Starbucks Case Study

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Starbucks
23.01.2023
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The paper analyzes the Starbucks case study, is designed to identify the issue that the company faces, and proposes solutions to solve it. Throughout the analysis, it has been found that the corporation faces multiple problems as discrimination against some coffee producers and accusations of avoiding taxes in the UK. However, the primary ethical issue is that Starbucks pushes smaller competitors out of business. The SWOT analysis and review of the problem allowed us to identify three possible solutions to the issue, and one has been selected as the most viable one. It is proposed that Starbucks employs only local people in some of its cafes to allow former owners of smaller coffee shops to work for the company, which enables it to address ethical issues, avoid financial losses, and enhance CSR practices.

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Starbucks is a highly successful international coffeehouse chain that operates in over 70 countries. The company strives to value its stakeholders, especially employees, more than the profits. However, despite this strategy, the corporation is associated with some issues. As it has been described in the case study, Starbucks has been accused of not paying taxes, cooperating with sustainable coffee producers, and pushing smaller companies out of business due to its large size and popularity among clients. The latter has also been identified as the ethical issue that the company faces. The SWOT analysis and review of the ethical issue that the company faces allowed to identifying several solutions to the problem. It is assumed that to solve the ethical issue, the company should employ the locals in their stores to allow owners of smaller coffeehouses to take advantage of Starbucks’ popularity and have stable income without risks of bankruptcy.

Summary of the Case Study

Starbucks is a known, Seattle-based coffeehouse that Howard Schultz founded in 1985. The company has an outstanding business strategy that is reflected in the mission statement, namely “people first and profit last” (Ferrell, Thorne, & Ferrell, 2016, p. 478). However, the unique nature of the corporation’s business strategy is based on its excellent approach while dealing with employees, suppliers, consumers, and environment.

First, Starbucks provides its employees with unique opportunities in the fast food industry, including healthcare services packages, options to study at the Arizona University either online or in a regular way, stocks of the company, and fair treatment. As indicated by Ferrell et al. (2016), Schultz deliberately elaborated such attitude towards employees since he grew in the family where his parents did not have any benefits, and he wanted to create a company that would be entirely different.

Secondly, the business strategy of Starbucks incorporates a unique attitude towards suppliers of coffee. The company does not only treat them fairly but also includes the attitude towards the environment. Ferrell et al. (2016) indicate that Starbucks encourages farmers to grow coffee in sustainable ways only and pay premium prices to maintain such practices.

Thirdly, the corporation executes a specific attitude towards consumers through its business strategy. To satisfy their needs, Starbucks does not only sell high-quality blends and diversify the products offers but also creates suitable working atmosphere. Besides, the company carefully considers the preferences of consumers and responses to them by introducing new blends.

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Lastly, Starbucks’ business strategy focuses on sustaining environment, and this focus also unites the entire operation. The corporation participates in multiple initiatives to sustain farmers that supply organic coffee beans and do not cut down trees to grow it. The company supports the farmers financially and technologically. Starbucks is a member or founder of socially-oriented non-profit organizations. Apart from the business strategy with outstanding goals, Starbucks actively adheres to the principles of corporate social responsibility and responds to the needs of the local environment.

Finally, over the period of its operations and processes of rapid expansion both within and outside the United States, Starbucks experienced some issues. Specifically, when expanding into the UK, it required to adjust its operation to the locals to remain competitive; in China, it needed to educate people what the coffee-drinking culture was; and overall, the company was often accused of opening too many stores that push other small coffeehouses to close their businesses, which poses one of the problems. However, overall, Starbucks has a good growth history and manages to overcome the recession. It is capable of adjusting to the needs of consumers to remain attractive to them.

Statements of the Problems

At first glance, the operations of Starbucks are not associated with any problems since it has a fair attitude towards all the stakeholders and has been operating smoothly throughout the entire period of its presence in the market. However, by evaluating the case study more thoroughly, it is possible to identify several problems related to the company.

The major problem is the impact of Starbucks on small competitors who are forced to leave the market due to the inability to compete with the international coffeehouse. While this fact is the consequence of the competition in the free market economy, such issue has adverse social implications, as people lose jobs and means of living.

