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Case analysis

[STARBUCKS IN 2012]

Table of Contents
I.

Executive Summary ................................................................................................................. 2

II. Case Analysis ........................................................................................................................... 3


1. Company and Industry overview.......................................................................................... 3
2. Starbucks Strategic Direction .............................................................................................. 5
3. Competitive Strategy Analysis ............................................................................................. 7
4. Financial Analysis ................................................................................................................ 8
5. Internal Analysis ................................................................................................................. 10
6. SWOT Analysis .................................................................................................................. 12
7. Recommendations .............................................................................................................. 16
III.

Conclusion .......................................................................................................................... 19

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I. Executive Summary
Starbucks was founded in 1971, opening its first location in Seattles Pike Place Market, is a
leading specialty coffee roaster and retailer today in the world. Starbucks retail stores not only
sale the high-quality coffees but also offer Italianstyle espresso beverages, cold blended
beverages, complementary food items, coffeerelated accessories and equipment, premium teas,
and a line of compact discs. The companys brand portfolio includes Tazo teas, Starbucks Hear
Music compact discs, Seattles Best Coffee, and Torrefazione Italia coffee.
From the original strategic vision of offering a welcoming experience for customers, being part
of their community, and becoming a warm third place that is part of their lives every day and
that it can provide a superior cup of coffee, Howard Schultz Starbuckss CEO had evolved it
based on the difference required during companys development. His evolving strategy changed
as his strategic vision evolved to ensure that crafting and executing strategic under the future
direction and still adapt to the change of circumstances and conditions. With the broad
differentiation strategy, Starbucks always focus on building its standing in the midst of customers
by offering differentiating features and factors. Along with understanding customers, not only
knowing how to keep them but also telling the way to attract more is the strong point of Starbucks,
which resulted from the good policies, practices, business principles, procedures and high
evaluated social responsibility that created a good public image as well. Moreover, take
advantages of his capabilities and experience, Schultz links tightly between vision and the core
values of Starbucks. However, everything has its drawbacks and so does Schultzs management.
The more important thing is finding out the effective recommendations to sustain the companys
growth and support continued strong financial performance in the years ahead.
According to Michael Porter, the most important thing that makes strategy succeed is neither
winning the rivals nor earning more and more profit, it is the unique and difference of goods and
services that contribute to represent the companys competitive advantages. In essence, Schultz
had crafted a winning strategy and the detail analysis below will show how it passed Fit Test with
external, internal and dynamic fit, The Competitive Advantage Test with achieving long-lasting
competitive advantage and the last, The Performance Test with two strong performance indicators:
competitive strength and market standing, and profitability and financial strength. When it comes
to a conclusion, the success of Starbucks comes from a winning strategy which has a good fit,
offer a competitive advantage and contribute to performance improvements.

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II. Case Analysis


1. Company and Industry overview
Company overview
Starbucks began as a whole bean coffee seller in Seattle, Washington at Pikes Place in 1971, when
the three academics, English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon
Bowker opened Starbucks Coffee, Tea, and Spice. Initially, Starbucks ordered coffee bean
supplies from a specialty coffee retailer in Berkeley, California, but toward the end of the first
year, they purchased a used roaster from Holland, set up roasting operations, and came up with
their own blends and flavors.
In 1981, Howard Schultz decided to pay Starbucks a visit. When arriving at the Pikes Place store,
Schultz was immediately taken by the powerful and pleasing aroma of the coffee. After taking
three sips of the brew, Schultz was hooked. He began asking questions about the company and its
ways of roasting coffee. On his return trip to New York, Schultz could not stop thinking about
Starbucks and what it would be like to be a part of the enterprise. But it took a year, numerous
meetings for Schultz to have his job in Starbucks.
In 1984, the original owners of Starbucks, led by Jerry Baldwin, took the opportunity to purchase
Peet's. 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.
In August 1987, - who left Starbucks in late 1985 and formed his own company, Il Giornale Coffee
Company, bought Starbucks and combine with his own Company. The name of the combined
company is Starbucks Corporation, and Howard Schultz became Starbucks president and CEO
at the age of 34.
By 1989 there were 46 stores across the Northwest and Midwest in 1989 and Starbucks was
roasting over 2,000,000 pounds 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. From the IPO, Starbucks stock price continuously increase over time, even
after 2-for-1 stock split, its stock price is often higher than or at least equal to half of the previous
price. For instance, the price change from $48.25 to $27.50 after a 2-for-1 split in Sep 30, 1993.
In 1996, Starbucks opened its first location outside North America in Tokyo, Japan. Starbucks
entered the U.K. market in 1998 with the $83 million acquisition of the then 65-outlet, UK-based
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Seattle Coffee Company, re-branding all the stores as Starbucks. From there, Starbucks started to
expand its business all over the world.
In 2012, Starbucks has more than 18,000 stores worldwide and 13.3 billion U.S. dollars in total
revenues (about 11% higher than its total revenue in 2011). Today, at least one in a hundred cups
of coffee served every day is Starbucks and it's estimated to have 32.6% shares in the market.

