BACKGROUND Starbucks Corporation is an American global coffee companyand coffeehouse-chain based in Seattle, Washington. The first Starbucks opened in Seattle, Washington, on March30, 1971 by three partners that met while students atthe University of San Francisco: English teacher JerryBaldwin, history teacher Zev Siegl, and writer Gordon Bowker. They sold beans and coffee makers. Customers were encouraged to learn how to grind the beans andmake their own freshly brewed coffee at home. Starbucks name came from a character in classic novel MobyDick, published in 1851, which takes place in sea. Logo was chosen with the start of the company in the year 1971.The founders wanted the logo reflects the historical relationshipbetween coffee and sailing traders. In 1987, the original owners sold the Starbucks chain to formeremployee Howard Schultz and quickly began to expand.
COMPANY GROWTH Starbucks grew from 17 coffee shops in Seattle 15 yearsago to over 20,891 outlets in 62 countries. including 13,279 in the United States, 1,324 in Canada, 989in Japan, 851 in China, 806 in the United Kingdom, 556 inSouth Korea, 377 in Mexico, 291 in Taiwan, 206 in thePhilippines, 171 in Thailand and 10 in India. The company planned to open a net of 900 new storesoutside of the United States in 2009. Since 1987, Starbucks has opened on average two newstores every day. The first store outside the United States or Canada openedin the mid-1990s, and overseas stores now constitutealmost one third of Starbucks stores.
SOME CHALLENGES FACING THE COMPANY Starbucks faces antiglobalization movement.-During the World Trade Organization talks in November1999, Starbucks was among the aims of protesters , asymbol, to them, of free-market capitalism. Dropping Sales from ($10.4 billion) in 2008to ($9.8 billion) in 2009, and dropping inprofits from $673 billion in 2007 to $582billion and $494 billion in 2008, 2009respectively.
SOME CHALLENGES FACING THE COMPANY The firm closed 475 stores in the U.S. in2009 to reduce costs. Saturated market with over 10,000 storesscattered across the United States andCanada. (there are still eight states in the UnitedStates with no Starbucks stores.) self-cannibalization (opening stores in the samearea)
SOME CHALLENGES FACING THE COMPANY - global expansion poses huge risks for Starbucks,it makes less money on each overseas storebecause most of them are operated with localpartners(it reduces the company’s share of the profits toonly 20 percent to 50 percent). Starbucks faces cultural challenges. After riding thewave of successful baby boomers (who born from 1946 to1964) through the 1990s, the company faces a hostilereception from its future consumers, the twenty- or thirty-somethings of Generation X (who born from 1960 to 1980)— cultural changes.-The company knows that because it once had a group oftwentysomethings ignored for a market study.
SOME CHALLENGES FACING THE COMPANY The company facing employeesdissatisfaction (Dissatisfaction over oddhours and low pay is affecting the quality ofthe service and even the coffee itself)—feeling overworked and underappreciated.
SOME CHALLENGES FACING THE COMPANY Starbucks faces competition from competitors suchas Nestle, Dunkin’ Donuts and McDonald’s andtheir new McCafés . Starbucks faces steep competition in Japan,including Starbucks lookalikes.-One of the most popular brands, called Mt. Rainier, isemblazoned with a green circle logo that closely resemblesthat of Starbucks.
QUESTION 1 Identify the controllable and uncontrollableelements that Starbucks has encountered inentering global markets.
CONTROLLABLE Product-Hot and Cold beverages, pastries, snacks, etc… Price- Starbucks charges a premium prices for their products Promotion-The Company has controlled its promotional strategy and has saved a lot of marketingcost by mainly relying on worth of mouth and the company has good brand name innational market as well as in overseas market. Channel of distribution- Starbucks have 20,891 outlets in 62 countries which shows that the company has goodcontrolled over the channel of distribution.
CONTROLLABLE Research and development-The Company has also controlled over its research and developmentprocess such as in 800 locations it has installed automatic espressomachines to increase the speed of service and it has also offeredthe prepaid card which clerks swipe through a reader to deduct a sale,thus the company cuts transaction times in half.- Starbucks launched Starbucks Express its boldest experiment yet, itblended java, Web technology, and faster service, At about 60 stores inthe Denver area, customers can pre-order and prepay for beveragesand pastries via phone or on the Starbucks Express Web site.-They just make the call or click the mouse before arriving at the store,and their beverage will be waiting.-Starbucks continues to try other fundamental store changes. Itannounced expansion of a high-speed wireless Internet service toabout 1,200 Starbucks locations in North America and Europe.
