A value chain analysis is a way to identify a business’ activities that can create value and competitive advantages for a business. The analysis can be characterized by primary activities and support activities. Primary activities help the actual physical creation of the product or service, the sale, and the distribution of the product/service to buyers. Support activities help the company’s primary activities run smoothly and efficiently. Starbucks’ primary activities are operations, inbound and outbound logistics, service to their customers, marketing and sales. Starbucks’ support activities is their technology development, human resources, infrastructure, and other functions. (Article analyzed: “Starbucks” Richard Ivey School of Business)
Starbucks’ Primary Activities
Starbucks’ inbound logistics are shown through the company’s close relationships with its exporters by working directly with them and providing them with training. Starbucks communicates their quality standards and expectations to their exporters. Senior Vice President of Coffee at Starbucks describes in the article, “Starbucks” to qualify as an exporter for the company their relationship should be honest and reliable. An exporter that knows they’re going to have trouble delivering that month should inform Starbucks and work the situation out. If it’s a quality problem, Starbucks can reject the exported order because it doesn’t meet the company’s standards and the exporters should say something like “Ok, we will take it back, no problem and we will replace it.” The Senior Vice president says “customer service and consistency are things [they] look for overtime.” Starbucks outbound logistics is the “movement of material associated with storing, transporting, and distributing goods to its customers”. “Customers can purchase Starbucks products from. company-operated and licensed stores.” When it comes to distribution, Starbucks stores account for 34% of the United States’ top markets, 56% in Vancouver, Ottawa, Montreal, Calgary, Total of 22% of Canadian and United States Markets. The Starbucks franchise has more than 1,000 retail store locations in 32 markets.
Starbucks’ supply chain operations is a primary activity because this function helps transform inputs into outputs. Starbucks has claimed they have had the best transportation rates in the industry. They use a distribution model that is “very accurate” which resulted in strong inventory turns for the speciality coffee industry. The distribution model also used a fully integrated manufacturing and distribution process that protects coffee beans from oxygen from the time they were roasted and then packaged. Starbucks had developed these skills the company because they believed strongly in the concept of integrated supply. Other operations and technology development include Starbucks’ installation of a state-of-the-art roasting and developing a manufacturing organization. To support these primary activities, the company “developed a platform for bigger product innovations”.
In regards to marketing, initially Starbucks’ struggled defining their brand image, but after understanding their focus the company used national-advertising campaigns and other leveraging activities. Starbucks’ has a strong national brand image compared to the local market. “Our speciality sales and marketing team has continued to develop new channels of distribution.” Specialty sale agreements with retailers, wholesalers, restaurants, and service providers created potential in revenue growth and also enhanced Starbucks’ name recognition. By partnering with companies that were leaders in the field with a reputation for success and quality, it helped Starbucks market their name.
Another primary activity involves Starbucks’ quality of service, which I believe is the company’s core competency. Quality service can be seen a variety of ways like the company’s pride in purchasing high quality Arabica coffee beans and developing roasting combinations to create the perfect blend for consumers. Quality is also created by Starbucks’ vision to give customers “not only a place to drink coffee but also an experience.” Starbucks gives customers an experience with its “first-rate music, comfortable and upbeat meeting place, excellent coffee, […] a place where [customers] can escape, reflect, read, chat or listen”, and feel at home. Customers are welcomed to use the store’s free wifi while they sip on their personalized beverage. When the barista takes the customer’s order, they ask for their name and they write it on the cup, making the barista come off as more personable and approachable for questions. This individualization attracts customers because they can customize their own beverages, feel acknowledged and more comfortable by staff (because the baristas took their name). They hire knowledgeable baristas who are the “most talented people.” Starbucks baristas are required to take a 24 hour training course. The company is “committed to applying the highest standards in quality in everything [they] do.” The company stress’ on high quality. Quality service is a core competency because it makes up so much of the company’s image.
Starbucks’ Support Activities
Starbucks’ support activities is the company’s human resources, infrastructure, technology development, and other support functions. Starbucks human resources developed a coffee (customer) service system based around three principles: “hospitality, production, and education.” Starbucks’ gives their customers a feel for hospitality because their baristas are effectively creating the beverage the customer wanted, while educating customers on the beverage and any questions the customer may have about coffee. Starbucks employees are motivated to perform their best because the company offers higher wages than most food service companies, health insurance, disability, and life insurance. The barista’s performance plays a large role in the quality of Starbucks and also helps the company’s core advantage.
Starbucks’ infrastructure was chosen by the company’s design team “that could fit a location in many retail spaces.” The chosen locations for Starbucks allowed to maximize its market share and create a regional reputation through store clustering in retail outlets. Starbucks has a strong understanding of when to act upon purchasing certain retail locations. They created espresso carts and kiosks to reach a new customer base. Starbucks infrastructure location choices would “allow the company to take advantage of sales areas such as train stations, street corners, malls, etc”, all thanks to the carts and kiosks strategy (called the Doppio strategy).
Other functions that support Starbucks’ is their strongly educated on coffee baristas. The baristas are trained on Starbucks store processes, the variety of different coffees offered, and which coffee pairs well with certain foods. Starbucks’ “only carries the highest quality merchandise;” in terms of coffee-making equipment and items like mugs, coffee grinders, storage containers with the company logo helped market the company and enhance their quality reputation. Technology development is constantly evolving to make coffee bean roasting equipment, packaging, manufacturing, and other beverage machines better to beat competition.