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MichaeI Porter's 5 Forces ModeI

ndustry Rivalry
The dynamics of the industry rivalry within the specialty coffee industry has changed dramatically since
1987. Unlike the early days of the specialty coffee industry when Starbucks competed primarily against
other small-scale specialty coffee retailers they now compete against companies of varying sizes and
different exposures to specialty coffee. Starbucks competes with a variety of smaller scale specialty
coffee shops, mostly concentrated in different regions of the country. All of these specialty coffee chains
are differentiated from Starbucks in one way or another.

Starbucks must now compete against two of the largest companies in the fast food industry who have
recently entered the specialty coffee segment. The first of these competitors is Dunkin Donuts, who
claims to be "the world's largest coffee and baked goods chain." Currently, Dunkin Donuts operates about
5,500 franchises around the United States, 80 stores in Canada and 1,850 throughout the rest of the
world. Dunkin Donuts had revenues of roughly $5 billion in 2007. n the past couple years the franchise
has put enormous emphasis on their coffee beverages. They serve coffee beverages in an assortment of
types and styles including espresso, cappuccino and latte. They also serve their coffee in an assortment
of flavors including French Vanilla, hazelnut, cinnamon and numerous others. When Starbucks recently
temporarily shut down 7,100 of their stores to retrain their baristas, Dunkin Donuts responded by
extending their hours of operation and offering small lattes, cappuccinos and espresso drinks for $.99.

The largest industry rival currently facing Starbucks is the McDonaId's restaurant fast food chain.
McDonald's originated from a single San Bernardino, California hamburger stand, which opened in 1948,
and has turned into what is now the world's largest restaurant chain with over 14,000 restaurants in the
United States alone and gross revenues in excess of $22 billion. The key to McDonald's success has
been the consistent quality standards they achieve for their food, coupled with their quick service and low

10 years ago Starbucks and McDonald's were at complete opposite ends of the spectrum in the
restaurant industry. However, McDonald's, encouraged by the success of its upgraded drip coffee, began
testing numerous drinks sold under the name McCafe. Starbucks meanwhile, with its rapid expansion,
was adding drive-through windows and numerous breakfast sandwiches, similar to the Egg McMuffin's
served at McDonald's, to their stores. These measures have drawn the two companies closer together as
competitors due to an encroachment into the demographic consumer base made by each company.

With a rejuvenated brand image, McDonald's is preparing for the biggest addition to its menu in 30 years.
The company will be installing coffee bars along with "baristas" who will serve cappuccinos, lattes,
mochas and the Frappe, a knockoff of the Starbucks' ice blended Frappuccino, throughout 2008 and into
the beginning of 2009. Unlike Starbucks, the baristas at McDonald's will not steam pitchers of milk and
combine them with shots of espresso but rather will
wait for a single machine to make all components of
each drink. The competitive threat posed by
McDonald's can be summarized by referring to the
February 2008 edition of the Consumer Reports
magazine, which rated the McDonald's drip coffee
as better tasting than Starbucks.

The diversity among these competitors still remains
very high but the grounds on which companies are
differentiating themselves are changing. As larger
and larger companies enter the industry the
strategic stakes become higher, pushing some
companies such as Dunkin' Donuts and McDonald's
to differentiate themselves through price superiority.

!otential for New Entrants

Another of the five forces in !orter's model,
which has changed significantly since the late
80s when we analyze the current environment
in which Starbucks competes, is the potential
for new entrants. As stated earlier, the primary
deterrents to entry in the specialty coffee
industry are the various barriers to entry. The
economies of scale within the specialty coffee
industry have increased as the size of the top
players has increased. Companies such as
Dunkin' Donuts and McDonald's have national
distribution channels through which they can
transport their specialty coffee at a relatively
low cost compared to potential new entrants
who have no such developed distribution
systems. These larger companies are also able
to economize on their accounting operations
and marketing budgets by facilitating their
specialty coffee operations from the same department as for all segments of their businesses. Finally,
these larger corporations are also able to reap economies of scale through their purchasing by
negotiating long term contracts with coffee farmers and purchasing coffee beans in bulk quantities at
discount prices.

There is numerous cost disadvantages imposed on new entrants that are independent of the economies
of scale considerations. As the industry matures, the ability to access distribution channels and select
from the highest quality coffee beans has becoming increasingly difficult. Most of the favorable store
locations within the larger metropolitan areas have already been occupied by current competitors within
the specialty coffee industry. Additionally, many companies now have proprietary product technology
involved in the production of their specialty coffee as well as lower per unit costs due to an experience

!roduct differentiation within the specialty coffee industry has moved away from the purely objective and
defined traits such as the taste of the coffee, convenience of the stores and prices charged. The industry
has progressed toward more subjective traits such as the ambience of the store, the social responsibility
of the company and brand identification. Many companies have gained very loyal customer bases
stemming from their past advertisements, customer service, objective product differentiations and early
entry into the industry. All of this makes it more difficult for new entrants to gain a solid customer base.
From the analysis above, it can be ascertained that the barriers to entry in the specialty coffee industry
have increased substantially. As a consequence, the potential threat of new entrants has gone down.
Since, the industry does not have large capital requirements, smaller specialty coffee shops are still
prevalent throughout the United States and the potential for more of them to enter the industry is still
present. However, these new entrants can be
disregarded given the unlikely nature of their
concerted expansion and the inconsequential
effects they have singly on the overall demand in
the consumer market.

Substitute !roducts
The force created by substitute products in the
specialty coffee industry has decreased. Many
companies that presented the specialty coffee
industry with a threat in the form of substitute
products have actually entered the industry and
now compete directly by offering their own premium
coffee selections. The primary substitute products still posing a threat to the specialty coffee industry
are the caffeinated soft drinks offered by !epsi and Coca-Cola. However, even these substitute
products pose little threat to the premium coffee industry. n the past five years, studies done on the
percentage of meals or snacks that included a carbonated soft drink as opposed to coffee have shown
a reversal in consumer preference. Coffee has gradually gained preference over carbonated soft drinks.
This is mostly attributed to the health concerns associated with carbonated soft drinks and the new
evidence showing coffee as a relatively healthy alternative.

