Starbucks Value Chain Analysis

Starbucks is considered the largest coffeehouse globally. For the last 16 years, it has been appearing in top rankings. This year it was graded as the fifth most likable coffee and in food and beverage, it has been awarded number one according to Fortune Magazine. Starbucks and McDonald’s McCafé have had a traditional coffee war for a long time. “FOUR BUCKS IS DUMB”, McDonald’s ad in 2008 was not taken funny by Starbucks which McDonald used for its promotion. Since then Starbucks has made many changes in marketing as well. They started grinding coffee fresh for every cup served rather than pounding it once time for all so that all their customers, from the beginning of the day to the end can enjoy the same aroma. 

Company’s Background

In 1971 Jerry Baldwin, Zev Siegl, and Gordon Bowker united to inaugurate a coffee shop in Seattle, Washington. Seattle, Washington is also known for being “HOME OF FIRST STARBUCKS”. After celebrating the win of the first store they opened another store in Washington. At the start, it worked as a wholesale business and used to sell at the local coffeehouses. In ten years they successfully opened 5 stores. Howard Schultz was appointed to supervise the sales & marketing.

After 1971 Starbucks had its first loss in 2002. 600 Starbucks stores closed which were not performing well in 2008. At this time there are 32,660 Starbucks stores globally.

Current performance of the company

Currently, many major companies are willing to work with Starbucks, and due to its success in the past years, this can be considered as good news for the company. Although it lost its net revenue in the fourth fiscal quarter, 2020 due to the COVID-19 pandemic. However, the company is taking the required action in this period such as enhanced cleaning measures and face covering, etc.

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Starbucks vision

The concise vision statement of Starbucks is to inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time.

Starbucks Value Chain Analysis

The objective of the value chain analysis is to analyze the primary and supportive activities for adding value to the company’s product to gain the customer and provide the best quality at minimum cost. A company deals with many problems and obstructions during its growing and mature phase. To solve the problems, it is important to study and analyze the value chain of the brand or the company. The fundamental aim of the firm is to provide quality products at a low cost.

Value chain analysis of an organization is used to add value to their product to gain maximum customers while reducing the cost. It is a combination of internal and supporting activities to create direct changes in input to add value to the output i.e. the product.

The activities which are used to furnish the product are classified as primary activities and supporting activities. Primary activities such as inbound logistics, operations, outbound logistics, marketing, and sales, and services while supportive activities include Human Resource Management (HRM), technology development, firm infrastructure, procurement.

Starbucks primary activities

Inbound logistics

In inbound logistics the buyers appointed by Starbucks select the insubstantial finest beans from coffee producers or coffee suppliers that are in Asia, Africa, and Latin America. At first hand the beans are obtained from the farms by the buyers of Starbucks then they are shifted to the storage units where they are roasted and packaged before being sent to the distribution units. The company owns some of and logistic companies manage them. Starbucks does not contract any supplier to certify and standardize quality from the first step of selecting the beans.

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Starbucks Operations

Starbucks operates more than 32 thousand stores globally. It also owns some other brands as well which include Seattle’s Best Coffee, Evolution Fresh, etc. According to the fourth quarter Sep 2020 fiscal year report, there is a recession to about 6% in net revenue from the earlier year caused by the COVID-19 outbreak while according to the annual financial report 2020 there is a decline of 11.3% in net revenue from the previous year. According to America’s segment result, there is a 46% change in operating income from last year. 2% change in store count from last year i.e. 2019. In the international segment results report, there is an 8% change in store count, 5% change in revenues, and 32% change in operating income from last year.

Starbucks Outbound logistics

Starbucks requires little to no companionship of the third parties to sell the products of Starbucks. They sell most of their products in the store. Nevertheless, the objective of retail distribution and storage areas has their necessity.

Starbucks Marketing and Sales

Starbucks primarily uses different strategies to proliferate the promotion of the brand and its products which include PR, print media, events, social media, website, etc. Starbucks mainly invests in quality rather than the promotion of the brand. Although it also requires marketing whenever they launch a new product in the market. For that purpose, they choose to distribute their new product samples in the stores.

Starbucks Service

The objective of Starbucks is to gain customers’ loyalty through in-store customer service or assist them with their issues with the product. The service training is the lead part of the value chain analysis goal is to provide customers with a distinct experience by making an attractive offering. When baristas make coffee it puts considerable value on the drinks. 

Starbucks Supportive activities

Supportive activities are the activities that assist the primary activities in an organization.

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Human Resource Management (HRM)

The good interaction of the customer and the employees who are committed to them are vital for an organization. It’s necessary to build a relationship with customers by dealing better. Starbucks always is caring towards their employees and this results in reduced quality employee turnover which refers to great Human Resource Management. Training of the workforce is also necessary to keep them upgraded and efficient.

Firm Infrastructure of Starbucks

The infrastructure of a company or an organization can be thought of as a physical thing but the facilities, services, and structure can also be included in the infrastructure of a company. Starbucks infrastructure comprises different departments such as finance, legal, management, etc. which are associated with the operations of the company and help them function. The devoted team of Starbucks who are in green apron provides good customer service and the managers supervise the stores.

Technology Development of company

Starbucks has renowned technology that is not used not only for coffee making but also to associate with their customers such as through social media. Many customers used Starbucks coffeehouse as their meeting place because of the fast wifi service. Through technology, they have been made the platform where customers can easily give their suggestions and feedback. Now we can also place an order by the  Starbucks delivery system and can also track it.

Procurement

The agents make the relationship with their suppliers to get the high-quality raw material i.e.coffee beans by using different strategies and by communicating with the suppliers about the standard quality of the company. 

Bottom line

The idea of value chain analysis is to perceive the intended meaning and separate the activities which are useful and worthless. If we improve in each step of value chain analysis it will help in the overall improvement in profitability.

There were no modifications in the internal control over financial reporting according to the annual report of Starbucks, 2020.

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