chapter 1 Mini-Case
Starbucks Is Juicing its Earnings per Store Through Technological Innovations
by Hitt, Ireland
Your case analysis will require for you to complete the readings for Chapter 1 “Strategic Management and Strategic Competitiveness, and the Mini-Case from the textbook.
* Answer Case 1-4 questions
Mini-Case Starbucks Is â€œJuicingâ€ Its Earnings per Store through Technological Innovations
The choice of a CEO signals potential actions to stakeholders about a firmâ€™s potential actions. Howard Schultz served as Starbucks CEO for many years; the firm achieved multiple successes during his service. As of April 2017, Schulz became executive chairman of Starbucksâ€™s board while Kevin Johnson, a former CEO of Juniper Networks and a 16 year veteran of Microsoft, assumed the CEO position for the coffee giant. Johnsonâ€™s background may find him concentrating on the firmâ€™s digital operations, information technology practices and supply chain operations as a means of increasing Starbucksâ€™s effectiveness and efficiency.
Many brick and mortar stores have experienced decreasing sales in the United States as online traffic has increased. Interestingly, 2014 Starbucks sales store operations increased 5 percent in the fourth quarter; this 5 percent uptick in revenue came from increased traffic (2 percent from growth in sales and 3 percent in increased ticket size).
Additional and more sophisticated technology applications may be the driver of this increase in revenues. To stimulate sales, Starbucks is ramping up its digital tools such as mobile payment platforms. Customers now can place online orders and pick them up in about 150 Starbucks outlets in the Portland, OR area. Besides leadership and a focus on technology, Starbucks receives suggestions, ideas, and experimentation from its employees. Starbucks views its employees, called baristas, as partners who blend, steam, and brew the brandâ€™s specialty coffee in over 21,000 stores worldwide. Schultz credits the employees as a dominant force in helping it to build its revenue gains.
To incentivize employees further, Starbucks is among the first companies to provide comprehensive health benefits and stock option ownership opportunities to part-time employees. Currently, employees have received more than $1 billion worth of financial gain through the stock option program. An additional benefit for U.S. employees is the firmâ€™s program that pays 100 percent of workersâ€™ tuition to finish their degrees through Arizona State University. To date, one thousand workers have enrolled in this program. In mid-2018, Walmart offered subsidized college tuition to its employees as a means of attracting and retaining talent in a tight labor market. Walmartâ€™s actions may demonstrate the value of Starbucksâ€™s approach to supporting employeesâ€™ efforts to earn a college degree.
When developing new storefront concepts, Starbucks innovates. For instance, it is testing smaller express stores in New York City that reduce client wait times. Today, Starbucks emphasizes online payments as a means of increasing the speed of customer transactions. It now gives Starbucks rewards for mobile payment applications to its 12 million active users. Interestingly, this puts it ahead of iTunes and American Express Serve with its Starbucks mobile payment app in terms of the number of users.
To put its innovation on display, Starbucks opened its first â€œReserve Roastery and Tasting Room.â€ This is a 15,000 square foot coffee roasting facility and a consumer retail outlet. According to Schultz, it is a retail theater where â€œyou can watch beans being roasted, talk to master grinders, have your drink brewed in front of you in multiple ways, lounge in a coffee library, order a selection of gourmet brews and locally prepared foods.â€ Schultz calls this store in New York the â€œWillie Wonka Factory of coffee.â€ Based on this concept, Starbucks opened small â€œreserveâ€ stores inspired by this flagship roastery concept across New York in 2015. To attract customers in the afternoon, the firm is â€œrolling out new cold coffee and tea drinks and is introducing happy hour promotions featuring cold beverages.â€
These technological advances and different store offerings are also taking place internationally. For example, Starbucks is expanding a new store concept in India in smaller towns and suburbs. These new outlets are about half the size of existing Starbucks cafes in India. In China, Starbucks is opening roughly one store daily and is rolling out its Roastery and Reserve brands to penetrate the country further.
Sources: D. B Klein, 2018, Hereâ€™s how Starbucks plans to conquer China,
The Motley Fool
, March 25; J. Jargon, 2018, Starbucks trying to woo afternoon customers,
Wall Street Journal
, May 8; S. Nassauer, 2018, Walmart to pay certain college costs for U.S. store workers,
Wall Street Journal
, May 30; I. Brat & T. Stynes, 2015, Earnings: Starbucks picks a president from technology industry,
Wall Street Journal
, January 23; A. Adamczyk, 2014, The next big caffeine craze? Starbucks testing cold-brewed coffee,
, August 18; R. Foroohr, 2014, Go inside Starbucksâ€™ wild new â€œWillie Wonka Factory of coffeeâ€,
, December 8; FRPT-Retail Snapshot, 2014, Starbucksâ€™ strategy of expansion with profitability: to debut in towns and suburbs with half the size of the new stores,
, September 28, 9â€“10; L. Lorenzetti, 2014, Fortuneâ€™s world most admired companies: Starbucks where innovation is always brewing,
, October 30; P. Wahba, 2014, Starbucks to offer delivery in 2015 in some key markets,
, November 4; V. Wong, 2014, Your boss will love the new Starbucks delivery service,
, November 3.
Case Discussion Questions
What competitive advantage or competitive advantages do you believe Starbucks seeks to establish? What are the main challenges the firm faces as it tries to maintain the advantage or advantages you identified?
Identify three or four capabilities you believe Starbucks possesses. Of these, are any a core competence? If so, explain your reasoning.
Starbucksâ€™s mission is â€œTo inspire and nurture the human spiritâ€”one person, one cup and one neighborhood at a time.â€ What actions do you recommend the firm take to reach this mission?
As Starbucksâ€™s new chief executive officer and strategic leader, what key challenges does Kevin Johnson and his firm face?