USC Marshall Executive Education - Starbucks strategic-plan
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Project OBEGA: Optimized Bean to Cup Experience to Grow in International Arena - Strategies for Achieving Next Gen Growth for Starbucks
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USC Marshall Executive Education - Starbucks strategic-plan
- 1. Management Development Program Executive Education March 2013 Starbucks Kaffa Jose Albarracin David Munoz Andrade Sandra Fritz Carlos Guzman Sriram Nandiraju Arvind Radhakrishnen
- 2. Agenda Project OBEGA: Optimized Bean to Cup Experience to Grow in International Arena • Growth Opportunities • Increase Net Income • Optimize Cost Structure
- 3. Overview Current State Future State • Expansion in • Focus on Americas China & India • High Taxation • Tax Efficient Supply Chain • High Operating • Right Sourcing Cost Model
- 4. Objective • Grow Chinese and Indian business to $1 billion by 2015 • Increase net international income through tax efficiency • Optimize cost through efficient location model, strong alliances and acquisitions
- 5. Growth Opportunities • China • India
- 6. Growth China Strategy – Enable Growth via Acquisitions • 1st Store in Beijing - 1999 with help from Beijing Mei Da Coffee Co. Ltd. • 700 to 1,500 stores by 2015 [China, Hong Kong, Macau, Taiwan] • Grow Starbucks Corp Chinese market from $214 million to $500 million
- 7. Acquisition China Strategy - Acquisitions Acquired - H&Q Asia Pacific ownership of High Grown Investment Group Was Controlling shareholder of (Hong Kong) Limited Beijing Mei Da Coffee Co. Ltd. 2006 ("Beijing Mei Da Coffee") Initial 60 stores to 700 locations with a targeted growth to 1,500 by 2015 throughout Greater China region
- 8. Starbucks Experience Starbucks - China • Promoting high-quality coffee • Personalized handcrafted beverages • PRC Starbucks ™ Shared Planet™ commitment • Community Education • Environmental Development
- 9. Differentiation China Strategy - Product Differentiation • Tazo® China Green Tips Brewed Tea • Bi Luo Chun, a green tea "crisp, fresh flavour” • Mu Dan, a white tea "a fresh, mellow sweetness” • Oriental Beauty, with its "intoxicating floral aroma” In Chinese, Mao Feng means “hairy crab” – an odd-but-wonderful description of the twisted and rolled dry tea leaves.
- 10. Growth Opportunities • China • India
- 11. Growth Strengthen Alliance with TATA 2015 Booming Middle Class & Youth 200 Million New Middle Class Consumer Segment by 2015 2013 New Revenue Stream Stores in India generate $15,000 per day per store
- 12. Strong Alliance with TATA 2nd largest tea producer, major coffee producer 50:50 with Tata Global Beverages $1.16 B Significant Retail Market Presence in India & Asia Pacific
- 13. Product Differentiation Local production Tea Experience
- 15. International Operating Strategy Starbucks European Story Increase profitability & Cash flow Annual revenue 1.3 billion $ Net income 80 Million $ Additional profit to fuel expansion 1,500 Stores in Europe Average Europe corporate Tax rate - 30% Tax Effective Supply chain Management Reduce tax liability by 20% Tax efficiency through realignment of Functions, Assets and Risks The Premise for TESCM is Tax Planning & operational planning are integrated
- 16. Realignment Structure Starbucks Intl Operating Co Operating Entities o Located in favorable Jurisdiction o Perform routine functions o Centralization of management/Risk o Bear subordinate risks o Entitled to large profits o Receive stable and low returns Principal Company - Switzerland – Headquarters for General Management and Supply Chain – Policy & Strategy : price lists, sourcing ,demand planning, Inventory ownership, R&D Limited Risk Distributor companies – A sales and marketing entity – UK, France,Italy,Spain,Germany and other Nordic countries – Sales, Accounts Receivables Toll Manufacturing companies – An internal “subcontract manufacturer – Netherlands roasting plants & DC across Europe
- 17. Tax Efficient Supply Chain Management Sales & Marketing Corporate R&D Shared Services Limited risk distributor Customer Sales Suppliers Starbucks European HQ Swiss Principal company Customers Toll Manufacturing Distribution centers Flow legend Legal title Physical flow Services
- 19. Location Model Build Cost Optimization Model Focus on High Margin Business Exit from High Operating Cost Zones Improved Qualification • High Operating Margins in Process for Asia Pacific is 34.6 Licensing • Lower Operating Margins - 21.8 in Americas vs 6.5 % in Licensed Stores Company Owned Stores Europe & Africa Optimize Intra Company Cost Structure to Invest based on Geo-location Better Training & Induction for Starbucks Licensed Store Owners enable movement of Investment across Strategy Geographies
- 20. Increase Depth of Strategic Alliances High Operational Cost Strategic Alliance Right Sourcing Model • TATA has Asia’s largest Coffee Blend China Acquisition with TATA’s Existing Import 80 % of Arabica Beans plantation strength in from Brazil, Europe & Africa • Produces more than 10,000 • Production Capacity tones of Arabica • Supply Chain Process • Commodity Hedging • Invest& Upgrade • Reduce TATA – Production Cost World Capacity Alliance Brand for Product Cost • Improved Tea & • Leverage Supply Coffee Partner chain Supply Chain
- 21. Recap Optimized Bean to Cup Experience to Grow in International Arena (OBEGA) • Synergize Alliance & Acquisition to Grow • Tax Efficient Supply Chain Management • Optimize Cost through Location Model
- 22. Thank You