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How McDonald’s and Starbucks Defined Their Industry
By Rick Kowalski One can learn quite a bit about where the coffee house business is headed by studying how the quick serve restaurant (QSR) industry has evolved. Rick Kowalski concludes his franchise series on how coffee houses are moving through this evolution much quicker than the QSR business, although the process is not without some similar growing pains.
One fact resonates above all others from QSR evolution: QSR brands that clung to their original
positioning have grown into strong competitors. The chains that lost their original positioning found themselves in a steep sales decline that some were able to reverse and others were not. One very common way that chains lose their positioning is to add a vast new array of products to their menus. Menu proliferation was a ‘buzz-word’ in the ‘80s. QSR chains were throwing every new product they could find at their customers without a thought of how it would affect their market position. This almost ruined chains like Jack-in-the-Box and Carl’s Jr., and even McDonald’s has fallen victim at times to this failed strategy. Starbucks Captures Breakfast Recently, Starbucks announced its intention to launch breakfast products. Could this be a natural extension to their morning coffee business, adding value to the Starbucks enterprise? It definitely makes intuitive sense to leverage Starbucks’ morning customer traffic and expand on it by offering food items appealing to that part of the day. Or, is this the beginning of Starbucks menu proliferation initiative that will lead to an erosion of its customer base? Will breakfast items, coffee makers, teabags, plastic cups, mints and music all begin to erode Starbucks position as the leader in specialty coffee? Will we be able to find everything from laxatives to frozen waffles in the Starbucks of the future? And, is Starbucks in danger of aggressively trying to evolve into all things for all people at the ultimate cost of its core business-specialty coffee? QSR vs. Today’s Coffee House Other complicating factors in this interesting evolution are the differences between QSRs and coffee houses. The significant differences between a traditional QSR (McDonald’s, Burger King, etc.) and a coffee house include service, menu, marketing and product. These differences are important, yet one difference not yet discussed is the need for that “third place” between home and work. Starbucks founder Howard Schultz had it right when he talked about Starbucks filling this “small luxury” need. The coffee house is a warm comfortable place where people can go when they want to escape work, and either can’t go home or don’t want to. QSRs haven’t done a great job in filling this need. Their design/décor has been more inclined towards durability and ease of cleaning, supported by colors, seating and hurried atmosphere that turns tables quickly. Their products are targeted towards meal occasions, not spending discretional time reading, socializing or working.
Enter the Starbucks wars. Seeing the ease of entry, fierce loyalty of great coffee, and the handsome profit margin, QSRs are rushing to develop specialty coffee programs in an effort to capture more shares with better coffee blends. Dunkin’ Not in Third Place The anomaly to this discussion is of course, Dunkin’ Donuts. Dunkin’ is a strong regional coffee competitor in the northeastern U.S. The typical Dunkin’ customer is also a heavy QSR user, but they are also a heavy coffee drinker. Coffee sales at a typical Dunkin’ in the Northeast will represent 65% or more of total sales. Donuts are something that Dunkin’ franchisees wish they didn’t have to mess around with. They have found that pouring coffee is a much easier and more profitable business. Dunkin’ is clearly a QSR, but is also positioned in coffee. Yet, they don’t really fit into that “third place” definition. Dunkin’ users are much more inclined to ‘grab and go’ rather than sit and chat. The typical Dunkin’ Donuts store design is not necessarily inviting or warm and welcoming. Promotional posters hyping new products and washable surfaces in the dining areas are the company’s rule. How will the Dunkin’ brand play in markets where a “third place” defines the coffee house? Dunkin’ management has publicly stated they want to expand towards the west coast. They want a piece of the 18% gain in share that coffee competitors captured last year, as reported by the National Restaurant Association. The challenge this Dunkin’ brand will face is whether customers west of the Mississippi will recognize the chain as a great place for donuts (and maybe other fast options) or a coffee place. This is important because the Dunkin’ business model turns on its ability to sell significant amounts of coffee. Supporting the expansion of the Dunkin’ brand solely on donuts and breakfast sandwiches will be difficult, especially since they use franchising as their method of expansion. Will Dunkin’ management fundamentally change the way the store looks and acts in order to put the brand in the “third place” arena, and if they do, will customers buy it? Dunkin’ may also be answering the siren’s song of more menu appeal (a.k.a. menu proliferation) by adding Supreme Omelet sandwiches and lunch items that help bolster their weaker day part. With the hiring of a top-notch executive chef to develop new menu items, as well as a team of culinary experts and a multi-million dollar test kitchen, the research and development effort at Dunkin’ is a well-oiled machine. Dunkin’s product development efforts appear to be targeted towards the McDonald’s customer rather than the more upscale Starbucks customer. Starbucks is also adding more SKUs with retail merchandise, so while Dunkin beats a path to the McDonald’s customer, Starbucks is apparently looking to take share from big box retailers, QSR and the Internet! Starbucks aspirations are very big, indeed. While Dunkin’ and Starbucks slug it out for more market share, traditional coffee house brands continue their gains with more distribution and friendlier, more comfortable environments. It’s A Grind and Diedrich’s, for example, provide a very inviting and coffee-focused atmosphere, perfect for socializing and relaxing. These brands that cultivate an inviting atmosphere and continue to focus on coffee as a complex beverage with a variety of flavors appeal to the customer who isn’t interested in a QSR environment or the products they serve.
Three Categories Emerge As the big players and other brands continue their evolution, the following three primary market segments appear to be emerging in the coffee house industry: 1. The Starbucks segment. This segment is defined by the largesse of the Starbucks brand and all that goes with it. Its direction is flowing towards more products that continue to drive same store sales growth. The relative price/value position vs. coffee house competitors is high. 2. Dunkin’ takes charge of the second segment with a more “everyman” approach to coffee. This segment walks and talks much more like QSR than does the Starbucks segment. Its relative price/value position vs. competitors is in the lower-middle area. However, there is no real credible competition in the donut segment. Products and prices are below Starbucks, and this concept is positioned fairly well if economic times become difficult. Merchandise is not part of the product mix at Dunkin partly because of its market position, and partly because its franchise business model would not tolerate it. 3. Experiential marketing chains and independents. This segment is being defined by quality and customer service, driving higher end coffee house players such as It’s A Grind, Caribou Coffee, Diedrich’s Coffee and a handful of other chains, as well as many independents, from coast to coast. Products and atmosphere are clearly a cut above Starbucks, and several levels above Dunkin’. Customers tend to be upper income professionals or someone looking for more than a hot cup of drip coffee to grab and go. This segment treats coffee as a rare commodity with mysterious origins and political ramifications. The atmosphere of the coffee house is closer to a club hangout for movie stars like the Pure or Rain in Las Vegas, or the SkyBar in Hollywood. The relative price/value position vs. competitors is only slightly higher than Starbucks. Other segments may emerge as this industry continues its evolution and the current leaders may inadvertently re-position their brands in a way that enhances value or erodes it. One thing is for sure, however, the coffee house industry is evolving in a similar way as the QSR industry, but at a much faster rate. Being a student of past QSR successes and failures could help coffee house brands avoid serious pitfalls. ABOUT THE AUTHOR: Rick Kowalski is vice president of operations for It’s A Grind (IAG Coffee Franchisee LLC), based in Long Beach, California. He has an extensive foodservice background, including notable brands such as KFC, Hilton Hotels and Dunkin’ brands
in more than 16. Australia. Total stores 16. Today. page 2 of 3 . Russia.850 Company-operated stores. Scotland. Denmark. enjoying a quiet moment alone with a book or simply finding a familiar place in a new city. Brazil. Aruba . one cup. Our Stores Our stores are a welcoming third place for meeting friends and family. Czech Republic. Starbucks Mission Our Coffee Our mission is to inspire and nurture the human spirit – one person. Bahamas. Japan. Poland. Lebanon.000 locations in over 50 countries. Germany. Belgium. New Zealand.com The Starbucks Story Our story began in 1971.706 (as of Dec. Indonesia. Kuwait. Back then we were a roaster and retailer of whole bean and ground coffee. 27. Switzerland. Our coffee buyers personally travel to coffee farms in Latin America. Thailand.856 Licensed stores. Netherlands. Spain. 2009) 8. Mexico. Starbucks experts bring out the balance and rich flavor of the beans through the signature Starbucks Roast™. we are privileged to welcome millions of customers through our doors every day. Saudi Arabia. 7. Northern Ireland. It’s our goal for all of our coffee to be grown under the highest standards of quality. We’ve always believed in serving the best coffee possible. Operating in more than 50 countries Argentina. Turkey.1 of 3 Company Profile © 2010 STARBUCKS COFFEE COMPANY. Ireland. Folklore Starbucks is named after the first mate in Herman Melville’s Moby Dick. Jordan. Austria. France. tea and spices with a single store in Seattle’s Pike Place Market. Greece. Qatar. and one neighborhood at a time. Oman.starbucks. Bulgaria. Singapore. United States and Wales. Once these quality beans arrive at our roasting plants. using ethical trading and responsible growing practices. Taiwan. Africa and Asia to select the highest quality arabica beans. Malaysia. Peru. United Arab Emirates. Cyprus. Korea. Chile. China. Egypt. Hong Kong. ALL RIGHTS RESERVED. Portugal. Our logo is also inspired by the sea – featuring a twin-tailed siren from Greek mythology. Bahrain. Canada. Philippines. Romania. www.
