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A PROJECT REPORT ON

STARBUCKS EXPANDING GLOBALLY

By Nandhini.V- 11MB20 Narendran.G 11MB21 Sangeetha Sarathy.G 11MB31 Sivakumar.P 11MB38 Sowmiya.S.C 11MB39

Submitted to Mr. R.N.Balamurugan

TABLE OF CONTENTS
1. INTRODUCTION 2. SWOT & PESTEL ANALYSIS 3. CULTURE 4. CORPORATE GOVERNANCE 5. GLOBAL EXPANSION 6. INTERNATIONAL MARKET ENTRY STRATEGY 7. CONCLUSION STARBUCKS GLOBAL GROWTH PLANS

APPENDIX A STARBUCKS TIMELINE


REFERENCES

1. INTRODUCTION Starbucks - Since 1971


Starbucks Corporation is a global coffee company and coffee house chain based in Seattle, Washington. Starbucks is the largest coffee house company in the world, with more than 17600 stores in 61 countries including United States, Canada, Japan, United Kingdom, China, South Korea, Mexico, Taiwan, Philippines, Thailand and India. Starbucks opened its first store in Seattles Pike market place on March 30, 1971 by three partners Jerry Baldwin, Zev Siegl and Gordon Bowker. During the 1980s total sales of coffee in the USA were falling, but sales of specialty coffee increased, forming 10% of the market in 1989, compared to 3% in 1983. By 1986 the company had 6 stores in Seattle and had only just begun to sell espresso coffee.
Exhibit 1: Original Starbucks Pike Place, 1971

In 1987, the original owners sold the Starbucks chain to Schultz who rebranded some of his own Il Giornale coffee outlets as Starbucks' and quickly began to expand. In the same year, Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois. By 1989 there were 46 stores across the Northwest and Midwest in 1989 and Starbucks was roasting over 2,000,000 pounds (910,000 kg) of coffee a year. At the time of its initial public offering on the stock market in June 1992, Starbucks had grown to 140 outlets and had a revenue of $73.5m, up from $1.3m in 1987. Its market value was $271m. The 12% portion of the company sold raised the company around $25m which would help it double the number of stores over the next two years. By September 1992, the share price had risen 70% to over 100 times the earnings per share of the previous year. As of December 2012, Starbucks is present in 61 countries including India.

Exhibit 2: No. of Starbucks stores from 1971 2011

Starbucks Products
Starbucks offers a range of exceptional products that customers enjoy in their stores, at home, and on the go. Coffee: More than 30 blends and singleorigin premium coffees Handcrafted Beverages: Freshbrewed coffee, hot and iced espresso beverages, Frappuccino coffee and noncoffee blended beverages, smoothies and Tazo teas Merchandise: Coffee and teabrewing equipment, mugs and accessories, packaged goods, music, books and gifts. Fresh Food: Baked pastries, sandwiches, salads, oatmeal, yogurt parfaits and fruit cups Consumer Products Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattles Best Coffee brands), Starbucks VIA,Ready Brew, Starbucks KCup portion packs, Tazo tea filter bags and tea latte concentrates. Ready-to-Drink (RTD): Starbucks bottled Frappuccino coffee drinks, Starbucks Discoveries chilled cup coffees, Starbucks Doubleshot espresso drinks, Starbucks Doubleshot Energy+Coffee drinks; Seattles Best Coffee Iced Lattes, Starbucks Refreshers beverages, Tazo bottled iced and juiced teas. Starbucks Ice Cream: Superpremium coffee and coffeefree flavors. 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 offers its customers a total brand experience that extends beyond their products. This experience includes a broad range of premium quality products,

excellent customer service, elegant looking stores, unique drink names, the companys ideals and its dedication to social responsibility & exceptional treatment of its employees.

Brand Portfolio
Starbucks Coffee, Seattles Best Coffee, Tazo Tea, Evolution Fresh, La Boulange and Torrefazione Italia Coffee.
Exhibit 3: Starbucks Brand Portfolio

Starbucks- Target Segment


Starbucks has a very diverse target market. The segments will vary based on the different products Starbucks offers, but generally speaking, they can be classified as follows: Coffee drinkers opting premium quality coffee Age 18-60 People living in large cities University students and faculties Professionals, managers and executives Relatively high income group People for whom customer service is more important

Starbucks offers its customers a third world other than office and home.

Starbucks Core Competencies


Starbucks core competencies are its unwavering focus on quality, outstanding customer service, continuous product advancement, and care for its employees, and its drive to be "everywhere." From the very beginning Schultz focused on providing freshly roasted and poured coffee of such a high quality that once tasted customers would be unwilling to drink

anything of lesser quality. Schultz was struck when he spoke with his first Barista at the original Seattle store that the individual behind the counter was very well versed in coffee making and ground the coffee beans right in front of him. Since then the company has focused on maintaining this core competence in all of its stores, nationally and internationally. Over the years Starbucks has gone from offering fresh brewed coffee to a whole range of offspring products such as Lattes, Frappucinos, and Chais. The company began to diversify and create joint ventures with Dreyer's (Starbucks Ice Cream), PepsiCo (bottled Frappucino drinks), Kraft Foods Inc., (access to thousands of distribution channels and vendors for beverage products), and HP (instore CD burning) all of which bear the Starbucks core of high quality.

Starbucks Market Share


Exhibit 4: Executive summary, IBIS World Industry Report 72221b Coffee & Snack Shops, US; published in April, 2011. It shows Starbucks as having 32.6% market share in US.

Starbucks in India TATA Starbucks


Tata Starbucks Ltd. is a 50:50 joint venture company, owned by Starbucks Corporation and Tata Global Beverages. The outlets are branded Starbucks Coffee "A Tata Alliance". Starbucks, through an agreement with Tata Coffee, serves coffee that is 100% locally sourced and roasted. On 19 October 2012, Starbucks opened its first store in India measuring 4500 sq feet in Elphinstone Building, Horniman Circle, Mumbai. The partners have decided to open 50 cafes in several Indian cities in 2012 beginning with Delhi and Mumbai.

Western Coffee cafes are becoming popular in India with the country's young population. Starbucks cafes will now compete with Costa Coffee, Cafe Coffee Day and Barista in India. Together these players control a coffee cafe market estimated at over Rs.700 crores a year. This agreement paves the way for consumers in India to enjoy the premium Starbucks Experience, while further discovering the unique taste of high quality Indian Arabica coffee worldwide.

Starbucks Organisation Structure


Starbucks retail business was structured as Starbucks U.S. and Starbucks Coffee International (SCI), which encompasses 54 markets outside the United States. Starbucks moved to a new three-region organizational structure in July, 2011:

China and Asia Pacific: All Asia Pacific markets and China Americas: United States, Canada, Mexico and Latin America EMEA: Europe, U.K., Middle East, Russia and Africa

A president for each region will oversee the company-operated retail business, working closely with both the licensed and joint-venture business partners in each market. They will also work closely with Starbucks Global Consumer Products and Foodservice team to continue building out Starbucks brands and channels in each region.
Exhibit 5: Organisation Structure

China and Asia Pacific Region: John Culver has been named president, Starbucks China and Asia Pacific. Culvers focus and accountability will center on Starbucks retail business in Asia Pacific, including China, Japan and Starbucks newest market entry India. China, Japan and India are important areas of growth for the company and Culver brings the extensive global experience navigating complex operating environments to drive even greater business results in this region. As president of SCI over the past two years, Culver and his team have delivered strong international growth and set the foundation for the companys international business and growth opportunities ahead.

