Starbucks, Strategic KM


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Starbucks, Strategic KM

  1. 1. ContentsIntroduction…………………………………………………………………………….. 1Starbucks’s Logo………………………………………………………………………. 2Starbucks Profile………………………………………………………………………. 4Starbucks Structure…..................................................................................................... 6Marketing Activities…….……………………………………………………………... 9Operations……………………………………………………………………………… 11The use of IT in Starbucks…………………………….……………..………………… 13Financial Report….......................................................................................................... 13Porter’s Forces Analysis……………………………………………………………….. 21SWOT Analysis………………………………………………………………………... 26Recommendations……………………………………………………………………… 32Conclusion……………………………………………………………………………… 33References……………………………………………………………………………… 34Appendixes…………………………………………………………………………….. 37 1
  2. 2. • Introduction: In 1971 Starbucks began when three friends-English teacher Jerry Baldwin, historyteacher Zev Siegel, and writer Gordon Bowker opened a store called Starbucks Coffee, Tea, andSpice in the touristy Pikes Place Market in Seattle (Thompson) with the future aim of providingcoffee to a number of restaurants and surrounding bars and hopes of creating a “third place”between home and work. Customers are able to socialize, read, study or enjoy music whiledrinking coffee. Starbucks strategically positions each store with hopes of matching the specificlocation, helping to create a unique atmosphere. The current international situation for Starbucksseems to be an emerging part of their business and the reorganization of this is proved by theiraim to become a leading global company through making a difference in people’s lives allaround the world. This goal is quite close to being achieved as proved the Starbucks currentlocations in international markets and the successfulness of these ventures.The current countries in which Starbucks are located in are: Australia, Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia, NewZealand, Oman, Peoples Republic of China, Philippines, Qatar, Saudi Arabia, Singapore, SouthKorea, Switzerland, Taiwan, Thailand, Untied Arab Emirates, United Kingdom, and the UnitedStates. 2
  3. 3. Starbucks strategy for expanding its retail business is to increase its market share in existingmarkets and to open stores in new markets where the opportunity exists to become the leadingspecialty coffee retailer. In support of this strategy, the Company opened 647 new stores duringthe fiscal year ended September 30, 2001 (fiscal 2001). At fiscal year end, Starbucks had 2,971Company-operated stores in 38 states, the District of Columbia and five Canadian provinces(which comprise the Company-operated North American retail operations), as well as 252 storesin the United Kingdom, 25 stores in Thailand and 18 stores in Australia (which comprise theCompany-operated international retail operations).• Starbucks’ Logo: The company was in part named after Starbuck, the coffee-loving first mate character in thebook Moby-Dick, as well as a turn-of-the-century mining camp on Mount Rainier, Starbocks. Itslogo is a "twin-tailed mermaid, or siren as shes known in Greek mythology”. According toHoward Schultzs book Pour Your Heart Into It: How Starbucks Built a Company One Cup aTime, the name of the company was derived from Moby-Dick, although not in as direct a fashionas many assume. Gordon Bowker liked the name "Pequod" (the ship in the novel), but hiscreative partner Terry Heckler objected: "No ones going to drink a cup of Pee-quod!" Hecklersuggested "Starbo," the name of a mining camp on Mount Rainier. Combining the Moby-Dickidea with "Starbo" resulted in the company being named for the Pequods first mate,Starbuck.The company logo is a two-tailed siren. The logo has been streamlined over the years.In the first version, the Starbucks siren had bare breasts and a fully-visible double fish tail. In thesecond version, her breasts were covered by hair, but her navel was still visible, and the fish tail 3
  4. 4. was cropped slightly. In the current version, her navel and breasts are not visible at all, and onlyvestiges remain of the fish tails. Starbucks was founded in Seattle, Washington, in 1971 as a local coffee bean roaster andretailer called Starbucks Coffee, Tea and Spices. Howard Schultz joined the company in 1982and was inspired on a trip to Italy to develop a similar espresso bar and coffeehouse culture inthe United States. To advance the concept, he founded the company Il Giornale three years later.In 1987, Schultz purchased Starbucks, merged it with Il Giornale, and renamed the companyStarbucks Corporation. The logo on the left is that of the Il Giornale company. As you can see,the Il Giornale logo is somewhat similar to Starbucks logo i.e being circular and having a band.The original logo, as seen on the left, the Starbucks siren was topless and had a fully-visibledouble fish tail. The original logo has raised some controvery because of the bare chest, but thelogo continues to appear on some of the products like the Starbucks Anniversary Blend lb coffeebags. Both the original logos seem to be perfect on wooden crates. 4
  5. 5. .In the second version, her chest was covered by her flowing hair, but her navel was stillVisible, and the fish tail was cropped slightly. The logo also inherited the stars from the IlGiornale logo. In the current version, her navel and chest are not visible at all, and only vestigesremain of the fish tails.• Starbucks profile:Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffeesworldwide. It offers brewed coffees, Italian-style espresso beverages, cold blended beverages,various complementary food items, and a selection of premium teas, as well as beverage-relatedaccessories and equipment, through its retail stores. The company also licenses its trademarkthrough other channels, such as licensed retail stores, as well as through certain of its licensees 5
