STARBUCKS CASE SOLUTIONS

1. In the beginning, how was Starbucks different from other coffee options for coffee drinkers in the
United States? What activities and assets did Starbucks leverage to differentiate itself from
competitors?
Starbucks offered some of the worlds finest fresh-roasted whole bean coffees. In addition to being
expensive Starbucks coffee also tasted different as compared to other typical American coffee options.
Starbucks also roasted its beans in its own carefully controlled facility where they were given a robust
European style flavor called Charbucks and subsequently shipped to its stores where they were
ground immediately before brewing in order to maintain its freshness, flavor and aroma and ensure
maximum quality. Even the Espresso drinks at Starbucks were prepared differently by a barista using a
La Marzocco machine by steaming milk to the right temperature, scooping elegant drops of foam for all
cappuccinos while still making conversation with their customers. In order to differentiate themselves
from its competitotrs, Starbucks aimed at customers from affluent locations by aspiring to offer them a
lifestyle product that many customers believed was cooler, richer and more sophisticated than other
coffee stalls. They were willing to pay a premium for this.

2. When Starbucks was rapidly expanding its store locations in 20062009 it made specific changes in
order to facilitate that growth. What did Starbucks gainand give upas a result of each change?
Within five years, Starbucks had grown to nearly 5,000 stores. In 2007 Starbucks operated 15,000 stores
and in the same year publicly announced a goal to open 40,000 locations worldwide, with 20,000 in the
US alone. In conjunction with this expansion, Starbucks made some operational changes. Starbucks
replaced the La Marzocco espresso machines with push button Verismo machines. This decision
simplified the hiring and training of baristas since the Verismo machines produced a uniform product
with less operator training. It also reduced the time to pull an espresso shot from 60 seconds to 36
seconds. However, the height of the Verismo machines grinding apparatus blocked the customers view
of the barista, and the simplicity of the machine eliminated much of the romance and theater that
accompanied a baristas customized preparation of each order. Certain longtime customers insisted that
the new machines produced inferior espresso remarking on the quality of their serves. Since measuring
and grinding beans for every pot of coffee was time consuming and hampered the stores ability to meet
the 3 minute service goal, Starbucks stopped shipping coffee to its stores as whole beans to be ground
throughout the day and instead shipped air tight packs of pre ground beans that it claimed would
maintain their flavor for one year. This affected the consumers perception of the quality of their beans.
Starbucks also limited any new stores being opened to four standardized design templates thereby
affecting the look and feel of their stores. Due to tremendous expansion, merchandise displays in the
stores were inconsistent and many stores did not carry basic coffee making items such as filters and
french presses. There was also a lack of Internet connectivity affected Starbucks popularity among its
customers as a Wifi hotspot. During its expansion, Starbucks forayed into music.
3. When Schultz returned to Starbucks as CEO in 2008, how had the competitive context changed
since his first tenure running the firm? What had caused or facilitated the changes?
When Schultz was CEO until 2000, Starbucks was a upcoming retail coffee store in an unorganized and
undervalued sector of coffee selling outlets. The quality of coffee being sold was not good and there
were limited options for good quality coffee outlets in the US. This presented Starbucks with a unique
opportunity to brand itself as a premium coffee outlet and distinguish itself by selling high quality
roasted coffee beans and hot beverages. However in 2008, the market was filled with various stores
seeling high quality coffee with their own distinguishing points. Many independent coffee retail stores
had come up offering strong competition to Starbucks. Even fast food restaurants such as Dunkin
Donuts and McDonalds had started offering specialty coffee with various low priced and quality
offerings for coffee drinkers. Hence the scenario had drastically changed in 2008 leading Starbucks into a
financial crisis prompting Schultz to return as CEO in 2008.

4. Why did Schultz respond the way he did to the changes he found in 2008? What was he trying to
achieve? Were his responses effective or ineffective?
Underperforming stores were closed as part of a broader strategy aimed at reducing operating costs.
Through a combination of procurement savings, improved logistics, reduced operations waste, and labor
cost savings, Starbucks cut $580 million in operating costs in 2009. Starbucks also introduced a new
roast of coffee, Pike Place Roast during this period. Despite these and other actions, over the next
fifteen months Schultz watched the stock price of Starbucks decline to half of its peak value thereby
showing that these initiatives were majorly ineffective.
5. Did the introduction of VIA make sense in light of the market and the companys other actions?
Yes, since the scenario of the market was changing and the instant coffee represented a $20 billion
market with huge opportunity to reach more consumers. However, instant coffee was perceived to be a
down-market category. Schultz predicted that VIA would create additional usage occasions for coffee,
which would increase sales of the entire instant coffee category. However, this category only accounted
for $700 million in sales in the United States which is about 8 % of the overall market. Its taste however
was quite similar to its store sold coffee. After just 1 year, global sales of VIA topped $135 million. This
made it the no 5 instant coffee brand by volume in the US, taking share from other brands, including
market leader Folgers instant. Hence introduction of VIA seems like a lucrative and viable action in that
context.