Industry overview
Coffee stores takes up the speed growth part of the restaurant business, more than 70 billion cups
of coffee consumed each year, retail coffee stores have great developing potentiality. However,
as many international giants enter the retail coffee industry, especially the chain restaurant, for
instance, McDonald launched serve coffee, which intensifies the competition further, that is result
in the demand of coffee is increasing, the fierce competition also increased the buyer bargaining
power. In addition, because the market has been maturity, the industry growth rate is growth
slowly. Faced with this situation, Starbucks need to improve the core competitiveness to achieve
the maximum profits in the retail coffee industry.

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2. Starbucks Strategic Direction


In 1983, Howard Schultzs original strategic vision for Starbucks was There was much more to
the coffee business than just selling beans and getting people to appreciate grinding their own
beans and brewing fine coffee in their homes. What Starbucks need to do was serve fresh-brewed
coffee, espressos and cappuccinos in its stores (in addition to beans and coffee equipment) and
to try to create an American version of the Italian coffee vary culture. Going to Starbucks should
be an experience, a special treat, a place to meet friends and visit.
1987-1992, Schultz told that his vision was for Starbucks to become a national company with
values and guiding principles that employees could be proud of. He aspired for Starbucks to
become the most respected brand name in coffee and for the company to be admired for its
corporate responsibility.
In 2010, Schultzs long-term vision for Starbucks had seven key elements:
Engage and inspire Starbucks partners.
Ignite the emotional attachment with the customers.
Expand the global presence while making each store the heart of the local neighborhood.
Be a leader in ethical sourcing and environmental impact.
Create innovative growth platforms worthy of the coffee.
Deliver a sustainable economic model
Be the undisputed coffee authority.
It is very clear that Schultzs vision has changed three times and the latter was different from the
one before. The difference comes from the change in the position of Starbucks in marketplace and
its future direction. Coming up with a new vision means that Schultz had reached the previous
and decided the new challenges to conquer. Therefore, each changed vision provided the solid
background for the next that contributed to the reputation, the expansion and success of Starbucks.
His strategic vision for Starbucks in 2011-2012 is not likely to undergo further evolution. Instead,
he prefers a sustainable economic model to maintain Starbucks standing as one of the most
recognized and respected brands in the world.
In essence, the first standing in marketplace required Starbucks not outperforming the rivals but
keep the image as something unique in the customers mind, which Schultz realized and directed
for the future.

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In fact, Starbuckss vision had changed over time. In 1983, Howard Schultz set a vision to
transform Starbucks to be an American version of Italian bar coffee that serve fresh-brewed
coffee, espressos and cappuccinos in its stores instead of beans and coffee equipment. Following
up his vision, he started to convince Baldwin and Bowker then his idea was approved a year later
and it had created many successions. However, when he wanted to take this opportunity to make
Starbucks enters a new level, his proposal was declined so he decided to leave the company,
created II Giornale Coffee to apply his initial idea and he received many achievements. In March
1987, Starbucks was sold and Schultz immediately knew that he had to buy it back. Thus, he
became the CEO of Starbucks and started to apply his initial idea. Schultz did not just stop there.
After being the CEO and president of Starbucks, his vision for Starbucks was to become a national
company with values and guiding principles that employees could be proud of. He combined
Starbucks and II Giornale Coffees logo to create the new one to symbolize the integration of the
two companies. Then, he decided to make an expansion outside the Pacific Northwest. Schultz
firstly opened the store in Chicago but it proved more troublesome than management anticipated
due to different coffee flavor also inconvenience location. However, the situation was gradually
improved and Starbucks started to open another branch and profit was increase. He kept follow
up with his idea to transform Starbucks into a worldwide company by opening stores in San
Francisco and this time he had far more troubles.
However, overall, Schultzs store expansion proved to be more easier to meet that he original
anticipated. His vision to make Starbucks becomes a worldwide company can be proved in his
strategy to applied a new way of design each stores that must reflect the environment which it
operated and was to be environmental friendly in order to gain LEED certification. The company
also centralized buying, developed standard contracts and fixed fees for several items in order to
control average store opening cost. He dreamed to make Starbucks become a welcoming a
pleasant third place where people could meet friends and family, enjoy quiet moment alone
reading books In 2002, Starbucks teamed up with T-Mobile USA to provide Internet access to
heighten third place experience. In 1992 and 1993, Starbucks developed a three-year geographic
expansion strategy to target areas that not only had favorable demographic profiles but also could
be serviced and supported by the companys operations infrastructure. However, in recent years,
Starbucks strategy in major metropolitan cities had been to blanket major cities with stores, even
if some stores cannibalized a nearby stores business.

