Starbucks is still the undisputed leader of the coffee chains in the world, but what is its strategy? What is Starbucks competitive advantage?
Starbucks has capitalized on a strong global network and continuous premium quality of its products giving it its competitive advantage. I have been a Starbucks customer for years now and no coffee chain beats the strong brand image of this coffee giant. The reliability is bound to spark one’s curiosity about how they have been doing it for all these years. I have once or twice wondered about the competitive advantage of this company that has made it impossible for others to reach its level. In this post, we are going to examine in detail Starbucks’ competitive advantage. By the end of this read, you will see why Starbucks remains at the top.
Use of Technology to Connect With Customers
The world has been consistent in its transition to technology for almost everything. Businesses worldwide have tapped into the tech opportunity and have reaped big. Starbucks has adopted some of the best technologies in the world. With Artificial Intelligence and other advanced technologies, it is hard to beat Starbucks at any level. Let’s look at some of its technology.
All businesses worth their salt have an App that offers all the services that are offered in their physical locations. The Starbucks App is a great tool for ordering ahead and also scanning for rewards in-store. This Application can be downloaded on both android and apple Phones. It is easy to download on Google Store and Apple Store. With the App, you can order ahead and pick up your order later. The App has all the Starbucks menu items on it. This way, you do not have to make the long queues that characterize the Starbucks stores and Drive-thru.
This is the most popular system among Starbucks customers. The rewards program requires one to register on the Starbucks official site or the application by creating a free membership account. So far, the rewards program has over 11 million members and counting. Everybody likes freebies and these have kept Starbucks at the top.
Deep Brew Initiative
This is the latest Starbucks Artificial Intelligence innovation that manages the store’s inventory, pushes the Starbucks’ personalization engine, and also elevates the store labor allocations. This technology has not been seen in any other coffee chains in the world. The technology was launched in 2019 and has enhanced the store’s customer care services and has become a success so far.
Vertically Integrated Global Supply Chain
Starbucks has direct control of the movement of its products. The coffee chain uses no middlemen to move its coffee from the farm to the stores. Most of the competitors use middlemen and other distribution channels in their supply chains. This can result in deficits and increased costs. The vertical chain brings consistency to its services as third parties bring delays and complications. When a company opts for a vertically integrated supply chain, the supply chain is strengthened, costs reduced, and profits increased. This is a winning strategy that keeps the coffee giant up the ladder as more profits result in expansion and expansion results in the strengthening of a brand. The ultimate goal of this strategy is to increase profits while still retaining efficiency. When you look at its distribution, Starbucks applies the same strategy by selling its products in its store without relying on other distribution channels. Starbucks products reach the market directly from the company and this results in a seamless supply chain. The reinvention and reorganization of the supply chain took place in 2008.
A look at Starbucks supply chain
Coffee sourcing: Starbucks sources coffee from over 30,000 farms worldwide. These farms are in Latin America, Kenya, Saudi Arabia, Brazil, and Tanzania. Starbucks has put in place coffee sourcing guidelines (CSG) and Coffee and Farmer Equity standards (CAFÉ). The Standard requires farmers to work safely and never to use forced or child labor.
Suppliers: The supplier relationships are enhanced and the company has put measures in place to keep these relationships profitable and free of any fraud. In addition to this, Starbucks has a company-owned farm in Costa Rica to cover any deficit.
Distributions: As we know, the giant has stores on six continents. They have established six central facilities that are used as stores to streamline the distribution logistics across all its stores. When raw beans arrive in the six facilities, they are roasted in these facilities. This ensures a constant quality of coffee in each country. From this point, the roasted and packaged beans go to Starbucks distribution centers, then to large distribution centers, then to regional warehouses where they find their way to your local store.
Sales and Delivery: Finally, the delivery and sale happen globally with over 70,000 deliveries per week. This is where the Starbucks App for placing orders and payments comes into play.
Investing In Employees
Starbucks calls its employees partners. The company has heavily invested in its partners in terms of healthcare, payments, and overall working conditions. This is Starbucks’ weapon against any competition as happy employees are equal to happy customers. A Starbucks partner enjoys health insurance after working full time for three months or 240 hours of paid work. This insurance covers a wide range of services including medical services, mental health, maternal health, dental, vision, and dependents care. Did you know that Starbucks health insurance covers gender reassignment costs? With this kind of employee motivation, the customers will enjoy their Starbucks experience and keep returning.
