Costa Coffee delivers the next generation in self service with.docx

Costa Coffee delivers the next generation in self service with
embedded Intel®technology
Costa is one of the UK’s largest and fastest-growing coffee
shop brands and a wholly owned subsidiary of Whitbread PLC.
With over 1,300 coffee shops across the UK and more than 600
internationally, the company is a global success story with
a growing network of retail sites and franchises. Costa Express,
a wholly owned subsidiary formed through the acquisition of
Coffee Nation in 2011, focuses on self-serve, all-fresh, bean-to-
cup coffee vending through autonomous concessions located
in attended or semi-attended areas such as motorway forecourts,
transport hubs (like airports and railway stations), and
corporate offices. Costa Express is the fastest growing part of
Costa and of Whitbread.
CASE STUDY
Intel®Core™i7 Processor
Intel®Solid-State Drive 520 Series
Brewing an enhanced customer experience
CHALLENGES
• Stay ahead. Continue to set standards in the coffee industry
with new approaches to
customer engagement
• Encourage self-service. Build on investment in self-service
coffee specialist to create
the next generation of vending experience that maximizes

financial performance
• Immersive experience. Create the world’s first vending
machine to deliver premium
quality and provide a comprehensive, five-sense user experience
• Reduce truck rolls. Create the first aerospace/medical-grade
international vending system
using a start-of-the art computing platform and control system
• International management. Administer devices and content
distribution dynamically
and efficiently
• Future proof. Ensure that the concessions are future-proofed
for up to seven years
SOLUTIONS
• Dream team. Experts in multiple fields were brought together
in a highly aggressive,
integrated product development (IPD) team to deliver a new
vending system, including
Intel for the computing elements
• Standardize on Intel. All computing components are based on
Intel® technology, including
the Intel® Core™ i7 processor and Intel® Solid-State Drive
(Intel® SSD) 520 series
• Understand customers. Intel® Audience Impression Metric
Suite (Intel® AIM Suite) helps
each machine target content most appropriate to the local
customer base
• Fleet control. Devices are managed using Intel® Active

Management Technology (Intel®
AMT) and Intel-provided content distribution facilities
IMPACT
• Revenue potential. Costa is planning to roll out 10 times more
new machines than it
initially expected.
• New market segments. The attractive design and advanced,
interactive features mean
the new machines are suitable for more environments – from gas
stations to boardrooms
• Amazing customer experience. Customers can choose from
over 200 freshly-made drink
combinations and a number of payment methods while being
engaged with compelling
interactive content
The next generation of vending
Costa is recognized as an innovator in the coffee retail industry.
Wanting to expand its
operations beyond the traditional coffee shop format, it
embarked on developing an ad-
vanced concession aimed at new, international market segments
including transportation
hubs (like airports and railway stations), as well as corporate
environments.
“The power efficiency associated
with the Intel® Core™ i7 processor
and more reliable components,

such as Intel® Solid-State Drives
(Intel® SSDs), allowed us to create a
higher performance, lower-total-cost
design than we have had before. ”
Eric Achtmann
Marlow Program Director/Architect
Costa
This undertaking, code-named “Project Marlow,”
was sponsored by Jim Slater, MD Costa Enter-
prises, and Scott Martin, MD Costa Express
and Coffee Nation founder, under the leader-
ship of Eric Achtmann, Marlow program director
and system architect. Project Marlow sought
to deliver a fully functional system within
around six months using advanced aerospace
product development techniques.
Besides delivering an enhanced self-serve
experience that would support its mission to
“save the world from mediocre coffee,” Costa
wanted to develop a next generation of Costa
Express* vending machines that would also:
• Encourage customers to pay prices commen-
surate with premium quality Costa coffee,
whether it is served by a barista in-store
or through a Costa Express self-serve
espresso bar

• Offer the right product mix, tailored to the
customer demographic, using each self-serve
bar
• Increase the number and value of sales per
transaction at Costa Express self-serve
espresso bars
• Boost the operating margins of each vend-
ing unit by increasing its revenues and/or
operational efficiency
“Having spent the last 12 years developing
the segment, there was always the risk that,
to quote Henry Ford, ‘if you do what you've
always done, you'll get what you've always
got’,” says Martin. “As such, with Project
Marlow, we made a conscious decision to
start from a clean slate, challenge fundamen-
tal assumptions and try to do something
truly novel.”
Taking its reputation for standard-setting
very seriously, Costa tasked Eric Achtmann,
MD Global Capital Advisors, with assembling
and leading a crack team of specialists to
architect and deliver the next generation of
self-serve coffee vending that would be fu-
ture-proofed for up to seven years of use.
The resulting design aimed at making the
new Costa Express concessions the first in-
telligent system in the vending industry and
the first vending machine to provide a com-
prehensive user experience, addressing the

five senses:
1. Sight. Pininfarina, the world-leading designer
of Ferrari and Maserati fame provided the
aesthetic design of the body. The system
also features a large, fully integrated 27”
HD screen, with the user experience being
developed with the Web designer who pro-
vides the Harry Potter Web experience, as
well as lead development for Xbox* and
PlayStation*.
2. Sound. eMixPro, sound engineer for U2,
Katy Perry and Coldplay*, was enlisted to
recreate an authentic Costa café sound
experience
3. Scent. Givaudan and Scentys, the world
leaders in flavor and fragrance delivery,
joined the team to create an authentic, all-
natural olfactory experience
4. Touch. Every aspect of the concessions
is high quality, using the finest materials
assembled by production experts from the
aerospace and race car industries. The
same hands that build body components
for Ferrari craft the body components for
the Marlow concession. Even the cups
sport a high-quality, Costa “fluted” design
5. Taste. The new machine uses only fresh,
natural ingredients (i.e., fresh milk, fresh
ground coffee, premium chocolate and
optional natural, low-sugar flavors) includ-
ing the same premium Mocha Italia beans

used in Costa cafés worldwide. The coffee
core of the machine was developed using
components from Thermoplan, the world’s
leading manufacturer of bean-to-cup cof-
fee-making equipment.
To provide seamless, rapid, fool-proof and
highly secure cashless payment, the Marlow
team turned to SIX, the payment services arm
of the Swiss Stock Exchange.
Leading coffee chain breaks new ground with its
interactive self-service experience powered by
Intel® technology
“Project Marlow is anchored by the
principles of high-performance, inte-
grated product development teams.
We were up-front with Intel from the
outset that we sought a true team
member, not merely a supplier. For us,
that meant providing thought leader-
ship, as well as sharing risk and reward.
Intel responded by allocating top people
and significant resources to our team.
The Intel team was habitual in ex-

ceeding expectations, and made an
outstanding and enduring contribution
to the program”
Eric Achtmann
Marlow Program Director/Architect
Costa
Another important member of the develop-
ment team was Intel, which was asked to pro-
vide the computing elements to underpin the
new control system and interactive experi-
ence. The control system itself was pro-
grammed by a former Rolls-Royce jet engine
control and test system designer.
An added challenge was presented by the
tight deadline for having the new machine
ready. The team wanted the first alpha pro-
totype delivered within just 50 business
days, with a view to being in a position to
go to market as quickly as possible. A fully
functioning beta prototype was delivered
after only 100 business days, with initial
production following shortly thereafter.
Embedding the right technology
The technical requirements to enable the
system to support all this innovation were
quite specific. The team needed strong com-

puting performance and graphics capabilities
to create the most engaging and attractive
digital signage and user interface. However,
power consumption needed to be kept low to
facilitate passive cooling. At the same time,
the complexity of the machine had to be kept
to a minimum in order to minimize cost while
simultaneously maximizing performance and
quality.
“Project Marlow is anchored by the principles
of high-performance, integrated product de-
velopment,” comments Achtmann. “We were
up-front with Intel from the outset that we
sought a true team member, not merely a
supplier. For us, that meant providing thought
leadership, as well as sharing risk and reward.
Intel responded by allocating top people and
significant resources to our team. The Intel
team was habitual in exceeding expectations,
and made an outstanding and enduring con-
tribution to the program.”
The team opted to use the ultra-low-voltage
Intel Core i7-2340UE processor to power the
device, supported by Intel® Mobile Express
Chipset QM67 and Intel® HD Graphics 3000
for a truly eye-catching display. It also imple-
mented Intel SSDs 520 series instead of a
hard drive, in order to reduce complexity and
moving parts.
The integration of the Intel® Audience Impres-
sion Metrics Suite (Intel® AIM Suite) with the
Intel Core i7-2340UE processor-powered plat-

form supported Costa’s objective of better
understanding – and therefore targeting – the
customer base for each self-serve coffee bar.
“We implemented Intel AIM Suite’s Anonymous
Viewer Analytics (AVA) functionality,” Acht-
mann explains. “It assesses usage patterns
like the number of viewers that observe a
given machine and how long they look at it.
This enables it to show content that has
proven to be the most engaging for visitors
at that location.”
After weeks of effort from the whole devel-
opment team, the alpha prototype was deliv-
ered on time and above the specified targets.
The beta prototype also met its deadlines and
exceeded its targets. “The first production
units were ready to ship just six working
months after we first assembled the team,”
says Achtmann. “This was a great accomplish-
ment, whereby Intel made a significant and
enduring contribution toward the success
of the program.”
New opportunities
Costa had initially planned to roll out around
2,000 of its new self-serve machines, but
based on initial consumer feedback, it now
expects to deploy many more of the newly-
launched model, the Costa Express Marlow
CEM-200*.
Thanks to the machine’s sleeker design and
sophisticated user experience, Costa expects
to be able to break into environments no other

coffee vending machine has been able to reach
before. “Our current model has been highly
successful in traditional vending locations like
gas stations and forecourts. These machines
have typically had a more functional design
to be rugged enough for these locations, but
this also means they have not been particularly
visually appealing,” says Slater. “The Marlow
CEM-200 was designed to enter new, inter-
national markets (such as corporations, lounges
and catering), where the old machines could
not penetrate. With the CEM-200 we are able
to cover the entire market spectrum from the
service station to corporate boardrooms.”
The new model offers over 200 drink com-
binations, including various types of coffees,
teas and hot chocolates. Each beverage is
created using fresh ingredients added to the
machine daily by the local real-estate owner
or operator, and based on the selections made
by the user through the touchscreen inter-
face. The extensive choice means customers
can always find the drink they want, making
self-service a much more attractive option.
By making each drink to order using fresh
ingredients, the machine also ensures that it
is of as high a quality as if it had been pre-
pared by a barista.
Other new features include the ability to
pay in seconds using Chip and PIN*, “Wave
and Pay”, a European smart card payment
system, or even contactless mobile payment.
By simplifying and accelerating the transac-
tion process, the CEM-200 helps to signifi-