Americas Region: Cliff Burrows will expand his current role as president, Starbucks U.S. to president, Americas, with responsibility for the United States, Canada, Mexico and Latin America. Under Burrows leadership, the U.S. business continues to set records across almost every measure of sales and customer experience achieving performance levels that are especially noteworthy for a business in its 40th year. The Americas Region, particularly the United States, Canada and Brazil, will continue to be a cornerstone of Starbucks growth. EMEA Region: Michelle Gass has been named president, Starbucks EMEA. In this role, Gass will provide overall leadership to Starbucks company-operated markets in this region: the U.K., France, and Germany. She will also be responsible for growing and developing Starbucks joint venture and licensed operations in Europe, Russia and the Middle East. During her nearly 15 years with Starbucks, Gass has served in a variety of leadership roles, including global strategy, marketing and category management. Currently, she serves as president, Seattles Best Coffee, a Starbucks subsidiary, where she has led significant growth from 3,000 to 50,000 points of distribution through new and innovative business and brand strategies

Starbucks Revenue and Growth


Our Q4 and overall 2012 fiscal year performance demonstrates the strength of our business and brand, said Howard Schultz, chairman, president and chief executive officer, Starbucks Coffee Company. The resiliency and relevance of our U.S. retail business, acceleration of the Channel Development business and expansion in Asia all contributed significantly to our strong results. I am incredibly proud of our 200,000 Starbucks partners around the world who have contributed to the success of the company and I am optimistic about achieving our aspirations for the future. Fiscal Year 2012 Highlights: Total net revenues increased 14% reaching a record $13.3 billion Global comparable store sales increased 7% driven by a 6% increase in traffic and a 1% increase in average ticket Americas comparable store sales increased 8% driven by a 6% increase in traffic and a 2% increase in average ticket Channel Development revenue grew 50% to $1.3 billion The company opened 1,063 net new stores globally Operating margin improved 20 basis points to 15.0% over the prior years operating margin of 14.8%, which included a non-routine gain in FY11, despite 160 basis points of impact due to higher commodity costs in FY12

Operating margin expanded 50 basis points when compared to prior year non-GAAP operating margin of 14.5% after excluding the non-routine gain from FY11 EPS increased 10% to $1.79 per share compared to the prior year EPS of $1.62 per share, which included $0.10 relating to non-routine gains in FY11 EPS of $1.79 grew 18% over the prior year non-GAAP EPS of $1.52, excluding the non-routine gains in FY11 Operating cash flow totalled $1.7 billion Starbucks returned approximately $1.1 billion to shareholders through share repurchases and dividend payments
Exhibit 5: Full Year Financial Results 2012
Year Ended Sep 30, 2012 Change in Comparable Store Sales(1) Consolidated Americas EMEA CAP Sales Growth 7% 8% 0% 15% Transactions 6% 6% 0% 11% Change in Ticket 1% 2% 0% 3%

(1) Includes only Starbucks company-operated stores open 13 months or longer.

Year Ended ($ in millions, except per share amounts) Net New Stores(1) Revenues Operating Income Operating Margin EPS Sep 30, 2012 1,063 $13,299.5 $1,997.4 15.0% $1.79 Oct 2, 2011 145 $11,700.4 $1,728.5 14.8% $1.62 Change 918 14% 16% 20 bps 10%

(1) Net new stores for fiscal 2012 includes the addition of 20 La Boulange company-operated cafs in fiscal 2012 and the closure of 475 licensed Seattle's Best Coffee locations in Borders Bookstores in fiscal 2011.

Consolidated net revenues reached a record $13.3 billion in FY12, an increase of 14% over FY11. The increase was primarily due to a 7% increase in global comparable

stores sales, consisting of a 6% increase in the number of transactions and a 1% increase in average ticket, 50% revenue growth in Channel Development, and 20% growth in licensed stores revenue. Consolidated operating income grew 16% to a record $2.0 billion in FY12, compared to $1.7 billion in FY11. Operating margin expanded 20 basis points to a record 15.0% in FY12 compared to 14.8% in FY11. The operating margin expansion was 50 basis points when excluding the non-routine gain in the prior year. This improvement was primarily due to increased sales leverage. Increased commodity costs, mainly coffee, negatively impacted operating income and operating margin in FY12 by approximately $214 million and 160 basis points, respectively. Exhibit 6: Starbucks total revenue in millions
TOTAL REVENUE (IN MILLIONS)
AMERICAS

CHANNEL DEVELOPMENT

EMEA

Serving Starbucks customers across categories, channels and countries

CAP

FY Fiscal Year

2. SWOT ANALYSIS
Strengths
1. Respected Brand Name globally with 18,000 stores in 60 countries. India is 61. 2. Joint Venture with Tata Global Beverages 3. Pleasing Ambience Aroma, lighting, music, dcor 4. Service Philosophy Personalized experience or customer intimacy ( Knowing the names of the customers, smile, knowing his/her preference, saying thank you) 5. Free Wi-Fi Facility 6. Specialty Coffee Indian Espresso Roast is sourced from Tata Coffee 7. Customized Coffee to cater to different customer tastes and preferences 8. Sourcing Food From Taj a Brand name associated with Trust and Quality 9. Local menu to attract customers, apart from international menu to suit the Indian palate 10. Aims at attracting family to come and experience not just coffee but a wholesome menu as well. 11. Employees are given sufficient training to enhance their muscle memory, where they will automatically prepare the brew without needing to consciously remember the steps. Soft skills training provided to employees to enhance customer intimacy.

Weaknesses
1. The coffee has been priced which suits the premium category. This can limit the youngsters with disposable income from coming to the coffee shop. 2. New customers who are price conscious are less like to consider Starbuck products as worth paying for. 3. These price conscious customers may not associate Starbucks as the brand for them. 4. Though the company boasts of being the first to offer comprehensive health coverage and ESOPs to its employees, the recent allegation which was highlighted by the media is that its employees in India are under compensated as per our wage policy. 5. India, being a very heterogeneous culture destination, would be prove to be highly challenging for Starbucks to cater to the myriad tastes and customer preferences. 6. Customization of coffee can lead to longer waiting time which can hamper repeat visit. 7. Increased customization can lead to complex orders proving to be challenging for the employees.

8. Baristas may find it difficult for customer intimacy or provide legendary services due to processing rush orders 9. This complexity and challenge in customer care and coffee processing can lead to employee turnover unless they are motivated and duly rewarded. Exhibit 7 : Internal Factor Analysis Summary (IFAS)
Strengths
S1- Brand Identity Weight 20% Rating 4 Weighted Score 0.8 Comments S1- The company consistently maintains its brand, even without heavy marketing S2- They search for quality beans worldwide S3- They offer drink variety and customisation S4- Locations are everywhere as one of the company's main goals S5- With new products live VIA,drive thru windows, instore locations convenience is important. S6- Ambience was a foundation of the starbucks brand and continues in its locations S7- By using fair trade ingredients they are leader in ethics Comments W1- Starbucks goal to have 30,000 locations stalled in the recent recessions. By becoming overexposed they risk losing the unique quality they were founded on. W2- By constantly adding products, some products have lost value, Seattles Best for example, and they are risky endeavors. W3 expanding locations in the US, is a high risk and costly investment in comparison to international expansion.

S2- Quality S3- Variety S4- Locations

10% 10% 10%

3 3 5

0.3 0.3 0.5

S5- Convenience

20%

0.8

S6- Store Ambiance

5%

0.15

S7- Ethics

5% Weight

3 Rating

0.15 Weighted Score

Weaknesses

W1- Overexposure

10%

0.025

W2- Too many products

5%

0.0125

W3- Risky investment in more locations

5%

0.0125

TOTAL SCORES

1.00

3.05

Opportunities
1. If Starbuck can come with a customized price menu, especially for students (as with the case of McDonalds and KFC), then they will be able to target the young student population (both school and college) who would want to hang out with friends, make a lifestyle statement without earning the wrath of their middle class parents. 2. Including other attractive foodies like ice creams to woo the young kids who accompany the parents. This can prove to advantageous in terms of repeat visits as kids have pester power and play an influential role in purchase decisions of the family. 3. Incorporate some healthy menu for those health and fitness freaks whose conscience will not prick them when they indulge in food. 4. Attract those niche customers who would like to come if a book launch or interesting plays are organized. This niche segment can turn to be loyal ones enhancing the bottom line of the company. 5. Creating brand awareness and preference through expansion of distribution channels like making Starbucks coffee powder available in Retail outlets of major cities. This can make their brand popular before they open their own outlet in these cities. 6. Using a powerful brand ambassador who has the charisma to attract varied segments. 7. Improve service efficiency for faster service ( new customers) without antagonizing its existing customer base ( Indulgent) 8. Bring in some attractive tea combinations to woo the chai drinkers.

