Sustained Competitive Advantage of Starbucks
Starbucks needs no formal introduction as it is the largest coffee company in the whole world. When you think of premium coffee, the brand "Starbucks" comes to mind inevitably. It was first founded in 1971 by 3 aspiring entrepreneurs and coffee lovers and thousands of stores has sprung up across the world since then.
In April 2010, Schultz announced that Starbucks has seen considerable progress in returning to profitability and growth. Net revenues increased 8.6% in the second quarter of 2010 compared to the same quarter in 2009. Fast forward to 2019, its train of success is not showing signs of stopping. Starbucks has become a leading coffee chain in many countries (even in hard-to-penetrate markets such as China, where it has over 3600 stores and the world largest Starbucks store). What has contributed to Starbucks's sustained competitive advantage and success over the past few decades?
A Connected Customer Experience
Starbucks seeks to provide a connected customer experience to build and maintain a long term relationship. More than just offering fine coffee, the coffee giant provides the “Starbucks Experience” which makes customers feel at home, forming a strong emotional attachment. Starbucks stores are designed with great ambiance in mind in accessible locations. Schultz believes that employees are the key to building a positive customer experience. A host of benefits such as health care, stock option plans, stock purchase plans, training and recognition has been implemented.
Starbucks was ranked 7th in Fortune’s annual list of “100 Best Companies to Work For” in 2008. A decade later in 2018, it is still listed as one of the best places to work for (e.g. Job site indeed.com has placed Starbucks in its "50 Best Places to Work in 2018" list).
Starbucks Rewards Card
Starbucks also introduced the Starbucks Rewards Card that provides a host of benefits. This entices customers returning to make purchases, building loyalty. Starbucks also launched the Starbucks Customer Experience Survey which allowed customers to share their thoughts about their experience at Starbucks. This is evident that Starbucks is committed to establishing long term relationships with the customer.
Mastrena Espresso Machine
The Finest Coffee Beans
Starbucks’ uses the finest beans for its coffee. Company personnel often travel frequently in search of suppliers that meet its standards. In addition, Starbucks also purchased Certified Organic coffee and Fair Trade certified coffee. In 2009 alone, 14 million pounds of certified organic coffee was purchased by Starbucks Corp. Coffee is also brewed with Mastrena, a sophisticated Swiss-made espresso machine. When you visit a Starbucks cafe overseas, you will be greeted with that familiar taste no matter where you are.
Porter's Generic Strategies
According to Michael Porter, three general types of strategies can be used to achieve a sustained competitive advantage. They are cost leadership, differentiation and focus.
Porter describes the strategy of differentiation as the delivery of quality products or services that are perceived to be unique and valued by consumers. Product differentiation is the core of Starbuck’s strategy to gain a sustained competitive advantage. Starbucks offers such differentiation through an excellent customer experience and quality coffee The “Starbucks Experience” is achieved through its well-designed stores with good ambiance and well trained staff. According to a study conducted by Daily Mail, Starbucks stores provided a more welcoming décor with friendlier baristas compared to independent coffee houses.
The differentiation strategy of being a premium and unique coffee drinking provider has allowed Starbucks to achieve a sustained competitive advantage.
Who Are Starbucks' Top Competitors?
- Luckin Coffee (China)
- Costa Coffee (Headquartered in England)
- Dunkin Donuts (in some markets and countries, their focus is not on coffee)
- McDonald's McCafe
- Tim Hortons (based in Canada but gradually expanding in the United States)
- Competitors specializing in other form of beverages, mainly tea brands (e.g. countries like China have tea deep rooted as part of their culture).
Do you think Starbucks' competitive advantage will last?
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
Questions & Answers
© 2013 Geronimo Colt