cantly improve the customer experience
and increase revenue per customer.
Copyright ©2013 Intel Corporation. All rights reserved. Intel,
the Intel logo, Intel Core, Intel Core Inside and Intel Solid-State
Drives are trademarks of Intel Corporation in the U.S.and other
countries.
This document and the information given are for the
convenience of Intel’s customer base and are provided “AS IS”
WITH NO WARRANTIES WHATSOEVER, EXPRESS OR
IMPLIED,
INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND NONINFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS. Receipt or
possession of this document does not grant any license to any of
the intellectual property described, displayed, or contained
herein. Intel® products are not intended for use in
medical, lifesaving, life-sustaining, critical control, or safety
systems, or in nuclear facility applications.
Software and workloads used in performance tests may have
been optimized for performance only on Intel microprocessors.
Performance tests, such as SYSmark and MobileMark,
are measured using specific computer systems, components,
software, operations and functions. Any change to any of those
factors may cause the results to vary. You should
consult other information and performance tests to assist you in
fully evaluating your contemplated purchases, including the
performance of that product when combined with
other products. For more information go to
http://www.intel.com/performance.
*Other names and brands may be claimed as the property of

others.
0413/JNW/RLC/XX/PDF
328911-001EN
Lessons Learned
Clarity of vision, teamwork, speed
and decisiveness were the keys to
this project. By bringing together
experts in each aspect of the design
and development of the Costa Ex-
press CEM-200, the organization
was able to create something truly
ground-breaking. Intel’s expertise in
embedded solutions meant that its
contribution throughout the project
was as valuable a success factor as
the technology it provided.
A higher standard of coffee bar
“Vending, and in particular coffee vending, has traditionally
suffered a bad reputation
for quality. With the CEM-200 we wish to redefine the segment
and provide a true
premium café experience in places where a café may be neither
available nor practi-
cal,” comments Martin. “Achieving this requires relentless
quality and a new concept in
scalability. With more reliable components such as Intel SSDs,
and power efficiency
thanks to the Intel Core i7 processor, the machines are highly
dependable and can be
rolled out in larger volumes, so it’s a much more scalable
solution than we have had
before,” adds Achtmann.

“We’re moving towards vending using intelligent systems,”
explains Slater. “We’re not
just creating a box that sells coffee anymore, but a fully
integrated, connected retail
experience. We are trying to save the world from mediocre
coffee.”
Meanwhile, the operators that manage the individual machines
are also expected to
see an improvement with the new systems. The real-time
reporting and telemetry
and highly reliable Intel® technology-powered machines mean
that operating costs can
be reduced while revenues are boosted.
Finally, the customers themselves can benefit. The five-sense
vending experience has
been achieved, meaning that Costa Express customers will
receive a unique, engaging
experience when using the machines, all while enjoying the high
quality coffee they
expect from Costa.
Find the solution that’s right for your organization. Contact
your Intel representative,
visit Intel’s Business Success Stories for IT Managers
www.intel.co.uk/Itcasestudies
or explore the Intel.co.uk IT Center www.intel.co.uk/itcenter.
“Costa is moving towards vending
using intelligent systems. We are not
just creating a box that sells coffee

anymore, but a fully integrated,
connected retail experience. This is
all a part of our mission to save the
world from mediocre coffee.”
Jim Slater
MD Costa Enterprises
Case Studies in Ethics
a t D u k e U n i v e r s i t y
dukeethics.org
This work is licensed under the Creative Commons Attribution -
Noncommercial - No
Derivative Works 3.0 Unported License. To view a copy of this
license, visit http://creativecom-
mons.org/licenses/by-nc-nd/3.0/. You may reproduce this work
for non-commercial use if you use
the entire document and attribute the source: The Kenan
Institute for Ethics at Duke University.
In March 2005, Ethiopia fi led with the U.S. Patent and
Trademark Offi ce to
trademark the names of Yirgacheffe, Harrar and Sidamo, three
coffee producing
regions within the country. In doing so, the Ethiopian
government hoped to
force coffee buyers into potentially lucrative licensing
agreements. However,

Starbucks had already applied a year earlier to trademark
Shirkina Sun-Dried
Sidamo. Until a decision was made on Starbucks’ application,
Ethiopia’s claim
could not be processed. Ethiopia requested that Starbucks drop
its claim, but
Starbucks was reluctant to do so, and suggested that Ethiopia
apply for a different
type of certifi cation. This led to public criticism of Starbucks
and questions
regarding its supposed dedication to selling ethically grown and
traded coffee.
This case highlights the complexity surrounding global certifi
cation programs,
the diffi culty inherent in balancing corporate and shareholder
interests with
responsible corporate citizenship, and the challenge to
preserving economic value
for the producers of consumer goods grown in developing
nations.
The case text and teaching notes for this case were completed
under the direction
of Dr. Rebecca Dunning, the Kenan Institute for Ethics
Institutions in Crisis
Donald DePass
Starbucks vs. Ethiopia
Corporate Strategy and Ethical
Sourcing in the Coffee Industry

Case Studies in Ethics dukeethics.org2
Introduction
In March 2005, Ethiopia fi led with the U.S. Patent and
Trademark Offi ce to trademark the names of Yirgacheffe,
Harrar and Sidamo, three coffee producing regions within the
country. A trademark represents any name, word,
symbol, design, or combination, that is used to distinguish the
goods of one manufacturer or seller from the goods
manufactured or sold by others, and it also indicates the source
of the goods.1 Ethiopia’s decision to protect its
agricultural products with this type of mark was an unusual one,
since corporations, not geographic areas, typically
use this type of protection. In fi ling for the trademark, the
Ethiopian government hoped to force coffee retailers into
potentially lucrative licensing agreements, and thereby to retain
a larger portion of the coffee sales within Ethiopia.
Ethiopian farmers received just a fraction of the value that
coffee retailers, such as Starbucks, obtain on the market.
Unbeknownst to the government, Starbucks had applied a year
earlier to trademark Shirkina Sun-Dried Sidamo.
Attaining trademark certifi cation would confer Starbucks with
a number of benefi ts including nationwide notice of
its trademark ownership, possible trademark registration in
foreign countries, and exclusive use of the trademarked
name 2 In essence, it would establish a brand name and create a
signifi cant obstacle for any competitor. Until a
decision had been made on Starbucks’ application, Ethiopia’s
claim could not be processed. Hoping to expedite
the process, Ethiopia requested that Starbucks drop its claim,
but Starbucks was reluctant to do so, and suggested
that Ethiopia apply for a different type of certifi cation. This
led to intense criticism about Starbucks’ position and
questions regarding its supposed dedication to selling ethically

produced and traded coffee. Starbucks had built its
image on being a model company committed to the environment
and the well-being of its coffee growers and had
been at the vanguard of establishing ethical trade standards for
coffee. Nevertheless, the company, often hailed as a
titan of Corporate Social Responsibility (CSR), found itself in a
potential public relations nightmare, as it opposed
an economic strategy devised by one of the world’s poorest
countries.
Background
Consolidation of the Coffee Supply Chain
Over the past two decades world coffee production and
distribution has become dominated by a small number of
transnational corporations (TNCs). As such, it represents just
one of a number of commodities whereby retail chains
have immensely increased the geographical reach of their
sourcing systems and expanded the power that they exert
over their supply chains, which include their employees,
suppliers and distributors.3
Transnational corporations have the power to determine what
goods are produced, how they are produced, who
produces them and how they are marketed and distributed.4 By
the early 1990s, four major manufacturers and eight
major trading companies controlled the majority of coffee being
traded in the major consuming markets of North
America, Europe, Japan and Australia. These four companies
combined to account for more than 60% of total coffee
sales across all major consuming markets and have used their
infl uence to derive additional profi ts out of producing
regions.5
1 2010. “Small Business - Trademark Protection - How to

Trademark Your Name - USPTO Stopfakes.gov.” United States
Patent and Trademark
Offi ce. Accessed December 5, 2010 at
http://www.uspto.gov/smallbusiness/trademarks/
2 2010. “Trademark FAQs.” United States Patent and
Trademark Offi ce. (August 12, 2010). Accessed December 5,
2010 at http://www.uspto.
gov/faq/trademarks.jsp#Basic002
3 Ibid. 374.
4 Ibid. 367.
5 Talbot, John M. 2004. Grounds for Agreement: the Political
Economy of the Coffee Commodity Chain. Lanham, MD:
Rowman & Littlefi eld.
Page 102.
In the coffee value chain, it is the laborers or farmers from
these regions who occupy the bottom tier of the industry.
They are tasked with planting seeds, picking coffee cherries,
processing the cherries, drying the beans and removing
defective beans.6 In Starbucks’ chain, all of this labor earns a
farmer an average of $1.45 per pound, while the end
product may retail for as much as $26 per bag in a Starbucks
shop.7 The vast majority of these workers has little to
no bargaining power and has few protections from abuse by
their employers.8
Some scholars argue, however, that even being located at the
bottom of a fi rm’s value chain can bring signifi cant,
tangible benefi ts to a host economy. Often, to ensure high
quality products, companies will readily offer
technological transfer to local vendors.9 This in turn, can help
these vendors to improve effi ciency and increase

output. Moreover, being located in the value chain of a
transnational corporation offers workers predictable income,
greater accessibility to foreign markets, an easing of fi nancial
constraints and the potential for the diffusion of the
fi rms knowledge and expertise.10
Middlemen occupy the space between farmer and retailer.
These collectives and fi rms are charged with exporting
and further processing the coffee before it is ready to sell.
They enjoy considerably more authority than the
farmers.11 Nonetheless, most of the power remains with
retailers, who have the ability to dictate the prices, delivery
and quality of the products.12 Some local organizations, such
as the Oromia Coffee Farmers Cooperative Union
have emerged to advocate on behalf of farmers and their
families; however, their ability to negotiate higher prices
and fairer conditions is remains limited compared to the power
of TNCs. In addition, dues to these organizations cut
into whatever profi t farmers are able to secure from the fruits
of their labor.13
The National Coffee Association
Founded in 1911, the National Coffee Association (NCA)
represents the interests of the U.S. coffee industry.14
Domestically, the NCA has defended the interests of the
industry before both the legislative and executive branches
of government, including the U.S. Department of Agriculture,
U.S. Trade Representative’s Offi ce, U.S. Food and
Drug Administration and Congressional committees.15 For
example, in 1958, the NCA sent a delegation to meet
with the Assistant Secretary of State for Economic Affairs to
express concerns regarding the Latin American coffee
market. The NCA feared that rising economic instability would
severely disrupt supply lines of green coffee.16

