Venkat Rao, Melanie Stambaugh, Jessica Hendrawidjaja, Kyle Bartlow

OBJECTIVE

OUTLINE
Situation Analysis Action Financials Conclusion

SITUATION Starbucks Company

Strength Leader of Coffee Leader of Culture Strong Brand Weakness Threat Slowed US Sales Cheaper competitors Coffee focus Opportunities Interest from global market

Over saturation

STARBUCKS COFFEE

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Analysis

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SITUATION Starbucks Entertainment

Strength
Successful in US Have relationship with artists Large and established distribution network through retail stores

Threat
Technology cheapens music Negotiations of royalties Competitors
Discounted of prices of mainstream artists

Opportunities
3 types of products-global appeal, locally relevant, local artists Digital Music less inventory cost, more retail
space

Weakness
Localization of music preferences abroad Infrastructure for downloads Buying song via iTunes doesnt ensure entire album purchase

More time in the storescustomer experience, higher coffee sales

STARBUCKS COFFEE

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POTENTIAL STRATEGIES

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POTENTIAL STRATEGIES
Music Immersion Live Music Performances
Local artists from HearMusic

Promotion and Connection

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POTENTIAL STRATEGIES
Maintain focus on CDs
Focus on Coffee

Reduce visual impact of music

iTunes download only

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POTENTIAL STRATEGIES

Enhance Starbucks Locations

Interactive Music Display Interactive like/dislike option to personalize music preferences

Starbucks Music on the Move

Music addition to MyStarbucks Phone Application

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POTENTIAL STRATEGIES
Comprehensive Moderate
Sustained Focus on Coffee Revenue Potential Feasibility Increase Customer Frequency Alignment with Core Values

Minimal

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MODERATE STRATEGY

Interactive Display
Shows Now Playing Shows Recently Played Like & Dislike Buttons QR picture to facilitate mobile purchasing Purchase option via Phone App

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MODERATE STRATEGY
Starbucks Wi-Fi
Music link on Starbucks Homepage Shows Now Playing Like & Dislike option Artist Recommendations Social Media Connection

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MODERATE STRATEGY
Phone Application
Addition to MyStarbucks App Ability to Purchase Music Listen to previously downloaded Starbucks artists

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COUNTRY ANALYSIS
Starbucks Culture 25%
Coffee Consumption 10%

Sales
Music 35%

Piracy
Download

Technology 30%

WiFi Capability 3G Subscribers Download Access

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POTENTIAL COUNTRIES
Countries Canada Mexico United Kingdom Germany China Japan South Korea Phillipines Technology / Download Access (.30) 4 3 5 5 3 5 5 3 Music Sales, Downloads and Piracy (.35) 3 3 5 4 2 5 3 1 Coffee Starbucks Consumption Culture (.10) (.25) 4 4 1 3 5 3 4 4 2 2 3 3 3 4 5 2 Total 3.65 2.55 4.3 4.15 2.65 4.65 4.2 1.95

Taiwan
Thailand
STARBUCKS COFFEE

4
2
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1
1
Analysis

2
2
Action

2
2
Financials

2.25
1.65
Conclusion

COUNTRY SELECTION

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JAPAN - Overview
Population GDP per Capita Starbucks stores Overall music sales/year Digital music sales/year Market Geographic Market Demographics Market Behavior 126 million USD 34,200 722 USD 4.05 billion USD 972 million 100 million lives in urban area Middle-upper class Utilization of high technology

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JAPAN Customer Profile

Age 35 Profession Works at TSE Interest Technology Musical Interests Jpop, Classical, Western Wireless device iPhone of choice

Hiro yearns for a relaxing environment between work and home He values premium/high quality products including the food he eats and beverages he drinks

Global 30%
Micro 10%

Local 60%
Focus on local taste

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MARKETING PLAN - Japan

Mobile advertising 44% of Japanese consumers click on mobile ad links

In store advertising Place cards with logon instructions Music promotion info

Pick of the week promotion Free download of one song every week

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HR STAFFING PLAN - Japan

National Director of Entertainment

Regional Music manager

Regional Music manager

Regional Music manager

Regional Music manager

Local Music Specialist

Local Music Specialist

Local Music Specialist

Local Music Specialist

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UNITED KINGDOM - Overview

Population GDP per capita Starbucks stores Overall music sales/year Digital music sales/year Market Geographic 63 million USD 35,100 727 USD 1.574 billion USD 295 million Large cities: London, Birmingham, Leeds & Glasgow 43% is upper-middle class 27% disposable income spent on food Going to coffee shop as a new kind of socializing

