Starbucks Company Market Analysis

0105.363.01 Marketing 20062RIT Professor Marty LawlorTeam 5: Stacy Di Mora, Karyn Lewis, Sarah Lind

0105.363.01 Marketing Analysis

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Starbucks Co.2

Executive Summary

Starbucks Company

Our team of external consultants has been queried to assess the gourmet coffee market forStarbucks Co. in order to develop a marketing strategy with recommendations for thecompany.

We’ve crafted a strategy to improve the sales of existing products and justify the launch

of a new product offering, detailed in this document. We did this through completing amarket analysis, determining the current strengths, weaknesses, opportunities, and threatsfacing the company, defining the market segmentation, target market, and productpositioning for the company, and outlining the

company’s current and opportune

marketing mix.

As standing, Starbucks is the world’s number one specialty coffee retailer, currently with

more 12,000 coffee shops in more than 35 countries. The outlets offer hot and cold coffeedrinks and few food items, as well as beans, some coffee accessories, and teas. Thecompany owns about 7,100 of its shops, which are located in about 10 countries

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thoughmostly in the U.S.

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while licenses and franchises operate more than 5,300 unitsworldwide. In addition, Starbucks markets it coffee through grocery stores and licensesits brand for other food and beverage products.

We’ve found the popular coffee company underscores a simple truism: a good idea is not

enough; its execution is critical (Forbes). The company adds hundreds of outlets eachyear, yet quality and service rarely suffer. Furthermore, the success of the companyunderscores the fact that America can successfully compete even in non-high-techproducts and services as long as there is an environment that encourages innovation inproduct and marketing creativity.If coffee behaves like pizza, hamburgers, any many other retail segments, it will maturefrom a fragmented collection of players into a segment dominated by a few large chains.In addition, customers will be expecting more from their coffee providers. Many localand regional operators are doomed. The bigger picture for Starbucks is building a brandthat transcends java to include an array of other items, like custom-made food items, thatcan compete with the fast-

food market. It’s on its way to becoming the “Nike or Coca

Cola” of the market segment.

However, the tables can turn. Starbucks has occasionally suffered the big chain’s

burden

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the same kind of anti-corporate backlash that big businesses like McD

onald’s

and Wal-Mart have faced.In the face of this competition, we recommend Starbucks enhance and expand the drive-thru experience for the majority of their stores, open up and experiment with new venuesof advertising, and make exclusive their development of made-to-order food productssuch as gourmet sandwiches to their product line, as tested in few outlets.

0105.363.01 Marketing Analysis

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Starbucks Co.3

Market AnalysisMarket Snapshot

Right now the gourmet coffee business is hot. It is the ultimate commodity

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anyone cannow grind coffee beans in their kitchen, and virtually every food outlet sells the stuff (Forbes). From multi-national fast food chains and service stations to street-corner coffeecarts, a lot of new players want in on the boom. Big companies are moving in on thesupply of specialty branded coffees and the battle is heating up.The current market is certainly sustainable for the number there is now, but it is yetunknown how it will hold up to more. Growth in the coffee industry is expected to peak around year 2010, and between now and then a slow but steady increase in the number of mergers is predicted (The Gale Group). The biggest competition the market faces is fromoverseas companies that are coming in and buying business

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using special discounts andperks despite the questionable quality of the coffee itself to increase its market share(Forbes).Specialty coffee is one of the fastest growing food service markets globally, with a netincome of approximately $9.6 billion in 2004 in the U.S. alone, due to the explosion of cafes and gourmet retailers in the 1990s (The Gale Group). The industry trade groupSpecialty Coffee Association of America (SCAA), in its

Retail in the USA 2005

report,stated that at the end of 2005, coffee sales had reached $11.05 billion. In 2005,Americans drank more than 300 million cups of coffee, with 75% of those being homebrewed. 15% of all Americans drank a cup or more of specialty coffee daily, an increaseof 6% from 2000.An early 1990s study by the SCAA noted above-average consumption in the Pacific,Middle Atlantic, and New England states and found gourmet coffee drinkers tended to beslightly more affluent than average and that they lived or worked in big cities (The Gale

Group). Gourmet coffee consumption also rose with the drinker’s educatio

nal level.Those who finished college bought 49% more gourmet coffee on average and those withsome postgraduate education bought 71% more. Furthermore, households with childrenand two working parents bought 28% more gourmet coffee.

Trends

Within the gourmet coffee market, there have been more and more similarities to thesophistication of the wine industry. Once people drank simple wines, but now they areextremely brand conscious and have strong preferences. The same is being seen withcoffee. With this, there is often a significant increase in sales every time a café startsusing branded consumables. The consensus is that these coffee drinks are a long-term

trend, not just a flash in the pan, with the goal of elevating people’s taste for something

the

y’re already quite familiar with and leading them to coffee houses to get it (Scarpa).

Many companies are tinkering with expanded food menus as well. An in-store display of fresh baked goods and sandwiches and Ceaser salads has been shown to increase sales