STARBUCKS  EXERCISE In BUSINESS STRATEGY ©2003
STARBUCKS VIDEO An Interview with Howard Schultz,  Founder, Chairman & Chief Global Strategist
WHAT IS STARBUCKS STRATEGY <ul><li>For Howard Schultz </li></ul><ul><li>For Management and Employees </li></ul><ul><li>For...
STARBUCKS CURRENT STRATEGY <ul><li>Continue the focus on growth </li></ul><ul><li>Establish a leadership positions with co...
Creating and Building a Brand <ul><li>Identify elements </li></ul><ul><ul><li>Target consumers </li></ul></ul><ul><ul><li>...
Aligning the Marketing Value Chain <ul><li>Who are they? </li></ul><ul><li>Psychographically </li></ul><ul><li>Demographic...
Starbucks as a Brand
U.S. Coffee Market Size
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
STARBUCKS CASE ANALYSIS <ul><li>What has made Starbucks successful? </li></ul><ul><li>What business is Starbucks in? </li>...
MARKETS P R O D U C T S Existing   New Existing New New Product Innovation STRATEGIES TO GROW SALES Market Penetration Mar...
MARKETS P R O D U C T S Existing   New Existing New <ul><li>New Product Innovation </li></ul><ul><li>Frappuccino </li></ul...
Growth Opportunities & Value Chain Domestic Retail International Retail Grocery  Expansion Sales Partners On-Line Mail Ord...
STRATEGIC ISSUES <ul><li>Declining corporate growth rate  </li></ul><ul><li>Average ROA, ROE and ROCE </li></ul><ul><li>Mo...
GROWTH INTITIATIVES <ul><li>Current: </li></ul><ul><li>US Retail Expansion </li></ul><ul><li>International Expansion </li>...
ANALYSIS GRID Value cards Consumer Values Small towns Virgin Records Target markets Grocery kiosks Competitive Position He...
ANALYSIS GRID New Products Online and Catalog Business Alliances Grocery Channel International Retail Domestic Retail DSD?...
HOW FAST SHOULD INTERNATIONAL EXPAND
SHOULD THERE BE MORE NEW PRODUCTS EMPHASIS
ANTICIPATE WHERE THE PUCK WILL BE….. FROST & PARTNERS
STARBUCKS PERFORMANCE <ul><li>$8 billion Market Capitalization </li></ul><ul><li>20+% annual sales growth rate </li></ul><...
STARBUCKS REVENUES GROWTH $ Millions $975 $1,308 $1,688 $2,178 $2,649 $3,289
RETAIL STORE GROWTH Licensed Locations Company -Owned Locations Number of stores 1,402 1,886 2,498 3,501 4,709 5,886 7,086
5%-9% COMPARABLE STORE SALES GROWTH 6% 9% 6% 5% 5%
OPERATING MARGINS 8.8% 8.3% 9.3% 9.7% 10.6% 9.7%* *  Excludes one-time items.
NET EARNINGS GROWTH $ Millions $55 $68* $101.6 $94.5* $181.2 $215  *  Excludes one-time items.
Earnings Per Share $.66 $.75* $.27 $.24* $.46 $.54* *  Excludes one-time items.
 
 
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  • TOM:
  • TOM
  • Tom
  • David
  • Altoids
  • Core attrib: coffee (strong coffee); 3 rd place/affordable luxury Product/line Extensions: Ground coffee (big deal) --- But NOT tea. Should it extend into tea? Territory extensions: geographic – SCI; product examples? Starbucks Granola Bars? Private label: Starbucks Aroma Brewer (but no separate brand for “stuff you buy @ Starbucks”) Co-branding: Mocha Roca; Hear Music
  • David Ask the students what they analyzed and how they approached it? There is no right or wrong answer but there is analysis that is right or wrong or missing.
  • David
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  • David Goldman Sachs Analysts presented the following concerns prior to the bi-annual analysts meeting -Growth (same store sales growth key) -International execution (given increasing importance- 22% of stores and 10% of revenue) -Non traditional revenue (joint ventures’s in RTD and international accounts for more than 15%- 20% of EPS) -Market sensitivity (high P/E and concerns about use of Employee Stock Options) -Recession related consumer spending declines Have back up on how the sales are declining: 1991-1995 1996-2000 2000-2002 Have examples of what the current cash level is and how cash is and can be used: $500m+ cash on hand $ m cash generated in FY2002 $400k per store X 1200+ stores = $48m per year 1% share repurchase = $80m Discuss the role of international, acquisitions and share prices on various stakeholders
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  • David Past performance has been stellar Though other restaurant companies are growing faster: Cheesecake, Panera, Krispy Kreme Performance is not only high but consistent and predictable So what do you see as the strategic issues or opportunities to be addressed? Ask students how they prepare for planning meetings What would they focus upon How many work off numbers versus opinions? Have any done environmental scans or benchmarking? Who else can they look to for input?