com • Starbucks went public on June 26. Washington. 1985. www. product expertise and customer service. Our Products Coffee More than 30 blends and single-origin premium arabica coffees. in Olympia. sandwiches. salads. 1992 at a price of $17 per share (or $0. Handcrafted Beverages Fresh-brewed coffee. on November 4. Merchandise Home espresso machines. coffee brewers and grinders.and part-time partners and equity in the company in the form of stock options. packaged goods. Taiwan and Korea). grown. bottled Starbucks Frappuccino® beverages. books and gift items. coffee mugs and accessories. Starbucks Discoveries® chilled cup coffee (in Japan. Our store partners are committed to coffee knowledge. • Starbucks was incorporated under the laws of the State of Washington. ALL RIGHTS RESERVED. . Vivanno™ smoothies and Tazo® teas. Starbucks DoubleShot® espresso drinks. Ethos water. ALL RIGHTS RESERVED. whole bean coffee and Tazo® teas at grocery and a line of super-premium ice creams. who we call partners. Seattle’s Best Coffee and Torrefazione Italia Coffee. We are proud to offer two landmark programs for our partners: comprehensive health coverage for eligible full.starbucks. under the trading symbol SBUX. Starbucks® Iced Coffee. are at the heart of the Starbucks Experience. yogurt parfaits and fruit cups. www.starbucks.50 per share. coffee and non-coffee blended beverages. oatmeal. Our employees. Consumer Products VIA™ Ready Brew coffee.Company Profile © 2010 STARBUCKS COFFEE COMPANY. adjusted for subsequent stock splits) and closed trading that first day at $21.com Our Partners We offer the finest coffees in the world. prepared and served by the finest people. hot and iced espresso beverages. Brand Portfolio page 3 of 3 Tazo tea. We believe in treating our partners with respect and dignity.53 per share. Company Profile Investor Information © 2010 STARBUCKS COFFEE COMPANY. • Starbucks Corporation’s common stock is listed on NASDAQ. music. Fresh Food Baked pastries.
1984 Howard convinces the founders of Starbucks to test the coffeehouse concept in downtown Seattle. long-term relationships with farmers all over the world that help ensure we are able to buy the high-quality coffee our customers expect from us. And we believe in the importance of caring for our planet and encouraging others to do the same. Community Involvement From the neighborhoods where our stores are located to the ones where our coffee is grown – we believe in being involved in the communities we’re a part of. Howard Schultz joins Starbucks as director of retail operations and marketing. It is our goal that by 2015. www.C. 1988 .starbucks. Within this. It’s our goal that by 2015. By 2015.starbucks.com Starbucks opens first store in Seattle’s Pike Place Market. Website: 1971 1982 www. partners and neighbors. recycling and green construction. all of our coffee will be grown using ethical trading and responsible growing practices. where he’s impressed with the popularity of espresso bars in Milan. we plan to contribute one million volunteer hours each year to our communities. He sees the potential to develop a similar coffeehouse culture in Seattle. 100% of our cups will be reusable or recyclable. Environmental Stewardship We share our customers’ commitment to the environment. Bringing people together. inspiring change and making a difference in people’s lives – it’s all part of being a good neighbor. we have identified three areas of focus: ethical sourcing. 1987 Starbucks opens first stores outside of Seattle area in Chicago and Vancouver. environmental stewardship and community involvement.com Starbucks Company Timeline © 2010 Starbucks Coffee Company. All Rights Reserved.Being A Responsible Company We are committed to doing business responsibly and conducting ourselves in ways that earn the trust and respect of our customers. We will also work to significantly reduce our environmental footprint through energy and water conservation. B. Ethical Sourcing We’ve developed strong. We call this Starbucks™ Shared Planet™ – our commitment to doing business responsibly. 1983 Howard travels to Italy. where the first Starbucks® Caffè Latte is served.
a tea company based in Portland. 2008 Announces a renewed focus on customer experience and innovation.S. Opens first store outside of North America in Japan. . benefiting local communities.” 1995 Begins serving Frappuccino® blended beverages. Acquires Coffee Equipment Company and its revolutionary Clover® Brewing System. Costa Rica. Introduces the Starbucks Card. and share their passion with customers and partners. 2001 Introduces coffee-sourcing guidelines developed in partnership with Conservation International. 1992 Completes initial public offering (IPO). 1997 1998 Establishes The Starbucks Foundation. Introduces Starbucks Coffee Master Program to provide Starbucks partners with an opportunity to learn more about the world of coffee. 1996 Joins with Pepsi-Cola North America to begin selling bottled Frappuccino® coffee drink – our first ready-to-drink beverage. Rwanda. 2002 Starbucks enters into licensing agreements with national Fair Trade organizations to sell Fair Trade Certified™ coffee in the countries where Starbucks does business. Ore.and part-time employees. 2004 Opens first Starbucks Farmer Support Center in San Jose. 1999 Partners with Conservation International to promote environmentally responsible methods of growing coffee. Acquires Tazo. 2009 Launches innovative VIA™ Ready Brew coffee. 1991 Becomes the first privately owned U. with common stock being traded on the Nasdaq National Market under the trading symbol “SBUX. Opens Farmer Support Center in Kigali.Offers full health benefits to full. company to offer a stock option program that includes part-time employees. Becomes the world’s largest buyer of Fair Trade Certified™ coffee.
who after visiting Italy tried to adapt the same principles in order to a strong bar culture. the company took a change in direction through the views of Schultz. With the recruitment of Howard Schultz who led the marketing and retail efforts of Starbucks in 1982. .Catching the Starbucks Fever Starbucks History Starbucks opened operations in Seattle's Pike Place Markets in 1971 with the future aim of providing coffee to a number of restaurants and surrounding bars. By 1987. Il Giornale had decided to take over the assets of Starbucks and also. further changed its name to Starbucks Corporation. Starbucks had increased the number of stores to 17 and furthered its location span by entering Chicago and Vancouver. By the end of the year. which brewed coffee from these particular beans. Schultz then utilized Starbucks ability to provide quality coffee beans and opened up a new store called Il Giornale.
Singapore and Hawaii.com) Overall. Relationships and other ventures also took off during the early nineties as the company looked to development organizations to further its progress. the �push' to achieve their goal is proved more than ever by the aim to open at least 650 stores just in Europe by the year 2003.starbucks. the company took further steps forward with expansion of the Seattle headquarters and an increase in resources with the opening of a new roasting plant. Peoples Republic of China. Oman. which further strengthens the mission to become one of the leading specialty coffee retailers in the world. Lebanon. The current countries in which Starbucks are located in are: Australia. Singapore. things had progressed so far that 3. Hong Kong.com). This was achieved through joint ventures including the one formed with Sazaby Inc. the company had ventured into countries ranging from England to Australia and a website was created to keep up operations with the latest technology (starbucks. the company really established its name with the opening of the 676th store as well as increasing the products in store with the addition of compact discs a result of a previously popular experiment with �in-house' music. New Zealand. This goal is quite close to being achieved as proved the Starbucks current locations in international markets and the successfulness of these ventures. United Kingdom. Kuwait. the company kept on stretching its reach by entering into the market of Japan.In 1990.500 stores. that it would be as recognizable as major names such as McDonalds and Coca-Cola. which pushed through the development of coffee houses in Japan.com).. It's these types of goals which prove the potential of this brand to become so popular and well known. Bahrain. (starbucks. Philippines. In addition to the fact that Starbucks has already successfully opened around 3.' . Qatar.com). Untied Arab Emirates. Thailand. Taiwan. By the year 2000. By 1995. Switzerland. Canada. Israel. In 1996. the aim of becoming a worldwide global brand seems to be working in favor of the company and is helping it to attract the attention of many major companies who would like to share a partnership (starbucks. This is all positive news for the company because it provides a strong basis for future development of international markets. Vision As stated on the website. and the United States. Malaysia. Japan.300 stores were already opened. The current international situation for Starbucks seems to be an emerging part of their business and the reorganization of this is proved by their aim to become a leading global company through making a difference in peoples lives all around the world (http://www. South Korea. Saudi Arabia. the company's vision is to �establish Starbucks as the most recognized and respected brand in the world.
