Michael Porter’s 5 Forces Model

Industry RivalryThe dynamics of the industry rivalry within the specialty coffee industry has changed dramatically since 1987. Unlike the early days of the specialty coffee industry when Starbucks competed primarily against other small-scale specialty coffee retailers they now compete against companies of varying sizes and different exposures to specialty coffee. Starbucks competes with a variety of smaller scale specialty coffee shops, mostly concentrated in different regions of the country. All of these specialty coffee chains are differentiated from Starbucks in one way or another.

Starbucks must now compete against two of the largest companies in the fast food industry who have recently entered the specialty coffee segment. The first of these competitors is Dunkin Donuts, who claims to be "the world's largest coffee and baked goods chain." Currently, Dunkin Donuts operates about 5,500 franchises around the United States, 80 stores in Canada and 1,850 throughout the rest of the world. Dunkin Donuts had revenues of roughly $5 billion in 2007. In the past couple years the franchise has put enormous emphasis on their coffee beverages. They serve coffee beverages in an assortment of types and styles including espresso, cappuccino and latte. They also serve their coffee in an assortment of flavors including French Vanilla, hazelnut, cinnamon and numerous others. When Starbucks recently temporarily shut down 7,100 of their stores to retrain their baristas, Dunkin Donuts responded by extending their hours of operation and offering small lattes, cappuccinos and espresso drinks for $.99.

The largest industry rival currently facing Starbucks is the McDonald's restaurant fast food chain. McDonald's originated from a single San Bernardino, California hamburger stand, which opened in 1948, and has turned into what is now the world's largest restaurant chain with over 14,000 restaurants in the United States alone and gross revenues in excess of $22 billion. The key to McDonald's success has been the consistent quality standards they achieve for their food, coupled with their quick service and low prices.

10 years ago Starbucks and McDonald's were at complete opposite ends of the spectrum in the restaurant industry. However, McDonald's, encouraged by the success of its upgraded drip coffee, began testing numerous drinks sold under the name McCafe. Starbucks meanwhile, with its rapid expansion, was adding drive-through windows and numerous breakfast sandwiches, similar to the Egg McMuffin's served at McDonald's, to their stores. These measures have drawn the two companies closer together as competitors due to an encroachment into the demographic consumer base made by each company.

With a rejuvenated brand image, McDonald's is preparing for the biggest addition to its menu in 30 years. The company will be installing coffee bars along with "baristas" who will serve cappuccinos, lattes, mochas and the Frappe, a knockoff of the Starbucks’ ice blended Frappuccino, throughout 2008 and into the beginning of 2009. Unlike Starbucks, the baristas at McDonald's will not steam pitchers of milk and combine them with shots of espresso but rather will wait for a single machine to make all components of each drink. The competitive threat posed by McDonald's can be summarized by referring to the February 2008 edition of the Consumer Reports magazine, which rated the McDonald's drip coffee as better tasting than Starbucks.

The diversity among these competitors still remains very high but the grounds on which companies are differentiating themselves are changing. As larger and larger companies enter the industry the strategic stakes become higher, pushing some companies such as Dunkin' Donuts and McDonald's to differentiate themselves through price superiority.

Potential for New Entrants

Another of the five forces in Porter’s model, which has changed significantly since the late 80s when we analyze the current environment in which Starbucks competes, is the potential for new entrants. As stated earlier, the primary deterrents to entry in the specialty coffee industry are the various barriers to entry. The economies of scale within the specialty coffee industry have increased as the size of the top players has increased. Companies such as Dunkin' Donuts and McDonald's have national distribution channels through which they can transport their specialty coffee at a relatively low cost compared to potential new entrants who have no such developed distribution systems. These larger companies are also able to economize on their accounting operations and marketing budgets by facilitating their specialty coffee operations from the same department as for all segments of their businesses. Finally, these larger corporations are also able to reap economies of scale through their purchasing by negotiating long term contracts with coffee farmers and purchasing coffee beans in bulk quantities at discount prices.

There is numerous cost disadvantages imposed on new entrants that are independent of the economies of scale considerations. As the industry matures, the ability to access distribution channels and select from the highest quality coffee beans has becoming increasingly difficult. Most of the favorable store locations within the larger metropolitan areas have already been occupied by current competitors within the specialty coffee industry. Additionally, many companies now have proprietary product technology involved in the production of their specialty coffee as well as lower per unit costs due to an experience curve.

Product differentiation within the specialty coffee industry has moved away from the purely objective and defined traits such as the taste of the coffee, convenience of the stores and prices charged. The industry has progressed toward more subjective traits such as the ambience of the store, the social responsibility of the company and brand identification. Many companies have gained very loyal customer bases stemming from their past advertisements, customer service, objective product differentiations and early entry into the industry. All of this makes it more difficult for new entrants to gain a solid customer base. From the analysis above, it can be ascertained that the barriers to entry in the specialty coffee industry have increased substantially. As a consequence, the potential threat of new entrants has gone down. Since, the industry does not have large capital requirements, smaller specialty coffee shops are still prevalent throughout the United States and the potential for more of them to enter the industry is still present. However, these new entrants can be disregarded given the unlikely nature of their concerted expansion and the inconsequential effects they have singly on the overall demand in the consumer market.

Substitute ProductsThe force created by substitute products in the specialty coffee industry has decreased. Many companies that presented the specialty coffee industry with a threat in the form of substitute products have actually entered the industry and now compete directly by offering their own premium

coffee selections. The primary substitute products still posing a threat to the specialty coffee industry are the caffeinated soft drinks offered by Pepsi and Coca-Cola. However, even these substitute products pose little threat to the premium coffee industry. In the past five years, studies done on the percentage of meals or snacks that included a carbonated soft drink as opposed to coffee have shown a reversal in consumer preference. Coffee has gradually gained preference over carbonated soft drinks. This is mostly attributed to the health concerns associated with carbonated soft drinks and the new evidence showing coffee as a relatively healthy alternative.

