Starbucks Corporation is a global coffee company and coffeehouse chain based in Seattle, Washington in USA (Starbucks Corporation, 2014). The company’s stores offer a variety of cold and hot drinks, food, coffee beans and accessories. Starbucks is publically recognised as an affordable luxury brand and it emphasises its service commitment to the highest quality coffee in the world (Starbucks Corporation, 2014). The New Zealand franchise for Starbucks Coffee was secured by Restaurant Brands in 1998 and the first store was opened in Parnell, Auckland (Restaurant Brands, n.d.)
The purpose of this report is to identify the research issue facing the organisation and explain why the issue should be examined further. The report will break down the nature of the issue, which will be in form of management problem, research problem, research objectives and research questions. Finally, the report will contain a recommendation for gathering primary information using qualitative research.
Initially, in 1998 The Restaurant Brands Restaurant purchased the local franchise rights for 50 cafes (Morrison, 2013). Through the early to mid-2000s the number of stores was rapidly growing, reaching its peak of 47 in 2007 (Adams, 2013). Nevertheless, even despite its international success, Starbucks has struggled to gain popularity in New Zealand. What is more, the new competitors such as Esquires Coffee Houses, The Coffee Club and Gloria Jean's Coffees have entered the market, which only increased the competition and Starbucks’ subsequent loses. This forced The Restaurant Brands to hold back its expansion strategy, as Starbucks became one of the most underperforming segments among its brands. Only in 2013 The Restaurant Brands closed 6 Starbucks stores, and two more the next year making the total store count now stand at 27 (Restaurant Brands, 2014). What is more the brand was regarded as “too expensive”, which prompted extensive price reduction by an average 10 per cent across the range of food and beverage (Walters, 2014). As a result, such rationalisation strategy and price decline helped Starbucks to finally fix its falling total sales at $25.0 million in 2014. (Restaurant Brands, 2014). However, the brand has fallen in a value share from a peak of 33% in 2003 to 14% in 2012 (Euromonitor International, 2013).
In contrast, New Zealanders are still drinking approximately the same amount of tea and coffee as they did five years ago (Walters, 2014). As shown in Table 1, 57% of New Zealanders said they had visited a cafe for a hot beverage during the last 3 months. What is more, Figure 1 illustrates that the total market size in the cafés/bars category has been steadily growing over the period from 2009 to 2013. Moreover, there is an overall continued growth of cafés in terms of outlet numbers, particularly chained cafés, which grew by 3% in 2012 (Euromonitor International, 2013). What is more, unlike Starbucks, competitor brands continued to achieve positive growth. For instance, in 2012 The McCafé brand was the top ranked specialist coffee shop with a 9% value share, up marginally on the previous year (Euromonitor International, 2013). Meanwhile, Hollywood Bakery Ltd outlet numbers increased from 42 in 2011 to 46 coffee shops in 2014 (Euromonitor International, 2013; Hollywood Bakery, n.d.). Furthermore, The Coffee Club franchise, which has 31 outlets, successfully expanded, offering longer opening hours, with some of its outlets being transformed into restaurants (Euromonitor International, 2013).
Previously stated positive trends for these coffee outlet brands are also supported by figures from Roy Morgan Single Source New Zealand. As shown in Table 1, Robert Harris Café dominates the market, with 8.2% of total hot beverages purchased from its stores. Moreover, The Coffee Club occupies the second position with 7.7% of all hot drinks bought from their franchise. McCafé and Muffin break have 7.3% and 7.0% of beverages purchased in their outlets, respectively. However, unlike its major competitors, only 1.4% of teas and coffees are purchased from Starbucks. There is an obvious gap between Starbucks and the rival cafes that indicates how unpopular the brand is, unlike the United States, where it dominates the industry with a market share of about 32.6% (Statista, 2013).
The likely reason for such low sales and Starbuck’s failure to gain popularity is that New Zealand had a sophisticated and strong coffee culture when the chain first launched in 1998 (Adams, 2013) In addition, Jon Bird, chairman of retail marketing specialists at IdeaWorks, said that "There's no great reason for having Starbucks in New Zealand - that kind of American cultural imperialism, when it comes to coffee, just doesn't work in the country" (Adams, 2013). This indicates that New Zealanders have different values and expectations that had to be satisfied. What is more, the market has changed itself: a lot of consumers withdrew from drinking large milky coffees served by chain stores, and prefer purchasing coffee from independent cafes that roast their own beans (Walters, 2014). According to Euromonitor International in New Zealand independent cafes café make up the majority of the total market at 85.4%, while chain cafés/bars constitute only 14.6% (Euromonitor International, 2014). It is also expected that independent cafés/bars will continue to dominate the market, with an estimated value share of 88% by 2017. The main reason why independent cafes/bars are expected to remain such extensive market share is that independents offer distinct individuality, which New Zealand consumers tend to seek. These are well-established in rural areas and smaller towns, where chained stores remain uncommon (Euromonitor International, 2013). Similar industry trends were also observed in Australia, which resulted in huge Starbucks failure in the country (Christopher, Lovelock & Wirtz, 2011).
According to the iceberg principle Starbucks’ gradual decline of sales and subsequent closure of outlets are only ‘symptoms’ of a real deeper underlying problem. Examining the background of the issue it is obvious that New Zealanders have a different coffee drinking culture, values and service expectations unlike consumers in US, where Starbucks has a huge success. Consequently, the market research is required in order to establish a way how to alter the Starbucks market offering in order to appeal to and attract more local audiences. This information would be used to differentiate the current product and service to compete with the rival coffee chains and independent stores without the further price reductions and rationalisation of the existing outlets, which only are only short-term solutions.
From the previous section arises the management problem: What should Starbucks do in order to be more appealing to the New Zealand market place?
In order to solve the previous management decision problem and how the information can be efficiently and effectively obtained the research problem in further stated:Identify the ways to become more appealing to the New Zealand marketplace.
The following are the research objectives and the subsequent questions that should be asked:
Analyse the local coffee culture
Create consumer profiles and identify the most prospectus target markets
Identify behavioural attitudes to buying a hot drink/meal in a café
Identify what are our competitors doing to attract more consumers
Assess the current brand awareness and image of Starbucks in New Zealand
In order to answer these research questions, it would be beneficial to conduct individual depth interviews. This method allows to probe and elicit detailed answers, which is used to uncover hidden motivations (McDaniel & Gates, 2010). Using various nondirective techniques, the respondents would be more likely to give truthful answers about the personal attitudes and tastes towards various coffee offerings to help to understand the New Zealand coffee culture. What is more, certain projective techniques can be applied so that to acquire information on sensitive topics such as how price driven the consumer is. For instance, some key questions can be asked using certain projection techniques:
This research is of a major importance to Starbucks. The company should profoundly understand the New Zealand market to tailor its offering to the needs and wants of the local consumers. The rationalisation and price reduction strategies are only the short-term means and do not solve the initial problem that caused the company headquarters to conduct these actions. Through the qualitative research Starbucks will be able to identify the current marketplace trends and tastes and subsequently adjust to them, differentiate itself from the competitors and deliver the value to the consumers. Consequently, it is expected that if the research data is used to alter the existing offering, the brand would enhance its perceived image and the sales volumes would finally start to increase.