Starbucks Value Chain Analysis (Primary and Support activities)

No one of us can ignore Starbucks while talking about the best international beverages stores. It is taken as the biggest coffeehouse around the globe.

For the last 16 years, Starbucks has been standing at the top rank. McDonald’s McCafe and Starbuck have had a coffee war for a very long time.

If you want to know more about Starbucks’ primary and secondary activities, then value chain analysis has got you covered. Value chain analysis is the framework that aid in identifying the business activities which create a competitive advantage to the business.

During growth and development, the company faces many problems to reach the mature phase. In order to analyze problems and their solutions, it is highly crucial to study the company’s value chain.

The main objective of the company is to provide high-quality products at a low price. Value chain analysis is utilized to add worth to the company’s products to get more customers while reducing as much cost as possible. The activities which are used to enhance the product are supporting and primary activities. 

Background:

In 1971 Zev Siegl, Gordon Bowker, and Jerry Baldwin united to start the coffee shop in Seattle, Washington.

After the success of the first store, they initiated another store in Washington. At first, they sold at the local coffeehouses as they worked in the wholesale business.

In the time span of 10 years, they successfully opened 5 stores. Howard Schultz was responsible for sales and marketing.

The company faced a major loss in 2002; 600 Starbucks stores were closed, not performing well. Many famous names want to work with Starbucks because of its excellent reputation in the past few years. 

Primary activities

Inbound logistics:

In inbound logistics buyers selected by Starbucks choose the finest beans from coffee suppliers or coffee producers that are located in Latin America, Asia, and Africa.

First, the beans are collected from the farms by the buyers of Starbucks, then they are moved to the storage rooms where they are roasted, packed, and sent to the distribution units.

The beans are carefully picked from the farms and are transported to Starbucks for refinement and storage.

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The roasting technique increases the shelf life of the beans. Starbucks does not connect with the supplier to standardize the quality from the first step of choosing the beans. We can say that company relies on native suppliers and never involve any third-party vendors. 

Starbucks operations:

Unlike many other famous beverages and fast food outlets, Starbucks does not contain a franchise system.

In other words, all the outlets are run by the company or owned by it. Currently, the company has almost 32 thousand stores in 83 countries around the world. It is reported that company-owned stores generate 80% of store revenue, while the remaining comes from their sister brands.  

According to America’s segment result, there is almost a 46% modification in operating income as compared to the previous year.

In the international segment report, there is almost an 8% change in store count, 32% change in operating income as compare to previous year, and 5% change in revenue. There are two store formats of Starbucks that are given below.

Licensed stores:

At the end of the fiscal year 2016, there were almost 12,374 licensed Starbucks stores, describing 49% of total stores.

Company Operated stores:

Company-operated stores are crucial for the business because they enable the organization to check shifts in consumer preferences, tastes and gain information about the market tendencies. By the end of the year 2016, Starbucks had 12,711 stores that stores operate. 

Outbound logistics:

Talking about the Starbucks value chain analysis, we don’t have to say much about the outbound logistics. This is because Starbucks does not rely on the business 2 business model in which brands distribute the products to franchises.

Customers can buy Starbucks items from licensed and company-oriented stores. Starbucks also runs an online sales channel for certain products like tea, drinkware, coffee, and drink-related equipment.

Additionally, a restricted range of Starbucks products like 3-in-1 coffees in sachets is available from a set of top-ranked supermarkets chains like Tesco, Walmart, and Sainsbury.

Apart from the supermarket chain that provides a limited range of the company’s products, the lack of wholesalers and resellers is the major source of value for Starbucks’ outbound logistics.

The company roast its products in-house and sell them in their own licensed and company-owned stores, thus maintaining the margin which otherwise has gone to resellers and wholesalers. 

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Marketing and Sales:

The company always invests a good amount in order to maintain the high standards of customer satisfaction in sales. Starbucks invests in quality instead of just marketing.

However, the intense competition has motivated the senior to invest massively in the advertisement. This is why the marketing budget of Starbuck is increased for the past few years.

This budget is invested in various elements of sales promotion, events, media, and print advertisement, public relations, and direct marketing. When Starbucks launches a new product, they also provide free samples to the people.

A great level of integration of technology and social media into the process of sales shows a solid source of value for Starbucks. The company has successfully implemented the pay system and mobile order for its items.

Almost 8% of all orders are placed through mobile. Last year, Starbucks has enabled orders through Amazon Alexa and announced that this feature will be integrated into the Ford vehicles this year. 

Services:

The main objective of Starbucks company is to obtain customer loyalty using in-store customer service and assist them with the use of products.

The service training is the major part of the value chain analysis objective is to provide customers with an amazing experience by making a good offering.

Superior customer service is the major source of Starbuck’s competitive advantage, and it adds great value to the brand image.

Apart from just investing in high-quality beverages, the brand greatly invests in-service training to provide a unique experience to customers while serving and making the drinks.  

Support activities

Human resource management

The constructive and good interaction between customers and employees is highly significant for the success of the organization. For effective training, it is better first to build a good relationship with the customer.

Starbucks is always caring and positive towards their employees and enhance and make the brand image stronger.

Starbucks has almost 349,000 employees around the globe, which include its corporate employees, brewing staff, baristas, and others. According to a survey done by Hewitt Associates, this brand contains an employee satisfaction rate of almost 82%, which is considered the highest in the service and food industry.

The company is well-known for providing a pleasant environment and taking good care of its employees. The human resource management team of the company has worked on boosting the culture and increasing the retention rate, trying to keep the staff motivated.

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Technology development:

Starbucks uses the latest technology for making coffee and interacting with customers through social media. Many customers utilize the Starbucks coffeehouse as the meet point because of the free, fast WiFi service.

The company has made it possible to get quick suggestions and feedback from the customers by utilizing technology. Now it is also possible to place an order through the Starbucks delivery system and track it throughout.

Moreover, Starbucks has a unique reward system and lets customers place orders by utilizing various food delivery apps. 

Procurement:

The company makes a good relationship with the suppliers to achieve high-quality raw material. For instance, obtaining coffee beans by utilizing various strategies and interacting with the suppliers about the company’s standard quality.

When we are talking about Starbucks, most of its procurement comes from in-house resources. As we have already mentioned, Starbucks usually does not buy coffee beans from third-party sellers.

From production to packaging of beans, everything is done in-house. Moreover, the brand does not give franchises; Starbucks somehow handles all the stores.  

Firm infrastructure:

The company’s infrastructure can be taken as the physical thing; however, the services, facilities, and structure are also included in it.

Starbucks has been present between us for the last 5 decades, so it contains a strong infrastructure in every department like management, finance, marketing, etc.

The main office of Starbucks is in Seattle, but the company also contains many regional corporate offices around the globe. Along with its backend management, the company also has efficient employee management and customer service infrastructure.

Its infrastructure contains different segments, which helps the company to run everything smoothly. The dedicated team of Starbucks provides good customer service, and managers supervise every store.   

Conclusion:

From the value chain analysis of Starbucks, you must now know have an idea that the company follows the unique operational plan. As the brand control everything, so they generate handsome revenue everywhere.

The basic idea of the value chain is to gather the important and worthy activities for the company while eliminating the worthless ones. If the company improves at each step of the value chain, it will ultimately improve profitability.

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