Supplier Bargaining !ower
With the extensive growth in the specialty coffee industry, supplier bargaining power has changed in
numerous ways. n 1987, when the first Starbucks was conceived, the farmers from whom Starbucks
purchased its premium coffee beans were numerous, small and unconnected to one another. Currently,
many of the farmers who sell to Starbucks and other premium coffee chains are united by an initiative
known as fair trade certified coffee, which was organized by TransFair USA. Under this initiative,
companies such as Starbucks are given the opportunity to advertise their coffee as being fair trade
certified if they purchase from coffee suppliers that are democratically owned cooperatives.

This initiative was designed to ensure that the coffee farmers would be compensated fairly for their crops.
Their increased unity under this initiative worked as a positive externality by increasing their ability to
exert bargaining power over their buyers. The fair trade coffee certification is looked at by consumers in
their decision of where to purchase their premium coffee. Thus, although the farmers are still numerous
and small they are now connected through the initiative launched by TransFair USA and act in some
respects like one large entity. Although the farmers of premium Arabica beans are still in constant
competition with the substitute Robusta coffee bean growers, their bargaining power is not significantly
diminished by this threat due to the unlikelihood of a big premium coffee retailer adopting the substitution.

Originally, specialty coffee retailers such as Starbucks comprised the vast majority of sales made by the
premium coffee farmers. As the industry has grown, more companies and restaurants, specializing in a
broader array of products than just specialty coffee, have begun to purchase from the premium coffee
farmers. This has made the relative size and importance of the companies, such as Starbucks, within the
specialty coffee industry less significant to the farmers. With other customers to supply, the coffee
farmers are less constrained by the specialty coffee industry and its specific demand. This acts to
increase the bargaining power of the coffee farmers.

As competition increases within the specialty coffee industry, there is a greater emphasis on
differentiating products through superior quality. The coffee beans which are supplied by the farmers
are the most important input to the brewing process for a company such as Starbucks, making them
increasingly important. For many specialty coffee company's their success is riding on their ability to
produce higher quality coffee than competitors, which acts to further increase supplier bargaining

When Starbucks first began purchasing premium
Arabica coffee beans in the late 1980s, they
executed purchases incrementally throughout the
year. Currently, they lock their coffee suppliers into
long-term contracts to dilute potential price
volatility. These contracts have stipulations within
them which place a financial burden on the coffee
suppliers if they choose to supply a different
company. By creating these switching costs for the
premium coffee suppliers, Starbucks has
diminished their ability to play one buyer against
another, which decreases their bargaining power.

A last component to the analysis of supplier bargaining power within the current specialty coffee
industry environment is the threat of forward integration. Technically, the farmers can forward integrate
by setting up smaller coffee shops and brewing their own batches. This is, however, extremely unlikely
and has yet to occur.
When comparing the bargaining power of suppliers today in the specialty coffee industry to the
bargaining power of suppliers during the late 1980s, it is apparent that suppliers are more powerful
today. The increased unity among the coffee farmers, decreased significance of specialty coffee
retailer's purchases as a proportion of premium coffee bean sales and increased importance placed on
high quality coffee beans by the purchasers have all acted to increase the bargaining power of the
supplier group. Although Starbucks has locked some of the coffee suppliers into long-term contracts not
all suppliers are affected; thus, the supplier bargaining power is only marginally diminished by that tactic.

Bargaining !ower of Buyers
The last component of Michael !orter's five forces analysis to be applied to the modern specialty coffee
industry is the force created by the bargaining power of buyers. The primary buyers in the specialty
coffee industry remain individual consumers, who neither engage in concerted behavior nor individually
purchase in large volumes relative to the total sales of a corporation such as Starbucks. Unlike the late
1980s, however, there are a few buyers who purchase in large volumes. These large buyers are
typically other multinational corporations who choose to serve Starbucks brewed coffee in their offices.
However, the effects of losing one of these buyers to a competitor would not be detrimental to a
company with a large sales volume such as Starbucks.

Neither the individual consumers nor the multinational corporations who purchase specialty coffee
commit a significant fraction of their resources to these purchases. This makes the buyers less sensitive
to price fluctuations and gives the players within the specialty coffee industry more control over pricing.
This acts to decrease the bargaining power of both the buyer groups.

The expansion of the specialty coffee industry created a wider array of competitors who offered high
quality specialty coffee. This made it much harder for the players in the specialty coffee industry to
differentiate themselves through quality and turned quality into the industry standard. n addition to the
increasing quality standardization which specialty coffee has undergone, the buyers face no switching
costs and have an enormous selection of retailers from whom they can buy.

The buyers of specialty coffee do pose a credible threat of backward integration. This threat can be
carried out if a buyer chooses to start a mom and pop specialty coffee store in close proximity to an
established specialty coffee store. Same-store sales are roughly 20% lower in Starbucks stores located
within a two block vicinity of mom-and-pop specialty coffee stores.

