Starbucks Corporation
TABLE OF CONTENTS
Executive Summary
Starbucks
The Company
Mission and Vision Statement
Current Strategies
Corporate Level
Functional Level
Strategic-Consistency
Competitive Environment
Analysis of Outside Forces
Porters 5 Forces
Ethical Legal and Social Challenges
External Factor Evaluation
Competitive Profile Matrix
Assessment of Alternative Strategies
SWOT Analysis
Space Matrix
Grand Strategy Matrix
Summary
Recommendations
Expand Operations
Engage in Advertising
QSPM
Implementation
Evaluation
Closing Remarks
Starbucks:The rise, fall, and revival
For 20 straight years, Starbucks was on a magical carpet ride,
he said. Everything we touched turned to gold. Howard Schultz
stepped down from CEO in 2000 to chief global strategist. He broke
down and cried. The coffeehouse had gone negative for the first
time, down 8.6 percent, and if the declines reached 14.8 percent,
Starbucks would be insolvent.
In 2008 he returned and promised to turn things around. Schultz
spent almost $33 million to bring 11,000 store managers to New
Orleans from all around the world. He was preparing a speech for
them and his most trusted advisors told him, almost in unison, that
he could not share with them how desperate the situation really
was.
First things first, managers spent 50,000 hours doing community
service in the Ninth Ward, the area hardest hit by Katrina three
years before. We began to rekindle the values and guiding
principals of the company, the balance and benevolence between
profits and responsibility, Shultz said.Then came the moment of
truth, his $33-million speech.
It went as follows:We made the mistake in 07 and 08 of talking
about millions of customers and thousands of stores, he said. Thats
ridiculous. The moment of truth for Starbucks, and for all of you,
is one customer, one Starbucks partner wearing that green apron,
and that one experience based on the best-tasting coffee on the
planet. We have to live up to that and overachieve, so they not
only come back, but tell a friend.Store Managers can no longer be
bystanders to anything we see. The world does not need Starbucks
Coffee. Its completely discretionary. There are hundreds of places
across the street that can provide coffee for a lower price.
A few months later, in response to quality concerns about the
actual coffee, Schultz closed every store for retraining on how to
make coffee.
EXECUTIVE SUMMARY
On a corporate level we are exceeding all expectations in
regards to quality of both services/products and obligations to
stakeholders. On the competitive and functional end we are
nurturing relationships with farmers, employees and customers.
Protecting the Starbucks Experience is of upmost importance,
ensuring consistency with quality control and proper
training.Externally we are succumbed to economic swings and intense
competition but we leverage with our up to date technology and our
socio-cultural and environmental awareness. Of the Porters 5
Forces, four out of the five are rated HIGH only leaving the
bargaining power of suppliers at a MEDIUM.
EFE- weighted score of 3.15 with the highest weighted
opportunity being the growth of the coffee market in the U.S. is
expected to grow at a compound annual growth rate of 30%. The
highest weighted threat is that prices for Arabica beans have
doubled in price in the last year.
The average CPM scores of our competitors Dunkin Donuts and
McDonalds are averaged 68% lower than our incredibly high rating of
3.61.
IFE highest weighted strength is that our net income increased
by 24% during fiscal 2013.
Strategic alternatives- we need to everage the universal appeal
of the Starbucks brand to penetrate new markets and push to
normalize everyday consumption of starbucks premium roast coffee
for every adult. We need to use the appeal of our social
responsibility and fair trade practices as a selling point in our
advertising campaign. We need to at least meet our competitors
advertising expenditures, during 2013 we used around 1/10th of the
capital as Dunkin Donuts.
We are in a strong competitive position in a market with rapid
growth and need to take the opportunity at hand for market
penetration, market/product development and backward
integration.
With a deep analysis of the company we have come up with two
important strategies to implement immediately. 1. Leverage the
universal appeal of the Starbucks brand to penetrate new markets by
expanding operations into China and India.2. Break free of stoic
precedent and use high road advertising and direct ads to match
competition.
Where did they start?Starbucks opened in 1971. Back then it was
a single store in Seattles historic Pike Place Market; it is still
open for business.In 1983 Howard Schultz, a Starbucks employee,
visited Italy and instantly fell in love with the romance of the
coffee experience and brought the idea home to the U.S.
I have tried to build the company that my father never got to
work for, he said of his dream. Its the reason Starbucks was one of
the first to offer full health benefits in 1988 to all full- and
part-time employees.
What put them on the map?Theyve essentially become a place
between home and work, a second home so to speak. Starbucks set out
to be a different kind of company and still holds close to its
values since opening. Starbucks strives to make a connection and
provide the romance of the Starbucks experience with every single
cup.