At Starbucks, a partner can take an online four-year degree at Arizona State University for free. This opportunity is available for US partners who have no prior degrees. These partners are also entitled to stocks in the company as part of their payment package. This means that a Starbucks employee can become a real partner at Starbucks and own stocks.
A brand’s greatest marketing strategy is producing quality products for its customers at all times. Consistency is what builds trust among the customers. This consistency is what has kept Starbucks at the top. Starbucks only sources coffee Arabica from the world coffee belt. This coffee is undoubtedly premium quality and customers do not mind spending a little more for something great.
The company does not also use just any espresso machine. Starbucks has a custom-made espresso machine called Mastrena. This machine is made specifically for Starbucks by a Swiss company called Thermoplan. This machine ensures consistency and balance in espresso extraction. That is why the Starbuck espresso has a uniform taste all over the world. Starbucks has also a single-cup clover brew that produces one cup of coffee at a time. This gives the customer and the Starbucks barista time to customize their drinks to their preferred taste.
At Starbucks, all the products like cocoa, tea, juices, and drinks are ethically sourced. This means that Starbucks ensures that the farmers and their workers work in healthy and safe conditions, the workers are decently treated, and the compensation is fair. For the bakery items, Starbucks has entered into a partnership with a leading Italian bakery called Princi to offer the best pastries and bread among other items. The sous vide egg bites are sourced from one company to maintain the same constant taste in all the Starbucks stores.
Strategically Located Starbucks stores
Most Starbucks stores are strategically located in high-traffic areas. You will find stores in major malls and shopping centers. It is almost impossible not to see a Starbucks store on a busy street or mall. This strategy captures the market without any strain as people can access the stores when going about their business. This trend is adopted in all, Starbucks locations globally. You are likely to find a Starbucks in most major cities of the world. This strategy has succeeded in eliminating competition in major cities in the world and with the trusted Starbucks brand, customers are likely to locate a Starbucks first before any other store.
The choice of neighborhoods is also strategic as the company captures a large number of people. The Starbucks stores are mostly found on busy streets in major cities and downtown centers. However, Starbucks also takes time to study its market. This company knows better than to set up an upscale store on a busy street. In this case, the company identifies a quiet and upscale location in these neighborhoods to attract this kind of market. People in elite neighborhoods do not like traffic and would rather be in a quiet place. Similarly, the ambiance of these stores is inviting and maintains class for this market.
Starbucks has also steered away from the norm and set up stores in low-income neighborhoods. The aim here is to uplift and grow these neighborhoods through employment opportunities. A Starbucks store in a low-income neighborhood is guaranteed to revitalize the locals and bring new ideas and strengths to these people.
Embracing Innovation in its product menu
Starbucks is known for its constant innovations in drinks and food items. It is rare to see Starbucks staying for long without updating the menu. These drinks are innovated to suit each season. In summer, you will see new refreshers and iced drinks.
During the holidays, Starbucks announces special holiday drinks with flavors that are harvested during the holiday season like peppermint, and pumpkin sauce, among others. The company also listens to its customers and acts accordingly. This has been seen in the recent introduction of plant-based milk options for vegans. There are also sugar-free syrups for those who are off sugar.
Today, vegans can walk into a Starbucks store and not walk out empty-handed. There is also nonfat milk for those who are cutting back on fat intake. Whatever the customers want, Starbucks is always ready to accommodate them. The coffee giant has also integrated food items such as sandwiches and egg bites. You can have a complete breakfast at the stores and not just coffee drinks.
Starbucks has made its mark in the coffee industry through its competitive advantage. The strategies are usually decided by the management. The coffee giant heavily relies on its retail workers for its success which explains its heavy investment in their well-being. A Starbucks hire does not just look at the qualifications but also the personality of the individual.
How secure is Starbucks’ competitive advantage
The Starbucks competitive advantage is strong and secure for now but it is not unbeatable.
Is Starbucks competitive advantage sustainable for long-term success?
Yes, it is. Its product differentiation strategy has worked for a long time and it looks unsurmountable even in the days to come.