Starbucks Consulting Case
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Starbucks Consulting Case

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Led fifteen students in a Deloitte consulting project, presented in Chicago.

Led fifteen students in a Deloitte consulting project, presented in Chicago.

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  • **Explain Licensed Income
  • International licensed stores appears to garner the greatest revenues.
  • Caribou: provides a similar assortment of products to Starbucks, coffee, specialty drinks, pastries, packaged coffee. McDonalds: does not provide specialty drinks (frappuccino, latte, macchiato). Dunkin Donuts: provides less expensive coffee in attractive orange and red cups.
  • Very important slide
  • high prices less uniformity in drinks breakfast sandwiches taking away from the experience For example – popsicles don’t have a large customer base, and not very Starbucks oriented.
  • Be specific
  • Be specific
  • Change to an actual timeline (graphic)
  • Be specific

Starbucks Consulting Case Starbucks Consulting Case Presentation Transcript

  • Starbucks Returning to the Starbucks Experience Student International Business Council University of Notre Dame Deloitte Consulting April 11 th , 2008 Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
    • Purveyor of premium coffee and handcrafted specialty beverages
      • Purchase from sustainable farms & oversee roast
    • Enhancing coffee experience with Italian style brewing & increasing offering with joint ventures
    • Retailing of specialty goods to have farther reach
    • “ We aren’t in the coffee business, serving people. We are in the people business, serving coffee” - Howard Schultz
    Business Model Student International Business Council
    • The experience that makes Starbucks unique has taken a back seat to efficiency and overexpansion
    • There has been a loss of focus on their target market and Schultz’ vision
    • Costs and expenses are rising, cutting into the bottom line
    • Revenues growth is slowing
    Current Situation Student International Business Council
    • Increase revenue
      • More licensed branches abroad
      • Focus on specialty drinks
    • Decrease cost
      • Remove unnecessary products
      • Slow domestic expansions
      • Decrease costs on particular non-drink items
    • Enhance experience
      • In store attractions and focus on customer
    Plan of Implementation Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
    • 1,065 store increase in the United States from 2006-2007
    • 277 store increase internationally 2006-2007
    • Expenses increased significantly from 2005-2007
    • Earnings have peaked
    • Net Operating Income is increasing at a decreasing rate
    Recent News Source: Starbucks’ 10-K Student International Business Council
  • High-Level Financials Source: Yahoo Finance Student International Business Council Dollars (in millions) FYO,2007 FYO, 2006 FYO, 2005 FYO, 2004 FYO, 2003 Total Revenue $9,411 $7,787 $6,369 $5,294 $4,076 Operating Income $1,053 $893 $780 $606 $421 Net Earnings $672 $564 $494 $389 $265
  • Key Financials Source: Starbucks’ 10-K Student International Business Council Year 2007 2006 2005 2004 2003 2002 2001 2000 Revenue (in Millions) 9411.5 7786,9 6369.3 5294.3 4075.5 3288.9 2649.0 2169.2 % increase in revenue 17.26 18.2 16.88 23.02 19.3 19.46 18.11 22.54 Costs of goods (in Millions) 3999.1 3178.8 2605.2 2198.7 1685.9 1350.0 1112.8 953.6 % increase cost of goods 20.51 18.04 15.6 23.32 19.92 17,57 14.31 22.29 Year 2007 2006 2005 2004 2003 2002 2001 2000 Revenue (in Millions) $9411.5 $7786.9 $6369.3 $5294.3 $4075.5 $3288.9 $2649.0 $2169.2 % increase in revenue 17.26 18.2 16.88 23.02 19.3 19.46 18.11 22.54 Costs of goods (in Millions) $3999.1 $3178.8 $2605.2 $2198.7 $1685.9 $1350.0 $1112.8 $953.6 % increase cost of goods 20.51 18.04 15.6 23.32 19.92 17.57 14.31 22.29
  • Results of Operations
    • Revenues are increasing, but expenses as a percentage of revenue are increasing a well. This takes away from the bottom line, net operating income.
