, yogurt parfaits, skinny lattes, banana walnut bread, a 300-calorie farmer’s market salad with all natural dressing and a line of “better-for-you” smoothies called Vivanno Nourishing Blends.

Lower-calorie selections were added to the bakery cases and food items on the Starbucks menu were reformulated to include whole grain and dried fruits and to cut back or eliminate the use of artificial flavorings, dyes, high-fructose corn syrup, and artificial preservatives. * For coffee lovers, Starbucks introduced the new Pike Place Roast coffee blend and the VIA Ready Brew. The Pike Place Roast returned the company to the practice of grinding the beans in the store and it was brewed in small batches every 30-minutes to ensure that customer would be given the freshest coffee possible.

VIA Ready Brew are packets of roasted coffee in instant form. It was instant coffee that embodied the taste, quality and flavor of freshly brewed coffee. It enabled Starbucks to enter the instant coffee market and attracted a large part of the on-the-go and at-home coffee drinkers. * “Third place” (apart from home and work) where people could meet friends and family, enjoy a quiet moment alone with a newspaper or book, or simply spend quality time relaxing. * One of Starbucks’ core competencies was identifying good retailing sites for its new stores.

The company was regarded as having the best real estate team in the coffee bar industry and a sophisticated system for identifying not only the most attractive individual city blocks but also the exact store location that was best; it also worked hard at building good relationships with local real estate representatives in areas where it was opening multiple store locations. * Analysis: In 2009, Starbucks’ overall retail sales mix was composed of 76 percent beverages, 18 percent food items, 3 percent coffee making equipment and other merchandise, and 3 percent whole bean coffees.

Despite having a wide rage of products, Starbucks ensures that the product mix in each store is proportional its size and location. As such, large store will have a greater variety of products while smaller stores and kiosks will typically only carry the beverages, and a limited selection of whole bean and ground coffees, Tazo teas, and coffee accessories. They also adapt the Stores to local cultures. Starbucks has clearly achieved its goal of improving its business through better products.

The next step for the company is to introduce these new products all their channels and develop new channels for distribution as well. In order to continue its global expansion, the company must never fail to take into account that the local tastes of the country before they introduce these new products into the market. II. Coffee purchasing strategy * Starbucks purchases and markets Fair Trade Certified Coffee. They make sure that the prices paid for the green (unroasted) coffee were high enough that it would be able to cover the production costs of small farmers and provide for their families. Through fixed-price purchasing agreements, Starbucks was able to protect itself from the volatility of coffee prices and sudden price hikes due to weather, economic and political conditions in the growing countries. It also created new agreements establishing export quotas and has periodic efforts to bolster prices by restricting coffee supplies. * The company also works directly with small coffee growers, local coffee-growing cooperatives and other types of coffee suppliers to promote coffee cultivation methods that protected biodiversity and were environmentally stable.

They call these Coffee and Farmer Equity (C. A. F. E. ) Practices Analysis: By ensuring that farmers get their fair share of profit and promoting coffee cultivation methods that are good for the planet, Starbucks has shown that it is a company a soul. Now, Starbucks has to purchase and market only organically grown Fair Trade Certified coffees to all its stores. It is not enough that it is the biggest purchaser of these products; Starbucks has to take it to the next step by fully integrating it to all its operations worldwide.


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