Starbucks Is A Well Known Franchise

Published Date: 02 Nov 2017

1.0 Introduction

Starbucks began its business in 1971 with a single store at Seattle’s Pike Place Market by selling quality ground bean. During that time, it was considered as a retailer of whole bean and ground coffee, tea and spices. Starbucks was started by three friends who having the same interest in opening the Starbucks coffee shop (MeanGreen, 2012). The name of Starbucks was come from Herman Melville’s Moby Dick while the company’s logo was a twin-tail siren from Greek mythology. While the mission of Starbucks is "To inspire and nurture the human spirit one person, one cup, and one neighborhood at a time" (Starbucks Company, 2012).In 1982, Howard Schultz joins Starbucks and now he becomes Starbucks CEO (Starbucks Company, 2009).

Starbucks is a well known franchise that deals mostly with coffee bean products. It can be considered as a leading retailer of coffee market. Currently, Starbucks is the largest coffeehouse company in the world with around 18000 retail outlets in 60 countries (Starbucks Company, 2012). It was a first coffee shop who offering Wi-Fi to their customers. Besides that, it was corporate with Hewlett-Packard and Deutsche Telecom’s T Mobile unit to provide high-speed internet across its locations. Starbucks also allow their customer to download songs and create custom music CDs in the shop since March of 2004 (MeanGreen, 2012). Starbucks produces and sells high quality of whole bean coffees together with a variety of fresh and ready-to-drink beverages, for instance, Italian-style espresso beverages, cold-blended beverages and so on. In addition, a variety of complementary food items and beverage-related accessories and equipment are also available in Starbucks (Starbucks Company, 2012). On the other hand, Starbucks member card is offer to their loyal patrons by providing them greater convenience when making purchases from Starbucks stores. Between, the primary target market of Starbucks is men and women with the age range from 25 to 40 (Renee, 2013).

According to Cruzcg (2007), Starbucks is considered as a very committed company towards its products, customers and employees. Besides that, it always concern about staffing strategy, encourage in teamwork, maintaining healthy working environment as well as providing excellent customer service. In order to increase their sales performance, Starbucks tend to hire as well as retain those right employees by offering comprehensive benefits, incentives, and inspiring enthusiasm to them so that they are more willing to provide good customer service which will actually lead to customer satisfaction (Cruzcg, 2007).

2.0 Diagnosis of problem faced by the organization.

2.1 Change nature of the business.

In customer mind Starbuck is specialized of the coffee product and services, but in January 2011, Starbuck change logo and remove word of coffee in the organization 40 year celebrations. From the first logo coffee and tea until the latest logo without include any words (Shaw, 2011). The Starbuck chief executive officer Howard Schultx in the 40 year celebration mentions "Even though we have been and always will be, a coffee organization as well as retailer, it’s possible we have further product with our name on it and no coffee in it"(Metro news, 2011). During that period of moment Starbuck is suffering of low profit margin. Beside in United state which already includes ice cream and beer in the Starbuck shop (The independent, 2011). It directly shows Starbuck change the nature of the business to solve of the crisis. The company brand name and logo are identifying of a company. According to Penn state Smeal college 632 researchers to test the hypothesis of the Starbuck change logo, they found committed brand fan view the logo change as threatening to their relationship of the brand (Smeal college, 2012). Example Gap organization after change the logo of the organization few month, change it back the logo of the organization, the reason is confuse customer and the profit is dropped, but Starbuck nowadays still survive with new logo and the profit is keep increasing (News business, 2011). The part of the reason Starbuck change the nature of the business is Starbuck competitors included 7-Eleven, Dunkin Donuts, Biggby coffee and McDonald, Starbuck is the higher cost of coffee compare with those organizations, beside that not all level of classes customer can accept the price of Starbuck coffee (Bhaskar, 2009).