The ability of buyers to backward integrate is
enhanced by the availability of all information
regarding the demand, market pricing, and
supplier costs in the specialty coffee industry
through sources such as the World Wide
Web. With full information, the buyer is in a
better position to ensure that they pay a
favorable price and receive an appropriate
level of quality from the product. The amount
of bargaining power that can be exerted by
the buyers within the specialty coffee
industry has increased as a result of the
availability of information regarding market
variables. This along with the other
previously discussed changes to the
dynamics of buyer bargaining power has
increased its overall magnitude from the
level it was at in the late 1980s
Present market shares for Starbucks & competitors
Company Sales
Starbucks $10,707.4
McDonald's $24,075
Dunkin' Donuts $7657
Nestle'S.A $32916

Starbucks, just a few years ago a flailing company closing hundreds of locations, has become the No. 3
restaurant chain in the nation, surpassing Wendy's and Burger King, according to Technomic's recently
released 2011 Top 500 Chain Restaurant Report.
For years the top three chains in the U.S. were burger-and-fry heavyweights McDonald's, Burger King
and Wendy's. Now Starbucks is surpassed only by McDonald's and No. 2 Subway.
According to the report, Technomic estimates that Starbucks posted about $9.07 billion in U.S. sales, up
8.7% from the prior year, giving the coffee giant 57.2% share in the coffee and other beverage category.
McDonald's, perennially No. 1 in U.S. sales, had about $32.4 billion in U.S. sales in 2010. Subway,
despite having about 9,000 more locations in the U.S. than McDonald's, had about $10.6 billion in U.S.
sales, according to the report.
%op 10 U.S. Restaurants, per %echnomic
1. McDonald's
2. Subway
3. Starbucks
4. Burger King
5. Wendy's
6. Taco Bell
7. Dunkin' Donuts
8. !izza Hut
9. KFC
Burger King, on top of recent marketing-management and ownership changes, as well as being on the
lookout for a new agency since it announced it was splitting with C!B after a seven-year relationship, is
facing a sales slump. According to Technomic, Burger King, No. 4 on the top 500 list, had about $8.7
billion in U.S. sales, down 2.2% from 2009. n terms of the hamburger category, as well as restaurant
chains overall, Burger King could potentially lose to No. 5 restaurant Wendy's, a chain nipping at Burger
King's heels with $8.3 billion in U.S. sales, according to Technomic.
n last year's top 500, which ranked chains by 2009 U.S. sales, McDonald's was No. 1 with $31 billion,
Subway was No. 2 with $10 billion, Burger King was No. 3 with $8.9 billion, Wendy's was No. 4 with about
$8.4 billion and Starbucks was No. 5 with just more than $8.3 billion.
Starbucks last year aggressively upped it measured media ad spending, according to Kantar, doubling it
to $94.4 million, up from $47 million in 2009. Still, it doesn't come close to the measured media spending
of Wendy's and Burger King. Wendy's in 2010 spent $283.4 million, down from $293.4 million in 2009,
according to Kantar. Burger King, pulling back over the years on its outlay, shelled out about $301 million
on domestic measured media in 2010, down from $308 million in 2009 and $327 million in 2008.
McDonald's spent about $887.8 million on U.S. measured media spending in 2010, up from $872.8 million
in 2010.
urrent HR & I% strategy of Starbucks
Human Resources
Starbucks paid considerable attention to the kind of people it recruited. So the company hired people for
qualities like adaptability, dependability and the ability to work in a team. Starbucks was one of the few
retail companies to invest considerably in employee training and provide comprehensive training to all
classes of employees, including part-timers Company depends on their personnel in their high revenue,
which is very risky as if they lost some of the key persons. Early 2000s, the company began to show
signs that its generous policies and high human resource costs were reflecting on its financial strength.

Although the company did not reveal the amount it spent on employees, it said that it spent more on them
than it did on advertising while the industry turnover rate is about 200 percent; Starbucks maintains a
turnover rate of only 60 percent. Due to this low turnover, Starbucks has lowered their training time and
costs. Furthermore, 82% of the partners rated being "very satisfied and 15% as "satisfied with their jobs
when asked by outside audit agencies.

nformation System
Starbucks is following this major trend of moving towards multimedia Direct Marketing Solutions and
Web-based models. Customers visit its web site to buy coffee products and gifts, and to learn more about
the art of roasting and brewing coffee. The site also offers services such as the Starbucks "Taste
Matcher tool, which interactively recommends specifics coffee roasts and blends bases on customer's

Moreover in late November 2001 Starbucks Debit card was introduced in US. ts introduction has
increased customer loyalty as well as attracted new customers to Starbucks stores. Most if not all
Starbucks locations have W-F for consumer needs. The MS department affects Starbucks partners
whenever they open a store cash register, use computer software or send voice mail messages.

The S department in Starbucks focuses mainly on:
Business Applications Development
!roduction Services
Retail Business Systems
Strategic Architecture