6 2010. “Ten Steps To Coffee - National Coffee Association.”
Home - National Coffee Association. Accessed November 4,
2010 at http://www.
ncausa.org/i4a/pages/index.cfm?pageid=69
7 Faris, Stephan. 2007. Starbucks vs. Ethiopia. Fortune
Magazine. Page 1. Accessed on September 24, 2010 at
http://netdrive.montclair.
edu/~lebelp/.../SFarisStarbucksEthiopia.pdf.
8 Dicken, Peter. 2007. Global Shift: Mapping the Changing
Contours of the World Economy. New York: Guilford. Page
363.
9 Blalock, Garrick. 2003. Technology from Foreign Direct
Investment: Strategic Transfer Through Supply Chains.” Ithaca,
NY: Cornell Univer-
sity. Page 3.
10 Krüger, Paul. 2010. “Transnational Corporations,
Agricultural Production and Development.” United Nations
Conference on Trade and
Development. Page 15.
11 Jaffee, Daniel. 2007. Brewing Justice: Fair Trade Coffee,
Sustainability, and Survival. Berkeley: University of California,
2007. Page 53.
373.
13 2010. “OCFCU, a union of small coffee farmers.” Oromia
Coffee Farmers Cooperative Union. Accessed on December 1,
2010 at http://www.
greendevelopment.nl/progreso/ocfcu/#
14 2010. “About the NCA - National Coffee Association.”
Home - National Coffee Association. Accessed October 29,
2010 at http://www.
15 Ibid.

Page 60.
More recently, the NCA has funded a number of studies
primarily concerned with consumer research, new product
trends and the U.S. coffee market. 17 The NCA also offers its
members quarterly statistical reports concerning the
U.S. and world coffee production and trade.18
Internationally, the NCA has been very active in advancing U.S.
coffee industry interests. It has served as the
voice for the industry, representing American coffee before
international trading organizations, as well as among
50 different coffee growing nations.19 John McKiernan, former
president of the NCA, played an integral role in the
drafting of the International Coffee Agreement (ICA), which
negotiated prices for both producing and consuming
countries. In the period 1962-1965, he appeared at all
Congressional hearings on various drafts of the legislation to
voice strong support of the ICA. This legislation helped
guarantee reliable supplies of coffee for U.S. companies,
and helped facilitate special deals between Brazilian and
Columbian suppliers and large, national, U.S.-based
fi rms.20
Starbucks is an active member of the NCA and a signifi cant
player in the U.S. coffee industry.21 However, its size
pales in comparison to that of large TNC manufacturers. While
Starbucks represents over 85% of the U.S. coffee
market in terms of the number of retail stores, four other U.S.
based companies account for the vast majority of
coffee sales.22 Nestlé, Phillip Morris, Sara Lee, and Procter &

Gamble combined account for 60% of sales in major
consuming markets.23 The NCA’s 2009 committee roster lists
forty companies, and of the seventy-four individual
members listed, fi ve are from Starbucks, two of which occupy
leadership positions within the NCA.24
Fair Trade and the Rise of Global Certifi cation Programs
In response to the globalization of trade, markets, and
communications, sources of non-governmental market
regulation have arisen to supplement or subsume government
regulatory structures. These new modes of
governance include voluntary, self-regulatory and shared
governance structures.25 One such non-state regulatory
structure is Fair Trade certifi cation.
As described by scholars Steven Bernstein and Benjamin
Cashore, non-state, market driven systems such as Fair
Trade “attempt to ameliorate global problems that, in their
absence, fi rms have little incentive to address.”26 Such
problems include fi sheries depletion, harmful environmental
impacts from forestry, tourism, food production, and
mining, rural and community poverty and inhumane working
conditions.27
17 2011. “NCDT Main Page - National Coffee Association.”
Home - National Coffee Association. Accessed March 14, 2011
at http://www.
18 2010. “Coffee Trade Statistics - National Coffee
Association.” Home - National Coffee Association. Accessed on
March 14, 2011 at http://
www.ncausa.org/i4a/pages/index.cfm?pageid=39
19 2010. “About the NCA - National Coffee Association.”
Home - National Coffee Association. Accessed October 29,
2010 at http://www.

Page 60.
21 For example, Howard Schultz, Starbucks President and Chief
Executive Offi cer will deliver the keynote address for the
NCA’s Centennial
Convention in March, 2011.
http://www.ncausa.org/custom/headlines/headlinedetails.cfm?id
=733&returnto=1
22 Lazich, Robert S. 2010. Market Share Reporter 2011: an
Annual Compilation of Reported Market Share Data on
Companies, Products, and
Services Volume II. Detroit, MI: Gale Cengage Learning, 2010.
Page 682.
Page 104.
24 2010. “NCA Committees Membership - National Coffee
October 14, 2010 at
http://www.ncausa.org/i4a/pages/Index.cfm?pageID=371
25 Bernstein, Steven, and Cashore, Benjamin. “Can non-state
global governance be legitimate? An analytical framework.”
Regulation & Gover-
nance 2007(1): 347-371. Page 347.
26 Ibid. 350.
27 Ibid. 348.
Businesses have the incentive to become associated with certifi

cation systems such as Fair Trade because of
the benefi ts which they provide.28 Business has come to
realize that operating in alignment with certifi cation
programs create value.29 Potential consequences for failing to
adhere to the norms of certifi cation programs may
be considerable and include a loss of market share as consumers
refuse to buy the products of “bad” fi rms, loss of
fi nancial resources as investors turn elsewhere, litigation costs
as advocates bring their issues into the legal system,
and increased electoral support for potentially costly regulation
of corporate behavior.30
The development of the Free Trade certifi cation system can be
traced to a combination of rising Western incomes
and increasing consumer concerns with food quality, safety and
fair treatment of farmers and growers.31 In
developed economies, like those of the U.S. and Western
Europe, the proportion of income spent on food has
dropped markedly in the past half century. Whereas 50-60
years ago one-third of income was spent on food, food
now only accounts for one-tenth of household expenditures.
Increasing affl uence and more disposable income have
fueled the growth of an ethical consumer movement.32
Supporters of Fair Trade and other certifi cation systems point
to their potential to redistribute value across the
production value chain, away from retailers and toward farmers.
Systems like Fair Trade may also serve to
reaffi rm trust between producers and consumers.33
Internationally, Fair Trade Labelling Organizations
International
(FLO), which covers such internationally traded commodities
and specialized goods as coffee, tea, cocoa, sugar
and bananas, governs the system.34 In the U.S., TransFair
USA, a member of the FLO, is the body that designates
the Fair Trade certifi ed label.35 To date, roughly 5 million

farmers and workers are covered by the Fair Trade
scheme, which offers farmers a guaranteed price covering basic
costs, in addition to a surplus to reinvest in further
development.36
Starbucks Coffee Company
The fi rst Starbucks opened its doors in 1971 in Seattle’s Pike
Place Market (see the timeline in Appendix A).. In
1982, eventual Starbucks chairman Howard Schultz joined the
company as the director of retail operations and
marketing. In just fi ve years, he facilitated Starbucks’
expansion outside of Seattle opened stores in Chicago and
Vancouver. After fi ve more years, he decided to take the
company public and in 1992 Starbucks completed its
Initial Public Offering (IPO). On its way to becoming
internationally renowned as an ethically conscious company,
Starbucks partnered with Conservation International in 1999 to
promote environmentally friendly growing methods
and Starbucks began selling Fair Trade certifi ed coffee in
2000.37 Recently, the company was voted the ‘Most
Ethical Company’ in the European industry for the second
consecutive year.38 2010 also marked the fourth straight
year in which Starbucks was recognized on Ethisphere
Magazine’s list of the globe’s most ethical companies.39
28 Ibid. 361.
29 Avant, Deborah D., Martha Finnemore, and Susan K. Sell.
2010. Who Governs the Globe? Cambridge, UK: Cambridge UP.
Page 106.
30 Ibid. Page 113.
351.
359.

