“We aren’t in the coffee business, serving people.

We are in the people business, serving coffee”

Howard Schultz, Starbucks Chairman and

Chief Global Strategist

Fortune Magazine, Vol. 149 No. 2

Starbucks Strategic Analysis:

Starbucks International Operations
 Submitted to: Ms. Rania Jaber

Completed by:

Ibrahim Esam
Wisam Husain Ali
Jebrin Amani Shuwaiky
1070775
1071126

Siham Omar Abu Taha

Vision Statement:
‘To establish Starbucks as the most recognized and respected brand
in the world and become a national company with values and guiding
principles that employee could be proud of’

The vision statement is evidently shows what is Starbucks going to be, to be

world wide respected brand, with the realization of the pride of its
employees.

Mission statement:

‘Establish Starbucks as the premier purveyor of the finest coffee in

the world while maintaining our uncompromising principles while we
grow.’

The six principles are:

-Provide a great work environment and treat each other with respect
and dignity.

-Embrace diversity as an essential component in the way we do

business.

-Apply the highest standards of excellence to the purchasing,

roasting and fresh delivery of our coffee.

-Develop enthusiastically satisfied customers all of the time

-Contribute positively to our communities and our environment

-Recognize that profitability is essential to our future success.

The nine components test:

Customers: Involved {principle 4}

Products & services: Involved {Principle 3}

Markets: Involved {the world}

Technology: Not Involved

Concern for survival, profitability and growth: Involved {principle 6}

Philosophy: Involved {the six principles}

Self-Concept: Involved {premier purveyor}

Concern for public image: Involved {principle 5}

Concern for employees: Involved {principle 1}

Internal Environment analysis:
Starbucks Culture:

Culture in Starbucks is its main competitive advantage over competitors. It

has established the ‘Starbucks Experience’!

Starbucks also esteems and respects its employees through ‘partnering’ with
them! They have the opportunity to be a ‘stockholders’, they are paid more
than in another company, and even a part time employee, Starbucks gives its
employees a ‘Health care insurance’.

Marketing:

Starbucks positioned itself in the consumers minds as a premium coffee

provider with a unique experience and superior customer service. This has
built a strong brand name for Starbucks, and has over the time been
increasing the market share of Starbucks.

However, Starbucks spends less than 1% on advertising. Although the word

of mouth and publicity marketing strategies of Starbucks is successful, it
should spend more on advertising.

Production / Operations:

The production in Starbucks is effective due to the trained employees, the

high quality coffee beans inputs, and the day-to-day supervision.

Management Information System:

www.starbucks.com is the major information system Starbucks has. This

website allows the customers to surf Starbucks’ products, financial data,
current locations of Starbucks, and ask about any thing. They can also buy
coffee; buy gifts along with giving tutorials to those customers to learn how
to roast coffee beans directly through the internet.

With introducing a ‘credit card’ technology, it gives a financial convenience

for its customers. Moreover, the availability of wireless internet in the
Starbucks stores promotes the ‘experience of Starbucks’.

All the technological supplementations are managed by the MIS department.

Organizational Chart:

Since it has avoided any hierarchical authority flow, the organizational chart
is relatively recondite. However, Starbucks is organized as a functional-
geographical structure that is relatively flat.

Research and development:

Starbucks is continuously developing its products and services in order to

increase the customers’ satisfaction and enhance a better customers’
experience.

Financial Analysis:

Key financial ratios for the years 2000, 2001 and 2002:

2002 2001 2000

32.8% 34.5% 29.9%

Equity ratio
24.7% 25.7% 23.0%
Debt ratio
Inventory 12.5 12.0 10.8
Turnover
Total Assets 1.4 1.4 1.5
Turnover
1.1 0.8 0.8
Quick ratio
1.6 1.3 1.5
Current ratio
12.5% 13.2% 8.2%
Return on equity
9.4% 9.8% 6.3%
Return on assets
6.5% 6.8% 4.4%
Net profit margin
Gross profit 59.0% 58.0% 56.0%
margin
$0.28 $0.24 $0.13
EPS
32.8% 34.5% 29.9%
Equity ratio
Total sales 3,288,90 2,648,9 2,169,2
8 80 18
Net Income 181,21
215,073 0 94,564

The general financial performance for Starbucks from 2000 to 2001 was
increasing progressively. However, due to 11-september events and the
world recession, Starbucks financial performance decreased at 2002, but
generally it was satisfying.