  6. 6. and equity investees. In addition, Starbucks Corporation produces and sells ready-to-drinkbeverages, which include bottled beverages, espresso drinks, chilled cup coffees, and ice creams.Its brand portfolio primarily includes Starbucks, Settles Best Coffee, Tazo, Frappuccino,Starbucks DoubleShot, Starbucks Discoveries, Starbucks super-premium Tazo Tea, andStarbucks super-premium. Starbucks Corporation was founded in 1985 and is based in Seattle,Washington.Starbucks is the largest coffeehouse company in the world. There are more than 13,100Starbucks stores in the world, spanning 40 countries. The stores all sell drip coffee, espressodrinks, tea, blended drinks, coffee mugs and other accessories. Interestingly enough, the pricesfound at Starbucks Coffee are significantly higher than the market average. The higher prices area direct result of their ingenious marketing strategy. Starbucks has been a target of protests onissues such as fair-trade policies, labor relations, environmental impact, political views, and anti-competitive practices. Starbucks can be found in many popular grocery chains in the us andCanada as well as In many air ports big shopping mall metro station and street in all of the world.The member of the company’s board of directors are Howard Schultz(chair),Jim Donald,Barbara bass, howard behar ,bill Bradley, melody hobson ,olden lee , james shennan ,Javierterul ,Myron ullman and craig weatherup• Starbucks Structure: 6
  7. 7. A company’s structure refers to the way it is organized. Starbucks has a functional structure(human resources, marketing, corporate social responsibility, public affairs).The organization ofStarbucks is very loosely structured. It emphasizes the companys constant need for new ideasand employee input. Starbucks refers to its employees as partners, and extends to all of them(even part time help working at least twenty hours a week), benefits such as health coverage andstock options. Starbucks believes creating the value of brand equity occurs through investing inits employees who are the face of the brand rather than in traditional tools like advertising;Before a company can expect trust from its customers, it must have the trust of its employees.Starbuck has no formal organization chart and does not work with hierarchy structure. It consistsof two main departments, functional department consists of marketing, supply chain, operations,finance and human resources, and cross functional teams, consisting of local store marketing andmarketing campaigns. The decision making process in Starbucks is bottom – up process, wherethe employees are empowered even to take decisions without referring back to the management.Different parts of Starbucks structure are:Retail Stores: This is the most visible expression of the Starbucks Spirit. The careerdevelopment climate at Starbucks encourages motivated, customer-focused partners to make themost of their talents. In Starbucks, they try to match individual skills with company needs whileproviding a continual learning environment.Starbucks Support Center: Starbucks is much more than the corner store. In Starbucks, thereare a diverse group of forward-thinking professionals who bring an uncompromising 7
  8. 8. commitment to excellence at all levels. Supporting and enhancing Starbucks partners globallytakes a team of dedicated, results-oriented individuals. Their partners in Seattle provide thissupport while meeting the unique challenges of rapid growth. The environment is dynamic andever-changing. The opportunities are rewarding for partners with experience in various areas,some of which are summarized below:  Accounting Consists of partners who possess strong business acumen and an understanding to the "bigpicture." We look for detail-driven specialists with financial/accounting systems knowledge toprovide support in the following areas: • Cost Accounting • Retail Accounting • General Accounting • Financial Reporting • Cash Management • Tax  Administration Oversees several large functions in support of business units and departments at the Starbucks Support Center. Their employees are committed to create an efficient and 8
  9. 9. inspiring work environment by providing strategic direction, policy development and communications in the following areas:• Facilities• Risk Management• Travel Management• Security• Customer Relations Coffee This is where it all starts. Were a rare organization in that our inspiration really does grow on trees. But the key is which trees. Finding the best of the best takes expert care in the selection, purchasing and tasting of the finest green coffee beans. This takes a team of: Green Coffee Buyers - monitor the coffee futures market and manage coffee contracts, buying only the top percentage of the worlds green coffee. Green Coffee Specialists - develop the ideal roasting recipe, develop quality standards, test and approve samples for our unique varietals and blends. Coffee Communication Specialists - committed to the training, education and promotion of our coffee to internal and external customers. Other departments are: Communications & Public Affairs, Direct Response (Mail Order), Finance & Planning, Grocery, Human Resources, International, Law and Corporate Affairs, Management Information Systems, Marketing, Merchandising, Research & 9
  10. 10. Development, Retail Operations, Store Development, Specialty Sales and Marketing, Strategic Alliances, and Supply Chain Operations.• Marketing ActivitiesMarketing is usually defined as the organization wide generation, dissemination, andresponsiveness to market intelligence. This definition at once changes the dominant paradigmthat has defined marketing for decades. Starbucks is the leading specialty coffee retailer in thenation, with over 5,000 locations in 22 international markets. Starbucks positions their productson a relatively simple plane. They focus on quality and experience, rather than price.A comparison of specialty drinks with its competitors reveals very minor differences. Starbucksimage is one of the key elements to their success. The company has realized that people dontonly come for the coffee; they come for the atmosphere. People socialize, read, study, or justenjoy the music while drinking their coffee. Knowing this, Coffee shops try to make their storesunique in some way or another that will create an appealing atmosphere. Starbucks has less of adistinct setting for their locations; instead, they focus on having plenty of comfortable seating sothat people feel welcome to stay longer than they might have planned. Starbucks also positionseach store individually according to the specific location it is in.This flexibility has attributed to the great success of the Company in the past decade. Anotherimportant part of Starbucks positioning is that they are environmentally friendly. While other 10