33 Ibid. Page 351.
34 Bernstein, Steven, and Cashore, Benjamin. “Can non-state
global governance be legitimate? An analytical framework.”
Regulation & Gover-
nance 2007(1): 347-371. Page 350.
35 2010. “Fair Trade USA | About Us.” Fair Trade USA |
Home. Accessed November 3, 2010 at
http://www.transfairusa.org/content/about/abou-
tus.php
359.
37 2010. Starbucks Company Timeline. January 2010. Accessed
October 31, 2010 at
http://assets.starbucks.com/assets/starbucks-timeline-basic-
jan2010.pdf.
38 2010. “Starbucks Newsroom: Starbucks Honored With ‘Most
Ethical Company in Europe’ Award for the Second Year
Running and ‘Best
Branded Coffee Shop Chain in Europe’ Award.” Starbucks
Newsroom: Home. Accessed on March 12, 2011 at
http://news.starbucks.com/news/
starbucks honored with most ethical company in europe award
for second year.htm
39 2010. “Company Information.” Starbucks Coffee Company.
Accessed December 6, 2010 at
http://www.starbucks.com/about-us/company-information
Starbucks’ mission, as presented in is corporate materials and
on its website is “to inspire and nurture the human
spirit – one person, one cup and one neighborhood at a time.”
In the spirit of living that mission daily, Starbucks

has sought to adhere to principles consistent with that mission.
In terms of coffee, Starbucks is committed to selling
a quality product, ethically sourced from “the fi nest beans” and
roasted “with great care.” It has also pledged
accountability to its shareholders, holding to the belief that in
balancing these interests, Starbucks, and everyone
with whom it comes into contact will endure and thrive. For
shareholders, this means that they will be rewarded
fi nancially as Starbucks enjoys success from its operations.40
As a result of Starbucks’ commitment to ethical sourcing, it has
a clear incentive to seek Fair Trade Certifi cation,
as this system is more in line with the companies espoused
values. Its stated goal is to have 100% of its “coffee
certifi ed or verifi ed by an independent third party,” such as
TransFair USA.41 Additional objectives of Starbucks
include doubling purchases of Fair Trade certifi ed coffee in
2009, and to invest further in communities by doubling
loans to farmers by 2015.42 According to Starbucks,
“responsibly grown, ethically traded coffee means working
with farmers to produce coffee in ways that help provide benefi
ts to their business, their communities and the
environment.”43
The Coffee and Farmer Equity (C.A.F.E.) Practices buying
guidelines represent a specifi c initiative set up by
Starbucks in order to adhere to its strategy of purchasing
ethically sourced coffee. In 2003, in conjunction with
Conservation International, Starbucks established the
guidelines, which focused on four main areas: product quality,
economic accountability, social responsibility and economic
leadership.44 Scientifi c Certifi cation Systems (SCS), “a
global leader in independent certifi cation and verifi cation of
environmental sustainability, stewardship, food quality,
food safety and food purity claims” oversees the evaluation of
C.A.F.E. practices.45

Thanks to its voluntary and eager participation in certifi cation
systems, Starbucks has earned a reputation as a leader
in Corporate Social Responsibility. After increasing its Fair
Trade purchases from 19 million pounds in 2008 to
39 million pounds in 2009, it is now the largest purchaser of
Free Trade certifi ed coffee in the world.46 In addition,
81% of the 367 million pounds of coffee purchased by
Starbucks in 2009 was purchased from C.A.F.E. approved
suppliers.47
Starbucks has also established Farmer Support Centers in Africa
and the Caribbean to provide local farmers with the
resources and expertise to help lower the cost of production,
reduce fungus infections, improve coffee quality
and increase the production of premium coffee.48 In the
African center, farmers are taught how to implement more
environmentally responsible growing methods, improve the
quality and size of harvests, and to ultimately earn better
prices.49
The impact of Starbucks’ efforts can be felt directly by workers,
such as those who farm in Fero, a village located
in southern Ethiopia. Coffee originating from Fero is part of
Starbucks’ premium line. The added revenue garnered
40 2010. “Mission Statement.” Starbucks Coffee Company.
Accessed September 29, 2010 at
http://www.starbucks.com/about-us/company-infor-
mation/mission-statement
41 2010. “Coffee.” Starbucks Coffee Company. Accessed
September 29, 2010 at
http://www.starbucks.com/responsibility/sourcing/coffee
42 2010”Farmer Support.” Starbucks Coffee Company.
Accessed October 1, 2010 at
http://www.starbucks.com/responsibility/sourcing/farmer-
support

45 2010. “About SCS.” Scientifi c Certifi cation Systems.
Accessed November 12, 2010 at http://www.scscertifi
ed.com/about_scs.php
48 2010”Farmer Support.” Starbucks Coffee Company.
http://www.starbucks.com/responsibility/sourcing/farmer-
support
49 2010. “Coffee Purchasing | Starbucks Shared Planet Goals &
Progress 2009.” Starbucks Coffee Company. Accessed
http://www.starbucks.com/responsibility/learn-more/goals-and-
progress/coffee-purchasing#open
from the company’s Fair Trade prices--$15,000 annually--
helped bring electricity to the village from a nearby
power grid.50 On a per farmer basis, however, the extra
earnings for these producers of a “premium line” of
Starbucks coffee are extremely small. The $15,000 breaks
down to only an additional $6.20 annually for each of
Fero’s 2,432 farmers.51

As with any corporate giant, does have its detractors. Some
critics claim that as the company continues to expand, it
is destroying communities and livelihoods. Others, like Chris
Grimshaw of Corporate Watch, charge that Starbucks
merely gives off the image of ethics and is solely committed to
increasing shareholder profi ts.52 The company
has also taken heat from investors concerned about the
reputational, fi nancial and legal implications of the use of
genetically engineered foods.53
Starbucks Battles Ethiopia over Trademark Certifi cation
Ethiopia ranks in the bottom ten on the United Nations’ human
development index for income, health and education.
Eighty percent of Ethiopians live on less than $2 per day.
Coffee represents almost half of the country’s export
income.54 Despite Starbucks’ commitment to offering Fair
Trade prices and other farmer empowerment initiatives,
Ethiopian farmers do not get much money for their labor. There
is approximately a $25 per pound difference in
what Starbucks sells the coffee for and what farmers collect as
payment.55 In 2005, the Ethiopian government
formulated a plan to reduce this discrepancy.
The Ethiopian government estimated that Ethiopia could
increase coffee earnings by $80 million per year by
trademarking specialty coffee names.56 It devised a two-
pronged development strategy, using tools generally
reserved for corporations, to capture more of the value
generated by sales of Ethiopian coffee. First, the government
attempted to get companies to enter into licensing agreements,
in the hopes of eventually obtaining a larger share of
the sales revenue. Starbucks refused this request, arguing that
it was legally onerous and would not assist Ethiopian
growers in securing more money.57 In March of 2005, the

government implemented the second phase of the plan
when the Ethiopian Intellectual Property Offi ce (EIPO) fi led
to trademark the names of three coffee producing
regions, Yirgacheffe, Harrar and Sidamo. The country’s efforts
were successful in Europe, Canada and Japan;
however, they hit a roadblock in the United States. 58
Starbucks Disagrees with Ethiopia’s Stance
Starbucks had applied with the U.S. Patent offi ce a year earlier
to trademark the name of Shirkina Sun-Dried
Sidamo. For Starbucks, the exclusivity of a trademark would
give it an advantage over its competitors within the
coffee retail market, while for the Ethiopian government and its
farmers, trademarking could potentially increase
visibility in the market and ultimately result in higher export
premiums and profi ts from the sale of coffee beans.
Until Starbucks’ application had been resolved, Ethiopia could
not move forward with its own. Thus, it requested
51 Ibid.
52 2005. “Starbucks Under Fire in Europe for Greenwashing.”
Organic Consumers Association. Accessed on March 14, 2011 at
http://www.
organicconsumers.org/starbucks/underfi re012605.cfm
53 http://news.bbc.co.uk/2/hi/business/1844618.stm
54 2006. “The Starbucks Bully.” America 195(19): 4. Page 4.
55 Ford, Holly M., and Bryce J. Maynard. 2007. “Starbucks and
Ethiopia Settle “Brewing” Dispute.” The Licensing Journal
27(8): 29-30.
Page 29.

27(8): 29-30.
Page 29.
57 Adamy, Janet. 2007. “Starbucks, Ethiopia Agree on
Licensing.” The Wall Street Journal (June 21, 2007).
27(8): 29-30.
Page 29.
that Starbucks withdraw its claim. Again, the coffee
corporation was resistant and its response suggested that
Ethiopian representatives talk to Starbucks’ lawyers. 59
Starbucks expressed concerns that Ethiopia’s trademark effort
would not in fact help workers. Rather, it would
introduce legal complexities that could deter companies from
purchasing Fair Trade coffee, and consequently end
up harming farmers.60 Some have sided with Starbucks,
arguing that the Ethiopian government is simply trying
to profi t off of the situation. It is possible that granting the
government a trademark for the names would give it
complete control over the use of the marks, and enable it to
prevent non-favored farmers from benefi ting from the
trademark.61 Thus, some suspect that the government was
simply trying to boost its own revenues, with little money
being allocated to help coffee growers.62 Others have argued
that the government should have instead focused
on “creating a business-friendly legal system, with meaningful
property rights, to give Ethiopians a better shot at
escaping poverty through their own efforts.” Ethiopia ranks
97th in the World Bank’s “ease of doing business”
index and 130th in Transparency International’s corruption-

perceptions index.63
Starbucks claimed that the regions seeking a trademark should
instead pursue geographical certifi cation marks. The
company publicly offered to assist the EIPO with establishing a
national system for such marks.64 A geographical
certifi cation mark certifi es that products bearing the mark
originated in a certain country or region, but allows others
to use the name in their branding.65 This strategy of
geographical certifi cation is used to certify Idaho potatoes,
Florida oranges, and Roquefort cheese. It has also been used
successfully for both Blue Mountain and Kona coffees.
In contrast a trademark gives the holder the exclusive ability to
use the name in branding, but does not place any
restrictions on the product.66 In a statement, Starbucks claimed
“these [geographical certifi cation] systems are far
more effective than registering trademarks for geographically
descriptive terms, which is actually contrary to general
trademark law and customs.”67 According to Dub Hay,
Starbucks’ vice president for coffee and global procurement,
he couldn’t “name one case in where there are trademarks for
coffee.”68
In June 2006, Starbucks dropped its application for Shirkina
Sun-Dried Sidamo. This came two weeks after the
NCA had fi led a letter of protest to the U.S. Patent and
Trademark Offi ce, opposing the trademarking of all three
of Ethiopia’s regions. The NCA, whose Government Affairs
committee was chaired by Starbucks vice president,
Dub Hay, argued that the names could not be trademarked
because they were commonly used to refer to coffee.69
The offi ce approved trademarking Yirgacheffe but refused
registration of Sidamo because its name was generic and