Starbucks Organizational Chart:

IFE Matrix:
Weigh Rate Score
t

Strengths :

Brand Name 0.11 4 0.44

Aggressive Expansion 0.05 3 0.15

Valued and motivated employees 0.06 4 0.24

Product quality, diversification and innovation 0.07 3 0.21

Customer loyalty 0.08 3 0.24

High cash flow and debt free 0.04 3 0.12

Alliances with Strong Brands to serve Starbucks 0.05 4 0.20

coffee
Good public image 0.03 4 0.12

Superior quality stores’ environment 0.10 4 0.40

Adapting ability at different cultures 0.07 3 0.21

Weaknesses :

Low expenditures to marketing 0.06 2 0.12

High Prices 0.09 1 0.09

No Smoking rule 0.05 2 0.10

Taste had gone away 0.08 2 0.16

Feeling out of control 0.06 2 0.12

Total 1 2.92

External Environment Analysis:

Economic Factors:

The main, and be the only economical factor that affected the whole
American industry was the 11-september events, after that event, the
recession started, and the income has generally decreased. However, Co-
Branding ‘Joint Ventures’ was a positive economical factor at the industry.

Political Factors:

Of course the war on Iraq and the Starbucks’ CEO’s comments that support
Israel was the most ‘misfortune’ that the American company ‘Starbucks’ was
facing, then it was was listed by Arabians the second company to boycott.
Cultural Factors:

There were several cultural trends that were affecting the industry of food
and beverages, on the positive side there were: healthy trends away from
caffeine, need for diets, need for No-Smoking places, and the eagerness of
Middle Eastern to imitate Americans. However, there was persistence from
the international customers against Starbucks, and the boycotting for political
reasons.

Technological Factors:

Especially the e-commerce revolution, the technological advancements was a

good opportunity for several companies in the industry.

Porter’s Five Forces:

1- Potential development of Substitute products:

This threat is generated by:

Non- coffee related drinks, such as ‘water, Soda, fruit juices, beer and other
alcoholic drinks.

Other quick food apart from pastries, muffins and donuts that are sold at
Starbucks stores, this includes ‘burger, tacos, sushi, and other snack food’

Lower or less luxurious coffee places.

2- Rivalry among competing firms:

The coffee market faces an intense competition from other coffee

chains ‘Peet’s coffee & Tea’ and secondary coffee providers ‘McDonalds and
Dunkin Donuts’ and other small coffee houses. Starbucks enjoys a
competitive branding advantage while the competitors are enjoying a price
competition advantage.

3- Potential entry of new competitors:

Since the industry requires good experience, high customers’ loyalty, large
capital requirement and complex policies and regulations, the threat of new
entrants decreases. However, any large, well branded, and well known
 company where capital isn’t a problem could be a potential rival. Examples:
Dunkin Donuts and McDonalds.

4- Bargaining power of suppliers:

Since any individual supplier of coffee beans considers Starbucks an

important business customer, and due to the large percentage of sales that
Starbucks makes for such a supplier, Starbucks has the power to instruct
prices of coffee beans. This also is true over the suppliers of paper and plastic
products ‘cups and napkins’.

However, the bargaining power of suppliers is high when we are talking about
the technological supplies such as automated coffee machines and espresso
machines.

5- Bargaining power of customers:

Since Starbucks provides superior coffee quality, premium service, and

differentiated atmosphere, then its customers had low bargaining power over
the company, and accordingly, switching to another competing firm would
ultimately cost the consumers high when we are talking about the
‘experience’ itself. However, with the entry of well branded companies such
as McDonalds, the customers have a slightly more bargaining power than
they used to have.