Further, the company does not cooperate with all coffee suppliers but selects only those that use sustainable techniques to grow coffee. To some extent, it is the implementation of the company’s and society’s environmentalist goals. However, at the same time, usually, coffee suppliers are the farmers residing in poorly developed economies, and cooperation with the company is the only way for them to make reasonable profits and create jobs for the local population.

Moreover, Starbucks compromised the taxation legislation during operation in the UK. Ferrell et al. (2016) refer to the case of the British protesters pointing out that the companies did not pay taxes for 14 of the 15 years of its operation in the UK, while the company claimed it did not have profits over that period. However, this fact demonstrates that despite its socially-oriented business strategy, Starbucks is still capable of violating the national legislature, and it is possible that some cases have not been revealed yet.

Finally, the problem is the inability of Starbucks to control and mitigate its adverse impact on the environment entirely. Ferrell et al. (2016) refer to the issue that millions of plastic cups contaminate the environment, and the initiatives the company has used, such as paying customers for recycling, have not been successful. Therefore, the problem is the inability of the company to achieve total recyclability.

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Statement of the Ethical Issue Facing the Company

Despite efforts that Starbucks takes to remain environmentally friendly and socially responsible, there is also at least one substantial ethical issue facing the corporation. Specifically, the international coffeehouse pushes smaller competitors out of business due to its large size and continuous expansion into multiple markets. On the one hand, it is an inevitable outcome of the successful company’s impact under the free market economy conditions. Due to the placement of stores in multiple locations, Starbucks does not allow smaller competitors to have fewer customers and less profits. The essence of this ethical issue is the adverse impact on the local communities despite the company’s efforts to adhere to the corporate social responsibility principles and invest in the local hosting communities. However, in reality, the presence of the enterprise, especially multiple stores, disrupts the local economy and, to some extent, counteracts the efforts Starbucks takes to sustain the local economies.

A SWOT Analysis of the Company

Starbucks is a highly successful company, especially in the West. The coffeehouse chain has multiple strengths and related opportunities, while there are few threats and weaknesses, which are related to the company’s size and a well-established position in the market.

Strengths

The primary strength of the company is the chain’s size. In 2017, Starbucks operated 27,339 stores worldwide, and the largest share of this amount is located in the Americas (“Starbucks,” 2018). As a result, the company is capable of managing risks through diversification, reaching a diverse audience, and pricing the products at a premium. Another strength is the outstanding financial capabilities. In 2017, the revenue of Starbucks was $14.36 billion, thus growing from $11 billion in 2013 (“Starbucks,” 2018). The strength is used for innovation and business strategy implementation. Lastly, the human management techniques the company uses are outstanding in the industry and contribute to the high level of employee loyalty, which allows to save costs on turnover and train of new employees.

Weaknesses

Considering the specifics of the company’s operation, the primary weakness of Starbucks is its heavy reliance on coffee beans that represent the major input it uses. The weakness means that the fluctuation of coffee prices affects the company profoundly, thus urging it to diversify its products to remain competitive. Further, the adherence to environmentalist-based coffee supply principles leads to Starbucks paying for the beans and being unable to cooperate with all the suppliers. Lastly, the pricing of the company’s products is premium, which makes them unavailable to many consumers.

Opportunities

Considering the current achievements of Starbucks, it has multiple opportunities it could use. First, the company could expand into other countries, including Eastern Europe and emerging economies. Secondly, Starbucks could expand the list of suppliers it cooperates with to reduce costs and increase margins. Finally, the company could diversify the range of products it offers and reduce the price to cover a broader audience.

Threats

The primary threat to Starbucks is its heavy reliance on coffee beans and their prices. Furthermore, due to the significant success of the company, there are multiple rivals that copy the business’ strategy and use logos that remind that of Starbucks, therefore distracting consumers and hurting the enterprise’s reputation. Next, due to the large network of stores, there exists a threat of malfunctions in the global supply chain, which results in financial and reputational damages. Lastly, since the majority of the company’s stores are located in the developed economies, such as the Americas, there is a threat that they may be oversaturated and excessively mature.