Threats
1. Well established brands like Caf coffee day and other competitors can prove to be a serious challenge. 2. The local chai wallas who offer at a very affordable price and attracts the middle class people is a threat. 3. Entry of other international players. 4. Sustaining the customer interest after the initial curiosity is going to be challenging. 5. Complex taste preference of customers who would like to have their regionalized version of the menu. 6. Real estate acquisition for expansion in other cities can prove to be challenging. 7. The timing of entry and expansion is like a double edged sword which can make or mar the brand.

Exhibit 8: External Factor Analysis Summary(EFAS)


Opportunities
O1- Customization Weight 10% Rating 4 Weighted Score 0.4 Comments O1- Starbucks introduced a completely custom frappacino in Canada. O2- Increasing efforts internationally, to increase stability O3- VIA instant coffee and other products to be in groceries and convenience stores. O3 Partnering with more locations including NYSE. Comments T1- Direct competition from Peets and Coffee Bean increasing. Lack of marketing T2- Cheaper alternatives from McDonalds and Dunkin Donuts T3- Closed no. of stores in 2008-2009 in different countries

O2- International Markets

15%

0.75

O3- On-the-Go Lifestyle

20%

O6- Partnerships

10% Weight 15% 15% 15% 1.00

3 Rating 3 2 4

0.3 Weighted Score 0.45 0.3 0.6 3.8

Opportunities
T1- Direct Competition T2- Cheaper Alternatives T3- Recession TOTAL SCORES

Exhibit 9 : Strategic Factor Analysis Summary(SFAS)


Strategic Factors
S1-Brand Identity S5- Convenience W1- Overexposure O1- Customization O2- International Markets O3- On-the-Go Lifestyle T1- Direct Competition T2- Cheaper Alternatives TOTAL SCORES Weight 20% 20% 5% 10% 15% 15% 5% 10% 1.00 Rating 5 4 3 3 4 4 2 3 Weighted Score 1 0.8 0.15 0.3 0.6 0.6 0.1 0.3 3.9 Comments Brand Identity is extremely important to the company and is a long term factor for the company. Convenience is also one of the foundations that the company grew on and will continue to maintain their advantage. International Markets offer lower risk investment and innovation opportunities. Cheaper Alternatives like McDonalds threaten the convenience factor.

The strategic factors summary shows that the most important factors overall received a score of 3.9 which is above average. This is positive for the company. They are responding well to their strength, weaknesses, opportunities and threats.

PESTEL FACTORS Political


In the period of globalization, India being no exception has opened the doors for foreign businesses to invest. India's coalition government, led by the Congress party, in September relaxed rules on local sourcing for foreign "single-brand retailers" shops that sell items belonging to one brand. Last November, it scrapped rules stating that such retailers needed to partner with a local company. Following these reforms, Ikea this month applied to open around 25 outlets. Starbucks has entered India through an $80m joint venture with Tata, one of the country's biggest conglomerates, having worked on this deal before the rules changed. However, experts are of the notion that the economy would not benefit for some months, as any new businesses would have to deal with India's vast amounts of red tape before opening outlets. Opposition parties and independent shopkeepers have held protests in response to the retail reforms. Yet many customers hope foreign brands will result in more choice and better quality, as local businesses will have to fight to retain clients.

Economy
India is a land of mixed economy. Private and foreign investors consider India as a lucrative market for business because of the increasing consumption pattern and buying power of customers. As we know the percentage of baby boomers is on the rise unlike many developed nations, these youngsters are curious to explore new products and services, and make a lifestyle statement which can prove to be a boon for marketers. There is a paradigm shift in the mindset and spending of parents who like to try new products for their family and who are making it a habitual pattern in eating out as a recreational activity

Social
India is well known for its cultural diversity. From the South to the North, East to the West, one can find unique pattern of preferences in attire, food and way of life, making it complex or rather challenging for marketers to bring regional customized menu. Ours is a land of spices. And any food giant which caters to the local palate can make their business profitable. The key to success is in identifying the distinct preferences and tastes. As said earlier the spending pattern has increased due to the increase in disposable income making the customer need and want for such refreshing experience. Also the busy lifestyle pattern has given todays generation little time to relax.

Thus coffee outlets can become a third place from home to relax, refresh, spend some valuable time with friends, kith and kin.

Technological
Well, there is no denying of the fact that many cities and even small towns have become IT hubs, thanks to the BPOs, IPOs, KPOs and IT Industry. This implies that youth today are technologically educated and empowered. Also with the invasion of social media and networking, the young customer would like to connect virally while enjoying a cup of coffee. And IT employees can find the place to work as well as relax. This can turn in favour of these Coffee and Food outlets where youngsters can mix work with fun.

3. STARBUCKS CULTURE
At a very basic level, corporate culture is the personality of an organization or simply how things are done around there. However, in a broader sense it refers to 'the moral, social and behavioral norms of an organization based on the beliefs, attitudes and priorities of its members.' It determines how employees think, act and feel. While Starbucks enforces almost fanatical standards about coffee quality and service, the policy at Starbucks towards employees is laid-back and supportive. They are encouraged to think of themselves as partners in the business. Schultz believes that happy employees are the key to competitiveness and growth. Starbucks Coffee Company grew from a small, regional business into the undisputed leader in the specialty coffee industry by buying only the best quality coffee and providing an unmatched store experience. Starbucks strives to provide customers with a special and theatrical experience in a comfortable and inviting environment when buying their coffee beverage. This is referred to as The Starbucks Experience.

Mission Statement:
To inspire and nurture the human spirit one person, one cup and one neighborhood at a time Below listed are the principles of how Starbucks live with its mission every day. They provide due consideration to their Coffee, their Partners (employees), their Customers, their Stores, their Neighborhood and their Shareholders.

Starbucks Principles:
Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Contribute positively to our communities and our environment. Developing innovative and flexible solutions to bring about change. Striving to buy, sell and use environmentally friendly products. Recognizing that fiscal responsibility is essential to our environmental future. Instilling environmental responsibility as a corporate value. Measuring and monitoring our progress for each project. Encouraging all partners to share in our mission. Despite the size of its operation, Starbucks has maintained a strong corporate culture of social awareness. This is largely due to the corporate principles that the company has incorporated into its business practices, which include: recognizing the importance of employee work environment, embracing diversity as an essential component of doing business, and making contributions to the community and the environment a regular activity for those involved in the company. These principles are further translated into the companys relationship with employees and with the communities that surround it. According to Chairman Howard Schultz, employee satisfaction is key because we realize our people are the cornerstone of our success, and we know that their ideas, commitment and connection to our customers are truly the essential elements in the Starbucks experience. One way in which Starbucks demonstrates this ideology is through their employee benefit package that is available to both part and full-time employees and which includes healthcare benefits and the Bean Stock- a Starbucks stock option plan. Starbucks also supports an internal culture that motivates employees to generate new ideas. In fact, employees driven by a sense of social responsibility have helped to create and cultivate a number of programs, including the C.A.F.E. Practices program, which originated from employees in the Corporate Social Responsibility department in contact with coffee growers. Starbucks is also working to prevent discrimination in the workplace and to improve diversity through the Urban Coffee Opportunities programa joint-venture partnership with Earvin Magic Johnsons Johnson Development Corpand also through their supplier diversity program.

The Starbucks Foundation


Established in 1997, the Foundation focuses on improving the lives of youth through support of literacy and nontraditional education programs. The Foundation has provided more than $11 million to more than 700 organizations, with Starbucks partners and customers also contributing through the donation of more than 1.4 million books to libraries and childrens clubs across United States.

Organizational Culture
The Starbucks Corporation presents a strong appeal for potential employees with a strong organizational culture. This culture maintains values that reach every corner of its organization; and reaches outside its walls to the communities as well. Reviewing some of Starbucks' cultural characteristics reveals how successful and appealing this cultural model can be.