    Source: Starbucks’ 10-K Student International Business Council 2007 2006 2005 Revenues $9.4 billion $7.8 billion $6.4 billion Expenses (% of Revenue) 89.9% 89.7% 88.9% Earnings (% of Revenue) 7.1% 7.2% 7.8%
  • Slowing Revenue, Increasing Cost
    • Percentage increase in revenue is strong from year to year until 2005 where it plummets.
    • Cost percent increase remains the same until 2005, then begins to increase.
    • Stock price peaks from 2005-2006, then drops.
    Source: Yahoo Finance Student International Business Council
  • Same-Store Sales Growth
    • Domestically, the sales growth is increasing at a decreasing rate. Internationally, it is steady.
    Source: Starbucks’ 10-K Percentage change in comparable store sales (%) 8 10 8 7 5 Consolidated 7 6 6 8 7 International 9 11 9 7 4 United States 2003 2004 2005 2006 2007 Student International Business Council
  • Growth Trends 2006-2007 Source: Starbucks’ 10-K
      • International licensed stores appears to garner the greatest revenues.
    Student International Business Council % Growth in Net Revenue % Growth in Licensed Stores Domestic 17% 6% International 25% 13%
  • Domestic vs. International Student International Business Council
  • International Stores International Stores Source: Starbucks’ 10-K Student International Business Council $138 million $625 million $220.8 million 2007 2006 % Change Licensing Income: $186 million 18.7% Total Sales $824.5 million 31.9 Net Operating Income $108 million 27
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
    • 1971- First store opens in Seattle
    • 1982- Howard Schultz joins as director of retail operations and marketing
      • 2 years later 1 st Starbucks Café Latte served
    • 1987-Schultz’s Il Giomale acquires Starbucks, becomes Starbucks Corporation
    • 2000- Schultz becomes chairman/chief global strategist & Orin Smith becomes new CEO
    • 2007- Schultz returns as CEO in an attempt to renew the company’s focus on customer experience and innovation.
    History Student International Business Council
    • Establish Starbucks as the premier purveyor of the finest coffee in the world, while maintaining uncompromising principles as we grow
    • Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee
    • Develop enthusiastically satisfied customers all of the time
    • Recognize that profitability is essential to future success
    Mission Statement Schultz’s Memo, April 2007 Student International Business Council
    • Starbucks primarily relies on its brand name and image to sell coffee
    • Starbucks links its name with quality
    • Expect that customers will pay more for quality
    • Customer focused marketing strategy: Young urban middle-class; Students between the age of 15 and 35 and Professionals
    • The entire process should be an experience rather than simply picking up coffee
    Initial Starbucks’ Operations Student International Business Council
    • “ The Third Place” (between home and work)
    • Launched their first TV campaign last winter
    • Marketing in-store: ambiance, music playing, seating, friendly people
    • iTunes and Starbucks entertainment. Customers can receive free songs in the store. They can also purchase songs playing at store on apple products.
    Marketing the Experience Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
  • Starbucks Experience
    • Store (Experience)
        • Warm atmosphere with brown and green toned interior
        • Ambiance includes music, comfortable seating for work or socializing, and friendly employees
        • Mix between classic and modern
        • Fixed temperature
        • Specific method of taking orders
        • Coffee aroma
    In-Store Experience Student International Business Council
  • Starbucks Experience
      • Menu (Product)
        • Latin America, Africa/Arabia, Asia/Pacific, Dark Roast Blends, Multi-Region Blends
        • Espresso, Frappuccino, Macchiato
        • Teas
        • Classic Favorites
      • The menu is diverse enough to appeal to a variety of tastes, even though each location is consistent in its look and feel.
    Product Experience Student International Business Council
    • Starbucks offers luxury that is readily available.
      • Daily coffee without losing the indulgence of the experience.
      • Ambiance, music playing, seating, friendly people.
    • Customers experience personal service.
      • Only automated task should be the printing of a receipt.
      • Employees know what regular customers want.
      • Grinding coffee in front of the customer.
