SFU-004 - Module 4 (Model answer)

Model Answer

Hear from a professional in this role to see how they might approach this task.

Preparation Task (20 minutes)

Research Task (40 minutes)

Analysis Task (45 minutes)

Create Task (30 minutes)

Document and Present (20 minutes)

Reflection Task (20 minutes)

Expected Outcome

Preparation task (20 minutes):

Objective: develop a comprehensive understanding of the existing business model at Starbucks using The Business Model Canvas.

Step one: Understand. Starbucks' existing business model consists of various components such as: retail stores as a primary revenue generator, high-quality coffee beans, a cultivated retailer, manual espresso machines instead of automatic ones to produce better coffee and connect better with customers. Business Model Canvas - Starbucks

Key Partners

Key Activities

Key Resources

Value Propositions

Customer Relationships

Channels

Customer Segments

Cost Structure

Revenue Streams

Research task (40 minutes):

Objective: collate key insights into the food and beverage industry. Step one: Conduct research.

Trends:

• Sustainability Focus: Starbucks continues its commitment to environmental goals, with initiatives like reusable cup programs and ethical sourcing of coffee. The company aims to enhance its green store count globally.
• Digital Innovation: Starbucks leverages mobile ordering and its rewards app to drive customer engagement, with millions of active users.
• Plant based: increased market looking for plant based alternatives.

Challenges:

• Labour Relations: Starbucks faces challenges from ongoing unionisation efforts, leading to strikes and legal conflicts.
• Reputation Issues: Controversy over perceived stances on political matters and labour practices has hurt brand perception in some regions​.
• Customer Preference and competition: for local/independent coffee houses or online ordering and home delivery services
• Spend of change: requirement to stay one step ahead as a large organisation

Opportunities:

• Expand digital orders
• Improve home delivery
• Work on sustainability and support trending causes to gain support and loyalty from customer base.
• Improve employee relations

Analysis task (45 minutes):

Objective: analyse how these industry trends, challenges and opportunities might affect Starbucks’ current business model.

Step one: Identify which elements of the business model need innovation.

Step two: document possible new models or innovations that Starbucks could implement.

Key Partners

Key Activities

Key Resources

Value Propositions

Customer Relationships

Channels

Revenue Streams

Cost Structure

Create task (30 minutes):

Objective: Create an innovative business model for Starbucks.

Step one: Create a revised business model for Starbucks, using the Business Model Canvas to organise your ideas.

• Key Partnerships: Partner with local suppliers for unique store decors and local artists for live performances in stores. Establish micro-roasteries within major cities to allow for local sourcing, a fresh supply chain, and limited-edition coffee blends, appealing to coffee connoisseurs and local markets.
• Key Activities: Improve the online ordering system, begin home delivery services, and increase sustainability initiatives.
• Value Proposition: Offer a unique, personalised coffee-buying experience in each store, while meeting clients' convenience, sustainability and eco-friendly tech initiatives. Create immersive in-store experiences using augmented reality (AR), where customers can learn about coffee origins or sustainability efforts. Enable deeper drink customisation, allowing customers to adjust caffeine, sugar levels, or alternative milk ratios on a granular scale via the app.
• Customer Relationships: Engage customers on social media, showcasing their local artists and suppliers. Using AI, offer dynamic, location-based rewards tailored to individual preferences, enhancing customer satisfaction and retention.
• Channels: Utilise mobile app for online orders and home deliveries. Use AI to anticipate customers' favourite items and seasonal trends to suggest timely recommendations through the app or store displays.
• Customer Segments: Target coffee lovers who prefer a unique local experience and care about sustainability. Expand into health-focused products like adaptogenic beverages, protein-enriched snacks, or CBD-infused items that cater to wellness-conscious consumers.
• Cost Structure: The cost is expected to go up due to partnerships with local suppliers and artists and sustainability initiatives.
• Revenue Streams: Besides in-store purchases, revenue from online orders and home deliveries. Launch tiered beverage subscription services, offering exclusive drink releases, delivery options, or faster in-store service to members. Expand drive-thru and delivery experiences with drone or autonomous vehicle partnerships, delivering drinks faster and more sustainably.

Document & present (20 minutes):

Objective: Present your innovative business model in a clear and engaging manner.

Step one: Create a brief PPT presentation summarising your findings. Created a presentation covering the above points, clearly explaining the reasons behind these proposed changes to the business model and their potential benefits.

View Model Presentation

Reflection task (20 minutes):

Objective: Reflect on the process of innovation in the business model.

