S T A R B U C K S I N C.

Strategic Management
Report

A Strategic Pathfinder for STARBUCKS

Version 1.0

0

Fachhochschule
Osnabrück
Faculty of Business Management and
Social Sciences
Master in International Business and
Management

Strategic Management Report – A
Strategic Pathfinder for STARBUCKS

Assignment for the module Strategic
Management

Summer Semester 2014
Lecturer: Mrs. Kaur-Lahrmann
Authors: Elin Lee (598736)
Marina Ristic (637822)
Maximilian Franke (634580)
Submission date: 6

th

of June 2014

____________________________________

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be
accurate and reliable at the time of publishing. In consideration of human and / or mechanical errors, either
during the process of compiling the report or production, the author accepts no liability whatsoever for any
damage resulting from errors, inaccuracies or omissions affecting any part of the publication.

1

.... Introduction ...................................... Matrix.............................1 Macro-Environmental .........1................. Assessment .......................... .....................Table of Content Executive Summary ............................................................................................................................ 6............. 6........ 4.......................................................................... Analysis .............1...................................................................... Analysis .............................. ......3 Developing Strategic ....1 Company Background ............... Report Objective ................................................................................... 3.................................................................................................................. ... Focus ....................1...................... ......................................................... Assessment ....................... 7...... 6.............. Assessment Analysis (Fulcrum) ......................................... .......................2..................................................1 Current Performance ........4 Financial Performance ..... ...............3 External Factor Evaluation .................................. Report Framework ............... 8..............................................2....................................................... Analysis .......... 6.... 7................2 Industry .................................................................... 6...... Analysis ........... 7..................................... ....................................................................................................................3 Strategy ................................... Analysis. Analysis of Current Situation ................................. Matrix ....................... 6........................................................ 6.......................5 Internal Factor Evaluation ...............................................1....................................... 5........... Problem Definition ...................................... 6............................................................................ 6.......... 7........................................2 Internal Characteristics ...................................... ................................................. Solution 3 5 6 6 6 7 1 4 1 4 1 4 1 9 2 1 2 8 3 0 3 2 3 2 3 7 3 9 4 1 4 1 4 4 4 7 5 ................................................................ Analysis ........................................ ................................................... 1......1 Internal ............2 External .............1........................................ . 6........................................ Theoretical Framework .................2........ 2................................................. Analysis ........... 6.........2 Expected Performance .................... Analysis .

................................... ......................................... ................................................2...... Bibliography .................. Recommendations... Selection ...................................................................... 0 5 0 5 1 5 3 5 9 6 3 6 9 7 3 2 .... 8............. ......... .............................................................................................................................. 8............................................................................ ................................................... .....................Analysis ............................................................................................................. Declaration ................. Goals and Evaluation Criteria ..... . Alternatives .....................................1 Strategic ........................ 8.................................................................................. 9......................3 Strategy ................................................................................................................... Appendices .....................................................................

Starbucks remains unsure how tackle new segments and what impact trends could have on its product portfolio.to medium-term. Countries like China.Executive Summary Starbucks is a global company operating in the coffee retail market since 1972. indicating that the company excels in utilizing strengths to create competitive advantages. and Brazil have been portraying increasing consumption rates of coffee products for years and are likely to surpass coffee consumption in developed countries by 2020. Starbucks seemingly undisputed market leadership position can be attributed to the company’s clever product diversification and market expansion strategies. has greatly expanded its market position and presence in the past two decades. and merchandise. Starbucks has evolved from a mere seller of coffee products to full-fledged chain “restaurant”. Despite a positive market outlook. foods. offering not only coffee products but also other beverages. This report is meant to be a strategic pathfinder that aims at illuminating different strategic alternatives in the light of the many opportunities and threats that lie ahead. The internal position of Starbucks is strong. Moreover. The report will also give advice on how to utilize internal strengths to capitalize on opportunities and how to minimize weaknesses to avoid threats. Starbucks is in need of strategic counseling as the company faces not to be underestimated challenges in the short. In response to changing consumer needs and demand. India. which has positioned itself as a seller of premium coffee products. Those challenges emanate from established competitors like McDonalds and Dunkin’ Donuts who defy Starbuck’s market leadership position by driving aggressive low-pricing strategies in established and emerging markets. Moreover. stagnating market growth in developed economies has prompted the company to move into emerging economies with high growth potential. new trends in the coffee industry have opened up new segments with high growth potentials. Core . the company is serving coffee enthusiasts in 64 countries and has grown to become the world’s largest coffee house company. Today. The company.

customer service. Starbucks is able to retain its market leadership position. and mitigate volatilities in global coffee 3 . supply chain management. improve the ability to open new stores at top-sites. and financial position. With the help of the latter capabilities.strengths of the company are its excellent brand image.

Despite heavy challenges in the external environment. and alliances for reputable yet slow-growing product lines. saturated markets at home have increased the competitive pressure on Starbucks. Since the economic downturn in 2008/2009. Here it is important to increase marketing spending to raise awareness among customers. Whilst the latter strategies are enough to maintain and defend current markets shares. One major weakness is that continuous adaptations and additions to the product portfolio have resulted in various products lines becoming unprofitable (overextension). The company is advised to continue key strategies on corporate level: aggressive expansion strategy in emerging markets. and hedge against volatilities in the market prices of coffee beans by employing forward contracts or similar hedging strategies.bean prices. establish trendscouting facilities to foresee emerging consumer needs. Starbucks has to quarrel with a number of competitors. the analysis has shown that Starbucks is well-positioned to confront expected changes in the industry. Having missed the first-mover advantage in the single-serve coffee segment. retain the premium-pricing strategy to boost brand image. retrenchment strategies for unprofitable product lines. . the company must undertake additional strategic changes to achieve a sustainable market leader position in the short – to medium-term. indicating that the company is only marginally able to respond to external forces. product development/positioning strategies for niche markets. The external position of Starbucks is balanced. customers have grown more price-sensitive and low switching costs in the industry have made them more prone to move to competing brands. Moreover.

4 .

realized the huge potential of selling brewed specialty coffee. Moreover. have huge untapped potentials that need to be exploited if the company wants to gain and maintain a competitive edge over competitors. followed by Singapore and the Philippines. The aggressive expansion strategy that Starbucks is currently pursuing in China can thus be understood as a clear message to competitors that it will not render the number one spot in the global coffee market without a fight. covering most Asian countries and also moving into the European. Following the opening of eleven stores in the Seattle area. attracting millions of customers worldwide. and spices. Starbucks expanded into other important key markets.635 stores in 50 countries of which 8. and new shops opening in . Australian. Today (2011). first entered the market as a seller of brewed coffee in 1985. which was founded in Seattle in 1971 as a mere roaster and retailer of whole bean and ground coffee. In fact. the company has 16. Schulz’s intention to turn Starbucks into a truly global company. With third quarter (2011) sales figures exceeding the five percent threshold in both the USA and internationally. The company. and LatinAmerican market. Starbucks has realized that emerging markets. Its first international store opened in Tokyo in 1996. former employee and current CEO. such as singleserve coffee or the delivery of ready-to-be-served coffee to luxury hotel rooms. when Howard Schulz. By forming alliances with major coffee producers and retailers as well as acquiring emerging competitors.832 are wholly-owned stores and 7. Introduction Being the world’s largest coffee company both in terms of sales and market share.1. The company is also following hot trends in the coffee market. most prominently China. Starbucks has managed to extend and eventually consolidate its market position in recent years. Global expansion did not take place until Starbucks’ initial public offering (IPO) in 1992.803 licensed stores. which further highlighted Mr. tea. Starbucks began its expansion first in the north-western United States and then across the rest of the country. Starbucks Coffee Company (hereinafter referred to as “Starbucks”) has managed to position itself as a distinguished and successful provider of high-quality coffee products. Starbucks’ future could not look any brighter. In the early 2000s.

the company seems have chosen the correct strategic path for the upcoming years. In the words of Starbucks’ CEO Howard Schulz. 5 .China almost on a daily basis.

In a sense. Analysts are reminded that direct competitors. the company remains unsure as to what impact its growth strategy in emerging market will have on corporate performance – whether perceived opportunities are really sustainable or actually shortwinded.” 1 2. or better positioned to go after tremendous business opportunities that lie ahead.to medium-term. threats. Report Objective This report aims at helping Mr. such as Dunkin Brands and McDonald’s are aiming to gain and attract customers globally who otherwise may go to the pricier Starbucks stores. The effectiveness . 2 Moreover. 4. 3. Saturated home markets and the rising importance of niche markets pose further challenges for the company. Report Framework The framework of this report reflects the phases a comprehensive strategic analysis (see appendix 1). Schultz to better illuminate and pinpoint the different strategic paths that branch out in front of the company. Mr. Schultz is in need of a clear strategic plan for the short-to medium-term. more connected to customers and partners. 3 In the first phase.“Starbucks has never been healthier. Facing uncertainty. Problem Definition Despite the current success and seemingly undisputed market position of Starbucks. strengths and weaknesses that surround the company. the company faces not to be underestimated challenges in the short. the current situation of the Starbucks is analyzed by means of highlighting strengths and weaknesses (internal analysis) and opportunities and threats (external analysis) that have an impact on the company’s current strategic performance – both on corporate and competitive level. this report is meant to be a strategic pathfinder with the objective to help Starbucks better assess its current strategic position and – if necessary – propose a new strategic approach in the light of the many opportunities.

175 Cf. (1999): p.. 175 2 3 Cf. Boardman. Vining. In the second 1 Cf. Brunson. A. Brunson. (2011): p. Reed.of the current strategy is determined by considering past and current financial ratios (financial analysis). M. 3 6 . M. (2011): p. Reed.. A. R. R..

the proposed strategy (or strategies) is justified. BCG MATRIX The BCG Matrix was applied in order to explore the growth potential of Starbucks’ four major product categories. The last phase consists of the recommendation. Cash cows: product categories which display low sales growth but still contribute substantially to overall profits. a rationale for action is raised and broad strategic directions are formulated. Theoretical Framework Backing the comprehensive strategic analysis will be a multitude of strategic management tools and methods which have been deemed relevant for solving the problem at hand. several reasonable and mutuallyexclusive strategic alternatives are generated. 3. 5. In the third phase. Question marks: product categories which display high sales growth. Since it was impossible to find accurate and up-todate market share figures for Starbucks’ product categories. the matrix was modified according to what sales growth categories portray (y-axis) and how profitable they are (x-axis). however only contribute little to overall profits. Depending on the outcome. Stars: product categories which display high sales growth and substantially contribute to overall profits. The most attractive strategic alternative (or alternatives) is determined by the degree of impact it will have on Starbucks’ performance goals and value chain. Here. Consequently. . The relevance and applicability of the tools will be explained in this chapter to avoid lengthy explanations in the main body of this report. Those alternatives are analyzed based on the goals and objectives of the company. The matrix divides product categories into four segments based on their market share (x-axis) and market growth (y-axis). categories were allocated to four distinct portfolio segments: 1. 2.phase. the current performance of Starbucks is summarized and judged based on whether or not it fulfills corporate expectations.

7 . Dogs: product categories which display low sales growth and contribute little (or nothing) to overall profits.4.

4. PORTER’S GENERIC STRATEGIES Porter’s Generic Strategies were used as a means of evaluating Starbucks’ current strategic stance on competitive level. Consequently. 2. Cost focus: the company offers lower prices than competitors in niche markets. Differentiation focus: the company offers distinct and unique product categories which cannot be emulated by competitors at a higher price in niche markets. For Starbucks. Those strategies are applied either in a wide market context (industrywide) or in a narrow market context (focus on selected markets). competitive advantage is defined either by offering lower costs than competitors or by differentiating product offerings to an extent that allows the company to command higher prices. Differentiation: the company offers distinct and unique product categories which cannot be emulated by competitors at a higher price and to a wide selection of customer groups. With Porter’s Generic Strategies. Overall cost-leadership: the company offers lower prices than competitors to a wide selection of customer groups. The IFE Matrix can be compiled using the following four steps: 4 . This model describes how Starbuck pursues competitive advantages across its market scope. The analysis highlights which customer groups prefer which product categories. 3. INTERNAL FACTOR EVAULATION MATRIX (IFE) The IFE Matrix was used to evaluate major strengths and weaknesses in functional areas of Starbucks and determine whether or not the company has a strong or weak internal position.PRODUCT-CUSTOMER ANALYSIS The Product-Customer Analysis was applied to highlight the relationship between Starbucks’ different product categories and customer groups. and what they value most in each product category. four distinct business strategies can be determined: 1. this information can be important if the company has to decide which product lines to develop or discard.

Maxi-Pedia (2014a): Online publication 8 .4 Cf.