2.2 Employees

Employees should treat as assets to the company in which something you invest in. As Starbucks, it differs. Since 2004, there has been several labor disputes taking place in Starbucks all around the world due to odd, many can’t afford the company’s health insurance, long working hour and underpay salaries (Allison, 2009). Employees become dissatisfied with Starbucks and feel underappreciated by the company itself which poses the danger of negative service impairment and increasing costs due to high employee turnover rates (Cateora & Graham, 2007). Industrial Workers of the World (IWW) had a "National Day of Action against Starbucks" on 18 August 2007 which took place in several cities around the UK to protesting against unfair labor practices (Krauthamar, 2007). The cases and disputes happen between the employees and Starbucks result the creation of "Starbucks Union" and the intention is to unify all Starbucks employees in order to improve salaries and working conditions. (Starbucks Union, 2007). The fact is their employee’s do not all agree with their working conditions, which is why they had to take action on their own to solve the problems.

2.3 Management

The management of Starbucks has to bears for the primary responsibility for the 2007-2008 crises due to fact that at that time they had made the wrong strategies of opening too many new stores, which resulting reduce the sales of the company itself (Mathias, 2012). In 2009 Starbucks decided to shut 600 stores which give significant positive impact on the sales and margins. Starbucks Chief Financial Officer Pete Bocian believes that the causes for these are the impact on economy pressures such as rising gas and food prices as well as competition with other competitor (Herman, 2008). Due to economy downturn, many people are unaffordable to buy a coffee from Starbucks. According to Bhaskar (2009), Starbuck competitors included 7-Eleven, Dunkin Donuts, Biggby coffee and McDonald, Starbuck selling most expansive coffee compared with those organizations. The 600 closures affected about 12,000 employees which is 7 percent of Starbuck’s global work force. Starbuck claim that it is a large transformation strategy which improve the U.S business and focus on long-term sustainability (James, 2008).

3.0 Organizational development intervention strategies.

3.1 Change nature of the business.

The reason of Starbuck change the logo and remove the word of coffee is allowing the logo to be used to signify more than just coffee, it directly shows Starbuck change the nature of the business and appears to pursue more product in the future, beside part of the reason is economic downturn, customer lose ability to purchase one cup of coffee cost them $5 until $7 (Galbraith,2011).Example random select passenger asked to try two cup of coffee and guess which was the $7 one, after the passenger try both coffee he stated "I feel like this is a test to find out just how stupid we are one cup of coffee cost us $7" (Rachel, 2012). Starbuck compare with the competitors of 7-Eleven, Dunkin Donuts, Biggby coffee and McDonald is the higher cost of the coffee, but compare with the environment, Starbuck is provided most high comfortable environment to the customer (Farell, 2012).

Furthermore, Chief executive officer Howard Schultz stated that Starbuck should involve "romance and theatre" For example Starbuck introduce automatic espresso machine, so they could serve consumer more rapidly compare with previous type of system (Ademy, 2012). Beside consumer no longer get to watch barista make coffee by their hand. In addition, now Starbuck stores "no longer scooping fresh coffee from the bins and grinding it fresh in front of the customer" it explain about Starbuck packaging coffee in based on the flavor divide to the different packaging, so when the consumer waiting for their coffee can found Starbuck is systematic to produce their flavor coffee (David, 2012).

3.2 Employees

Most of the cases are being solved by positive agreement for both Starbucks and their employees. For examples, the first strike against Starbucks in 2005 which joined by 10 Starbucks branches went strike to call for minimum wage of $ 12 an hour which has won and three years later, the $12 an hour become the nationwide minimum wage for all employees (Derby, 2012).

Then, Starbucks slowly improve the working condition for their employees by providing working benefit such as flexible working hour, fair and competitive wages and benefit packages. Starbuck offering partners flexible working hours to their employees and when their employees wan more work hours with more regular working schedules, they implemented "Optimal Scheduling" in 2008 (Starbucks, 2009). The objectives was to provide the most working hours to their employees who were available to do so and providing them opportunity for more consistent and predictable weekly schedules. Not only that, Starbucks offers comprehensive benefits packages to their employees who working at least 20 hours per week (Starbucks, 2009). Besides that, Starbuck offer a fair and competitive wage to their employees with Total Pay Package such as savings plan, stock options, and stock purchase plan (Starbucks, 2009).

