1. Starbucks:
Now and beyond
Presented by “Team 5”:
Denisa Dobrin, Colby Foster-Baker, Jen Allison,
Geoffrey MacLennan, Renee Volk
NECB (2012), MBA 525, Managerial Economics
Prof.: Dr. Ned Gandevani
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2. Agenda
• Company Profile
• Market Demand (Colby)
• Pricing Strategy (Colby)
• Market Size (Jen)
• Production Scale / Scale of operation (Jen)
• Market Structure (Geoff)
• Conclusions, Recommendations, Q&A (Renee)
Starbucks mission statement:
“To inspire and nurture the human spirit – one person, one cup and
one neighborhood at a time.” (Starbucks.com
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3. Company Profile
• First store in Seattle, 1971
• Currently 18,000+ stores in 60 countries
• Employs approximately 149,000 people
• Revenue:
• 2011 at $11.7 billion
• 2012 at $13.3 billion
• Operating Income:
• 2011 at $1.7 billion
• 2012 at $2.0 billion
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4. Market Demand
• Historical Demand
• $13.3 billion in revenue in 2012 (14% increase from 2011)
• 7% increase in global sales
• Will market demand for Starbucks be robust in the next 12
months?
• International demand should increase
• 15% sales growth in China/Asia Pacific during 2012 fiscal year
• 154 new stores opened in China/Asia Pacific region in 2012
• Plans to open additional 600 stores in China/Asia Pacific
• Domestic demand remains strong
• Moved up to 3rd largest American restaurant chain in 2011
• New offerings to expand retail chain demand
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5. Market Demand (cont.)
• Will market demand for Starbucks be robust in the next
12 months?
• Branching into new markets
• Teavana Holdings, Inc. – specialty tea products
• Verismo™ - single-serve home brewing system
• Evolution Fresh™ - high-end specialty juice retailer
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6. Pricing Strategy
• What is Starbucks pricing strategy?
• Broke “Skim Pricing” mold by sustaining premium prices
• Competitor’s prices have risen to compete
• Factors affecting Pricing
• Competition
• McDonald’s offering “premium” coffee at low $1 prices
• Controls largest market share
• Consumer Attitudes
• Established as quality and innovation leader
• High level of brand trust
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7. Pricing Strategy (cont.)
• Economic Conditions: Global Financial Crisis
• Standard drink prices lowered by $0.05 to $0.15
• Specialty drink prices raised by up to $0.30
• Overall, sustained premium pricing levels
• Does Starbucks pricing strategy make sense?
• Re-branded the “cup of Joe” and established market for high-end
coffee houses
• Customer’s very willing to pay for perceived high quality
beverages and exceptional service
• Premium pricing strategy is more profitable as economic
efficiency efforts are underway
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8. Current Scale of Operation
Just how big is Starbucks?
• 17,00 stores in 55 countries
• 60 million customers world wide
• 160,000 employees
Processing and Distribution
• Roasting plants
• Co-manufacturers
• Tea
• Distribution Centers
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9. Current Scale of Operation (cont.)
Market Share
• In 2010 Starbucks had 33% of the coffee store market
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Local &
Regional
Specialty
Coffee
Shops
47%
Starbucks
33%
McDonalds
7%
Convenience
Stores & Gas
Stations
13%
Market Share (USA)
10. Current Scale of Operation (cont.)
• 2011 fastest competitor is Dunkin Donuts
• Expansions
• China
• Products
• Structure recommendations
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11. Cost Structure
Sticking it out in tough times
• 2008 Economic Crisis
• Sales ↓
• Expenses ↑
• Outsourcing agreements
• 70% tied into agreements
• Globalized process and improved efficiency at lower costs
• Cost cutting measures
• Store closings domestically and internationally
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12. Shut Down Effect
Could the Shut Down Rule apply to Starbucks?
• Cost of product vs. Sales
• Food sales doubled
• Introduction of new products
• Teavana
• La Boulange
Short run vs. Long run
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13. Market Structure
• Starbucks operates within a Monopolistic Competition
structure
• What is a Monopolistic Competition Structure?
• No major barriers to entry into market
• There are many competitors
• Each competitors product is differentiated
• Each firm able to make independent decisions on price and
output
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14. Market Structure (cont.)
• Coffee Industry
• No Major Barriers to entry
• McDonald’s and Wendy’s upgraded coffee offerings
• Independent coffee shops
• Differentiated Competitors
• Fast Food Chain Restaurants (McDonald’s, Wendy’s)
• Coffee - Donut Chains (Dunkin’ Donuts, Honey Dew)
• Premium Coffee Chains (Peet’s, San Francisco Coffee House)
• Independent Coffee Houses
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15. Market Structure (cont.)
• Starbucks within a Monopolistic Competition
• Starbucks Differentiation From Their Competition
• Considers themselves a premium coffee provider
• Offers premium product and experience
• Customer loyalty programs
• At Home Products
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16. Fiscal Cliff
• How will the Fiscal Cliff Impact Starbucks
• Strong 4th Quarter leading into Fiscal Cliff
• Brand Resilience within the United States
• Strong Growth Projections in Asian Market
• Strong Corporate Leadership
• Starbucks Takes Responsible Approach
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17. Government Regulations
• What impact does government regulations have
on Starbucks?