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In 2010, Schultz set up a long-term vision for Starbucks that he undertook a series of moves to
revamp the companys executive leadership team and change the role and responsibilities of
several key executives. He also brought out several reshuffle in order to make Starbucks perform
better.
It is clearly seen that Schultz had fulfilled his strategic vision by setting up different strategy even
though some strategies had to cope up with several problems at first time. With Schultzs clear
vision and strategy, he has systematically transformed Starbucks from a small-size company to a
well-known international brand.

3. Competitive Strategy Analysis


As they provide a high quality coffee and unique experience in the convenience of a large volume
of locations, which separates them from their competition, it is clear that Starbucks gets their
success by A Broad Differentiation Strategy.
The first evidence for the broad differentiation strategy is that Starbucks. Since its founding,
Starbuck has a bedrock value of top quality, fresh roasted and whole bean coffee. They always try
to guarantee the quality of the input. Starbucks promotes environmentally sustainable practices in
coffee cultivation methods and has specific guidelines they follow called Coffee and Farmer
Equity Practices that help farmers to grow high quality coffees in environmentally beneficial
ways. In 2000, they began purchasing their coffee organically and a growing percentage of their
coffees were grown organically as well as Fair Trade Certified. The founders wanted their
customers to appreciate the quality of different flavor of coffee. Starbucks also has an immense
number of products in which they offer compared to its competitors. They offer everything from
the specialty coffees sold in stores to ice cream, t-shirts and other merchandise, liqueur, food
products, and so on.
Secondly, Starbucks has a broad market and they are able to meet the needs of a multitude of
consumers. They are able to reach the more on-the-go customers through their VIA Ready Brew,
health conscious customers with their Vivanno smoothies, at home consumer through their
grocery store sales, as well as international consumers through their overseas expansion.
Thirdly, Starbucks has successfully satisfied the variety of customers by improving customer
service and adding additional features. Howard Schultz was so sensitive that he realized one key

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problem of first-time consumers who often take it very hard on their absence of knowledge about
high-quality coffee so then he could came up with the idea of a pamphlet to teach new customers
about coffee. The additional features that Starbucks offers are fireplaces, couches, music, Wi-Fi
access, ability to use paid sites and services like Wall Street Journals site, exclusive content and
previews, free downloads, local community news, and activities.
Besides, Starbuck also pursued production R&D activities. Starbucks is constantly brewing new
flavors and blends to offer their consumers a variety of coffee to try. Flavors are rotated daily or
weekly to offer constant variety. They also test new product offerings like Frappuccinos, Lattes,
Skinny Lattes, and seasonal drinks.
Starbucks increase intensity of marketing and sales activities. Starbucks did not spend a lot of
money on advertising, because they relied mostly on word-of-mouth. In 2008 McDonalds
stepped up their advertising to highlight their McCafe coffee drinks. In order to counter this
Starbucks undertook the largest advertising campaign ever.

4. Financial Analysis
Financial Highlights:
Consolidated operating income was $1.7 billion for fiscal 2011 compared to $1.4 billion in
fiscal 2010 and operating margin increased to 14.8% compared to 13.3% in fiscal 2010.
The operating margin expansion was driven by increased sales leverage, partially offset by
higher commodity costs. Comparable store sales growth at company-operated stores was
8% in fiscal 2011 compared to 7% in fiscal 2010.
EPS for fiscal 2011 was $1.62, compared to EPS of $1.24 reported in fiscal 2010, with the
increase driven by the improved sales leverage and certain gains recorded in the fourth
quarter of fiscal 2011. It is recognized a gain from a fair market value adjustment resulting
from the acquisition of the remaining ownership interest in their joint venture in
Switzerland and Austria as well as a gain on the sale of corporate real estate. These gains
contributed approximately $0.10 to EPS in fiscal 2011.
Cash flow from operations was $1.6 billion in fiscal 2011 compared to $1.7 billion in fiscal
2010. Capital expenditures were approximately $532 million in fiscal 2011 compared to
$440 million in fiscal 2010. Available operating cash flow after capital expenditures during

