For a long time now, we have witnessed a new era of coffee consumption. The coffee era is made up of various types of specialty coffee which includes Frappuccinos, Cappuccinos, Caffe Lattes, and Espresso Macchiatos (Fihlani, 2016). Consumption of specialty coffee is not losing its prevalence any time soon nobody is more than eager to tell you than CEO of Starbucks, Howard Schultz. Starbuck is the largest specialty coffee bar in the world. The case study of Starbucks Corporation reveals an organization’s multifaceted journey via the company’s dominance of the coffee market, the establishment of a brand that is synonymous with longevity, and loyalty.
The first store of Starbucks Corporation opened in South Africa in May 2016 (Forbes, 2016). The response from the South African market was overwhelming. There were extremely long queues of customers waiting to be served raking in net sales that surpassed the anticipations. Despite the sluggish economy in most African countries, Starbucks has a long-term target of opening 150 stores in the African market. The overwhelming response by the African market in embracing the Starbucks products is a clear indicator of Starbucks’ popularity in Africa.
The company is still looking to tap more into the constantly growing population in the urban areas of South Africa. The urban populace in South Africa currently has more disposable income compared to a few years ago. Additionally, this populace is attracted to American fast food franchises. Moreover, South Africa presently attracts a high number of tourists from foreign countries thus making it a central access point to other emergent markets in the African region. The success of Starbucks in South Africa will drive its expansion into the whole African region and simultaneously provide a huge boost to the company’s revenue (Mohanty, 2016, p. 3).
Starbucks faces cutthroat competition from players within the specialty and players outside the specialty. The competitors within the specialty include: Seattle’s Best Coffee, Peet’s Coffee and other smaller, unpopular coffee selling chains. The competitors outside Starbucks’ specialty include: Procto & Gamble, McDonalds, and Dunkin Donuts. In the African market, however, the competition is reduced since few multinational American franchises have made their entry. Starbucks Corporation leverages on its premium quality coffee that they serve, their customer loyalty and the homely atmosphere in its outlets to give it a competitive advantage.
The South Africans’ Love for Spendingneed to be more academic writing
It is analyzed from a survey that the south Africans love to spend their money on foods. It is identified that according to FNB, the South Africans love to spend 28% of their money on food as well as beverages (Idahosa and Van Dijk 2015). In south Africa, food constitute the biggest expenditure for most of the consumers which means that after spending on the food, the left amount of money is generally spend across other types of essentials including healthcare as well as clothing. It is found that fast food outlets as well as coffee shops are keeping the smiles of the South Africans despite of the downturn as well as due to amid growth of the disdain for the mobile operators.
It is found that in the past few years, most of the organizations are very much willing to enhance the opportunities that came along the culture of the South Africa (Baker Street Properties, 2016). It is found that most of the international franchise like Starbucks are levering the supply chains and are generally integrating strategies that are quite easily satisfying the needs of the customers. It is found that the positive response from the people helps in expanding the business of the organization.
Moreover, it is found that from the survey that is undertaken that despite of the sluggish economy of the south Africa, the response for the Starbucks are quite encouraging. It is found that the organization “Starbucks” is generally looking into tap urban population in South Africa that is generally attracted towards the Americans fast foods chains which not only enhances their spending on food and beverages but also helps in increasing the revenue of the organization in South Africa (McEwan, Hughes and Bek 2015).
In the past few years, most multinational corporations have shown great willingness in putting up with South Africa’s red tape in tapping into the increasingly growing mall-culture and the numerous lucrative opportunities that come along with the culture (Gillespie & Hennessey, 2010). Many international franchises such as Starbucks are now leveraging the supply chains that are integrated vertically, merchandising strategies that are fast and analyses of big data in quickly adapting their products to the ever-shifting customer needs and demands (Tschirley et al. 2015). The positive response from the South African market has motivated further expansion (Southall 2016).
Globalization of Retail Brands
Accenture affirms that globalization of huge multinational corporations is not a one-way street. Most of these global franchises making entry in the emerging markets usually have amassed great success in the economies of scale in their places of origin and are now seeking opportunities for growth in emerging markets (Elsner, 2013, pp.56-67).
That being said, most multinational franchises are motivated by globalization to become both globally and locally recognised brands. Striking the perfect balance between the opportunities available at the local level and the global level while simultaneously adapting their products to the unique preferences of the particular they are operating in is Starbuck’s standard practice (Andersen, Ahmad, & Chan, 2014, 37-86). The strategies used by Starbucks in making its entry into the South African market include:
Analysis of Growth and Performance
Porter’s Five Forces Analysis
Threat of More Competition from Novel Entrants in the market: Moderate
Threats of substitutes: High
The Buyers’ Bargaining Power: Low to Moderate
The Suppliers’ Bargaining Power: Ranges between low to moderately high
The critical inputs in the value chain of Starbucks include coffee beans more precisely, premium Arabica coffee that is available in only a few places in Africa. This renders the possibility of changing the company’s suppliers, among the substitutes, to be relatively low.