Originally. A score that is under the average indicates a weak internal position. A rating of 1 represents a major weakness. A score exceeding the average indicates a strong internal position. However. 2.00 to 1. Social Environment: how has the social attitude towards coffee changed over the years? How far developed is the coffee culture? 4. the PESTEL analysis was fine-tuned to determine the macro-environmental influences on the coffee industry within a global context. Economic Environment: has the recent economic crisis had any effect on disposable income of customers? 3. The analysis evaluates six macro-environmental variables: 1. Assign weights: assign weights that range from 0. The weights should be assigned according to each factor’s importance to Starbucks’ overall business strategy. It helps the company to better determine external factors that might have an influence on the company’s performance in the global coffee market. Compile key internal factors: key internal factors are the strengths and weaknesses that can be complied from the internal analysis of Starbucks. PESTEL ANALYSIS The PESTEL analysis was applied to evaluate the macro environment to which Starbucks is exposed. Political Environment: are there any governmental regulations that would inhibit Starbucks in the global coffee market? 2. The average score is 2. Multiply and sum: multiply the weights with the ratings and sum all products to reach the final score. a rating of 2 represents a minor weakness. since Starbucks is operating in a global environment. a rating of 3 represents a minor strength.1.5.00 to each factor. Technological Environment: what key technological changes in the production and consumption of coffee have taken place over the years? . the PESTEL analysis has been designed to evaluate macro-environmental influences on industries in certain countries. and a rating of 4 represents a major strength. 3. 4. Assign ratings: assign ratings on a scale from 1 to 4.

Ecological Environment: how important is environmental stewardship in the industry? 9 .5.

3.00 to each factor. a rating of 2 represents a response below average. Bargaining power of suppliers: how strong is the position of coffee bean farmers to dictate coffee bean prices? 5. Compile key external factors: key external factors are the opportunities and threats that can be complied from the external analysis of Starbucks. Threat of new entrants: at what pace are new entrants swarming the market and how strong are they? 3.00 to 1. The ratings indicate how effective the company’s current strategy responds to each factor. In essence. five forces determine the attractiveness of the market: 1. Threat of substitutes: how well positioned are substitute products and do they pose a threat to coffee products? 4. A rating of 1 represents a poor response. Assign weights: assign weights that range from 0. The EFE Matrix can be compiled using the following four steps: 5 1. Assign ratings: assign ratings on a scale from 1 to 4. Bargaining power of buyers: how strong is the position of customers to switch between different bands and demand lower prices? EXTERNAL FACTOR EVALUATION MATRIX (EFE) The EFE Matrix was used to assess Starbucks’ current business conditions. a . It helps Starbucks to better visualize and prioritize the opportunities and threats to which the business is exposed.6. Threat of established rivals: how saturated is the market with established competitors and how strong is their market position? 2. 2. It helps Starbucks get a notion about the extent of competitive rivalry in the industry. Legal Environment: how stringently are intellectual property rights enforced? PORTER’S FIVE FORCES The Porter’s Five Forces Model was used to determine Starbucks’ competitive position in the global coffee market. The weight should be assigned according to each factor’s importance to Starbucks’ overall business strategy.

Maxi-Pedia (2014b): Online publication 1 0 .5 Cf.

A score that is under the average indicates a weak strategic ability to respond to external factors. 4. SWOT ANALYSIS The SWOT Analysis was used to summarize internal strengths and weaknesses as well as external opportunities and threats.5. Maxi-Maxi Strategies: strategies that use strengths to maximize opportunities. The average score is 2. TOWS ANALYSIS The TOWS Analysis was applied to highlight four broad strategic directions from which possible strategic alternatives can be drawn. 4. 2. SPACE MATRIX The SPACE Matrix was used to determine which nature of strategy Starbucks should undertake in the short. A score exceeding the average indicates a strong strategic ability to respond to external factors. Maxi-Mini Strategies: strategies that use strengths to minimize threats. This strategic tool is meant to formulate a strategy based on the competitive position of Starbucks.to medium-term.rating of 3 represents a response above average. Multiply and sum: multiply the weights with the ratings and sum all products to reach the final score. It helped paving the way for the ensuing TOWS Analysis by redirecting the focus on key issues within and outside the company’s boundaries. The analysis matches strengths and weaknesses with opportunities and threats in order to arrive at four mutually-exclusive strategy types: 6 1. 3. and a rating of 4 represents a superior response. Mini-Mini Strategies: strategies that minimize weaknesses and avoid threats. The matrix is constructed by plotting calculated values for the competitive advantage and industry strength dimensions on the X- . Mini-Maxi Strategies: strategies that minimize weaknesses by taking advantage of opportunities.

MindTools (2014): Online publication 11 .6 Cf.

c. conservative (topleft quadrant). Rate the dimensions: the CA and ES dimensions are rated using a scale from -6 (worst) to -1 (best). Competitive advantage (CA): values for calculating the competitive advantage are taken from Current Performance Assessment Analysis. Five steps are necessary to compile a QSPM: 8 . 3. Add average scores: add the average score of CA to that of IS. Plot scores to the graph: plot both scores to the graph and draw a line from the center to the XY-intersection. Industry strength (IS): values for calculating the industry strengths are taken from the Porter’s Five Forces Analysis. d. and that of FS to ES to arrive at the total X-axis (Y-axis) score. The IS and FS dimensions are rated using a scale from +1 (worst) to +6 (best). Determine values for dimensions: values for each dimensions are determined: a. b. Financial strength (FS): values for calculating the financial stability are taken from the Financial Performance Analysis. 4. 2. Variables for the environmental stability and financial strength dimensions are plotted on the Y-axis. QSP MATRIX The Quantitative Strategic Planning Matrix (QSPM) was utilized for evaluating possible strategies and comparing them as alternatives among each other. or competitive (bottomright quadrant). The QSPM helped to set priorities as to which strategies are more attractive for Starbucks taking into consideration their goals and objectives. Find average scores of dimensions. Environmental stability (ES): values for calculating the environmental stability are taken from the PESTEL Analysis. Depending into which quadrant the line points. 5.axis. the nature of the proposed strategy can either be aggressive (top-right quadrant). Five steps are necessary to compile a SPACE matrix: 7 1. defensive (bottom-left quadrant).

Maxi-Pedia (2014c): Online publication 8 Cf. Maxi-Pedia (2014d): Online publication 12 .7 Cf.

2 = somewhat attractive. Quadrant I: product categories with a strong competitive position and rapid market growth. . 3 = reasonably attractive. Assign attractiveness scores: attractiveness scores are assigned based on whether the factor makes a difference in the decision about which strategy to pursue. Calculate total attractiveness score: multiply the weights with the attractiveness scores and sum up the products. If the answer is “no”. Assign weights: weights are assigned to key internal and external factors. Quadrant IV: product categories with a strong competitive position but slow market growth. Quadrant III: product categories with a weak competitive position and slow market growth. From each quadrant. Product categories are allotted to four different quadrants according to their competitive position and market growth. The strategic alternative with the biggest total attractiveness score portrays the most attractive strategy for the company. Identify strategic alternatives: strategic alternatives are taken from the TOWS analysis. Quadrant II: product categories with a weak competitive position but rapid market growth. then the score of 1 = not attractive. GRAND STRATEGY MATRIX The Grand Strategy Matrix was applied to develop strategies for Starbucks’ different business units. 3. Those weights are taken from the IFE and EFE matrices. 2. 4. 2. different strategies can be chosen: 9 1. Opportunities and threats are taken from the EFE Matrix. the score will be 0. 4.1. If the answer is “yes”. and 4 = highly attractive. 3. 5. Provide a list with internal and external factors: strengths and weaknesses can be compiled from the IFE Matrix.

9 Cf. Maxi-Pedia (2014e): Online publication 13 .

and strategic coordination. president.1. Mission. the reader will gain a better understanding of the company’s background. and Principles 11 .1.1. 10 It provides an insight into the internal composition as well as the external position of the company.6. 6. About 75 percent of shares are held by institutional and mutual fund owners and only three percent is held by insiders. product categories. The organization is managerially-controlled because share ownership is widely dispersed. The company is controlled by Mr. Company Background Analysis Ownership and Control Starbucks was founded as a privately-owned company by the company’s current CEO Mr. basic competencies. Analysis of Current Situation The analysis of the current situation is meant to provide a context for any strategic analysis and should be understood first. In 1992. Internal Analysis The internal analysis is meant to provide a review of Starbucks’ organizational strengths and weaknesses. By analyzing the internal composition of the company. Vision. The current situation analysis culminates in distinct strengths/weaknesses and opportunities/threats which are important key consideration when compiling the strategic alternatives in the solution analysis. and CEO. Schulz who serves as the chairman of the board. the company went public in order to further improve its financial position to better tackle and expand into overseas markets. The analysis culminates in an Internal Factor Evaluation Matrix (IFE Matrix) which summarizes and evaluates distinct strengths and weaknesses according to their importance to Starbucks’ overall business strategy. Schulz in 1971. 6.

Boardman. one cup.It is Starbucks mission “to inspire and nurture the human spirit.. A. A. and one neighborhood at a time. (1999): p. Vining. 3 11 Cf.” Starbucks regards human dignity and a warm and comfortable 10 Cf. Yahoo Finance (2014): Online publication 1 4 . one person.

Sales can take three distinct ways: beans are sold either directly through stores without intermediaries (retailing). employees. and even temperature. and Asia. and Filter Packs. Starbucks not only calls its employees “partners” and treats them with respect and dignity. and Ethos Water. and eventually packaged before they are being sent off to Starbucks stores around the world. medium roast. imported by brokers. Starbucks’ beverage portfolio consists of brewed coffees like Seattle’s Best Coffee and Torrefazione Italia Coffee. A detailed description of the value chain can be found in appendix 2. applying fair trade and fair sourcing principles as well as providing financial support. The other is by profile like blonde roast. The beans are then exported by export agents. Product Portfolio Starbucks coffee comes in two forms: one is already processed coffee comprising Starbucks VIA®. Verismo™ System Pods. Coffee beans are selected under the highest standards of quality and the goal is to establish long-term strategic partnerships with high-performing suppliers. flavored roast. dark roast. Pods. or via the internet (direct response). tested on quality. syrup. Tazo Tea. Flow of Goods Purchasing at Starbucks involves company agents who are choosing bean producers (farmers) predominantly in Africa. Other product lines are non-coffee blended beverages like Vivano Smoothies. Starbucks' major income source is from selling beverages: it sells hot and iced coffee which makes up the lion’s share of sales (75% of total revenues in 2010). but it also treats its suppliers ethically. According to its vision statement and principles. and those product lines have also been expanded . to specialty retailers such as restaurants. for example by adding milk content. and seasonal favorites.atmosphere as the highest value to its customers. Starbucks sells single-serve coffee (VIA instant coffee and K-cups) through strategic partnerships. Latin America. roasted. and partners. K-cup® Packs. Portions. Starbucks is relying mostly on word-of-mouth which is facilitated by the high-quality image of the company. The company allows customers to personalize their beverage according to their needs. In terms of marketing activities.

warehouse clubs. and convenient stores. sales 1 5 . as well as branded products which are sold worldwide through channels such as grocery stores. On the other hand.abroad with success. Thus. Starbucks’ channel development segment includes whole bean and ground coffees. retailers.

of beverages have been decreasing in 2010 as compared to the previous
year, which is mainly due to the addition of various products lines to the
existing portfolio. Recently, Starbucks has added various product lines to
its portfolio, which primarily consist of merchandise items such as home
espresso machines, coffee brewers and grinders, coffee mugs and
accessories. Music, packaged goods, books, and gift items are the newest
contribution to Starbucks’ rapidly expanding product portfolio. Apart from
selling beverages and merchandise, the company also sells various food
products that frequently accompany the coffee experience: sandwiches,
baked pastries, salads, oatmeal yogurt, parfaits and fruit cups. Moreover,
in an effort to increase evening sales (people do not tend to drink coffee in
the evening), Starbucks added beverages such as beer and wines as well
as evening snacks like cheese plates and flatbread to the menu in 26
stores in States.

12

The detailed product portfolio can be found in appendix

3.
According to the product portfolio, products can be roughly divided into
four major categories: beverages, foods, packaged and single-serve coffee
(whole

bean

coffee),

and

coffee-making

equipment

and

other

merchandise. In order to determine which product categories are the most
profitable and fastest-growing ones, the BCG matrix will be applied:

12

Starbucks homepage

1
6

Figure 1: BCG Matrix
Sales growth

Stars

Question
Marks
Foods

Whol
e
bean
coffe
e

Profitabi
lity

Beverag
es

Merc
h
andis
e

Cash Cows

Dog
s

Source: Own illustration

The BCG matrix shows that the beverage category (including all over-thecounter coffee products) is the cash cow of Starbucks. In fact, 76 percent
of total sales (2010) have been generated from selling beverages.
However, sales of beverages have been declining one percent from 2008.
The rising stars on the horizon are food products which made up 19
percent of total sales in 2010 (2% up from 2008). Successful adaptations
of the food offering (e.g. hot breakfasts and salads) have spurred sales in
this category. Packaged coffee products and single-serve coffees portray a
positive growth trend (1% up from 2008), however only made up about
four percent of total sales in 2010. Sales in this category are expected to
go up as Starbucks VIA instant coffee and K-cups are bound to make a
successful

entry

into

emerging

markets

in

2011.

The

most

underperforming category is coffee-producing equipment and other

conventional coffee machines have become rather obsolete and unfashionable. this category is also on the downgrade as sales have been declining two percent from 2008. 17 .merchandise. With the rise of single-serve coffee products. While total sales accounted for only two percent in 2010.