Possible Solutions to the Problem

Considering the ethical issue facing the problem as well as the findings from its SWOT analysis, it is possible to propose several solutions.

Solution 1

Starbucks could reduce the number of its stores in the local communities. As it was indicated by Ferrell et al. (2016), the company already made such move in the past when it closed 10% of its American stores to continue providing employment packages to its employees. The disadvantage of this solution is the associated need to fire some of its workers and a reduction in profits. However, the advantage of the proposed move is the ability to focus on the remaining employees, thus strengthening the corporate culture and employee loyalty as well as improving the corporate social responsibility practices. Fewer stores in the local communities might allow smaller coffeehouses to operate efficiently, while the number of visitors to Starbucks should not reduce drastically due to the company’s popularity. Besides, this solution would allow the corporation to address some of its threats, such as supply chain malfunctions and coffee beans dependency.

Solution 2

Another solution to the ethical issue identified is the reduction of the prices in numerous franchises. Since Starbucks does not only operate company-owned stores but sell franchises, it could reduce the costs for them to make them more affordable to those interested in buying them. Such move would have several advantages, including the chain expansion, shifting of management of a supply chain share to franchisees, generation of additional profits, and contribution to the establishment of additional workplaces in the local communities. The disadvantage of the proposal is the lower revenues that Starbucks would receive as compared to those from company-owned stores.

Solution 3

Lastly, to solve the ethical issue identified, the company could avoid closing its stores by hiring only the locals. On the one hand, such move would not directly resolve the problem of pushing local coffeehouses out of business as Starbucks would still be present in the market. By hiring locals only, the owners of rivalry stores could take advantage of the enterprise’s popularity and have stable income without facing the risks of bankruptcy from the competition with Starbucks. The advantage of this solution is the employment of corporate social responsibility practices, contribution to local communities, and absence of any losses. At the same time, the only disadvantage is the potential issues with labor unions who might not agree with the company’s hiring policy.

Choice of Solution With Justification

Considering the ethical issue that Starbucks faces as well as the specifics of the solution, the third option is the most viable to address the problem due to several reasons. First, since Starbucks is a for-profit company, it is important to avoid any financial losses before and after applying any recommendation. Secondly, this option allows the company to enhance its corporate social responsibility, hence contributing to the development of local communities. As a result, Starbucks might have a more positive perception by customers. Thirdly, by applying the proposed solution to address the ethical issue, the company could eliminate accusations regarding it pushing local small coffeehouses out of the business, as the latter might get all opportunities to make money without Starbucks sacrificing its profits. Lastly, this solution might potentially allow it to gain a loyal workforce.

A Contingency Solution

It is important for Starbucks to prepare a backup solution to use if the first option fails. Considering the disadvantages of the proposed method, it is possible that labor unions might accuse the company of discriminating against some employees. Therefore, to address this potential situation, Starbucks could prepare a response plan. First, it could explain the reason for such limitations to the labor unions. In the case the latter disapprove the solution, the corporation could introduce a quota for the number of non-local employees, who would be in the minority. By making this move, Starbucks would be able to meet the needs of the labor unions, maintain the implementation of corporate social responsibility, and address the ethical issue that it faces.

Conclusion

Starbucks is a successful company that operates in multiple international markets and runs over 27 thousand stores worldwide. Despite its success and multiple strengths, the company also faces some threats, weaknesses, and issues, namely the case of not paying taxes in the UK and working with farmers producing coffee by using sustainable techniques only. However, the major ethical issue is the impact on local coffeehouses, thus pushing them out of business. The problem is enhanced by Starbucks striving for being socially responsible and contributing to local communities; however, the intense competition that Starbucks generates urges owners of such coffeehouses to quit the business. By analyzing the company’s strengths, weaknesses, opportunities, and threats, three solutions to the ethical issue were proposed, and only one was found the most viable. Starbucks could solve its ethical issue by enabling only local people working in some of its stores, thus allowing small coffee owners to avoid risks of bankruptcy and have a stable income. In the case of labor unions, Starbucks could introduce quotas for non-local employees. The solution would help focus on the corporate culture, gain more loyal and determined employees, and avoid losing profits.

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