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fiscal 2011 was directed at returning approximately $945 million of cash to their
shareholders via share repurchases and dividends.
Fiscal Year Ended

Oct 2,

Oct 3,

Oct 2,

Oct 3,

2011

2010

Change

2011

2010

% of Total Net
Revenues

Net revenues:
Company-operated stores . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,632.4

Licensed stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CPG, foodservice and other . . . . . . . . . . . . . . . . . . . . . . .
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,963.5

7.5%

82.3%

83.7%

1,007.5

875.2

15.1%

8.6%

8.2%

1,060.5

868.7

22.1%

9.1%

8.1%

$10,707.4

9.3%

100.0% 100.0%

$11,700.4

Consolidated net revenues were $11.7 billion for fiscal 2011, an increase of 9%, or $993 million
over fiscal 2010. The increase was primarily due to an increase in company-operated retail
revenues driven by an 8% increase in global comparable stores sales (contributing approximately
$672 million). The increase in comparable store sales was due to a 6% increase in number of
transactions (contributing approximately $499 million) and a 2% increase in average value per
transaction (contributing approximately $173 million). Also contributing to the increase in total
net revenues was favorable foreign currency translation (approximately $126 million) resulting
from a weakening of the US dollar relative to foreign currencies and an increase in licensed stores
revenues (approximately $106 million). This increase was partially offset by the impact of the
extra week in fiscal 2010 (approximately $207 million).
Net interest income and other increased $66 million over the prior year. The increase primarily
resulted from the gain recorded in the fourth quarter of fiscal 2011 related to their acquisition of
the remaining ownership interest in their joint venture operations in Switzerland and Austria
(approximately $55 million).
Overall, Starbuck is on average a healthy and profitable company. The only years that they saw a
decrease in sales was during the recession which is quite common in most companies. However,
Howard Schultz had a plan for this decline in sales in which he cut stores, and made sure to refocus
the company on sustaining growth. In fact, in 2011 Starbucks gave out its first ever dividend to
shareholders or $.10 per share. This is a good sign for the financially health of Starbucks.

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5. Internal Analysis
Store Expansion
Starbucks managements approach to store expansion is using a hub city approach. After a suitable
demographic area is chosen Starbucks begins to open up stores in a large city that serves as its
hub. After about 20 stores are opened in this hub city, they will then move on to the surrounding
areas that are the spokes. This expansion strategy serves to create buzz and brand recognition for
the company in an area that has a high amount of foot traffic before moving into a location that
has less customer traffic. When a new area was selected for expansion a group of professionals
were sent to facilitate the opening. Starbucks also had zone vice presidents who would oversee
the expansion process and instill the culture of Starbucks in the new stores.

International Expansion
When expanding internationally Starbucks has two options; they either open company-owned and
operated stores or license to a company that has a good reputation and the knowledge of retailing
in that area. Starbucks prefers to license, rather than franchise because licensing provides more
assurance of quality control. When they move into foreign markets one of their practices is to use
a partner or license to help recruit individuals for employees, set up relationships with suppliers,
find store locations, and learn how to cater to local market conditions. For stores that were licensed
Starbucks would receive a license fee and a royalty on sales. Companies that were licensed to
supply Starbucks coffee were required to follow their detailed operating procedures. Not only was
that, but managers and employees required to attend the same training as employees at companyowned stores.