60 2006. “Starbucks v Ethiopia: Storm in a Coffee Cup | The
Economist.” The Economist - World News, Politics, Economics,
Business & Fi-
nance. (March 30, 2006). Accessed October 21, 2010 at
http://www.economist.com/node/8355026?story_id=8355026
27(8): 29-30.
Page 30.
Business &
Finance. (March 30, 2006). Accessed October 21, 2010 at
Business &
Finance. (March 30, 2006). Accessed October 21, 2010 at
64 2010. “The Coffee War: Ethiopia and the Starbucks Story.”
WIPO - World Intellectual Property Organization. Accessed
December 6, 2010 at
http://www.wipo.int/ipadvantage/en/details.jsp?id=2621
27(8): 29-30.
Page 29.
December 6, 2010 at

demanded that Ethiopia prove that Harrar did not refer to a
generic name for a type of coffee. Justifying its decision,
the offi ce claimed that consumers were likely to view the
names as generic indicators, rather than as the trademarks
identifying the source.70 Despite the coincidental timing of the
petition and Hay’s position in the NCA, Starbucks
has denied any direct involvement in the NCA’s actions. For its
part, the NCA has claimed that the situation “was
not brought to the attention of the NCA by any of its
members.”71
Ethiopia and its Supporters’ Counterarguments
Ethiopia claimed that its beans routinely sold for three times
that of ordinary coffee and its decision to trademark
was aimed at capturing some of that value.72 Country
representatives argued that geographical certifi cation, as
suggested by Starbucks, would prove ineffective because it
would not give the Ethiopian government control over
coffee produced under the designation and would subsequently
undermine its ability to increase the prices paid to
farmers.73 Furthermore, the EIPO insisted that the Ethiopian

coffee industry was ill equipped to take on the burden
required to regulate the use of its product.74 Getachew
Mengistie, general director of the EIPO explained that
“setting up a certifi cation system would have been
impracticable and too expensive,” and that trademarking was
more appropriate for Ethiopia’s needs.75 The government was
not requesting royalties for its trademarked products,
rather, it simply wanted to promote the names of its coffee-
growing regions, in order to increase demand, and
ultimately negotiate higher prices.76
Several non-governmental organizations (NGO’s) involved with
labor rights issues came to Ethiopia’s defense.
Of these organizations, Oxfam, an international relief and
development organization, was the most prominent.
Supporting Ethiopia’s strategy, Oxfam stated, “Specialty
coffees in other regions of the world can get up to 45 per
cent of the retail price, compared with the 5 to 10 per cent
Ethiopians are currently receiving.” The EIPO also
gained the support of scholar, Douglas Holt. Holt, the L’Oréal
Professor of Marketing at Oxford University’s Saïd
Business, School, claimed that “With a certifi cation mark,
Starbucks and other Western coffee marketers would
still have full control over Ethiopian coffee brands.”
Contrastingly, by requiring licenses for companies wanting
to use the names, trademarks would provide Ethiopian coffee
producers with a commercial asset that they could
control. He also warned that Starbucks risked damaging its
brand and alienating its customers, stating: “In their
rash attempt to shut down Ethiopia’s applications, [Starbucks]
have placed the Starbucks brand in signifi cant peril.
Starbucks customers will be shocked by the disconnect between
their current perceptions of Starbucks’ ethics and
the company’s actions against Ethiopia.”77

27(8): 29-30.
Page 29.
27(8): 29-30.
Page 30.
December 6, 2010 at
77 Acey, Madeleine. 2006. “Ethiopian Coffee Trademark
Dispute May Leave Starbucks with Nasty Taste - Times
Online.” The Times | UK News,
World News and Opinion. (November 27, 2006). Accessed on
December 1, 2010 at
http://business.timesonline.co.uk/tol/business/markets/africa/
article650824.ece

Consumers did respond as well. More than 70,000 people faxed
letters of complaint to Jim Donald, a Starbucks
chief executive, as part of Oxfam’s protest of the company.78
Post-Script
In 2007, Starbucks and Ethiopia agreed on a trademark
settlement brokered by Howard Schultz, Chairman of
Starbucks. 79 For its part, Starbucks has agreed to promote
Ethiopia’s coffee in its stores. In addition, it will
recognize Ethiopia’s ownership of Yiracheffe, Harrar and
Sidamo, regardless of any decision by the U.S. Patent and
Trademark Offi ce. Lastly, Starbucks will open up a new
agronomic center in Ethiopia, helping farmers to improve
the profi tability of their crops. In exchange, the company will
not be subject to any royalties or licensing fees
emanating from its use of Ethiopian brand trademarks. 80
Starbucks has continued to be at the forefront of CSR efforts.
In 2009, in partnership with Tranfair USA and the
FLO, it launched the Small Farmer Sustainability Initiative
(SFSI). Through the initiative, Starbucks and the FLO
have committed to working together to offer a greater range of
small-scale farmer support and capacity-building
services. 81 2010 marked the fourth consecutive year that
Starbucks was recognized on Ethisphere Magazine’s list of
the world’s most ethical companies. This designation
recognizes companies who “demonstrate real and sustained
ethical leadership within their industries.”82
Starbucks vice president for coffee and global procurement,
Dub Hay, went on to become the Chairman of the Board
of Directors of the NCA.83

After initially being denied trademarks for Harrar and Sidamo,
the EIPO fi led rebuttals against the USPTO’s
decisions. It successfully argued that the terms Harrar and
Sidamo had acquired distinctiveness. In August 2006,
the USPTO approved Ethiopia’s trademark of Harrar, and in
February 2008, it approved the Sidamo trademark.
Following approval, Ethiopia implemented a royalty-free
licensing scheme, which required the licensee (coffee
retailers) to sell Ethiopian specialty coffees using the registered
trademarks and to promote Ethiopian fi ne coffee by
educating their consumers. According to the EIPO, this strategy
will boost the reputation of Ethiopian fi ne coffee
and increase its visibility in the market. This will allow the
government to raise the export premium for specialty
coffee.
As of mid-2009, nearly one hundred license agreements had
been negotiated with coffee importers, roasters and
distributors in Europe, Japan, South Africa and North America.
Prior to the trademarks, Ethiopia was retaining
just 6 percent of the fi nal retain price for its coffee. Whereas
U.S. retailers were receiving up to $28 per kilogram,
farmers were receiving as little as $1 per kilogram. However,
in Yirgacheffe, since the agreements, the price
collected by farmers has increased substantially. They now
collect up to $4 per kilogram, with estimates that
78 Ibid.
27(8): 29-30.
Page 30.
80 2010. “Ending Dispute, Starbucks Is to Help Ethiopian
Farmers.” The New York Times. (November 29, 2007).

http://www.nytimes.com/2007/11/29/business/29sbux.html
81 2010. “Coffee Purchasing | Starbucks Shared Planet Goals &
Progress 2009.” Starbucks Coffee Company. Accessed
http://www.starbucks.com/responsibility/learn-more/goals-and-
progress/coffee-purchasing#open
82 2010. “Company Information.” Starbucks Coffee Company.
Accessed December 6, 2010 at http://www.starbucks.com/about-
us/company-
information
83 2010. “NCA Committees Membership - National Coffee
October 14, 2010 at
http://www.ncausa.org/i4a/pages/Index.cfm?pageID=371
suggest farmers could secure up to $8 per kilogram over the
coming years. Ethiopia’s total coffee exports are
expected to increase to $1.2-$1.6 billion from the $400 million
the country garnered annually prior to the existence
of the trademarks.84
December 6, 2010 at
Strategic Analysis Of Starbucks Corporation

By: Nithin Geereddy (ID: 80842082)

1) Introduction:
Starbucks Corporation, an American company founded in 1971
in Seattle, WA, is a premier roaster, marketer and
retailer of specialty coffee around world. Starbucks has about
182,000 employees across 19,767 company
operated & licensed stores in 62 countries. Their product mix
includes roasted and handcrafted high-
quality/premium priced coffees, tea, a variety of fresh food
items and other beverages. They also sell a variety of
coffee and tea products and license their trademarks through
other channels such as licensed stores, grocery and
national foodservice accounts.
1
Starbucks also markets its products mix with other brand names
within its
portfolio of companies, which include Teavana, Tazo, Seattle’s

Best Coffee, Starbucks VIA, Starbucks
Refreshers, Evolution Fresh, La Boulange and Verismo.
Starbucks had total revenue of $14.89 billion as of
September 29
th
, 2013.
2
2) External Environment Of The Retail Market For Coffee &
Snacks:
2.1) Industry Overview and Analysis:
Starbucks primarily operates and competes in the retail coffee
and snacks store industry. This industry
experienced a major slowdown in 2009 due to the economic
crisis and changing consumer tastes, with the
industry revenue in the US declining 6.6% to $25.9 billion.
Before this, the industry had a decade of growth
consistent. Due to the economic slump, consumers spent less on
luxuries like eating out, choosing to purchase
low-price items instead of high-priced coffee drinks due to
shrinking budgets.
3
The industry grew at a low

annualized average growth rate of 0.9% from 2008 till 2013
with current industry revenues at $29 billion in the
US. The industry is now forecasted to grow at an annualized
rate of 3.9% over the next five years, with a potential
to reach $35.1 billion revenues in the US. This growth would be
mainly driven by an improving economy,
increase in consumer confidence and expanding menu offerings
within the industry. Starbucks dominates the
industry with a market share of 36.7%, Dunkin Brands with
24.6% and other competitors like McDonalds, Costa
Coffee, Tim Horton’s etc. taking the rest as shown in Appendix
1.
4
2.2) Industry Life Cycle and Market Share Concentration:
This industry is in a mature stage with a medium level
concentration. Starbucks and Dunkin Brands make up
more than 60% of the market share (Appendix 1), giving them
considerable market power in determining industry
trends. Industry Structure is given in Appendix 3.
2.3) Industry Demand Determinants and Profitability Drivers:
The industry’s demand for premium coffee and snack products

are mainly driven by a number of factors which
include disposable income, per capita coffee consumption,
attitudes towards health, world pricing of coffee and
demographics. This industry is highly sensitive to the
macroeconomic factors that affect the growth in household
disposable. During the recession, the decline in household
disposable income due to increased unemployment and
stagnant wages, caused a downward pressure on the revenue and
profitability margins in the industry. Another
crucial factor for analyzing the demand in the industry is the per
capita coffee consumption where the increase in
coffee consumption increases the revenue of coffee & snack
shops. The main driver of this consumption increase
would be the increase disposable income, as the economy
improves and consumers start to relax their budgets.
This driver has a positive effect on market revenue. Per capita
coffee consumption is expected to increase in 2014.
As coffee beans are the primary input in the value chain of the
industry participants, the prevailing volatile prices
of coffee beans determines market costs and profitability
margins. The world price of coffee has risen sharply in
recent years due to growing demand in other countries and the
resulting supply shortages. During the five years to

