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Retail coffee business analysis and industry development research based on Starbucks business model

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As retailing is the customer-based business and easy to observe, standing in this area will be a good view to see the wisdom of business management to change the world. After choosing retail coffee industry as topic, by which Starbucks represented, we will have two major contents to see the knowledge and the insight of business management and industry development research based on Starbucks business model. They are project selection and analysis of Starbucks involving industry development. The Starbucks business model analysis involves product management, customer relationship management, culture and brand management, and ethical marketing and corporate social responsibility. There are still some risks imbedded in the business model. Risks should be estimated and evaluated in advance, whilst project managers need to follow risk mitigation strategies.
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* Corresponding author: qiuruicd@scu.edu.cn
Retail coffee business analysis and industry development
research based on Starbucks business model
Jidi Cao1, Rui Qiu1,*
1Business School, Sichuan University, Chengdu, 610064, P. R. China
Abstract. As retailing is the customer-based business and easy to observe, standing in this area will be a
good view to see the wisdom of business management to change the world. After choosing retail coffee
industry as topic, by which Starbucks represented, we will have two major contents to see the knowledge and
the insight of business management and industry development research based on Starbucks business model.
They are project selection and analysis of Starbucks involving industry development. The Starbucks business
model analysis involves product management, customer relationship management, culture and brand
management, and ethical marketing and corporate social responsibility. There are still some risks imbedded
in the business model. Risks should be estimated and evaluated in advance, whilst project managers need to
follow risk mitigation strategies.
1 Introduction
All on-premises, off-premises, and online sales of hot,
iced, and instant coffee, as well as sales of coffee beans
and ground coffee, are included in the retail coffee
business [1,2]. Sales from all main retail channels,
including specialised stores, general merchandisers, and
online merchants, are included in this market [3,4]. Global
coffee consumption was estimated at USD 150.11 billion
in 2018 and is expected to reach USD 203.85 billion by
2024. As of the end of 2019, the worldwide coffee market
is expected to expand at a 5.5% compound annual growth
rate over the following five years. As one of the world's
most popular drinks and a significant source of caffeine,
coffee remains an integral part of society's daily routine
[5,6].
The European market is one of the main destinations
for speciality coffee [7,8]. Commercially, coffee is a
commodity, but many European businesses are promoting
it as an artisanal product [9]. The port-covered ports of
Antwerp, Bremen, Hamburg, Genoa, Le Havre, and
Trieste contribute to Europe's coffee supply [10].
European supermarkets are the primary distribution centre
for coffee, whether in the form of capsules or single-origin
variations [11,12]. It has enabled them to remain
sustainable and provide the customers what they want.
Notably, even traditional roasters have jumped into the
retail coffee industry, with offerings that are even more
particularised for their customers [13]. Also, this tendency
has contributed to pricing disparities and has proven
difficult for exporters because of the market segmentation.
2 Project selection
There are four aspects need to measure and evaluate when
select the project to make sure we find the right direction.
Firstly, risk, the unpredictability of firm is low for
retail coffee. The quality and safety of beverage like
coffee is guaranteed within mature production supply
chain and production process. The technical issues cannot
be a major problem since not many customers chase
extraordinary taste when come to retail stores, otherwise,
the focus should be customer experience beyond coffee
itself.
The second screening criteria is market potential.
Although coffee is much more popular in Europe and
America than in Asia-Pacific areas, the potential demand
needs to be found and customers need to be educated in
new continents across the sea. The project will dig into
customer behaviour to know how to turn customer
demand into tangible outcomes and intangible interests.
Indeed, there is large space to develop the business in
emerging market like China, India, and other developing
countries.
The third standard is internal operating. Because the
business model in retail coffee is close in different areas,
which is supported by similar supply chain from different
vendors. And the process basically includes: Purchase of
coffee pods, machine and other materials; Operating for
different kinds of products as handmade or automated;
Shipping to supermarket, coffee stores and other sale
channel; Packing, shipping, or serving buyers to fulfil
obligation.
Brand effect is the fourth consideration. From a long
history, a success in one country can be duplicated in
another land, especially in current globalization, where
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© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative
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customers’ reliance and dependence play a greater role
than ever before. With the help of information share and
IT transforming, prestige and brand can be powerful
weapon to expand the new market and lead customer
behaviour in retailing.
Meeting criteria, detailed project management of
Starbucks will give us a picture how it takes over the
market and change the world in the next section.
3 Analysis of Starbucks business model
A project is a temporary undertaking aimed at creating a
unique product, service, or outcome. Some characteristics
can be found: projects are one-time procedures that are
difficult to manage; the only thing that stands between
projects is money, time, and resources; a project is created
to achieve a certain objective or set of objectives. When it
comes to projects, they are customer focused.
The project of coffee store contains diverse resource,
which is political, economic, social, and technological,
such as fixed investment, human resource, marketing, etc.
Demand for certified coffee goods, growing use of single-
serve coffee brewing devices, and continuous innovation
among the leaders in the coffee industry are three
important variables that influence the market.