Staff Training
As mentioned above, employees are put through an extensive amount of training to learn daily
practices and how to treat customers. They are put through this training because customer service
is so integral to their organization. Some of the things that baristas learn in their 24 hours of
training are coffee history, drink preparation, coffee knowledge, customer service, retail skills,
and beverage preparation.
Beverage preparation includes grinding the beans, steaming milk, pulling a perfect shot of
espresso, memorizing the recipes, practicing the drinks, and learning how to customize drinks.
Finally, partners were trained on cash register operations, how to clean the milk wand, how to
explain Italian drink names, how to sell espresso machines, making eye contact, interacting with
consumers, and taking responsibility for the cleanliness of the store. Not only that but they had
many rules that needed to be learned as well such as: milk needs to be steamed to 65.5 degrees
Celsius but not more than 76.6 degrees, an espresso shot not pulled within 23 seconds needs to be
thrown out, coffee cant sit in the pot more than 20 minutes, and disgruntled customers were given
a coupon for a free drink. Managers were required to go even more in depth with their training.
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Ethical Business Principles


Starbucks purchases products that are Fair Trade Certified, meaning that farmers make a fair
amount of money for their products. They are very involved in Corporate Social Responsibility
and take a number of measures to reduce, reuse, and recycle. They are also committed to
purchasing from companies that use environmentally sustainable growing practices.

Coffee Roasting Practices


Coffee recipes are put together by the coffee department once all components have been tested.
In order to be sure of consistency computerized roasters are used, trained personnel are required
to monitor the process by using hearing and their sense of smell to check when the beans are
perfectly done. There are extremely exacting standards that must be met and the color of the beans
is tested in a blood-cell analyzer and if it doesnt meet the requirements the batch is discarded.
Directly after roasting and cooling coffee is vacuum-sealed into bags that are guaranteed to
preserve freshness for 26 weeks. However, policy says that after three months they need to be
used. Once opened the shelfs life is seven days.
For all of these, Howard Schultz has done a good job since his return as Starbucks CEO; he can
get the good grade for what he has done for improving Starbuck.
When Schultzs relinquishment as Starbucks CEO (2000) , the aggressive growth of company
had led to a watering down of the Starbucks experience so that in 2008, the Starbucks board
asked Howard Schultz to return to his role as CEO and lead a major restructuring and revitalization
initiative.
It isnt difficult to see the positive results because of Schultzs cost containment and efficiency
campaign
- The productivity of Starbucks employees in USS increased from 9.8 transactions per labor hour
in 2008 to 11.3 in 2011.
- The percentage change in sales at company-operated retail stores open at least 13 months had
risen from -9 percent in 2009 to +9 percent in 2012.
- Company began to open thousands of new stores in 2010.
When Howard Schultz returns as Starbucks CEO, he can get the good grade for what he has done
for improving Starbuck:
- Revamp executive leadership team; change the roles and responsibilities of key executives
- Push the company to new plateaus of differentiation and innovation
- Strengthen the core, elevate the experience, and invest and grow

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6. SWOT Analysis
Starbucks Corporation (Starbucks) is a roaster, marketer and retailer of specialty coffee. Global
retail footprint and expanding operating margin are its key strengths, even as, overdependence on
the US market remains a major area of concern. Entry into emerging markets like India, business
expansion through setting up new stores across various geographies and acquisition of related
companies could present ample growth opportunities to Starbucks. However, supply of high
quality Arabica coffee beans, intense competition, and legal proceedings could have an adverse
impact over the business, operating results and financial condition of the company.

Starbucks Strengths
Strength - Expanding Operating Margin
Starbucks reported strong rise in its operating margin in 2011 as compared to the previous year.
It reported operating margin of 14.8% in 2011 as compared to 13.3% in 2010. The U.S.,
International, and CPG segments reported operating margin of 19.4%, 13.3%, and 31.7% during
2011. The company reported operating income of $1.7 billion, an increase of 22% over the
previous year. This was mainly driven by leveraging efficiencies and tightly managing operating
costs. For instance operating costs as a % of sales reduced from 86.7% in 2010 to 85.2% in 2011.
This operating margin was above the S&P 500 companies average of 7.26%. A higher than S&P
500 companies average operating margin indicates efficient cost management or a strong pricing
strategy by the company. Overall, such rise in operating margin under tight consumer spending
reflects Starbucks management's high focus on improving its profitability.
Strength - Global Retail Footprint
The company has marked strong market presence across the world which has allowed it report
strong revenues during the fiscal year ended 2011. As at October 2, 2011, Starbucks operated a
total of 17,003 stores across 55 countries comprising of 9,031 company-operated stores and 7,972
licensed stores. It expanded its global footprint by opening 144 international stores and 142
company-operated stores during the fiscal year ended 2011. The company holds more than 500
stores in the US, Canada, the UK, and Japan markets; more than 250 stores in China, South Korea,
and Mexico; and has less than 250 stores across all other countries, indicating opportunities for
further growth. As at January 1, 2012, the company had 9,085 company-operated stores and 8,159
licensed stores. For 2012, Starbucks plans to open 800 net new stores and remodel 1,700 existing
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stores in the US, indicating its interest to grow its business and market shares over the next few
years.