2018, coffee bean prices are projected to decrease, which will
likely translate into lower market costs and higher
profitability.
5
Attitudes towards health also play an important role in
determining the demand in the industry.
There is an expected shift towards healthy eating and diet
among the consumers in 2014, and this could be a
potential threat to the industry as they become more aware of
issues related to weight and obesity. There has been
a proactive shift among the industry participants to tailor their
menus towards more organic and healthy products
mix.
2.4) Porters Five Forces Analysis of the Retail Coffee and
Snacks Industry:
Threat of New Entrants: Moderate
as the barriers to entry are not high enough to
discourage new competitors to enter the market. (Appendix 2
shows Barriers to Entry Checklist).

monopolistic competition structure.
not significant as
they can lease stores, equipment etc. at a moderate
level of investment.
likes of Starbucks and Dunkin Brands because
there are no switching costs for the consumers. Even thought
it’s a competitive industry, the possibility of new
entrants to be successful in the industry is moderate.
countered by large incumbent brands identities like
Starbucks who have achieved economies of scale by lowering
cost, improved efficiency with a huge market
share. There is a moderately high barrier for the new entrants as
they differentiate themselves from Starbuck’s
product quality, its prime real estate locations, and its store
ecosystem ‘experience’.
6
scope, yielding them a learning curve advantage
and favorable access to raw material with the relationship they
build with their suppliers.
etaliation from well-established companies for
brand equity, resources, prime real estate
locations and price competition are moderately high, which
creates a moderate barrier to entry.

Threat of Substitutes: High
te beverages to coffee,
which are mainly tea, fruit juices, water,
soda’s, energy drinks etc. Bars and Pubs with non/alcoholic
beverages could also substitute for the
social experience of Starbucks
offee
with household premium coffee makers
at a fraction of the cost for buying from premium coffee
retailers like Starbucks.
to substitutes, which makes the threat
high.
tant to note that industry leaders like Starbucks
are currently trying to counter this threat
by selling coffee makers, premium coffee packs in grocery
stores but this threat still puts pressure their
the margins.
Bargaining Power of Buyers: Moderate to Low Pressure
buyer can demand price concession.
consumer base, which make relatively low
volume purchases, which erodes the buyer’s power.

availability of substitute products, industry
leaders like Starbucks prices its product mix in relation to rivals
stores with prevailing market price
elasticity and competitive premium pricing.
retailing as they pay a premium for higher
quality products but are watchful of excessive premium in
relation product quality.
Bargaining Power of Suppliers: Low to Moderate Pressure
beans and premium Arabica coffee grown
in select regions which are standard inputs, which makes the
cost of switching between substitute
suppliers, moderately low.
advantage of its suppliers but it maintains a Fair trade
certified coffee under its coffee and farmer equity (C.A.F.E)
program, which gives its suppliers a fair
partnership status, which yields them some moderately, low
power.
7

competing against Starbucks by forward vertical
integration, which lowers their power.
portant part of the suppliers
business, due its size and scope, which make the
power of the suppliers lower. Given these factors, suppliers
pose a moderately low bargaining power.
Intensity of Competitive Rivalry: High to Moderate
a monopolistic competition, with Starbucks
having the largest markets share and its closest
competitors also having a significant market share, creating
significant pressure on Starbucks.
competitors, which crates high intensity in rivalry.
competitive advantage as it differentiates its products
with premium products and services, which cause a moderate
level of intensity in competition.
he industry is mature and growth rate has been moderately
low which cause the intensity of competition
among the companies to be moderately high due to all of them
seeking to increase market shaper from
established firms like Starbucks.
y does not have over capacity currently and all
these factors contribute to the intensity among
rivals to be moderately high.

Looking at the Porters five forces analysis, we can get an
aggregate industry analysis that the strength of forces
and the profitability in the retail coffee and snacks industry are
Moderate.
3) Internal Analysis of Starbucks Corporation:
3.1) Starbucks Core Competence:
The core competence of Starbucks has been its ability to
effectively leverage their cornerstone product
differentiation strategies by offering a premium product mix of
high quality beverages and snacks. Starbuck’s
brand equity is built on selling the finest quality coffee and
related products, and by providing each customer a
unique “Starbucks Experience”, which is derived from supreme
customer service, clean and well-maintained
stores that reflect the culture of the communities in which they
operate, thereby building a high degree of
customer loyalty with a cult following. Its other core
competence is its human resource management's values-
based approach for building very strong internal and external
relationships with suppliers, which drives the

successful deployment of its business strategy of organic
expansion into international markets, horizontal
integration through smart acquisitions and alliances that
maintains their long-term strategic objective being the
most recognized and respected brands in the world.
3.2) Starbucks SWOT Analysis:
Strengths:
and Global Brand Recognition:
Starbucks has a significant geographical presence
across the globe and maintain a 36.7% market share in the
United States (Appendix 1) and has operations in
over 60 countries. Starbucks is also the most recognized brand
in the coffeehouse segment and is ranked 91
st
in
the best global brands of 2013.
8
Starbucks effectively leverages its rich brand equity by
merchandizing
products, licensing its brand logo out. Such strong market
position and brand recognition allows the company
to gain significant competitive advantage in further expanding
into international markets and also help register
higher growth in both domestic and international markets. Over

the years, they have achieved significant
economies of scale with superior distribution channels and
supplier relationships.
importance to the quality of their products and avoid
standardization of their quality even for higher production
output.
9
stores in some of the most prime and strategic
location across the globe. They target premium, high-traffic,
high-visibility locations near a variety of settings,
including downtown and suburban retail centers, office
buildings, university campuses, and in select rural and
off-highway locations across the world.
10
This has earned them a significant competence and advantage
to be
able to penetrate prime markets and tap into customers convince
factor. Their stores are visually appealing and
have a ‘cool’ factor attached to it with being designed to reflect

the unique character of the neighborhood they
serve in and environmentally friendly. They provide free wifi,
great music, great service, warm atmosphere
and provide an environment of community meeting spot, which
forms a wider part of the ‘Starbucks
Experience’. The main aim for the firm is to make their stores a
‘third place’ besides home and work.
11
highly knowledge base employees. They are the
main assets of the company and they are provided with great
benefits like stock option, retirement accounts
and a healthy culture. This effective human capital management
translates into great customer services. It was
rated 91
st
in the 100 best places to work for by Fortune Magazine.
12
Initiatives: Their stores are community friendly,
focused on recycling and reducing waste. They build goodwill
among communities where they operate.
13

Appendix 8, that caters to all age groups
demographic factors.
14
Use of Technology and Mobile Outlets: Starbucks efficiently
leverages technology with its mobile application
“Starbucks App’ in both apple and android software’s. They
make significant investments in technology to
support their growth every year.
15
Customer base loyalty: Starbucks has cult following status
among consumers and they have also implemented
loyalty-based programs to drive loyalty with the Starbucks
Rewards programs and Starbucks Card. The
Starbucks Card is a value card program that provides
convenience, support gifting, and increase the frequency
of store visits by cardholders and integrated with their mobile
application.
16
Weaknesses:
products with being highly quality couple with
the whole ‘Starbucks Experience’, in times of economic

sluggishness, consumers to have so switching costs to
competitor’s products with lower prices and forgo paying a
premium. These premium prices could also pose
some weakness for it to succeed in developing countries.
-Cannibalization through overcrowding: By aggressive
expansion and high saturation due to overcrowding
in the market leads to self cannibalization and diminishes long
term growth targets of Starbucks. This is
happening especially in the United States where Starbucks
operates 8078 stores.
17
self-cannibalization of the US market with 8078
stores, Starbucks generates a huge percentage of their total
revenue from the US and this makes it very
sensitive to prospects of the US economy and growth.
Starbucks does come under increased scrutiny
and have to invest in corporate social responsibility activates
and maintain tight control over labor practices.
countries: Starbucks coffee culture may not widely
accepted in some countries as part of their international
expansion strategy.
Opportunities:

and self-cannibalization of the US market makes its
international strategy even more important. Starbucks has made
good inroad into many countries, with India
recently joining the list with a joint venture entry.
18
Starbucks has a great growth potential in further expanding
into the emerging and developing markets. They can leverage
their size, experience, financial prowess and
efficiencies to make new market share.
19
started to expand their product mix by venturing into
the Tea and fresh juice product offerings with a smart
acquisition strategy.
20
This provides significant
opportunities for Starbucks.
packed coffee products, iced beverages and

merchandizes through large box retailers. This market’s
potential is yet to be fully realized and this provides
Starbucks great opportunities for the future to future monetizes
their brand.
mobile applications and has an investment
partnership with Square, a mobile payments app that is
integrated with its Starbucks app. This creates an ease
of use process for customers, aligns customer loyalty through
reward programs. Starbucks has already set the
bar in the industry with this advancement and about 10% of its
transactions in the US have been made using
mobile applications.
21
This is a growing field and would drive more business to their
stores as technology
advances.
version of a delivery system called Mobile Pour. This
presents a great opportunity for the future by expanding their
end product distribution systems and could drive
more revenue if the implementation is successful.
22
and it can leverage it to extend into horizontal lines

of its business and also venture into product diversification with
keeping brand dilution risk in check.
Threats:
Starbucks faces with the market being at a mature
stage, there is increased pressure on Starbucks from its
competitors like Dunkin Brands, McDonalds, Costa
Coffee, Pete’s Coffee, mom and pop specialty coffee stores.
Dunkin Brands had at its main threat in the US
market by trailing Starbucks with a 24.6% share. (Appendix 1)
significant fluctuations in the market prices of high
quality coffee beans, which Starbucks can’t control.
cks derives a
significant amount of its revenue from the
development markets and there is increased market saturation
currently.
economically integrated world, an economic crisis like the
one in 2008 could have a trickle down effect from the developed
markets to the developing markets. This
threat would hurt revenues for Starbucks as consumers shift
away from premium product mix to stay in limited
budgets during economic hardships.
sumer tastes and lifestyle choices: The shift of