    Summary: The Experience Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
    • Coffee is a 34 billion dollar industry in the United States
    • The coffee industry currently exceeds $70 billion annually, with over 400 billion cups consumed each year
    • Coffee, as a product, is actually the 2nd highest traded commodity globally, falling only shortly behind oil
    Source: Eimports.com, Packagedfoods, Boresha.com, Yahoo Finance Coffee Demographics Student International Business Council
  • Competitors
    • Caribou Coffee is the second largest gourmet coffee chain
    • McDonalds provides an easy and accessible option for cheaper coffee
    • Dunkin’ Donuts is the largest coffee and baked goods chain in the world
    Primary Competitors Cariboucoffee.com, Dunkindonuts.com Student International Business Council
    • Caribou Coffee is the second largest gourmet coffeehouse operator (484 coffeehouses, including 52 franchised locations)
    • Caribou Coffee offers its customers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and related products
    • Caribou Coffee also sells products to club stores, grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses and other commercial customers.
    • Coffee comes from the finest Arabica beans
    • Amenities include free WiFi, meeting rooms, and drive thrus
    Source: cariboucoffee.com Caribou Coffee Student International Business Council
    • Offers low priced Premium Roast Coffee made from 100% Arabica beans and three flavors of iced coffee in over 9,000 stores
    • McDonalds- plans to add Starbucks-style coffee bars to nearly 14,000 of its American restaurants, drinks are estimated to be roughly $.50 less than Starbucks pricing
    • In 2007, began introducing McCafe concept restaurants in select locations in the US with comfy couches, cappuccinos and pastries
    • Consumer Reports rated McDonalds coffee more highly than that offered by Starbucks
    Sources: moneycentral.com McDonald’s Student International Business Council
  • Source: PRNewswire via COMTEX, www.dunkindonuts.com
    • Dunkin' Donuts (the largest coffee and baked goods chain) sells more hot regular coffee, iced coffee, donuts, and bagels than any other quick service shop in America.
    • They are known for simplicity and their unique orange and red cups
    • 100% Arabic coffee beans (flavorful, smooth & mellow)
    • Espresso, frappuccino, and iced coffee also available
    Dunkin’ Donuts Student International Business Council
    • McDonalds
      • Premium Roast was voted better tasting than Starbucks or Dunkin Donuts
      • McDonalds have more drive-thrus than any competitor
      • McDonalds does not rely on coffee sales to support their business, allowing them to jump into the coffee industry sell coffee with a much lower profit margin
    • Dunkin Donuts offers cheaper coffee than Starbucks along with a large selection of baked goods
    • Caribou’s stores are larger, and usually in prime locations
    • Cheaper, more available, basic coffee has led to customers substitute away from Starbucks
    Source: Consumer Reports, Belfast Telegraph 2.2.07 Advantages of the Competition Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
  • The Loss of the Experience
    • Starbucks interactive cup brewer for small-businesses detracts from “The Third Place”
    • Selling in grocery stores diverts attention from the stores
    • Brand recognition can be tied to the grocery store and not the actual Starbucks store
    • Prepackaged products inhibit the incentive to make a trip to the store
    Source: Business Week 2-19-08 Losing the Experience Student International Business Council
  • Problems Inhibiting the Experience
      • Change to automatic espresso machines when Schultz was gone
      • Baristas were no longer required to hand-make many drinks
      • Less emphasis on personal interaction between baristas and customers
      • The present stores lack the influence from the original inspiration of the Pike’s Place location
        • As a result, customers are no longer inclined to stay and enjoy the experience
    Losing the In-Store Experience Student International Business Council
    • The average number of transactions per US location fell 1% in the last quarter of 2007
    • The brand is starting to lose its reputation as a quality, worthwhile experience
      • Higher prices
      • Less interaction with the barista
      • Less personal attention
      • Starbucks commercializing their brand in grocery stores.