Starbucks Weaknesses
Starbucks sells its products through retail channels in the Asia Pacific, Europe, Middle East and
African regions. Even though it has operations worldwide, the contribution of revenues from the
international segment is very less. A significant amount of Starbucks sales are generated from the
US region. The companys operations are principally located in the US. During the fiscal year
ended 2011, Starbucks generated about 69% of its total sales from the US segment, while its
International segment accounted for just 22.4%. The US economy is recovering very slowly and
any such macro-economic factors slowing its revenue generation or decline in its business and
financial performance from the US segment could have an adverse effect over its operating cash
flows. Such low cash flows could limit the availability of funds for Starbucks international
business expansion and generating returns for its shareholders.

Starbucks Opportunities
Opportunity - Inorganic Growth Opportunities
In line with its business strategy, Starbucks pursues inorganic growth opportunities through
acquiring related businesses across is area of operations. In November 2011, the company
acquired Evolution Fresh, Inc. for $30m in cash. This has marked Starbucks entry into the $1.6
billion super-premium juice segment as well as represents its intentions to fully enter the $50
billion Health and Wellness sector. In March 2012, the company opened its first Evolution Fresh
store in Bellevue, Washington, positioning it as a leader in the cold-crafted juice category. This
acquisition is expected to offer Starbucks opportunities to innovate new products, enter new
categories, and expand its distribution channels.
Opportunity - Business Expansion
Starbucks has been constantly investing in expanding its global presence by opening retail stores
across the world. In February 2012, the company and its licensed partner SSP opened Norways
first Starbucks coffeehouse at Oslo Airport. This relationship with SSP aligns with Starbucks to
open stores where customers expect them to be and meets the growing demand for high quality

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coffee and service in the travel channel. In January 2012, Starbucks along with its joint-venture
partner Corporacin de Franquicias Americanas (CFA) announced that it would open its first
Starbucks store in San Jose, Costa Rica in May 2012. In December 2011, Starbucks and Alshaya
Morocco S.A.S opened their first two stores in Morocco, at the Morocco Mall. A third store is
planned to open in March on the Boulevard dAnfa. Such continued effort in setting up new
Starbucks stores would enhance its global footprint and its possibilities to generate higher
earnings.
Opportunity - Emerging Market Entry: India
Starbucks has made an initiative in entering into India. In January 2012, Starbucks and Tata Global
Beverages Limited have entered into an agreement to establish a 50/50 joint venture company,
TATA Starbucks Limited, which will own and operate Starbucks cafs which will be branded as
Starbucks Coffee A Tata Alliance. Initially, the retail stores will be developed in Delhi and
Mumbai in calendar 2012. In another souring and roasting agreement between Starbucks and Tata
Coffee Limited, TCL will roast coffee to supply TATA Starbucks Limited, and to export to
Starbucks. This joint venture is expected to expand the range of offerings such as high quality
Arabica coffee, handcrafted beverages, locally relevant food, and legendary service for Indian
consumers. Overall, this joint venture is expected to present opportunities to innovate in the retail
space and bring new beverage experience to Indian consumers. Sharing common values of
responsible business ethics and a commitment to community, Starbucks and Tata, would gain trust
and respect of their customers and partners, growing further in their businesses.

Starbucks Corporation - Threats


Threat - Legal Proceedings
Starbucks notified Kraft Foods Global, Inc. (Kraft) that it will discontinue its distribution
arrangement with Kraft on March 1, 2011 due to material breaches by Kraft of its obligations
under the Supply and License Agreement dated March 29, 2004. In December 2011, Kraft
announced to sought for a preliminary injunction in the U.S. District Court for the Southern
District of New York against Starbucks Coffee Company for violating terms of the roast and
ground coffee agreement. This is to stop Starbucks from proceeding as if the agreement has been
terminated, when, in fact, the contract is still in force. Outcome of this litigation is still pending.

