Starbucks Business Model: Vertical Integration (2024)

FAQs

Starbucks Business Model: Vertical Integration? ›

The Standards. Starbucks uses a vertically integrated supply chain, which means that the company is involved in every step of its supply chain process, all the way from the coffee bean to the cup of coffee sold to consumers.

Starbucks uses both forward and backward vertical integration to maximize profits. By maintaining direct relationships with coffee growers and owning their equipment, storage, and roasting facilities, Starbucks can control its entire manufacturing process.

Starbucks uses a vertically integrated supply chain wherein the company is fully involved in every step of its supply chain. Unlike its major competitor, Starbucks controls every step of its supply chain; from plantation to production right through to the recyclable cup of coffee in a customer's hand.

Starbucks also employs a vertical integration strategy. The company controls every stage of its supply chain, from sourcing the coffee beans, roasting them, and distributing them to its stores. This allows Starbucks to maintain control over the quality of its products and reduce costs.

In economics, vertical integration is the term used to describe a business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker, for example, might produce automobile components and vehicles and also sell directly to customers.

Starbucks follows a chain business model where most of its revenue comes from company-operated stores followed by licensed stores. It also generates revenues via royalties, selling goods and services, and sales of packaged coffee, tea, and other beverages.

The Standards. Starbucks uses a vertically integrated supply chain, which means that the company is involved in every step of its supply chain process, all the way from the coffee bean to the cup of coffee sold to consumers.

The company sees tremendous opportunity to further diversify and expand formats across cafes, pick up, delivery-only and drive-thru only locations. The diversified portfolio of stores and customer channels such as Mobile Order & Pay will enable Starbucks to further meet its customers whenever and wherever they want.

Horizontal Integration: This strategy is employed by Starbucks to control its competition and reach new customers. It has used this acquisition of Seattle's best, Torrefazione Italia, and Coffee people to accomplish this.

Starbucks & Vertical Integration

Howard Schultz calls Starbucks's business model “vertical integration to the extreme,” because the company buys and roasts all its own coffee and sells it through entirely company-owned stores.

What is the most famous example of vertical integration? ›

Carnegie Steel: Carnegie Steel, a company founded in the late 19th century, is one of the earliest examples of vertical integration.

Apple. Apple is one of the most successful companies in the tech industry that has implemented vertical integration. Apple has integrated hardware, software, and services to create an ecosystem that ensures customer loyalty. Apple's success can be attributed to its vertically integrated business model.

Full Control of Supply Chain via Vertical Integration

McDonald's has been studied intensively in supply chain management courses and has vertically integrated its supply chain since the early 1990s. By owning more supply chain elements, McDonald's has more control over its product quality and cost.

Vertical integration had fallen into disuse in the wake of globalization. But the Covid crisis has reshuffled the deck. Since 2021, vertical integration has been at the center of the strategies of companies like Amazon, Apple, Ferrero, Tesla, and NVidia.

Apple's vertically integrated business model has enabled it to become one of the most valuable companies in the world. Apple's success with vertical integration can be seen in its iPhone production. Apple designs and manufactures its own chips, which are used in its iPhones.