. beverages and Starbucks’ merchandise is hip and contemporary and perfectly relates with their relatively high income. young adults. The company’s primary market comprises men and women between 25 and 40 years. contemporary store design. about two percent of sales can be attributed to customers age 13 to 17. They account for almost half (49%) of its total business sales. and “cool” music help to retain young adults and eventually turn them into regular customers. While kids usually accompany their parents (passiveness). About 40 percent of total sales can be contributed to this group. and urban lifestyle. 13 This age group perceives Starbucks as a status symbol. work on their assignments. For them. Although Starbucks is not catering directly to kids (high calorie and caffeine products). professional career. Wi-Fi access. Beverages and food products are perceived as cool and merchandise as hip and must-have. and meet people. and adults (25-40 years). teens use Starbucks as a place to hang out with friends.Customers Table 1: Product-Customer Matrix Products/Customers Beverages Foods Kids and Teens Passiveness Taste Whole and bean soluble coffees Coffeeequipment making and other merchandise Young Adults 25-40 years Coolness Social Status Complementar Nutrition y Loyalty Fashion. Young adults comprise the age group of 18 to 24 year old customers. Coolness Loyalty Source: Own illustration Starbucks is catering its products to three different customer groups: kids and teens. 14 Starbucks positions itself as a place where college students can hang out. The long-term experience with Starbucks turns this age group into frequent visitors and loyal customers. They usually order non-caffeine beverages and foods because of how it tastes.

d. R. R.): Online publication Cf.): Online publication 1 8 .d. (n.13 14 Cf. (n. O’Farrell. O’Farrell.

Key alliances include the partnership with Target.Acquisitions and Alliances Since its foundation in 1971.g. Seattle Coffee Company). Tazo Tea). Starbucks is showing social.2. Tata). and service with customers. gaining access to intellectual property (e. Employees are strongly committed and motivated to share their coffee knowledge. and portray interpersonal (communication) skills. ethical. Skills. In the recruitment process.g. penetrating new segments (e. which allowed Starbucks to add various tea products to its portfolio. Green Mountain Coffee Roasters).g. 6. Despite Starbucks’ active . Internal Characteristics Analysis Resources. the company makes sure that baristas have the ability to build relationships. the Green Mountain Coffee Roasters. and Attributes Starbucks expects its staffs to excel in customer relationship management. product expertise. which will lead to Starbucks gaining a threshold in the aspiring Indian coffee market and also providing the company with access to high-quality Arabian coffee beans. which further expanded Starbucks’ presence in the US coffee market and also opened the way into the wholesale sector. Starbucks has acquired or formed alliances with a number of companies.g. the Seattle Coffee Company in 2003. providing Starbucks with access to the fastgrowing single-serve coffee market. gaining market share (e. and the Coffee Equipment Company in 2008. and environmental stewardship. and expanding into new markets (e. which allowed Starbucks to sell its coffee in highly frequented cafés in Target Stores. and Tata Coffee of India.1. which granted Starbucks the right to use the innovative Clover Brewing System.g. Acquisitions and alliance can therefore be seen as important measures to diversify the product portfolio (e. 15 Next to offering qualified customer service. work in teams. The most prominent acquisitions of Starbucks include the purchase of Tazo Tea Company in 1999. Coffee Equipment Company). A detailed description of Starbucks’ Global Responsibility Program can be found in the appendix 4.

15 Cf. Starbucks Website (2014a): Online publication 1 9 .

drinks. and merchandise products to the store shelves. The company’s brand power and recognition are strong. Nonetheless. Farmers are selected according the highest quality standards. Europe. Next to the fact that sales of merchandise and other coffee-making equipment have been declining over the past years (from 4% in 2008 to 2% in 2010 19 ). president. dark color but also contributes to achieving a unique and highly recognized flavor. Appendix 5 shows the organizational chart of the company. the company has been criticized by environmental experts for pouring millions of gallons of water down the drain at its coffee stores. and only the best beans are processed into Starbucks coffee. Starbucks offers more than 30 different blends of coffee and its single-origin premium Arabica coffee fulfills the highest standards in premium coffee making. Especially the sales of food products could reduce the consumption of coffee. Starbucks’ overseas markets are divided into regions (Asia Pacific. The Starbucks Roast® is a special roasting technique which not only provides the coffee with a distinct. 17 Starbucks has further enhanced its brewing skills by acquiring the Clover® Brewing System of the Coffee Equipment Company. . and the strategic partnership with Green Mountain Coffee (maker of the K-cups) has opened the way into the fastgrowing single-serve coffee market. 18 In recent years. Organization Howard Schulz serves as the chairman of the board. after all. overloading store shelves with merchandises can also have a negative effect on brand identity. Starbucks has been aggressively extending its product portfolio by adding different foods. and CEO of Starbucks. is Starbucks’ cash cow.participation in environmental programs. one study of Starbucks’ brand awareness revealed that people have difficulties connecting the logo (portraying a mermaid) to coffee and that the actual coffee experience is not as attractive as the spiritual atmosphere of the stores. and Starbucks is generally perceived as a high-quality and trendy coffee store. which. 16 In addition.

47 Cf. P. 4 2 0 . Starbucks Website (2014b): Online publication Cf. A. North. However.and South America). regions are not headed by their own regional headquarters but individual stores (whether 16 Cf. Dahlin.Middle East. Starbucks Corporation (2010): p. Balakrishnan. (2008): p. (2008): Online publication 17 18 19 Cf.

knowing the local market and its needs is imperative for establishing a long-lasting presence. 22 .3. and training classes for employees. who reports to the district manager. Their dedication towards creating a friendly and carefree atmosphere is very important for the image that Starbucks is trying to display to customers. Therefore. Corporate level strategy concerns the scope of the firm. The baristas are the face of Starbucks as they are in direct contact with customers. The downturn of centralized control is that it might complicate the implementation of regional strategies that are necessary to respond to local consumer needs. 21 Starbucks maintains a high level of control over licensed stores by imposing company guidelines such as operating standards. Licensees. This centralized control over stores allows Starbucks to implement far-reaching decisions in a prompt and accurate manner. The organizational structure within a store is vertically organized. as the company claims. provide improved.1. The store manager. Especially for companies that seek rapid overseas expansion. 20 Hence. and at times the only access to desirable retail space. The business or competitive strategy concerns how well the business competes. Starbucks prefers to penetrate new markets by means of prominent. store development procedures. while about 60 percent of US-based stores are company-owned. local retailers who dispose of in-depth market knowledge and access. Strategy Analysis In this section. 6. is giving orders to the shift supervisor who is responsible for the baristas. that is.licensed or not) report directly to the international headquarter which oversees all operations. and who is represented by the assistant store manager. it comes as no surprise that 63 percent of international stores are licensed. how the business generates money in the short-run.to long-run. This high level of control is necessary to preserve the global image of Starbucks and to thwart intellectual property theft. Starbucks’ corporate and business level strategy will be scrutinized. the general direction the company is heading towards in the medium.

5 21 22 Cf. 3 Cf. Boardman. (1999): p. 14 2 1 .. A. Starbucks Corporation (2010): p. Starbucks Corporation (2010): p. A.20 Cf. Vining.

Partnership Strategies Starbucks is a company with tradition and can be seen as a co-initiator of the global coffee frenzy that started in the late 60s/early 70s (see appendix 6). the company has to revert to external help to further grow in the market. expand into new overseas markets. the company set out to conquer the world in a breathtaking fashion. Consequently. 1. expand its current market position against rising competitors.g. Despite its history and excellent capabilities in coffee-making. With this in mind. The company has understood that its seemingly unrivaled market position in the past two decades will no longer be tolerated by competition. Starbucks undertakes several long-run strategic actions to contain competition.Corporate Level Strategy As the world’s leading coffee company. Expansion into developing countries started in the early 2000s despite slow growth . Starbucks is striving to defend and. Global Market Expansion Strategies In 1994. Starbucks’ long-term strategy is tailored to fending off competitors both at home and abroad and expanding current market shares. Tazo Tea or Teavana) helped Starbucks to level the competitive landscape and diversify its product portfolio. Most of this growth was fueled by overseas expansion. two years after the IPO. With additional capital backing the expansion strategy. Starbucks initiated its global expansion program by opening its first store in Japan. Seattle’s Best Coffee Company) or indirect competitors (e. 2. if procurable. which in the beginning was limited to developed continents such as Europe and Australia. Especially McDonalds and Dunkin’ Donuts are going great lengths to dethrone Starbucks as the world’s number one. Starbucks is expected to utilize alliances and acquisitions to spur expansion in emerging markets. Acquisitions of direct (e.569 in 2004 (see appendix 7). Within ten years it managed to more than decuple the number of stores to 8. Also in the future. and obtain intellectual property such as the Clover Brewing System.g. Alliances with key strategic partners have helped Starbucks to gain access to new market segments.

With the global financial crisis hitting the company hard and sales coming to a still stand in 2008. and to a lesser extend Brazil. have 2 2 . Especially China and India. Starbucks redirected its attention to emerging markets which came out of the crisis relatively unscathed.rates resulting from low incomes of potential customer groups.

The acquisition of Hear Music allowed the company to play and sell “hip” music in its stores. Starbucks also kept track of hot trends within the coffee market. 24 Starbucks’ alliance with Tata Group (also owner of India’s biggest coffee chain Eight O’clock Coffee Company) can therefore be seen as a long-run strategic partnership to secure access to this promising growth market. For . the company sees a potential $377 million market for flavored coffee. In 2010. Starbucks had locations in 35 Chinese cities and Mr. which turns out to be the second-largest coffeeconsuming country in the world. Starbucks will also be aggressively expanding its coffee line in its home market. Schulz proclaimed that the company plans to double the number of cities soon. 23 According to Mr. India could one day rival China in the consumption of coffee. Product Portfolio Diversification Strategies In order to increase sales and also to hedge against possible slumps in coffee consumption.captured the interest of the company. Starbucks has been expanding its product portfolio over the years. Here. Starbucks will be opening more than 100 new stores in Brazil. sales of merchandise and coffee-making equipment have been decreasing by two percent over the same period. Schulz. 27 4. the company is now catering a wide variety of product categories to its customers. 25 The long-term strategic objective will be to further consolidate the 75 percent domestic market share that the company has achieved a far. while sales of food products have been increasing by two percentage points from 2008 to 2010. In 2011.” 26 The success of this product portfolio diversification strategy is debatable. the United States. Having started as a mere seller of coffee products in 1971. While the latter two acquisitions portray two markets that have little to do with coffee. Market Segment Diversification Strategies With new products being added to the existing brand portfolio. ranging from foods and teas to coffee-making equipment and music CDs. it is inevitable for Starbucks to penetrate new market segments. 3. The company wants to further diversify its product portfolio to “upgrade the customer experience. Starbucks also entered the bottled water market by acquiring Ethos water.

. M. Brunson. p. R. Reed. 168 24 25 26 27 Cf. R. Cf. Cf. Reed. Cf.. Reed.. R. 168 168 175 173 2 3 . Brunson. M. (2011): p. Reed. R. (2011): (2011): (2011): (2011): p. p. M. R. Brunson. M.23 Cf. Brunson. Reed. Brunson.. M. p..

As it was mentioned in the Background Analysis (see chapter 6.1. Starbucks’ strategy seems to be working out as the company has been frequently awarded for its good corporate responsibility management. Brand Modernization Strategy Starbucks is modernizing its brand in an effort to attract younger customer groups. This alliance will allow the company to cater its instant coffee to as many as 500. a provider of in-room coffee service in hotels. Starbucks unveiled a new logo. By signing a deal with Courtesy Products. Albeit criticism concerning the company’s handling of waste water. 5.example. The ulterior motive behind the Global Responsibility Program is to enhance Starbucks’ corporate image as a caring. the company must ensure that young customers (mostly students) feel at home when they enter a Starbucks store. offering Wi-Fi is indispensable and Starbucks has realized this as one of the first companies when it launched its first Wi-Fi stores in as early as 2002. In order to turn them into loyal customers. Social and Environmental Stewardship With growing popularity comes growing responsibility. 29 6. such as mobile payment which allows customers to pay with their smart phones. writing 31 In 2011.000 luxury hotel rooms in the United States. 30 The company is also following other technological trends. similar to Burger King. In the era of internet. or Subway. the alliance with Keurig allowed the company to deliver K-cups to the fast-growing single-serve coffee segment. McDonalds. Starbucks is further advancing its position in the luxury coffee segment. 28 The implementation of market segment diversification strategy will bring Starbucks closer to becoming a full-fledged chain restaurant. Starbucks has realized this and consequently launched its Global Responsibility Program which is also part of its long-term strategy. young adults make up 40 percent of sales. leaving out the . clean.1). and sustainable company that goes great lengths to invest in communities and minimize its environmental footprint.

After all. 168 2 4 . M.“Starbucks Coffee”. (2011): p. Reed. R. (2011): p. Brunson.. Morio. M. M. Reed. (2004): Online publication Cf. L. (2013): Online publication Cf. R. with more than ten percent of total sales coming 28 Cf.. This revamp gives the company freedom and flexibility to think beyond coffee without losing its heritage. Brunson. 171 29 30 31 Cf. Connor.

