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Starbucks:Now and beyond                                                  MBA525 Team 5 PresentationPresented by “Team 5”:...
Agenda•   Company Profile•   Market Demand (Colby)•   Pricing Strategy (Colby)•   Market Size (Jen)•                      ...
Company Profile• First store in Seattle, 1971• Currently 18,000+ stores in 60 countries• Employs approximately 149,000 peo...
Market Demand• Historical Demand  • $13.3 billion in revenue in 2012 (14% increase from 2011)  • 7% increase in global sal...
Market Demand (cont.)• Will market demand for Starbucks be robust in the next  12 months?  • Branching into new markets   ...
Pricing Strategy• What is Starbucks pricing strategy?   • Broke “Skim Pricing” mold by sustaining premium prices   • Compe...
Pricing Strategy (cont.)• Economic Conditions: Global Financial Crisis  • Standard drink prices lowered by $0.05 to $0.15 ...
Current Scale of OperationJust how big is Starbucks?• 17,00 stores in 55 countries• 60 million customers world wide• 160,0...
Current Scale of Operation (cont.)Market Share• In 2010 Starbucks had 33% of the coffee store market     Convenience     M...
Current Scale of Operation (cont.)• 2011 fastest competitor is Dunkin Donuts• Expansions  • China  • Products             ...
Cost StructureSticking it out in tough times• 2008 Economic Crisis  • Sales ↓  • Expenses ↑                               ...
Shut Down EffectCould the Shut Down Rule apply to Starbucks?• Cost of product vs. Sales• Food sales doubled               ...
Market Structure• Starbucks operates within a Monopolistic Competition  structure• What is a Monopolistic Competition Stru...
Market Structure (cont.)• Coffee Industry• No Major Barriers to entry   • McDonald’s and Wendy’s upgraded coffee offerings...
Market Structure (cont.)• Starbucks within a Monopolistic Competition  • Starbucks Differentiation From Their Competition ...
Fiscal Cliff• How will the Fiscal Cliff Impact Starbucks  • Strong 4th Quarter leading into Fiscal Cliff                  ...
Government Regulations• What impact does government regulations have  on Starbucks?• Starbucks is committed to full compli...
Recommendations• Grow presence in key Asian markets  • Starbucks has been expanding its presence in Asia particularly in  ...
Conclusion• Demand for Starbucks is going to increase over the next 12  months  • In 2012 alone,      • Starbucks has expa...
“Team 5” would like to say:          THANK YOU!                              MBA525 Team 5 Presentation                   ...
References• Certner, J. (2012). Starbucks: For infusing a steady stream of new ideas to revive its  business. Fast Company...
References (continued)• Fontevecchia, A. (2012, January). Time to buy Starbucks? K-cup, same-stores  sales surging. Forbes...
References (continued)• Lehnat, S., Gore, D, Corn, M., Love, B., & Boggs, K. (2010). Starbucks coffee:  2011-2013 advertis...
References (continued)• Mohammed, R. (2009, August 24). Starbucks’ new pricing strategy: The beginning  of the end?. Prici...
References (continued)• Saporito, B. (2012, June 25). Starbucks’ big mug. Time. (179)25. 51-54. Retrieved  from: http://we...
References (continued)• Starbucks: new pricing strategy aims to preserve both quality and  quantity. (2009). MarketWatch: ...
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Week 5 starbucks ppt draft

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Our Managerial Economics project was a great team effort. We had so much fun working on it and hopefully that shows in the final product.