EFE Matrix:
Weight Rate Score

Opportunities

Globalization 0.10 4 0.40

Need for diet food and drink 0.05 3 0.15

Trend for no smoking places 0.05 4 0.20

Strong coffee drinking culture in Europe 0.10 3 0.30

Trend for co-branding –Joint Ventures- 0.05 4 0.20

Technology growth 0.10 4 0.40

Eagerness among middle eastern to imitate 0.05 3 0.15

Americans
Threats

Increased competition 0.10 3 0.30

Volatile political environment (war in Iraq) 0.10 2 0.20

Economic recession 0.05 2 0.10

High business development costs 0.05 2 0.10

Persistence from customers in international 0.05 2 0.10

markets
saturated market in U.S.A 0.05 2 0.10

NGO’s criticism 0.02 1 0.02

Healthy trend away from caffeine 0.05 1 0.05

Lack of trained work force 0.03 1 0.03

Total 1 2.90

SWOT Matrix:

Opportunities
O1 Globalization
O2 No Smoking Places Trend
O3 Technological Growth
O4 Co-Branding
O5 M.E imitate Americans
O6 Strong Coffee Drinking
Culture in Europe
Threats
T1 Increased Competition
T2 Saturated U.S Markets
T3 NGO’s Criticism
T4 Healthy Trends
T5 Volatile Political Situations
in M.E
Strengths
S1 Strong Brand Name
S2 Expansion Ability
S3 Customer Loyalty
S4 Product Quality and Variety and
Innovation
S5 Financial Foundation
SO Strategies
Expand more at the middle east &
open new stores at Europe
S1S2O1O5O6
Make strategic alliances with
other hotels, supermarkets and
airlines to serve Starbucks coffee.
S1S4O4
ST Strategies
Invest more in R&D to develop
more flavors and blends.
S4S5T1T2T4
Weaknesses
W1 low Expenditure on
Marketing
W2 High Prices
W3 Feeling out of Control
W4 Taste had gone away
WO Strategies
Enhance the expansion at
Europe and Middle East with
joint venturing with local
coffee and food firms.
O1O5O6W3W4
WT Strategies
Create a new product that
could be targeted to new
segments ‘collage students,
schools students... Etc.’.
W2T1T2T4
 SPACE matrix
Financial Strength Ratings

• Net income has increased 91.6% in 2001 and 18.70% in 2002 5

• Current ratio increased from 1.30 to 1.60 at 2002, however, when current ratio is
below 2, the company is considered unhealthy. 4
• Earning per share increased from 2000 to 2002 at 2.15 ‘from 0.13 to 0.28’
• The Inventory turn over have been increasing from 10.80 at 2000 to 12.00 at 2001
to 12.50 at 2002 6
• Return on assets decreased from 9.80% to 9.40% at 2002
5

22

Industry Strength

• Starbucks has strong growth potential domestically and internationally 6

• High resource utilization due to the blanket strategy that reduces distribution
costs. 4
• The company is less exposed to the price fluctuations since they purchase the 4
supplies a year before
• Starbucks has a strong technological infrastructure and advanced MIS 5

19

Environmental Stability

• Middle East countries are facing political instability especially the war in Iraq and -4
the Palestinian intifada.
• Increased recession rates at some countries especially Germany and Japan.
• NGO’s strict regulation and increased criticism -3
• Increased price competition among rivals
-3

-4

-14

Competitive Advantage

• Brand name recognition -1

• Variety of beverages
• Innovation culture -2

-2
 -5

Conclusion

FS Average is: 22/5=4.40 ES average is = -14/4 = -3.50

CA average= -5/3 = -1.67 IS average is = 19/4 = 4.75
Vector Coordinates: x- Axis point is: 3.08 y - Axis point is: 0.90
Starbucks should use the aggressive strategies

FS

CA I
S

BCG Matrix: ES

Starbucks always open new stores, innovate new products, expand in a

strong international markets. Starbucks makes its own cups and many things
else, and makes relationships with suppliers .We can see in the Starbucks’
income statement an increases in the net revenue between 2000-2002 .the
revenue on 2000 is 2169.20m while is 2649.00m on 2001 and 3288.90m on
2002.

