{"id":3409,"date":"2015-12-08T18:19:49","date_gmt":"2015-12-08T23:19:49","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-value-creating-strategy-of-starbucks\/"},"modified":"2015-12-08T18:19:49","modified_gmt":"2015-12-08T23:19:49","slug":"the-value-creating-strategy-of-starbucks","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-value-creating-strategy-of-starbucks\/","title":{"rendered":"The Value Creating Strategy of Starbucks"},"content":{"rendered":"

Founded in Seattle, Washington\u00a0in 1971, Starbucks has grown to become the largest coffeehouse company in the world, with the mission to \u201cinspire and nurture the human spirit \u2013 one person, one cup and one neighborhood at a time.\u201d The company has grown to offer a variety of products, ranging from fresh foods and baked goods to brand merchandise and coffee equipment. It currently operates in 67 countries with a total of 22,519 stores. Revenue in 2014 reached $16.45B, with net income of $2.07B.<\/p>\n

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Business Model<\/strong><\/p>\n

Starbucks has managed to differentiate itself from competitors by creating the unique value proposition of becoming the \u201cthird place\u201d for customers, after home and the workplace. Purchasing a cup of coffee became an \u201caffordable luxury\u201d and an experience in itself. Customers were able to order customized drinks and enjoy the beverage in a relaxed, upscale environment.<\/p>\n

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Starbucks primarily follows the standard retail business model, where it owns and operates most of its stores. Nonetheless, with emerging markets becoming an attractive landscape for investors, Starbucks has incorporated parts of the franchise business model into its strategy in order to capitalize on the expansion, yet maintain control of its business through its core strategy. In addition, the company doesn\u2019t do any traditional advertising. Instead, Starbucks focuses on strengthening its value proposition by providing high-quality products and service. Since the average customer typically makes six visits per month (with the heaviest 20% of users visiting over 15 times per month), the company chooses to focus on delivering a consistent experience for its loyal customers, and by doing so, retain new visitors.<\/p>\n

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Operating Model<\/strong><\/p>\n

Starbucks serves 50 million customers per week worldwide. The company runs a complex operating model that begins all the way from procuring coffee beans and other products, to serving around 50 million customers per week.<\/p>\n

However, in 2008 the company\u2019s operational costs were growing even with steady sales, likely due to its high expansion rate. As a result, Starbucks chose to revamp its operating model to ensure efficiency, while remaining true to the organization\u2019s mission and business strategy.<\/p>\n

As part of the reassessment, management uncovered the underlying issue to be late deliveries due to excessive outsourcing agreements for transportation, which accounted for 65-70% of operating expenses.<\/p>\n

To address these high costs, jobs were reorganized to fall into either of the following functions:<\/p>\n