  11. 11. retailers position themselves in similar ways, no one focuses to the extent that Starbucks has.Consumers seem to respond to environmentally friendly companies who seem to truly care aboutthe future of the world. Advertising marketing which used by Starbucks has also been a keysuccess factor. Starbucks has found more success advertising on a local level rather than to thenation as a whole. The Company advertises a lot through print mediums, as Starbucks targetmarket tends to be educated people who do more reading than the average person. “Brand Marketing” – The Starbucks marketing strategy has always focused on “word-of-mouth” advertising and letting the high quality of their products and services speak forthemselves. For years, this has been uniquely Starbucks, and it has played a huge part in makingStarbucks Coffee Company a success. The definition of viral marketing speaks to this new wordof mouth that Starbucks has run with, and made their own. Starbucks has appealed to such awide target market; it seems every product introduced will be an instant success (coffee, sodas,teas, ice creams and pastries). Ranked in Fortune magazine as the one most innovativecompany, it’s no surprise that the new technological addition, the Starbucks Card, boosted salesand helped growth during a time when the economy was struggling. “Starbucks went back tobasics, and they’ve approached the basics with a science and intensity that no one has ever donebefore. As a result, A significant portion of Starbucks marketing efforts are locally driven andfocus on connecting with the community through sponsorships, events and community givingprograms. In some instances, Starbucks could be involved with an event that may be relevant to 11
  12. 12. one community, but not to another. In all cases, they strive to support their communities in a waythat is consistent with Starbucks culture and values.• OperationsStarbucks was visional to be established as the most recognized and respected brand in the world.They started by building the organization core values, they use the finest coffee beans and theywanted the consumers to have a shining image. Starbucks has maintained six principles to delivertheir mission; they started providing a great work environment and holding the diversity as anessential business. Purchasing and roasting were applied in the highest standards, and they makesure their customers are satisfied.The overall company operations are based on purchasing and roasting high quality whole beencoffees and selling them along with different styles and coffee related accessories. They dependmainly on their employees to manage operation thats why they focus on training their employeesas the main asset in the company. Starbucks operations strive to develop the Starbucks brandoutside the Company-operated retail store environment though a number of channels. Byestablishing relationships with well-known third parties which share their values andcommitment to quality. Sometimes they get into joint ventures with existing companies,including grocery channel licensing agreements, warehouse club accounts, international retailstore licensing agreements, direct-to-consumer market channels, joint ventures and more. 12
  13. 13. Starbucks has a long-term licensing agreement with Kraft Foods, Inc. to market and distributeStarbucks whole bean and ground coffees in the grocery channel in the United States. Kraftmanages all distribution, marketing, advertising and promotions for this particular product. TheCompany has two non-retail domestic 50-50 joint ventures. This includes one with PepsiCo, Inc.who develops and distributes ready-to-drink coffee-based products. Also, they have a jointventure with Dreyers GrandIce Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. Starbucks alsomakes their coffee and coffee-related products available via mail order and online. For the mostpart, Starbucks is vertically integrated, controlling its coffee sourcing, roasting, and distributionthrough its retail stores. Starbucks deals with international small suppliers to supply coffee withfixed prices rather than using the Fair Trade Coffee. They mainly use-non-smoking restrictionsin their stores, but in some countries with conflict in the culture thy had to have smoking rooms.Experience of their employees is very important due to the focus on the employee sanctification.• The use of IT in Starbucks 13
  14. 14. Total Quality Management was built into their processes; they use the system control overindividual sites by headquarters. They have established their own information system to utilize alarge amount of inform action. All the controls are determined by the manger of the store, and itsbased on information provided by the system • Financial ReportThe Starbucks Company’s objective is to establish Starbucks as the most recognized andrespected brand in the world. In realizing and achieving this goal, the Company plans to continueto rapidly expand its retail operations, grow its specialty sales and other operations, andselectively pursue opportunities to leverage the Starbucks brand through the introduction of newproducts and the development of new distribution channels. Starbucks used the design of amatrix configuration by combining divisional and functional structures. (Starbucks)Starbucks has three reportable operating segments, and each segment provided the indicatedpercentage of total net revenues for fiscal year ended September 27, 2009 (“fiscal 2009”): United 14