Supplier Bargaining PowerWith the extensive growth in the specialty coffee industry, supplier bargaining power has changed in numerous ways. In 1987, when the first Starbucks was conceived, the farmers from whom Starbucks purchased its premium coffee beans were numerous, small and unconnected to one another. Currently, many of the farmers who sell to Starbucks and other premium coffee chains are united by an initiative known as fair trade certified coffee, which was organized by TransFair USA. Under this initiative, companies such as Starbucks are given the opportunity to advertise their coffee as being fair trade certified if they purchase from coffee suppliers that are democratically owned cooperatives.

This initiative was designed to ensure that the coffee farmers would be compensated fairly for their crops. Their increased unity under this initiative worked as a positive externality by increasing their ability to exert bargaining power over their buyers. The fair trade coffee certification is looked at by consumers in their decision of where to purchase their premium coffee. Thus, although the farmers are still numerous and small they are now connected through the initiative launched by TransFair USA and act in some respects like one large entity. Although the farmers of premium Arabica beans are still in constant competition with the substitute Robusta coffee bean growers, their bargaining power is not significantly diminished by this threat due to the unlikelihood of a big premium coffee retailer adopting the substitution.

Originally, specialty coffee retailers such as Starbucks comprised the vast majority of sales made by the premium coffee farmers. As the industry has grown, more companies and restaurants, specializing in a broader array of products than just specialty coffee, have begun to purchase from the premium coffee farmers. This has made the relative size and importance of the companies, such as Starbucks, within the specialty coffee industry less significant to the farmers. With other customers to supply, the coffee farmers are less constrained by the specialty coffee industry and its specific demand. This acts to increase the bargaining power of the coffee farmers.

As competition increases within the specialty coffee industry, there is a greater emphasis on differentiating products through superior quality. The coffee beans which are supplied by the farmers are the most important input to the brewing process for a company such as Starbucks, making them increasingly important. For many specialty coffee company's their success is riding on their ability to produce higher quality coffee than competitors, which acts to further increase supplier bargaining power.

When Starbucks first began purchasing premium Arabica coffee beans in the late 1980s, they executed purchases incrementally throughout the year. Currently, they lock their coffee suppliers into long-term contracts to dilute potential price volatility. These contracts have stipulations within them which place a financial burden on the coffee suppliers if they choose to supply a different company. By creating these switching costs for the premium coffee suppliers, Starbucks has diminished their ability to play one buyer against another, which decreases their bargaining power.

A last component to the analysis of supplier bargaining power within the current specialty coffee industry environment is the threat of forward integration. Technically, the farmers can forward integrate by setting up smaller coffee shops and brewing their own batches. This is, however, extremely unlikely and has yet to occur.When comparing the bargaining power of suppliers today in the specialty coffee industry to the bargaining power of suppliers during the late 1980s, it is apparent that suppliers are more powerful today. The increased unity among the coffee farmers, decreased significance of specialty coffee retailer's purchases as a proportion of premium coffee bean sales and increased importance placed on high quality coffee beans by the purchasers have all acted to increase the bargaining power of the supplier group. Although Starbucks has locked some of the coffee suppliers into long-term contracts not all suppliers are affected; thus, the supplier bargaining power is only marginally diminished by that tactic.

Bargaining Power of BuyersThe last component of Michael Porter's five forces analysis to be applied to the modern specialty coffee industry is the force created by the bargaining power of buyers. The primary buyers in the specialty coffee industry remain individual consumers, who neither engage in concerted behavior nor individually purchase in large volumes relative to the total sales of a corporation such as Starbucks. Unlike the late 1980s, however, there are a few buyers who purchase in large volumes. These large buyers are typically other multinational corporations who choose to serve Starbucks brewed coffee in their offices. However, the effects of losing one of these buyers to a competitor would not be detrimental to a company with a large sales volume such as Starbucks.

Neither the individual consumers nor the multinational corporations who purchase specialty coffee commit a significant fraction of their resources to these purchases. This makes the buyers less sensitive to price fluctuations and gives the players within the specialty coffee industry more control over pricing. This acts to decrease the bargaining power of both the buyer groups.

The expansion of the specialty coffee industry created a wider array of competitors who offered high quality specialty coffee. This made it much harder for the players in the specialty coffee industry to differentiate themselves through quality and turned quality into the industry standard. In addition to the increasing quality standardization which specialty coffee has undergone, the buyers face no switching costs and have an enormous selection of retailers from whom they can buy.

The buyers of specialty coffee do pose a credible threat of backward integration. This threat can be carried out if a buyer chooses to start a mom and pop specialty coffee store in close proximity to an established specialty coffee store. Same-store sales are roughly 20% lower in Starbucks stores located within a two block vicinity of mom-and-pop specialty coffee stores.

The ability of buyers to backward integrate is enhanced by the availability of all information regarding the demand, market pricing, and supplier costs in the specialty coffee industry through sources such as the World Wide Web. With full information, the buyer is in a better position to ensure that they pay a favorable price and receive an appropriate level of quality from the product. The amount of bargaining power that can be exerted by the buyers within the specialty coffee industry has increased as a result of the availability of information regarding market variables. This along with the other previously discussed changes to the dynamics of buyer bargaining power has increased its overall magnitude from the level it was at in the late 1980s

Present market shares for Starbucks & competitors

Company SalesStarbucks $10,707.4McDonald's $24,075Dunkin' Donuts $7657Nestle'S.A $32916

Starbucks, just a few years ago a flailing company closing hundreds of locations, has become the No. 3 restaurant chain in the nation, surpassing Wendy's and Burger King, according to Technomic's recently released 2011 Top 500 Chain Restaurant Report.

For years the top three chains in the U.S. were burger-and-fry heavyweights McDonald's, Burger King and Wendy's. Now Starbucks is surpassed only by McDonald's and No. 2 Subway.