    Losing Reputation Source: Business Week 2-19-08 and PR Week 2-15-08 Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
    • Starbucks has been a company that relies on their reputation
      • Quality
      • Availability
    • The brand speaks for itself
      • The Starbucks experience and numerous locations allow customers to indulge anywhere, anytime
    Foundational Values Student International Business Council
    • Howard Schultz’ s strategy:
      • Slow down US store expansion
      • Close under-performing stores
        • closing 100 stores
      • “Spruce up” existing stores
      • Introduce new products (Pike Place Roast)
    Recovery Strategy Source: Business Week 2-19-08 and 3-10-08 Student International Business Council
    • New Expresso Machines to better view the barista & barista training.
    • Free WiFi through AT&T
    • Bought Coffee Equipment Co. and Clover Brewing System
    • Discontinuance of warm breakfast.
    • Starbucks Artisan chocolate.
    • National Training Day - 2/26/08
    • Made Fortune 100 Best Companies to Work for in 2008
    • “ Skinny” drinks
    Innovations post-Schultz Return Student International Business Council
    • 1. Summary of Issues
    • 2. Financials
    • 3. Current Operations
    • 4. The Experience
    • 5. Competitive Environment
    • 6. Current Operation Problems
    • 7. Schultz’s Vision
    • 8. Plan to Achieve the Vision
    Agenda Student International Business Council
      • Shifting the focus of operations back to Starbucks’ target market
      • Renewing the commitment to Schultz’ vision
      • Regaining “The Experience” and ensuring Starbucks is “The Third Place” between home and work
    Moving Forward Student International Business Council
    • Revamp the experience of “The Third Place” and improve the quality of personal service to encourage customers to return to Starbucks
    • Increase revenues by maintaining the “Starbucks Experience,” which adds value to the coffee and justifies the higher price
    • Focus on premium products (specifically specialty drinks unique to Starbucks)
    • International expansion of licensed stores adds to the bottom line
    Goals Student International Business Council
    • Revamping Starbucks quality standards
    • New quality standards for freshness, hand-scooping, and smaller brewed coffee batches with no more than 30-minute hold times
    • The introduction of Pike Place Roast
    Quality Improvements Student International Business Council
    • Partners
      • Choose employees who will implement Starbucks’ core values and who are highly knowledgeable about coffee and its production
      • Spend more money and time on training employees
      • Hire fewer part time workers
    Experience Improvements Student International Business Council
    • Store Environment
      • Offer free taste testing on select nights for the coffees and the higher-priced specialty drinks
      • Have live music and readings on select nights
      • Use La Marzocca machines as opposed to automated espresso machines in order to engage the customer in the drink making experience
      • Brew coffee in-store to regain the aroma
      • Remove Tip Jars
      • Emphasizing the coffeehouse as a gathering place
    Sprucing up “The Third Place” Student International Business Council
    • Reduce spending on materials from unnecessary/unpopular products
    • Seek to cut costs from straws, recyclable cups, napkins, shot glasses (glass to metal/plastic), etc
    • Eliminate the 25 cent discount for bringing reusable cups.
    • Digitize process of information management (store orders placed to suppliers)
    • Curve domestic expansion that contributes to increasing costs.
    • Cut down on seasonal gifts (Advent tree).
    • Decrease spending on print-media advertising as well as the seasonal TV ad campaign
    Decreasing Costs Student International Business Council
    • Improve quality and experience to prevent customers from pulling away from Starbucks.
    • To counter cheaper prices of competitors, match the perceived value of Starbuck’s coffee with the high price.
    • Ensure that customers are paying for a premium coffee and that their experience will draw them back to Starbucks in the future.
    Increasing Revenues Student International Business Council
  • Short-Term Expansion Timeline 2007 2008 2009 Followed by a 25% increase in 2009. (About 840 stores opened) We propose a 20% increase in 2008. (About 560 stores opened) There was a 13% increase in the international growth rate of licensed stores Decrease to 1% growth in 2008 (About 490 stores opened) Decrease the growth of domestic licensed stores to 2% growth in 2008 (About 820 stores opened)
      • This will help decrease expenses domestically.
    Student International Business Council
    • Questions?
    Student International Business Council