  15. 15. States (“US”) (73%), International (19%) and Global Consumer Products Group (“CPG”) (8%).In the fourth fiscal quarter of 2009, the Company changed the composition of its reportablesegments. The US foodservice business, which was previously reported in the US segment, isnow reported in the CPG segment, as a result of internal management realignments within theUS and CPG businesses. Segment information for all prior periods presented has been revised toreflect this change.The US and International segments both include Company-operated retail stores and certaincomponents of specialty operations. Specialty operations within the US include licensed retailstores and other initiatives related to the Company’s core business. International specialtyoperations primarily consist of retail store licensing operations in nearly 40 countries andfoodservice accounts in Canada and the United Kingdom (“UK”). The International segment’slargest markets, based on number of Company-operated and licensed retail stores, are Canada,Japan and the UK. The CPG segment includes packaged coffee and tea, and other brandedproducts sold worldwide through channels such as grocery stores, warehouse clubs andconvenience stores, and US foodservice accounts. CPG operates a significant portion of itsbusiness through licensing arrangements and joint ventures with large consumer productsbusiness partners. This operating model leverages the business partners’ existing infrastructuresand as a result, the CPG segment reflects relatively lower revenues, a modest cost structure, anda resulting higher operating margin, compared to the Company’s other two reporting segments,which consist primarily of retail stores.• Marketing Policy 15
  16. 16. Starbucks customers are people of diverse ethnic, income and age groups with varying tastes andinterests. Starbucks is marketing on the youth and long been supporting community activitiesand events important to customers. Generally, the Company’s marketing, advertising, and eventsponsorship are not directed at children or to the youth. (Starbucks)Market EnvironmentYear 2002• The Company signed in a memorandum of understanding with Fairtrade LabelingOrganizations International (FLO) enabling Starbucks to enter into licensing agreements withnational Fair Trade organizations to sell Fair Trade Certified coffee in the countries whereStarbucks does business.• Published its first Corporate Social Responsibility Annual Report• Signed licensing agreement with TransFair Canada to bring Fair Trade Certified coffee to morethan 270 retail locations in Canada.• Starbucks Board of Directors authorized stock repurchase plan of up to 10 million shares.• Starbucks Coffee International opened in Oman; Indonesia; Germany; Spain; Puerto Rico;Mexico; Greece and Southern China Macau and Shenzhen accounting to a total Starbuckslocation of 5, 886.Year 2003 16
  17. 17. • Begun a three-year $225,000 commitment to America SCORES, a national non-profit, youthdevelopment organization that uses soccer and literacy to inspire teamwork among at-riskchildren in urban public schools.• Starbucks Board of Directors authorized stock repurchase plan of up to 10 million shares.• Starbucks Coffee International opened in Turkey, Chile, Peru, and Cyprus.• Current location total = 7, 225Year 2004• Starbucks Coffee International opened in Paris.• Joined the United Nations Global Compact, an international network of corporations, U.N.agencies, trade unions and non-governmental organizations that support a shared set of nineprinciples about the environment, labour and human rights.• Signed licensing agreement to open Seattle’s Best Coffee cafes in more than 400 existingBorders Books & Music stores over the next several years in the continental U.S. and Alaska,and within new Borders stores as they open.• Current location total = 8, 569Year 2005• Announced that the Board of Directors authorizes the repurchase of up to 5 million shares ofthe Company’s common stock. 17
  18. 18. • Starbucks Board of Directors approves a two-for-one stock split. This is the fifth two-for-onesplit of the Company’s common stock since its initial public offering in 1992.• Purchased 10 million pounds of Fair Trade Certified coffee and became North America’slargest purchaser of Fair Trade Certified coffee.• Starbucks location total = 10, 241Year 2006• Current Starbucks location total = 10, 801 . (Starbucks)In fiscal 2007, Starbucks says it will launch three initiatives designed to improve the energy andenvironmental performance in its stores. These include:• Working with the U.S. Green building Council to develop LEED standards for the retail sectorto set out best practices for environmentally sound design of new stores, and provide a basis forthird-party certification to ensure the standards are met in 2007 Starbucks says it will completeits participation in the pilot of these standards.• Using a representative sample of stores as a “test bed” to monitor energy and water usage todetermine conservation opportunities.• Providing approximately 350 store managers in six regions with “resource report cards” thatgive feedback on store energy and water use, as well as trend data and comparisons tobenchmark operations the goal of this program is to help partners identify ways to use water andenergy more efficiently and reduce costs. ( toStarbucks Annual report 2009) 18
  19. 19. • REVENUE COMPONENTSThe following table shows the Company’s revenue components for the fiscal year endedSeptember 27, 2009:In July 2010, Starbucks corporation reported financial results for its fiscal third quarter endedJune 27.2010.“Starbucks third quarter results reflect a continuation of the strong performance and momentumwe have been driving across our businesses around the world,” said Howard Schultz, chairman,president the same time as we posted the highest levels of customer satisfaction in Starbuckshistory and despite the challenging global economic environment. Strong performance isenabling us to deliver record results and increase the dividend to shareholders while continuingto innovate and invest in our businesses.” 19