  • Third place concept
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    1. 1. STARBUCKS EXERCISE In BUSINESS STRATEGY ©2003
    2. 2. STARBUCKS VIDEO An Interview with Howard Schultz, Founder, Chairman & Chief Global Strategist
    3. 3. WHAT IS STARBUCKS STRATEGY <ul><li>For Howard Schultz </li></ul><ul><li>For Management and Employees </li></ul><ul><li>For Shareholders </li></ul><ul><li>For Customers </li></ul><ul><li>For Suppliers and Partners </li></ul>
    4. 4. STARBUCKS CURRENT STRATEGY <ul><li>Continue the focus on growth </li></ul><ul><li>Establish a leadership positions with company owned stores in key markets- USA, Japan, Australia, UK </li></ul><ul><li>Pre-emptively enter and aggressively grow in all targeted markets </li></ul><ul><li>Leverage the brand into new product categories and channels </li></ul><ul><li>Continue operations improvement </li></ul><ul><li>Growth through innovation </li></ul><ul><li>Develop and maintain leadership talent </li></ul><ul><li>Maintain our values, culture and guiding principles </li></ul>
    5. 5. Creating and Building a Brand <ul><li>Identify elements </li></ul><ul><ul><li>Target consumers </li></ul></ul><ul><ul><li>Target needs (what do your consumers need?) </li></ul></ul><ul><ul><li>Target value proposition (why your product?) </li></ul></ul><ul><ul><li>Target message </li></ul></ul><ul><ul><li>Mix, media, spend… </li></ul></ul><ul><li>Make sure all the elements are aligned </li></ul>
    6. 6. Aligning the Marketing Value Chain <ul><li>Who are they? </li></ul><ul><li>Psychographically </li></ul><ul><li>Demographically </li></ul><ul><li>Geographically </li></ul><ul><li>What are their current needs? </li></ul><ul><li>Personal needs and usage occasions </li></ul><ul><li>Why Buy (Brand)? (Essence of the brand) </li></ul><ul><li>Product line 1 </li></ul><ul><li>Product line 2… </li></ul><ul><li>How do we communicate the “why”? </li></ul><ul><li>For the brand? </li></ul><ul><li>By product line? </li></ul>Tactics, mix, media, spend Target Needs Target Message Target Value Target Consumer How aligned is your brand?
    7. 7. Starbucks as a Brand
    8. 8. U.S. Coffee Market Size
    9. 38. STARBUCKS CASE ANALYSIS <ul><li>What has made Starbucks successful? </li></ul><ul><li>What business is Starbucks in? </li></ul><ul><li>When consumers buy Starbucks coffee what are they buying? </li></ul><ul><li>What are Starbucks core competencies and key strategic assets? </li></ul><ul><li>Which growth strategy should Starbucks choose? Why? </li></ul><ul><li>How would you implement the strategy you choose & what are implications for the Starbucks economic model? </li></ul>
    10. 39. MARKETS P R O D U C T S Existing New Existing New New Product Innovation STRATEGIES TO GROW SALES Market Penetration Market Expansion Diversification
    11. 40. MARKETS P R O D U C T S Existing New Existing New <ul><li>New Product Innovation </li></ul><ul><li>Frappuccino </li></ul><ul><li>Tiazzi </li></ul><ul><li>Tazo teas </li></ul>STARBUCKS STRATEGIES <ul><li>Market Penetration </li></ul><ul><li>Expand In US </li></ul><ul><li>Add drive thru </li></ul><ul><li>Expand seating </li></ul><ul><li>Market Expansion </li></ul><ul><li>Barnes & Noble </li></ul><ul><li>Airports & airlines </li></ul><ul><li>Aramark </li></ul><ul><li>Diversification </li></ul><ul><li>Ice cream </li></ul><ul><li>Bottled Frappuccino </li></ul>