Step one: answer the following questions: What was most challenging in this task and why?The most challenging part was figuring out how to balance the need to innovate the business model while staying true to the brand and driving down costs. However, I enjoyed the creative process and seeing how changing certain parts of the business model could address the challenges Starbucks currently faces. It helped me realise how dynamic businesses need to be in handling challenges. I could use this approach when making strategic plans in any future business role.How do you think you successfully completed this task? I demonstrated a number of skills during the simulation that allowed me to complete the tasks successfully - analysis, problem-solving, innovation and strategic thinking for example. These skills supported me in ideating creative solutions and opportunities, which in turn support retailers like Starbucks to stay competitive. They were also important in allowing me to lend novel perspectives to facilitate their growth. This simulation allowed me to exercise the transferable skills that I’d be required to use everyday as a Business Strategist. Can you think of any other company that might also benefit from a similar approach? Many companies operating in fast-changing industries could benefit from a similar approach. For example, fast-food chains like McDonald's or Pret A Manger could use continual business model innovation to stay competitive. Likewise, retail giants such as Tesco or Marks & Spencer could refine their strategies to address evolving consumer expectations and market dynamics.

Conclusion

Starbucks’ business model thrives through a combination of strategic partnerships, continuous innovation, customer-centric digital services, and a strong commitment to sustainability. By balancing premium pricing with convenience, ethical practices, and a global community-centric approach, Starbucks continues to be a market leader in the coffeehouse industry.

Revenue Streams

• In-store Sales: The primary source of revenue through beverage and food sales in physical stores.
• Digital Sales: Increasing revenue from mobile orders, online delivery services, and loyalty-driven purchases.
• Packaged Goods: Sales of branded products (packaged coffee, teas, bottled drinks, and ready-to-eat items) through retail stores and supermarkets.
• Licensing Fees: Revenue from licensed stores and branded partnerships that operate in hotels, airports, universities, and supermarkets.
• Loyalty Program: Starbucks Rewards encourages higher frequency of visits and increased spending per customer, driving incremental revenue.
• Collaborations & Sponsorships: Revenue through partnerships with other brands for co-branded products and merchandise.

Cost Structure – Reduce Environmental Costs & Labour TensionsHigher labour costs and sustainability investments require strategic cost management. Innovation Needed:

• Increase operational efficiency with automation (e.g., AI-driven inventory management).
• Invest in sustainable energy solutions to reduce long-term store operation costs.
• Develop a circular economy approach, such as a deposit system for reusable cups.

Channels

• Physical Stores (Company-Owned & Licensed): Starbucks' widespread global store network allows customers to access its products easily, while licensed outlets expand reach in strategic locations like airports, campuses, and shopping malls.
• Mobile & Digital Channels: The Starbucks app offers mobile ordering, payments, and loyalty integration, ensuring a seamless customer experience. It also provides digital-only rewards and exclusive items to encourage app engagement.
• E-commerce & Retail: Starbucks sells packaged coffee, brewing equipment, and other branded merchandise through its online store and via retail partners like supermarkets and grocery chains.
• Third-Party Delivery Platforms: Partnerships with food delivery services (e.g., UberEats, DoorDash) provide additional convenience to customers, particularly in urban areas.
• Social Media & Digital Marketing: Starbucks uses digital platforms to promote new products, engage with customers, and build a community around shared values like sustainability, diversity, and inclusivity.

Value Propositions – Strengthen Sustainability and Home-Based ConvenienceConsumers are prioritising sustainability and home-ordering convenience. Starbucks must differentiate itself through these values. Innovation Needed:

• Develop an ultra-sustainable product line, including carbon-neutral coffee or closed-loop packaging innovations.
• Strengthen home delivery options, potentially through exclusive partnerships with eco-friendly logistics providers.
• Expand the use of plant-based ingredients across the menu to appeal to health-conscious and environmentally aware customers.

Key Activities – Improve Employee Relations & Expand Digital EngagementLabour relations issues pose reputational and operational risks, while digital engagement is key to driving sales growth. Innovation Needed:

• Invest in better training, wages, and working conditions to reduce unionisation tensions and improve employee satisfaction.
• Develop new digital loyalty initiatives beyond traditional points-based rewards, such as gamification or AI-driven personalisation that offers real-time incentives based on purchase behaviour.
• Introduce augmented reality (AR) experiences in-store or through the app, creating interactive coffee education experiences that align with Starbucks’ premium positioning.