What core competency is of best value?STRENGTHS: Starbucks owns
75% of the domestic coffee market and its customers are extremely
loyal and are more than willing to pay higher prices for the
Starbucks experience.
STARBUCKS EXPERIENCE- is a unique blend of coffee expertise,
product awareness, and customer service that has YET to be
replicated by competitors!
Their commitment to the environment and CSR is unwavering.
Partners are treated well with benefits annual average pay $34,028.
Rated Fortune 100 Best Company to Work for. Employee turnover rate
is an incredible 9%!
What is Starbucks currently doing?La Boulange May is global
month of community service hosted by Starbucks
Today, with more than 18,000 stores in62 countries, Starbucks is
the premier roaster and retailer of specialty coffee in the
world
TIMELINE
1971first store in Seattle's Pike Place Market (just sold coffee
beans)
1984Howard Schultz (employee) convinces founders to test the
COFFEE HOUSE concept and sold its first latte. (6 stores)
1987Schultz bought Starbucks chain (17 stores)
1988Offers FULL health benefits to all employees (33 stores)
1992SBUX INTIAL PUBLIC OFFERING! (165 stores)
1996Opens store outside of U.S. in Japan (1,015 stores)
1998Extends Starbucks brand into grocery stores and launches
Starbucks.com (1,886 stores)
2000Howard Schultz steps down as CEO (3,501 stores)
2001Implements ethical coffee sourcing guidelines- partnership
with conservation international (4,709 stores)
2003Acquires Seattle's Coffee Company (7,225 stores)
2008Schultz RETURNS as CEO (16,680 stores)
2009Introduces "skinny" line of drinks, health conscious choices
that don't affect prices
HISTORY AND EVOLUTION
Starbucks locations serve hot and cold beverages, whole-bean
coffee, micro-ground instant coffee, full-leaf teas, pastries, and
snacks. Most stores also sell pre-packaged food items, hot and cold
sandwiches, and items such as mugs and tumblers. Starbucks evening
locations also offer a variety of beers, wines, and appetizers
after 4pm. Through the Starbucks Entertainment division and Hear
Music brand; the company also markets books, music, and film. Many
of the company's products are seasonal or specific to the locality
of the store. Starbucks-brand ice cream and coffee are also offered
at grocery stores.
Starbucks originated in Seattle, on March 30, 1971. It all
started when a roasting entrepreneur, Alfred Peet, inspired three
college friends to sell high-quality coffee beans. At first, they
had the idea to name their coffee houses the Pequod (the ship in
Moby Dick). After voting, this name was denied and instead it was
named after that ships first mate, Starbuck.
At first, the company sold just coffee beans and brewed coffee
for customer testing only. By 1984, Starbucks operated six stores
in Seattle and finally introduced espresso coffee for sale, 13
years later.
Howard Shultz, a former employee, bought the Starbucks chain in
1987, and Starbucks quickly began to expand.In 1992, Starbucks
administered its IPO. By September 1993, the EPS had risen 70% than
the previous year. The number of stores doubled within the next two
years.
After a trip to Italy to find new products, Schultz realized an
opportunity to bring the caf community environment he found in
Italy to the United States and the Starbucks brand we know today
began to take form. In 1996, they bought 150 stores of Seattles
best coffee for $72M.In 2008, Starbucks introduced a loyalty
program that has been wildly successful. When they began their beta
testing the mobile app and stored value system in which consumers
can pay with their phone with pre-paid funds.
Now Starbucks is the largest coffee house company in the world
with over 19,000 in 62 countries but Howard Shultz fights to keep
the small town feel and its success not to dilute the companys
culture and the Starbucks experience.
In fiscal 2013 had more than 3 billion visits to its stores. In
2009, Starbucks made the move toward health conscious choices that
doesnt affect prices. It started selling salads and pastries
without high fructose corn syrup and artificial sweeteners. The
skinny line of drinks, offers low calorie and sugar free versions
of most popular drinks using skim or soymilk. They also have
choices of natural sweeteners like sugar in the raw, agave syrup,
or honey. Starbucks even began to post calorie counts for drinks
and baked good.MISSION AND VISION
Our mission: to inspire and nurture the human spirit one person,
one cup and one neighborhood at a time (7) (8).Were passionate
about ethically sourcing the finest coffee beans and roasting them
with great care while improving the lives of people who grow them
(6). Our business leads the sustainability model by leveraging
technology to deliver consistent satisfaction to customers and
shareholders alike (4)(5). Our associates are partners, not just
employees, because our work is not just a job; we share a common
passion (9). When we are fully engaged, we connect with, laugh
with, and uplift the lives of all who come into contact with our
business. As we do business around the globe we show our customers
we care and make our stores part of the community (3). The process
starts with the promise of a perfectly made beverage, but our work
goes far beyond that: its really about human connection (1)(2).