com website (starbucks. but think about Starbucks first. Traditionally. Starbucks only uses the finest coffee beans when brewing its variety of blends and therefore wants to be looked at with the respect of a company that uses and provides the best. This is achieved through the huge number of company operated retail stores. coffee-related accessories and equipment. The attainment of this goal is boosted by the rapid expansion of new retail stores. None of this success would have been possible without a set of goals that the company aimed to achieve and a set of principles. Starbucks not only wants consumers to remember who it is. but there is no numeric goal.This is a fitting vision because it is a broad comprehensive picture of what the company wants Starbucks to become. The most recognized and the most respected are the two broad areas of this statement. Mission The mission of Starbucks is to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. Starbucks has a clear set of guidelines which has to be followed and uses these as a direction tool for the future of the business.com). Third is a summary of what the organization does. a variety of pastries and confections. or above all others. Secondly. The mission statement in the next section provides a much better description of this component. in addition to the development of many new opportunities in terms of products and distribution channels. First the vision is built on a foundation of the organizations core values. The overall company operations are based around purchasing and roasting highquality whole bean coffees and selling them along with fresh. Ideally the two mean number one. a direct response business and also on the World Wide Web at the Starbucks. which governed the decision making process. a specialty sales group. the guidelines would more appropriately be connected to the vision. however the company has set them with the mission statement. the vision states broad goals of what the company could be. the company desires a top of the mind recognition. rich-brewed.com): . supermarkets. It assumes that as a recognized brand it does not need to specify what business the company is in. Starbucks wants to be the most recognized and most respected brand in the world. Finally. We will examine the vision using four components. Starbucks is lacking in this component because it fails to provide a statement announcing what exactly what business Starbucks is in. The six principles of Starbucks are stated as (starbucks. Italian style espresso beverages. having a shining image. or timeline for this objective.
Contribute positively to our communities and our environment. This statement supports the idea that Starbucks uses the best available resources to give it a recognized and respected name. We believe that there since the beginning. The mission shows alignment with the vision by stating how the company plans to reach the broad goals set by the vision statement. from its inception in 1971. Embrace diversity as an essential component in the way we do business. Another supporting sentence in the mission statement is that the company apply the highest standards of excellence to the purchasing.• • • • • • Provide a great work environment and treat each other with respect and dignity. Apply the highest standards of excellence to the purchasing. Application of these principles can be used as a guideline for all employees from managers to workers to aim to achieve the company's goals. in just 21 short years (fortune. Horizontal Integration has been evident in the many strategic acquisitions. partnerships. Vertical Integration has been another key success factor as Starbucks Corporation has integrated backwards in opening coffee roasting plants. Develop enthusiastically satisfied customers all of the time. Starbucks strategy has been one of growth. while maintaining a certain type of standard. This mission statement along with the set of guidelines provides a focus for employees as they make strategic decisions.com). roasting and fresh delivery of its coffee. Then we will discuss some of the major actions of the publicly held company from 1992 to present. Private Company 1971: Starbucks began when three friends-English teacher Jerry Baldwin.1 Billion and operations in almost thirty countries. This growth has taken it from a single store in Pikes Place Market in Seattle. Timeline Overview We will take the company timeline and strategic decisions portion in two main sections. roasting and fresh delivery of our coffee. They have demonstrated all dimensions of a growth strategy: Internationalization in expanding into new countries and the global market. Recognize that profitability is essential to our future success. and joint ventures. It has shown concentration in being creative and relying on it's core competency of making high quality coffee and coffee equipment to develop new products and markets. to a worldwide company with sales of over $2. and forwards in controlling the distribution of it's many products. but supports the customers as well. It not only supports the employees. to it's initial public offering in 1992. making a note that they should satisfied all of the time. history . The first is when Starbucks was a Private Company.
Tea. as they saw another similar store have success in the San Francisco Bay area.teacher Zev Siegel. and a small coffee bean toasting facility. and continued to grow. and believed they build a client base in the Seattle area. The new name of the company would be Starbucks Corporation. there were 17 Starbucks locations. (starbucks. The three original partners each invested about $6. and the store had immediate success (Thompson). After meeting with the owners early in 1982. (Thompson) They acquired the Starbucks name. 2002). current chairman of Starbucks. stores. By this time Starbucks had expanded to operating five stores. and Howard Schultz was the new CEO. (Thompson) The store sold coffee beans. and seeing that the vast quantity of coffee and expresso bars. and writer Gordon Bowker�opened a store called Starbucks Coffee. 2002) 1983: After visiting Milan. and Spice in the touristy Pikes Place Market in Seattle (Thompson). (Thompson) At the end of 1987. Between 1987 through 1990 Starbucks entered new markets. as well as selling coffee beans and high quality coffee equipment (Thompson). and high quality coffee making equipment. etc. Schutlz realizes that Starbucks should be selling expresso. roasting plant. (Thompson) In a year and half two more II Giornale expresso bars would be opened. September 1982: Howard Schultz. and fresh brewed coffee. cappuccino. The owners prided themselves on their knowledge of coffee bean and of educating customers about the benefits of dark roasting coffee. (starbucks. and Howard Schultz acquired Starbucks for $3. This would be the first major acquisition in Starbucks history. This was a strategic decision because each they saw an opportunity in the fine coffee market. April 1986: Schultz left Starbucks to fulfill his idea of building expresso bars around the Seattle area and opens II Giornale.84 million. all serving Starbucks coffee.350 in the store. (Thompson) 1972: after the success of the first store. Schultz has a strategic vision of Starbucks becoming a national company.com) It was an Expresso Bar that was designed to sell coffee. Schultz announced a five-year growth plan to build 125 new stores. He was met with resistance as the owners did not want Starbucks to sell beverages (Business & Company). and by 1990 . Schultz had already demonstrated his corporate vision and growth strategy with II Giornale. and capuccinno. now he was horizontally integrating in the Seattle market by acquiring Starbucks. His goal was to open 125 stores in the next five years. was hired to manage retail sales and marketing (Business & Company. expresso. April 1984: Schultz finally convinced the owners to open a sixth "test" store in Seattle area. (Business & Company.com) March 1987: II Giornale. a second Starbucks was opened in Seattle (Thompson). Schultz was taken in by Starbucks commitment to quality and of educating customers of the benefits of slow roasting dark coffee beans.
and began it's longterm relationship with Barnes & Noble. This strategic decision turned out very lucrative as Frappuccino�. market. Public Company June 1992 . a subsidiary of Starbucks Corporation. Taiwan.during this year Starbucks opened in the Washington. D. Inc. "the first privately held company to establish an employee stock option program that included part-timers. California. Inc. the North American Coffee Partnership. 2002). China. and Portland.com). to sell coffee products at its bookstores (Business & Company. 1991: Schultz makes Starbucks. a Japanese corporation. This marked the beginning of its International growth. Management believed this would be a favorable market because of it's "trendy" nature (Thompson). 1994-1995 . During these years Starbucks penetrated the approximately 15 more markets (cities) in the United States (starbucks.Starbucks Company entered next big market.com) During this four year growth phase Starbucks entered the markets of Chicago. Schultz had a business strategy to retain high quality employees by making Starbucks a great place to work. Starbucks also opened two more major accounts.com) 1996 . which would see locations in Singapore at the end of 1996. He referred to every employee as a "partner" in the company (Thompson). 2002). New Zealand and Malaysia by 1998.com) By 2002.com).C. Thailand. and San Juan by end of 2002 (Business Wire) (starbucks. Japan. 2002) (starbucks. It also formed a strategic alliance with PepsiCo. an iced coffee drink. has had an incredible amount of success in grocery and convenience stores. opened its second roasting plant. 25 more than the original plan (Thompson). This was a tribute to the high sales and success that Starbucks was having throughout it's markets." (Business & Company. and United Airlines (starbucks.. 1992 . and Spain. for $23 million (Business & Company. 1993 . 1991 . Sheraton Hotels. Starbucks had . to bring Starbucks into Japan in 1995 and in 1996 it opened it's first international location in Tokyo. People were associating Starbucks with high quality coffee and it was becoming a very social atmospheres.Starbucks Coffee International.these years represent more growth and partnerships. to manufacture and distribute coffee drinks. Vancouver.there were 84 (starbucks. formed a joint venture with SAZABY Inc. and South Korea by 1999. including an acquisition of The Coffee Connection.com) In 1988 the company started a mail order catalog for it's fine dark roasted coffee beans and high quality coffee equipment (Business & Company. Lebanon.Starbucks had opened 150 new stores between the five-year period of 1987-1992. 2002).Starbucks Company was very successful after its initial public offering on the NASDAQ exchange (Thompson). Puerto Rico. (starbucks.