rganizationaI Information(HR & I%
Starbucks' organizational structure is functional with four levels of management above store
The basic management style is Laissez Faire. The most important skills in the company includes people
skills and drink preparation ability. ts partners (employees are regarded as partners) receive trainings in
order learn about the products, brewing methods and sales techniques. Retraining is provided during new
product roll-outs through one-to-one discourse. !artners are being motivated through reviews and raises.
Work duties are assigned by shift supervisors. !artners are also allowed to use initiative and empowered
to make decisions.
The Reward Policy
n all facets of the business, Starbucks recognizes that putting people before products is as effective as
placing core values at every aspect of the operation. n terms of staffing, each location has one manager,
an assistant manager and 16 partners. The benefits package includes health, dental and vision
care, stock options, or 401(k) for employees who work an average of 20 hours per week for over three
months, free shift drinks and a free pound of coffee or tea each week that continue despite temporary
disability or familial leave. Moreover, raises are based on semi-annual performance evaluations with
raises that range from 0-5%. Though bonuses are not utilized, for each location the company gives away
non-monetary rewards. As such, employees are given 30% discount on all merchandise.
There are also programs that recognize individual contribution of Starbucks partners. For instance,
unique to the company is the Green Apron recognition program that serves as both brand behaviors
guide and non-monetary reward. Every partner receives the Green Apron book that is consists of
company values and desired on-brand behaviors as well as peer recognition cards that are used by
virtually all the employees from top management to recognizing even the smallest behavior on the spot
stressing the importance of sense of ownership. More than the monetary rewards, Starbucks focuses on
'team contribution' to recognize how their performance and contributions make a difference.
The Recruitment and Selection Policy
n terms of recruitment and selection, Starbucks is hiring about 200 employees per day to compensate
with the growth rate of 5 stores per day. Recruitment practices include interviews that incorporate coffee
tasting sessions; candidate bill of rights developed that emphasizing the use of phone calls and
handwritten notes rather than form response letters. The goal of such is to determine how quickly
applicants should hear back. Also, the company encourages recruiters to send out Starbucks gift
card whether the applicant is hired or not for the purpose of treating job applicants like customers. The
hiring process is strategically aligned to the vacant positions. Starbucks lives by its mission to embrace
diversity, develop and nurture employee and provide them with exceptional benefits. Application can be
picked from any Starbucks store. There are phone and personal interviews with highly-situational
questionnaires. Before being extended an offer, Starbucks trained the applicants first after passing the
The Development Policy
Starbucks' development framework centers two broad concerns. The first is the use of different T
systems and the second is the 'Third !lace' environment. !resently, Starbucks is using the corporate
headquarters to exercise controls over individual sites and that Total Quality Management is specifically
built into its processes. n addition, the company utilizes a large amount of T for the purpose of
managerial control of information-based determinants. Further, the company envisions each outlet as a
place to unwind apart from home and work/school. The purpose is to connect and to create communities
inside the confines of each outlet.
Though Starbucks continuously provide for and even exceed the expectations of its internal and external
stakeholders, there are still so many things to consider for further advancement. Contrary to the principles
that Starbucks intends to focus its energy on, there are many criticisms that emerged ranging from
staffing to the working environment. A large percentage of the staff is under the age of twenty and that the
benefits package focuses on medical, dental and vision care as well as the employee stock options. n
addition, apart from the hourly wage and semi-annual raises, there are few monetary rewards. n addition,
though the company constantly improves their Third !lace environment, still there are
high employee turnover rates, managers are swapped whenever necessary leaving the partners at retail-
level behind, poor accessibility and the cleanliness is rather poor as well. Further, many stores are
underperforming on high margin product segments, too focused on minimising direct labor, too focused
on high margin items and profitable add-on sales.
A common knowledge is that there are 'hate campaigns' for the company over the nternet maintained by
many activist groups that criticize the Starbucks' fair trade practices, labor relations and environmental
and social impacts. The concerns of these groups mainly centered the quality intended for the products,
the practices and the people. First, the tendency for either overstaffing or understaffing while also it could
result in reducing staffing levels in the long run as more important initiative than developing satisfied
customers and other unfair labor practices like overextensions and violations of health codes, though the
condition presently exists. Second, considering the average age of the partners which are below 20, the
relevance of benefits package is rather misaligned. Third, there might be the high turnover rate of
partners and managers once new outlets would prove to be non-profiting which would have detrimental
effects on customer relationship. Fourth, though training and development is continuous, Starbucks is
evidently finding difficulties in maintaining deep knowledge of the product and monitoring the quality of
such especially during introduction of new products with the emphasis placed for !artner Resources
(Starbucks' HRM).
urrent HR of McDona|d's
n the McDonald's restaurants the employment relationship and the characteristics of the workforce in
various countries differs. The detailed study of the German and UK operations and additional evidence
from other European countries suggests that virtually the same kind of restaurant hierarchy and
organisation is in use in every country. Although there appeared to be some differences in the numbers of
workers employed in restaurants in different countries and differences also in labour turnover, this could
be explained by a broadly similar employment 'strategy'.
Various authors suggest that all of these workers have something in common; they are unlikely to resist
or effectively oppose managerial control. n effect, McDonald's is able to take advantage of the weak and
marginalised sectors of the labour market, in other words, young workers who lack the previous
experience, maturity and confidence to challenge managerial authority and foreign workers who are very
concerned about keeping their jobs. Furthermore, employees in all 'categories' may have no long-term
interest in the company, in which case contesting management prerogative may simply 'not be worth the
trouble'. Many of the foreign workers in Germany and Austria have a lot of previous work experience and
come from a wide variety of backgrounds, and many have qualifications from their country of origin.
However, these workers are effectively marginalised in the labour market and find it difficult to find other
work elsewhere for several reasons: first, because of problems with language; second, because of
problems with the recognition of their qualifications; third, because these labour markets are extremely
competitive in terms of qualifications; and, fourth, because the number of foreign and other migrant
workers in Germany and to some extent Austria is increasing and unemployment remains relatively high.
The work offered by McDonald's may have some positive elements, but workers are often choosing
employment at McDonald's in the context of having few other attractive options. Almost regardless of
what people think of the work itself, working at McDonald's could be said to offer advantages for some
employees who want flexible hours and are engaged in other activities and responsibilities. For those
marginalised in the labour market who have few chances of a job elsewhere, McDonald's offers much
needed work.
However, the employees' dependence on McDonald's and/or their tendency to see their employment as a
short-term strategy makes them vulnerable to management manipulation. Those with minimum interest
simply leave if they do not like it, and this is clearly reflected in high labour turnover. !erhaps they are
attracted by the combination of fairly secure employment, familiar 'family' surroundings created by a
highly paternalistic approach to management and lots of employees of similar age or temperament. This
may help to explain how the corporation sometimes retains individuals who could probably obtain better
paid and more skilled work elsewhere. As (1986) puts it, it is 'recruiting as means of control'. As already
suggested, however, whether this is a deliberate 'strategy' or something else is not clear (, 1994).
The employment relationship at McDonald's is managed by a complete spectrum of controls, from simple,
direct and bureaucratic controls to the management of subjectivity. At one end of the spectrum, restaurant
managers are disciplined to accept tough work schedules and must prove themselves 'up to the
challenge' of punishing schedules. Long hours and loyalty are locked in, with young managers being
persuaded not only to accept as the norm many hours of unpaid work but also to gain a perverse
satisfaction from surviving these tough and uncompromising work routines. n addition, young managers
who may or may not get similar 'opportunities' elsewhere in the labour market are romanced by offers of
promotion and career development. At the other end of the spectrum, more direct methods are used to
maintain control. However, this still leaves unanswered the question of how the corporation has managed
to sustain the uniformity of its employee relations practices despite major differences across societal
I% strategy of McDonald`s
Technology is playing a vital role in McDonald's plans to lure more customers into its 1,230 UK fast food
restaurants - as well as driving cost savings and operational efficiency across the organization. McSalads
are not the only new things on the menu, as the company is also introducing wireless networking,
!layStation 2 video games consoles, internet terminals, flat screen televisions and music videos into its
revamped stores computing - nsight for T leaders Claim your free subscription today. t's about offering
customers more choice and making the restaurants more relevant. McDonald's head of management
information systems told omputing. No one single thing will attract customers, but by offering healthier
food options, new decor, entertainment and internet access, people will choose McDonald's over other