Starbucks current mission statement is as follows Our mission:
to inspire and nurture the human spirit one person, one cup and one
neighborhood at a time (Starbucks: About us). This is the heart and
soul of this corporation; this is what we feel makes Starbucks
special, what has made us stand out and what will be the driving
force behind future success, if we can keep this goal in mind. With
Starbucks we are not just trying to sell coffee, were selling a
great atmosphere, friendly service, and the greatest coffee we can
for the customer, each unique individual, getting the unique
Starbucks experience that nourishes the body and soul. One major
goal of Starbucks is to focus on our coffee. It has always been,
and will always be, about quality. Were passionate about ethically
sourcing the finest coffee beans, roasting them with great care,
and improving the lives of people who grow them. We care deeply
about all of this; our work is never done. (Starbucks: About us)
This starts with how we get our coffee beans. Starbucks only buys
some of the highest quality beans that meet our standards. Each
coffee bean requires a unique balance of temperature and time to
reach its individual peak of aroma, acidity, body and flavor.
(Starbucks: About us). It is also important that as a responsible
corporation that it is our goal to improve the lives of those who
grow our coffee beans. This is our social responsibility and
Starbucks only buys beans that are handled ethically. Measures
evaluated by third-party verifiers help protect the rights of
workers and ensure safe, fair and humane working and living
conditions. Compliance with minimum-wage requirements and
prohibition of child and forced labor is mandatory (Starbucks:
About us). Our coffees are classified by three roast profiles
Starbucks Blonde Roast, Medium Roast and Dark Roast. Our blonde
roast has a nice mellow smooth taste this is our lightest brewed
coffee. The medium roast is the perfect in between roast. It is not
too strong and not as light as our blonde roast. Starbucks added
the dark roast blend in 1971 and its been booming ever since. This
coffee has a bold robust flavor that will get you going anytime of
the day. We also have 11 dark roast flavored brews for any customer
who wants a strong taste to choose from. We have made one of our
main goals to be environmentally friendly. This includes reducing
environmental impact as much as possible. We built more energy
efficient stores and try our hardest to conserve resources, such as
water. In 2008, we set a goal to reduce electricity use by 25 % in
company-owned stores by 2015. Since then, weve implemented a number
of energy initiatives and have seen electricity use decrease by a
total of 6.5% (Responsibility: Starbucks Corporation). We are
installing ENERGYSTAR qualified equipment to help us reach this
goal. We also help assist our farmers to run their business in the
most environmentally sound way. We do this by having farmer support
centers that can work with the farmers one on one with any help
they may need and to help manage their business the best they can.
We find it our global responsibility to make an impact on anyone we
can and especially with our own partners in business. Here is some
good news for coffee enthusiasts: Starbucks will continue to beat
the competition with an updated product pricing strategy. Starting
May 10, Starbucks will lower their prices on bagged coffee by 10
percent. The 12-ounce bag of coffee will drop from $9.99 to $8.99
(Pricing strategy:Cleari). We need to keep up with our competition,
last year Dunkin Donuts, Folders and Maxwell house proposed a
decrease in prices also. Our cooperation is finding ways every day
to help out our customer and ensure they keep purchasing our
delicious flavors of coffee. 54% of Americans drink coffee every
single day, we want to keep every customer of ours more than
satisfied, 54% is a very large market! We not only try to keep our
prices low for a good cup of quality coffee, we put a lot of time
and energy into differentiating ourselves from the competitors. We
make sure we have a comfortable place to come and sit and have your
coffee and breakfast sandwich. We have the best and most advanced
brewing equipment. We also have a dimly lit store with comfortable
furniture for customers to lounge around and also we always have a
light jazz soundtrack playing to soothe the ear while enjoying your
hot cup of Joe. We are not only focusing on coffee drinkers, we are
turning our attention more and more to tea drinkers also! Starbucks
(SBUX), the company that reinvented the modern coffee shop, is
turning its attention to another venue: the teahouse. Last year the
19,000-cafe giant acquired Teavana, a chain of mall stores that
sell tea and teaware. On Oct.24, Starbucks opened the first Teavana
tea bar on New Yorks Upper East Side. It plans to open 1,000 stores
in North America within 10years (Wong). We also think tea can help
our business globally. The British consume 3 times the amount of
tea Americans do in one year. We have a huge enthusiasm for the tea
market it is a 90 billion dollar global market. The companys market
cap has grown from $5 billion in November 2008 to over $57 billion
today, underlining the 948 percent increase in Starbucks share
price since then (Rudarakachana). Currently tea sales only consume
about 3% of Starbucks overall business, but we plan over the next
few years to keep this number moving up. The tea market has grown
32% since 2007, we have jumped on this trend by not only acquiring
Teavana but also expanding our existing tea the Tazo brand. Iced
tea is available in green, black, or passion options, sweetened or
unsweetened, with a variety of flavor additions offered. There are
also several different tea lattes, available iced or hot, and even
a green or chai tea based Frappuccino. Just ordering a Tazo tea bag
with hot water is one of the least expensive beverages on the menu,
and many different varieties are available (Sahagian).We consider
ourselves a great employer. We offer part time employees full
benefits. Their package would include, health, medical, dental,
vision and a 401k plan. If this is not enough we also extend these
benefits to same and opposite sex spouses. We also help employees
partners going to school. Starbucks U will help reduce
out-of-pocket expenses for your education regardless of where you
are in your career or academic journey. We offer discounts and
savings on textbooks, tuition, technology, and more (Starbucks:
About us).