So we can put Starbucks company in (star) division this division represents

the Starbucks long-run opportunities for profitability and growth.

We choose:

– Market penetration.(Starbucks uses market advertising but at a very

low percentage ‘below 1% of the net income’ )
– Product development.

GRAND Matrix:
As it is noticed from the financial statements of Starbucks, the growth rate of
Starbucks on average is about 20%, while it has maintained its strong
competitive advantage in the industry. Whenever a company has these two
dimensions, 20% growth rate and strong competitive advantage, and then it
is located at the first quadrant of the GRAND matrix, where we use
aggressive strategies.

Once again, Starbucks should follow: Market penetration and Product

development strategies..
 Competitive Profile Matrix:

KEY SUCCESS FACTORS Starbucks McDonalds Peet’s Coffee & Dunkin

Tea Donuts
Weigh Ran Scor Rank Scor Rank Score Rank Score
t k e e

PRODUCT QUALITY 0.12 5 0.60 3 0.36 5 0.60 3

0.36
PRICE 0.07 2 0.14 4 0.28 3 0.21 3
0.21
ADVERTISING 0.06 3 0.18 4 0.24 3 0.18 4
0.24
CUSTOMER LOYALTY 0.08 4 0.32 3 0.24 3 0.24 4
0.32
EXPANSION 0.12 5 0.60 4 0.48 2 0.24 4
0.48
MARKET SHARE 0.09 4 0.36 3 0.27 2 0.18 4
0.36
MOTIVATED STUFF 0.08 5 0.40 1 0.08 2 0.16 2
0.16
MANAGEMENT 0.10 4 0.40 4 4 3
0.40 0.40
0.30
FINANCIAL POSITION 0.08 4 0.32 5 0.40 2 0.16 3
0.24
INNOVATION 0.11 5 0.55 3 0.33 3 0.33 3
0.33
CUSTOMER SERVICE 0.09 5 0.45 2 3 3
0.18 0.27
0.27
TOTALS 1.00

4.32 3.26 2.97

3.27
Starbucks Competitors:
Dunkin Donuts:

The biggest competitor to Starbucks is Dunkin Donuts. It has recently paired the selling of coffee
with the selling of donuts; this complementary pairing was successful and has increased their
customer base and sales accordingly. Dunkin Donuts started ‘America Runs on Dunikin’
advertising campaign to market its products and hired a well known celebrity ‘Rachel Ray’ to be
the face of the company.

Peet’s Coffee & Tea:

Founded just 5 years before Starbucks did, Peet’s Coffee & Tea has established its brand name as
a high quality coffee house. Peet’s Coffee & Tea concentration was not only on quality coffee, but
also with stances such as never re-steaming milk, roasting coffee beans in small batches, and
ensuring a wide variety of coffee for customers to choose from. Also it has adopted a strategy to
locate its stores near Starbucks stores; this strategy enables Peet’s Coffee & Tea to obtain
Starbucks popularity to its own gain, bringing about another coffee place for customers to go for.
Another strategy was to not to expand and staying in California, this enables Peer’s Coffee & Tea
to gain more customer loyalty than Starbucks does.

Coffee Bean & Tea Leaf:

By its large tea selection and innovative nature, Coffee Bean & Tea Leaf has made sure to stay
different than Starbucks. It was the first to spread out chai lattes and ice blended coffee which
was emulated by Starbucks then.

Coffee Bean & Tea Leaf make big success in Israel due to its kosher standards and allowance for
smoking.