According to the report, Technomic estimates that Starbucks posted about $9.07 billion in U.S. sales, up 8.7% from the prior year, giving the coffee giant 57.2% share in the coffee and other beverage category.

McDonald's, perennially No. 1 in U.S. sales, had about $32.4 billion in U.S. sales in 2010. Subway, despite having about 9,000 more locations in the U.S. than McDonald's, had about $10.6 billion in U.S. sales, according to the report.

Top 10 U.S. Restaurants, per Technomic

1. McDonald's2. Subway3. Starbucks4. Burger King5. Wendy's6. Taco Bell7. Dunkin' Donuts8. Pizza Hut9. KFC

Burger King, on top of recent marketing-management and ownership changes, as well as being on the lookout for a new agency since it announced it was splitting with CP&B after a seven-year relationship, is facing a sales slump. According to Technomic, Burger King, No. 4 on the top 500 list, had about $8.7 billion in U.S. sales, down 2.2% from 2009. In terms of the hamburger category, as well as restaurant chains overall, Burger King could potentially lose to No. 5 restaurant Wendy's, a chain nipping at Burger King's heels with $8.3 billion in U.S. sales, according to Technomic.

In last year's top 500, which ranked chains by 2009 U.S. sales, McDonald's was No. 1 with $31 billion, Subway was No. 2 with $10 billion, Burger King was No. 3 with $8.9 billion, Wendy's was No. 4 with about $8.4 billion and Starbucks was No. 5 with just more than $8.3 billion.

Starbucks last year aggressively upped it measured media ad spending, according to Kantar, doubling it to $94.4 million, up from $47 million in 2009. Still, it doesn't come close to the measured media spending of Wendy's and Burger King. Wendy's in 2010 spent $283.4 million, down from $293.4 million in 2009, according to Kantar. Burger King, pulling back over the years on its outlay, shelled out about $301 million on domestic measured media in 2010, down from $308 million in 2009 and $327 million in 2008. McDonald's spent about $887.8 million on U.S. measured media spending in 2010, up from $872.8 million in 2010.

Source: http://adage.com/article/news/starbucks-passes-burger-king-wendy-s-3-spot/227252/

Current HR & IT strategy of Starbucks Human ResourcesStarbucks paid considerable attention to the kind of people it recruited. So the company hired people for qualities like adaptability, dependability and the ability to work in a team. Starbucks was one of the few retail companies to invest considerably in employee training and provide comprehensive training to all classes of employees, including part-timers Company depends on their personnel in their high revenue, which is very risky as if they lost some of the key persons. Early 2000s, the company began to show signs that its generous policies and high human resource costs were reflecting on its financial strength.

Although the company did not reveal the amount it spent on employees, it said that it spent more on them than it did on advertising while the industry turnover rate is about 200 percent; Starbucks maintains a turnover rate of only 60 percent. Due to this low turnover, Starbucks has lowered their training time and costs. Furthermore, 82% of the partners rated being “very satisfied” and 15% as “satisfied” with their jobs when asked by outside audit agencies.

Information SystemStarbucks is following this major trend of moving towards multimedia Direct Marketing Solutions and Web-based models. Customers visit its web site to buy coffee products and gifts, and to learn more about the art of roasting and brewing coffee. The site also offers services such as the Starbucks “Taste Matcher” tool, which interactively recommends specifics coffee roasts and blends bases on customer’s preferences.

Moreover in late November 2001 Starbucks Debit card was introduced in US. Its introduction has increased customer loyalty as well as attracted new customers to Starbucks stores. Most if not all Starbucks locations have WI-FI for consumer needs. The MIS department affects Starbucks partners whenever they open a store cash register, use computer software or send voice mail messages.

The IS department in Starbucks focuses mainly on: Business Applications Development Production Services Retail Business Systems Strategic Architecture

Organizational Information(HR & IT)

Starbucks’ organizational structure is functional with four levels of management above store management.

The basic management style is Laissez Faire. The most important skills in the company includes people skills and drink preparation ability. Its partners (employees are regarded as partners) receive trainings in order learn about the products, brewing methods and sales techniques. Retraining is provided during new product roll-outs through one-to-one discourse. Partners are being motivated through reviews and raises. Work duties are assigned by shift supervisors. Partners are also allowed to use initiative and empowered to make decisions.

The Reward Policy

In all facets of the business, Starbucks recognizes that putting people before products is as effective as placing core values at every aspect of the operation. In terms of staffing, each location has one manager, an assistant manager and 16 partners. The benefits package includes health, dental and vision care, stock options, or 401(k) for employees who work an average of 20 hours per week for over three months, free shift drinks and a free pound of coffee or tea each week that continue despite temporary disability or familial leave. Moreover, raises are based on semi-annual performance evaluations with raises that range from 0-5%. Though bonuses are not utilized, for each location the company gives away non-monetary rewards. As such, employees are given 30% discount on all merchandise.

There are also programs that recognize individual contribution of Starbucks partners. For instance, unique to the company is the Green Apron recognition program that serves as both brand behaviors guide and non-monetary reward. Every partner receives the Green Apron book that is consists of company values and desired on-brand behaviors as well as peer recognition cards that are used by virtually all the employees from top management to recognizing even the smallest behavior on the spot stressing the importance of sense of ownership. More than the monetary rewards, Starbucks focuses on ‘team contribution’ to recognize how their performance and contributions make a difference.

The   Recruitment   and Selection Policy

In terms of recruitment and selection, Starbucks is hiring about 200 employees per day to compensate with the growth rate of 5 stores per day. Recruitment practices include interviews that incorporate coffee tasting sessions; candidate bill of rights developed that emphasizing the use of phone calls and handwritten notes rather than form response letters. The goal of such is to determine how quickly applicants should hear back. Also, the company encourages recruiters to send out Starbucks gift card whether the applicant is hired or not for the purpose of treating job applicants like customers. The hiring process is strategically aligned to the vacant positions. Starbucks lives by its mission to embrace diversity, develop and nurture employee and provide them with exceptional benefits. Application can be picked from any Starbucks store. There are phone and personal interviews with highly-situational questionnaires. Before being extended an offer, Starbucks trained the applicants first after passing the interviews.

