Coffee

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Trouble Brews at Starbucks

1 As a trusted advisor, my recommendation is that Starbucks realign its strategy to be consistent with the firm’s original vision of providing a “Third Place” experience. Specifically, this strategy entails a refocus on the goal of enlightening consumers about fine coffee along with a value proposition that emphasizes the importance of the Starbucks experience (exhibit B). Operations will be realigned to meet the needs of the smaller market segment; many decisions like introducing the taller coffee machines and removing chairs from the restaurants will be reversed. Through incremental decisions aimed solely at growing the company, Starbucks has become ensnared in the growth trap and as a result has lost its strategic position. Recommitting to the focus differentiation strategy that the firm began with will create a sustainable and defensible strategic position in the new, more competitive, environment (exhibit I). Though McDonald’s and Dunkin’ Donuts are now offering premium coffee at lower prices, they are unable to mimic the “Third Place” experience that is the differentiator under the proposed strategy. Both of the aforementioned competitors do not have appropriate brands to enter this space, and also lack the knowledgeable and passionate employees required to deliver the experience. The Starbucks brand is very strong and recommitting to this strategy will only strengthen it, which will create a sustainable competitive advantage. Because Starbucks used to profitably employ the proposed strategy, the firm can be confident that it will be successful in the marketplace; the strategy is low risk (exhibits M&N). Further, unlike a low-cost strategy (exhibits J&K), Starbucks already has most of the required resources, capabilities, and management preferences to implement the proposed strategy on account of its history. The only major gap closing that will need to take place is store renovations and a realignment of management’s...