Product sales to and royalty and license fee revenues from licensed stores only account for roughly 10 percent of total net revenues. the company would like to regain full control over its stores. Here it is useful to describe Starbucks’ strategic stance and value chain. once enough market knowledge has been accumulated. Centralization Strategy Last but not least. As it was mentioned before. However. 7. It selects one or more attributes that many buyers in an industry perceive as important. According to the definition. 34 Business Level Strategy Without going too much into detail concerning the business strategy of every single region. In Switzerland and Austria. It is rewarded for its uniqueness with a premium . a company that drives a differentiation strategy “seeks to be unique in its industry along some dimensions that are widely valued by buyers. 32 Full control over retail operations not only reduces the risk of intellectual property theft (which is particularly prominent in China).from non-coffee products. 33 while company-owned stores generate 84 percent of Starbucks’ revenues worldwide. Starbucks is trying to increase the number of whollyowned company stores. and uniquely positions itself to meet those needs. but also increases revenues. Starbucks is currently negotiating full ownership of its retail operations. 35 1. Strategic Stance When consulting Porter’s generic strategies. this section focuses on describing how Starbucks creates demand and how it gains a competitive edge over competitors. it becomes apparent that Starbucks is driving a differentiation strategy which is defined as offering a wide range of products (as opposed to offering low prices) to a broad customer group (as opposed to a narrow customer group). a company logo referring to “coffee” could cause brand confusion among customers. Starbucks’ strategy stipulates the establishment of licensed stores in new markets in order to better react to local changes in consumer needs.

Reed. 14 2 5 . Boardman. Reed. M. Vining. Brunson. Brunson. 175 33 34 35 Cf. M. R. 171 Cf. R. 5 Cf..32 Cf. A. (2011): p. A... (1999): p. (2011): p. Starbucks Corporation (2010): p.

price. Value Chain Strategy The value chain describes all functional activities of a company and therefore is responsible for generating profit or loss. This also means that the company is highly process-oriented. The company is creating demand by product differentiation. offering different types of foods and drinks. While the company started with a relatively simple business model. Starbucks is able to charge a premium price for its products. Customers value the high quality of coffee products. Starbucks continuously adds quality (vertical differentiation) to its products and service via advanced process technology (e.” 36 This applies for Starbucks as the company seeks to be unique in its industry by positioning itself as a premium producer of coffee products. K-cups). and financial strategies.g. As a result. the company is more production-oriented than marketingoriented. Concerning single-serve coffee. Starbucks Roast®. or “chill” to good music. Starbucks has sold the K-Cups (which were not even invented by Starbucks) long after Nespresso had launched its Grands Crus. that is as a mere seller of coffee products. organizational. Starbucks is both a leader and follower. Clover® Brewing System) and product technology (e. The value chain strategy can be broadly divided into the production. The careful selection of high-quality Arabica coffee beans coming from reputable farmers ensures superiority of the input materials. and contemporary image of the company. 2. it has evolved into a business model that is more similar to that of a restaurant. as the process of how the coffee is made is more important than the final product.g. As it was mentioned before. the friendly and cozy atmosphere. The marketing and retail strategies have already been discussed in the previous sections. . In other words. This can best be depicted by looking at the change in competitive scope. In terms of technology. customers no longer come to Starbucks just for the coffee experience but also to enjoy pastries. the Starbucks Roast® has set new quality standards when it comes to roasting coffee beans. Starbucks is relying on word-ofmouth instead of spending millions on conventional marketing activities. sandwiches. For example. Based on the latter.

University of Cambridge (2014): Online publication 2 6 .36 Cf.

Starbucks is not directly involved. The organizational strategy describes how Starbucks is handling staff decisions. and informative “business cards. It was already mentioned that Starbucks is looking for interpersonal skills in potential employees. which is the company’s stock-option plan. roasted. employees make a profit.Starbucks outsources the entire production process to suppliers. which. All employees can earn “bean stock”. internships. If the company does well and its stock goes up. brokers. as well as online. roasters.” Applicants then go through a series of employment tests and interviews. college campus recruiting. Starbucks has a direct saying in how beans are selected. is done via wholly-owned and licensed stores. depending on which position they occupy. In fact. Employees receive both off-the-job and on-the-job training. Instead. A typical assessment center is not applied. the production process is heavily controlled and supervised by the company’s key account managers. The company uses the following outlets to advertise openings: the job center on the corporate website. Nonetheless. This is important to guarantee top quality and maintain a unique brand image. employment websites. and fair compensation and benefits. appropriate work schedules. It also allows the company to focus its attention to selling (retailing) its products. and packaged. it focuses on forming long-lasting strategic partnerships with farmers. Starbucks is quite generous in offering benefits to employees – even part-time workers. local job fairs. warehouses. a positive work environment. The outsourcing strategy allows Starbucks to cut costs by delegating production processes to companies that have a better expertise in each process. Facebook and twitter. exporters. and packaging manufacturers. receive social security and Medicare. which make up two-thirds of the company’s workforce. Starbucks uses stock options as an incentive to add value to the company. 38 Therefore it comes as no surprise that Starbucks is constantly listed in the Financial Time’s Top 100 Best Companies to Work For. in-store recruiting posters. as it was mentioned before. newspaper classified ads. The company works to provide satisfying jobs. From farming to packaging. 37 These activities are part of Starbucks’ strategy to deploy human resources in order to gain a competitive advantage. 39 .

Starbucks is aiming to continuously increase profits of both its U.In order to comply with its objectives to maintain the number one position in the global coffee market. Fortune (2012): Online publication 2 7 .S. Flat World Knowledge (2012): Online publication Cf. Flat World Knowledge (2012): Online publication 38 39 Cf. and 37 Cf.

namely profitability. liquidity. 42 The increase in sales can be attributed to growing sales figures from overseas markets and success of single-serve coffee products (K-cups and VIA instant coffee).8 $315. Table 2: Ratio Analysis In millions USD 2010 2009 Growth $9.772 million to $8. In an effort to reduce operating expenses and fixed asset costs. To achieve this. The financial strategy also stipulates a decrease in short-term debt to make Starbucks more flexible in undertaking prompt financial decisions. and activity (operational efficiency) are covered to determine the financial health and sustainability of Starbucks.international businesses. From the 2010 perspective.993 million in 2008 to $9. commonly referred to as ratios. the company reduced short-term debt from $714 million to 0. 43 6.5 Net income growth 142.774.436 million in 2010.383. As a result.964 million over the same period.4 Sales growth rate Net income 9. 41 At the same time.86% - $948.1.66% 23. The most important ratios. Starbucks seems to have fulfilled its objective as net earnings increased from $391 million in 2009 to $948 million in 2010 (an increase of 142%). Financial Performance Analysis The financial performance analysis looks at key financial performance indicators. From 2008 to 2010. the short-term financial strategy stipulates an increase in store revenues and a reduction in operating expenses without forfeiting quality and keeping the selling price of products stable. leverage.0 .87% _ $10. Starbucks closed 600 unprofitable stores in 2009. operating expenses fell from $9. 40 The majority of this unprecedented increase in profits can be attributed to the revitalization program that the company launched following the financial crisis in 2008 and 2009.707.4.6 2008 Sales $10. the company was able to increase revenues from $8.3 $390.54% -5.

40 Cf. 20 Cf. Starbucks Corporation (2010): p. Starbucks Corporation (2010): p. 20 Cf. Starbucks Corporation (2010): p. Starbucks Corporation (2010): p. 20 28 . 20 41 42 43 Cf.

08 0.75% 4.56% 12.55 1.15 0.36% Operating income margin ROA ROE 13.28 6.85% 25.51 Total assets turnover 1.68 1.13 0.43 Gross profit margin 58.26% Debt-to-totalassetsratio Debt-to-EquityRatio 42.39 55.95 15.51 10.43 0.52 Profitability 55.24 0.44 .43 8.78 1.70 44.85% 14.12 11.46 0.83% 5.18 4.57 0.24 $0.83 Activity Ratio 6.37 36.74 0.07 31.20 1.28 Long-term-debtto 0.21 56.32 10.94 0.50 2.57 3.36 2.84 3.46 56.58 Liquidity ratio 2.3 9.40 35.67% Leverage ratio 45.74 1.01% 12.85 -19.26% 5.09 Equity ratio 1.81% 7.15 54.15 0.rate Net earningsdiluted $1.6 Inventory Turnover Days‘ sales in inventory Receivables turnover Days‘ sales in receivables NWC turnover Fixed Asset Turnover 8.75 1.83 Current ratio Quick ratio Cash ratio NWC to total asset ratio 2.58 9.18 Times-InterestEarned ratio Equity multiplier 44.83 1.36% $0.

Starbucks has become more profitable over the past three years (2008-2010). Net income went up 143 percent from 2009. and the company shared 2 9 .Source: Starbucks’ Annual Report 2010 From a financial point of view.

accounts receivables. the margin of safety to cover shortterm debts is better than in previous years. the company managed to reduce stock by either forecasting sales more accurately or selling more products. indicating that Starbucks was able to increase the number of times inventory is sold or used. Starbucks’ Net Working Capital (NWC) turnover ratio increased from -19. The days sales of inventory (DSI) ratio further supports the latter. accounts payables). . It is also a sign that the company has managed to reduce total liabilities (mainly by paying off debt) and increase equity (mainly by raising common stock). as the most important leverage metrics have been declining in the given time period. This means that Starbucks is able to raise more capital by raising debt (leveraging). all profitability ratios of 2010 portray a higher value relative to 2009. On the bottom line it can be said that Starbucks has improved its capabilities of converting different accounts on its balance sheet (in this analysis most assets and liabilities were considered) into cash or sales. indicating that Starbucks takes less time to turn inventory into sales.52 (2009) to $1.18 in 2010.24 (2010). In fact. it can be concluded that all important liquidity ratios have been increasing from 2008 to 2010. In other words.g.84 in 2008 to 9. inventory) and reduce current liabilities (e. indicating that Starbucks’ ability to pay off its short-term debt obligations has improved. Concerning the liquidity of Starbucks. cash. emphasizing the company’s ability to generate earnings as compared to its expenses and other relevant costs incurred during the given time period. Starbucks’ leverage capabilities have also improved from 2008 to 2010.70 in 2009 to 8. The inventory turnover of Starbucks has been increasing from 6. This means that the company was able to increase current assets (e.21 in 2010. shortterm debt. indicating that the company has improved its ability to generate sales compared to the money it uses to fund the sales. This indicates that Starbucks prefers to finance new investments with new capital instead of issuing new debt.g. Put into other words.the profit with shareholders as shown by earnings per share diluted (EPSd) more than doubling from $0.

5.6. Internal Factor Evaluation Matrix The Internal Factor Evaluation (IFE) Matrix will be utilized to evaluate the major internal strengths and weaknesses in functional areas of Starbucks. 3 0 .1.

1 4 0.15 0. Green Mountain.1 4 0.2 0. Frappuccino.4 0.1 .3 0.2 0.1 1 0.15 4 0.05 4 0.1 3 0.) Variety of flavors Weaknesses Overextension of product portfolio causes brand confusion and loss of brand identity High prices increase competitive pressure Weight Rating (1-4) Weighted Score 0.05 3 0.05 3 0.1 1 0.1 4 0. K-cups. or Paninis Access to premium and highquality Arabica beans obtained through Fair Trade and strong supplier relationships Strong supply chain management Strong intellectual property (Starbucks Roast®. etc.4 0.4 0.05 4 0. Target.15 0. Clover® Brewing System) Healthy financial situation (positive ratios) Highly recognizable brand image and comfortable store atmosphere Highly motivated.6 0. professional workforce and good customer service (Top employer company) Strong and reputable strategic partners (Tata.1 0.Table 3: IFE Matrix Key Internal Factors Strengths Successful and popular product lines such as VIA instant coffee.

10.1 3.Environmental issues concerning waste water jeopardize brand image TOTAL 0.00 2 0.05 1.10 Source: Own illustration The IFE Matrix has resulted in a final score of 3. which scores significantly above 2. 3 1 .5 and thus indicates a strong internal position.

the government is rigorously promoting the establishment of a coffee culture.61 billion). The government plans to expand the coffee plantation area in that region to over one million mu (approx. with support of the government.2.667 hectares) to capture a market value about RMB 10 billion (US$ 1. the company. It provides an insight into the global coffee market and will give the reader an impression on how competitive the industry is.1. 66.2. In China. Starbucks inked a Memorandum of Understanding (MOU) agreement with Yunnan Academy of Agricultural Science (YAAS) and People’s Government of Pu’er City to support local farmers in the promotion of responsible coffee-growing practices and the development of localized coffee. External Analysis The external analysis will unravel potential opportunities and threats that exist in the environment to which Starbucks is exposed. Macro-Environmental Analysis In order to gauge the impact of the macro environment on Starbucks’ business. the PESTEL analysis will be utilized. most particularly China and India since those two countries are expected to be the growth markets in terms of coffee consumption in the future. Having endured the collapse of the tea bubble in 2008. Political Environment The political influence on coffee markets is generally not as pronounced as it is with other markets. Coffee is generally perceived as a beverage that is harmless to the consumer’s health and thus is not subject to extensive political debate.6. Chinese tea farmers in the Yunnan Province (China’s major coffee production area) switched from growing tea 44 leaves to sowing coffee seeds. Emphasis will be paid to emerging markets. Moreover. The analysis culminates in an External Factor Evaluation Matrix (EFE Matrix) which summarizes and evaluates distinct opportunities and threats according to their importance to Starbucks’ overall business strategy. 45 In 2010. will introduce Starbucks Coffee and Farmer Equity (CAFÉ) . 6.

Barlow. N. (2013): Online publication 3 2 .44 Cf. The Economist (2012): Online publication 45 Cf.