According to the statistics from International Coffee
Organization [14], the global coffee consumption
increased by 6.12% from 2016 to 2018. However, the
strict epidemic prevention policy in 2019 leads to the
suspension of coffee shops, where the global coffee
consumption decreased from 168.49 million bags in 2018
to 164.53 million bags in 2019, and coffee consumption is
expected to go up at 166.63 million bags in 2020, as
shown in Fig. 1.
Figure 1. Global coffee consumption
Since its establishment in 1971 in Seattle, Washington,
Starbucks has completed the expansion of its 10000 stores
in 2006 and 30,000 stores in 2019 respectively, as shown
in Fig. 2 [15]. There are some reasons for Starbucks'
success. Firstly, Starbucks creates brand effect with high-
quality products, and widely use Starbucks logo in
packaging; Secondly, stores location with high flow and
high exposure were selected to effectively enhance brand
awareness; Thirdly, it created a stable and fashionable
decoration style, and the strong brand effect he lps with the
rapid expansion.
Figure 2. Store expansion of Starbucks
The business model of Starbucks is designed to get
more market share and shareholders return, in which
limited by time, cost, performance and customer
acceptance, so we called quadruple constraint of project
success.
Since goals of project include ensuring client
satisfaction and meeting financial objectives within a
specified budget, this article will focus on marketing
management of Starbucks, which includes product
management, customer relationship management, culture
and brand management and ethical marketing and
corporate social responsibility.
3.1 Product management
Essential to build client loyalty is providing a firm with
stability, regularity of demand, and resistance to
competition within a market.
For different groups, Starbucks has targeting and
flexible strategy. 18-to-40-year-old demographic
provided the chance for various tactics; the shop offers
high-quality coffee for hard-to-consume customers while
maintaining a premium brand image. Following the trend
of people’s lifestyle is also an important product strategy.
As the development of artificial meat, Starbucks launched
meatless breakfast to compete with other retail restaurants
like McDonald’s. Starbucks is trying to boost night-time
sales because most people don't purchase coffee before
bed, like beer or wine. Refer to Figure 3, which depicts
the strategic move that may be classified as product
development or even diversification.
Figure 3. Ansoff Matrix.
The sales from beverage are still the major source,
which accounts for more than 60% total sales in the past
eight years, as shown in Fig. 4 [16]. The average annually
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growth of sales is close to 10% from 2013 when Starbucks
take the spearhead in the retail coffee industry, indicating
the robust expansion and potential sustainability of the
company. Besides, the structure of sales segmentation is
comparably stable even under the pressure of COVID-19,
which implicate the diversification may happen within
beverage areas, not in the whole product matrix.
Figure 4. Sales segmentation of Starbucks
Starbucks always promote their concepts of third-
party space, to which provide comfortable space for
people with social needs and workplace requirement, and
this could be a personalized experience since the Internet
distances us from real social activity when marking us
closer online. People go to Starbucks aim to acquire
private time and space to settle down for chats or work
outside workplace and home, escaping from repeated life
routine between family and work.
Additionally, the business prioritises thoroughness.
for instance, consumers know the sources of their coffee
or tea because of fair-trade groups that do regular audits
on the coffee production process at Starbucks When it
comes to environmental sustainability, designs are the
most powerful component. Customers have written their
name on the coffee cup, which indicates that the coffee
shop values and supports its customers.
3.2 Customer relationship management
From analysis of customer behaviour, maintaining the
relationship and adapting trend with customers are the key
to carry sustainable business and gain long-run profit.
The Starbucks mobile application which enabled
consumers to pay at Starbucks processed almost 20
million transactions in total over the course of a year.
Social media is a component of Starbucks' customer
relationship management, since they use websites such as
Twitter and Facebook to socially interact with its users.
Cognitive loyalty is challenging to adopt, and
therefore Starbucks usually rewards consumers with their
loyalty cards in order to boost customer loyalty. The gold
member reward package is also available.
By collecting data on what items customers purchase,
and which locations they visit, Starbucks gains new
insights about its customers. These offers will be used for
a proposition: consumers will get personalised offers with
their favourite goods, which will make them feel as
though they are saving money.
3.3 Culture and brand management
Culture affects company success through driving values,
conventions, traditions, and behavioural expectations
within the workplace environment. Starbucks' principles
have stayed constant since the company's inception in
1971. Their goal statement is as follows: "To inspire and
nurture the human spirit - one person, one cup, and one
neighbourhood at a time." At Starbucks, the company
culture penetrates all parts of the business, including
franchisees and licensees. The atmosphere within
company-owned Starbucks locations is particularly
visible for employees. Coffee workers' practises and their
interactions with customers are indications of the
company's corporate culture. Cultural distinctiveness,
which includes Dunkin' Donuts and McDonald's, is part
of the coffee shop company's unique and welcoming
atmosphere. Despite economic changes and industry-
specific developments, Starbucks has an organisational
culture that connects to brand development and
worldwide expansion of the franchise and licencing
network.
3.4 Ethical marketing and corporate social
responsibility
A successful project team should possess a strong sense
of purpose, productive interdependence, cohesion, trust,
excitement, and a results-oriented mindset. Employees are
referred to as "partners," which fosters a feeling of
belonging to a community in which management
relationships are more open than in a traditional employee
role.