The company is introducing BT Openzone WiFi hotspots into 561 drive-thru stores, fixed-line internet
terminals from Datavision, !layStations and specially adapted web-based games for children. The WiFi
roll out is running ahead of schedule, with 350 stores already available for passing business people.
Strategy this year is to attract business users. The hotspots will allow businessmen to check email,
access the internet and download presentations while having something to eat and drink.

n addition to attracting customers, McDonald's is hoping to cash in by forming revenue sharing
partnerships and advertising deals with its internet service providers and equipment providers. But the
main focus is to improve the customer experience. The company is also considering the viability of
offering free internet access with food purchases. Along with most other UK retailers, McDonald's is
evaluating chip-and-!N payment card readers for its UK branch network. The restaurant has rolled out
readers in all its Scottish branches, though a project with technology provider ngenico. Results have
been encouraging, with nine per cent of customers using payment cards since its introduction nine
months ago.

The key is to make paying by card as quick as paying by cash. Customers want the same quick
experience as if they were going through a drive-thru. Using ADSL broadband connections to authorize
transactions, McDonald's has been able to reduce the time to process card payments from thirty seconds
to just four. But it's not just in the restaurants that new T is expected to help the company's business.

This year is about consolidating existing T systems and introducing new ones to bring cost savings.
McDonald's is using wireless technology to make savings in its T infrastructure and increase productivity.
Wireless will have a big impact on how we work this year. t's so much easier than creating new
environments for the laptop; it allows integrating devices and business processes and making a real

McDonald's introduction of queue-busting wireless ordering devices into 500 restaurants is also paying
dividends. The devices use business intelligence software from Business Objects to gather sales
information and marketing data, which is then transferred to an Oracle database for analysis.

t's managed to significantly reduce customer queuing times, increase drive-thru sales by five per cent
and 82 per cent of customers believe it has improved service. Symbol handheld wireless computers are
also saving time in the stock room. T team has integrated the devices into stock taking to read barcodes
and for food safety tasks, using thermal probes to read temperatures and record food checks. But
McDonald's has no plans to introduce radio frequency identification (RFD) tagging into its supply chain
management system.
HR poIicy of NestIe
The long-term success of the Company depends on its capacity to attract, retain and develop employees
able to ensure its growth on a continuing basis. This is a primary responsibility for all managers. The
Nestl policy is to hire staff with personal attitudes and professional skills enabling them to develop a
long-term relationship with the Company. Therefore the potential for professional development is an
essential standard for recruitment.
Each new member joining Nestl is to become a participant in developing a sustainable quality culture
which implies a commitment to the organization and a sense for continuous improvement leaving no room
for complacency. Therefore, and in view of the importance of these Nestl values, special attention will be
paid to the matching between a candidate's values and the Company culture.
I% Strategy of NestIe
A significant part of Nestl's resources are dedicated to extensive RD programs. Located near the Vittel
bottling plants in France, the !roduct Technology Centre Water (!TC Water) gathers Nestl Waters' top
experts under one single roof, making it one of the most important research centers in the World,
dedicated to water and near-water products.

One important focus surely is to further reduce our environmental footprint by reducing the water
consumption in our factories, reducing energy consumption throughout our operations and using less and
less packaging material or materials with a lower specific environmental footprint like for example
recycled material or materials from renewable resources.

The !TC also serves as a place for exchanging information and training by housing a unique
bibliographic resource, a database containing about 25,000 publications or articles on water and the
specific health benefits. The !TC Water is also proactive within the scientific community, sharing its
expertise and knowledge in key international conferences and developing research-oriented partnerships
with public and private organizations worldwide.

nnovation in the area of products, packaging, processes and technologies in compliance with Nestl
Waters' strategy is at the heart of our !TC. The Centre is equipped with two top-level laboratories, one
dedicated solely to packaging, the other to product formulation. A "model factory", a large pilot plant, has
been set-up and continuously been equipped with innovative production equipment for packaging, filling
and testing to research on all elements of our value chain and to validate all prototypes of new packaging
and products before it is marketed to our consumers.

Last but not least, the !TC Water acts as a support centre for our subsidiaries. As such, the !TC is able
to deliver worldwide quality assistance and technical guidance to all our factories and business units.

urrent Strategy of Starbucks is not successfuI as:-
There is the necessity then to recruit only knowledgeable management members at all levels, maintain
high level of partner performance and leverage and grow Starbucks brand through adding value to the
Starbucks' entire chain. Strategically, Starbucks should stick to the framework of Four A's that primarily
brought success to the company. These are acceptability, affordability, availability and awareness. There
are different sets of actions that the company shall consider.
As well, there must be the continuous building of management team, maintain balance between
expansion and internal partnerships, building the workforce, revisiting of mission, values and principle,
continuous innovation and prioritization of quality. n particular, there shall be the alteration of the reward
system, tighten focus on the 'Third !lace' aspect and shift focus on profitability measures instead of
reducing staff.
n modifying the current employee reward system, employees would be motivated to perform even more
through more incentive. Eventually, employee turnover rates would be lessened and positive
reinforcement would lead to higher job satisfaction. On the other hand, there are inherent detriments such
a pay and benefit structures that are dictated by the corporate headquarters may hinder fast revamp on
the reward policy. Cost of benefits could lower the profitability of each outlet and that new reward system
would require additional management apart from !artner Sources.

