Starbucks has built an extremely successful brand, and its retail outlets can be found all over the world. With more than 23,000 stores in 68 countries, Starbucks has cemented its place as one of the most popular coffee shops on the planet.
How did they do it?
There are several reasons why this has happened. It starts with their competitive advantage, which they’ve built through these five things you need to know about Starbucks’ competitive advantage and why you should look at these factors when choosing where to get your next cup of coffee.
So that you can also replicate their success!
Product
Starbucks’ competitive advantage can be attributed to a couple of factors. The first is location. Starbucks thrives in cities and urban areas.
Many are located inside grocery stores, meaning customers go there for more than just a cup of coffee; people go there because it’s part of their routine as they grocery shop, socialize with other shoppers, and take care of errands during a single trip. One of these necessities happens to be what brings us full circle: convenient locations like grocery stores which also tend to offer free WiFi so folks can get some work done on their laptops or tablets once they’ve had their fill of lattes (without breaking the bank). These three things make up a huge portion of Starbucks’ competitive advantage.
Market conditions
Starbucks has many advantages that have allowed it to reach an extremely large and loyal customer base. As of today, Starbucks boasts around 25,000 retail locations globally (including coffee shops and roasteries).
The coffee chain’s ability to expand and thrive has a lot to do with its unique positioning in three distinct markets. First, it serves as both a café alternative and a high-end restaurant experience. For example, while eating at one of its cafes might set you back $5–$7 on average for one hot beverage, most would agree that Starbucks offers a more memorable experience than typical fast-food restaurants such as McDonald’s or Burger King.
Management skills
The management team at Starbucks is one of its most important assets. The company has a long track record of promoting from within and fostering employee engagement and loyalty through a unique combination of paternalism, profit sharing, and company-wide recognition programs.
Howard Schultz, who bought Starbucks in 1987 and led it through decades of rapid growth and expansion, was known for staying connected with employees by hosting Sunday afternoon forums (many involving a Starbucks treat) that allowed workers to voice ideas or concerns. Throughout his tenure as CEO (1985–2000), Schultz maintained an open door policy that earned him respect even when employees disagreed with his decisions. His ability to hear what was on his employees’ minds—and heed their thoughts—helped generate passion, commitment, and creativity among store managers and other rank-and-file staff alike. This commitment began early on in Schultz’s career; after joining Starbucks as director of marketing in 1982 he quickly learned about staffing issues from those working closest to customers: store managers.
When asked about pay raises for general staff members such as baristas (now called partners), Schultz argued that he couldn’t afford raises because of the high turnover costs associated with hiring and training new staff members.
But store managers offered up a creative solution: why not institute performance reviews?If someone wasn’t meeting expectations they could be dismissed so there would be no additional labor costs involved in firing them. The move inspired widespread buy-in and helped boost morale throughout stores. Starbucks culture, says Beverage Digest Editor Duane Stanford, is built on trust.
That kind of trust doesn’t happen overnight—or without good reasons for earning it.
Internationalization
Starbucks operates in 65 countries across every inhabited continent.
As a truly global brand, Starbucks has a powerful international presence that is more akin to Coca-Cola than any other coffee chain. Not only does it have thousands of locations outside of North America, but much of its profitability comes from outside of its home region. In 2014, almost 40% of its revenue was generated overseas and 63% was delivered in foreign markets. Starbucks generates at least 10% operating profit margins outside of North America — an important accomplishment has given that countries like China, Japan, and Australia are no strangers to strong competition.
If you’re not growing internationally, Schultz once said, you’re dying.
Pervasive brand image
Starbucks enjoys a great deal of brand recognition. It’s known worldwide as an innovator in coffee and a go-to destination for coffee lovers.
Starbucks’ dominance in coffee (as well as tea, pastries, and food items) stems from its excellent reputation—which is largely credited to its stores’ consistent quality and pleasant customer service. Additionally, Starbucks has been able to draw consumers back into its shops through partnerships with companies like Barnes & Noble that sell Starbucks products in-store—bringing business both ways for both brands.
This is an example of coopetition, which occurs when two businesses operate together cooperatively but independently of one another.