• Starbucks is committed to full compliance with
laws, rules, and regulations in all countries
• U.S. Food and Drug Administration cracked down on alcohol-
caffeine drinks
• No immediate additional regulation seen on caffeine drinks
under 80 milligrams
• Government concerns centered on marketing of caffeine
product to children
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18. Recommendations
• Grow presence in key Asian markets
• Starbucks has been expanding its presence in Asia particularly in
China and India
• China’s and India’s economy are growing quickly
• In China, the Gross domestic product growth of 10.3% in fiscal
year 2010 and 9.2% in fiscal year 2009 (Starbucks Corporation
SWOT Analysis, 2012)
• More than 160 cities in China have a population greater than
one million (Starbucks Corporation SWOT Analysis, 2012).
• Middle class population in China is expected to double by
2025 and in increase in India
• The Market within India is primarily tea drinkers but the
coffee consumption is rising
• Starbucks can capitalize on this market
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19. Conclusion
• Demand for Starbucks is going to increase over the next 12
months
• In 2012 alone,
• Starbucks has expanded into three new markets Specialty
juices, Teas, and At home brewing options for customer
• Revenue increase 14 % 2011 to 2012
Current pricing strategy is simple yet effective
• Built a brand and atmosphere customers are willing to pay for
and keep coming back for.
• They are innovation, produce quality products, and are well
respected
• Starbucks has a strong presences in the market and is known
for their premium products
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20. “Team 5” would like to say:
THANK YOU!
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21. References
• Certner, J. (2012). Starbucks: For infusing a steady stream of new ideas to revive its
business. Fast Company, (163), 112-149.
• 6 Tips to De-Commoditization. (2012). Foundry Management & Technology, Vol.
140 Issue 5, p31-32. Retrieved from:
http://web.ebscohost.com/ehost/detail?sid=f606cfa5-eef1-4883-af2b-
ab9794bc7cab%40sessionmgr115&vid=5&hid=111&bdata=JnNpdGU9ZWhvc3Qtb
Gl2ZQ%3d%3d#db=buh&AN=77242931
• ABC News. (2012, April 30). Starbucks Seeks Success in Tea Leaves. Retrieved
from: http://abcnews.go.com/Business/story?id=88266&page=1#.ULFEgmeDqKJ
• Abilla, P. (2010). Part 2: Starbucks, why lean, why now? Schmula, Retrieved from
http://www.shmula.com/starbucks-why-lean-why-now/5639/
• Cooke, J.A. (2010). From bean to cup: how Starbucks transformed its supply chain.
Supply Chain Quarterly. Retrieved from:
http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks/
• Farrell, D., Remes, J., Agrawal, V., et al. (2003). New horizons: Multinational
company investment in developing economies, McKinsey Global Institute.
Retrieved from:
http://www.mckinsey.com/insights/mgi/research/productivity_competitiveness_a
nd_growth/new_horizons_for_multinational_company_investment
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22. References (continued)
• Fontevecchia, A. (2012, January). Time to buy Starbucks? K-cup, same-stores
sales surging. Forbes, 28-28. Retrieved
from: http://necbproxy.egloballibrary.com/login?url=http://web.ebscohost.com
/ehost/detail?vid=3&hid=112&sid=c30de638-4135-4e0a-bbf4-
fe418be33dc0%40sessionmgr104&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#
db=buh&AN=70566309
• Harrington, D. (2011, June 5). Starbucks coffee 2011-2012 – Starbucks locations
expand, Starbucks Revolution, New Starbucks logo. Espresso & Coffee Guide.
Retrieved from: http://www.espressocoffeeguide.com/2011/06/starbucks-
coffee-2011-2012-starbuck-locations-expand-starbux-revolution-new-starbucks-
logo/
• Hsu, T. (2012, June 15). Starbucks to upgrade food by buying artisan bakery
chain. Los Angeles Times. Retrieved
from: http://articles.latimes.com/2012/jun/05/business/la-fi-starbucks-bakery-
20120605
• James, D. (2007, July 30). Investigating the trend of skim pricing.