This year Starbucks continues to break through into new markets in new countries. Starbucks employed over 59. where Albertson's is centralized (Albertson's.com) 1998 . located in the United Kingdom and comprised of 56 locations.com) (Business Wire).S. United Kingdom. Starbucks has quickly become well established in the United States having locations in every major city. Ltd.1999). with plans to open over 600 locations in Europe alone by 2003 (starbucks. as this continued their growth into the hotel industry (starbucks. and Qatar. 2002).This year represented another year of substantial location growth. In this deal more than 100 Starbucks Coffee bars would be opened in Albertson's grocery stores in the U. 1998) 1999 . and announced plans to open hundreds of new stores internationally (Puget. 2002. a tea company.com). they reported revenues of over $2. 1998).There were two major events during 1999.com). Starbucks entered into a contract with Host Marriott International.During 2000.com).com. 2002) The second was a long-term contract with Albertson's supermarkets (Albertson's. ("Starbucks Japan") saw the opening of it's 300th Japanese location after winning immense popularity in Japan and financial success after it's Initial Public Offering on Nasdaq Japan September of 2001 (starbucks. Tazo� tea. such as the United States.com). became the "number one brand of coffee ice cream in the United States. 1999).000 people during 2001. This was also a strategy by Starbucks to introduce Frappuccino�. In March of 2002 Starbucks celebrated it's first store opening in Spain. 2000. for over US$60 million (BBC News Online. bringing the total amount to 4. to name a few. The first was the acquisition of Tazo�. Germany. The company reported total assets of $1. (BBC News Online. according to starbucks. Australia." By 1996 there were 1.709.015 Starbucks locations (starbucks. (Business & Company. with a employment growth rate of 24% (fortune.com).709 total locations in the United States and worldwide (starbucks.865 Starbucks locations were opened in the United States and abroad (starbucks.400 new locations.locations in almost thirty countries (starbucks. Starbucks Size Starbucks is a global corporation with 4.851 billion in 2001. which. In addition.64 Billion in 2001 (Starbucks Corporation). With operations in almost thirty countries. approximately 1. Also in 1996 Starbucks formed an alliance with Dreyers Ice Cream to introduce coffee ice cream products. Starbucks Scope . In addition Starbucks Japan.com). with over 1. Starbucks continues to grow at a rapid pace.Starbuck acquired the Seattle Coffee Company. 2001. and other merchandise to new markets across the Midwest. This is the beginning of Starbuck's president's goal of opening 500 stores in Europe by 2003.
coffee brewing equipment. Starbucks Financial Performance During the fiscal year ending September. earnings per share. but the ROE is slightly weaker than the industry average of 17. and is currently in many different markets. a Return on Investment of 14. coffee bars.52.com). and its website starbucks. restaurants. Starbucks Nonfinancial Performance Starbucks Corporation was voted by Fortune Magazine as one of the Top 100 Best Companies to Work For in 2002. Starbucks has used high quality coffee as it's core competency.627 employees outside of the U.2 million. and 7. tea's. This ratio is one more strong measure that Starbucks is a corporation that has exhibited strong financial performance.48. and its operating cycles are very healthy (Ratio. mail-order catalogs.67 (Ratio. Starbucks Corporation created 12. . As of 12/1/2001 Starbucks Coffee has 51. (fortune. 2002). which we will now look at. and with the ratio of 0. and also books and compact discs. This was over $500 million higher than the previous year.Starbucks Corporation competes in the global arena.649 Billion.86. 2002). reported revenues were $2. most prominently in the United States. Reported gross profit increased over $100million from 2000 to $581 million. 26% of it's workforce is made up of minorities (non-Caucasion).91 is stronger than the industry average of 0. The P/E ratio (profit/earnings) in 2001 was 49. Starbucks Corporation's Current Ratio of 0.5million. and receivables of 1. and a Return on Equity of 14.31.08. 2002).650 new jobs in 2001 from a pool of over 720. it has operations in almost thirty countries. including Starbucks Coffee locations. which relates total current liabilities to cash. Starbucks reported 2001 Operating Income of $252. this indicates that Starbucks Corporation has the ability to satisfy it's current liabilities with it's current assets. both figures increasing substantially from the previous year (Starbucks Corporation).com).914 employees in the United States. Starbucks Corporation has quite a few very strong financial ratios.56. and Total Net Income $181. marketable securities. Starbucks ROA. of 81. As the Current Ratio is the company's current assets / current liabilities. The quick ratio.58 (Ratio. These include ice cream. with a 24% Job Growth Rate (fortune.91 it is a signal of financial strength. which is far superior to the Industry average of 27.000 applicants. Starbucks sells its product through many avenues. As previously mentioned in this case study. 2001. and ROI are both stronger the industry average. which indicates that Starbucks Corporations inventory is highly liquid. coffee flavored drinks.79 is over five times higher than the industry average of 12.S.48 is a strong figure. supermarket coffee beans.80.com include a Return on Assets of 11. Some other ratios found from Multex. Starbucks EPS.com). Inventory Turnover ratio is 11. ranked number 58 to be exact (fortune.com.
Starbucks proves this point because it only purchases and roasts high quality whole coffee beans as well as adapting them into a number of different coffee variations. uniform cream at the top of Espressos. part-time or full-time.com. Starbucks Corporation chairman Howard Schultz believes that Starbucks should be a great place to work. In terms of coffee. especially those who are working. it is hard to base this fact as a general description but on average. Within in this. and should treat every one of their employees as partners. have the need to go straight into the store and straight out as quickly as possible. It should be mentioned that every person has their own personal amount of coffee needed each day and so. Performance / Need Analysis Consumers.htm).htm). In terms of the other food & beverage products. the average usage rate for coffee drinkers is around three cups per day. It is vitally important that those more popular coffee products are available to consumers while other variations are introduced on an occasional basis. Music would be purchased on a personal basis depending on if the consumers like the music available. to benefit from. the less these . consumers are in need of having high quality coffee variations made up from high quality coffee beans (http://www. and health coverage that allow any employee. the more satisfied customers will be.com). Once again.and 60% of it is made up of women (fortune. it would be fair to base the usage rate on the number of coffees that are consumed during the day. strong flavor that is maintained and that the freshness of the beverage stays longer while undesirable flavors are minimized (http://www. Other products such as coffee related equipment would only be purchased once in a while or when they were needed. regular coffee drinkers would consume about two-three cups a day. These requirements include thick. Consumers in addition to high quality coffee want to be able to taste many types of coffee variations. it is important to state that each person has their own personal amounts but usually those that purchase a drink of coffee would probably purchase a biscuit or chocolate. Some examples of his good faith have been employee stock options plans. Consumers are appealed to by those companies who deal with the roasting and brewing of high quality coffees. This is a major objective because the quicker the service is.au/coffee_freshness.coffee. The plans have succeeded in having a low voluntary employee turnover rate in 2000 of 23% (fortune. Product Usage Rate Usage Rate: The usage rate varies according to each type of product.com). Basically. it is necessary to make sure that the coffees are made of high quality beans and meet the requirements of consumers.coffee. This is proved by the take-away nature of Starbucks and its catering facilities for the working class. In terms of actual coffee products.au/coffee_robusta.com.
starbucks. Through the selling of coffee-related products such as brewing equipment and accessories. Throughout the world. many consumers can enjoy high quality coffee at home rather than traveling out of their way. The fact that Starbucks is mainly associated with coffee. many caf�'s have some type of music playing the background and this is a key identification feature that further expands the experience. Tazo� Tea provides a number of premium teas as well as herbal teas. . These needs are often apart of the whole experience and include things like music. this time it's the music company. This is another example of how Starbucks is meeting the needs of current customers as well as increasing its attractiveness to potential customers. buttery Sulawesi (http://www. sometimes there is the need to have an assortment of small foods that are quick to consume and easy to carry.starbucks. the creamy sweet Caf� Verona and the smooth. Starbucks has met this requirement through providing a number of chocolate variations like gift boxes and chocolate bars while also offering sweets such as after-coffee mints and lollipops. the other one also has a greater chance of being purchased. and Starbucks cleaner and canisters.requirements are met. Many consumers who don't drink coffee usually drink something similar like tea. Starbucks meets these requirements through providing many variations of coffee in order to satisfy as many people as possible. Starbucks meets the need of consumers by another acquirement. in addition to tea accessories and gift packs. The benefits of this are further increased by the fact that sometimes these chocolates can complement a coffee and therefore. the less appealing coffee will be to consumers.com/hearmusic/product. With Starbucks. Hear Music provides Starbucks with a number of songs that are played throughout the day and this is quite an attraction for customers as proved by their constant questioning of what song is playing (http://www. Hear Music. This is sometimes the case when people are looking for a quick snack to have along with their drink. the acquirement of the Portland (USA) based Tazo� Tea Company has allowed the product offerings to be expanded even further. There are also less important needs that if required can sometimes bring about potential success. This was a useful acquisition by Starbucks because it allowed them to better meet the requirements of even more consumers and therefore. stainless steel coffee filters. Examples include the walnut flavor of Colombia Narino Supremo. expanded the attractiveness of the store on a whole new level. The connection here is that customers can purchase music through Starbucks as a result of the agreement with Hear Music. Hear Music provides Starbucks with a number of compilation albums as well as favorites in order to make customers feel more at home. when one is bought.asp). some consumers who don't drink coffee will be less attracted by the store. In addition to meeting those beverage needs of consumers. Further. The equipment available includes Expresso machines.asp).com/shop/product.