Permanent Fast Food Chains:

Mainly McDonalds and Burger King, they have been around for much longer, have stronger
establishments and already have the infrastructure to sell coffee. These fast food chains have
been recently promoting a coffee that is at the same quality of Starbucks’ but cheaper than
Starbucks’, while Starbucks charges a $1.55 for a cup of coffee, McDonalds charges $1.35 and
Burger King charges $1.40.
QSPM Matrix:
Weights Market Product
penetration Development
Key Factors
AS TAS AS TAS

Strengths
Brand Name
Aggressive Expansion 0.11 4 0.44 4 0.44
Valued and motivated employees 0.05 - - - -
Product quality, diversification and
innovation 0.06 - - - -
Customer loyalty
High cash flow and debt free 0.07 4 0.28 4 0.28
Alliances with Strong Brands to serve
0.08 4 0.32 4 0.32
Starbucks coffee
Good public image 0.04 3 0.12 4 0.16
Superior quality stores’ environment
Adapting ability at different cultures 0.05 2 0.10 3 0.15

0.03 3 0.09 1 0.03

0.10 - - - -

0.07 - - - -

Weaknesses
Low expenditures to marketing
High Prices 0.06 4 0.24 3 0.18
No Smoking rule 0.09 3 0.27 4 0.28
Taste had gone away
Feeling out of control 0.05 - - - -

0.08 3 0.24 4 0.32

0.06 - - - -

Opportunities
Globalization
Need for diet food and drink 0.10 4 0.40 1 0.10
Trend for no smoking places 0.05 2 0.10 4 0.20
Strong coffee drinking culture in Europe
Trend for co-branding
Technology growth 0.05 - - - -
Eagerness among middle eastern to
imitate Americans 0.10 4 0.40 4 0.40

0.05 3 0.15 4 0.20

0.10 - - - -

0.05 2 0.10 1 0.05

Threats
Increased competition
Volatile political environment (war in Iraq) 0.10 3 0.30 4 0.40
Economic recession 0.10 - - - -
High business development costs
Persistence from customers in 0.05 - - - -
international markets
saturated market in U.S.A 0.05 - - - -
NGO’s criticism
0.05 2 0.10 1 0.05
Healthy trend away from caffeine
Lack of trained work force 0.05 4 0.20 2 0.10

0.02 2 0.04 1 0.02

0.05 2 0.10 4 0.20

0.03 - - - -

Total 3.99 3.88

As could be seen from the QSPM, the market penetration strategy is preferred over the
product development strategy. The other aggressive strategies are ignored for logical reasons:

- Starbucks now is pursuing a market development strategy.

- Starbucks doesn’t have any distributers, and so, there is no need for forward integration.

- Starbucks isn’t facing any troubles with its suppliers, and the bargaining power of them isn’t
mentioned, and so, there is no need for backward integration.

- Last but not least, the competitors of Starbucks are well branded organizations with a strong
financial position and high customer base, and the horizontal integration sounds very difficult.

Thus, Starbucks should pursue market penetration through extinctive marketing efforts in
order to increase the market share and differentiate the Starbucks’s experience and high quality
coffee from that of the competing firms.
 This strategy does not mean that Starbucks should abandon the product development
strategy; it should progressively develop new products that match with the customer’s changing-
trends and wants.

This strategy also requires a divisional structure by geographical area, thus, dividing
Starbucks’s operations by the geographic area, and then dividing each geographic area into
functional divisions.

Starbucks should also maintain the cultural aspects and values at such areas, so as to ensure
success, hence that at 2003, Starbucks closed 6 stores at –what it’s named- Israel due to not
maintaining the Kosher standards.

The coffee offered at the stores over the all regions, must be at the same highest quality
coffee. To ensure the brand superiority and maintain the traditional image of Starbucks as the
best coffee provider over the world.

Effective market segmentation must be developed on order to develop the customer group
profile and therefor targeting an effective marketing mix to them. Thus ensuring a successful
marketing development. The positioning of Starbucks must be to stress the ‘Starbucks
Experience’.