  20. 20. “Supported by the most significant marketing investment in the companys history, in Q3 wesuccessfully launched Starbucks VIA® into the grocery channel in the U.S., announcedupcoming launches in the grocery channel in Japan and the U.K., brought innovation to theblended beverage category and reenergized our $2 billion Frappuccino® beverage platform bycreating real consumer and retailer excitement in this important growth category. Our Q3investments provide us with a very solid foundation for growth in fiscal 2011 and beyond,"added Schultz.Third Quarter Fiscal 2010 Summary See theReconciliation of Selected GAAP Measures to Non-GAAP Measures at the end of this documentfor further detail. 20
  21. 21. • Forward-Looking StatementsThis release contains forward-looking statements relating to certain company initiatives andplans, as well as trends in or expectations regarding, earnings per share, revenues, operatingmargins, comparable store sales, store openings and closings, restructuring charges, cash flowfrom operations, capital expenditures, free cash flow, and commodity costs. These forward-looking statements are based on currently available operating, financial and competitiveinformation and are subject to a number of significant risks and uncertainties. Actual futureresults may differ materially depending on a variety of factors including, but not limited to,coffee, dairy and other raw material prices and availability, successful execution of thecompany’s initiatives, fluctuations in U.S. and international economies and currencies, theimpact of competition, the effect of legal proceedings, and other risks detailed in the companyfilings with the Securities and Exchange Commission, including the “Risk Factors” section ofStarbucks Annual Report. (• Main Aspects of Porter’s Five Forces Analysis:The original competitive forces model, as proposed by Porter, identified five forces whichwould impact on an organization’s behavior in a competitive market. These include thefollowing: 1. The rivalry between existing sellers in the market. 2. The power exerted by the customers in the market. 21
  22. 22. 3. The impact of the suppliers on the sellers. 4. The potential threat of new sellers entering the market. 5. The threat of substitute products becoming available in the market.The rivalry between existing sellers in the market:Porters first force that Porter describes is current rivalry among existing firms. In the specialtyeateries industry, Starbucks current and direct U.S competitors are Diedrich Coffee, SeattlesBest Coffee, and Einstein/Noah Bagel Corporation. The competition, however, is not equallybalanced. Diedrich Coffee operates 370 coffeehouses in 37 states and 11 countries. Seattles BestCoffee operates 160 coffee cafes and 20 Italian coffee cafes in 17 states and 8 countries.Einstein/Noah Bagel Corporation operates 460 bagel cafes in the U.S. Starbucks has 4,709locations in over 20 countries.As for competition within the industry, there are only a few formidable competitors that evencome close to matching Starbuck’s market shares. First, there is Gloria Jean’s 249 retail storesowns by the Canadian franchiser Second Cup who also has 235 retail stores in Canada. Second isFlorida-based coffee chain Brother’s gourmet 250 franchises in the Chicago area. These twocompetitors seem reluctant for further expansion due to Starbucks presence in all of theirmarkets. The last strong competitor is Seattle’s Best Coffee, who plans to leverage Starbuck’sconsumer education on gourmet coffees in order for easier time finding franchisees. EnteringJapan’s coffeehouse market means directly competing against the Pronto Corp. 95 outlets aroundTokyo. This company offers coffee in a relaxing environment much like Starbucks has to offer.However, since Pronto Corp offers a different flavor of coffee, Starbucks’ espresso and latte 22
  23. 23. would pose as a differentiation factor to compete against this second largest coffee-bar chain inJapan. It is clear that Starbucks has few major competitors’ .Smaller competitors, however, posepotential threats to the company. For example, the average Starbucks location draws on apopulation base of 200,000. In San Francisco and Seattle, Starbucks draws on population basesbetween 17,000 and 19,000 .In cities where Starbucks does not draw on small population bases,smaller competitors can attract some of Starbucks 200,000 person population bases. A slowingindustry market growth is another threat facing Starbucks. According to the market research firmAllegra, compound market growth between 1997 and 2001 was 57% .From 2002 to December2004, the market it estimated to grow 14%. Competitors are selling similar products, includingspecialty coffees as well as high quality foods. In this slowing market, competition is high.Forces 2:Bargaining Power of Buyers:Porters next force is Bargaining Power of Buyers. Starbucks customers are the buyers.The Preferred Office Coffee Provider is a plan developed by Starbucks in which companies canbuy the ingredients and tools necessary to brew "the perfect cup of Starbucks Coffee," in largequantities for their offices. Starbucks typical customer buys small quantities of their products.Products purchased at Starbucks are highly differentiated and unique from personal experience.We know that there is an enormous selection of coffees at a Starbucks coffee shop. Customerswill face no switching costs in switching premium coffee suppliers from Starbucks. For example,Seattles Best. This is a threat to Starbucks. Another threat to Starbucks is that their customershave the ability to brew their own coffee. Starbucks has tried to offset this threat by offering 23