CURRENT STRATEGIESCORPORATE LEVEL
At the corporate level we focus on the coffee that they sell,
the coffee house experience for the customer and being socially
responsible while doing so. Their strategy is to sell more coffee
than their competitors by having a superior product and a superior
experience that will drive sales and ultimately more
profits.Starbucks Business strategy- Starbucks business strategy is
to backwards integrate effectively to control all aspects of
growing and producing the coffee beans and coffee. This is to
control the quality and costs of the product. As well as to help
improve the lives of those who grow their coffee. They also have
made it their plan to focus on service and atmosphere of every
Starbucks this is to ensure that each guest gets a personalized
experience that will build loyalty. And both the service and the
quality of there coffee is heavily reliant on the skills, and
morale of their employees. Their strategy is to maintain employees
longer and keep them more motivated by treated the employees
better. The CEO explains that that providing benefits to an
existing employee for a year cost half as much as training a new
employee. (Larimore) By having a strong team Starbucks has pushed
for high standards for making and serving their coffee.
FUNCTIONAL LEVEL
Strategizing at the functional level include the need for
management to train all employees to a very high standard, In order
to maintain the high quality of their coffee. Each bean is selected
only if it is of high quality. In stores the employees are trained
to double brew the coffee and add a very precise about of
ingredients such as milk and sugar. The in stores experience is
planned to be customized by writing the name of each customer onto
the cups. The strategy is to keep the retail stores clean and
inviting. In order to keep customers happy the plan is to
constantly add new high quality menu items for their
customers.Strategic consistency at Starbucks is attained by
exceeding all expectations of consumers in regards to quality of
both service/product and adhering to the obligations of the
stakeholders. We feel that Starbucks is strategically consistent
through all three levels of the business. The strategy is to have
great coffee, through the backwards integration and investment in
their employees they have been able to achieve this goal. They want
a coffee house experience that is inviting which through their
training and investment in the buildings at maintaining a level of
service above and beyond their competitors.
COMPETITVE ENVIRONMENT FORCES BEYOND OUR CONTROLIt can be
surprising just how many forces are actually outside the control of
an entity yet exert a pressure that must be negotiated. Following
are some of these forces:ECONOMICThis is perhaps the most broad and
far-reaching of the forces. The economies in which we operate
experience a variety of trends that directly affect our operations:
inflation of the currency, recession, and unemployment to name a
few. Every industry we must consider the economy in which it
operates, but particular factors apply to us. First is the
discretionary income of consumers, which is the amount of household
income retained after basic living expenses have been paid.
Discretionary income has a proportional effect on the amount of
sales we can expect; the less discretionary income a family
retains, the more likely they are to seek substitutes. The
unemployment rate is a second important factor: as an entry-level
employer we field job applications from students to professionals
in times of high unemployment, increasing our bargaining power in
wages paid.COMPETITIVEThe competitive forces are unforgiving and
shift very quickly. As a vendor of specialty quality coffee and we
are likely immune to many of the effects of Cost leadership is a
effective strategy by our competitorsAdministration of the term,
"Innovate or evaporate" is a strategy used at the corporate level
down to the functional level. Starbucks is one of a
kind.Competitive intelligence - These outside forces are important
to us and our competitors; we must understand and measure them.
