Starbucks

Presented by: Adam Berger, Justin Buchman, Donald Chase & Suzana Hsu

THE FRAPPUCCINOS

Presentation Outline
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Introduction to Starbucks Industry Overview Company Overview Site Analysis Recommendations for Improvement Focused Recommendation for Improvement Final Action Plan Impact Analysis Wrap Up
The Frappuccinos

Introduction to Starbucks
Company started in 1971 in Seattle, Washington  Grew from 55 stores in 1989 to over 2,200 stores today  Products sold include: - beverages - pastries - whole coffee beans - coffee-related retail items

The Frappuccinos

Industry Overview

The Frappuccinos

Industry Definition  Specialty Eatery Industry – Fits within the largest segment of disposable income spending -.food and beverages – Steady growth in this segment in the 1990’s has led to an abundant number of new companies – As demand for convenience has made eating out a normal routine. the demand for specialty food services has increased in recent years The Frappuccinos .

and store atmosphere differentiation to establish market niche  Industry Costs and Capital Structure – Low to moderate costs for each location – Major start-up expenditures are property and equipment – Major operating costs are labor and cost of sales The Frappuccinos .Industry and Competitive Analysis  Market Structure – Monopolistic Competition  Competitive Activity – Many companies are in the market and competition is fierce – Competitors use location. product mix.

Industry PEST Analysis  Political Influences – Relationships between coffee producing nations and US – State & Local government controls  Economic Influences – Constant demand for food and beverages – Changes in disposable income could influence purchase levels  Social Influences – Consumer preferences could shift from coffee to other beverages  Technological Influences – Use of technology can improve operational efficiencies The Frappuccinos .

Company Overview The Frappuccinos .

Starbucks Corporate Strategy  Maximize market penetration  Provide a relaxing. attractive social atmosphere  Offer high-quality products  Create a great working environment  Achieve profitability The Frappuccinos .

Starbucks SWOT Analysis  Strengths – Largest market share in industry – Differentiated atmosphere  Weaknesses – Aggressive expansion could lead to managerial / financial problems  Opportunities – Whole bean sales in supermarkets  Threats – Lack of ownership of coffee farms can lead to price fluctuations The Frappuccinos .

9% 5.0% Debt-to-Equity 0.4 million Return-on-Assets 8.7% Return-on-Equity 11.7 million Pre-tax Profit Margin 116.Company Financial Performance (1998 FY)         Revenues $1.308.4% The Frappuccinos (% of Sales) 15% 8.4 million Net Income 68.2% .04 12 mo.7 million Gross Margin 195. Revenue Growth 28.

Company Financial Performance (1998 FY) 30% 25% 20% 15% 10% 5% 0% -5% -10% Net Profit Margin ROE ROA Debt/Equ 12-Mo Rev Growth Industry Starbucks The Frappuccinos .

Site Analysis The Frappuccinos .

Site Characteristics      Leased store located on Central Street in Wellesley Store has over 1.000 square feet of office and storage space in the basement Second most profitable store in the fourteen store region Located one block away from Commuter Rail train station and in busy retail shopping area Only one direct competitor (Au Bon Pain) in the area The Frappuccinos .000 square feet of retail space and 1.

983 Fixed Exp.820 %∆ (4.593 C/M 517.237 1997 $796.7%) (3.576 COGS 242.0%) (14.688 262. 945 533.Site’s Operational Results (1998 FYTD – 11 Months)  Financial Operations 1998 Total Sales $760.746 EBIT $150.743 431.923 $101.9%) 47.6% – No money spent on independent advertisement – Local entertainment budget underutilized The Frappuccinos . 367.5%) (7.

$300.000 The Frappuccinos .

Site 7-S Analysis The Frappuccinos .

Site 7-S Analysis  Strategy – Store’s strategy is to create a comfortable Third Place environment – Serve customer a customized high-quality product – Achieve high level of profitability by focusing on high-margin items while generating add-on sales – Minimize overall expenses by focusing on controllable expenses The Frappuccinos .

Site 7-S Analysis  Structure – Functional in structure and relatively flat – Corporate organization is tall with four levels of management above store management B A S S t o r e M t p a n M a a s s is t a n h if t S u e r v a r i s B a as r i s B a as r i s t t The Frappuccinos .

Site 7-S Analysis  Staffing – Location has one manager. stock options. and a free pound of coffee each week – Raises are based on semi-annual performance evaluations with raises ranging from 0-5% – Bonuses are not utilized. dental. an assistant manager and 16 partners – Benefits package includes health. but the location has given away non monetary rewards The Frappuccinos . and vision care. free shift drinks.

Site 7-S Analysis  Systems – Corporate headquarters exercises controls over individual sites – Total Quality Management is specifically built into their processes – Utilizes a large amount of information technology (IT) – Internal controls for the store are determined by the manager based in part on information provided by the IT system The Frappuccinos .