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Any uncertain outcome of these cases could affect the companys operating performance in
upcoming years.
Threat - Intense Competition
The company's competitors for coffee beverage sales include quick-service restaurants and
specialty coffee shops. Its current market is highly competitive and with the entrance of more new
players, the level of competition is expected to further intensify in the near future, which may
result in price reductions. Starbucks competes with various manufacturers and distributors of
coffee products, having substantially greater financial, marketing and distribution resources. The
companys other competitors include specialty coffees sold through supermarkets, specialty
retailers and a growing number of specialty coffee stores under the whole bean coffee segment.
Besides, Starbucks whole bean coffees and its coffee beverages compete indirectly against all
other coffees in the market. Starbucks Specialty operations face significant competition from
established wholesale and mail order suppliers. The company's major competitors include Caribou
Coffee Company, Inc., Green Mountain Coffee Roasters, Inc., McDonald's Corporation, PepsiCo,
Inc., The Procter & Gamble Company, Kraft Foods Inc., and Nestle USA, Inc. If the company is
not able to maintain the product quality and consumer loyalty, this intense competition could
reduce the sales volume of the company, thereby hampering its market position.
Threat - Supply of High Quality Arabica Coffee Beans
The companys business depends on the availability of high quality Arabica coffee beans.
Starbucks roasts Arabica coffee beans from various regions to produce different types and blends
of coffee. The political and economic situation in many of those regions, including Africa,
Indonesia, and Central and South America, could become unstable, which in turn might affect the
companys ability to buy coffee from those parts. If Arabica coffee beans from a particular market
become unavailable or become too costly, then the company may be forced to withdraw particular
coffee types and blends or replace coffee beans from other regions. Frequent substitutions and
changes in coffee product lines could lead to cost increases, customer alienation and fluctuations
in the gross margins. Thus, the political wavering in coffee growing regions could result in a
decrease in the availability of high-quality Arabica coffee beans needed for the continued
operation and growth of Starbucks business.

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7. Recommendations
As of the mid-2012 the recession was the biggest issue confronting Starbucks, as was how to deal
with the recent decline in sales caused by the recession. Management should be extremely worried
about this seeing as never before had they had a decline in sales. Starbucks must confront the issue
of their higher prices compared to their competitors. With the recession people are less willing to
spend money on simple things like coffee every morning. Starbucks must reconnect with
customers reminding them of the high quality of the coffee and even perhaps they should slightly
lower their price point, because it is higher compared to other coffee shops.
They also faced the challenges of expanding internationally. Breaking into international markets
is always hard for companies. One reason it is hard to break into international markets is due to
the lack of brand awareness. Since Starbucks was started as an American company there is a good
chance that in other countries their awareness of Starbucks and what it stands for may be weak.
This reduces the chance of a companys success drastically. Also Starbucks has always
emphasized that the atmosphere of each store location corresponds with the geographic location.
If Starbucks were to continue to expand internationally they would need to put a great deal of time
and money into researching the customs and atmosphere of the countries they were moving into.
Expanding internationally is extremely difficult to do.
Nowadays, Starbucks has the certain position in the beverage market not only in American but
also many places in the world. So that, to keep Starbucks sustain development and continued
strong is not easy tasks. Depend on the issues of Starbucks, we can recommend some possible
ways:
K-Cup Availability: The Keurig system has become increasingly popular within the United
States. Especially during the recent recession when consumers are more likely to make
coffee at home than buy it on their way to work. This opens up an opportunity for Starbucks
to break further into the at home coffee market. The Keurig machines brew single cups of
coffee using their K-Cups, which are easily disposable after use. This system allows you
to make coffee mess free and quickly at home. Starbucks could easily partner with Keurig
in order to create Starbucks K-Cups for sale. They could start with basic blends of
Starbucks coffee for sale in local grocery stores. Starbucks competitors such as Dunkin
Donuts have already broken into this market, and I believe it would be a golden opportunity
for Starbucks to do the same.

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Supplier: Coordinate with suppliers to address consumers needs better, by coordinating