3.3 Management

According to Danny (2009), he stated Starbuck expanded too fast for their own shop and they organist the new shop too near with each other shop. Beside that Starbuck open their shop in low volume area of citizens (Kiviat, 2010).

The reason of management have the responsible for the 2007-2008 crisis is Starbuck at that time was that it had grown "at too high a rate" of the store for the past year. Besides that, the older stores net profit margin cannot cover new store lose, totally effect of the Starbuck in lower margin (Mathias, 2012). According to Mathias (2012), the reason of Starbuck in 2007-2008 poor sales result is financial crisis, and Starbuck main customer area is income sensitive consumer goods, that is the reason to support consumer would reduce their spending on coffee from Starbuck, beside that when consumer lost their job, have the direct effect of consumer purchase ability.

Furthermore in 2008 the Starbuck chief executive officer Howard Schultz was planning of restructure of Starbuck. First is closing 600 stores, after close the store have the positive effect on store sales and profit margin, so the shareholder can bear the cost of closing the 600 stores (Herman, 2008). Secondly, is transforming organization culture and embedding the strategy quality mindset throughout the organization from top until lower level employee (Ebert, 2010). In addition with the intention to reduce cost, management requires a better analysis, which is the most heavy cost they paying. Example Starbuck move ahead with "Green strategy" despite cost, this strategy have positive effect of reduce the operating cost (Sveccha, 2010).

4.0 Recommendation on intervention strategy

4.1 Change of nature of business

Company logo plays an important role for every business. This is because it can be used to represent a company and provide first impression to the public. The design of a company logo may provide some essential information to the customers in allowing them to identify the company’s core brand.

Changing a company’s logo may provide some advantages and disadvantages towards the company whereby it is actually depend on the company itself. In our opinion, some companies change their logo may be due to their desire in changing customer or industry trends upon certain problems that they are facing. While some companies are because they plan to improve their existing sales performance or reputation or they tend to merge with another company.

For Starbucks, the reason of changing company’s logo is because they tend to generate more and more profit by extending the product range in order to gain competitive advantages. With this, customers have the opportunity to choose a variety of product when they patronize. This may subsequently lead to increase the sales performance of Starbucks. Therefore, in our opinion, Starbucks is encouraged to change their company’s logo since it will be able to increase their profit margin by adopting the new logo as compared to other companies such as "Gap organization" that mentioned above.

According to Gilbert (2009), Starbucks announced a recall of half a million coffee grinders because of a "laceration hazard". There were 176 reports received stated that the Starbucks Barista and Seattle’s Best Coffee Blade Grinder failing to turn on, or turn off unexpectedly and only three injury cases happened caused by the coffee grinder. In this case, it has given an opportunity to the Chairman Howard Schultz to have a plan on change the operational process by replaced with the automatic machines (Harden, 2007). Currently, Starbucks stores have been grinding the coffee beans in the morning the using them throughout the day (Gilbert, 2009).

Initially, Starbucks was using the coffee grinders to grind the coffee beans before brew it. Therefore, when customer walked-in, the fragrance aroma of the coffee will flow around the shop and this will make customer comfortable and relaxing. Some of the customers may have the perception that enjoying the aroma of the coffee is an art and romance. With the existing of the coffee grinder, customer who are enjoy their coffee in the Starbucks, while watch a ‘free show’ from the barista on the process of brewing a cup of coffee. This can be indicated as a small theater for those customers.