The Development Policy

Starbucks’ development framework centers two broad concerns. The first is the use of different IT systems and the second is the ‘Third Place’ environment. Presently, Starbucks is using the corporate headquarters to exercise controls over individual sites and that Total Quality Management is specifically built into its processes. In addition, the company utilizes a large amount of IT for the purpose of managerial control of information-based determinants. Further, the company envisions each outlet as a place to unwind apart from home and work/school. The purpose is to connect and to create communities inside the confines of each outlet.

Though Starbucks continuously provide for and even exceed the expectations of its internal and external stakeholders, there are still so many things to consider for further advancement. Contrary to the principles that Starbucks intends to focus its energy on, there are many criticisms that emerged ranging from staffing to the working environment. A large percentage of the staff is under the age of twenty and that the benefits package focuses on medical, dental and vision care as well as the employee stock options. In addition, apart from the hourly wage and semi-annual raises, there are few monetary rewards. In addition,

though the company constantly improves their Third Place environment, still there are high employee turnover rates, managers are swapped whenever necessary leaving the partners at retail-level behind, poor accessibility and the cleanliness is rather poor as well. Further, many stores are underperforming on high margin product segments, too focused on minimising direct labor, too focused on high margin items and profitable add-on sales.  

A common knowledge is that there are ‘hate campaigns’ for the company over the Internet maintained by many activist groups that criticize the Starbucks’ fair trade practices, labor relations and environmental and social impacts. The concerns of these groups mainly centered the quality intended for the products, the practices and the people. First, the tendency for either overstaffing or understaffing while also it could result in reducing staffing levels in the long run as more important initiative than developing satisfied customers and other unfair labor practices like overextensions and violations of health codes, though the condition presently exists. Second, considering the average age of the partners which are below 20, the relevance of benefits package is rather misaligned. Third, there might be the high turnover rate of partners and managers once new outlets would prove to be non-profiting which would have detrimental effects on customer relationship. Fourth, though training and development is continuous, Starbucks is evidently finding difficulties in maintaining deep knowledge of the product and monitoring the quality of such especially during introduction of new products with the emphasis placed for Partner Resources (Starbucks’ HRM).

Current HR of McDonald’s

In the McDonald’s restaurants the employment relationship and the characteristics of the workforce in various countries differs. The detailed study of the German and UK operations and additional evidence from other European countries suggests that virtually the same kind of restaurant hierarchy and organisation is in use in every country. Although there appeared to be some differences in the numbers of workers employed in restaurants in different countries and differences also in labour turnover, this could be explained by a broadly similar employment 'strategy'.

Various authors suggest that all of these workers have something in common; they are unlikely to resist or effectively oppose managerial control. In effect, McDonald's is able to take advantage of the weak and marginalised sectors of the labour market, in other words, young workers who lack the previous experience, maturity and confidence to challenge managerial authority and foreign workers who are very concerned about keeping their jobs. Furthermore, employees in all 'categories' may have no long-term interest in the company, in which case contesting management prerogative may simply 'not be worth the trouble'. Many of the foreign workers in Germany and Austria have a lot of previous work experience and come from a wide variety of backgrounds, and many have qualifications from their country of origin. However, these workers are effectively marginalised in the labour market and find it difficult to find other work elsewhere for several reasons: first, because of problems with language; second, because of problems with the recognition of their qualifications; third, because these labour markets are extremely competitive in terms of qualifications; and, fourth, because the number of foreign and other migrant workers in Germany and to some extent Austria is increasing and unemployment remains relatively high.

The work offered by McDonald's may have some positive elements, but workers are often choosing employment at McDonald's in the context of having few other attractive options. Almost regardless of what people think of the work itself, working at McDonald's could be said to offer advantages for some employees who want flexible hours and are engaged in other activities and responsibilities. For those marginalised in the labour market who have few chances of a job elsewhere, McDonald's offers much needed work.

However, the employees' dependence on McDonald's and/or their tendency to see their employment as a short-term strategy makes them vulnerable to management manipulation. Those with minimum interest simply leave if they do not like it, and this is clearly reflected in high labour turnover. Perhaps they are

attracted by the combination of fairly secure employment, familiar 'family' surroundings created by a highly paternalistic approach to management and lots of employees of similar age or temperament. This may help to explain how the corporation sometimes retains individuals who could probably obtain better paid and more skilled work elsewhere. As  (1986) puts it, it is 'recruiting as means of control'. As already suggested, however, whether this is a deliberate 'strategy' or something else is not clear (, 1994).

The employment relationship at McDonald's is managed by a complete spectrum of controls, from simple, direct and bureaucratic controls to the management of subjectivity. At one end of the spectrum, restaurant managers are disciplined to accept tough work schedules and must prove themselves 'up to the challenge' of punishing schedules. Long hours and loyalty are locked in, with young managers being persuaded not only to accept as the norm many hours of unpaid work but also to gain a perverse satisfaction from surviving these tough and uncompromising work routines. In addition, young managers who may or may not get similar 'opportunities' elsewhere in the labour market are romanced by offers of promotion and career development. At the other end of the spectrum, more direct methods are used to maintain control. However, this still leaves unanswered the question of how the corporation has managed to sustain the uniformity of its employee relations practices despite major differences across societal cultures.