Customer Relationships – Address Reputation & Labour IssuesUnionisation concerns and political controversies could damage brand loyalty. Innovation Needed:

• Improve transparency in corporate decision-making and create employee-driven initiatives to build trust.
• Leverage social responsibility campaigns to connect with younger, socially conscious consumers.
• Enhance digital engagement with interactive community features, such as virtual coffee tastings or sustainability pledges.

Customer Relationships

• Loyalty Programs: Starbucks Rewards is one of the most successful loyalty programs in the world, offering free drinks, personalised offers, and gamified experiences that keep customers engaged and returning.
• Community Focus: Starbucks builds strong relationships with its communities by hosting events, supporting local causes, and creating inclusive spaces for customers to connect.
• Digital Engagement: Starbucks maintains personalised and frequent interactions through its app, email marketing, and social media channels, providing customers with tailored offers, exclusive promotions, and real-time communication.
• In-store Personalisation: Baristas play a key role in customer retention by offering personalised service, remembering regular customers' names and orders, and fostering a sense of community in each store.
• Environmental Advocacy: Through public commitments to sustainability and social justice, Starbucks strengthens its relationship with environmentally conscious and socially aware consumers.

Customer Segments

• Professionals & Millennials: A core demographic drawn to Starbucks for its high-quality coffee, convenience, and work-friendly environment.
• Urban Dwellers: City-based consumers who frequent Starbucks for its quick-service convenience and multiple ordering options (e.g., app, drive-thru, delivery).
• Health-Conscious Consumers: Individuals seeking healthier alternatives (e.g., plant-based drinks, low-calorie options) and customisable beverages.
• Loyalty Program Members: Customers who consistently return due to Starbucks Rewards, enjoying tailored promotions, free drinks, and exclusive offers.
• Socially Conscious Consumers: People who value Starbucks’ efforts in sustainability, ethical sourcing, and corporate social responsibility.
• Students & Digital Nomads: Customers who use Starbucks’ space as a "third place" for studying, working, or socialising, attracted by free Wi-Fi, comfortable seating, and ambient environment.

Key Activities

• Ethical Sourcing & Procurement: Procuring high-quality coffee beans through sustainable, fair trade, and ethical sourcing to maintain supply chain transparency and foster long-term farmer partnerships.
• Product Innovation & Development: Continuous research and development of new products, including seasonal beverages, health-conscious options, plant-based menu items, and alternative milk (e.g., almond, oat), and expansion into non-coffee categories like cold brews and teas.
• Customer Experience Enhancement: Innovating in-store experiences with a focus on customer comfort, ambiance, and convenience through store design, Wi-Fi, music curation, and community-building spaces.
• Digital & Mobile Leadership: Building on its award-winning mobile app, Starbucks continuously enhances its technology, including personalised offers, gamified loyalty rewards, contactless payments, and predictive ordering using AI.
• Global Store Expansion: Careful expansion into new geographies while leveraging a mix of company-owned stores and licensed outlets, focusing on adapting to local cultures and preferences (e.g., tea in Asia, espresso bars in Europe).
• Sustainability Commitments: Investing in green initiatives like reusable cups, eco-friendly packaging, water and energy conservation in stores, and promoting fair-trade-certified products.

Key Partners – Strengthen Sustainability and Ethical SourcingThe industry is increasingly focused on sustainability, and Starbucks must continuously improve its partnerships to maintain leadership in ethical sourcing. Innovation Needed:

• Expand relationships with local and independent coffee growers, ensuring ethical sourcing remains a strong differentiator.
• Strengthen partnerships with sustainability organisations to achieve higher environmental standards (e.g., reducing carbon footprint in supply chains).
• Enhance supply chain transparency with blockchain or other traceability technologies to give customers more insight into where their coffee comes from.

Channels – Strengthen Online & Delivery ExpansionThe shift towards digital orders and home delivery presents both a challenge and an opportunity. Innovation Needed:

• Invest in better last-mile delivery partnerships to improve efficiency and sustainability.
• Expand direct-to-consumer offerings, such as personalised coffee subscriptions.
• Increase in-app personalisation and voice-command ordering to enhance mobile convenience.