the Company licenses its operations. airports. By establishing relationships with well-known third parties that share their values and commitment to quality. such as movie and television placement. and distribution through its retail stores. instead relying more on its image advertising. and homes. movie theatres. Kraft manages all distribution. department stores. and dine by establishing relationships with prominent third parties who share their values and commitment to quality. Also. Although Starbucks does not usually outsource operational control of its retail stores in North America. shop. including grocery channel licensing agreements. in order to promote the success of the business. This includes one with PepsiCo. to develop and distribute Starbucks premium coffee ice creams. Inc. These relationships take various forms. advertising and promotions for this particular product. Starbucks is vertically integrated. shop. For the most part. Score: +2 Customer Service One of Starbuck's primary objectives is to provide a superior level of customer . businesses. Starbucks' strategy for expanding its specialty operations is to reach customers where they work. Inc. in situations where another company can provide improved access to desirable retail space. international retail store licensing agreements. marketing. roasting. convenience stores. to market and distribute Starbucks whole bean and ground coffees in the grocery channel in the United States. Starbucks also makes their coffee and coffee-related products available via mail order and online. Inc. travel. The Company has two non-retail domestic 50-50 joint ventures. who develops and distributes readyto-drink coffee-based products. Starbucks has shown to use less of traditional advertising. joint ventures and more. Starbucks has carried out their strategy by moving distribution into grocery stores. Score: +2 Marketing and Sales One of the main strengths of Starbucks over the years has been their tireless effort to make their product an uplifting part of people's daily lives. schools. and travel.Strengths and Weaknesses Operations Starbucks specialty operations strive to develop the Starbucks brand outside the Company-operated retail store environment though a number of channels. direct-to-consumer market channels. Starbucks is able to reach customers where they work. controlling its coffee sourcing. Starbucks has a long-term licensing agreement with Kraft Foods. warehouse club accounts. they have a joint venture with Dreyer's Grand Ice Cream.
political. These sourcing guidelines are a flexible point system that rewards performance in sustainable categories with financial incentives. usually quite a bit higher in price compared to their competitors. Starbucks enters into long-term fixed price contracts with its suppliers to ensure an adequate supply of quality green coffee over extended periods of time. To reduce the risks associated with the unpredictability of coffee price and supply. those who qualify for 100 points will be granted preferred supplier status with the Company's coffee buyers. In building customer loyalty. certain food items and select coffee-making equipment and accessories. such as weather. Starbucks also publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees. Starbucks believes how they choose partners is critical to their success and have listed a few criteria: • • • • • • • Shared values and corporate culture Strong multi-unit retail/restaurant experience Dedicated human resources Commitment to customer service Quality image Creative ability. Coffee sought by Starbucks tends to trade on a negotiated basis. and economic conditions. Score: +1 . One of their guiding principles in their mission statement states. Starbucks does provide a "comment card" on their web site that allows customers to give constant feedback about their experiences or concerns they may have. the Company is currently in the process of implementing wireless Internet access in its stores. Starbucks is confident with such relationships and believes the risks of non-delivery on such purchase commitments are remote. The company has several other initiatives to enhance the customers' experience at Starbucks retail stores.service. There is an information section in each store that provides customers a good resource for becoming more knowledgeable about the world of coffee. local knowledge and brand-building skills Strong financial resources During the past year Starbucks has been developing a new set of coffee sourcing guidelines. For example. This is used as a means of improving the business where necessary. "Develop enthusiastically satisfied customers all of the time". Ultimately. not only does Starbucks offer high levels of customer service. but they also strive to educate customers about coffee quality. Score: +2 Procurement Starbucks depends upon both its outside brokers and its direct contact with exporters for the supply of green coffee. Supply and price can be affected by many factors in the producing countries.
Each employee is required to complete an extensive training program that includes product expertise. Starbucks is proud to note that it was again rated as on of the best companies to work for by Fortune magazine. While the industry turnover rate is about 400 percent. Each partner (even part-time employees) is eligible to receive health care. Starbucks strives to offer an environmentally safe product. Starbucks maintains a turnover rate of only 50 percent. All employees at Starbucks are referred to as "partners". Starbucks has lowered their training time and costs. The first guiding principle in their mission statement even addresses the Company's belief towards employees: "Provide a great work environment and treat each other with respect and dignity". With the introduction of the Starbucks Card for example. no matter what job position they occupy. The Company's cultural values gives employees a sense of meaning to their work even if it is just pouring a cup of coffee. Starbucks' employees also participate in a 401(k) profit sharing plan. Additionally. the Company has created the opportunity to improve customer service. Starbucks launched a series of small adjustments to improve efficiency. Under the Bean Stock program. Score: +1 Human Resource Management Starbucks realizes that one of their most valuable resources are their employees. and the knowledge to arrange sample tastings and demonstrations with any of the equipment in the store. For example. participate in the Bean Stock program. management noticed a decrease in traffic. Professional coffee bartenders for Starbucks complete up to 24 hours of training before entering their assigned store. a commitment to customer service. Score: +2 Firm Infrastructure Starbucks has proved to be a leader in identifying market trends and positioning themselves accordingly. before the recent economic slowdown. Rather than pull back from their expansion strategy. and continue with their plans.Technological Development Starbucks is continuously searching for ways to better a customers' experience. This training gives them knowledge to answer any questions about coffee or the Company. and get a free pound of coffee each week. employees are offered stock below the fair market value several times a year. Due to this low turnover. Starbucks believes they are in the coffee business as well as the "people development" business. Management understands that their employees play a major role in the growth of the company. and well-developed interpersonal skills. as it believes that the . shorten lines and make a customer's visit at Starbucks quicker and more convenient.
high-visibility location in each market. Starbucks has focused on improving efficiency and increasing its gross profit margins. Since the Company is able to vary the size of its stores. downtown and suburban retail centers. Milk. We fulfill this mission by a commitment to: • • • • • • • Understanding of environmental issues and sharing information with our partners Developing innovative and flexible solutions to bring about change Striving to buy. airport terminals. Score: +3 Marketing Starbucks is the leading specialty coffee retailer in the nation. the homeless. its focus will be on attracting high pedestrian street traffic. is the second most expensive product after coffee beans. this efficiency gain has saved them a lot of money. with an average of approximately 1. plant and product are linked. they now have fewer than 25. Whatever location the Company chooses to be in. They focus on quality and experience. Starbucks' image is one of the key elements to their success. Without a doubt.welfare of people. "Starbucks is committed to a role of environmental leadership in all facets of our business. the environment. "while chains like McDonalds and Wendy's routinely shutter 50 to 100 restaurants a year.500 square feet. rather than price.S. . for example.000 locations in 22 international markets. They make significant contributions to local charities that focus on children. Stated in the Starbucks Environmental Mission Statement. Where Starbucks once had 65 different milk suppliers in the U. Starbucks has closed only a small number of outlets in its 30-year history".. Starbucks takes great care in picking the right location. they come for the atmosphere. and AIDS research/support. The company has realized that people don't only come for the coffee. A comparison of specialty drinks with its competitors reveals very minor differences. including office buildings. and kiosks located usually in building lobbies. The product mix in each store varies depending on the size and location of the store. Starbucks positions their products on a relatively simple plane. with over 5. Analyst Mitchell Speiser says that. sell and use environmentally friendly products Recognizing that fiscal responsibility is essential to our environmental future Instilling environmental responsibility as a corporate value Measuring and monitoring our progress for each project Encouraging all partners to share in our mission" Score: +3 Production-Operations Starbucks stores are typically clustered in high-traffic. Stores vary in size. Starbucks stores are located in a variety of settings. Starbucks prides itself on being a "good citizen" locally and in the international scene.