The challenges that are needed to overcome in terms of recruitment and selection are workforce
planning, age bubble, 'brain drain', technology and the pressure to maintain the employer of choice status
for both entry-level and experienced job seekers. The drive is to provide challenging and interesting work,
recognitions and rewards for accomplishments and provide an opportunity for fast career growth and
advancement. Moreover, Starbucks should be financially strong and people-oriented. This has
implications for the !artner Sources and realignment of the competencies and expertise.
n decreasing employee turnover rate, Starbucks shall focus on hiring older employees so that benefits
package would be more appropriate and base wages must be raised with respect to performance instead
of giving raise for economic motivations. Significantly, the reward policy shall include processes on
developing and maintaining an effective reward system such as employee of the month award, on-the-
spot tokens, etc and closed-loop communications systems of regular employee communications.
For workforce planning, Starbucks should identify workforce needs, analyze current position and develop
HR strategies to narrow if not close the gaps. n carrying this out, environmental scanning must be
conducted including strategic plans, internal factors and SWOT analysis. Next, there should be an
analysis of the workforce and existing competencies prior to converging into concrete actions of
recruitment, classification, compensation, training, performance management and continuous education.
The cost to fill a position must be carefully studied. Filling vacancies and turnover shall start from within
the organization. Since the company is utilizing semi-annual evaluation, internal hiring is possible. Apart,
the company could employ referral system and use current employees as recruiters, using temporary
workers before they are actually hired, focus on internships, focus on retention and use mentors in order
top assist entry of new workers. Worker-friendly policies should be also available such as flexible work
hours, telecommuting, cooperative management styles and good working conditions.
Budget must be utilized with accordance to the needs and expectations of the stakeholders and the
organization as a whole. n enhancing the company's atmosphere, it is necessary to make each outlet
more 'scenic' than just a Third !lace by means of improving outlet accessibility and cleanliness. T would
always be an add-on value to Starbucks' quality; nonetheless, the company should equate the necessity
of technology with organizational strategies.
n focusing the profitability, Starbucks would advent itself of higher staffing levels that could benefit all the
employees, better customer servicing and the improved focused on customer relationship would yield
higher sales. Nonetheless, the initiative requires that the company should invest additional cost for
staffing that may decrease profitability and how the top management perceived the low employee
productivity; with a specific emphasis on improving the Third !lace framework.
The non-monetary impact of these actions are: reduced turnover rates through focusing on initial
recruitment and hiring stage and rewarding employees, physical facility as value-adding element by
means of improving accessibility and cleanliness and becoming an attractive place to go to by improving
the overall Starbucks feel. n terms of financial implications, the impact would be on the indication for risk
for higher cost of capital and return on equity. Financial leveraging through revamp on three key policies
would also mean lower asset turnover, higher days receivable, lower inventory days and increased
payable days due to partner performance and productivity to the top management.

For !artner Sources, the benefits would be the restructuring of skills framework that shall include
congruency skills, hiring skills, training skills, performance appraisal skills and pay allocation skills.
Congruency skills refer to the ability of the Vice !resident of the !artner Sources in attuning practices
with of the organization with the environment. The success for Starbucks could be maintained if HR
practices are strategically aligned to the overall strategy, the organizational features and the legal
environment. Hiring skills refer to hiring right employees at the right time. !reparing for the changes of job
and career is known as the training skills. Constructive performance feedback and knowledge on
compensation allocation are central to performance appraisal skills and pay allocation skills, respectively.
ompetitor's Strategy
O STRATEGY 1: Be Green
Green Mountain Coffee Roasters
HQ: Waterbury, VT
Year founded: 1981
Outlets: N/A

Differentiate for success
Green Mountain began as a small Vermont cafe and has stayed true to its organic roots while growing
into a booming wholesaler with more than 8,000 accounts, including the Newman's own brand of organic
coffees. Green Mountain's sales of its organic lines were up 51 percent in 2005. The company has also
focused on its office business, which now accounts for about a third of its sales.

O STRATEGY 2: Keep nnovating
Coffee Bean Tea Leaf
HQ: Los Angeles
Year founded: 1963
Outlets: 400

Differentiate for success
Coffee Bean is known for its extensive selection of coffees and teas, as well as its reputation for
innovation: The Company invented the ice-blended coffee drink and popularized the chai latte. Coffee
Bean has also made push overseas, finding niches in Starbucks-free markets such as srael. With nearly
all of its drinks certified as kosher, the company has opened several locations in that country.
O STRATEGY 3: Head East
Costa Coffee
HQ: London
Year founded: 1971
Outlets: 617

Differentiate for success
Despite Starbucks's invasion of its home turf in London, Costa is outsmarting its rival in ndia. The
company cracked the subcontinent by teaming up with a local businessman and adapting its menu to
ndian tastes. Costa plans to add up to 300 ndian outlets by 2010. t has been in the Middle East since
the late 1990s and is due to open the first of more than 300 stores in China next year.
O STRATEGY 4: Go Upscale
HQ: Emeryville, CA
Year founded: 1966
Outlets: 120

Differentiate for success
!eet's strength is the taste of its coffee, which appeals to java connoisseurs. The company roasts its
beans in small batches, replaces brewed coffee every 30 minutes, and never resteams milk. "!eetniks"
often drink !eet's at home too, and about half the company's sales come from whole beans, which carry
higher margins. !eet's beans are also sold in more than 4,000 grocery stores.
O STRATEGY 5: Sell a Lifestyle
Caribou Coffee
HQ: Minneapolis
Year founded: 1992
Outlets: 416

Differentiate for success
Caribou's cafes feature mountain-lodge-style decor with exposed beam ceilings, leather chairs, and
roaring fireplaces. Add in framed photos of the adventure-loving founders and you get a vibe that's neatly
summed up in the company's motto, "Life is short. Stay awake for it." Frontier and Maxjet airlines serve
Caribou coffee, and the company recently inked a deal with Life Time Fitness.