Value Propositions

• Premium Quality & Consistency: High-quality, ethically sourced coffee, expertly brewed to provide a consistent product across all locations worldwide.
• Personalised Experiences: Through technology, Starbucks offers hyper-personalised experiences via its app, allowing customers to tailor their orders, track purchases, and receive targeted promotions.
• Social Responsibility: A commitment to environmental sustainability, including ethically sourced coffee, reduction of waste, and carbon footprint. Starbucks promotes its values of inclusivity, diversity, and community engagement.
• Convenience & Accessibility: Starbucks provides customers with multiple ordering channels, including in-store, mobile app, delivery, and drive-thru, catering to various lifestyles and making it easy for on-the-go customers to access their favorite products.
• Store Experience & Ambiance: Starbucks locations are designed to be a “third place” between home and work, offering a comfortable, welcoming atmosphere for socialising, working, or relaxing.
• Product Variety & Innovation: A wide range of customisable beverage options (e.g., seasonal specials, plant-based drinks) and food items that cater to diverse tastes and dietary preferences, including vegan, gluten-free, and low-calorie options.

Cost Structure

• Coffee Beans & Raw Materials: Costs associated with sustainably sourced coffee beans, dairy alternatives, syrups, and other food ingredients.
• Labor Costs: Salaries and benefits for Starbucks' employees (baristas, management, and support staff), including investments in training and development.
• Store Operations: Rent, utilities, maintenance, and operational costs for thousands of stores worldwide, with an increasing focus on eco-friendly operations.
• Marketing & Brand Development: Investment in global marketing campaigns, digital marketing, social media, and in-store promotional efforts.
• Technology & Digital Infrastructure: Investments in developing and maintaining the Starbucks app, digital platforms, mobile ordering systems, and personalisation algorithms.
• Sustainability Initiatives: Costs associated with environmental initiatives, including waste reduction, green energy, and supporting farmers with sustainable farming techniques.

Revenue Streams – Monetise Sustainability & Digital GrowthNew revenue sources can future-proof the business model amid shifting consumer preferences. Innovation Needed:

• Introduce paid sustainability-focused loyalty tiers (e.g., discounts for using reusable cups or subscribing to carbon-neutral coffee deliveries).
• Expand product lines with high-margin sustainable goods (e.g., ethically sourced merchandise, premium plant-based options).
• Develop an exclusive digital-first menu with app-only customisation features to drive online engagement.

Key Partners

• Coffee Growers & Producers: Strategic partnerships with small-scale farmers worldwide, primarily in Latin America, Africa, and Asia, focusing on sustainable farming practices (e.g., C.A.F.E. Practices). These relationships help Starbucks ensure high-quality, ethically sourced Arabica coffee beans.
• Supply Chain Innovators: Collaborations with logistics and technology firms to optimise global supply chains, ensuring efficiency in transporting raw materials and finished products, minimising costs and carbon footprint.
• Technology Collaborators: Partnerships with leading tech companies to enhance digital services (e.g., Apple for mobile payments, Microsoft for cloud services, and Starbucks' AI-driven personalisation via its app).
• Sustainability Partners: Collaboration with environmental and ethical organisations such as Conservation International and Fairtrade, enabling Starbucks to meet its sustainability goals like the "Greener Stores" initiative and commitments to carbon neutrality and reducing waste.
• Licensed Partners: Franchise agreements with regional operators, such as hotels, airports, and malls, to expand brand reach while minimising operational risk in those locations.

Key Resources

• Global Brand Equity: Starbucks’ brand is a hallmark of high-quality coffee and community-focused experiences, enabling it to charge premium prices while maintaining customer loyalty.
• Human Capital (Baristas): Highly trained employees who deliver personalised customer service, contributing to brand identity and ensuring consistent customer experiences across stores.
• Digital Infrastructure: The Starbucks app, loyalty program, and data-driven personalisation efforts are crucial resources, allowing Starbucks to engage customers at scale and improve operations through real-time feedback.
• Intellectual Property: Proprietary coffee blends (e.g., Pike Place Roast), recipes (e.g., Frappuccino), and strategic trademarks form the core of Starbucks’ product differentiation.
• Global Supply Chain: A robust system of sourcing, roasting, and distribution facilities that allow Starbucks to maintain quality control and speed-to-market while promoting sustainability throughout the supply chain.
• Sustainability Investments: Assets tied to the “Greener Stores” initiative and other sustainability efforts that increase brand equity, especially with environmentally conscious consumers.

Key Resources – Enhance Digital & Sustainability AssetsConsumers are increasingly choosing brands based on sustainability and digital convenience. Starbucks needs to stay ahead in both areas. Innovation Needed:

• Expand investment in AI-driven predictive analytics for stock management and personalised marketing.
• Increase the role of digital infrastructure to improve customer experience (e.g., frictionless checkout, voice-activated ordering).
• Scale up sustainability assets, such as solar-powered stores and zero-waste packaging, to reinforce Starbucks’ brand as an environmental leader.