IT strategy of McDonald’s

Technology is playing a vital role in McDonald's plans to lure more customers into its 1,230 UK fast food restaurants - as well as driving cost savings and operational efficiency across the organization. McSalads are not the only new things on the menu, as the company is also introducing wireless networking, PlayStation 2 video games consoles, internet terminals, flat screen televisions and music videos into its revamped stores computing - Insight for IT leaders Claim your free subscription today. It's about offering customers more choice and making the restaurants more relevant. McDonald's head of management information systems told Computing. No one single thing will attract customers, but by offering healthier food options, new decor, entertainment and internet access, people will choose McDonald's over other restaurants.

The company is introducing BT Openzone WiFi hotspots into 561 drive-thru stores, fixed-line internet terminals from Datavision, PlayStations and specially adapted web-based games for children. The WiFi roll out is running ahead of schedule, with 350 stores already available for passing business people. Strategy this year is to attract business users. The hotspots will allow businessmen to check email, access the internet and download presentations while having something to eat and drink.

In addition to attracting customers, McDonald's is hoping to cash in by forming revenue sharing partnerships and advertising deals with its internet service providers and equipment providers. But the main focus is to improve the customer experience. The company is also considering the viability of offering free internet access with food purchases. Along with most other UK retailers, McDonald's is evaluating chip-and-PIN payment card readers for its UK branch network. The restaurant has rolled out readers in all its Scottish branches, though a project with technology provider Ingenico. Results have been encouraging, with nine per cent of customers using payment cards since its introduction nine months ago.

The key is to make paying by card as quick as paying by cash. Customers want the same quick experience as if they were going through a drive-thru. Using ADSL broadband connections to authorize transactions, McDonald's has been able to reduce the time to process card payments from thirty seconds to just four. But it's not just in the restaurants that new IT is expected to help the company's business.

This year is about consolidating existing IT systems and introducing new ones to bring cost savings. McDonald's is using wireless technology to make savings in its IT infrastructure and increase productivity. Wireless will have a big impact on how we work this year. It's so much easier than creating new

environments for the laptop; it allows integrating devices and business processes and making a real difference.

McDonald's introduction of queue-busting wireless ordering devices into 500 restaurants is also paying dividends. The devices use business intelligence software from Business Objects to gather sales information and marketing data, which is then transferred to an Oracle database for analysis.

It’s managed to significantly reduce customer queuing times, increase drive-thru sales by five per cent and 82 per cent of customers believe it has improved service. Symbol handheld wireless computers are also saving time in the stock room. IT team has integrated the devices into stock taking to read barcodes and for food safety tasks, using thermal probes to read temperatures and record food checks. But McDonald's has no plans to introduce radio frequency identification (RFID) tagging into its supply chain management system.

HR policy of Nestle

The long-term success of the Company depends on its capacity to attract, retain and develop employees able to ensure its growth on a continuing basis. This is a primary responsibility for all managers. The Nestlé policy is to hire staff with personal attitudes and professional skills enabling them to develop a long-term relationship with the Company. Therefore the potential for professional development is an essential standard for recruitment.

Each new member joining Nestlé is to become a participant in developing a sustainable quality culture which implies a commitment to the organization and a sense for continuous improvement leaving no room for complacency. Therefore, and in view of the importance of these Nestlé values, special attention will be paid to the matching between a candidate's values and the Company culture.

IT Strategy of Nestle

A significant part of Nestlé’s resources are dedicated to extensive R&D programs. Located near the Vittel bottling plants in France, the Product Technology Centre Water (PTC Water) gathers Nestlé Waters' top experts under one single roof, making it one of the most important research centers in the World, dedicated to water and near-water products.

One important focus surely is to further reduce our environmental footprint by reducing the water consumption in our factories, reducing energy consumption throughout our operations and using less and less packaging material or materials with a lower specific environmental footprint like for example recycled material or materials from renewable resources.

The PTC also serves as a place for exchanging information and training by housing a unique bibliographic resource, a database containing about 25,000 publications or articles on water and the specific health benefits. The PTC Water is also proactive within the scientific community, sharing its expertise and knowledge in key international conferences and developing research-oriented partnerships with public and private organizations worldwide.

Innovation in the area of products, packaging, processes and technologies in compliance with Nestlé Waters' strategy is at the heart of our PTC. The Centre is equipped with two top-level laboratories, one dedicated solely to packaging, the other to product formulation. A "model factory", a large pilot plant, has been set-up and continuously been equipped with innovative production equipment for packaging, filling and testing to research on all elements of our value chain and to validate all prototypes of new packaging and products before it is marketed to our consumers.

Last but not least, the PTC Water acts as a support centre for our subsidiaries. As such, the PTC is able to deliver worldwide quality assistance and technical guidance to all our factories and business units.

Current Strategy of Starbucks is not successful as:-

There is the necessity then to recruit only knowledgeable management members at all levels, maintain high level of partner performance and leverage and grow Starbucks brand through adding value to the Starbucks’ entire chain. Strategically, Starbucks should stick to the framework of Four A’s that primarily brought success to the company. These are acceptability, affordability, availability and awareness. There are different sets of actions that the company shall consider.

As well, there must be the continuous building of management team, maintain balance between expansion and internal partnerships, building the workforce, revisiting of mission, values and principle, continuous innovation and prioritization of quality. In particular, there shall be the alteration of the reward system, tighten focus on the ‘Third Place’ aspect and shift focus on profitability measures instead of reducing staff.

In modifying the current employee reward system, employees would be motivated to perform even more through more incentive. Eventually, employee turnover rates would be lessened and positive reinforcement would lead to higher job satisfaction. On the other hand, there are inherent detriments such a pay and benefit structures that are dictated by the corporate headquarters may hinder fast revamp on the reward policy. Cost of benefits could lower the profitability of each outlet and that new reward system would require additional management apart from Partner Sources.

The challenges that are needed to overcome in terms of recruitment and selection are workforce planning, age bubble, ‘brain drain’, technology and the pressure to maintain the employer of choice status for both entry-level and experienced job seekers. The drive is to provide challenging and interesting work, recognitions and rewards for accomplishments and provide an opportunity for fast career growth and advancement. Moreover, Starbucks should be financially strong and people-oriented. This has implications for the Partner Sources and realignment of the competencies and expertise.