  24. 24. Preferred Office Coffee Providers as well as directions on how to make the perfect cup ofStarbucks Coffee at home, called the "Four Fundamentals of Coffee" . The perfect cup ofStarbucks Coffee includes, of course, Starbucks ingredients! It is clear that Starbucks customershave some bargaining power in the industry.Forces 3:Bargaining Power of Suppliers:Coffee is the worlds second largest traded commodity .South and Central America produce themajority of coffee traded in the world. Starbucks depends upon both outside brokers and directcontact with exporters for the supply of green coffee .The supply of coffee is affected by weatherconditions, and the health of coffee trees. An over-crowded market will give the coffee suppliersbargaining power. According to a 1996 Starbucks Case Profile, the price of the coffee bean couldrise in the future due to lower supply, and heightened demand. For the industry, these are alarm-ing threats. The quality of coffee sought by Starbucks is very high, and Starbucks has traditional-ly paid premium prices for its green coffee, at least $1.20 per pound .There are no substituteproducts for the coffee beans Starbucks must buy. This is a potential threat to the company. Star-bucks, however, has exhibited how little control its suppliers might actually have. In 2001, Star-bucks announced new coffee purchasing guidelines, developed in partnership with The Centrefor Environmental Leadership in Business. These guidelines are based on the following four cri-teria: Quality baselines, social conditions, environmental concerns, and economic issues. Onlysuppliers who can meet Starbucks coffee standards will be able to supply the giant company.The supplying industry to Starbucks, therefore, has few companies. This is a potential threat.Starbucks will offset this threat by paying a premium of up to ten cents per pound of coffee to 24
  25. 25. vendors based on how well their coffee meets Starbucks standards. Starbucks has a degree ofcontrol over its suppliers in an industry where it is possible for suppliers of premium coffees tohave an enormous amount of bargaining power.Forces 4:Threat of potential Entrants:Porters next force is the threat of Potential Entrants. While the threats of new entrance are possi-ble, chances are few companies are willing to invest capital and human resources going head-to-head with this industry giant. Starbucks, being the world leader in its industry, has controlled ac-cess to distribution channels. Starbucks has exhibited this control over distribution channels bysetting guidelines for their suppliers to follow. Starbucks is Fortunes number one most admiredcompany in the food industry .One of their key attributes to success is innovation because Star-bucks is constantly innovating and showing strong product differentiation in their industry. Thisindustry differentiation is an opportunity for Starbucks, and a threat to potential entrants. Statis-tics have shown the industry to be slowing down, therefore making competition high and thethreat of new entrants low. Some believe, however, that there is a different kind of potential en-try threat. Ted R. Lingle, executive director of the Specialty Coffee Association of America, be-lieves that national food servers like McDonalds and Dennys could create strong coffee menusand become "the strongest competitor for Starbucks business. 25
  26. 26. Forces 5:Threat of Substitute ProductsPremium coffees products in supermarkets pose the greatest threat of substitutes to Starbucksgourmet coffee, namely because they are available anywhere, anytime. In fact, Starbucksmanagement believes that their customers’ decision for coffee purchases depends primarily onthe basis of quality and convenience. It is undeniable that Starbucks has a competitive advantagewhen it comes to quality, especially when compared to other generic coffee commodity. In thepremium foods and coffees industry, there are substitute products. According to Mary Coulter,the best way to evaluate this threat is to ask whether other industries can satisfy the customerneed that this industry is satisfying (Coulter). Other beverage industries can satisfy thecustomers need for a drink, and other food industries can satisfy the customers need to eat. Thisis why image is very important for Starbucks, as well as the companys ability to innovate anddifferentiate. Starbucks has added a line of tea, Taza teas, to their menus, and will be adding beerto their menus in the future. There is a large threat of substitute products in a food and drinkindustry. Starbucks has created an image, and has differentiated so that many of their substituteproducts are part of the company. At a Starbucks coffee shop, a customer can eat ice cream, anddrink a Pepsi, while his friend drinks tea while eating a pastry.• SWOT AnalysisExternal Environment:Opportunities: 26
  27. 27. New Markets: The opportunity of attending in new markets is one of biggest opportunities ofStarbucks. Perhaps the market in China is the most important one which can offer Starbucksimproved profit. “With our progress over the past two years, we are now in a position to takeadvantage of the global opportunity for Starbucks. Improvements in the U.S. business will allowus to pursue disciplined new store growth internationally. While Starbucks now operates in morethan 50 countries (we added Portugal, Bulgaria and Poland in fiscal 2009), we are still in theearly stages of international growth. We expect future growth for Starbucks to come from deeperexpansion in markets where we already have a strong presence, such as the UK, Canada andJapan. Our progress in China continues, and we believe it will one day be the largest market forStarbucks outside the U.S.” (Schultz)New Products and Services: New products and services can be retailed in their cafes, such asFair Trade products. These are some examples which Starbucks gained profit out of them. In2004 the company created a CD-burning service in their Santa Monica (California USA) cafewith Hewlett Packard, where customers create their own music CD. In fiscal 2009, Starbuckslunched Starbucks VIA™ Ready Brew to the market.Co-branding and Brand Franchising: Co-branding with other manufacturers of food and drinkis a potential opportunity for Starbucks. Brand franchising to manufacturers of other goods andservices is another opportunity for Starbucks.Purchasing companies: By purchasing companies such as Seattle’s Best, XM Cafè, and TazoTea, Starbucks used a different brand name to get business in different market niche. 27
