Porter’s Value Chain Analysis of Starbucks

Starbucks Value Chain  Analysis

The concept of Value Chain was introduced by Michael E. Porter of Harvard Business School. Value chain covers the entire range of activities included in the process of bringing a product to the market and to the customer. Beginning from the process of obtaining raw materials to the final sale of the product, there are several steps involved in it. All of these activities add value to the product. A value chain analysis provides the companies with a view of the activities in their production process.

Managers can find out which parts can be optimized for better performance. This type of optimization does not just bring efficiency but can also be a source of competitive advantage as in the case of Starbucks. Aligning and optimizing the activities in the value chain enables companies to generate the expected results by reducing costs and increasing operational efficiency. Here is an analysis of Starbucks’ value chain.

Starbucks value chain
Value Chain Analysis of Starbucks

Primary Activities:

activities in the value chain are divided into two categories. The first category is that of the main or primary activities.

  • Inbound logistics: This includes obtaining  raw materials from the suppliers. The focus of Starbucks has been on maintaining excellent relationships with the suppliers. To ensure that it could get a continuous supply of green coffee, it has started a number of programs to maintain and manage its supply chain better. Its farmer support centers are a key part of its supply chain management program that provide support to the coffee and tea producing farmers.

Apart from it, the company has maintained relationships with trading companies and exporters too. A critical focus of its supplier management program is ethical sourcing where it has achieved the milestone of 99% ethically sourced cocoa. Starbucks sources its coffee from around the world including Africa, Asia-Pacific and Latin American regions.

  • Operations: The coffee brand also purchases, roasts and sells high quality Arabica coffee beans and related coffee products. Starbucks started roasting in 1971. It roasts its coffee a little longer than the other coffeemakers to bring out the deep and intense flavor. It owns its roasting facilities but has leased a major part of its warehousing and distribution locations.

Rancho Cucamonga, —- Manufacturing

Augusta, GA  —– Manufacturing

Auburn, WA — Warehouse and distribution

San Francisco —- Warehouse and distribution

Stratford —– Warehouse and distribution

Samutprakarn, Thailand — Warehouse and distribution

Minden, NV (Carson Valley) —– Roasting and distribution

Kent, WA —- Roasting and distribution

Amsterdam, Netherlands — Roasting and distribution

York, PA —– Roasting, distribution and warehouse

Gaston, SC (Sandy Run) —- Roasting and distribution

Lebanon, TN —- Distribution center

Seattle, WA —- Corporate administrative

 

Apart from it, the brand had 12,235 company operated stores running in 2015 and nearly all of them run in leased properties. The number of total licensed stores in September 2015 was 10,808. The company has used a mix of company operated and licensed stores for its operations. The brand operates in 68 countries worldwide where leased facilities are used for the purpose of administrative offices, training facilities and storage.

  • Outbound logistics: Starbucks sells its products to the customers via the company stores and its licensed stores mainly. The ready products are shipped to the retail stores from the warehouses and distribution centres where they are displayed and sold. Apart from it Starbucks also uses online channels for selling its products and merchandise.  A limited range of these products can be found at Walmart and Target stores too.
  • Marketing and sales: Marketing is one of the most important parts of any brand’s value chain. A lot of value gets added at this point. Starbucks does not use the traditional methods of marketing its brand. Unlike most others, it has not traditionally utilized advertising for marketing. Still, in the last few years it has started investing in promotions and advertising too. During the period of last 5 years its market budget has grown steadily to grow higher than $351 million in 2015. However, it also uses social media for marketing and customer engagement purposes. For the rest, it relies on word of mouth marketing, its customer service and merchandise.
  • Service: Customer service has always remained a priority over the other things at Starbucks. In most of its history if it did not need to invest in marketing then it was because it had created a brand image of a premium quality and customer friendly coffee brand. The brand stores have a customer friendly environment where customers can interact with the Barista and staff. Overall, Starbucks has created an environment in its stores where its customers can relax and enjoy their leisure. These stores are like a third place between their homes and offices.

Support Activities:

Infrastructure: It includes the management, planning, finance and other important resources of the organization. Starbucks has a strong infrastructure and apart from its physical resources, the brand is in a financially strong position because of its excellent leadership and management. Its current chairman and Chief Executive is Howard Schultz who is also the founder of the brand.  Schultz’s role in bringing the brand to its leadership role in coffee industry is exemplary.

Human resource management: Apart from training and facilitating the learning and growth of its employees, Starbucks has focused on human resource policies that provide its staff the kind of satisfaction they want from their jobs. The focus is on being ethical and customer oriented while creating a work environment that facilitates collaboration.

Technological development: From roasting and blending to marketing and customer service Starbucks uses technologically extensively to serve its target market. While technology might not be the central focus, still plays a major role in the coffee business. Information technology systems are used extensively throughout the business from point of sale and web and mobile platforms to online and mobile payment systems. Apart from that technology also plays a major role in supporting the administrative functions inside Starbucks like human resources, payroll, accounting as well as communications internally and externally.

Procurement:  Procurement management has become highly important in the 21st century. Companies are focusing especially on it since it impacts their efficiency and profitability. At Starbucks procurement has received a lot of attention. The brand has set strict rules related to the selection of its suppliers and product quality. In terms of procurement, Starbucks has always focused on sourcing its material from suppliers that guarantee quality and follow ethical practices. (Download a Pdf of Starbucks Five Forces Analysis)

Sources: [Starbucks 2015 report] [Starbucks roasting and blending]

Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.