48 Stringent limitations on foreign ownership have inhibited many international companies from setting up their branches.S. It can retain 100 percent of ownership of its outlets with the requirement that a part of its products come from Indian producers – which. in the U. Increasing (fixed) costs forced the company to shut-down 600 unprofitable stores (net opening of stores in 2009: -474). but is slow in loosening restrictions. Z. sales went down seven percent from 2008. Surprisingly. since China has entered the WTO in 2001. New Statesman (2010): Online publication 47 48 Cf. analysts warn that a new regime could close the marketplace and even nationalized properties overnight. stagnated and then fell a few percentage points until it gained pace again in 2010. Economic Environment The financial crisis of 2008 has left its hefty mark on many.Practices in China. in particular in China 46 Cf. 50 But also declining revenues added to the slump in profits. Also Starbucks suffered from the global downturn and profit plummeted to an all-time low in September 2008 ($316 million). 51 During the crisis years. 46 This MOA will provide Starbucks with the opportunity to gain a permanent foothold in the Chinese coffee market. essentially. Khairulyakub (2011): Online publication Cf. will not be problem since the Arabica coffee beans will be sourced from Indian farmers anyways. mostly western companies. Starbucks arrives to India at a time when the government is trying to attract more foreign retail investment. Li. India is on the verge of becoming the second biggest country in terms of coffee consumption. A possible threat to Starbucks is the unpredictability of government decisions.S.. 52 Price- sensitive customers went from pricier Starbucks stores to competitors which were able to offer coffee at a lower price. Starbucks seems to have a less difficult time in gaining a foothold in the highly profitable Indian coffee market. Unlike those companies. (2012): Online publication . foreign investment has been welcomed with open arms. disposable income of the U. 49 The joint venture with conglomerate Tata Group will further help Starbucks to circumvent possible political bottlenecks. 47 However. revenue growth was mostly positive in emerging markets. Since China is a one-party dictatorship.

(2012): Online publication Starbucks Corporation (2010): p.49 50 51 52 Cf. Cf. Z. Cf. 3 Starbucks Corporation (2010): p. Li. 30 Trading Economics (2014a): Online publication 3 3 . Cf.

urbanization. the “coffee break” became an inherent part of the American workplace. particularly to the United States where it became in vogue following the Second World War. mostly western markets.54 The economic situation of developed countries can be highly volatile. particularly in countries where it is produced. and South Asia. In India. most of its production was exported to western countries. it has only just begun to make an appearance in developing countries. The recent financial crisis has shown that emerging markets remain relatively unscathed by economic turmoil in developed markets. and coffee drinking becoming a fashion have spurred the expansion of the domestic coffee market in India. 56 Growing disposable income.and India. 55 Nowadays. Strong economic growth. Especially in Asian countries. and rising living standards make emerging markets less prone to crises. Coffee is historically produced in Latin America. political stability. such as Starbucks. the coffee culture has shifted from self- made coffee to single-serve coffee. However. 53. and the company who is able to . The customer base generally comprises young age groups (15 – 30 years old). investing in growth markets such as China and India is important to hedge against volatile sales in already established. Central Africa. Social Environment The coffee culture experienced an upswing in the early 1960 (see appendix 6). This observation goes hand in hand with the fact that the disposable income of the latter countries continued to rise during crises years. While coffee has become an established beverage in western societies. especially during crises. drinking coffee has become a social status. particularly for young women. which have been known for predominantly consuming tea. Aggressively promoted by the PanAmerican Coffee Bureau in 1952. Moreover. coffee houses have become an alternative sanctuary and social hangout or India’s youth in a culture that has generally shun bar-going. For Starbucks. it became cool to drink coffee due to the influence of western cultures and fashionable international brands.

(2012): Online publication 3 4 . Li. (2001): p. 53 Cf. M. Z.offer good coffee at an affordable price will have a competitive edge over competitors. Pendergrast. Trading Economics (2014b): Online publication 54 55 56 Cf. 85 Cf. Trading Economics (2014c): Online publication Cf.

or by putting a capsule into a machine. and then brewed by means of coffee percolators or automatic coffeemakers. While coffee was disdained as a capitalist product under Mao. it reemerged on the streets of Shanghai in the late 1980s. In today’s fastmoving world. coffee making was a rather time-consuming and arduous task which required skill. or at home using burr grinder. is usually brewed in special machines at home. consumption primarily rests on the developing demand among eastern China’s growing urban middle class. people can get a good cup of coffee by simply pouring instant coffee into a cup of boiled water. however. Nonetheless. Nowadays. While typical coffee was originally grounded at roasteries. practice. blade grinder. and the right equipment. which is served in small capsules (or “pods”). 57 Although coffee is produced in the rural regions of Yunnan. was reserved for Nestlé which introduced its Nespresso line in the early 2000s. or mortars. this easy and uncomplicated way of making coffee has become the norm. nowadays instant coffee and single-serve coffee. is certainly big enough to host a number of players. This change in technological environment has promoted Starbucks to move into the single-serve coffee market by introducing the VIA instant coffee and K-cup lines. the coffee culture has just recently experienced an upsurge. Making coffee the old-fashioned way has become more of a trend among true coffee connoisseurs. which displays annual growth rates of seven to ten percent. In the old days. Coffee capsules and instant coffee packs have revolutionized the technological landscape of coffee making equipment. the fast-growing instant coffee market. their coffee-drinking is less a habit and more about seeking a certain kind of experience. 59 . China does not have the kind of pervasive coffee culture that is found in many parts of the West. While young urbanites patronize cafes as an outward sign of their engagement with global trends (status symbol).Also in China. However. 58 Technological Environment The technological environment surrounding coffee consumption has changed over the years. in grocery stores. The first-mover advantage.

Global Coffee Report (2013): Online publication 3 5 .57 Cf. E. Cunningham. (2010): Online publication 58 59 Cf. Cunningham. (2010): Online publication Cf. E.

companies have taken the implementation of such norms into their own hands and established their own responsibility guidelines. the drive for increased output has had a knock-on effect on the environment as well. with monocropping and sun grown coffee now being the norm. carries out ethical sourcing practices and drives an environmental responsibility program to support local farmers and protect the environment. biodiversity.Environmental Environment Environmental stewardship has become a priority for coffee makers. Starbucks Roast®) is an essential component of the company’s competitive advantage. Traditionally. third world coffee farmers receive a paltry of ten percent of the eventual retail price. and water usage and companies like Starbucks actively try to reduce their environmental footprint. For Starbucks it is important to make use of intellectual property protection laws because the technology which the company uses (e.g. The production of coffee has a distinct impact on forests. Governments around the world have been urging coffee producers to adopt fair trade and environmentally-friendly practices. particularly in developing countries. Legal Environment It is essential to understand the intellectual property right laws and licensing issues when entering emerging market. However. Fortunately. and producing “green” and fair coffee is an important attribute for improving the brand image among consumers and environmentalists. which increases the potential for serious damage. Another big question is whether the profits of big coffee chains are trickling down to the people who actually grow the beans. for example. 61 It must also be taken into consideration that most coffee growing regions are home to delicate ecosystems. On average. complexities within the supply chain have meant that the 100 million people growing coffee around the world have been excluded from the huge profit making potential of coffee. . Starbucks. the implementation and execution of fair trade norms is not practiced thoroughly by governments. 60 Along with the negative effect this has on the living conditions of farmers.

western companies have frequently experienced infringements on their intellectual property rights. (2011): Online publication 3 6 . Blacksell. Blacksell. G. (2011): Online publication 61 Cf.Especially in China. G. Intellectual property which has not been thoroughly protected 60 Cf.

2. 62 Some local companies have overstepped legal boundaries in their effort to mimic Starbucks’ popular and successful branding strategy. mostly local competitors. which can result in court cases being dropped without clear reasons. Industry Analysis The attractiveness of the global coffee industry will be analyzed by means of applying Porter’s Five Forces. and lack of transparency. particularly at local level. Upon first entering the Chinese market in 1999. 63 Potential shortcomings of the IP legislation in India are bureaucratic delay in the enforcement of IP laws.2. and have consequently been sued by Starbucks – with success. backlog of cases at both the civil and criminal courts. India’s intellectual property legislation covers every significant aspect of the protection of intellectual property if the property is registered in a prompt and proper manner.has often been copied by direct. Figure 2: Porter’s Five Forces Bargaining Power of Suppliers Threat of Established Rivals 5 4 3 2 1 Threat of New Entrants 0 Threat of Substitut es Source: Own illustration Bargaining Power of Buyers . 64 6. Starbucks has managed to secure all of its major trademarks within four years. Also the large number of small players infringing on IP rights puts a financial burden on the government. Just like in China.

7 37 . DeVault. G.): Online publication 63 64 Cf.62 Cf. Intellectual Property Office (2013): p. (n.7 Cf. Intellectual Property Office (2013): p.d.

500 outlets in China. British coffee chain Costa Coffee entered China in 2006 and currently has over 250 stores with the objective to increase the number to 500 stores by 2016 – accounting for 8. 65 Other competitors. The coffee war is particularly acute in emerging markets. .The spider diagram depicted above shows the competitive rivalry in the global coffee industry.5 (about US$0. 67 Starbucks’ current market share of 66 percent of the total coffee retail sector in China is therefore crumbling. pursue similar pricing strategies with which not so much the high income segments are targeted but rather the rising middle income class (urbanites). The forces that exceed a score of three can be defined as potential threats that need to be considered by Starbucks. While Starbucks targets the upper income level Chinese with beverages costing up to RMB30 (about US$5). In addition to that. In appendix 8. Threat of New Entrants (LOW) The threat of new entrants to the industry to compete with Starbucks is low because the coffee market is highly saturated with established players. Starbucks is competing against major competitors such as McDonalds. Threat of Established Rivals (HIGH) The rivalry among exiting competitors is high. Dunkin Donuts. for example. Small competitors such as Taiwanese 85 Degrees and Hong Kong-based Pacific Coffee are also planning on making a market entry into China soon. can cost as little as RMB1. Costa. it becomes obvious that Starbucks is the pricier stores of the three. and McDonalds can be found. or Caribou Coffee. such as McDonalds and Dunkin Donuts. Nestlé’s Nescafé instant coffee. The competitive advantage that competitors have over Starbucks is that they offer their (coffee) products at a cheaper price. the company has to compete with countless smaller coffee shops and cafes. a price comparison on the basis of two popular beverages (hot black coffee and iced mocha) between Starbucks. Competitors are also aggressively expanding their presence in emerging market. 66 McDonalds can currently boast of 1.9 percent market share of the coffee retail market.10) per package. Dunkin Donuts. Despite the fact that only two products have been compared.

(2013): Online publication 3 8 . N. Barlow. (2013): Online publication 66 67 Cf. Barlow. Barlow. (2013): Online publication Cf. N. a substantial amount of financial resources associated with buildings and properties are required in order to enter 65 Cf.Moreover. N.

Bargaining Power of Suppliers (HIGH) The bargaining power of supplier is high. non-monetary. This is the case with today’s coffee market. Typical substitute products for coffee are tea. Moreover. soft drinks. All this increases the bargaining power of suppliers. juices. the Starbucks atmosphere is unique and hard to replicate by bars and pubs. producers are able to offer higher prices. The demand for coffee is high and the supply limited because coffee can only be produced in certain geographical areas. The law of supply and demand states that when demand exceeds supply. 68 In developing markets. On the other hand. Nonetheless.3. .the industry. Threat of Substitutes (MEDIUM) The threat of substitute products is medium. Pubs and bars can be seen as alternative locations to meet people and spend time outside of university or work. or emotional switching costs are high because other brands might not meet customer expectations. In fact. External Factor Evaluation Matrix The External Factor Evaluation (EFE) Matrix will be utilized to evaluate the major external opportunities and threats in the global coffee market. such as transportation and the actual cost of coffee are low because customer can essentially buy a coffee at every gas station or supermarket. water and energy drinks. Monetary switching costs. the threat of new entrant is marginally higher because fast market growth and poor execution of intellectual property rights allow small coffee startups to gain a foothold in the market. Bargaining Power of Buyers (HIGH) The bargaining power of customer is high because there are no or relatively small switching costs for customers.2. 6. fair trade laws have obliged coffee companies to pay farmers adequate prices for their outputs. customers can switch to competitors with ease and Starbucks must be careful to not lose customers to cheaper competitors.