 In decreasing employee turnover rate, Starbucks shall focus on hiring older employees so that benefits package would be more appropriate and base wages must be raised with respect to performance instead of giving raise for economic motivations. Significantly, the reward policy shall include processes on developing and maintaining an effective reward system such as employee of the month award, on-the-spot tokens, etc and closed-loop communications systems of regular employee communications.

 For workforce planning, Starbucks should identify workforce needs, analyze current position and develop HR strategies to narrow if not close the gaps. In carrying this out, environmental scanning must be conducted including strategic plans, internal factors and SWOT analysis. Next, there should be an analysis of the workforce and existing competencies prior to converging into concrete actions of recruitment, classification, compensation, training, performance management and continuous education.

The cost to fill a position must be carefully studied. Filling vacancies and turnover shall start from within the organization. Since the company is utilizing semi-annual evaluation, internal hiring is possible. Apart, the company could employ referral system and use current employees as recruiters, using temporary workers before they are actually hired, focus on internships, focus on retention and use mentors in order top assist entry of new workers. Worker-friendly policies should be also available such as flexible work hours, telecommuting, cooperative management styles and good working conditions.

 Budget must be utilized with accordance to the needs and expectations of the stakeholders and the organization as a whole. In enhancing the company’s atmosphere, it is necessary to make each outlet more ‘scenic’ than just a Third Place by means of improving outlet accessibility and cleanliness. IT would always be an add-on value to Starbucks’ quality; nonetheless, the company should equate the necessity of technology with organizational strategies.

In focusing the profitability, Starbucks would advent itself of higher staffing levels that could benefit all the employees, better customer servicing and the improved focused on customer relationship would yield higher sales. Nonetheless, the initiative requires that the company should invest additional cost for staffing that may decrease profitability and how the top management perceived the low employee productivity; with a specific emphasis on improving the Third Place framework.

 The non-monetary impact of these actions are: reduced turnover rates through focusing on initial recruitment and hiring stage and rewarding employees, physical facility as value-adding element by means of improving accessibility and cleanliness and becoming an attractive place to go to by improving the overall Starbucks feel. In terms of financial implications, the impact would be on the indication for risk for higher cost of capital and return on equity. Financial leveraging through revamp on three key policies would also mean lower asset turnover, higher days receivable, lower inventory days and increased payable days due to partner performance and productivity to the top management.

For Partner Sources, the benefits would be the restructuring of skills framework that shall include congruency skills, hiring skills, training skills, performance appraisal skills and pay allocation skills. Congruency skills refer to the ability of the Vice President of the Partner Sources in attuning practices with of the organization with the environment. The success for Starbucks could be maintained if HR practices are strategically aligned to the overall strategy, the organizational features and the legal environment. Hiring skills refer to hiring right employees at the right time. Preparing for the changes of job and career is known as the training skills. Constructive performance feedback and knowledge on compensation allocation are central to performance appraisal skills and pay allocation skills, respectively. 

Competitor’s Strategy

STRATEGY 1: Be Green

Green Mountain Coffee RoastersHQ: Waterbury, VTYear founded: 1981Outlets: N/A

Differentiate for successGreen Mountain began as a small Vermont cafe and has stayed true to its organic roots while growing into a booming wholesaler with more than 8,000 accounts, including the Newman's own brand of organic coffees. Green Mountain's sales of its organic lines were up 51 percent in 2005. The company has also focused on its office business, which now accounts for about a third of its sales.

STRATEGY 2: Keep Innovating

Coffee Bean & Tea LeafHQ: Los AngelesYear founded: 1963Outlets: 400

Differentiate for successCoffee Bean is known for its extensive selection of coffees and teas, as well as its reputation for innovation: The Company invented the ice-blended coffee drink and popularized the chai latte. Coffee Bean has also made push overseas, finding niches in Starbucks-free markets such as Israel. With nearly all of its drinks certified as kosher, the company has opened several locations in that country.

STRATEGY 3: Head East

Costa CoffeeHQ: LondonYear founded: 1971Outlets: 617

Differentiate for successDespite Starbucks's invasion of its home turf in London, Costa is outsmarting its rival in India. The company cracked the subcontinent by teaming up with a local businessman and adapting its menu to Indian tastes. Costa plans to add up to 300 Indian outlets by 2010. It has been in the Middle East since the late 1990s and is due to open the first of more than 300 stores in China next year.

STRATEGY 4: Go Upscale

Peet'sHQ: Emeryville, CAYear founded: 1966Outlets: 120

Differentiate for successPeet's strength is the taste of its coffee, which appeals to java connoisseurs. The company roasts its beans in small batches, replaces brewed coffee every 30 minutes, and never resteams milk. "Peetniks" often drink Peet's at home too, and about half the company's sales come from whole beans, which carry higher margins. Peet's beans are also sold in more than 4,000 grocery stores.

STRATEGY 5: Sell a Lifestyle

Caribou CoffeeHQ: MinneapolisYear founded: 1992Outlets: 416

Differentiate for successCaribou's cafes feature mountain-lodge-style decor with exposed beam ceilings, leather chairs, and roaring fireplaces. Add in framed photos of the adventure-loving founders and you get a vibe that's neatly summed up in the company's motto, "Life is short. Stay awake for it." Frontier and Maxjet airlines serve Caribou coffee, and the company recently inked a deal with Life Time Fitness.

 

Recommendations

In particular, the changes in the policies should adhere to the standards and regulations of Starbucks as well as the regulations of bodies/authorities that govern Starbucks. Issues should be very specific like the points raised in 3.0 for the said policies. Languages of the policies will ensure to be in layman so that everybody can comprehend. And explanations should be clear as possible. The policies should attempt at arriving at a win-win situation for both the partners and the organization. As such, the policies should be approached in an objective manner.  