Starbucks appeal
Many of the business concepts and the attributes of the Starbucks' organizational culture are very appealing. First, Starbucks has become a well known global entity. This has been achieved by a well recognized product that relies on its quality and unique marketing strategies. Customers can always be expected to be confronted with enthusiastic employees, happy to serve, and focused on the needs presented by their customers. Employees are well trained and have a vast amount of knowledge about all the products offered by their company. The effort that is placed on the quality of their product can be seen by the average consumer. They strive to provide an excellent product and, as proven by their tremendous success, few patrons leave the store with any dissatisfaction. It is apparent that the values and mission statements projected by the company are having great success in creating a strong cultural behavior.

Values
Many of the values held by the Starbucks Corporation business model are shared by consumers and adapted by closely watching organizations. One value that stands out for the company is in community support. According to Starbucks Corporation (2008), they support many community organizations such as Conservation International, The Earth watch Institute, Save the Children, Mercy Corps, the African Wildlife Foundation, and Planet Green. Values such as this have set standards and send messages that profitable companies have a responsibility to the communities that support their organization and to the needs impacting the environment and the world surrounding them.

As well, the Starbucks organization list in its guiding principles the importance of embracing diversity, providing a positive work environment through respect and dignity, and a commitment to satisfying all customers all the time (Starbucks Corporation).

Embodiment of cultural characteristics


Starbucks continues to satisfy employment needs and provide excellent customer service. In part, this success can be attributed to the cultural characteristic of innovation and risk taking. At Starbucks, employees are empowered and encouraged to think outside the box. Hawks, Kembell, Olsen, and Perry (2002), tell us that Starbucks encourages and rewards employees for innovative ideas and encourages employees to sway from drink standards to meet the specific request of the consumer. This leads to the characteristic of attention to detail. Because the company promotes the enthusiastic development and satisfaction of its customers, employees are expected to remain focused on the needs of the customer. In this business, this may mean the development and use of special listening skills and multitasking abilities. Employees, focused on the ever-changing ingredient orders that vary from customer to customer, show how valuable this characteristic is to the corporation. The Starbucks Corporation also exhibits the cultural characteristics of people orientation and team orientation. The company shows employees how important they are to their organization through the decisions they make that impact different members. Some of this can be displayed through the offering of health benefits to part-time employees (Hawks et al., 2002).

Cultural strength
Starbucks maintains a very strong spiritual culture. Marques (2008), states that "Starbucks' performance toward suppliers, communities, employees and customers gives rise to the awareness that Starbucks is one of those corporations that does not explicitly use the term spirituality at work for their actions, nonetheless live it to the fullest." Starbucks shows this spiritual culture in their promotion of fair trade, environmental contributions, workplace diversity, and its self acclaimed statement of employee enlightened self-interest. The bonds that Starbucks' forms with its partners, employees, and community are evident when one simply opens the front door of the establishment. Starbucks maintains a strong appeal for a great place to work by asserting its strengths in its acquired cultural characteristics, values, and spiritual culture. Many other organizations are adapting these structural concepts after seeing the success of this organization. Starbucks can maintain this strong organizational culture

with continuing dedication to its employees and customers. Starbucks has achieved success in corporate culture and has set the bar high. For many organizations this should be a walk-up call to catch up.

Decision Making
Perception is a process that all people take part in as we move through the course of events in our daily lives. When we meet people, make business decisions, evaluate performances, or pass judgments, our perception surrounding such events help persuade our next course of direction (Goldstein, 2006). In a sense, perception, accurate or flawed, is our reality. Causes that shape or distort our perceptions have a tremendous effect on the impact of an organization's behavior. Individuals, by nature, develop perceptive shortcuts when passing judgment and inflect both positive and negative effects. Starbucks has realized this importance in the decision making process of its organization and has been successful in modeling guidelines to direct employee behavior and shape corporate perception to aid in its success. Because Starbucks understands that decisions can be based on perceptions of individuals, influenced by upbringing, beliefs, or current state of mind; models are developed to guide individuals through the process. The creation of these models creates a standard that is followed to deliver a satisfactory result. These models Identify a need, create a process to determine what qualifications will satisfy the need, Identify matches to the need, then a decision is made on what match best suites the need. These models are not a perfect solution to the decision making process. Errors and bias still creep in to this process through the use of intuition, gut feelings, experience, and impulse (Robbins, 2005). In addition, these models try to shape moral and ethical decisions, these models of ethical and moral perceptions focus on rights of the individual and social justice. Standing on the platform of transparency, Starbucks post these models of decision making behavior based on what they call the "Ethical Decision Making Framework" on their website (Starbucks Corporation, 2008). 6 points to guide and model decision making behavior: 1) Identify the ethical problem. 2) List possible solutions (what could you do?) and any obstacles to resolving the problem. 3) Seek input from others, if appropriate. 4) Determine the best approach (what should you do?).

o Is it consistent with our Guiding Principles, the Standards of Business Conduct and any applicable law or regulation? o Would your approach embarrass you or Starbucks? o How would your approach look published in the newspaper? o Would you be comfortable with the example it sets for future decisions? 5) If the path isn't clear, ask for guidance. 6) Follow through on your decision. In addition to providing these framework guidelines Starbucks makes these statements very clear to each employee: You are empowered - You can deliver great customer experiences, knowing that Starbucks supports you in doing the right thing and conducting business with integrity. You have responsibility - You play a critical role in ensuring that Starbucks is a great work environment and in protecting our culture, our reputation and our brand. You have a help - If you are unsure what to do in a situation; you have resources available to you, including the Standards of Business Conduct and the Business Conduct Helpline. You have a voice - When you believe something isn't right, you can speak up and share your concerns knowing that Starbucks wants to hear them and does not tolerate retaliation against partners. (Starbucks Corporation, 2008) The corporation uses developed guiding principles and mission statements to guide in the decision making process and these also appear publicly on their website. These models play a vital role in the decision making process. Starbucks has been very successful in its ability to circumvent perceptive errors through the use of relational models. However, even with the use of relational models, errors and bias can still play a role in the decision making process, but the organization has adapted a level of accountability through this process to minimize the impact of errors and bias. Communication, culture, and decision making, represent only a small part of the concepts that makeup organizational theory and behavior. A corporation that applies the concepts of organizational theory and behavior can determine the success of any organization. As we can see, Starbucks has concentrated on the successful application of these three areas of organizational behavior. With this successful application, Starbucks proudly promotes and shares the models that make them successful to anyone who cares to investigate. As a result, Starbucks continues to be a successful corporation.

International Culture
Starbucks first non-North American store was opened in 1996 in Tokyo. In reflecting on this early step in internationalizing the chain, Schultz notes: Two years prior to opening up in Japan, we hired this blue-chip consulting firm to guide us to succeed here. Basically, they said we would not succeed in Japan. There were a number of things they told us to change. [They said] we had to have smoking, but that was a non-starter for us. They also said no Japanese would ever lose face by drinking from a cup in the street. And third, they said that given the [high] rent, stores couldn't be larger than 500 square feetWell, our no-smoking policy made us an oasis in Japan. As for our to-go business, you can't walk down a street in Tokyo today and not see someone holding a cup of Starbucks coffee. And our store size in Japan is identical to our store size in the U.S., about 1,200 to 1,500 square feet. It just shows the power of believing in what you do. And also that Starbucks is as relevant in Tokyo, Madrid, or Berlin as it is in Seattle. When venturing overseas, there is a Starbucks way. The company finds local business partners in most foreign marketsIt tests each country with a handful of stores in trendy districts, using experienced Starbucks managers. It sends local baristas to Seattle for 13 weeks of training. Then it starts opening stores by the dozen. Its coffee lineup doesn't vary, but Starbucks does adapt its food to local tastes. In Britain, it won an award for its mince pie. In Asia, Starbucks offers curry puffs and meat buns. The company also fits its interior dcor to the local architecture, especially in historic buildings Starbuckss approach to international expansion is to focus on the partnership first, country second. They rely on the local connection to get everything up and working. The key is finding the right local partners to negotiate local regulations and other issues. They look for partners who share their values, culture, and goals about community development. They are primarily interested in partners who can guide them through the process of starting up in a foreign location. They look for firms with: (1) Similar philosophy to theirs in terms of shared values, corporate citizenship, and commitment to be in the business for the long haul (2) Multi-unit restaurant experience (3) Financial resources to expand the Starbucks concept rapidly to prevent imitators (4) Strong real-estate experience with knowledge about how to pick prime real estate locations (5) Knowledge of the retail market, and (6) The availability of the people to commit to their project.