J. (2014): Online publication 39 .68 Cf. Dudovskiy.

7.1 0.1 0. India.00 2.05 2 0.05 2 0. and abroad High potential for flavored coffee in the US market ($US 377 million) High potential for courtesy coffee products Threats High bargaining power of suppliers raises prices of coffee beans Trademark infringements. which scores slightly above the average score of 2.3 0.1 0.8 0.Table 4: External Factor Evaluation Matrix Key External Factors Opportunities Expansion to emerging markets. particularly in emerging markets Increased competition from local coffee companies and international entrants in emerging markets Saturated markets in developed economies Increasing price sensitivity of Starbucks customers Negative publicity because of water treatment Total Weight Rating (1-4) Weighted Score 0.2 4 0. in particular to China.15 4 0.15 1.1 0.15 0.15 1 0.1 1 0.5 meaning that with its current strategic .6 0.3 0.1 3 0.1 3 0.S.7 Source: Own illustration The EFE Matrix has resulted in a final score of 2.05 2 0. and Brazil High growth potential of singleserve (instant) coffee market both in the U.05 3 0.

orientation Starbucks is only marginally able to respond to external factors. 4 0 .

it will be determined whether Starbucks’ current strategy is appropriate and sustainable for the future. Positive market growth in emerging markets requires Starbucks to shift the strategic focus away from saturated markets in developed economies (mostly the U. and if so. niche segments. Current Performance Assessment The current performance assessment summarizes the current situation analysis of the previous chapter and determines whether Starbucks has a problem. Market attractiveness is moderated by high bargaining power of buyers and sellers. Assessment Analysis (Fulcrum) On the basis of the current situation analysis. and Brazil.1.3) continuous? 7. but also against local coffee companies which have the home field. as well as “hot” coffee trends. The market presence (number of stores) must be increased incessantly in order to protect market share not only against international competitors which swarm emerging markets at a rapid pace. In developed countries.S. 69 For Starbucks. Three particular .1. such as single-serve coffee. key success factors are based on its numerous capabilities which distinguish the company from competitors. such as the flavored coffee and courtesy coffee segments.7.  What are key success factors in the global coffee market and does Starbucks have them? Key success factors are a combination of important facts that are required in order to accomplish one or more desirable business goals. deserve more attention. what is the nature of the real problem? This can be done by posing four meaningful questions that will lead to accurate and perspective answers. The question is: what will happen if the existing strategy (see chapter 6. India. and Europe) to ascending economies such as China.  Is the global coffee industry attractive for Starbucks? The attractiveness of the global coffee industry can be seen as relatively high.and price advantage.

capabilities can be highlighted to have the biggest impact on Starbucks’ market success. 69 Cf. Business Dictionary (2014): Online publication 4 1 .

or is incongruent? Starbucks’ current strategy orientation has been highlighted at great length in chapter 6. Starbucks is able to attract more customers and also improve its quality image. and homey atmosphere of its stores to fend off competitors. 73 Key success factors are continuously nurtured by and guided by Starbucks’ six principles. market share of nearly 70 percent. In a time where coffee prices are rising and ethical sourcing practices becoming the norm. and the ability to protect the integrity of their coffee beans from detrimental effects of oxygen and time through a closed loop system of packaging is unprecedented in the industry. the company has managed to form longlasting and mutually-beneficial partnerships with farmers around the world.  Does the strategy fit the environment. In addition to that.1. premium quality coffee.S. 2. in short. .1. the store atmosphere enjoys a unique perception among customers. 71 70 In China. market. Through this. leverage customer loyalty. 3.3. For example. the higher the market share the higher the control over competitors and influence on customers. such as in close proximity to places of interests or landmarks. 72 In other words. which. the company can boast of market share of 75 percent in the U. Supply chain management One of Starbucks’ strongest key success factors is its own supply chain operations. Starbucks’ transportation rates are the best in the industry. Starbucks holds a Being the leader of the market allows Starbucks to set industry trends which the company has done in the past with beverages like the Frappuccino. Superior store locations Starbucks is able to locate their stores in areas with much higher foot traffic and better local demographic compositions. Market leadership Starbucks is occupying the market leadership position in many developed and emerging markets.

Burkitt. R. Brunson.The EFE matrix has shown that the company is only marginally able to respond to external factors. (2011): p. Starbucks is able to sufficiently 70 Cf. L. M.. This means that with its current strategic orientation. 168 71 72 73 Cf. Reed. The Jeebboo Gazette (2012): Online publication 42 . The Jeebboo Gazette (2012): Online publication Cf. (2010): Online publication Cf.

to medium-run. . VIA instant coffee. In other words. also have the necessary financial means. beer will attract beer drinkers) and expanding into niche markets (e. they are not perceived as luxury coffee companies but rather as fast-food chains. Frappuccino) and highly recognizable brand have helped the company to conquer market share in established and emerging markets. such as McDonalds and Dunkin Donuts. The highly recognizable and popular brand image as well as strong financial muscle helps Starbucks to locate stores at highly-frequented and exclusive shopping sites in major cities around the world.g. Starbucks’ successful and popular product lines (e.  Does Starbucks have a competitive advantage? The key success factors of Starbucks have been briefly discussed in the penultimate paragraph. Starbucks has the necessary financial means to rent store room in those areas. Starbucks’ current strategy is appropriate. courtesy coffee products for luxury hotels). nonetheless it requires finetuning to be sustainable in the short. Starbucks stores fit perfectly between stores like Versace and Gucci.cover most of the external factors but not all of them. Those strengths help Starbucks to maintain its current market leader position.g. The company continuous to attract customers by further differentiating its product portfolio (e. one must combine the key success factors with the company’s strengths and see if some of the strengths really help a key success factor stand out from competitors. Being perceived as a luxury coffee house. Unlike other competitors. Starbucks maintains an effective and efficient relationship with coffee bean suppliers by implementing fair trade and ethical sourcing principles. This reduces the bargaining power of suppliers substantially and can have a positive influence on the price development of coffee beans. Starbucks therefore has a competitive advantage in selling coffee to high-end customers in high-end places. In order to determine the competitive advantages of Starbucks. Other competitors have to deal with rising resource prices which have a negative impact on their margins. While direct competitors.g. Moreover.

43 .

and change in consumer needs.2. Expected Performance Assessment This assessment summarizes expected performance in the future if the current strategy is maintained. growth rates are expected to pick up as increasing coffee consumption in highly populous markets such as China. and Brazil outpaces consumption in developed countries. a rising middle class with increasing disposable income is driving the growth. it can be said that Starbucks is able to utilize its strengths to turn key success factors into comparative advantages. India. The main question is: will Starbucks’ current strategy be sustainable if the industry develops a certain way? When trying to build a scenario.Hence. It is therefore interesting to look at the market development in emerging economies: In China. 75 This rate is not likely to change in the short- run as stagnating growth rates in developed countries balance out increasing growth rates in emerging countries. 77 Just like in China. change in product and marketing innovation. In India. four key drivers usually play an important role in determining the future attractiveness of the industry: change in long-term industry growth rate. annual growth in consumption accounts for five to six percent. 74 Change in long-term industry growth rate The average annual growth rate of the global coffee market accounts for about two to three percent. a most-likely-scenario for the industry will be developed to determine which changes will take place to the external environment. Based on the current situation analysis. This is also why Starbucks has been testified with a rather strong internal position (see IFE Matrix). however. In the medium-run. coffee consumption in Brazil is increasing at an . change in competitive intensity. Comparable to India. coffee consumption level is increasing at a rate of 25 to 30 percent (ten times more than the average world rate). 7. 76 The rising middle class with higher incomes can be considered the major growth engine.

Hong.74 Cf. D. M. N. Huntley. Brown. Kulkarni.d.): Online publication 75 76 77 Cf. (2012): Online publication Cf. (n. (2013): Online publication Cf. (2013): Online publication 4 4 . F.

it will be important to further extend the product portfolio by adding new products (categories) to quench emerging customer needs. Sometimes. However. With access to highquality Arabica coffee beans widening. single-serve coffee products are increasingly gaining attractiveness among customers. also in emerging markets. but saw an increase of 31. 80 Equally important are growth rates in certain market segments. As a consequence. Equally important is the role of service innovation. Currently. Consumer preference for convenience and quality will drive innovation in single-serve brewing technology. competitors is closing. Starbucks will be able to quench increasing coffee demand in the future because of its comparative advantage in sourcing coffee beans from loyal and high-quality bean producers as well as by key strategic partnerships with local coffee retailers that help Starbucks to distribute its products globally. traditional coffee companies that started out as mere coffee stores are going to transform into full-scale restaurants over time. 82 Moreover. The at-home and out-of-home coffee consumption will be changed by single-serve systems. Economic stability and higher wages have led to an expanding middle-class which accounted for 42 79 percent in total coffee consumption in 2009. A study of Rabobank has shown that by 2020. Change in Product and Marketing Innovation Innovation is expected to drive market share gains and gross profits. emerging markets will account for 50 percent of global coffee consumption. sales of single-serve coffee account for only eight percent of total coffee sales. the service the quality gap between . where it can be seen as a new and efficient alternative to making coffee the old-fashioned way. such as Starbucks’ Verismo and Keurig Brewers.78 annual rate of approximately five percent.3 percent from the previous year indicating strong growth figures for the future. 81 Single-serve coffee is predominantly sold in developed countries. The shift from multi-serve coffee to single-serve coffee is going to accelerate in the future.

Cf. M. Cf. Cf.78 Cf. (2012): Online publication Rabobank (2013): slide 7 4 5 . Bartender (2013): Online publication 79 80 81 82 Cf.. Bartender (2013): Online publication Rabobank (2013): slide 7 Geller. M. Dalal.

As result. In the future. or simply enjoy a good reading. The reason for this is the premium price it charges for its coffee products. the competitive intensity is bound to increase – especially in emerging markets. With competition in the global coffee market increasing. meet friends. Its service capabilities are unrivaled beyond any doubt. Starbucks must be careful to not miss out on upcoming trends. Despite the increase in disposable income. it will be ever more difficult to attract customer or tap into new customer groups. Spending on marketing activities is therefore expected to grow. Only in terms marketing activities there is room for improvement. in emerging markets it is the middle-class that is responsible for increasing coffee consumption. Competitors like McDonalds and Dunkin Donuts are better positioned to respond to the price expectations of this customer segment. but a sanctuary where people can go to escape the daily grind. Starbuck. who is enjoying leadership positions in the majority of its markets. In terms of niche competition. Coffee stores are therefore going to turn into places where people actually feel at home. The company has underestimated the profit potential . many coffee companies offer cozy and comfortable sitting areas. is not sufficiently prepared to counteract new entrants both from the domestic and international field. Companies that have previously relied on the power of their brand image must be careful to not underinvest in marketing activities. However. Wi-Fi access. Change in Competitive Intensity As it was mentioned before.offering is the only possible way to gain a competitive edge over market contenders. Starbucks’ has Wi-Fi connections in all of its stores and strives to improve the purchasing procedure by providing mobile payment. the coffee store is no longer going to be a place where one buys a cup of coffee or sandwich. Starbucks’ strong intellectual property and extensive R&D activities will help the company to keep up with product innovation in the future. meaning that customer will come back frequently to repurchase products. only high-end customers will be able to afford Starbucks products (see price comparison in appendix 8) on a sustainable basis. and music.

of single-serve coffee and has only recently joined the market when most of the “cake” was already divided among other 4 6 .

the need for fast coffee. Nestlé capitalized on its first mover advantage and now dominates the market for single-serve coffee.3. gain publicity a lot faster. and organic and origin. Another change in consumer needs is the rising emphasis on fair trade. consumers demand coffee at a reasonable price and with a western image. health benefits. consumers are in need of coffee that is ready to serve within seconds. Especially in developed markets. the company seems to have problems foreseeing emerging trends. With the rise of the internet. 7. customers are willing to pay extra money for premium coffee and premium offerings supported by fair trade. For example. such as the waste water scandal of Starbucks. However. it is important to first summarize the strengths and weaknesses of Starbucks and the opportunities and threats the company is exposed to. the “premiumization” of the coffee market is another ascending consumer trend. 84 In developing countries.competitors. This will be done by means of applying a simple SWOT analysis: . According to the market study of Rabobank. This particular need has promoted the emergence of instant coffees and singleserve coffees. consumers have the chance to carefully follow social responsibility practices of companies online. in China. With time being of essence. and rumors and scandals. Starbucks’ current strategic orientation is able to capture most consumer trends that are expected to make an impact on the coffee market in the future. 83 Change in Consumer Needs Consumer needs change over time and companies must be keen to tailor their product offerings to emerging needs. Developing Strategic Focus In order to develop strategic focus. One conspicuous change in consumer needs has happened in the past decade and will carry on well into the next.

83 Cf. (2012): Online publication 84 Cf. Doherty. Rabobank (2013): slide 7 4 7 . D.

Access to high-quality Arabica coffee beans 3. Strong intellectual property and R&D capabilities 5. Strong supply chain management 4. Strong financial muscle Opportunities 1. Strong brand image 7. Environmental issues markets 3. High growth potential for flavored coffee in the U.Table 5: SWOT Analysis Strengths 1. Increasing competition from local competitors and new entrants in emerging markets 4.S. Increasing price sensitivity of customers Source: Own illustration Based on the SWOT analysis. Trademark infringements in emerging 3. India. High bargaining power of suppliers 2. Brazil) 2. 4. Overextension of product portfolio 1. High growth potential for courtesy coffee products 6. High growth rates in emerging markets (China. . High growth potential of the single-serve coffee market 3. High prices of products 2. Strong and reputable partners 9. Successful and popular products lines 2. Saturated market in developed economies 5. Variety of flavors Weaknesses Threats 1. Strong customer service 8. a TOWS analysis can be compiled to provide the necessary strategic focus.

48 .