Helium, Retrieved from http://www.helium.com/items/493518-investigating-
the-trend-of-skim-pricing
• Jargon, J. (2010). Slow down, Starbucks tells baristas. Wall Street
Journal, Retrieved from http://www.theaustralian.com.au/archive/business-
old/slow-down-starbucks-tells-baristas/story-e6frg90x-1225938127889
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23. References (continued)
• Lehnat, S., Gore, D, Corn, M., Love, B., & Boggs, K. (2010). Starbucks coffee:
2011-2013 advertising & marketing plan. Retrieved from:
http://samlehnert.com/wp-content/uploads/2012/02/starbucks.pdf
• Marketwatch.com. (2012). Annual financials for Teavana Holdings, Inc. Retrieved
from: http://www.marketwatch.com/investing/stock/tea/financials
• McKinsey Quarterly. (2011). Starbucks’ quest for healthy growth: An interview
with Howard Schultz. McKinsey Quarterly, 2, 34-43. Retrieved
from: http://necbproxy.egloballibrary.com/login?url=http://web.ebscohost.com
/ehost/detail?sid=81aff90f-a58e-4db9-bf60-
0878c8c2a3c5%40sessionmgr115&vid=22&hid=104&bdata=JnNpdGU9ZWhvc3Q
tbGl2ZQ%3d%3d#db=buh&AN=60260234
• McWhinnie, E. (2012, January 4). Competition in the coffee industry is heating
up. Wall St. Cheat Sheet. Retrieved from: http://wallstcheatsheet.com/trading-
markets/competition-in-the-coffee-industry-is-heating-up.html/
• Microeconomics - Competing as Starbucks. (n.d). Microeconomics - Just another
Edublogs.org site. Retrieved from:
http://microeconomicsalberta.edublogs.org/competing-as-starbucks/
• Miller, C.C. (2010, March 24). Starbucks still sees growth, as well as dividends.
Deal BookNew York Times. Retrieved from:
http://dealbook.nytimes.com/2010/03/24/starbucks-still-sees-growth-as-well-
as-dividends/
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24. References (continued)
• Mohammed, R. (2009, August 24). Starbucks’ new pricing strategy: The beginning
of the end?. Pricing for Profit, Retrieved from:
http://www.pricingforprofit.com/pricing-strategy-blog/starbucks-new-pricing-
strategy-beginning.htm
• Morrison, M. (2011). Bang for its Starbucks: Hits No. 3 despite limited spend.
Advertising Age, 82(18), 1-100. Retrieved from:
http://web.ebscohost.com/ehost/detail?sid=143615dc-c327-4e02-af1b-
1764da507bd2%40sessionmgr15&vid=4&hid=119&bdata=JnNpdGU9ZWhvc3QtbG
l2ZQ%3d%3d#db=buh&AN=60405463
• O'Farrell, R. "Starbucks Pricing Strategy", Demand Media retrieved from:
http://smallbusiness.chron.com/starbucks-pricing-strategy-10544.html
• Our Heritage | Starbucks Coffee Company. (n.d.). Starbucks Coffee Company.
Retrieved November 12, 2012, from http://www.starbucks.com/about-us/our-
heritage
• Parikh, R. (2012). America’s energy dependency: will government regulation of
caffeine bring the caffeine companies to a crash? William & Mary Business Law
Review. (3)2. 644-666. Retrieved from:
http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1043&context=wmblr
• Patton, L. (2012, Nov. 14). Starbucks with Teavana moves Schultz beyond coffee
roots. Retrieved from: http://www.bloomberg.com/news/2012-11-14/starbucks-
to-buy-teavana-for-620-million-to-add-tea.html
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25. References (continued)
• Saporito, B. (2012, June 25). Starbucks’ big mug. Time. (179)25. 51-54. Retrieved
from: http://web.ebscohost.com/ehost/detail?sid=81aff90f-a58e-4db9-bf60-
0878c8c2a3c5%40sessionmgr115&vid=27&hid=10&bdata=JnNpdGU9ZWhvc3Qtb
Gl2ZQ%3d%3d#db=buh&AN=76906112
• Shook, J. (2009, August 07). [Web blog message]. Retrieved from:
http://www.lean.org/shook/DisplayObject.cfm?o=1085
• Starbucks Corporation SWOT Analysis. (2012). Starbucks Corporation SWOT
Analysis, 1-11.
• Starbucks Corporation. (2012, November 01). Starbucks reports record fourth
quarter and fiscal 2012 results [Press Release]. Retrieved from
http://news.starbucks.com/article_display.cfm?article_id=713
• Starbucks. (2011). Our Starbucks Mission. 1-32. Retrieved from:
http://globalassets.starbucks.com/assets/eecd184d6d2141d58966319744393d1f.
pdf
• Starbucks. (n.d). | Microeconomics discussionpuneetaujla. Retrieved from
http://puneetaujla.wordpress.com/starbucks/
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26. References (continued)
• Starbucks: new pricing strategy aims to preserve both quality and
quantity. (2009). MarketWatch: Global Round-up, 8(10), 40. Retrieved
from
http://web.ebscohost.com/ehost/detail?vid=3&hid=13&sid=f606cfa5-
eef1-4883-af2b-
ab9794bc7cab%40sessionmgr115&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ
%3d%3d#db=buh&AN=44705820
• Teavana Holdings. (2012, Sept. 4). Teavana Holdings, Inc.announces
second quarter fiscal 2012 financial results. Retrieved
from: http://ir.teavana.com/phoenix.zhtml?c=246215&p=irol-
newsArticle&ID=1731304&highlight
• Wang, H. (2012, August 10). Five things that starbucks did to get china
right. Forbes, Retrieved from:
http://www.forbes.com/sites/helenwang/2012/08/10/five-things-
starbucks-did-to-get-china-right/
• Yousef, H. (2010, January 20). Starbucks posts grande earnings.
CNNMoney.com. Retrieved from:
http://money.cnn.com/2010/01/20/news/companies/Starbucks_earnin
gs/index.htm
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