4. CORPORATE GOVERNANCE
As part of the Starbucks mission they are committed to maintaining their uncompromising principles. In this regard, the Board of Directors has adopted governance principles, committee charters and policies to lead Starbucks governance practices. Currently, the board has 11 directors, a substantial majority of whom meet all of the independence requirements of NASDAQ and the U.S. Securities and Exchange Commission. CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES FOR THE BOARD OF DIRECTORS
Purpose

The Board of Directors (the Board) of Starbucks Corporation (the Company) is responsible for overseeing the exercise of corporate powers and ensuring that the Companys business and affairs are managed to meet its stated goals and objectives and that the long-term interests of the shareholders are served. Composition The Board shall be comprised of up to twelve (12) members, a majority of whom shall meet the independence requirements of the Nasdaq Stock Market then in effect. Upon receipt of the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors shall appoint a new member or members in the event that there is a vacancy on the Board that reduces the number of members below nine (9), or in the event that the Board determines that the number of members on the Board should be increased. Meetings The Board shall meet at least five (5) times each fiscal year, and may hold additional meetings in person or telephonically as often as may be necessary or appropriate, in the discretion of the chairman of the Board/chief executive officer. One meeting of the Board each fiscal year shall be dedicated primarily to strategic planning for the Company. Authority and Responsibilities of the Board The fundamental responsibility of the Companys Board of Directors is to promote the best interests of the Company and its shareholders by overseeing the management of the Companys business and affairs. In doing so, Board members have two basic legal obligations to the Company and its shareholders: (1) the duty of care, which

generally requires that Board members exercise appropriate diligence in making decisions and in overseeing management of the Company; and (2) the duty of loyalty, which generally requires that Board members make decisions based on the best interests of the Company and its shareholders, without regard to any personal interest. Policies and Practices The Board is responsible for organizing its functions and conducting its business in the manner it deems most effective and efficient, consistent with its duties of good faith and due care. To meet that responsibility, the Board has adopted a set of flexible policies to guide its governance practices in the future. Summary of current practices Determination of Independence of Non-Employee Directors: No relationship between any non-employee director and the Company should be of a nature that could compromise the independence or judgment of any Board member in governing the affairs of the Company. Committees: The present Board Committees are the Audit and Compliance Committee, the Compensation and Management Development Committee and the Nominating and Corporate Governance Committee. All members of all committees shall be non-employee directors of the Company and meet the independence requirements applicable. Majority Voting: The Company has adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, nominees must receive more for than against votes to be elected. The term of any director who does not receive a majority of votes cast in an election held under the majority voting standard will terminate on the earliest to occur of (i) 90 days after the date election results are certified; (ii) the date the director resigns; or (iii) the date the Board fills the position. Procedure for Selecting New Director Candidates: The Board is responsible for recommending the candidates to stand for election at the annual meeting of shareholders. The Board has delegated the screening and nomination process to the Nominating and Corporate Governance Committee. There were more policies and practices are provided with respect to the above lines to serve as flexible guidelines for the effective functioning of the board of directors.

5. STARBUCKS GLOBAL EXPANSION


The Seattle based company is on a global tear, after building itself into the worlds largest coffee-shop chain. Through decades of growth in the United States, Starbucks is planning for its future expansion on other countries, with nearly 11,000 stores in the US and fewer than 7000 in other countries. For now it garners at least 20% from international markets, with more prospects to restructure and get half of its revenue from outside US.

Starbucks Success
Though the U.S. economy was wobbling under recession and many retail majors were reporting losses and applying for bankruptcy, Starbucks announced a 31% increase in its net earnings and a 23% increase in sales for the first quarter of 2003. The quality product spoke for itself and the fact that Starbucks spent less than 1% of its sales on advertising and marketing strengthened this view. In addition to be a popular brand among customers, Starbucks was also considered the best place to work due to its employee friendly policies.

Key Strategies
Starbucks has been extremely successful to date. It has been able to change a regular cup of coffee to an experience beyond the coffee itself. In order to do this, and do this well, Starbucks has pursued many different strategic actions. All of these actions can be categorized into the following broad categories. Horizontal Integration: Starbucks has used this strategy to control its competition and reach new customers. It has used the acquisition of Seattles Best, Torrefazione Italia and Coffee People to accomplish this. Market Penetration: This strategy has been used to increase the market share of products that are currently offered. Starbucks has focused heavily on developing the quality everyday experience and differentiation of the experience as a third place to enjoy its products. It has also sought to expand the methods of grocery stores and formed alliances with SYSCO, PepsiCo., and Kraft Foods to distribute products to grocery stores and other food retailers. Market Development: Starbucks developed the specialty coffee market in U.S. by educating the American consumer and essentially transformed a commodity into a specialty item that people are willing to pay for. The company has developed this market from scratch and continues to as it expands into international markets.

Concentric diversification: In order to expand its sales, Starbucks has begun releasing new, but related products. The company has developed products such as the Frappucino and Double Shot, acquired companies such as Ethos water and formed alliances with Dryers Ice Cream and Jim Beam. Conglomerate diversification: Starbucks has also sought out opportunities that are unrelated to its traditional product offerings. The Hear Music campaign is an alliance with iTunes and XM Satellite radio to offer music produced by Starbucks, and Alleah and the Bee as its first film production. Value Chain Development: Starbucks has put a tremendous amount of money and effort into developing partners in its value chain. While it is not vertically integrating, Starbucks is committed to developing the human connection with its supplies and supporting its ecosystem. The fair trade initiative is one example of this type of commitment. The success of Starbucks was due to its profitable domestic operations. It was reported that most of Starbucks international operations were running into losses. Analysts pointed out that Starbucks international operations were not as well planned as its U.S. operations. The volatile international business environment made it difficult for the company to effectively manage its international operations. It was important for the company to focus on its international operations. The U.S. market was getting saturated and is forced to look outside the U.S. for revenues and growth.

Starbucks New Growth Strategy More Revenue with Lower costs


The new focus is on: Expanding the number of foreign stores, which Starbucks often opens with business partners who share the cost and risk. Introducing new Starbucks products like via instant coffee in grocery and convenience stores all over the world. Reinvigorating Seattle's Best Coffee, a secondary brand that for years was an afterthought.