Utilize high quality.S. brand reputation. customer service. Tackle middle-class customer in to affordable levels (W2. O4) WO “Mini-Maxi” Strategy 1 Redirect focus to profitable . (S1. Lower prices in reaction to increasing price sensitivity of customers (W2. niche markets to avoid overextension of portfolio in unprofitable market segments (W1. O3) 4. O2. Utilize strong supply chain/supplier relationship management to reduce bargaining power of supplier (S3.3.9. O2) 3. Discard unprofitable product lines to avoid portfolio overextension and foster profitable product lines to exploit niche market (W1. O1) 2 Utilize strong intellectual . broad strategic directions from which possible . Utilize strong intellectual property and R&D capabilities to penetrate niche segments in saturated developed markets (S4.8. T1) 2.8. Utilize the wide variety of flavors and successful product lines to penetrate the flavored coffee market in the U.7. O1) emerging market by adjusting prices Threats (T) ST “Maxi-Mini” Strategy 1. T4) 2. brand image.4) 2.6. Focus on quality.7. properties and strategic partnerships to tap into/further expand in the singleserve coffee market (S4. Utilize financial power and brand image to spur expansion in emerging markets (S5. T5) Source: Own illustration The TOWS analysis has highlighted four. and key strategic partners to counter low-price offering of competitors (S2.S. T4) WT “Mini-Mini” Strategy 1.Table 6: TOWS Analysis Weaknesses (W) Strengths (S) Opportunities (O) SO “Maxi-Maxi” Strategy 1. (S2. and customer service to penetrate the courtesy coffee market in the U. T3) 3.6.6.

strategic alternatives can be drawn. 4 9 .

8. Solution Analysis
The objective of the solution analysis is to come up with a final strategy (or
strategies) for Starbucks to help it improve its competitive position in the
short- to medium-term. Three steps a necessary to achieve this: generate
strategic alternatives, determine the goals and evaluation criteria, select
the final strategy or strategies.

8.1. Strategic Alternatives
The strategic alternatives are taken from the TOWS analysis which has
been compiled in the previous chapter.
1. SO Alternative
The SO alternative is the most aggressive strategy, as it utilizes internal
strengths to capitalize on opportunities. The main objective of this
alternative is to aggressively expand operations in emerging markets by
flexing the financial muscle and utilizing brand superiority as well as key
strategic partnerships to gain a permanent and preferably unrivaled
foothold in the market (market leadership). In developed, already
saturated markets, the alternative envisages a strong focus on niche
segments such as the single-serve coffee segment. Technologies that are
necessary to succeed in niche segments must be either developed by
using own R&D capabilities or acquired from competitors. Furthermore, it
is important to promote the high-quality and one-of-a-kind image of the
Starbucks brand, meaning that prices should not be lowered but kept
stable to not deteriorate the brand image.

2. ST Alternative
The ST alternative takes a more conservative stance as it utilizes strengths
to minimize threats. In other words, it suggests the retention of the status
quo. Current market share must be defended by foreseeing threats and
eliminating them before they become an issue. The preeminent threat of
rising coffee bean prices must be constrained by nurturing good
relationships with supplier, focusing on fair trade and ethical sourcing

practices. Similar to the SO alternative, the ST alternative also suggest to
counter the low-price strategy of competitors by sticking to the highquality and exclusive brand image. Good customer
5
0

service and a unique and state-of-art store atmosphere should be
sufficient to justify the extra price customer pay for Starbucks products.
3. WO Alternative
The WO alternative denies Starbucks’ current strategic approach and
suggests a turnabout in the pricing strategy. In response to the rising
middle-class in emerging markets, the product prices must be adjusted
according to the customer’s budget. This does not mean undercutting the
prices of competitors, but it will no longer allow Starbucks to charge a
premium price for its products. Also, niche segments should be tackled in
a more precise and slim-cut manner, meaning that certain product
categories should be discarded (e.g. merchandise) to free up financial
resources that are necessary to boost expansion in key segments, such as
the flavored coffee market or the courtesy coffee market.
4. WT Alternative
The WT alternative is the most defensive strategy, as it suggests getting
on the same level with competitors. On the one hand, this alternative
would allow Starbucks to enter the highly profitable and fast growing
middle-class segment in emerging markets. On the other hand, the
company would be exposed to a severe price war and loose its high-quality
brand image among customers. Similar to the WO alternative, the WT
alternative stipulates that all unprofitable product categories (dogs) should
be discarded and that emphasis should be put on highly profitable and
fast-growing products (stars).

8.2. Goals and Evaluation Criteria
In this section, the goals of Starbucks are highlighted. In order to select
the right strategy for the company, it is important to know what the
company wants to achieve in the future. Goals are then translated into
specific performance criteria which take the form of objectives. Those
short-

to

medium-term

objectives

should

be specific,

achievable, realistic, and time-bound (SMART principle).

measurable,

51

Table 7: Starbucks‘ Goals and Objectives
Goals
Expand market position in the
China-AsiaPacific (CAP) market (in particular
India,
Japan, and Korea)

Build China as a second home
market
outside the United States

Expand market leader position in
the
Americas

Develop current position in the fastgrowing
single-serve coffee market

Become the first coffee company to
offer
mobile payment

Improve and develop ethical
sourcing
practices

Objectives
 Open 1,500 stores in China until
2015
 Double the number of cities until
85
2015
 Acquire full ownership of all
stores in
China from joint venture partner
Maxim’s
Caterers Limited to expand
control in
central, southern, and western
86
China
 Expand number of stores in Japan
to
87
1,000 by 2013
 Expand number of stores in Korea
to 500
88
by 2013
 Complete the joint venture with
Tata
Group in 2011 to increase
market
89
presence in India
90
 Open 3,000 stores until 2015
 Acquire Peet’s Coffee and Tea
Incorporated in 2011 to
consolidate and
91
grow market share
 Further increase presence in
Brazil by
92
opening 100 stores in 2011
 Enter into expanded, long-term
strategic
partnership with Green Mountain
Coffee
to increase sales of K-Cup packs
and
93
Keurig Brewers
 Launch mobile payment system
for
BlackBerry and iPhone in all U.S.based
94
stores in 2011
 Extension of line of credit for
farmers to
95
$20 million by 2015

A. R.Enter the courtesy coffee market in the United States 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6  Purchase of coffee which is 100% sourced according to the ethical criteria 96 of C. The Motley Fool (2013): Online publication Cf. Brunson. (2011): p. 186 Cf. S. 8 Cf. Starbucks Corporation (2013): p. E. C. J. 4 52 . Zhihao. Hardy. R. Chowdhury. M. S. Vanderborg. (2012): Online publication Cf. (2013): Online publication Cf. C. (2012): Online publication Cf. (2013): Online publication Cf. Reed. 186 Cf.. Vanderborg. Chowdhury. (2011): p.. (2011): Online publication Cf.F. Canterbee. (2011): Online publication Cf. (2011): Online publication Cf.E by 2013  Establish partnership with in-room market leader Courtsey Products in 2011 Cf. Reed. T. Brunson. Starbucks Corporation (2013): p. M.

there will be a distinction between corporate level and business (competitive) level strategies. Corporate Level Strategies . especially  By the end of 2013.S. As in the strategy analysis. Strategy Selection The selection of the most suitable strategy (or strategies) for Starbucks is based on the evaluation of the alternatives while taking into consideration the goals and objectives of the company.000 distribution centers in 20 100 activities countries by 2015 Improve customer loyalty  Introduce My Starbucks Rewards by 101 2013 Improve and develop current  Acquire Atlanta-based tea store position in the chain Teavana Holding Incorporated in tea market 2012 to expand in the $40 million global tea market and claim a leading 102 position Extend product portfolio.000 luxury and premium hotel rooms in the United 97 States  Acquire full ownership of stores in 98 Switzerland and Austria in 2011  Acquire full ownership of stores in mainland China by buying stores from 99 Maxim’s caterer Improve and accelerate supply chain  Build 100.Increase the number of whollyowned company stores to gain access to 500. will be able to enjoy La Boulange products and Evolution Fresh juices in company-operated 103 stores Source: Own illustration 8.3. Starbucks the food customer and beverage lines in the U.

(2012): Online publication Chowdhury. Courtesy Products (2011): Online publication 98 99 100 101 102 103 Cf. S. Cf. S. Cf. The dimensions and evaluation of the SPACE matrix can be found in appendix 9. Starbucks Website (2011): Online publication China (2011): Online publication Chowdhury. Cf. S. (2012): Online publication Chowdhury. (2012): Online publication 5 3 . (2012): Online publication Chowdhury. Cf. 97 Cf. S.The SPACE matrix will be utilized to determine which nature of corporate strategy Starbucks should undertake. Cf.

In order to determine which strategic alternative is the most suitable one for Starbucks. the WO and WT alternatives can be eliminated as they take on an extremely defensive/conservative stance by trying to emulate low pricing strategies of competitors. . The question remains as to whether Starbucks should expand or simply maintain current market shares (SO versus ST). As a result.to medium-term.Figure 3: SPACE Matrix Source: Own illustration The SPACE matrix shows that Starbucks should drive an aggressive strategy for the short. the QSPM Matrix will be applied.

54 .

2 0.2 0.2 4 0.05 2 0.2 0.05 4 2 3 2 1 0 0.4 0.1 0 0 0.1 2 3 0.05 4 3 0.1 0.1 4 0.15 0.3 0.15 1 1 0.6 0. High growth potential for courtesy coffee products Threats High bargaining power of suppliers Trademark infringements in emerging markets Increasing competition from local competitors and new entrants in emerging markets Saturated market in developed economies Weigh t Alternative 1 Alternative 2 (ST) (SO) Expand Market Maintain Market Share Share Total Total Attract Attractivene Attractivene Attractiven ss ss ess Score Score Weigh Score Score t 0.6 0.4 0.1 4 0.1 0.3 0.3 0.6 0.15 2 0.05 4 1 0.4 0.4 0.6 0.15 3 0.1 2 0.05 4 4 3 3 4 0 0.1 4 0.15 4 0.1 0.4 0.15 4 0.4 0.05 0.05 4 0.15 4 0.3 0.1 0.4 0.3 0.1 0.05 0.4 .2 0.2 1 0.2 0 0.S.2 0.05 4 0.2 0.05 0.05 0.1 0.4 0.05 0.1 0.1 4 0.1 0.1 0.1 4 4 0.1 4 0.05 0.05 2 0.45 0.1 3 0.05 0 0.2 0.Table 8: QSPM Matrix Key Factors Strengths Successful and popular product lines Access to high-quality Arabica coffee beans Strong supply chain management Strong intellectual property and R&D capabilities Strong financial muscle Strong brand image Reputable customer service Strong and reputable partners Variety of flavors Weaknesses Overextension of product portfolio High prices of products Environmental issues Sum Weights Opportunities High growth rates in emerging markets High growth potential of singleserve coffee market High growth potential for flavored coffee in the U.4 0.15 4 0.1 0.8 0.1 0.05 0.2 0.

6 > The QSPM Matrix clearly shows that Starbucks should drive an aggressive expansion strategy both in domestic and foreign markets.1 4 0.3 1 0.75 5.Increasing price sensitivity of customers Sum Weights Sum Total Attractiveness Score Source: Own illustration 0.1 3 0. Maintaining current market shares and trying to foresee and then dodge attacks from competitors is not an option.4 1 6. 55 .

Business Level Strategies In contrast to corporate level strategies. The Grand Strategy Matrix will be applied to determine which product strategies are most appropriate for each category on the basis of competitive position and market growth. The BCG matrix (see chapter 6. Figure 4: Grand Strategy Matrix Rapid Marke t Growt h Quadrant II Market development Market penetration Product development Horizontal integration Divestiture Liquidation Quadrant I Market development Market penetration Product development Integration (any direction) Related diversification Weak competitiv e position Quadrant III Quadrant IV Retrenchment Joint Ventures Related diversification Unrelated diversification Horizontal integration Divestiture Liquidation Strategic alliances Merger Acquisition Related diversification Unrelated diversification Slow Market Growth Strong competit ive position .1) has already highlighted the profitability of Starbucks’ four major product categories.1. business level strategies deal with product categories and their profitmaking potential. which concern the scope of the firm.

Source: Own illustration 56 .

Having missed out on the first-mover advantage. For Starbucks. mainly because of the single-serve coffee frenzy. their competitive position is weak yet fast market growth rates in the single-serve coffee sector make them highly profitable.g. For Starbucks. Nestlé). Marketing campaigns that highlight product qualities or appearance make-overs are possible options to better the competitive position of such products and turn them into stars (quadrant I). It is therefore important to further develop the market by redirecting financial resources and R&D capabilities to making niche products more attractive in the eyes of consumers. such products are typically beverages and foods that enjoy a high acceptance among customers. or temperature. Strategy for Quadrant II Products that have a weak competitive position and experience rapid market growth fall into quadrant II.g. Possible strategic alternatives are therefore retrenchment and even complete . Clinching to such products can have a negative impact on profit. Strategy for Quadrant I Products that have a strong competitive position and experience rapid market growth fall into quadrant I. In order to consolidate the market position and boost growth. but also juices and teas (e. such products are merchandise and traditional coffee-making equipment.1. Strategy for Quadrant III Products that have a weak competitive position and experience slow (or no) market growth fall into quadrant III. such products have to quarrel with strong competitive brands (e. product lines such as the K-Cup and VIA instant coffee are good examples. 2. Starbucks needs to further develop those product categories. This can be done by adding flavors. Chai). ingredients. 3. Being portrayed as dogs in the BCG-matrix. Examples are the Frappuccino and the Panini. Sales of traditional coffee making equipment have been declining as well. Starbucks has already applied this strategy on domestic scale by introducing the Caramel Ribbon Crunch Frappuccino® blended beverage or the Vegie Panini. Hence. As it was shown in the internal analysis. sales of merchandise products have been declining over the past years (despite the company’s excellent brand image).

liquidation of product lines. The retrenchment alternative suggests slimming down the merchandise offering. only keeping items with positive sales 5 7 .

g. music CDs). 4. Customer have been buying traditional coffee for decades and Starbucks’ ground and whole bean coffee products enjoy a high reputation among customer due to their high-quality image. Liquidation suggests offering no merchandise and solely focus on selling beverage and food products.figures (e. . over the past years sales of traditional coffee have stagnated due to the appearance of single-serve coffee products and changes in consumer needs. This retail strategy has already been successfully applied in the early stages of Starbucks’ expansion and needs to be further developed to boost sales of traditional coffee products. For Starbucks. or specialty and premium retailers that sell freshly-brewed coffee to customers.g. What Starbucks could do to boost sales of traditional coffee products is to form strategic alliances with large restaurant chains. Strategy for Quadrant IV Products that have a strong competitive position and experience slow market growth fall into quadrant IV. Ground and whole bean coffee have been around almost since the foundation of the company. an example would be the classical ground and whole bean coffee with its different blends. However. hotel chains. stainless coffee mugs and tumblers or Verismo® Machines) and getting rid of unprofitable product lines (e.