with the farmers and growers they source their beans from they will be able to add value
to their product. They have been doing this by purchasing Fair Trade coffee and organically
grown products. They need to continue to increase this initiative and to take part is
environmentally-friendly initiatives that add value to their customers.
Partnership: Continue with their partnerships with companies like PepsiCo, Unilever, and
Jim Beam Brands that will allow them to extend their product offerings into new consumer
markets. These partnerships will allow them to use their brand name for products that are
not directly related to coffee and therefore appeal to more consumers. These partnerships
like the ones with PepsiCo and Unilever are particularly strong, because Starbucks has
been able to extend them beyond their original purpose. For example, Starbucks and
Unilever originally created a partnership to manufacture Starbucks brand ice cream, but
when they acquired Tazo Tea they extended that agreement to manufacture, market, and
distribute Starbucks ready-to-drink Tazo beverages in the United States and Canada.
Starbuckss business model: In order to successfully implement any of these strategies the
core of Starbucks business model: customer service, marketing, brand management, and
technology must be strong so that they can successfully implement value additions. Good
customer service will help them out because it doesnt cost them any extra. There are small
differentiations that they can add, such as offering delivery services or catering for a
business meeting.
Price: Lower Prices or have more promotions: in order to reach more consumers who may
shy away from Starbucks due to their high coffee prices Starbucks may want to think about
slightly lowering their prices. This would help to reach more consumers who dont feel
comfortable with the current high prices. Alternatively if the management did not feel
comfortable in doing this perhaps by offering new deals such as a buy one get one free
offer during obscure hours for example, from 3-6pm on week days. This would help
increase the flow into Starbucks during the non-rush hours. This would also attract more
consumers who perhaps have never tried Starbucks but are interested in the deal. When
they taste the high quality of the brew they may be more willing to splurge on a good cup
of coffee. Take caution with price premium: Starbucks charges a significant amount of
money for their coffee, but they should be careful that they dont turn their product into too
much of a treat, a product that people cant afford to indulge in every day. They need to
make sure that their products and experience have enough differentiations from the basic

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product. If consumers are satisfied with a basic product and dont think that differentiations
are worth the price premium they may switch to a company that follows a low-cost provider
strategy.
Tangible and Intangible feature: Increase incorporation of tangible features that increase
customer satisfaction: This is an important aspect in delivering superior value via a broad
differentiation strategy. This involves adding product specifications, functions, and styling.
One way that Starbucks can do this is by offering delivery of coffee within a certain
distance by bicycle. This way they will incur little costs and be using environmental
transportation methods, while adding value to the customers. They need to continue to
know the customers in the area where they are opening a store in order to offer them the
store environment they want. For example, a store versus a kiosk, versus a drive through
location creates a marketing campaign that focuses on adding intangible features to their
products. This will increase the value added to the customers product in non-economic
ways. Their marketing campaign should highlight on their CSR campaign to increase
consumers knowledge of how they support the environment, their neighborhoods, and
suppliers. This will add value to the product, because consumers will know what their
money is going to.
International Growth: Although Starbucks is currently located in over 50 countries; we
believe the idea Howard Schultz had to expand into Japan and China is a good one. Japan
outside of the United States has been the largest consumer of Starbucks products. This
opens up the door for Starbucks to open up a multitude of stores in Japan. Due to Chinas
ever expanding economy and its large ties with the United States it would also be beneficial
to open up a large number of Starbucks there. It is important to start opening stores
strategically in large cities within these companies and recording their growth. This way
the locations that are failing can be shut down, and stores that are thriving can be focused
on.
United States Growth: Although the United States has an extremely large number of stores
the number of drive thru locations is still fairly small. In order to cater to the on-the-go
American coffee drinkers I believe that more drive thru locations are necessary. This would
also allow for quicker customer turnover due to dividing the customers between coming
inside to order, and the outside drive thru window. Of course it is imperative that Starbucks
with the addition of the drive-thru windows keeps the high quality costumer experience
alive. This would be done through nice flower bedded.

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III. Conclusion
In conclude, thanks to the desirable strategy of Howard Schultz, Starbucks is the most well-known
coffee brand in the world at present. The flexibility in their movements fitted with the vision and
mission of Starbucks getting along with the daily fluctuation of market has created an extreme
profits and market shares for this company. In addition, the succession in strategy of Starbucks is
considering made by the concentration on customer services and quality of products.
Comprehending trend and needs of customers, getting feedbacks, measuring the effective of
business strategy to ameliorate action steps is used in Starbucks and the fact that their position in
international market is the best evidence for how Starbucks could be lucrative. Until now, there is
no close competitor to Starbucks, however, in the dynamic global economy nowadays, it is hard
to predict whether any company can come over Starbucks first market position in the near future.
On the other hand, there are some issues come from both insides and outsides, Starbucks had
better figure them out to keep developing their business. The previous recommendation might
make senses on Starbucks case.
To sum up, the question for all companies is that how they differentiate from their competitors to
get competitive advantages. Starbucks business strategy could be considered a good case practice
for those companies in order to succeed.
In Viet Nam, Starbucks has just opened one branch in Ho Chi Minh City. In case of Starbucks
opening more coffee shops in Hanoi, there is no doubt that it will become one of the first choices
of coffee for Vietnamese customers.

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