6. INTERNATIONAL STRATEGY
The strategy adopted by Starbucks was to blanket a region with its new stores. By doing so it could reduce the customers rush in one store and also increase its revenues through new stores. This helped the company to reduce its distribution costs and the waiting period for customers in its stores, thereby increasing the number of customers. It was reported that on an average a customer visited Starbucks stores 18 times a month, a very high number compared to other American retailers. In 1995, Starbucks formed Starbucks Coffee International, its wholly owned subsidiary, to monitor the companys international expansion. In 1996, Starbucks entered Japan through a joint venture with the Sazabys Inc. (a leading Japanese teashop and interior-goods retailer) and over the years it expanded into South-East Asia, Europe, and the Middle East. By March 2003, Starbucks had 1,532 stores (23% of its total stores) outside the U.S. (Refer to Exhibit 10 for Starbucks international presence, although not an exhaustive one). Starbucks decided to enter the Asia Pacific Rim market first. Growing consumerism in the Asia Pacific countries and eagerness among the younger generation to imitate Western lifestyles made these countries attractive markets for Starbucks. Exhibit 10: Starbucks International Presence
Country Canada Japan Malaysia New Zealand Taiwan Kuwait Philippines Type of Entry Wholly-owned subsidiary Joint Venture Licensee Licensee Joint Venture Licensee Licensee Name of the Partner Starbucks Coffee Canada Sazaby Inc. Berajaya Group bhd Restaurant Brands President Coffee Corp. Alshaya Rustans Coffee Corp. Year 1996 1996 1998 1998 1998 1999 2000

Australia Israel Austria Switzerland Germany Greece Mexico Hawaii Hong Kong Indonesia Puerto Rico Lebanon Spain

Joint Venture Joint Venture Licensee Licensee Joint Venture Joint Venture Joint Venture Joint Venture Joint Venture Joint Venture Joint Venture Licensee Joint Venture

Markus Hofer Delek Corporation** Bon Appetit Group** Bon Appetit Group** Karstadt Qualle AG Marinopoulos Brothers SC de Mexico Cafe Hawaii Partners Maxim Caterers Ltd. PT Mitra A Diperkasa Puerto Rico Coffee Partners LLC Alshaya Grupo Vips

2000 2001 2001 2001 2002 2002 2002 2002 2000 2002 2002 N.A 2002

** Starbucks closed its operations in Israel and bought out the stakes of its partners in Austria and Switzerland in 2003.

Starbuckss Entry Mode


Starbucks decided to enter international markets by using a three pronged strategy Joint ventures, Licensing and Wholly owned subsidiaries Prior to entering a foreign market, Starbucks focused on studying the market conditions for its products in the country. It then decided on the local partner for its business. Initially Starbucks test marketed with a few stores that were opened in trendy places, and the companys experienced managers from Seattle handled the operations. There are six primary ways to enter a foreign market: 1. Exporting, 2. Turnkey projects,

3. 4. 5. 6.

Licensing, Franchising, Joint venture with a host country firm, and Setting up a wholly-owned subsidiary in the host country

Each mode of entry has its advantages and disadvantages. The method a company chooses depends on a variety of factors including the nature of the particular product or service and the conditions for market penetration in the foreign target market. Exhibit 11: The composition of retailers of Starbucks (2009.9)
Entry mode Total U.S % in US Overseas % in overseas

Company Owned

8,832

6,764

61%

2,068

38%

Licensed Stores 7,803 (Joint Venture) 4,364 39% 3,439 62%

Total

16,635

11,128

100%

5,507

100%

<Source: Starbucks Annual Report of 2009, Form 10-K, Starbucks Corporation>

Exhibit 12: Acquisitions and Stakes till 2010

Coffee Culture via Joint Venture


When Starbucks expanded its business outbound, Coffee culture has not existed in various countries including Asian nations. Therefore, it was essential for Starbucks to spread coffee culture and Starbucks has implemented a marketing strategy called Cult-duct. Hence, Starbucks thought that it was more appropriate for Starbucks to have taken advantage of direct investments; joint venture and wholly-owned companies rather than licensing and franchising so as not only to offer tangible products; coffee and cookies but also to deliver a fine coffee culture represented by urban and elegant image. Through this strategy, Starbucks effectively has managed to control its core competencies such as the high quality coffee, the quarterly employee training concerning customer service and store management know-how. At the beginning, since Starbucks did not hold both experience and expertise for Asian market, it is required for Starbucks to share local companies' know-how and wide domestic networks to stably perform its Asian operation. Moreover, Starbucks has properly overcome the cultural gap with Asian nations and carried out the splendid market research. To demonstrate, local companies were involved in local staffing and analysis of regional customer's taste and preference whereas Starbucks took responsibilities for employee training, coffee roasting and quality control.

Company owned operations


Starbucks acquired the entire equity of local manufacturers, Coffee Partners in Thailand and Bonstar in Singapore respectively, even if it initially entered those markets with the form of joint venture. These countries legitimately allowed the foreign capital to hold 100% equity of a company and Starbucks could not trust the marketing capabilities of these local retailers'.

Problems in International Markets


From the early 2000s, Starbucks faced many problems in its international operations. For example: The volatile political environment in the Middle East created serious problems for Starbucks. In July 2002, Arab students called for a boycott of American goods and services, due to the alleged close relationship between the United States and Israel. The boycott targeted U.S. companies including Starbucks, Burger King, Coca-Cola and Estee Lauder. Starbucks topped the list of companies to be boycotted due to Schultz's alleged closeness to the Jewish community. The problem was aggravated when it was reported that, in one of his lectures to students at the University of Washington, Schultz had said, "One of my missions is to sensitize you; you should not be immune to what is happening in the world. I travel a great deal and

one of the things that I see is the rise of anti-Semitism in Europe, especially France and England." His address to Jewish-Americans made matters worse. Schultz said, "What is going on in the Middle East is not an isolated part of the world". The rise of anti- Semitism was at an all time high.

Issues faced and tackled in different countries:


Typically, a firm operating internationally is exposed to different types of risk. These can be listed as environmental, financial, organizational, or strategic risks. Let us see what issues Starbucks faced in some countries and how it got rid of those issues. Japan: The Japanese are noted for admiring and adopting American products and trends such as blue jeans and Coca-Cola. Critics warned that the Japanese would never buy takeout coffee or accept the interior non-smoking policy. Starbucks proved them wrong. Some 30% of it customers drink take-out coffee in those throwaway cups. France: Starbucks had to deal with an initial lack of acceptance from Frances historic caf culture, with older consumers frowning on a big U.S. coffee house chain with standardized disposable cups. Younger coffee drinkers in France joined American tourists in Paris to embrace such favorites as Starbucks Caramel Coffee. China: The company is aggressively expanding in China where Chinese traditionally prefer tea. Key to success in China is coffee houses that empower Chinas emerging middle class to publicly display their new lifestyles and status while keeping Starbucks beverages as affordable luxuries. England: This is the second biggest overseas market for Starbucks. Tackling imitators aiming at reducing market share of Starbucks was a big problem. Italy: Since, Italy is having many coffee bars, Local pricing and popularity of local brands was a big competition. Starbucks also had to address the demand on the culture of serving food with coffee.

Here are five lessons from Starbuckss success: Think Different Position Smart Brand Global Partner Local Commit Long Term

Starbucks FDI
Starbucks is a very successful company who made their fortunes by levering off their know how and horizontally foreign direct investing in overseas markets within their industry. Starbucks did not have a product to export so to speak, however they did have expertise in the service industry which was selling coffee, cakes and providing an environment for people to meet. Starbucks realized that their know how could not be easily transported or even packaged to sell to overseas markets, this is why Starbucks decided to take advantage of horizontal foreign direct investment (FDI) and hence getting involved personally with entrepreneurs in overseas markets interested in business similar to Starbucks. The star bucks know how could possibly be licensed however licensing might mean, know how could be deliberately changed or interpreted in a variety of ways differently to how it was meant to be applied. If know how were to be changed or interpreted differently, it might mean Starbucks strong trade mark values in which Starbuck was built on could be at risk essentially devaluing to business. Tight control over the foreign operations would be required to maintain the processes for which Starbucks was known, including the licensing of products and processes. To expand Starbucks and continue the successful growth experienced in the home land Starbucks decided to enter overseas markets via horizontal FDI and minimise as much financial risk as possible using licensing (with an option to joint venture) as the tool to control and distribute their know how. Starbucks would further secure their interests and intellectual knowledge by selectively doing business with but a few businesses when first entering a new country and strategically incorporating options into their business contracts which provided Starbucks with timely choices to convert licensing arrangements to joint venture. I believe the triggers to convert to joint venture were designed around Starbucks requirement to quickly increase control over a business should the business not perform or might perform better with tighter control over the format. Another reason might be if Starbucks developed enough experience and knowledge about the country, city and business to see the new

business is going to succeed, hence financial risks suddenly became minimal and could be further reduced and profits accelerated if tighter controls of the format were in place. At this point of the business venture Starbucks would convert to their licensing arrange to joint venture. Later in the cycle of the overseas business development, if the business proves to be a safe and very profitable or could be more profitable if there were further control over the format, Starbucks would acquire the business. This was proven to be a safe intelligent choice, strategically placed after the business is developed and operating consistently well with foreseeable growth for the business and other Starbucks businesses in the country, at this point risks were minimized to an optimal level and finance could be gathered from financial institutions with much less constraint.