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Week 5 starbucks ppt draft

  1. 1. Starbucks:Now and beyond MBA525 Team 5 PresentationPresented by “Team 5”:Denisa Dobrin, Colby Foster-Baker, Jen Allison,Geoffrey MacLennan, Renee VolkNECB (2012), MBA 525, Managerial EconomicsProf.: Dr. Ned Gandevani 1
  2. 2. Agenda• Company Profile• Market Demand (Colby)• Pricing Strategy (Colby)• Market Size (Jen)• MBA525 Team 5 Presentation 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 2
  3. 3. Company Profile• First store in Seattle, 1971• Currently 18,000+ stores in 60 countries• Employs approximately 149,000 people• Revenue: MBA525 Team 5 Presentation • 2011 at $11.7 billion • 2012 at $13.3 billion• Operating Income: • 2011 at $1.7 billion • 2012 at $2.0 billion 3
  4. 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 MBA525 Team 5 Presentation 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 4
  5. 5. Market Demand (cont.)• Will market demand for Starbucks be robust in the next 12 months? • Branching into new markets MBA525 Team 5 Presentation • Teavana Holdings, Inc. – specialty tea products • Verismo™ - single-serve home brewing system • Evolution Fresh™ - high-end specialty juice retailer 5
  6. 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 MBA525 Team 5 Presentation • 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 6
  7. 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 MBA525 Team 5 Presentation• 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 7
  8. 8. Current Scale of OperationJust how big is Starbucks?• 17,00 stores in 55 countries• 60 million customers world wide• 160,000 employees MBA525 Team 5 PresentationProcessing and Distribution• Roasting plants• Co-manufacturers• Tea• Distribution Centers 8
  9. 9. Current Scale of Operation (cont.)Market Share• In 2010 Starbucks had 33% of the coffee store market Convenience Market Share (USA) Stores & Gas Stations MBA525 Team 5 Presentation 13% Local & McDonalds Regional 7% Specialty Coffee Shops 47% Starbucks 33% 9
  10. 10. Current Scale of Operation (cont.)• 2011 fastest competitor is Dunkin Donuts• Expansions • China • Products MBA525 Team 5 Presentation• Structure recommendations 10
  11. 11. Cost StructureSticking it out in tough times• 2008 Economic Crisis • Sales ↓ • Expenses ↑ MBA525 Team 5 Presentation• Outsourcing agreements • 70% tied into agreements • Globalized process and improved efficiency at lower costs• Cost cutting measures • Store closings domestically and internationally 11
  12. 12. Shut Down EffectCould the Shut Down Rule apply to Starbucks?• Cost of product vs. Sales• Food sales doubled MBA525 Team 5 Presentation• Introduction of new products • Teavana • La Boulange Short run vs. Long run 12
  13. 13. Market Structure• Starbucks operates within a Monopolistic Competition structure• What is a Monopolistic Competition Structure? MBA525 Team 5 Presentation • 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 13
  14. 14. Market Structure (cont.)• Coffee Industry• No Major Barriers to entry • McDonald’s and Wendy’s upgraded coffee offerings • Independent coffee shops MBA525 Team 5 Presentation• 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 14
  15. 15. Market Structure (cont.)• Starbucks within a Monopolistic Competition • Starbucks Differentiation From Their Competition • Considers themselves a premium coffee provider MBA525 Team 5 Presentation • Offers premium product and experience • Customer loyalty programs • At Home Products 15
  16. 16. Fiscal Cliff• How will the Fiscal Cliff Impact Starbucks • Strong 4th Quarter leading into Fiscal Cliff MBA525 Team 5 Presentation • Brand Resilience within the United States • Strong Growth Projections in Asian Market • Strong Corporate Leadership • Starbucks Takes Responsible Approach 16
  17. 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 MBA525 Team 5 Presentation• 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 17
  18. 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 MBA525 Team 5 Presentation 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 18
  19. 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 MBA525 Team 5 Presentation • 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 19 for their premium products
  20. 20. “Team 5” would like to say: THANK YOU! MBA525 Team 5 Presentation 20
  21. 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 MBA525 Team 5 Presentation• 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 21
  22. 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. MBA525 Team 5 Presentation 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- 22 old/slow-down-starbucks-tells-baristas/story-e6frg90x-1225938127889
  23. 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 MBA525 Team 5 Presentation 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- 23 as-dividends/
  24. 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 MBA525 Team 5 Presentation l2ZQ%3d%3d#db=buh&AN=60405463• OFarrell, 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- 24 to-buy-teavana-for-620-million-to-add-tea.html
  25. 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 MBA525 Team 5 Presentation• 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/ 25
  26. 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 MBA525 Team 5 Presentation• 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 26 gs/index.htm

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