  28. 28. Threats:New Entrants: Every successful business causes new entrants in that business in hope that theycan also gain profit out of that business, and Starbucks is no exception. There can be newcompetitors which would sell coffee with lower not original coffee beans but also with lowerprice and that can reduce Starbucks’ sell.Rises in the cost of coffee beans: There can be rises in the Coffee beans’ price in the marketwhich can easily affect Starbucks’ business more than anything else.Natural Disasters: Starbucks has its own farm so that it can control the potential rapid changesin the coffee beans’ price. Starbucks is exposed to the natural disasters which can threaten itsfarms.Possible changes in the customers’ favor: There is no guaranty that Starbucks’ coffee businessgrow with this speed forever. Customers’ favor can change anytime.US Market Saturation: While Starbucks has markets in 50 countries, US market is Starbucks’biggest market with more than 78% of Starbucks’ retailers located in US. Until now Starbuckshas grown so fast in the world but with the advent of new competitors in the US market and withthe high number of Starbucks’ stores there, this market can become saturated sooner or laterunless Starbucks can keep itself with more and more innovations to keep its customers for ever. • External Environment (EFAS) 28
  29. 29. External Factors Weight Rating Weighted Score Opportunities New Markets .18 4 .72 New Products and Services .14 4 .56 Co-branding and Brand Franchising .09 3 .27 Purchasing companies .11 2 .22 Threats New Entrants .14 4 .56 Rises in the cost of coffee beans .08 3 .24 Natural Disasters .06 2 .12 Possible changes in the customers’ .09 3 .27 favor US Market Saturation .11 4 .44 Total 1 3.4Internal Environment:Strengths:Profitability: Starbucks Corporation has continued to be a very profitable organization, itsearnings in 2006 was in excess of $7.8 billion. 85% of the company’s total revenue wasgenerated from retail locations.Global Presence: It is a global coffee brand built upon a reputation for fine products andservices. It owns and operates most of its retail stores around the World. There are over 16,635Starbucks in over 49 countries in the world. This includes 11,068 (6,764 owned by Starbucks,4,304 Franchised) in the United States. There are 1,000 in Canada and more than 800 in Japan.Brand Recognition: It has an established logo, highly developed brand, intellectual property,strong internet and media presence. It is one of the world’s most instantly recognizable brandswith a huge following. 29
  30. 30. Value: Co-branding with other manufacturers of food and drink is a potential opportunity forStarbucks. Brand franchising to manufacturers of other goods and services is another opportunityfor Starbucks. By purchasing companies such as Seattle’s Best, XM Cafè, and Tazo Tea,Starbucks used a different brand name to get business in different market niche.Weaknesses:Sustainability: Starbucks has a reputation for new product development and creativity.However, they remain vulnerable to the possibility that their innovation may falter over time dueto the lack of internal focus and diversity in innovations.High Operating Cost: The organization has very high expenses to maintain their operationsworldwide. Recent retail outlet closures and job cuts point to a persisting problem in reducingcosts.Uneven Worldwide Distribution: The organization has a strong presence in the United Statesof America with more than three quarters of their cafes located in the home market. It is oftenargued that they need to look for a portfolio of countries, in order to spread business risk. Theyare yet to enter the huge market in South Asia and as a result is seeing a dominance ofcompetitors there.Product Pricing: Starbucks is considered to be an expensive option when compared to theircompetition and this is directly influencing their success in many parts of the World. Internal Environment (IFAS) Internal Factors Weight Rating Weighted Score 30
  31. 31. Strengths Profitability .15 4 .60 Global Presence .12 2 .24 Brand Recognition .16 4 .64 Value Internal Factors Strengths .11 3 Weaknesses .33 Weaknesses 1. Profitability sustainability .11 3 1. Uneven Worldwide Distribution .33External Factors 2. Brand Recognition 2. Product Pricing High Operating Costs .09 3 .27 3. Global Presence 3. Sustainability Product Pricing .13 4 .52 Uneven Worldwide Distribution Opportunities SO .13 4 .52 OW Total 1 3.45 1. New Markets 1. Re-invest profits in New Markets 1. New Markets will balance 2. New Products and Services 2. Use its brand to sell new products distribution 3. Purchasing Companies 3. Expand global presence by 2. Lower prices for new products purchasing companies 3. Purchase companies to survive Threats ST WT 1. New Entrants 1. Offer better stake holder value 1. Entry into new countries before 2. U.S. Market Saturation 2. Ensure a strong foundation competition 3. Changes in Customer favor 3. Introduce to more people 2. Lower prices in Asia worldwide 3. Engage the customers with constant rewards • TOWS MatrixSFAS Table: Strategic Factors Weight Rating Weighted Duration Comments Score S I LS1 Profitability .13 4 .52 XS2 Global Presence .10 4 .4 XS3 Brand Recognition .14 4 .56 X 31