and reduces time spent at the cash register. Starbucks is one of the fastest growing companies in the U. Score: +3 Research and Development Starbucks's organizational culture is one of innovation and creativity.. Future plans include opening at least 1. no one focuses to the extent that Starbucks has. It is through the introduction of new products and the development of new distribution channels that Starbucks focuses on their Company's goal of becoming the most recognized and respected brand in the world. Score: +2 Financial and Accounting Financially. This flexibility has attributed to the great success of the Company in the past decade. Advertising strategies used by Starbucks has also been a key success factor. Starbucks seems to be the market leader when it comes to new products and ideas. the Company has managed to continue healthy operations while generating enough public funds to finance store expansion. Knowing this. instead. to have over 10. from just 17 coffee shops in 1987 to over 5.000 today. Starbucks has found more success advertising on a local level rather than to the nation as a whole. Starbucks is extremely pleased with the ongoing positive customer response to the Starbucks Card. which is a stored-value card that can be loaded and re-loaded in denominations up to $500. or the Starbucks �DoubleShot' Espresso beverage. read. This is evident through the continuous developments of new and exciting products. In November 2001. Whether it's the new 4-cup thermal coffeemaker recently introduced to the market.S. Despite still following a �fast-growth' strategy. The Starbucks Card is a wonderful convenience tool for customers that can serve as great gifts. This contributes to the overall enhancement of the customer's experience. the Company introduced the �Starbucks Card'. as Starbucks' target market tends to be educated people who do more reading than the average person. or just enjoy the music while drinking their coffee. Starbucks has less of a distinct setting for their locations. Coffee shops try to make their stores unique in some way or another that will create an appealing atmosphere.People socialize. Starbucks has had solid earnings and return. Consumers seem to respond to environmentally friendly companies who seem to truly care about the future of the world. Another important part of Starbucks' positioning is that they are environmentally friendly. study.000 stores worldwide. The Company advertises a lot through print mediums. they focus on having plenty of comfortable seating so that people feel welcome to stay longer than they might have planned. For the first . Starbucks also positions each store individually according to the specific location it is in.200 new stores during 2002 and by 2005. While other retailers position themselves in similar ways.
These consolidated net revenues are an increase of 21 percent to $805 million from $667 million for the first quarter of fiscal 2001. Starbucks expects full-year revenues to grow approximately 20 percent in fiscal 2002. Score: +3 Information Systems-Information Technology Starbucks deploys Blue Martini's order management system to its retailers and channel partners. The culture towards employees can be described as �relaxed' and supportive. and are encouraged to think for themselves as an entity of the business. In areas where they do perhaps lack . As the industry leader. "We all have this common belief in the product we sell". and employee stock ownership programs. Employees are empowered by management to make decisions without having to first report to management. long-term relationships with suppliers. and well-rounded company. For the most part. Score: +2 Management Starbucks firmly believes that their employees are one of their important assets and that it's through their high quality workforce. Starbucks has avoided a hierarchical organization structure and has no formal organizational chart. they have built a strong brand image that has helped them to gain a considerable greater share of the market in comparison to their competitors. The system provides Starbucks with the ability to centrally manage and deliver contract-based products and pricing in different languages for its global distribution. as individual scores indicate. Management has shown to have the ability to foresee market trends and changes in consumer behaviors. An employee was quoted as saying. They have successfully built a nation wide Retail Company by creating pride in the labor force produced through an empowering corporate culture. Starbucks is stable despite its rapid and continuous growth strategies.quarter of fiscal 2002. exceptional employee benefits. It is evident that employees at Starbucks share common goals. Starbucks ended last year with more than $300 million in cash and virtually no debt. The Company has done well to establish reliable. that they are able to maintain a competitive advantage. Management has also created a corporate culture that promotes high productivity levels by their competent employees. Score: +1 Summary of Scores Overall. well-established. Starbucks seems to be a strong. Financially. Starbucks is fairly to very capable in most areas of its business. Starbucks reported record revenues and earnings.
New World Coffee Inc. Value Chain Activities Internal Audit Total +13 of a total +21 +13 of a total +18 +26 of a total +39 Stock Prices Chart One: Starbucks vs. Because of the diversity of Starbucks competition. as the industry average follows the exact same pattern/line. just slightly below Starbucks. Industry This Chart compares Starbuck's stock to the Special Eateries Industry average. in the past three years the stocks . skills. (Source: hoovers. they have formed strategic alliances with companies that can be more efficient and effective. Competition This Chart Compares Starbucks with three major competitors in the market.Green Manhattan Coffee Inc.expertise. DDRX . NWCI . for the past five years. Starbuck's has been a defining force in the industry. Inc.Diedrich Coffee. or competencies.com) Chart Two: Starbucks vs. GMRC . As depicted by the graph.
. We chose this average because we feel it best represents the restaurant industry that Starbucks is a member.do not seem to be a parallel population to each other. Inc. Starbucks Corporation stock has been on a steady and consistent rise for the past five years. has seen a steady drop in stock prices over the past two years. and Diedrich Coffee. (Source: hoovers. possibly because of the increased market share competition put on by Starbucks Corporation and Green Manhattan Inc.com) Chart Three: Starbucks vs.. Green Manhattan stock peaked the highest of the four around one year ago. Overall Starbucks Corporation stock has been consistently higher than the Dow Jones. In specific. and has grown in price at a higher rate than the average. This is reflected by some of the similar upward and downward movements of both lines in the graph. Dow Jones This graph charts Starbucks Corporation versus the Dow Jones Industrial Average over the past five years.
consumers tend to reduce their consumption commensurately.com) Score -1 Sociological Forces As a result of Starbucks closely following their objectives.com) Opportunities and Threats Economic Forces Economic factors are an important aspects that concern the nature and direction of the economy in which a firm operates. management believes such cannibalization has been justified by the incremental sales and return on new store investments. Since the relative affluence of various market segments will affect the consumption patterns.com): . companies must take this into consideration when planning its strategy. The Company's net revenues increased from $1.7 billion in fiscal 1999. the company has installed a list of principles that further outline the company's willingness to make sure that its affect on the environment is as positive as possible.(Source: hoovers. These principles are stated as (starbucks. Starbucks has experienced a certain level of cannibalization of existing stores by new stores as store concentration has increased. the demand for coffee is price inelastic. However. as well as increased competition and other factors.3 billion in fiscal 1998 to $1. This cannibalization. when coffee prices show big increases. As part of its expansion strategy of clustering stores in existing markets. (starbucks. However. due primarily to the Company's store expansion program and comparable store sales increases. In periods of normal price variation. may continue to put downward pressure on the Company's comparable store sales growth in future periods.
Instilling environmental responsibility as a corporate value. Lastly.• • • • • • • Understanding of environmental issues and sharing information with our partners. are white 83.S. Starbucks also aims to reduce energy usage and once again. Population facts are important to Starbucks because they can give Starbucks valuable statistics. Developing innovative and flexible solutions to bring about change. This can only be seen as a positive for the image of the company and shows that they are willing to utilize their resources in order to more than satisfy requirements. Starbucks has employed the services of a few partners which congregate together to create a �Green Team. the company's image is strengthened by its actions and shows that it is able to actively contribute with the right focus behind its activities. demonstrates this by doing energy audits and then using the results to change store design or procedures so that they save as much energy as possible. This implies that the most important target market for Starbucks are people within this age group. Striving to buy. perceptions. Recognizing that fiscal responsibility is essential to our environmental future.S. it demonstrates it through participating and organizing activities such as neighborhood clean-ups and walk-a-thons. the population of the U. The two largest ethnic groups in the U.' which installs the environmental views into trainees as well as coming up with inventive ways of helping the environment. In addition to waste reduction. The ethnic background is important to a company because it influences tastes. According to the CIA World Factbook.starbucks. trends.88 (CIA). which is the sector we will be examining for demographics. Measuring and monitoring our progress for each project. sell and use environmentally friendly products. In addition to this.4.com). This illustrates the integrity of the company as they can sometimes sacrifice opportunities if they don't follow what the company stands for.5% and black 12.058. The importance of these guidelines is further illustrated by the company's mission to show leadership towards environmental issues. which only allow the company to purchase from those other businesses (suppliers) who follow the same environmental strategy as Starbucks. Policies that also have been implemented are the buying policies. Starbucks doesn't just rest on its laurels. Once again. and therefore will have greater control of the market than any other sector (CIA). Score: +3 Demographic Factors Starbucks originated in the United States. as of July 2001 was estimated at 278. values and beliefs of an . Further examples of the company's actions towards environmental friendliness include the recycling and reusing of resources in order to enhance the lives of people around the world (http://www. to integrate these policies to new employees. People ages 15-64 make up the largest percentage of the population. Encouraging all partners to share in our mission. such as US population base per Starbucks store.