PORTERS 5 FORCES MODEL
One way to consider the forces affecting Starbucks is through
the Porters Five Forces Model. We have determined the following
perspective: Rivalry among competitors High: There are many
distinctive competencies to develop in offerings, service, quality
and consistency in our industry. The high margins of our primary
products are especially attractive.
Potential Entry ofNew Competitors HighHigh margins earned on
easy-to-prepare productWell established franchises are relatively
simple to join
Potential Development of Substitute Products HighHot drinks such
as tea While soda consumption is down, high-caffeine energy drinks
are a booming substitute
Barg of suppliers Suffers from Starbucks high volume purchasing
and storing capabilitiesStrengthened by the limited operations that
conform to Starbucks' standards MEDIUM
Barg of Consumers HIGH Coffee is easy to prepare and available
at nearly any food or drink establishmentDespite raving brand
loyalty, customers are still price sensitive
ETHICAL AND LEGAL CHALLENGES
EXTERNAL FACTOR EVALUATION
COMPETIVE PROFILE MATRIX
Assessment of Alternative StrategiesSWOT Analysis
Space Matrix
Grand Strategy Matrix
Summary
Recommendations
Expand Operations
Leverage the universal appeal of the Starbucks brand to
penetrate new markets (S1, O1)
Engage in Advertising
Break free of the stoic precedent and advertise in high-road,
direct ads to meet competitors (W8, T2-T4)
QSPM
Implementation
We plan on implementing these strategies as soon as possible, to
make sure our company grows and thrives. Our first strategy is to
use our cash on hand to invest into foreign markets. This is
particularly important in the fast developing countries, such as
the BRICS countries. Although Starbucks is already in 60 countries
including these markets they have plenty of room to grow. For
instance looking at one of the most talked about and fastest
growing economies in the world, China, Starbucks has only 851
stores and their economic growth rate is 7.4%. In a country with a
population of over 1 billion and a geographic size close to the
same size as the United States, Starbucks has plenty of room to
grow. When comparing to our domestic strength Starbucks has over
13,000 locations this should be a model of the market share we
should strive for in the China market as well as all foreign
markets. Although this clearly has its challenges in order to
implement this strategy it is important the Starbucks hires a team
whose job it is to research and develop the best products for each
specific segment. For example there should be a division of
Starbucks devoted to the Chinese market. Doing the market research
to determine what the average disposable income is and what the
demand is for each of Starbucks products and services. This is
crucial in determining the price point for each product.
Determining what products that market is missing. For instance, in
the Chinese market, tea is a larger portion of the menu than
coffee. This does not mean to give up on coffee. Starbucks should
launch an aggressive advertising campaign to spark up more demand
for coffee in countries like China. We feel this will be affective
because Chinas coffee consumption is up 90% since 2007.We also plan
to grow immensely in India where we only have about 50 stores and a
population of 1.2 billion people. India also has a rising middle
class and an economic growth rate if 4.7%. In the next 3 years we
plan to open 3 times as many stores in China and 10 times as many
in India. China will have a grand total of 2500 stores at the end
of the 3 years and India will have 500. By year one, we will have
500 new stores open in China, about 10 per week. India in year one
will have 104 new stores, 2 per week. Year 2 China is getting 550
new stores (11 per week). India will increase to 156 stores in year
2 (3 per week). Year 3 China will get approximately 700 and India
208. The average cost for each new building is 450,000. With the
2,218 stores we want to build construction will cost $998,100,000.
We plan to spend a good amount of money on marketing in each place
to show how aggressive we are. We will be budgeted A grand total of
$110,900,000. Equivalent to about $50,000 per store, the total cost
for all of our training is the same. The total cost of our new
project is $1,218,900,000. We will keep the same ratios Starbucks
already uses to pay for it. We will pay for this with 50% raised
capital stock, 20% cash on hand, and 30% debt. Common
Considerations
Thorough research needed for intended marketsConstruction costs
per store, including "encouragement"Consistent training and
management Raising capitalInternational
issues/regulationsEvaluation
Closing Remarks
Overall Starbucks has maintained a competitive advantage
bringing gourmet coffee choices to the masses. In order to stay
competitive SBUX will need to continue focusing on its core
competencies to avoid losing its greatest asset "the Starbucks
experience". As competitors try to imitate, SBUX will need to
massively increase advertising, even if only for PR reasons. The
world should know what a great company Starbucks is and strive to
model after a corporation so ahead of its times in social and
ethical responsibility since its start in the 70's.As a company
that has been the industry leader since its conception, its
strength lies in the brand and enhancing the connection to their
loyal customers.