Starbucks Case - A Crack in the Mug


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MBA 6114 - Strategy Management
Starbucks Case Analysis
September 30, 2009

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  • 1. blocked the visual sight line the customer previously had to watch the drink being made,   2. 
  • 3. Quote from leaked memo of Howard Schultz, CEO 2007 "no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store"
  • Starbucks Case - A Crack in the Mug

    1. 1. Starbucks: A Crack in the Mug Kurt Blickenstaff - Eileen McInery Christopher Serio - D'Arcy Villere Suzanne Yonkers
    2. 2. Overview <ul><ul><li>Company Background: Chris </li></ul></ul><ul><ul><li>Competition: Kurt </li></ul></ul><ul><ul><li>Macro Economic Forces: Suzanne </li></ul></ul><ul><ul><li>Loss of Fidelity: Darcy </li></ul></ul><ul><ul><li>Corporate Social Responsibility: Eileen </li></ul></ul><ul><ul><li>Conclusion and Questions </li></ul></ul>
    3. 3. Background <ul><ul><li>Founded 1971, Pikes Place Market, Seattle </li></ul></ul><ul><ul><li>Brand image: loyal customer base and ethical corporate philosophy </li></ul></ul><ul><ul><li>Diverse portfolio </li></ul></ul><ul><ul><li>Global partnerships and alliances </li></ul></ul><ul><ul><li>Howard Schultz and company growth </li></ul></ul><ul><ul><li>Changes in 2007 </li></ul></ul>Howard Schultz, CEO First Starbucks, Seattle, WA
    4. 4. Revenue Model <ul><li>Revenue model during expansion </li></ul><ul><ul><li>Multi-component </li></ul></ul><ul><ul><li>Branding </li></ul></ul><ul><li>Redesigning the revenue model </li></ul><ul><ul><li>Customer development </li></ul></ul><ul><ul><li>Pyramid </li></ul></ul>
    5. 5. Competitors Skate to Where the Money Is <ul><ul><li>Dunkin Donuts </li></ul></ul><ul><ul><ul><li>Won the taste test over Starbucks </li></ul></ul></ul><ul><ul><ul><li>Opening up locations where Starbucks exists or was looking to build (Midwest) </li></ul></ul></ul><ul><ul><li>McDonalds </li></ul></ul><ul><ul><ul><li>Customers bringing Starbucks into McDonalds </li></ul></ul></ul><ul><ul><ul><li>Introducing premium coffee at 11,000 locations </li></ul></ul></ul><ul><ul><ul><li>Test market results </li></ul></ul></ul><ul><ul><ul><ul><li>Image conflicts </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Quality is more important than price for specialty drinks   </li></ul></ul></ul></ul>
    6. 6. “ I Know Kung Fu” <ul><li>McDonalds </li></ul><ul><ul><li>Sumo Strategy or direct attack against Starbucks </li></ul></ul><ul><ul><li>Lower price (McCafe) </li></ul></ul><ul><ul><li>$100 million ad campaign </li></ul></ul><ul><li>Starbucks Judo Retaliation </li></ul><ul><ul><li>Avoided a price war in their own key market </li></ul></ul><ul><ul><li>Differentiated on what makes Starbucks unique </li></ul></ul><ul><ul><ul><li>Quality -&quot;It's Not Just Coffee, It's Starbucks” </li></ul></ul></ul><ul><ul><ul><li>End to end product </li></ul></ul></ul><ul><ul><ul><li>Offered value breakfast pairs </li></ul></ul></ul><ul><ul><li>Starbucks profit fell 77% in Q2 2009 </li></ul></ul>
    7. 7. Starbucks v. McDonalds
    8. 8. Macro Economic Forces <ul><li>Dependence on the financial performance of its U.S. segment </li></ul><ul><li>Dependence on the success of its international segment to achieve its growth targets </li></ul><ul><li>Failure to generate sufficient future cash flows and secure adequate external financing </li></ul><ul><li>Less discretionary spending by customers </li></ul>
    9. 9. Recovery Method: Strategic Principles <ul><li>Differentiation </li></ul><ul><ul><li>Deliver the finest quality of coffee </li></ul></ul><ul><ul><li>Deliver a customer experience </li></ul></ul><ul><li>Superior Customer Value </li></ul><ul><ul><li>Customer intimacy with the existing customer </li></ul></ul><ul><ul><li>Operational excellence through an “efficiency quest” </li></ul></ul><ul><li>Sustainability </li></ul><ul><ul><li>Utilizing dynamic methods </li></ul></ul><ul><ul><li>Cost cutting measures </li></ul></ul>
    10. 10. Loss of Fidelity <ul><li>Fidelity: total experience of something </li></ul><ul><ul><li>Movie Theater vs. DVD vs. TV Movie </li></ul></ul><ul><ul><li>MP3 vs. DVD of concert vs. Live Concert </li></ul></ul><ul><li>Rapid Expansion </li></ul><ul><ul><li>1998: 1,886 stores                                                  1,886 </li></ul></ul><ul><ul><li>2008: 16,226 stores </li></ul></ul><ul><ul><li>Opened 200 to 400/yr </li></ul></ul><ul><ul><li>1999 & 2000 opened </li></ul></ul><ul><ul><li>1,386 in one year </li></ul></ul>The Commoditization of the Starbucks Experience
    11. 11. Loss of Fidelity: Decision Matrix Problem Decision Outcome Speed of service and efficiency Switch to automatic expresso machine Romance removed Need for fresh roasted coffee in every American city Flavor locked packaging Loss of aroma Streamline store design Standardized store layout Loss of neighborhood feel
    12. 12. Not All Strategies Failed… <ul><li> Triple Bottom Line = People, Profit, Planet </li></ul><ul><li>CSR Strategy </li></ul><ul><ul><li>2000 agreement with TransFair USA </li></ul></ul><ul><ul><li>CSR report published annually since 2001 </li></ul></ul><ul><ul><li>Areas of Focus </li></ul></ul><ul><ul><ul><li>Ethical bean sourcing </li></ul></ul></ul><ul><ul><ul><li>Environment </li></ul></ul></ul><ul><ul><ul><li>Community </li></ul></ul></ul><ul><ul><ul><li>Workplace </li></ul></ul></ul><ul><ul><li>Annual and long-term goals for increased “responsibility” </li></ul></ul>
    13. 13. Strategic Principles Guide CSR <ul><ul><li>Positioning company as industry and corporate CSR leader </li></ul></ul><ul><ul><li>Differentiation of commitments creates shareholder value </li></ul></ul><ul><ul><li>Trade-off for “unwanted” aggressive growth </li></ul></ul><ul><ul><li>Trade-off for brand image perceived by customers </li></ul></ul><ul><ul><li>Trade-off for anti-Starbucks activists </li></ul></ul><ul><ul><li>Leadership ingrains CSR in all levels of company </li></ul></ul><ul><ul><li>Leadership communicates that CSR is competitive advantage </li></ul></ul><ul><ul><li>Sustainability of CSR strategy throughout economic downturn </li></ul></ul>
    14. 14. Can The Mug Be Fixed? <ul><li>Aggressive growth caused Starbucks to lose sight of its core competencies </li></ul><ul><li>Led to a disjointed brand image </li></ul><ul><li>External and internal factors led to market share decline and profit loss </li></ul><ul><li>Past strategies are being reevaluated </li></ul><ul><li>Trying to return to the basics </li></ul><ul><li>Currently still in a strategic transition mode </li></ul>
    15. 15. Questions?