Mgmt. Transfers Stores Sales. Orders. Distributors. Staffing Individual Stores Individual Inventory. Inventory. Inventory. Staffing Individual Stores Corporate IT System Vendors. Future Sales The Frappuccinos .. Budgets. Channel Members Orders.The use of IT at Starbucks Sales.

although this site does not use regular meetings. but instead one-to-one discourse The Frappuccinos .Site 7-S Analysis  Skills – Most important skills include “people skills” and drink preparation ability – Partners receive training to learn about products. brewing methods. and sales techniques – Retraining mainly occurs during new product rollouts.

53 Min No Take Customer’s Order Bottleneck Order? .40 Min No Bottleneck Capacity 114 / Hr The Frappuccinos .53 Min Yes No Pastry? .27 Min .Order Cycle Times Yes Yes Pastry? .

Site 7-S Analysis  Style – Basic management style is Laissez Faire – Management motivates through reviews and raises – Work duties are assigned by shift supervisors – Employees are allowed to use initiative and empowered to make decisions The Frappuccinos .

Site 7-S Analysis  Shared Values (from Mission Statement) – – – – – – – Provide a great work environment Treat each other with respect and dignity Embrace diversity Apply the highest quality standards for products Develop enthusiastically satisfied customers Contribute to the community and environment Recognize that profitability is essential to future success The Frappuccinos .

Alignment of Store with Corporate Strategy Contrary to the mission statement focus. the reduction of staffing levels appears to be more important than developing satisfied customers  The relevance of the benefits package is misaligned considering the average age of employees  The high turnover rate of partners and managers is detrimental to customer environment  The Frappuccinos .

Recommendations The Frappuccinos .

Revamp the employee reward system 2.Recommendations For Improvement 1. not just reduction in staffing The Frappuccinos . Tighten focus on creating the “Third Place” environment 3. Focus profitability measures on profitable sales.

there are few monetary rewards  The Frappuccinos . and semiannual raises. and vision care. dental. as well as the employee stock options  Outside of hourly wage.Revamp Employee Reward System Large percentage of the staff are under the age of twenty  Benefits package focuses on medical.

Improve “Third Place” Environment Site has a very high employee turnover rate  Manager “promoted” to a another store in hopes of improving their poor performance  Site has very poor handicapped accessibility  Condition of restroom in each of our visits was poor and had no baby changing area  The Frappuccinos .

Focus Profitability Measures on More Than Just Staffing Store is underperforming on some high margin product segments  Too high a focus on minimizing direct labor as a key to achieve profitability  Focus on high-margin items and profitable addon sales  By increasing pastry sales by 33%. store would realize a $16K increase in contribution  The Frappuccinos .

Focused Recommendation Improve “Third Place” Environment The Frappuccinos .

Pros and Cons of Discounted Opportunities Revamp the Employee Reward System Pros – Employees are motivated with more incentive to perform – Lower employee turnover rates – Positive reinforcement which leads to higher feelings of job satisfaction Cons – Pay and benefit structures dictated by corporate HQ – Cost of benefits would additional benefits lower site profitability – New reward system requires additional management The Frappuccinos .

) Focus Profitability Measures on More Than Just Staffing Pros – Higher staffing levels benefit other employees – Better customer service – Improved customer focus could lead to higher sales Cons – Staffing is a cost that will decrease profitability – Upper-level management perception of low employee productivity – Employees may get in each other’s way The Frappuccinos .Pros and Cons of Discounted Opportunities (Cont.

e.Three-Step Action Plan For Improvement  Decrease employee turnover rate – Focus on hiring older employees where benefits package is more appropriate – Base raises on performance rather than maximizing raises for economic reasons – Develop and actively maintain a reward system for employees (i. employee of the month) – Develop a system of regular employee communications / meetings The Frappuccinos .

Action Plan (cont.)  Improve site accessibility and cleanliness – Upgrade front door and restrooms for handicapped accessibility – Add a baby changing station – Redesign restroom to separate cleaning supplies from bathroom or move cleaning supplies to another location – Focus employee attention on restroom cleanliness The Frappuccinos .

have book / poetry readings.Action Plan (cont.)  Enhance Starbuck’s differentiated atmosphere – Utilize entertainment budget to hire outside entertainers. etc. – Display the store’s collection of games and activities more prominently – Make the location more of a “scene” The Frappuccinos .

 By focusing on site accessibility and cleanliness. it will become a more attractive place to go.Impact Analysis .  The Frappuccinos . the physical facility will not detract from atmosphere. and by rewarding employees based on merit current turnover rates will be reduced.Benefits By focusing on the initial recruitment and hiring stage.  By improving Starbucks’ atmosphere.

Potential Risks Customers may not react positively to the changes being made  Not enough available employees to meet realigned hiring needs  Claims of age discrimination and negative affect on sales in youth demographic  Costs associated with planned change  The Frappuccinos .

but there are still opportunities for improvement  The Frappuccinos .Wrap-Up Starbucks is the market leader in a growing market segment  Starbucks is known world-wide for its highquality food products and differentiated “Third Place” atmosphere  The Wellesley location embodies the ideals of the corporate mission and has been very profitable.

Conclusion / Questions The Frappuccinos .

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