Also the changes will assist in improvements in existing products. For example. and innovations create a great deal of opportunity for the organization by staying ahead of what competition is doing. The technological improvements. This is a strong .200 suggests that Americans have the opportunity to buy specialty coffee drinks from an expensive.963 trillion (CIA). however. Estimated GDP in 2000 was $9. The technological sector was scored as a +3. Starbucks and Sheilds vs. advancements. Starbucks has two class action suits pending since 2001. It is apparent that an increase in price might affect consumer behavior. The growth rate of GDP suggests that the economy is growing. An inflation rate in consumer prices in the year 2000 of 3. such as price. In the Sociological sector. so possible threats could include a change in import laws. which would affect the level of consumption for Starbucks coffees. During a recession. Starbuck's is denying all liabilities in these cases.4% is a high inflation rate. Starbucks was given a +3. raises pose to be a threat. Score +2 Legal / Political Forces Right now. and therefore there is opportunity for Starbucks to expand business. but it will not drastically change consumer habits. if it costs more to import or the process is made more difficult the result could ultimately be a change in price. however it is a minor threat considering that Starbucks has established its customer base. The lawsuits entitled Carr vs. quality-intensive organization such as Starbucks (CIA).com): Score -2 Summary of Scores The Economic Force was scored as a -1 due to the fact that an increase in coffee prices does affect the level of consumption of the good. Economic factors. Justification for this score is that Starbucks has created an image of being environmentally friendly. Starbucks are challenging the status of Starbucks California store managers and assistant managers as exempt employees under California wage and hour laws. GDP real growth rate was 5% (CIA). The reasoning behind that is that new technological changes that Starbucks is undergoing poses to help open the door for new products by improvements being made in marketing and manufacturing techniques. This suggests that the economy could be heading towards recession. Starbucks also only imports all their coffee beans. (starbucks. A very large per capita purchasing power parity of $36.individual. A change in the status quo as far as imports go could greatly affect numerous areas of production for the company. the company has agreed to the settlement in order to take care of all of the plaintiffs' claims without having to get involved in any protracted litigation. it could be expected that consumers would spend less on premium luxury items such as Starbucks' coffee.
being the world leader in its industry.com).S (hoovers. as this could suggest recession.000 (msn.S competitors are Diedrich Coffee. the market it estimated to grow 14%. Competitors are selling similar products. Starbucks draws on population bases between 17. Starbucks is the leading retailer. including specialty coffees as well as high quality foods. however.com). In San Francisco and Seattle. competition is high. Starbucks scored a +2 in the Demographic sector primarily because the U.000 and 19. however. has controlled access to distribution channels.com). In cities where Starbucks does not draw on small population bases. where Fortune ranks Starbucks number one in the industry (fortune.com).com). Starbucks has exhibited this control over distribution channels by setting guidelines for their suppliers to follow. According to the market research firm Allegra. and Einstein/Noah Bagel Corporation (hoovers. smaller competitors can attract some of Starbucks' 200. Diedrich Coffee operates 370 coffeehouses in 37 states and 11 countries (hoovers. Seattle's Best Coffee operates 160 coffee cafes and 20 Italian coffee cafes in 17 states and 8 countries (hoovers. Seattle's Best Coffee.com). with an increasing GDP and large per-capita purchasing power. Starbucks is Fortune's number one most admired company in the food industry (fortune.opportunity to build on the organization's market share because the company can attract more consumers from its competition because of its strong reputation.com). (hoovers. These guidelines will be discussed in more detail in the discussion of the industry bargaining power of suppliers.000 (msn. Starbucks has 4. the average Starbucks location draws on a population base of 200. and the competition has nowhere Starbucks' volume of operations. In the specialty eateries industry. pose potential threats to the company. For example.S population is growing. From 2002 to December 2004. A slowing industry market growth is another threat facing Starbucks. roaster and brand of specialty coffee in the world. Starbucks. Smaller competitors. In this slowing market. One of their key attributes to success is innovation. The competition. It is clear that Starbucks has few major competitors. Porters Five Forces Current Competitive Force Porter's first force that Porter describes is current rivalry among existing firms. Starbucks is constantly innovating and showing . is not equally balanced.com).com). Einstein/Noah Bagel Corporation operates 460 bagel cafes in the U. compound market growth between 1997 and 2001 was 57% (hoovers.709 locations in over 20 countries (hoovers.com). Starbucks' current and direct U.com). Starbucks must be weary of a high inflation rate. Score: -2 Threat of Potential Entrants Porter's next force is the threat of Potential Entrants.000 person population base.
and a threat to potential entrants. Products purchased at Starbucks are highly differentiated and unique. following Starbucks' lead. Another threat to Starbucks is that their customers have the ability to brew their own coffee. Starbucks depends upon both outside brokers and direct contact with exporters for the supply of green coffee (Bruce). to. Score: -3 Bargaining Power of Buyers Porter's next force is Bargaining Power of Buyers.com).com. Customers will face no switching costs in switching premium coffee suppliers from Starbucks. This is the only opportunity found in Starbucks. South and Central America produce the majority of coffee traded in the world. Seattle's Best launched its version of the marketing product (hoovers." in large quantities for their offices (starbucks. For example. Starbucks' ingredients! It is clear that Starbucks customers have some bargaining power in the industry. five months after Starbucks introduced a prepaid Starbucks debit card. Lingle. from coffees. called the "Four Fundamentals of Coffee" (starbucks. for example. that there is a different kind of potential entry threat. At Starbucks. of course. and the health of coffee trees. Starbucks' typical customer buys small quantities of their products. Starbucks has tried to offset this threat by offering Preferred Office Coffee Providers as well as directions on how to make the perfect cup of Starbucks Coffee at home. This industry differentiation is an opportunity for Starbucks. to music and coffee mugs. This is a threat to Starbucks. According to the article "Coffee Industry to Adopt New Pricing Plans. The supply of coffee is affected by weather conditions. Statistics have shown the industry to be slowing down." the major players in the . ice cream and Frapuccino� .com). This is an opportunity for Starbucks. we know that there is an enormous selection of coffees at a Starbucks' coffee shop. believes that national food servers like McDonalds and Denny's could create strong coffee menus and become "the strongest competitor for Starbucks' business. executive director of the Specialty Coffee Association of America.strong product differentiation in their industry. The industry. therefore making competition high and the threat of new entrants low. Some believe." (msn. The Preferred Office Coffee Provider is a plan developed by Starbucks in which companies can buy the ingredients and tools necessary to brew "the perfect cup of Starbucks Coffee. From personal experience.com for a customer to buy large quantities of their products. however. The perfect cup of Starbucks Coffee includes. Ted R. is becoming more differentiated.com). Starbucks' customers are the buyers. Score: -2 Bargaining Power of Suppliers Porter's fourth industry force is bargaining power of suppliers. it is possible to buy a large number of products.com). Seattle's Best. Coffee is the world's second largest traded commodity (Bruce).
and economic issues. developed in partnership with The Center for Environmental Leadership in Business (starbucks. This is a potential threat. "With these guidelines. There are no substitute products for the coffee beans Starbucks must buy.coffee industry have seen profits decline because of over-crowding of the market (Brains Trust). has few companies. Score: -2 Threat of Substitute Products In the premium foods and coffees industry. these are alarming threats. there are substitute products. a customer can eat ice cream. Score: -3 . executive director of the Center for Environmental Leadership in Business. "Frapuccinos are a kind of badge." notes Starbucks fashionable image." said the author (hoovers. social conditions. and heightened demand. Starbucks." Starbucks has a degree of control over its suppliers in an industry where it is possible for suppliers of premium coffees to have an enormous amount of bargaining power. the best way to evaluate this threat is to ask whether other industries can satisfy the customer need that this industry is satisfying (Coulter). and Starbucks has traditionally paid premium prices for its green coffee. There is a large threat of substitute products in a food and drink industry. has exhibited how little control its suppliers might actually have. The supplying industry to Starbucks. There are obviously good substitutes to Starbucks' products. This is why image is very important for Starbucks.20 per pound (starbucks. to their menus. Starbucks will offset this threat by paying a premium of up to ten cents per pound of coffee to vendors based on how well their coffee meets Starbucks' standards (starbucks. The quality of coffee sought by Starbucks is very high. Starbucks has added a line of tea. and will be adding beer to their menus in the future. Starbucks announced new coffee purchasing guidelines. According to Mary Coulter. In 2001.com). and other food industries can satisfy the customer's need to eat. Starbucks is taking a leadership role in addressing the environmental and social issues surrounding the global coffee industry. According to a 1996 Starbucks Case Profile. Only suppliers who can meet Starbucks' coffee standards will be able to supply the giant company. while his friend drinks tea while eating a pastry. Taza teas. An over-crowded market will give the coffee suppliers bargaining power. the price of the coffee bean could rise in the future due to lower supply. therefore.com). said. Other beverage industries can satisfy the customer's need for a drink. At a Starbucks coffee shop. as well as the company's ability to innovate and differentiate. and has differentiated so that many of their substitute products are part of the company. Glenn Prickett. environmental concerns. and drink a Pepsi. People like to be seen with them. For the industry. at least $1. The article "Hot Prospects.com). Starbucks has created an image. however. These guidelines are based on the following four criteria: Quality baselines. This is a potential threat to the company.com).