  32. 32. W3 Product Pricing .11 2 .22 X XW4 Uneven Worldwide .11 3 .33 X DistributionO1 New Markets .17 4 .68 X XO2 New Products and .12 3 .36 X X ServicesT1 New Entrants .12 4 .48 X Total 1 3.55• Recommendations: - Since Starbucks has a very high profit, so it seems very encouraging chance to invest in new markets such as China. - They also must start thinking about the new product/services; they should use their brand name which is attractive for most of the people; to establish new products and services as well. - Co-branding and franchising will be good opportunities for Starbucks to enlarge their globalization. Purchasing companies will expand their global presence. - US market is Starbucks’ biggest market with more than 78% of Starbucks’ retailers. Starbucks should start thinking about new markets and countries that haven’t been introduced by Starbucks. - Even thought Starbucks is a very recognized brand, but the price is also playing a role. Starbucks should produce new products with lower prices than the usual process to ensure productivity. - Starbucks are always available in the malls. But we recommend that Starbucks should have some branches to the working areas, studying areas. Universities are lack of coffee 32
  33. 33. shops, but there will be no waste if Starbucks try to open in most strategic locations near by these areas.• Conclusion:Weaknesses and Threats are consequences of any natural business. But Starbucks is still on the top and ithas proved that they are qualified to stay as the best coffee producers till the moment. Their main strengthwas the huge profit, and their main weaknesses were about product pricing and uneven worldwidedistribution. Competitors are not affecting Starbucks that much since Starbucks is still in the top and itknows the right flow and strategy to stay on the top. Starbucks brand has been known to all over theworld, it’s a globalized business and everyone appreciate their products and services and; that’s whycustomers don’t mind to spend their money to purchase Starbucks products even thought their prices areconsidered expensive. But Starbucks has to find a strategy to build the foundation of products with lowerprices to ensure productivity and customers’ loyalty. 33
  34. 34. References• SHARK, ( March 8, 2006). Starbucks Response to Consumer Inquiries, from• Ezine@rticles. “n.d.” Starbucks is a Great Company For Marketing, from• PRLog, (Jan 13, 2010). Coffee Marketing: Starbucks Scores Big In Social Influence Marketing, from marketing.html• OteforUs, “n.d.” Starbucks Marketing Strategy Unconventionally Effective, from•, (October 5, 2004). Learning from Starbucks: 10 Lessons for Small Businesses, from• Catching the Starbucks Fever,”n.d.” Starbucks History, From catching-the-starbucks-fever.html• GRIN, (2008). Marketing Strategy of “Starbucks coffe”, from• Starbucks Corporation, Professor McNabb, (March 19, 2007). How to Improve the Current Marketing Strategy, from starbucks.doc&ei=IsdCTMb9OYPZcdzo8N4P&usg=AFQjCNFegmFB3u7esC0zoI3pkR0TueN2 XQ• Kembell, B. Hawks, M. Kembell, S. Perry, L. Olsen, L. (2002). Catching The Starbucks 34
  35. 35. Fever, Missouri State University.• Khattab, T. Aziz, E. Naguib, B. (2009). Strategic analysis for Starbucks, German University in Cairo.• Glowa, T. (2001) Examining Starbucks utilizing the 7s method and less than perfect information, North Country Research Inc.• Company Monster, Starbucks. Retrieved July 20, 2010, from• Khattab, T. Aziz, E. Naguib, B. (2009). Strategic analysis for Starbucks(pp. 19-20), German University in Cairo.• (n.d.). Retrieved 7 29, 2010, from http://library.corporate-• (n.d.). Retrieved 7 29, 2010, from• (n.d.). Retrieved 7 31, 2010, from responsibility-report/• Julia S. Kwok, E. C. (n.d.). case study. Retrieved 7 31, 2010, from• Schultz, H. (n.d.). Retrieved 7 29, 2010, from• Starbucks, R. o. (n.d.). Retrieved 8 1, 2010, from• (n.d.). Retrieved 8 4, 2010, from porters 5 forces nalysis: http://university-• (n.d.). Retrieved 8 4, 2010, from Michael porters analysis of starbucks:• (n.d.). Retrieved 8 7, 2010, from starbucks corporation: ness/starbucks.pdf• (n.d.). Retrieved 8 7, 2010, from catching the starbucks fever: publishedpapers/business/marketing/2002-04-000aag-catching-the-starbucks-fever.html• (n.d.). Retrieved 8 7, 2010, from starbucks dynamic system: 35
  36. 36. AppendixesStarbucks Corporation Fiscal 2009 Annual Report 36
  37. 37. 37
  38. 38. Starbucks Swot Analysis: 38
  39. 39. Starbucks is known around the world for bringing gourmet coffee and the coffeehouseexperience to the masses. As the company grew from a single store in Seattle‟s Pike PlaceMarket to thousands of stores worldwide, it has kept its mission statement clear and concise: “Toinspire and nurture the human spirit- one person, one cup, and one neighborhood at a time”(Starbucks, 2009). Starbucks is recognized for being environmentally responsible, and has aseparate mission statement to address this progressive, important aspect of their business andsuccess: “Starbucks is committed to a role of environmental leadership in all facets of ourbusiness.” Underlying both of these broad concepts is a set of core values that the company usesas a foundation for all their business practices. Starbucks is committed to serving high qualitycoffee purchased from growers in an ethical manner, treating employees as partners in business,making human connections with their customers, creating store environments that arewelcoming, being a responsible neighbor that is involved in the community and providingshareholders with the rewards of success (Starbucks, 2009)Starbucks‟ success has resulted from the company living these values consistently. However, theworld has become a very different place than it was in 1971 when it got its start. A reevaluationof the company‟s mission through the tool of SWOT analysis will provide a more accurateportrait of where the company stands today. The company‟s strengths are its commitment to thepeople and to the environment, but it faces serious weaknesses in the form of over-exposure,compromised brand image and high prices. There are good opportunities for Starbucks to growits business through expansion into foreign markets and attract investors with the relativelycheap stock prices, but it must addresses the threat that it faces from its lower-pricedcompetitors, specifically McDonald‟s, as the country continues to sink into economic recession. 39