consumers toward more healthy products and the
risk of coffee culture being just a fad represent a threat for
Starbucks going into the future.
3.3) Starbucks Generic Value Chain: Analysis in Appendix 6
3.4) Starbucks VRIO Analysis: Shown in Appendix 4. The
VRIO framework is used to analyze in detail the
competitive position of Starbucks Corporation and its strategic
positioning.
3.3) Starbucks Key Strategies:
One of the key strategy that Starbucks followed since its
inception is that of product differentiation offering
differentiators such as premium product mix, locations, coffee
beverages reputation and supreme customer service
that translated to building a premium valued brand which is
costly to imitate for competitors. Starbucks has also
followed a shrewd strategy of strategic alliance and making
smart acquisitions. Starbucks didn’t follow
franchising model and operated company oriented stores and
joint ventures in international markets. Starbucks
has made some key acquisitions such as Teavana (Tea
products), Bay Breads (premium bread products),
Evolution Fresh (fresh juice products) etc. to use the product

diversification strategy. Appendix 7 gives a whole
list of joint ventures, strategic alliances and acquisitions of
Starbucks. Starbucks acquisition strategy, as shown in
their acquisition history in Appendix, has been horizontal,
product and market extensions acquisitions. Another
crucial strategy for Starbuck’s growth has been its international
strategies of expanding into key developed and
emerging markets to geographically diversify, and it has been
highly successful with operation spanning 60
countries. All these strategies have derive considerable
competitive advantage for Starbucks over its competitors.
3.6) Starbucks Financial Performance Analysis:
Looking at a six year period ratio & growth analysis of
Starbucks’s financials from 2008 to 2013, we can see that
the revenue growth of the company has experience a drop of -
5.9% during the 2008/09 recession but from then
on, Starbucks posted a healthy revenue growth of from FY2010
to FY2013 with posting a great growth of 13.7%

in FY2012 and currently posted revenues $14.9 billion for
FY2013. The operating income margins have increase
substantially from 4.9% in FY2008 to a high of 15% in FY2012.
Starbucks posted an operating loss in FY2013
and this resulted in a operating margin of -2.2% for that year
and the main reason for that is due to a litigation
charge of $2.8 billion to Kraft Foods for terminating an
agreement with them. This charges is treated as
extraordinary event and therefore should be discounted from the
overall healthy operational performance of
Starbucks. Starbucks ROE and ROA have been impressive with
29.2% and 17.8% respectively for FY2012.
Looking at Starbucks efficiency ratios, Starbucks has gained
significant operational efficiency with impressive
asset and inventory turnover ratios with a low of 1.51 and 5.4
respectively for FY2013. But its interesting to note
that the company’s cash conversion cycle has increase to high
54.7 in FY2013, which is where Starbucks should
concentrate on to reduce to attain higher efficiency. Starbucks
boasts good financial health with low debt/leverage
with a debt/equity ratio of 0.29 for FY2013 and maintains
decent current and quick ratios. A detailed financial
ratio and growth calculations are given in Appendix 5.

4) Recommendations:
emerging markets of Brazil, India,
China, South Africa and Mexico with a growing middle-class
population continue to offer significant
opportunities to add new stores and serve more customers.
Starbucks has already made significant
inroads into the Chinese market but there still is a lot of
untapped potential growth in these markets.
Starbucks should grow in these emerging markets by winning
locally Starbucks must remain relevant
to the customer in order to grow in these markets, and its
management teams should have the freedom
to operate within their overall framework to tailor store format,
introduce local product mix and price
points to the needs, lifestyles and tastes of each individual
market/community.
core competencies and capabilities
country to country and then gradually build profit drivers in
several countries as it continues its global
expansion in an organic way.
Juice products mix. They should build up these
products along the same line of their core coffee products.

snacks and beverages options, Starbucks should
tailor its menu’s and expand to give more healthy product
offerings in its mix.
chain and there have been wide fluctuations in the
market prices of high quality coffee beans. Starbucks could
mitigate this price volatility risky by
implementing an effective hedging strategy like future contracts
to lock in their estimated quantity inputs at a
low swing price so that the future costs can be managed to a
greater extent.
focus on getting additional penetration into
untapped rural markets.
beverage products. Starbucks should build
better relationships with big box retailers to get premium shelf
space and increase the efficiency of this
distribution channel.
-K’s, we can see that Starbucks invest very
little in advertising and marketing initiatives. It
would be recommended that Starbucks make significant
investments in advertising and marketing initiatives
in the face of increased competition in the market.
concept of on-the-go home delivery.

so it would be recommended for further
building to stream lining ease of use and payment process which
would help drive more customers, decrease
wait time in stores and increase efficiency. Integrating
Starbucks loyalty program with the mobile application
would also be recommended.
References:
1
Starbucks 2013 10-K Form for FY ended on September 29th,
2013
2
2013
3
IBIS World: The Coffee & Snack Shop Industry in the US
Report, October 2013
4
5

6
http://www.starbucks.com/about-us/company-
information/mission-statement
7
8
http://interbrand.com/en/best-global-brands/2013/Starbucks
9
Starbucks 2013 10-K Form for FY ended on September 29
th
, 2013
10
th
, 2013
11
http://www.starbucks.com/coffeehouse/store-design
12
http://money.cnn.com/magazines/fortune/best-
companies/2013/snapshots/94.html
13
http://www.starbucks.com/responsibility/community
14

GlobalData: Starbucks Corporation Research Report, March
2013
15
http://blogs.wsj.com/corporate-
intelligence/2013/07/26/starbucks-talks-about-its-future-more-
food-more-digital/
16
th
, 2013
17
th
, 2013
18
http://online.wsj.com/article/PR-CO-20131122-905464.html
19
http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-
global-coffee-giant-has-new-
growth-plans/
20
http://seekingalpha.com/article/637841-starbucks-smart-
acquisition-strategy
21

http://techcrunch.com/2013/07/26/mobile-payment-at-u-s-
starbucks-locations-crosses-10-as-
more-stores-get-wireless-charging/
22
http://www.starbucks.com/blog/introducing-starbucks-mobile-
pour
23
2013
Supplementary Sources:
http://www.mckinsey.com/insights/growth/starbucks_quest_for_
healthy_growth_an_interview_
with_howard_schultz
http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-
global-coffee-giant-has-new-
growth-plans/
http://seattletimes.com/html/businesstechnology/2020031178_st
arbucksteavanaxml.html

healthy_growth_an_interview_with_howard_schultz
healthy_growth_an_interview_with_howard_schultz
Appendix 1: US Coffee and Snacks retail market share
Source: IBIS World Report
Appendix 2: Barriers to Entry Checklist
Appendix 3: Industry Structure

Appendix 4 continued next page…
Appendix 4: Detailed VRIO Analysis of Starbucks Corporation
Resources and Capabilities of Starbucks Corporation Value?
Rare? Costly to
Imitate?
Exploited? Competitive
Implication
Prime and Strategic Locations:
-traffic, high-visibility locations near a variety of
settings, including downtown and suburban retail centers,
office buildings, university campuses, and in select rural and
off-highway locations across the world.

Yes
Yes
No
Yes
Temporary
Competitive
Advantage
Global Brand Recognition & Equity
ranked 91
st
in the best global brands of 2013
products, licensing its brand.

Yes
Yes
Yes
Yes
Competitive
Advantage
Aesthetic Appeal and Concepts of its Stores
a ‘cool’ factor
attached to them.
atmosphere
and provide an environment of community meeting spot, which
forms a wider part of the ‘Starbucks Experience’.
ird place’ besides home
and
work.
they serve in and environmentally friendly.

Yes
Yes
Yes
Yes
Competitive
Advantage

Large Size and Strong Global Presence
and
supplier relationships
Yes
Yes
Yes
Yes
Temporary
Competitive
Advantage
Human Resource Management and Company Culture
retirement
accounts and well taken care of

culture
for by Fortune
Magazine
culture translates into supreme customer service
Yes
Yes
Yes
Yes
Competitive
Advantage
Leveraging Technology and Mobile Outlets
ps on iOS and Android

Yes Yes No Yes Temporary
Competitive
Advantage
Customer Loyalty and Cult Status
-based programs like Starbucks Rewards and
Starbucks
Card drive loyalty.
convenience, support gifting, and increases the frequency of
store visits by cardholders
Yes
Yes
Yes
Yes
Competitive

Advantage
Good Corporate Social Responsibility Image
and
reducing waste.
Yes
Yes
No
Yes
Temporary
Competitive
Advantage

Appendix 5: Starbucks Corporation’s Financials
Starbucks Corporation's Financials for Fiscal Year ending
September of each year (All USD figures in millions)
Key Ratio's/Accounts FY 2008 FY 2009 FY 2010 FY 2011 FY
2012 FY 2013
Profitability Ratio's
Revenue 10,383 9,775 10,707 11,700 13,300 14,892
Gross Margin % 19.2 55.8 58.4 57.7 56.3 57.1
Operating Income (USD Millions) 504 562 1,419 1,729 1,997 -
325
Operating Income Margin % 4.9 5.7 13.3 14.8 15 -2.2
Net Income (USD Millions) 316 391 946 1,246 1,384 8
Net Margin % 3 4 8.8 10.7 10.4 0.06
Return on Equity (ROE) % 13.2 14.1 28.14 30.9 29.2 0.17
Return on Assets (ROA) % 5.73 7 16 18.1 17.8 0.08
Earnings Per Share (EPS) 0.43 0.52 1.24 1.62 1.79 0.01
Efficiency Ratio's

Asset Turnover 1.89 1.74 1.79 1.7 1.71 1.51
Inventory Turnover 12.1 6.4 7.4 6.6 5.3 5.4
Fixed Asset Turnover 3.5 3.5 4.3 4.9 5.3 5
Days Sales Outstanding 10.9 11.2 9.8 10.75 12 12.8
Days Inventory 30.11 57.3 49.4 55.6 69.3 67.3
Payable Period 15.6 25 22.5 30.3 29.4 25.4
Cash Conversion Cycle 25.4 43.5 36.7 36.1 52 54.7
Liquidity & Financial Health Ratio's
Current Ratio 0.8 1.3 1.55 1.83 1.9 1.02
Quick Ratio 0.3 0.6 1 1.17 1.14 0.71
Debt/Equity 0.22 0.18 0.15 0.13 0.11 0.29
Financial Leverage 2.28 1.83 1.74 1.68 1.61 2.57
Year on Year Growth %
Revenue Growth % 10.3 -5.9 9.5 9.3 13.7 12

Source: All Financials used here are derived from Starbucks10-
K Form for Fiscal Years ended
2008, 2009, 2010, 2011, 2012, and 2013
Appendix 6: Starbucks Generic Value Chain:

Primary activities
Inbound logistics – Sourcing coffee from diverse coffee beans
producers with whom they have great
relationships and built up efficient supply chain management
system.
Operations – They have operation in 60 countries with their
stores being modeled on company operated
stores and licensed stores.
Outbound logistics – Most of its product mix are sold in-store
and some through large box retailers.
Payment around source through point of sale, prepaid Starbucks
Cards and mobile payments.
Marketing and Sales – Traditionally, investment in marketing
activities have not be significant and relied
mainly on the growing reputation of premium quality product
mix and superior customer services to give
the ‘Starbucks Experience’ to drive customers to their stores
and products.
Service - Starbucks has a reputation for providing supreme level
of customer services to their consumers.