UNCONTROLLABLE Economic Forces.-Economic conditions.-localprice range of commodities Competitive Force.-Local competitors.-Imitators Coming in to grab the market share.-Coffee is a beverage that has a worldwide appeal. Starbucks enteringtheglobal market might face stiff competition from local coffee brands indifferent countries. While Starbucks may hold an advantage in terms ofbrand recognition worldwide, local brands can hold an advantage interms
UNCONTROLLABLE Cultural Force.-Different cultures.-Capturing the local cultural appeal of different countries may prove to bechallenging especially to a brand going global. There has to be a certainamount ofstandardization while applying the right localization.-The solution is to overcome cultural challenges by studyingAnd researching on coffee consumptions habits of locals. Political/legal Force.-Different laws and regulations in different countries.-Starbucks had a lot of issues regarding overworked but underpaidemployees as it continues its growth globally and dealing with local rulesand regulations.-For example, France has very generous labor benefits as opposed to what Starbucks iscurrently implementing.
QUESTION 2 What are the major sources of risk facing thecompany and discuss the potentialsolutions?
RISKS Saturation of United States market.-There are still eight states in the United States with noStarbucks stores.-Prevent Self-Cannibalism----Stores must be strategicallylocated.-Starbucks have to Offer new food and other non-coffeeitems-Market research should be carried out before investing anew store and realize the fact that the market can becomesaturated.-Go global. it will have to depend on overseas growth tomaintain growth rate.-Licensing and franchising for foreign investors.
RISKS Problems of changing generation.-Consumers 35 years and older tend to consumer coffee more often than the18 - 25 age group-Market research should be carried out to study consumptions habits foryounger consumers.-Starbucks should offer innovations such as wireless networks to itscustomers to overcome challenge in order to attract the next generationof customers. Dissatisfaction of odd hours and low-pay.-Positive reinforcement which leads to higher feelings of job satisfaction- Improve the employee satisfaction. So, the quality of service as wellcoffee increases
FAULTS Eight cities in U.S. remained untapped. Relying on word of mouth, Starbucks spends just1% of revenues on advertising. Low payment to employees. ―predatory real estate‖ strategy—paying more thanmarket-rate rents to keep competitors out of alocation.-Not only it is claimed as an unfair attempt to drive outsmall, independent competitors who could not afford to payinflated prices for premium real estate, this also leads tomonopoly and then leaves customers annoyed withfewer choices.
FAULTS Stores Expansion in the U.S.-Growing continuously rapidly, Starbucks has doneclustering several locations in a small geographicalarea. Doing so eventually will inevitably act tocannibalize existing locations same store sales. Stores Expansion Globally-Stores expansion in other countries too rapid toconcern the real preferences and habits of localconsumers and competitors.
FAULTS Predatory real estate strategy-Buying out competitors leases-Not only it is claimed as an unfair attempt todrive out small, independent competitors whocould not afford to pay inflated prices forpremium real estate, this also leads tomonopoly and then leaves customersannoyed with fewer choices.
FAULTS Labor Disputes & Involvement in Lawsuit.-Because of Starbucks’ payment and policiestoward its part-time and full-time employeesdo not compatible with working hours andduties.- 470 Frustrated store managers suedStarbucks in 2001 for allegedly refusing topay legally mandated overtime.
QUESTION 4 How might Starbucks improve profitability inJapan?
IMPROVING PROFITABILITY IN JAPAN Reduce Price / Increase Benefits.-targeting mid-income levels were frequent buyers and grew substantially. Offering new beverages according to the Asian or Japaneseculture and provide wider range of different tea or soft drinks–Tea drinks will increase popularity because their perceived value ofhealthy benefits. Offering special, Japanese food in Starbucksstores, Japanese candies, cakes or sweets or even snacks– Starbucks’ may become more Japanese! Following the health conscious trend by reducing caloric and fatcontent . Online, phone ordering and drive-through service for busyJapanese.