generally low. A score of negative two means that Starbucks should be weary of the threats in their specific environment. How does Starbucks corporate decision of not franchising affect its business? What would be the advantages and disadvantages of franchising for Starbucks? In general. and paying premium prices for suppliers who can meet these guidelines. franchising shifts the financial risk from the corporation to an individual. excellent quality coffee products. and in this industry. Starbucks' ability to innovate and differentiate has minimized the risk of potential entrants. Those ideals are a great place for employees to work. geographic. This is why the highest score was negative three. and local/state/country regulations. In addition Starbucks would have less research and development costs because the franchisee would have greater knowledge of the local market in terms of demographics. The disadvantages . reflect this leadership position. and less focus on quality and brand image. there are many good substitute products. Efforts to integrate Starbucks into the home have minimized threats of customer bargaining power. The scores. Starbucks has found ways to minimize the threats in each industry force. The company's size offsets many of the threats of competition. and continue to find ways to exploit its opportunities. productive employees with low turnover. and will continue to have. which has a direct impact on the customer's experience and satisfaction. they can ensure their brand image and reputation. psychographics. So an advantage of Starbucks franchising would be to open hundreds of new stores with less risk to the company. Also a commitment to quality cannot be sacrificed as Starbucks locations will likely double in the next five years. Issues and Recommendations Facing Starbucks Corporate Strategic Questions What measures can Starbucks take to ensure that their brand image and reputation for quality is not tarnished while implementing a growth strategy? Starbucks has. and minimize its threats.Summary of Scores It is necessary to understand that Starbucks Corporation is the world leader in their industry. Starbucks has offset the potentially high bargaining power of its suppliers by issuing coffee guidelines. As corporations grow there can be a tendency to focus too heavily on increasing output and locations. Starbucks needs to stay with its values and ideals that have made it successful. a major corporate growth strategy. We gave a score of negative three to the threat of substitute products because Starbucks is in a food and drink industry. If Starbucks can keep a consistent atmosphere that combined with consistent. and make profits in doing so. which creates happy.
If Starbucks franchised. and creativity. This way their coffee would be sold at these outlets. with the food service companies that they are competing against. is that national food servers such as McDonalds and Denny's could create high quality coffee menus. The company could demonstrate Product Market Diversification through research and development. Starbucks must push to be the first mover. long-term contracts. What will Starbucks do once the International growth strategy has become saturated. A way they could fight this type of competition is by entering into agreements. there is the risk of different stores deleting some of the menu to it's standards. We believe that in this case Starbucks will need to concentrate on its core competency. high quality coffee products. Starbucks must constantly innovate new products to stay ahead of such competitive tactics. so the two main sub-strategies would be Product Development. Starbucks will stay in the same industry. Despite the high amount of rules and regulations that Starbucks would hypothetically have in place for a franchisee. It is important to understand this in the Product Development phase they would need to focus solely on making their existing products better. and Product-Market Diversification. the each store would be run slightly different. This way the mothers and fathers could go to Starbucks and get their favorite coffee drink while making their children happy. some believe. If they have any chance of stopping the companies from being the innovator. Starbucks could start a line children's fruit drinks and "yummy" milkshakes which would help bring families into the store. rather than competitors.of franchising are that Starbucks would give up a certain amount of control over the store. books) to make available for the customers. coffee equipment. For example. In doing so Starbucks could quickly react to environmental changes and make sure to entice as many people as possible into their stores. and picking and choosing what products (music. and the external environment. and use a Concentration growth strategy. What could Starbucks do to counter-act this? In order to compete against this possible market threat. store operation. once Starbucks has penetrated all foreseeable worldwide markets? Starbucks has the potential for finding a new type of growth strategy once the International growth strategy is no longer beneficial. Starbucks needs to be extremely aware of what is going on in the competitive markets. it can do so by being the innovator itself. and they . that is. By keeping all stores corporately owned Starbucks can control and monitor all location's operations and ensure a high employee and customer relations through consistent management. and the way it operates. Competitive Strategic Questions The biggest threat to Starbucks right now. and location environments. The company could be extra sensitive to changes in customer tastes.
Springfield does not have a Starbucks coffee.com. and has goals of greater international expansion. Starbucks would be forced to compete against Churchills Coffee. which is well established in the area. Starbucks plans on opening hundreds of new stores internationally. Could Starbucks gain a significant amount of market share by entering the markets of less populated cities in the United States. and to move into smaller city markets would be no different. which is located in Kansas City and St. of course. yet it the third largest city in Missouri. for example. Through acquisition Starbucks would ultimately gain a greater market share. Another option could be to use Starbucks incredible purchasing power to acquire Churchill's. and affluence. contradicting its current strategy of only entering markets with high population and affluence? We believe that Starbucks would gain a considerable amount of market share if it entered into markets with less population. Most people from Springfield are very much aware of Starbucks. Some tactics include building many locations combined with a heavy marketing campaign to draw customers from Churchill's. This also goes along with its growth strategy and history of acquiring its competition. Louis. Starbucks has a reputation throughout the United States. For example. If. We will demonstrate this opinion by using Springfield. In Springfield.000 people. McDonalds entered into a coffee agreement with Diedrich Coffee.would gain access to a new market and increase sales while decreasing competition. According to business4springfield. Missouri as an example. The company plans on opening 500 stores in Europe by 2003 (BBC News Online. a population growth of 2. as well as continuing to grow in the United States. It has shown to be successful in every new market penetration. Our main point is Starbucks reputation precedes itself. and we think that this image will carry through and make certain profitability and increased market share in smaller markets.3% and a workforce of over 180. This would. take much top management debate that would be a "last resort" in the case of an extreme competitive threat. This option would have a chance of harming the companies' brand image and reputation for quality and its coffee drinking atmosphere.000 people. Springfield has a population of over 300. Starbucks could use many tactics to overcome this competition and gain the Springfield market share in the high quality coffee industry. This would be another way for Starbucks to compete without the risk of damaging its reputation and brand image. Starbucks could respond by acquiring Diedrich Coffee. Research has . Functional Strategic Questions Starbucks Corporation continues to grow. salvage its brand image and decrease the threat of competition. Another possibility would be for Starbucks to create a subsidiary that specializes in catering to the food service industry. 1998).
according to Mary Coulter.html . and company growth will continue to be a major corporate strategy of Starbucks. which include production and operations.academicmind. and financial/accounting (Coulter). Starbucks has differentiated its product lines to include teas. foods. An advantage of being a first mover into a market. For example. In the face of an uncertain future. is a reputation for being innovative and an industry leader. ice creams.com/unpublishedpapers/business/marketing/2002-04000aag-catching-the-starbucks-fever. Image will be very important to Starbucks' international marketing strategies. Developing new products will offset potential risks. sodas. or the �DoubleShot' Espresso beverage. How can Starbucks continue to be the world leader in their industry? This large question can be partially answered by answering future functional strategy questions. what kind of Research and Development emphasis and timing should Starbucks employ in order to facilitate its continuing expansion? Starbucks is ranked as Fortune's #1 most innovative company in the food services industry. Starbucks should continue to be a first mover into markets with new products and ideas. Product differentiation has proven an excellent defense to threats such as bargaining power of buyers. etc.shown that industry growth rate is slowing. Functional strategies. Starbucks will be able to use sales from its diverse array of products to soften the blow of reduced coffee sales. if the prices of coffee beans rise dramatically. An R&D emphasis on product development is often synonymous with company growth. Being a first mover of new products into new international markets will be an excellent way for Starbucks to build customer loyalty and uphold its image as an innovative company. marketing.Starbucks organizational culture is one of innovation and creativity. Starbuck's Research and Development should emphasize product development. are the short term goal-directed decisions and actions of the organization's various functional units. Starbucks image will be crucial if the company does not want to become a commodity. Should Starbuck's employees continue to be Starbuck's most important asset? Should Starbucks change its HRM style in its international markets? Reference: http://www. Threats loom from the Starbucks' general and specific environment. according to Mary Coulter. The company has been a first mover into the market with products such as the Starbucks Card.
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