Support activities
Firm Infrastructure. They have well designed, aesthetically
pleasing stores. They have efficient level of
finance, accounting and legal departments to support the firm’s
infrastructure.
Human Resource Management – Great benefits, employee
empowerment and amazing corporate culture
makes Starbucks drive efficient management of human capital.
Technology development – Investments in innovative
technologies like the well like mobile app.
Procurement – Starbucks procures its products from a diverse
group of supplier and has fixed contracts
with some of the suppliers.
23
Appendix 7: History of Strategic Acquisition, Joint Venture,
Strategic Alliances
and Product Extensions

Continued next page…
Source: Global Data and MarketLine Financial Deals, Starbucks
Corporation, 2013 Reports.
Continued next page…

Appendix 8: List of Starbucks Product Mix:

Source: GlobalData and Starbucks Website
Source: GlobalData and Starbucks Website
CASE STUDY: STARBUCKS COFFEE
BY: KATHLEEN LEE
GRC 411

CASE STUDY: STARBUCKS
KATHLEEN LEE
1
Brief History:
The first Starbucks location opened in 1971. The name is
inspired by Moby Dick’s first mate.
This name and the mermaid logo were inspired by the love of
the sea, from Starbucks original lo-
cation in Seattle Washington in the heart of Pike Place Market.
Starting as a single shop special-
izing in high quality coffee and brewing products the company
grew to be the largest roaster in
Washington with multiple locations until the early 80’s. In
1981, current CEO Howard Schultz,
recognized a great opportunity and began working with the
founder Jerry Baldwin. After a trip
to Italy to find new products, Schultz realized an opportunity to
bring the café community en-
vironment he found in Italy to the United states and the
Starbuck’s brand we know today began
to take form. Selling espresso by the cup was the first test.
Schultz left Baldwin to open his own
Italian coffee house Il Giornale which found outrageous success

and in 1987 when Starbucks
decided to sell the original 6 locations, Schultz raised the
money with investors and purchased
the company and fused them with his Italian bistro locations.
The company experienced rapid
growth going public in 1992, and growing tenfold by 1997, with
locations around the United
States, Japan and Singapore. Starbucks also began expanding its
brand. According to George
Garza in his article The history of Starbucks the following
product lines were added:
• Offering Starbucks coffee on United Airlines flights.
• Selling premium teas through Starbucks’ own Tazo Tea
Company.
• Using the Internet to offer people the option to purchase
Starbucks coffee online.
• Distributing whole bean and ground coffee to
supermarkets.
• Producing premium coffee ice cream with Dreyer’s.
• Selling CDs in Starbucks retail stores.
Starbucks uses minimal advertising and has grown on word of
mouth and brand recognition.
According to Garza by 2004 Starbucks had reached 1,344

locations.
(Garza)
KATHLEEN LEE
2
Updated history and Current Status
Today, according to the Starbucks website, they have 16,706
stores (as of Dec. 27, 2009) in 50
countries. In 2009 they made strives socially as they opened the
Farmer Support Center in Ki-
gali, Rwanda and became the world’s largest buyer of Fair
Trade CertifiedTM coffee.
Their mission statement from the company profile is as follows:
“Our mission is to inspire and nurture the human spirit – one
person, one cup, and one
neighborhood at a time.”
Their core competencies can be defined as high quality coffee
and products at accessible loca-
tions and affordable prices, provided a community to share in
the coffee drinking experience,

and variety of choices. The also value ethics and good business
practices and are a leader being
voted one of 2010’s most ethical businesses by Ethisphere
magazine for the 4th year running.
(“Starbucks”)
Starbucks is facing its own struggles however as it saw sales
start slipping before other com-
panies did in the recent recession. According to Melissa Allison
in her article Starbucks has a
new growth strateg y — more revenue with lower costs,
Starbucks has closed 900 stores and
eliminated 34,000 jobs. Starbucks new strateg y is to refocus on
some of the areas that decrease
risk and up front investment. This includes expanding foreign
stores, with aid of partnerships
that share risk and costs, selling VIA instant coffee and other
products in retail and convenience
stores, and reinvigorating the Seattle’s Best Brand coffee.
A statement from CFO Troy Alstead this March paints this
picture:
“We clearly hit a wall and didn’t do very well in the 2007/2008
time period. From here
forward, when we grow Via, Seattle’s Best Coffee and consumer
products, there’s less

investment for each dollar of revenue.”
KATHLEEN LEE
3
This new strateg y has inspired some optimistic feedback.
Morningstar investment research firm
has increased estimate of Starbucks shares from $4 a share to
$24 after the statement of revamp-
ing the brand.
Morningstar analyst had this to say R.J. Hottovy.:
“I’m surprised it wasn’t ramped up in earlier years. Product
innovations and internation-
al expansion not only make the business potentially more
profitable, but defend them
against competition.”
International partnerships increase challenges but also create
new ideas in new markets that can
then be translated back to US markets. (Allison)
Introduction Growth Maturity Decline

Starbucks Lifecycle
Starbucks in a mature stage of its lifescycle. It was founded
over 20 years ago and it has expe-
rienced rapid growth in the last 2 decades. However within the
last few years its growth has
slowed and has even had to close locations. They are now
focusing efforts on previous endeavors
and international expansion.
KATHLEEN LEE
4
Value Chain
Bean and
ingredient
Selection
Product
Development
Product
Distribution Storefront
Take-home
products

The above is the value chain for Starbucks. The upstream
portion of the value chain shows the
product development from adding teas and international
influences, to the research that took
place to develop the VIA instant coffee line. They also search
the globe for Fair Trade suppliers
of high quality beans. These products are then distributed to
corporate storefronts, franchise
locations, airport terminals, grocery stores and more, and finally
offer ground coffee and gift
cards to take home.
New Value Chain
Bean and
ingredient
Selection
Product
Development
Product
Distribution
Storefront Take-home
products
International
Development
Online Storefront

customization
Mobile Apps
The above is a new value chain with international development
added upstream to allow for in-
ternational markets to develop new products that better suit
there cultures that could potential
add value to the US market as well such as the Green Tea Latte
developed in Japan’s Starbucks.
Added downstream is Online Storefront customization, that
would allow you to create a profile
online, order online, create new drinks etc. Also added is a
mobile app that could locate star-
bucks locations, put in drink orders etc.
KATHLEEN LEE
5
Above is the Boston Matrix. It shows the cash cows as the
regular Starbucks line of Coffee’s,
Latte’s and Frappacinos found at nearly every location. These
are stable products that account
for the bulk of sales. A potential star is the International

locations, which hold less financial risk
and open doors for innovation and stability. Question marks are
the recently added VIA instant
coffee to be expanding to grocery stores and convenient stores.
Current products like this such
as the dog, pre-bottle frappacinos account for a tiny fraction of
sales. Another question mark
is the oft forgotten sub-brand Seattle’s Best. The company will
be revamping this brand and it’s
future is unknown.
The following is Porter’s Generic Competitive strateg y. Shown
is Starbucks as a whole in the
differentiation strateg y as they provide a high quality coffee
and unique experience in the
convenience of a large volume of locations, which separates
them from their competition. VIA,
the new instant coffee line is straddling differentiation and low
cost- leadership. While it will
be a low cost and convenient alternative to Starbucks regular
coffee, it is still unique from other
products in the market. The in-store gifts and brewing utensils
are in the focused differentia-

KATHLEEN LEE
6
tion category as they cater to the coffee lover, and are unique
items found only in the Starbucks
stores.
Competetive Advantage
Lower Cost Di�erentiation
Cost Leadership Di�erentiation
Cost Focus Focused Di�erentiation
Starbucks
VIA
In-Store brewing
products/gifts
Below are the financial ratios from the income statement and
balance sheets for Starbucks:
Current Acid Debt to Equity
Gross Profit Net Margin
2009 1.29 0.86 0.83 56% 0.19
2008 0.8 0.49 1.28 20% 0.15
2007 0.79 0.47 1.34 24% 0.3

The ratios show that assets vs. liabilities has increased which is
promising after the risky pursuit
of expanding to 30,000 has since been abandoned. The acid
ratio also reflects this. Debt to
equity has decreased which also shows stability. Gross profit
has shown a large increase which
is very good in a mature company. Their net margin in 2009 was
very promising and is nearly a
sustainable competitive advantage.
KATHLEEN LEE
7
SWOT Analysis
Internal Factor Analysis Summary (IFAS)
Internal Strategic forces Weight Rating Weighted Score
Comments
Strengths
S1- Brand Identity
S2- Quality
S3- Variety
S4- Locations
S5- Convenience
S6- Store Ambiance

S7- Ethics
20%
10%
10%
10%
20%
5%
5%
4
3
3
5
4
3
3
.8
.3
.3
.5
.8
.15
.15
S1- the company consistently
maintains its brand, even without heavy
marketing.
S2- They search for quality beans

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