    12. 41. Growth Opportunities & Value Chain Domestic Retail International Retail Grocery Expansion Sales Partners On-Line Mail Order New Ventures Sourcing Roasting Distribution Sales Consumers & Blending Tea Music Games Catalog Internet Kraft license Dreyer’s JV Pepsi JV Host Marriott Foodservice Business Alliances -Airports -Hotels, restaurants Ice cream Botttled drinks Coffee (beans/ground) USA Joint venture Licenses UK, Japan Regional plants Advertising Stored value card 2x cups per day 2x penetration 2-3x retail units (potential 5,500 per Specialty Coffee Assoc) Regional DCs Direct delivery (DSD) Company plants -Kent, WA -Wilksbor, PA Skilled buyers Forward contracts
    13. 42. STRATEGIC ISSUES <ul><li>Declining corporate growth rate </li></ul><ul><li>Average ROA, ROE and ROCE </li></ul><ul><li>Morning day part focus </li></ul><ul><li>Growing importance of Frappuccino drinks </li></ul><ul><li>Question on ability to implement diversification -Acquisition s </li></ul><ul><ul><li>- Internet /Wireless </li></ul></ul><ul><ul><li> -Grocery Ventures </li></ul></ul><ul><li>Enormous hiring and training needs </li></ul><ul><li>Licensing </li></ul><ul><li>-International </li></ul><ul><li>-US Business alliances </li></ul><ul><li>Metrics and role of Starbucks Card </li></ul>
    14. 43. GROWTH INTITIATIVES <ul><li>Current: </li></ul><ul><li>US Retail Expansion </li></ul><ul><li>International Expansion </li></ul><ul><li>Business Alliances: supermarkets, retailers, foodservice, grocery products </li></ul><ul><li>New Ventures: Tazo, Hear Music, Value Card </li></ul><ul><li>Opportunities: </li></ul><ul><li>New Products </li></ul><ul><li>New Distribution Channels: vending, kiosks, foodservice </li></ul><ul><li>New Markets </li></ul><ul><li>Acquisitions </li></ul>
    15. 44. ANALYSIS GRID Value cards Consumer Values Small towns Virgin Records Target markets Grocery kiosks Competitive Position Hear Music Tazo Teas Brand Equity Marketing Change Management Conflict Resolution Hiring needs Human Resources Leadership People New Products Online and Catalog Business Alliances Grocery Channel International Retail Domestic Retail
    16. 45. ANALYSIS GRID New Products Online and Catalog Business Alliances Grocery Channel International Retail Domestic Retail DSD? Supply Chain Negotiation European plant Asian plant? Third plant Manufacturing Fair trade Organics Sourcing Operations Activity Based Costing Calculate? Licensing Profit Potential Negative cash flow Financing Economics
    17. 46. HOW FAST SHOULD INTERNATIONAL EXPAND
    18. 47. SHOULD THERE BE MORE NEW PRODUCTS EMPHASIS
    19. 48. ANTICIPATE WHERE THE PUCK WILL BE….. FROST & PARTNERS
    20. 49. STARBUCKS PERFORMANCE <ul><li>$8 billion Market Capitalization </li></ul><ul><li>20+% annual sales growth rate </li></ul><ul><li>11 years of 5+% comparable store sales revenue growth </li></ul><ul><li>6,193 stores in 30 countries </li></ul><ul><li>One of the top 9 companies to work for in the USA </li></ul><ul><li>More than 10x as many retail stores as its nearest competitor </li></ul><ul><li>Market leader in gourmet coffee retailing and in supermarkets </li></ul><ul><li>20+% CAGR Share Prices </li></ul>Source: Hoovers SBUX Share Price Since IPO
    21. 50. STARBUCKS REVENUES GROWTH $ Millions $975 $1,308 $1,688 $2,178 $2,649 $3,289
    22. 51. RETAIL STORE GROWTH Licensed Locations Company -Owned Locations Number of stores 1,402 1,886 2,498 3,501 4,709 5,886 7,086
    23. 52. 5%-9% COMPARABLE STORE SALES GROWTH 6% 9% 6% 5% 5%
    24. 53. OPERATING MARGINS 8.8% 8.3% 9.3% 9.7% 10.6% 9.7%* * Excludes one-time items.
    25. 54. NET EARNINGS GROWTH $ Millions $55 $68* $101.6 $94.5* $181.2 $215 * Excludes one-time items.
    26. 55. Earnings Per Share $.66 $.75* $.27 $.24* $.46 $.54* * Excludes one-time items.
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