n particular, the changes in the policies should adhere to the standards and regulations of
Starbucks as well as the regulations of bodies/authorities that govern Starbucks. ssues should be very
specific like the points raised in 3.0 for the said policies. Languages of the policies will ensure to be in
layman so that everybody can comprehend. And explanations should be clear as possible. The policies
should attempt at arriving at a win-win situation for both the partners and the organization. As such, the
policies should be approached in an objective manner.
There are specific steps that Starbucks could utilize in policy-(re)making. n general, the pointers
are the policy format, the dos and don'ts and the important provisions to be considered. The actors are
the top management, representative from partners at retail-levers such as baristas and shift supervisors
to managers and representatives from unions and the !artner Sources unit. First, through consensus,
these people should outline specific issues gathered. The activities are systematizing the data gathered
and validating data. Next would be the resolution of issues and preliminary drafting of reward, recruitment
and selection and development policies.
Second, there should be the consultation for outlets and for general assembly. For the former, the
activities are the documentation of issues raised and the documentation of pre-resolution issues prior to
synthesizing the issues and the resolution. For the general assembly, documentations of issues raised,
documentations of final resolution and necessary amendments are the activities.
Third, the primary actors determined should come together to conduct final drafting of reward,
recruitment and selection and development policies followed by reading of the policies, enactment of the
policies, signatures signing and notarization of the policies. !osting of salient points of the three
fundamental policies at each outlet would be the last step.
To optimize the new policies, Starbucks must embrace the intelligent accountability concept
whereby the purpose is to maintain a certain level of transparency, to always consider consensus and to
manage the knowledge well. This collective visioning must be embedded in lateral capacity that directly
intervene poor performance that affects the business as a whole. As such, it is also necessary fro
Starbucks to incentivize collaboration and the lateral capacity building so that the new policies could
purport on developing itself by means of fostering and supporting cross-system networks.
Starbucks vs. Dunkin' Donuts
We talk from time to time here at the Capitalist about non-competes. They
generate emotion from employees and are usually written so broadly that they're
hard to enforce. Most of the time, talent will sign a non-compete in one of three
states of mind: They're A) in need of a job and will sign what you need them to
sign, B) confident that you've written the agreement so broadly that it'll be difficult
to enforce, or C) a combination of the two aforementioned states of mind.
So, non-competes are something we do, but messy to enforce on the back end.
Want to see what a real non -compete issue looks like? Look no further than the following non-compete
dustup occurring between Starbucks and Dunkin' Donuts, as reported by the Boston Herald. love the
smell of decaffeinated non-competes in the morning:
"!aul Twohig, who had been in charge of Starbucks' retail stores in the southeastern U.S., left the
company in March. He received a severance package after signing a separation agreement in which he
promised to honor an earlier noncompetition agreement that said he would not work for a Starbucks
competitor for 18 months, according to a lawsuit filed Monday in U.S. District Court in Seattle.
Twohig, who did not return phone calls to his South Carolina home, asked Starbucks in August if he could
be released from the agreement to work for Dunkin' Donuts, the lawsuit said. Canton, Mass.-based
Dunkin' has a large presence in the eastern U.S. Starbucks declined Twohig's request. At Starbucks, he
had "participated in and was responsible for formulating business strategies to grow Starbucks business
and respond to competitors, including Dunkin' Donuts," the lawsuit said
n September, Dunkin' Donuts' head of human resources and another former Starbucks employee,
Christine Deputy, contacted the coffee company. Starbucks said it told her that Twohig was "not in a
position to accept a position" at Dunkin'. Within the past week, Starbucks learned through nternet
searches that Twohig had apparently accepted a job as Dunkin' Donuts' brand-operations officer.
Twohig worked for Starbucks from 1996 to 2002, then left and became chief operating officer of !anera
Bread. When he returned to the coffee company in 2004, he signed the noncompetition agreement, the
lawsuit said."
Conventional wisdom says a couple of things with this one. First of all, it's standard procedure that if you
want an enforceable non-compete, you need to list the competitors included and perhaps even the
geography. We don't know those details, but a couple of other things would seem to come into play.
First, if Twohig elected to sign a severance document that referred again to the non-compete, that's a
form of acknowledgment that might be viewed strongly by a judge. Add that to the fact that Dunkin'
thought enough of their position as a primary competitor to call Starbucks to inquire about Twohig's legal
ability to work for them, and Starbucks looks to be in decent shape on this one heading into the
With his !anera experience, if only Twohig would have brought the Cinnamon Crunch Bagel (or i's
equivalent) to Starbucks - he might have been CEO by now and the move wouldn't have been necessary.

Starbucks vs. NestI's
A month after Starbucks' Via Ready Brew invaded Nestl's jealously
guarded turf, the giant Swiss food maker has mounted a spirited
counteroffensive, passing out free samples of its Nescaf Taster's
Choice instant coffee across several key U.S. cities.
A Nestl spokeswoman says the company has been handing out
samples, packaged in thin pouches similar to those Starbucks is using
(Nescaf's are called "sticks"), through much of the year.

Longtime instant-coffee incumbent Nescafe reacts to Starbucks' encroachment with advertising splash
and handouts.
But a look at Nestl's Twitter page shows they've really revved up the campaign of late.
Nestl marketers were recently spotted for the first time roaming the streets of downtown San Francisco,
handing out samples to caffeine-savvy citizens. This month, Nestl tweets have been urging people to
find seek out their street marketers at specific corners or landmarks in Los Angeles, !hiladelphia, and
Washington, D.C.
The red packs contain six flavors and a $1 coupon. On the back of the envelope is this tagline: "A lot of
hype or a lot of flavor. Taste for yourself."
Nestl's tactics extend to the Web, where it put up a site in May that tells consumers its Taster's Choice is
cheaper and tastes better than Starbucks Via. n a Web commercial, Nestl touts the fact that one cup of
its Taster's Choice costs 17 cents, while Via costs four times that. t shows a Starbucks cup at the end.
Earlier this year, Nestl pushed free samples in Chicago and Seattle, two cities in which Starbucks did
pilot tests for via before its nationwide rollout in September.

t's hard to fathom the marketing muscle Nestl and Starbucks are throwing behind their rival instant
brews. But the stakes are enormous, even more so when trying to break into a sluggish economy laced
with newfound frugality.