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In China it is important to develop marketing strategies that appeal to younger generations who fantasize about western coffee culture as a symbol of modern lifestyle. and price points to the needs. the importance of partnering up with local retailers to gain market presence cannot be stressed enough. Starbucks is advised to continue its centralization strategy of buying back stores from local partners to increase profits and reduce the threat of intellectual property theft. Starbucks is advised to nurture existing partnerships as each partner contributes different strengths and local expertise that can help Starbucks gain an understanding of the different tastes and preferences of local Chinese customers.  Market development strategy in China: Starbucks has already made significant inroads into China.  Market segment development strategy: Starbucks should apply a market segment development strategy for niche markets in developed economies. product mixes. It is further recommended to enter new markets with the help of key strategic partners since they dispose of the necessary market knowledge and political ties which can greatly facilitate the entry. in particular the . lifestyles. and tastes of local customers and communities. Moreover. Since China is not a homogenous market (it is far too big for that). the licensing strategy should be continued for new markets since it allows local store managers to tailor store format.9. the following key strategies can be recommended to Starbucks:  Market penetration strategy: Starbucks should opt for an aggressive expansion strategy in emerging markets. 104 Moreover. in particular India and Brazil. The aggressive strategic choice can be justified because Starbucks has a strong competitive position which can be perfectly utilized in a fast-growing market. The company should utilize its internal strengths to develop market share in emerging economies. However. Once the market is consolidated. Recommendations Based on the assessment and solution analysis. there still remains a lot of untapped potential which the company can capitalize on.

courtesy-. and flavored coffee segments. Wang. (2012): Online publication 5 9 . Those segments portray 104 Cf. H.single-serve-.

Moreover. Starbucks’ current strategic orientation is appropriate for the company to persist in the market. nonetheless it requires fine-tuning to be sustainable in the short. should not be given up on since they portray the heart of Starbuck product portfolio. tumblers and Verismo® machines). A liquidation strategy for the entire merchandise category is not recommendable as certain products still enjoy high demand among customers (e. This will free up additional financial resources which is necessary to further drive the extension of profitable and currently “hip” product lines. Tata Group or Kraft Foods) who dispose of the necessary market spread to distribute traditional coffee products. tailored marketing campaigns are necessary to highlight the benefits such products have over competitors. such as merchandise and traditional coffee equipment.2).g.to medium-term.  Alliances: typical question mark products. In other words.g. and the company is advised to build up those product lines alongside their core coffee and food products. indicating that Starbucks is aware of potential external threats and opportunities.  Product positioning strategy: trendy products such as K-cups and VIA instant coffee packs need to be better positioned in their respective segments in order to fully exploit profit potentials.  Retrenchment Strategy: Starbucks should consider slimmingdown unprofitable product categories.positive growth rates and must be exploited if the company plans to increase market shares in established markets. The company is advised to build better relationships with specialty retailers or convenient stores to clinch premium shelf space for such product lines to increase customer awareness.  Product development strategy: on business level. . Starbucks also has great growth potential in Tea and Fresh Juice products. Growth in this segment can be revived by forming alliances with key strategic retail partners (e. such as ground and whole bean coffee products. Paninis) so that they do not loose attractiveness in the eyes of customers. Most of the strategies that were recommended are already considered in the company’s short.to medium-term objectives (see chapter 8. the company is advised to further develop successful product lines (Frappuccino.

Following additional recommendations can be made to help Starbucks improve and sustain its current strategic orientation: 6 0 .

Also in developed markets it is necessary to step up advertising. The company has shown that customers still value good service.  Premium-pricing strategy: it is advisable to aggressively expand the number of stores at home and abroad in order to not fall behind competitors. Especially in emerging markets. It is advisable for the company to establish trend-scouting facilities to better unravel changes in consumer expectations and behavior. who. It is therefore recommended to increase the marketing budget for growth markets. which require a rather all-embracing marketing strategy. Aggressive marketing campaign in emerging markets: room for improvement exists in the implementation of marketing campaigns in developing countries. Aggressive expansion does not mean undercutting competitors. and a cozy store atmosphere and that they are willing to pay an extra price to feel “special”. highquality. high quality.  Price hedging strategy: there have been wide fluctuations in the market prices of high-quality Arabica coffee beans. Lowering prices would most likely mediocritize Starbucks’ excellent brand image and reputation as a provider of premium coffee and exceptional service. in emerging markets Starbuck cannot rely on world-of-mouth marketing as it first has to establish and consolidate its presence. On the contrary. 105  Trend-scouting departments: in the last decade Starbucks has failed to foresee and capitalize on emerging trends in the coffee market. are able to attract more customers particularly from the fast-growing and highly coffee-conscious middle-class in emerging economies. Starbucks should hold on to its high-quality image. Unlike in developed markets where Starbucks has already made a name for itself. pushing for market share by cutting prices is a losing strategy as new entrants can never “out-cut” the prices of local competitors. the marketing strategy for developed countries should be fine-tuned to specific niche markets. In contrast to emerging markets. based on the their low-cost advantage. Marketing campaigns featuring the western. and “hip” image of Starbucks can help the company offset the low-price advantage of competitors. Although Starbucks has been able to mollify .

extensive price peaks with its excellent supply chain management orientation. (2012): Online publication 6 1 . H. the company could further mitigate price volatility by applying effective hedging 105 Cf. Wang.

strategies. 62 . This will provide Starbucks with more financial leeway. One option could be to use future contracts for purchasing future quantities at an agreed on price in the present.

Recommenda tion III. Assessment Analysis I. Current Situation Analysis Internal Characteristics (background.Appendices Appendix 1: Comprehensive Strategic Analysis Framework II. industry) Source: Own illustration Summary of Current Performance Expected Performance of Current Strategy Propose Strategic Direction + Solution Analysis Strategic Alternatives Strategic Choice (corporate and competitive level) Recommendation and justification of strategy selection . organization) Current Strategy (corporat e and competitive level) IV. Solution Analysis Goals and Evaluation Criteria Past and Current Financial Performance Analysis External influences (Macroenvironmental.

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Portions Music CDs  and Filter Packs  Starbucks Gifts  Verismo® System  Syrups and Espresso Sauces  Macchiato .Appendix 2: Value Chain Inbound •Farm Operations •Company- Outbound •Retailing •Exporter operated •Speciality •Broker stores •Direct •Licensed •Testing Marketing •Word-of- Service •customer mouth •in-store adds response stores •Roasting satisfacti on •individual ity •atmoshp ere •Warehouse •Packaging Source: Own illustration Appendix 3: Product Portfolio Product Categories Beverages Food  Bottled Drinks  Brewed Coffee   Evolution Fresh™ Chocolate Beverages        Blonde Roast  Starbucks Petites Bistro Boxes  Medium Roast    Hot Breakfast Sandwiches.    Espresso Machines  Grinders  Frappuccino® Blended   Beverages Teas equipment and other merchandise Brewing Equipment  Coffee presses Profile Beverages Beverages Kids’ Drinks and others Smoothies Starbucks Coffee-making Bakery Espresso Refreshers™   Packaged and singleserve coffees Paninis and Salads Yogurt and Fruits La Boulange Evolution Harvest™ Dark Roast Flavored Coffee  Seasonal Favorites Form  Coffeemakers Teapots and Tea Kettles  Whole Bean Other Coffee Merchandise  Ground Coffee  Hot Cocoa and Treats  Starbucks VIA®  K-Cup® Packs  Mugs and Tumblers  Pods.

 Iced Teas Beverages  Latte Beverages  Mocha Beverages  Cappuccino Beverages  Americano Beverages  Espresso Beverages Starbucks Reserve® Coffee 64 .

Thriving coffee in a way that is uses greener and Neighborhoods: reusable both better for people cups.and well system is encourage teens to reducing make spice-growing a difference  the consumption of water communities with Starbucks Foundation: Green Building: health Starbucks services and Supporting Coffee..A. is building energyeconomic Tea. Zambia Peaberry Terranova Estate  Kona Coffee Parry Estate  Sumatra Blue Batak  Sun Dried Ethiopia Yirgacheffe  Finca Nuevo Mexico Source: http://www. Cocoa: Starbucks  LEED® certification collaborates with The fostering education in Climate Change: . and engages in hosting get-togethers and charity events  and the planet  composting practices Volunteer Canada Farmer Support: Loan Energy: Starbucks is Partnership: 10 cent programs have purchasing renewable committed over $15 million to a energy that donation per returned represents 20% of the total tumbler to Volunteer  variety of farmers electricity used in the Starbucks Canada Tea: Community Health Youth Action: and Advancement  stores Starbucks Youth Action™ Grants Initiative (CHAI) Water: Starbucks’ targets dipper the needs of tea.com/ Appendix 4: Starbucks’ Global Responsibility Program Community  Community Service:     106 Ethical Sourcing Environment  Coffee: Coffee and  Recycling and Farmer Reducing Hosting community Equity (C.starbucks.E) Waste: Starbucks Practices recycles service projects helps farmers to grow waste directly in stores.  stores according to the access to clean water. efficient development Cocoa communities.F.

and facilitates access to forest carbon markets People with disabilities: Starbucks is complying with the Accessibility for Ontarians and Disabilities Act with Conservation International helps to improves coffee Source: http://www.com/ 106 http://www.000 over three years production. conserve and restore natural habitat.starbucks.starbucks. and supports the ECHOES Starbucks partnership Alliance with a  contribution of $200. adheres to the Cocoa Practice Guidelines.ca/responsibility 65 .China. and rebuilding the gulf coast  Ethos® Water Fund: 5 cent donation for each bought bottle of Ethos water World Cocoa Foundation.

Alstead President SB President SB Coffe U. Burrows P. Scrivner . A.P.Appendix 5: Organizational Chart CEO Howard Schulz CFO T. Boggs Coffee Int. Rubinfeld M. Hansberry A. J. Gass Source: Own illustration Appendix 6: Global Coffee Consumption (millions of 60 kg bags) 100 90 80 70 Starbucks funded 60 50 40 30 20 10 2011 2009 2010 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 0 Source: UNCTAD CMO Coffee 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 Executive V.S. C. Culver President Global Food Service President Global Development Seattle's Best J.

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McDonalds.29 Source: http://www. and Dunkin Donut Beverage/Compa Starbucks ny Hot Black Coffee $1.pdf Appendix 8: Price Comparison between Starbucks.69 $2.starbucks.95 McDonalds Dunkin Donut $1.com/assets/c60c79d6c3a247e284640f17f1806283.95 Iced Mocha $3.tampabay.99 $1.89 $2.com/features/food/general/coffee-wars-taste-test-ofstarbucks-mcdonalds-7-eleven-and-dunkin-donuts/1012417 .Appendix 7: Store development 1971 to 2010 1800 0 1600 0 1400 0 1200 0 1000 0 8000 6000 4000 2006 2007 2008 2009 2010 1987 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2000 Source: http://globalassets.

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The world economy is gradually recovering from the 2008/2009 recession and coffee consumption is gradually increasing. Industry Strength (IS): Based on Porter’s Five Forces (chapter 6. Nonetheless.2. Higher technological and environmental standards portray challenges for . Financial Strength (FS): As it was analyzed in the Financial Performance Analysis (chapter 6.1). it can be concluded that the industry is indeed competitive and that high bargaining power of suppliers and buyers will make it even more competitive in the future. supply chain management. Especially the profitability and liquidity ratios have improved substantially since the downturn in 2008. superior store location.1).2).4). Environmental Stability (ES): Based on the PESTEL analysis (chapter 6. Starbucks has a competitive advantage in market leadership. potentially high growth rates (especially in emerging markets) make the global coffee market highly profitable. it can be concluded that the macro environment is generally positive for Starbucks. Starbucks ratios are generally healthy.Appendix 9: Dimensions and Evaluation of SPACE Matrix Source: Own illustration Competitive Advantage (CA): As it was mentioned in the Current Performance Assessment Analysis (chapter 7.2. and brand image.1.

intellectual property infringements in developing countries have to be dealt with.Starbucks in the future. 68 . Also.

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.......... .......... ........................................ ..................................... date .............................................. Place................. Signature ...................................... date Place........... ................................... Signature ..................... ....... Signature .............................................Declaration I guarantee that I have done this work myself and have not used any sources or aids other than the ones stated.................. date Place....... .....

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