Type: Evaluation Essays
Sample donated: Yvonne Carlson
Last updated: July 11, 2019
Introduction:Starbucks Corporation, an American company was founded in 1971 inSeattle,WA. It is a premier roaster, marketer and retailer of specialty coffee aroundthe world. Starbucks has about 185,000 employees across 21,767 company operatedand licensed stores across 62 countries. The product mix includes roasted andhandcrafted high – quality/premium priced coffees, tea, a variety of fresh fooditems and other beverages. They also sell a variety of coffee and tea productsand license their trademarks through other channels such as licensed stores,grocery and national foodservice accounts.
Starbucks also markets its productsmix with other brand names within its portfolio of companies, which includeSeattle’s Best Coffee, and Starbucks VIA, Starbucks Refreshers, EvolutionFresh, La Boulange, Verismo etc.Industry Life Cycle and MarketShare Concentration: This industry is in a mature stage with a medium level concentration. Starbucksand Dunkin Brands make up more than 60% of the market share, giving them considerablemarket power in determining industry trends.
Starbucks Core Competency: The core competence of Starbucks has been its ability to effectivelyleverage their cornerstone product differentiation strategies by offering apremium 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 customera unique “Starbucks Experience”, whichis derived from supreme customerservice, clean and well – maintained stores that reflect the cultureof the communities in which they operate, thereby building a high degreeof customer loyalty with a cult following. Its other core competency is its human resource management’s values – basedapproach for building very strong internal and external relationships withsuppliers, which drives the successfuldeployment of its business strategy of organic expansion into international markets,horizontal integration through smartacquisitions and alliances that maintains their long-term strategic objective being the most recognized and respectedbrands in the world. Productivity of Starbucks CoffeeSome notableproductivity measures in the company based on the area of operations are asfollows: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 itselfas 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 arecomfortable 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 aremore likely to buy a second cup of coffeeor 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 locationswith limited parking opportunities, a drive-thru opens up the potential market to include drivingcommuters; increased presence innon-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 upanother area of possibilities.The three main reasons for why customers choose Starbucks are: thecoffee itself, the Starbuck s people who serve the coffee and the experiencegained in the stores.
The coffee product is dark roasted coffee made from high-qualitygourmet coffee beans grown in developing countries. Once the coffee is roasted,packaged, and shipped to the Starbucks’s retail stores, it’s the baristas whobring 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 storethat 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 thebaristas stopped grin ding coffee before brewing. In an attempt to gain backmarket share, Howard Schultz, CEO, is bringing back the old style espressomachines so the customers can see their drinks while being made. As thebaristas have already started grinding coffee, there is the pleasant aroma offresh coffee in the stores as customers walk in. Stores Location Selection Decisionof 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. Locationdecisions arise for a variety of reasons such as addition of new facilities, aspart 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 usesits own real-estate strategy for locating company-owned stores. When entering anew market, analysis is made to determine if multiple stores will survive inorder 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 tothis 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 bucksalso experiences resistance from rural communities who feel a Starbucks storewill put the local coffee shops out of business an d change the character ofthe rural community. There have been times that Starbucks declined to move intoa 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-marketcoffee 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 movementof work, customers or materials, through the system. Facilities layoutdecisions arise when designing new facilities an d/or re-designing existingfacilities. Basic layout types are product layouts, process layouts,fixed-position layout, and combination layouts which contain hybrid layouts andcellular 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 whilehaving a drink. Over time, Starbucks has become a “third” place for customersto go to get away from daily hectic, enjoy a cup of coffee, listen to music, dosome 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. Thestore layout shows that Starbucks mainly uses the product layout approach wherecustomers stand in line, going from station to station so to speak, to beserved while interacting with the baristas to place an order. No credit cardsor checks are taken which helps keep the lines moving. During busy times, atthis store, one or two baristas take the order and payment while one makes thebasic coffee and tea drinks and another fills orders at the espresso bar.Everything happens in view and in control of the customer.
The customer watchesthe 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 themere productivity improvement of, for example, the quick opening of a packageof 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 amaster barista is holding a coffee seminar or demonstration. The espresso baris separated from the area where the drink order is taken, so the customer mustwalk to the bar to pick up the specialty drink. The espresso machine locatedhere is too high which would not allow the customer to watch as the barista preparesa drink. Had the machine been placed at a lower level, the customers would havebeen able to see that the barista is well-trained to prepare an espressobetween 18 to 23 seconds.
One of the changes that Starbucks plans to make is toreplace the espresso machines with the old style machines that sit lower. The downsideto this decision is that the old style machines are not as efficient; however, thecustomers will be able to see the baristas the drink is being made which addsto the ambiance of the Starbucks stores and provides the spirit of the Italianespresso shops. The seating capacity is not adequate during busy times, andthere are only two power outlets for plugging in laptops.
The power outletsthat are available are loose from constant use. Many of the customers, standing or sitting, are asking the baristas how management plans to bring Starbucks backto profitability. The condiments station is checked every 10 minutes forcleanliness. However, the condiments station can be very messy during busy times when the baristas do notget 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 simplyreplacing the condiments station with a product station and widening thepathway between the espresso station and the product stations located in themiddle of the store, the movement ofcustomers is enhanced and the queue for orders is not interrupted.
The lastshift restocks the condiments for the morning because the morning shift has its own procedures to complete. Pastries are delivered daily and must be placedon the shelves before the store opens. Any pastries with defects are returnedfor a refund. The pastry station and the newspapers stand are strategicallyplaced so the customer sees the display while waiting in line.
Many times apastry purchase is a last minute decision. Cleanliness is a priorityconsideration at Starbucks, which is another way it differentiates its storesfrom the competition. Bathrooms are cleaned often and accommodate anyone who wants to use them, even if they are not a customer. This happens frequentlyin bigger cities because there are very few public restrooms available. Thanksto Starbucks since no one is turned a way to get relived from this vital humanneed.
However, the condiments station can be very messy during busy times when thebaristas 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 whichby simply replacing the condiments station with a product station and wideningthe pathway between the espresso station and the product stations located inthe middle of the store, the movement of customers is enhanced and the queuefor 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 shelvesbefore the store opens. Any pastries with defects are returned for a refund.The pastry station and the newspapers stand are strategically placed so thecustomer sees the display while waiting in line. Many times a pastry purchaseis 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, evenif they are not a customer. This happens frequently in bigger cities because thereare very few public restrooms available. Thanks to Starbucks since no one isturned a way to get relived from this vital human need.
Recommendation for Starbucks: The following arerecommendations to further improve operations at Starbucks retail stores: • Widen appeal to many customerprofiles. 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 ofStarbucks’s global, mass-marketing strategy, other profiles need to be consideredand 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 thatnormally 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 interferewith customers approaching the condiments stations. Adopt a hybrid layout inwhich the advantages of both the product layout and process layout will beobtained. 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.