There are specific steps that Starbucks could utilize in policy-(re)making. In general, the pointers are the policy format, the dos and don’ts and the important provisions to be considered. The actors are the top management, representative from partners at retail-levers such as baristas and shift supervisors to managers and representatives from unions and the Partner Sources unit. First, through consensus, these people should outline specific issues gathered. The activities are systematizing the data gathered and validating data. Next would be the resolution of issues and preliminary drafting of reward, recruitment and selection and development policies.

Second, there should be the consultation for outlets and for general assembly. For the former, the activities are the documentation of issues raised and the documentation of pre-resolution issues prior to synthesizing the issues and the resolution. For the general assembly, documentations of issues raised, documentations of final resolution and necessary amendments are the activities.

Third, the primary actors determined should come together to conduct final drafting of reward, recruitment and selection and development policies followed by reading of the policies, enactment of the policies, signatures signing and notarization of the policies. Posting of salient points of the three fundamental policies at each outlet would be the last step.

To optimize the new policies, Starbucks must embrace the intelligent accountability concept whereby the purpose is to maintain a certain level of transparency, to always consider consensus and to manage the knowledge well. This collective visioning must be embedded in lateral capacity that directly intervene poor performance that affects the business as a whole. As such, it is also necessary fro Starbucks to incentivize collaboration and the lateral capacity building so that the new policies could purport on developing itself by means of fostering and supporting cross-system networks.    

Starbucks vs. Dunkin' Donuts

We talk from time to time here at the Capitalist about non-competes.  They generate emotion from employees and are usually written so broadly that they're hard to enforce.  Most of the time, talent will sign a non-compete in one of three states of mind: They're A) in need of a job and will sign what you need them to sign, B) confident that you've written the agreement so broadly that it'll be difficult to enforce, or C) a combination of the two aforementioned states of mind.

So, non-competes are something we do, but messy to enforce on the back end.  Want to see what a real non -compete issue looks like?  Look no further than the following non-compete dustup occurring between Starbucks and Dunkin' Donuts, as reported by the Boston Herald.  I love the smell of decaffeinated non-competes in the morning:

"Paul Twohig, who had been in charge of Starbucks’ retail stores in the southeastern U.S., left the company in March. He received a severance package after signing a separation agreement in which he promised to honor an earlier noncompetition agreement that said he would not work for a Starbucks competitor for 18 months, according to a lawsuit filed Monday in U.S. District Court in Seattle.

Twohig, who did not return phone calls to his South Carolina home, asked Starbucks in August if he could be released from the agreement to work for Dunkin’ Donuts, the lawsuit said. Canton, Mass.-based Dunkin’ has a large presence in the eastern U.S. Starbucks declined Twohig’s request. At Starbucks, he had "participated in and was responsible for formulating business strategies to grow Starbucks business and respond to competitors, including Dunkin’ Donuts," the lawsuit said

In September, Dunkin’ Donuts’ head of human resources and another former Starbucks employee, Christine Deputy, contacted the coffee company. Starbucks said it told her that Twohig was "not in a position to accept a position" at Dunkin’. Within the past week, Starbucks learned through Internet searches that Twohig had apparently accepted a job as Dunkin’ Donuts’ brand-operations officer.

Twohig worked for Starbucks from 1996 to 2002, then left and became chief operating officer of Panera Bread. When he returned to the coffee company in 2004, he signed the noncompetition agreement, the lawsuit said."

Conventional wisdom says a couple of things with this one.  First of all, it's standard procedure that if you want an enforceable non-compete, you need to list the competitors included and perhaps even the geography.  We don't know those details, but a couple of other things would seem to come into play.  First, if Twohig elected to sign a severance document that referred again to the non-compete, that's a form of acknowledgment that might be viewed strongly by a judge.  Add that to the fact that Dunkin' thought enough of their position as a primary competitor to call Starbucks to inquire about Twohig's legal ability to work for them, and Starbucks looks to be in decent shape on this one heading into the courtroom.

With his Panera experience, if only Twohig would have brought the Cinnamon Crunch Bagel (or i's equivalent) to Starbucks - he might have been CEO by now and the move wouldn't have been necessary.

Starbucks vs. Nestlé's

A month after Starbucks' Via Ready Brew invaded Nestlé's jealously guarded turf, the giant Swiss food maker has mounted a spirited counteroffensive, passing out free samples of its Nescafé Taster's Choice instant coffee across several key U.S. cities.

A Nestlé spokeswoman says the company has been handing out samples, packaged in thin pouches similar to those Starbucks is using (Nescafé's are called "sticks"), through much of the year.

NescafeLongtime instant-coffee incumbent Nescafe reacts to Starbucks' encroachment with advertising splash and handouts.But a look at Nestlé's Twitter page shows they've really revved up the campaign of late.

Nestlé marketers were recently spotted for the first time roaming the streets of downtown San Francisco, handing out samples to caffeine-savvy citizens. This month, Nestlé tweets have been urging people to find seek out their street marketers at specific corners or landmarks in Los Angeles, Philadelphia, and Washington, D.C.

The red packs contain six flavors and a $1 coupon. On the back of the envelope is this tagline: "A lot of hype or a lot of flavor. Taste for yourself."

Nestlé's tactics extend to the Web, where it put up a site in May that tells consumers its Taster's Choice is cheaper and tastes better than Starbucks Via. In a Web commercial, Nestlé touts the fact that one cup of its Taster's Choice costs 17 cents, while Via costs four times that. It shows a Starbucks cup at the end.

Earlier this year, Nestlé pushed free samples in Chicago and Seattle, two cities in which Starbucks did pilot tests for via before its nationwide rollout in September. It's hard to fathom the marketing muscle Nestlé and Starbucks are throwing behind their rival instant brews. But the stakes are enormous, even more so when trying to break into a sluggish economy laced with newfound frugality.