Historically Starbucks expanded internationally initially by licensing but usually became disenchanted as the control was just not available through licensing and tight control was required for the businesses to be successful. Starbucks became successful because of its winning service strategy which only works well when all stores are operating in the same format. If a customer enters an overseas store expecting the coffee and service to be of particular standard and familiarity, and the customers experience its different to what was expected, the ramifications are that the customer may not return. This is why control over the news stores was and is so important to the success of Starbucks overseas operations, customers travelling abroad are looking for familiarity and local customers are looking for affordable quality and pleasant experiences. There are many advantages to joint ventures which include shared resources, access to intellectual property, access to markets and limited control over business operations. Even though there is limited control over business operation with joint venture there is more control than that of a licensing arrangement and less control than a wholly owned subsidiary. Having said this knowing Starbucks needed the most control why didnt they go straight for the wholly owned subsidiary? The reason was Starbucks wanted to hedge their bets and minimize as much risk as possible entering a foreign land so if things turned crazy they could exit and cut their losses which would be minimal. Market imperfections theory (internalization) best explains Starbucks approach. Starbucks wants to maintain product quality and brand identity (the Starbucks experience) across a wide range of cultures, taste preferences, work habits and ways of doing business.

Indian Entry
JV with RPG Enterprises a Lesson: Deciding to initiate its business in India, Starbucks made a joint venture with the Indian local retailer, RPG Enterprises in 2006 but the offer got rejected due to issues relating to technique transition and strict regulation on foreign retail companies'. Even though foreign companies can possess up to 51% of equity, this was a big obstacle to Starbucks because strong control of business was the main principle of Starbucks' overseas operation. India boosts FDI in Feb 2009 India permitted outer retailers to own its business in case of holding 51% shares of a joint venture company. , Starbucks reconsidered Indian entry and begun to talk with Jubilant Group' about the alliance.

Starbucks Strategy towards Indian Market:


Starbucks has finally reached the "Jewel in the Crown." The coffee giant, in a partnership with Tata Global Beverages, opened its first store in Mumbai, India amidst "pomp and tempered ambition. But why did it take so much time for one of the world's largest food chains to reach the world's second largest country and Asia's third largest economy? There's one big problem most people in India aren't drinking coffee (only about 80g per capita, according to the International Coffee Organization, compared to 4.11 kg in the US or 3.04 kg in the UK). Instead, tea is king in India. It has been consumed for thousands of years, and is still a staple of the Indian palette. The tea industry itself is also one of the strongest drivers of its economy it accounts for 31 percent of the global production and generates income for millions of people in the country. So Starbucks, a company known for selling coffee, must promote its brand in a country that prefers an alternative beverage. Starbucks does offer tea in its store, but not the same type (nor quality) that one can get in a traditional Indian setting. And although coffee consumption in India has doubled, according to Bloomberg, a growing demand for coffee does not ensure success for Starbucks. So in order to accommodate the differing tastes of the Indian population, the new menu has over 42 items, which "reflect local as well as Western tastes, featuring

items such as Elaichi Mawa croissants made with cardamom and milk solids and tandoori paneer rolls," according to the Associated Press. But people don't just come to Starbucks for a coffee. The coffeehouse culture is just as much a factor in Starbucks' rapid growth as the product it sells. And, as the AP notes, "India is full of young people looking for an unintimidating place to hang out, away from the prying eyes and cramped quarters of home." The new store is a "4,000-square-foot, two-level extravaganza filled with metal trunks, bright curtains and other Indian cornucopia." "It's the most elegant, beautiful, dynamic store we've opened in our history," Shultz said.

7. CONCLUSION STARBUCKS GLOBAL GROWTH PLANS


Starbucks (NASDAQ:SBUX) reaffirmed its leadership position and growth agenda across its global retail, emerging brands and CPG channels at its biennial Investor Conference at New York, December 2012. Starbucks business and brand have never been healthier, and as a company we have never been better positioned to execute against our global, multi-channel growth agenda, Starbucks chairman, president and chief executive officer Howard Schultz said at the companys 2012 Investor Conference. Starbucks will have more than 20,000 retail stores on six continents by 2014 and more than 200,000 points of global CPG distribution by 2015. I am personally committed to seeing Starbucks deliver the innovation, execution and elevated customer experience necessary to achieve both these goals and remain one of the worlds most trusted and admired consumer brands. Exhibit 13: Starbucks Unveils Accelerated Global Growth Plans Innovation, operating leverage and global brand relevancy drive growth across retail and CPG channels

Opening 3,000+ net new stores in Americas region by 2017 Channel Development (CPG) to double its international footprint by 2015 China on track to become second-largest market in 2014 Starbucks VIA Ready Brew, K-Cup packs and now the Verismo System combine to create the strongest and most complete line-up of premium singleserve options in the global coffee industry Social and digital media, loyalty and mobile payment platforms transforming customer experience and deepening connection to customers around the world

Reiterated commitment to leadership position in $40 billion global tea market and reaffirmed intent to acquire Teavana this year Reiterated commitment to profitability in Western Europe

U.S. and China Powering Global Retail Store Expansion


Starbucks regional presidents joined Schultz in outlining the tremendous opportunity that lies ahead as the Company pursues disciplined, profitable growth across its global retail platform.

Cliff Burrows, president, Starbucks Americas and U.S., announced that his region planned to add more than 3,000 net new stores, and renovate thousands more stores, over the next five years. At least half of the new stores are expected to be in the strong, rapidly growing U.S. market where revenue grew by 9 percent in fiscal 2012. Burrows also announced plans to leverage the recently completed Evolution Fresh and La Boulange acquisitions and to increase sales and drive customer frequency throughout the day by making La Boulange products available in more than 2,500 U.S. company-operated Starbucks stores and making Evolution Fresh juices available in more than 5,000 U.S. company-operated stores by the end of 2013. John Culver, president, Starbucks China and Asia-Pacific, said his region the companys fastest growing retail store market will approach 4,000 stores by the end of 2013, including 1,000 in Mainland China, 1,000 in Japan, 500 in Korea and its first store in Vietnam. Culver highlighted China as Starbucks most successful new market entry to date, and announced that China is expected to become Starbucks largest market outside of the U.S. in 2014 and is on plan to have 1,500 stores in 70 cities in 2015. At the conference, Culver noted the positive results achieved so far this quarter. Culver also provided an overview of the hugely successful opening of the companys first three stores in Mumbai, India opened since October and reaffirmed plans to open the companys first store in Delhi in early 2013.

Exhibit 14: CAP Majority revenue contribution from new stores in 2013

New Stores expected to generate majority of revenue in 2013 for CAP regions

Michelle Gass, president, Starbucks Europe, Middle East and Africa, said Starbucks is focused on building brand relevancy, unlocking opportunities in its company-operated stores and accelerating licensing agreements in her region. Gass reaffirmed the companys confidence that the region will achieve meaningful revenue and profit growth over the next five years, and deliver against its goal of mid-teen margins over time. Gass said, Our past performance is not indicative of the sizable and profitable opportunity across EMEA. We have a comprehensive set of initiatives that will build on our investments over the past decade to ensure sustained and healthy profitability for the region.

Channel Development to Double International Footprint by 2015


In the two years since Starbucks outlined plans to leverage innovation, its global retail store footprint and its social and digital media expertise to drive accelerated growth in the companys consumer packaged goods (CPG) business, Starbucks Channel Development has become the companys second largest operating segment, growing 50 percent to $1.3 billion in revenue in fiscal 2012. Jeff Hansberry, president, Starbucks Channel Development and Emerging Brands, announced that he expected his business to double its international Channel Development footprint by 2015, building on its more than 100,000 points of distribution in 20 countries, and to eventually rival Starbucks retail store portfolio in terms of size and profitability. Hansberry also announced exciting plans to expand the companys My Starbucks Rewards customer loyalty program to enable customers to earn Starbucks stars

redeemable for free beverages and food at Starbucks retail stores when they purchase Starbucks-branded products in CPG channels. When the expanded program launches in 2013 it will be the first, and most innovative, cross-channel (retail/CPG) customer loyalty program in the world.