Consumers now days look for ethical behaviour, and
customers are ready to pay more for additional service
even if it is possible to get same quality for less. An
individual's belonging in a group is one of Maslow's
hierarchy of needs, since when people feel as if they
belong, they gain happiness.
Overall, in 2014 Starbucks was included as a prize for
its local farmer assistance programme, coffees ethical
supplies, and the environmentally friendly shops and
materials utilised in 2014 "World's Most Ethical
Companies." Starbucks aspires to have all of its coffee
(95% in 2013) sourced ethically by 2015, and they aim to
use this mission to influence global standards and improve
farmer livelihoods. The shops are constructed entirely of
recycled materials, and the cups used to serve drinks are
likewise 100 percent recyclable. Clearly, the pleasant
atmosphere, along with the development of strong ethical
ideals, has boosted Starbucks sales.
All in all, Starbucks improve the performance and
brand equity through this ethical approach which focuses
on social effect, rather than through tremendous
investment in advertising and publicity. Words of mouth
is self-evident advertisement, gaining more credit and
positive image, and it is also a lesson that modern
enterprises are taught in era of instant information.
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4 Conclusions
Starbucks is a successful project because looking at the
results of project, the company has outstanding financial
performance and operating output. We can learn more
than strategy and theory form the business model to
enhance our future projects. Then we view Starbucks
through analysis of marketing management and industry
development.
In product management, Starbucks has agile strategy
targets at different consumer groups with respective
demand, even new product like wine and beer is launched
as product development. More than coffee, the company
focuses on customer in-store experience, which makes its
position in retail coffee untouchable. The service includes
the friendly environment, personalized detail, visible
hand-made process, etc. The comprehensive experience in
Starbucks is unforgettable and cannot easily replaced by
other peers, providing additional brand equity and
business image. Reviewing customer relationship
management, the company used fidelity card, social
media, and mobile app to get involved in customers’ daily
life and to promote products. This maintains a healthy
connection with customers and increase the stickiness of
service. From culture and brand management, Starbucks
seek for methods to keep a positive image in front of
public and make people think about high quality product,
delicate service, and medium-top class behaviour,
triggering the humanity desire for sense of belonging.
Ethical management and corporate social responsibility
are innovative ways to help Starbucks become the leader.
Invisible advertising connected with CSR is the approach
that touches people’s mind and feelings, which is more
effective and economical than conventional advertising.
This can be informative template for entrepreneurs and
project managers to rethink about marketing and publicity
in the execution phase of the whole project life cycle.
However, there is still some risks imbedded in the
business model. Some boycott in the last five years
happened as the price of Starbucks is much higher than
competitors, and it also involved in tax evasion in U.K. in
early years that push the stock price at the brink. Risks
should be estimated and evaluated in advance, whilst
project managers need to follow risk mitigation strategies,
to accept, minimize, share, and transfer the uncertainty or
loss whenever it happens.
Acknowledgments
This research was supported by the National Natural
Science Foundation of China under Grant No.71901157,
the China Postdoctoral Science Foundation under Grant
No. 2019M660244, and the Soft Science Program of
Sichuan Province under Grant No. 2020JDR0099.
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... The store environment, service experience and exquisite products left a good impression of high quality on customers. In addition, Starbucks had also entered customers' daily lives through fidelity cards, social media and mobile apps [1]. Although it was a successful business model, some risks still existed. ...
... Although it was a successful business model, some risks still existed. Since Starbucks' prices were much higher than those of its competitors, and it also had tax evasion in the U.K. in the early years that push the stock of the company to collapse [1]. Thus, the author suggested that Starbucks should have an evaluation and estimation of risks in advance. ...
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Coffee is one of the staple beverages across Europe. The three highest GDP holders in the continent: France, Germany, UK have been compared based on their amount of coffee consumption relative to certain specific demographic variables. Three distinct user types have been identified in terms of heavy, medium and low coffee users. Variables ranging from age groups, household income, household size, gender and others have been utilized to offer an insight into the relationship of the aforesaid variables towards coffee consumption amongst the user groups. Moreover, consumption patterns, country wise and user based similarities and divergences have been investigated. The study provides a basis for future potential penetration into the coffee markets in the regions discussed as well as greater Europe.
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Coffee, with its aromatic appeal and distinctive flavor, is the world's favorite beverage. Throughout history, coffee has been known to delight and stimulate the senses, comfort the spirit, and encourage conversation and camaraderie. This review explores the legend, history, economics, and health of this drink from its origin in Ethiopia to its worldwide consumption today and summarizes current knowledge on its beneficial effects and possible risks. Caffeine, the major constituent of coffee, is also found in other popular beverages (cola-containing soft drinks, tea) and nonprescription pharmaceutical preparations; Innumerable studies have been conducted on the major ingredient of coffee-caffeine-and much experimental, clinical, and epidemiological data has been accumulated. This chapter summarizes current knowledge on the health effects of coffee/caffeine on the central nervous and cardiovascular systems and the effect of caffeine on reproduction, bone loss-and cellular division.