StarbucksStarbucks' instant Via comes in just two classic varieties, while Nescafe takes a bigger-tent approach.Instant coffee generates $21 billion in worldwide sales -- that's more than 40% of the total coffee market. The U.S. accounts for 5% of the instant market.

"Starbucks has drawn more attention to the [instant] category," said Nestlé spokeswoman Pam Krebs, who thinks the very public rivalry is good for the product.

Starbucks rolled out Via after 20 years of secretive internal R&D. It was the biggest product launch in company history, supported by a coordinated attack of national television ads, highly visible in-store marketing collateral, and guerrilla marketing tactics.

Starbucks isn't pitching Via as the instant coffee Americans grew up drinking but as its gourmet coffee brewed in an instant. Its varieties are limited to Italian Roast and Colombia, while a Taster's Choice sample pack extends to hazelnut and vanilla flavors.

The Via tagline: "Never be without great coffee."

And, like its new rivals, Starbucks isn't pulling any punches, calling other instant coffees "flat and lifeless." CEO Howard Schultz claims instant coffee hasn't seen innovation for 50 years.

Starbucks, in its latest quarterly conference call, said Via sales have gone well, but it didn't release hard numbers. Three single-serve packets of Via sell for $2.95, or just a buck per cup. A 12-pack of pouches runs $9.95. A Taster's Choice bulk buy of seven 12-packs is offered for $12.16 at Amazon.com.

Perhaps suggesting that consumers are pitting the new single-serve instant-coffee products against each other at home or office, Amazon lists the Starbucks and Nescafé offerings as "frequently bought together." 

Starbucks vs. McDonald

McDonald's Introduces McCafe and Capitalizes on Recessionary CutbacksWith the launch of McCafe in 2008, the competition between the two chains intensified further. The timing of the launch coincided with a period of spending cutbacks among consumers and such cutbacks were already hurting Starbucks. As result of the discretionary cutbacks and rising competition, Starbucks closed around 890 stores in 2008 and 2009.

Starbucks Diversifies with VIA and Seattle's Best Coffee

After the success of the inexpensive VIA brand instant coffee among consumers, Starbucks is trying to give the lower priced coffee chains a run for money with the strong launch of its Seattle's Best brand coffee at more than 30,000 fast-food outlets, supermarkets and coffee houses. The company's expansion plans includes featuring Seattle's Best at convenience stores, drive through kiosks and vending machines.

 McDonald's   Starbucks  

Overview  Over 31,000 restaurants in 118 countries; $23.5 billion revenue, 400,000 employees

   Over 16,000 locations in over 50 countries, $9.8 billion revenue (FY09); 117,000 partners (employees) **

 

Product Premium salads, fruit and yogurt parfait, and apple dippers in Happy Meal choices; packaging gives customers essential nutrition information in easy-to-understand icon and bar chart format

  In U.S., spends more on partner health care than coffee bean purchases; The largest purchaser of Fairtrade certified coffee in the world **

 

ManagementPractices

19 of 25: Carefully managing supply chain to control costs and implement sustainability, and developing an environmental scorecard to measure supplier performance

  21 of 25: Sustainability built into business vision, all performance metrics and product development decisions; From fiscal 2000 to 2009, farmer loan commitments totaled $14.5 million, goal is $20 million by 2015; Partners encouraged to volunteer, with a goal of 1 million hours of community service by 2015 **

 

Health

of 20%

In 2009 customer satisfaction is 70%; 82% of crew would recommend working at

10%

  Customer satisfaction is 76%; all staff more than 20 hours/week have

14%

McDonalds to a friend  health care access 

Wealthof 20%

Crew members earn an average of $7.60 per hour; 93% of eligible employees participate in 401(k) plan, made easier by $20 per month auto-deductions

9%  Starbucks average hourly pay rates vary across the U.S. and the globe; baristas in the U.S. are eligible for a base rate increase after six months, and a performance based increase every six months thereafter.; The Stock Investment Plan allows eligible partners to buy Starbucks stock (up to 10% of base pay) at a 5% discount; Through the Bean Stock program, stock options granted annually to eligible partners in 16 countries from part-time hourly up to (but not including the director level based on the company's performance ** 

13%

Earthof 20%

About 82% of the consumer packaging used in its nine largest markets made from renewable materials and 30% of the material comes from recycled fiber. Despite testing of innovative materials, have not yet identified more sustainable packaging materials that are commercially viable

9% In fiscal year 2009, Starbucks served more than 26 million beverages in reusable cups, and approx. 70% (2,163) of its company-owned stores in North America that control their own waste collection recycled items made from one or more materials; Starbucks is working toward 100% reusable or recyclable cups by 2015 **

12%

Equalityof 20%

37% of all U.S. owner-operators are women and minorities; 26.7% of worldwide leadership are women

15%

Among managers, approx. 31% are ethnic minorities and 66% are women (6/1/2008-5/31/2009)**

12%

Trustof 20%

Guidelines to determine the sustainability of fisheries developed in partnership with Conservation International

14%

All suppliers that adhere to C.A.F.E. status undergo third-party verification; By 2015, Starbucks' goal is to purchase 100% responsibly grown and ethically traded coffee, which the company definesas coffee that has been third-party verified or certified, either through Coffee and Farmer Equity Practices, Fairtrade, or another externally audited system   **

13%

Human Impactof 100%

TOTAL 56%

TOTAL 64%

Corporate Profitof 20%

+30.1% return on equity (2008)

+20.4% annualized total return, including reinvested dividends (6/2004–6/2009

+23.4% annualized total return, including reinvested dividends (6/2006–6/2009)

  +12.8% return on equity (fiscal 2009)

-6.2% annualized total return, including reinvested dividends (6/2004–6/2009)

-16.3%   annualized total return, including reinvested dividends

  

(6/2006–6/2009)