Starbucks' instant Via comes in just two classic varieties, while Nescafe takes a bigger-tent approach.
nstant coffee generates $21 billion in worldwide sales -- that's more than 40% of the total coffee market.
The U.S. accounts for 5% of the instant market.
"Starbucks has drawn more attention to the [instant] category," said Nestl spokeswoman !am Krebs,
who thinks the very public rivalry is good for the product.
Starbucks rolled out Via after 20 years of secretive internal RD. t was the biggest product launch in
company history, supported by a coordinated attack of national television ads, highly visible in-store
marketing collateral, and guerrilla marketing tactics.
Starbucks isn't pitching Via as the instant coffee Americans grew up drinking but as its gourmet coffee
brewed in an instant. ts varieties are limited to talian Roast and Colombia, while a Taster's Choice
sample pack extends to hazelnut and vanilla flavors.
The Via tagline: "Never be without great coffee."
And, like its new rivals, Starbucks isn't pulling any punches, calling other instant coffees "flat and lifeless."
CEO Howard Schultz claims instant coffee hasn't seen innovation for 50 years.
Starbucks, in its latest quarterly conference call, said Via sales have gone well, but it didn't release hard
numbers. Three single-serve packets of Via sell for $2.95, or just a buck per cup. A 12-pack of pouches
runs $9.95. A Taster's Choice bulk buy of seven 12-packs is offered for $12.16 at
!erhaps suggesting that consumers are pitting the new single-serve instant-coffee products against each
other at home or office, Amazon lists the Starbucks and Nescaf offerings as "frequently bought

Starbucks vs. McDonaId
McDonald's ntroduces McCafe and Capitalizes on Recessionary Cutbacks
With the launch of McCafe in 2008, the competition between the two chains intensified further. The timing
of the launch coincided with a period of spending cutbacks among consumers and such cutbacks were
already hurting Starbucks. As result of the discretionary cutbacks and rising competition, Starbucks
closed around 890 stores in 2008 and 2009.
Starbucks Diversifies with VA and Seattle's Best Coffee
After the success of the inexpensive VA brand instant coffee among consumers, Starbucks is trying to
give the lower priced coffee chains a run for money with the strong launch of its Seattle's Best brand
coffee at more than 30,000 fast-food outlets, supermarkets and coffee houses. The company's expansion
plans includes featuring Seattle's Best at convenience stores, drive through kiosks and vending



Overview Over 31,000 restaurants in 118
countries; $23.5 billion revenue,
400,000 employees
Over 16,000 locations in over 50
countries, $9.8 billion revenue (FY09);
117,000 partners (employees) **

!remium salads, fruit and yogurt
parfait, and apple dippers in
Happy Meal choices; packaging
gives customers essential
nutrition information in easy-to-
understand icon and bar chart

n U.S., spends more on partner
health care than coffee bean
purchases; The largest purchaser of
Fairtrade certified coffee in the world

19 of 25: Carefully managing
supply chain to control costs and
implement sustainability, and
developing an environmental
scorecard to measure supplier
21 of 25: Sustainability built into
business vision, all performance
metrics and product development
decisions; From fiscal 2000 to 2009,
farmer loan commitments totaled
$14.5 million, goal is $20 million by
2015; !artners encouraged
to volunteer, with a goal of 1 million
hours of community service by 2015 **

of 20%
n 2009 customer satisfaction is
70%; 82% of crew would
recommend working at
McDonalds to a friend
10% Customer satisfaction is 76%; all
staff more than 20 hours/week have
health care access
of 20%
Crew members earn an average
of $7.60 per hour; 93% of eligible
employees participate in 401(k)
plan, made easier by $20 per
month auto-deductions
Starbucks average hourly pay rates
vary across the U.S. and the globe;
baristas in the U.S. are eligible for a
base rate increase after six months,
and a performance based increase
every six months thereafter.; The
Stock nvestment !lan allows eligible
partners to buy Starbucks stock (up to
10% of base pay) at a 5% discount;
Through the Bean Stock program,
stock options granted annually to
eligible partners in 16 countries from
part-time hourly up to (but not
including the director level based on
the company's performance **
of 20%
About 82% of the consumer
packaging used in its nine largest
markets made from renewable
materials and 30% of the material
comes from recycled fiber.
Despite testing of innovative
materials, have not yet identified
more sustainable packaging
materials that are commercially
n fiscal year 2009, Starbucks served
more than 26 million beverages in
reusable cups, and approx. 70%
(2,163) of its company-owned stores
in North America that control their own
waste collection recycled items made
from one or more materials; Starbucks
is working toward 100% reusable or
recyclable cups by 2015 **
of 20%
37% of all U.S. owner-operators
are women and minorities; 26.7%
of worldwide leadership are
Among managers, approx. 31% are
ethnic minorities and 66% are women
of 20%
Guidelines to determine the
sustainability of fisheries
developed in partnership with
Conservation nternational
All suppliers that adhere to C.A.F.E.
status undergo third-party
verification; By 2015, Starbucks' goal
is to purchase 100% responsibly
grown and ethically traded coffee,
which the company definesas coffee
that has been third-party verified or
certified, either through Coffee and
Farmer Equity !ractices, Fairtrade, or
another externally audited system **
of 100%
of 20%
30.1% return on equity (2008)

20.4% annualized total return,
including reinvested dividends

23.4% annualized total return,
including reinvested dividends
12.8% return on equity (fiscal

-6.2% annualized total return,
including reinvested dividends

-16.3% annualized total return,
including reinvested dividends