How Intensive the Competitive Rivalry is: Moderate to High
From Porter’s five forces analysis, it is evident that through the aggregate industry analysis that the profitability and strengths that drive coffee retail stores in South Africa is moderate. Then, what exactly keeps Starbucks afloat unlike other global giant corporations? First, Starbucks has a large scope and scale that offers it a huge competitive advantage and easy access to raw materials due to the relationship that it builds with its suppliers (Keith, 2006). Starbucks also leverages on its brand equity, massive resources and prime locations of their real estate to net customers (Zekiri & Angelova, 2011, pp. 572-584).
Additionally, Starbucks counters the existent threat of substitutes through selling coffee makers and premium coffee packs in grocery stores. Most importantly, Starbucks maintains fair trade with its suppliers. With its huge scale and size, Starbucks has the power to easily take advantage and exploit its suppliers (Gioeli, 2014). However, the global giant chooses to maintain a fair trade thus giving its suppliers fair partnership status.
Going forward, how would Starbucks continue to use its scale and size in growing its business in the turbulent African market? Currently and in the future, there are more opportunities that could propel Starbucks’ expansion into the rest of the African market. There is an increasing preference for coffee in Africa. Starbucks, which has already established its brand as the finest coffee maker and seller can easily make its entry into the rest of the African market. The increase in the demand for specialty coffee offers Starbucks a great opportunity to expand its operations in the African market. From the analysis of more emergent and possible opportunities in the African market such as increased spending and constantly growing middle class, Starbucks has a higher likelihood of successfully venturing into the rest of the African market (Fabling, & Sanderson, 2013).
Challenges of Conquering the African Market in the Long Run
Starbucks has increased its prices and tried to convince its customers to purchase more of its products. The increase in prices will be disadvantageous in trying to get more African customers. The few transactions generated due to the increased prices will negatively impact the company’s entry and expansion into the rest of the African market (Hill, 2012). This would certainly slowdown Starbucks’ operations and profitability in the market. This problem is commonly experienced by huge, multinational corporations when they looking to add more locations. In addition, Starbucks is struggling with retail problems currently which if not resolved would impact its expansion in the future. Starbucks has affirmed that its weakest locations are in shopping areas such as malls. Starbucks has cited a significant decline in the retail traffic in these places as the main reason for experiencing the retail troubles (Whitelock, 2012, pp.572-584). The company has worked vehemently to overcome this impediment. However, Starbucks just like most huge corporations who embraced the concept of putting their stores in close proximity to retail centers, have to come up with appropriate strategies for evolving past their over-dependency on traffic by foot (Maze, 2018).
It is found that first time, the business leaders are generally worried about the various digital natives than the competitors. They mainly recognize the transform quite fast however in some of the instances, it is analyzed that organization like Starbucks are lacking in organizational agility because they are generally not set up for the rapid changes (Idris and Abdullahi 2016). Moreover, from the survey that is generally undertaken it is found that the most of the business leaders generally fails in their business as they are not moving fast enough. In addition to this, it is found that Starbucks also faces number of challenges due to competition within the market of South Africa. It is identified that there are number of coffee shops that are opening recently and providing service at a very much cheap prices while maintaining their quality which is attracting a greater number of people in South Africa. Thus, it is analyzed that the high prices of food items as well as beverages in South Africa is considered as one of the major challenges in conquering the market by Starbucks.
VUCA analysis
VUCA is an acronym that mainly stands for volatility, uncertainty, complexity as well as ambiguity which are considered as the combination of various qualities that helps in characterizing the nature of some of the difficult situations as well as conditions.
Volatility: Volatility is considered as the quality that is being subject to rapid, significant as well as frequent changes (Sucharita 2016). It is found that within a volatile market, the prices of Coffee can rise or fall considerably within a short period of time and the direction of a trend can generally reverse suddenly.
Uncertainty: It is defined as one of the important components of a situation in which the events as well as outcomes are very much unpredictable. It is found that uncertainty mainly occurs due to some of the important characteristics like inappropriate knowledge about the cause and effect of the situation (Elkington et al. 2017). Moreover, it is found that uncertainty is seen within the business approaches of the organization that generally enhances the business intelligence related activities including collecting, interpreting as well as sharing important information.
Complexity: Complexity generally involves a multiplicity of number of issues as well as factors in which some of them are intricately interconnected. Complexity variables are considered as the easiest among the four factors but the managers are not able to know about the factors about which they do not know which further enhances the complexity of the situation. It is found that managers generally like the outcomes but they are not the unintended consequences.
Ambiguity: Ambiguity is generally manifested in the difficulty of understanding the situation. The main characteristics of ambiguity is that the casual relationship is completely unclear and therefore the companies need to prepare about the risks as well as challenges for evaluating the outcomes (Chawla and Lenka 2017).
References
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