Market Demographics

Market Behavior

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U.K. Customer Profile

Age Profession 25 Graduate Student at London School of Economics Discovering new things Interest Musical Interests Amy Winehouse Wireless device of Netbook choice

Local Global 20%

30%

Jane yearns for a relaxing environment between school and home She values a good cup of coffee and is very particular on how it should be prepared

Micro 50%
High focus on individualism

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MARKETING PLAN U.K.

Instructions on coffee sleeve

Download access from laptop & mobile device

Starbucks gift card promo

Users of Like or Dislike function will have a chance to win a Starbucks gift card

STARBUCKS COFFEE

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HR STAFFING PLAN U.K.

National Director of Entertainment

Regional Music manager

Regional Music manager

Local Music Specialist

Local Music Specialist

Local Music Specialist

Local Music Specialist

Local Music Specialist

Local Music Specialist

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FINANCIAL ASSUMPTIONS
SBUX Total Revenue Growth Specialty Sales Starbucks Entertainment Share of Specialty Sales Japan & UK % of Total Stores Music Consumption COGS 8% per year 15% of total sales, growing by 2% points each year 1.5% with a 30% growth rate 8.59% 85% of purchases through download 15% of purchases of physical CD 53% for physical CDs 61% for digital downloads 59.8% $3000 per unit

Cost of Equity Capital Beta Risk-free rate Return on market K(e): Cost of Debt Capital Interest Rate (10 yr AA Corporate Bond) K(d): 6.15% 6.15% 1.28 3.46% 6.84% 12.22%

Sound Station Cost

Launch Progression
Year 1: 200 stores total in each country Year 2: 300 stores total in each country Year 3: 500 stores total in each country Year 4: All stores in each country Year 5: All stores in each country STARBUCKS COFFEE

Weighted Average Cost of Capital Total Debt Weight 11.90% Total Equity Weight 88.10% Cost of Debt 6.15% Cost of Equity 12.22% Tax Rate 40% K: 11.06%

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FINANCIAL PROJECTIONS
Total Revenue Specialty Sales Japan & UK Portion of Specialty Sales Starbucks Ent. % Share of Specialty Sales Total Starbucks Ent. Sales COGS Marketing / SG&A Costs In-Store Equipment Costs Tax Total Cash Flow NPV 2012 2013 2014 2015 2016 11815200.0 12760416.0 13781249.3 14883749.2 16074449.2 1772280.0 2169270.7 2618437.4 3125587.3 3697123.3 152238.9 1.50% 2283.6 1365.6 1000.0 60.0 0.0 -142.0 3663.0 186340.4 1.95% 3633.6 2172.9 1000.0 90.0 148.3 222.4 224923.8 2.54% 5701.8 3409.7 1000.0 150.0 456.9 685.3 268488.0 3.30% 8848.0 5291.1 800.0 0.0 1102.8 1654.1 317582.9 4.28% 13605.7 8136.2 800.0 0.0 1867.8 2801.7

NPV = $3.663 Million

STARBUCKS COFFEE Situation Analysis Action

IRR = 290%
Financials Conclusion

SENSITIVITY ANALYSIS
5000 4500 4000 3500 3000 Project NPV 2500 2000 1500 1000 500 0 2% 4% 8% 12% SBUX Total Revenue Growth Rate
STARBUCKS COFFEE

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SENSITIVITY ANALYSIS
7000 6000 5000 4000 Project NPV 3000 NPV 2000 1000

0
0% 15% 30% 50% SBUX Ent. Growth Rate
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TIMELINE
YEAR 1
Starbucks Sound Stations
Wi-Fi Music Page Phone App Stores Implementation per country

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Evaluate Strategy

200

300
Physical CD Consideration

500
Physical CD Consideration

All stores
Physical CD Consideration

All stores

Physical CD Consideration

STARBUCKS COFFEE

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