However, the Chairman of Starbucks claimed that their chain has lost the ‘romance and theatre’ since the coffee grinder replaced by the automatic machine (Harden, 2007). Although the new machines will be more efficient on improving the production but it blocked the customer from watching the process of making coffee and eventually affect their passionate towards the coffee, hence, affect their sales and profits. Therefore, Starbucks should continue using the concept of ‘romance and theatre’ in order to gain and attract more customer in the future.

4.2 Employees

Nowadays, many people prefer to look for flexible working hours. This is because flexible working hours is not only allowing employees to carry out their work consistently but also fulfill their quality of lifestyle. Therefore, it is a good way for an organization in recruiting and retaining their employees. With this system, it may help the employees to reduce their external child care hours and costs whereby they can actually arrange their working schedule flexibly. For instance, employees are available to send their children to school as well as pick them from school which may help the employees to cut down their cost. Since Starbucks allow their employees to control on their lifestyle by arranging the flexible working schedule, this may help them to reduce their stress while increasing the productivity of the organization.

Besides that, Starbucks also provide benefit packages for those employees who work more than 20 hours per week. This can be considered as one of the techniques that adopted by Starbucks in motivating their employees. Between, employees may try their best to fulfill the minimum working hours per week in order to enjoy the benefits that provided by the organization. Once employees are motivated, they may more willing to contribute in their jobs. This may eventually increase the organization sales performance. Therefore, in our opinion, in order to further increase the sales performance, Starbucks is encouraged to provide incentive to the employees based on their individual performance. For example, each of the employees is rated by the customer in terms of attitude, reliability, assurance, responsiveness and empathy after the sales service. The higher the rates, the higher the incentive being obtained by the employees.

Therefore, Starbucks is strongly encouraged to maintain the flexible working hours system since most of the employees nowadays are prefer to choose those jobs with flexible working hours. While for benefit packages, we believed that Starbucks may try to implement the incentive program whereby this may actually further motivate the employees in performing their job.

4.3 Management

The intervention strategy used by the Starbucks in solving the company operation problems is shutting down 600 if its outlets in year 2008 (Herman, 2008). In year 2007 - 2008, Starbucks was facing the financial crisis whereby the global unemployment rates were increased from 4.6% to 5.55% ("Unemployment rate," n.d, "Labor force," n.d). Hence, it has directly influence the sales and the profit gained for Starbucks as its customers mostly are from the sensitive income group. When the incomes for customer become lesser, then the purchasing power of the customers become less as Starbucks’ products is considered as "luxury expenses" as compare with those traditional coffee shop. For instance, customer would like to spend RM2 – RM3 for a cup of coffee rather than RM17- RM18 of Starbucks coffee as long as the taste of the products are similar or getting the stimulating effect of coffee.

Therefore, the action of shutting down the outlets of Starbucks is a proper and wisdom plan in order to retain and generate more profit and sales in the future. Besides, management level also can take the opportunity to put their focuses on others outlets that have greater sales as well as maintain and improve the performance.

5.0 Conclusion

Starbucks is a largest franchise retailer that selling the coffee bean products around the world. Therefore, it is vital for the company to have a talent, intelligence and capable management team in planning, organizing, leading and controlling the whole business operating strategy by set a clear and attainable mission and vision. Besides, the management team or leader should have the sense on the external or internal changes and possess the ability to solve or overcome the problems in order to sustain for long-term in the market as well as leading it.

Furthermore, maintain and develop a good relationship with the supplier, employees and customers also considered as a success factors in manage well the company. For instance, management can try to stand on employee’s point of view when making some decision to prevent any conflict happened in future rather than only focus on how to gain the profits. In addition, Starbucks also have a membership system whereby allow the customer to apply a member card which has convince their customer during making payment with the member card with credit rather than cash. During certain period, Starbucks also will rewards their member if they are already fulfilling certain terms and condition as showing the appreciation to them. Hence, their relationship will be able to maintain and become more foster.

In conclusion, Starbucks can be considered as a very successful coffee bean retailer leader and successfully grab a slide of the major market share within the market.

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