Teavana Acquisition to Globally Transform Tea Industry


Starbucks reiterated plans to vault itself into a leadership position of the $40 billion global tea market with its intended acquisition of Teavana, which the company previously announced on November 14, 2012. The company shared for the first time that it plans over time to offer handcrafted Teavana tea beverages at Teavana mall and neighborhood stores and eventually at Starbucks stores. Once the acquisition is complete, Starbucks and Teavana will together jumpstart the next wave of growth in the tea category, leveraging Starbucks core competencies in handcrafted beverage, real estate and design and integrating these with Teavanas world-class tea authority, merchandising and best-in-class retail store unit economics.

Powered by Starbucks existing infrastructure, Starbucks plans to continue to grow and extend Teavanas already-successful 300 mall-based stores as well as add a highprofile neighborhood store concept that will accelerate Teavanas domestic and global footprint.

Digital and Loyalty Platforms Transforming Customer Connections Beyond Retail


Beyond retail store and CPG channel developments, Starbucks described how its digital and loyalty platforms and initiatives are transforming the way it connects with customers, strengthening brand relevance, delivering greater value and convenience to consumers - and producing greater profits for shareholders. Chief digital officer Adam Brotman described how the companys social, web, mobile, loyalty and card assets differentiate Starbucks from any other retailer and combine to directly drive growth across the companys business and around the world. Brotman announced that Starbucks cards are now used in approximately 25 percent of the companys U.S. transactions and that the amount of dollars loaded on Starbucks cards increased by more than 20 percent last year. He also expects the companys mobile payment platform to account for 10 percent of payments in Starbucks U.S. stores by the end of fiscal 2013.

APPENDIX A STARBUCKS TIMELINE


1971 Starbucks opens first store in Seattles Pike Place Market. 1982 Howard Schultz joins Starbucks as director of retail operations and marketing. Starbucks begins providing coffee to fine restaurants and espresso bars. 1983 Howard travels to Italy, where hes impressed with the popularity of espresso bars in Milan. He sees the potential to develop a similar coffeehouse culture in Seattle. 1984 Howard convinces the founders of Starbucks to test the coffeehouse concept in downtown Seattle, where the first Starbucks Caff Latte is served. This successful experiment is the genesis for a company that Schultz founds in 1985. 1985 Howard founds Il Giornale, offering brewed coffee and espresso beverages made from Starbucks coffee beans. 1987 Il Giornale acquires Starbucks assets with the backing of local investors and changes its name to Starbucks Corporation. Opens in Chicago and Vancouver, Canada. Total stores*: 17 1988 Offers full health benefits to eligible full and parttime employees. Total stores: 33 1989 Total stores: 55 1990 Starbucks expands headquarters in Seattle. Total stores: 84 1991 Becomes the first privately owned U.S. company to offer a stock option program that includes part time employees. Opens first licensed airport store at Seattles SeaTac International Airport. Total stores: 116 1992 Completes initial public offering (IPO), with common stock being traded on the NASDAQ National Market under the trading symbol SBUX. Total stores: 165 1993 Opens roasting plant in Kent, Wash. Announces first two-for-one stock split. Total stores: 272 1994 Opens first drive-thru location. Total stores: 425 1995 Begins serving Frappuccino blended beverages. Introduces Starbucks super-premium ice cream. Announces second two-for-one stock split. Opens roasting facility in York, Pa. Total stores: 677

1996 Begins selling bottled Frappuccino coffee drink through North American Coffee Partnership (Starbucks and PepsiCola North America). Opens stores in: Japan (first store outside of North America) and Singapore. Total stores: 1,015 1997 Establishes the Starbucks Foundation. Opens stores in: the Philippines. Total stores: 1,412 1998 Extends the Starbucks brand into grocery channels across the U.S. Launches Starbucks.com. Opens stores in: England, Malaysia, New Zealand, Taiwan and Thailand. Total stores: 1,886 1999 Acquires Tazo Tea. Partners with Conservation International to promote sustainable coffeegrowing practices. Acquires Hear Music, a San Franciscobased music company. Announces third two for one stock split. Opens stores in: China, Kuwait, Lebanon and South Korea. Total stores: 2,498

2000 Howard Schultz transitions to chairman and chief global strategist, Orin Smith promoted to president and chief executive officer. Establishes licensing agreement with TransFair USA to sell Fairtrade certified coffee in U.S. and Canada. Opens stores in: Australia, Bahrain, Hong Kong, Qatar, Saudi Arabia and United Arab Emirates. Total stores: 3,501 2001 Introduces ethical coffee-sourcing guidelines developed in partnership with Conservation International. Introduces the Starbucks Card. Announces fourth two for one stock split. Opens stores in: Austria, Scotland, Switzerland and Wales. Total stores: 4,709

2002 Establishes Starbucks Coffee Trading Company (SCTC) in Lausanne, Switzerland. Opens stores in: Germany, Greece, Indonesia, Mexico, Oman, Puerto Rico and Spain. Total stores: 5,886 2003 Acquires Seattle Coffee Company, which includes Seattles Best Coffee and orrefazione Italia coffee. Opens roasting facilities in Carson Valley, Nev., and Amsterdam, Netherlands. Opens stores in: Chile, Cyprus, Peru and Turkey. Total stores: 7,225 2004 Opens first Farmer Support Center in San Jose, Costa Rica. Releases Ray Charles, Genius Loves Company CD with Concord Records. Introduces Starbucks Coffee Master Program. Opens stores in: France and Northern Ireland. Total stores: 8,569

2005 Jim Donald becomes president and chief executive officer to replace retiring Orin Smith. Acquires Ethos Water. Announces fifth two-for-one stock split. Opens stores in: Bahamas, Ireland and Jordan. Total stores: 10,241 2006 Launches the industrys first paper beverage cup containing postconsumer recycled fiber. Opens stores in: Brazil and Egypt. Total stores: 12,440 2007 Eliminates all artificial trans fat and makes 2 percent milk the new standard for espresso beverages. Opens stores in: Denmark, the Netherlands, Romania and Russia. Total stores: 15,011 2008 Chairman Howard Schultz returns as chief executive officer. Acquires Coffee Equipment Company and its Clover brewing system. Launches My Starbucks Idea, Starbucks first online community. Launches Pike Place RoastTM, which quickly becomes Starbucks topselling coffee. Opens stores in: Argentina, Belgium, Bulgaria, Czech Republic and Portugal. Total stores: 16,680 2009 Launches Starbucks VIA Ready Brew Coffee. Opens East Africa Farmer Support Center in Kigali, Rwanda. Launches myStarbucks and Starbucks Card iPhone apps and Starbucks Card Mobile payment. Opens stores in: Aruba and Poland. Total stores: 16,635 2010 Expands digital offerings for customers with free unlimited WiFi, Starbucks Digital Network. Seattles Best Coffee reinvents business strategy to extend brands reach. Expands coffee offerings with ultrapremium Starbucks Reserve line and Starbucks Natural Fusions. Opens stores in: El Salvador, Hungary and Sweden. Total stores: 16,858 2011 Celebrates 40 anniversary with updated brand identity and month of global community service. Launches Starbucks K-Cups portion packs. Acquires Evolution Fresh. Opens stores in: Guatemala. Total stores: 17,003 2012 Introduces Starbucks Blonde Roast. Announces Verismo system by Starbucks premium singlecup espresso machine. Opens Farmer Support Center in Manizales, Colombia. Acquires La Boulange bakery brand to elevate core food offerings. Launches Starbucks Refreshers beverage platform. Opens stores in: Costa Rica, Curacao, Finland, Morocco and Norway. Total stores: 20,366 (as of November 16, 2012)
th

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