## STARBUCKS Executive Summary Starbucks is the leading retailer and roaster for

brand specialty coffee in the world. It has over 7,500 stores located worldwide. As
Starbucks continues to expand, it will encounter all sorts of new product markets, with
new and demanding customers for unique and appealing products. Starbucks faces many
challenges from having to compete to retain brand recognition of its primary products, at
the same time increasing awareness of its new products lines. The company has a number
of new ideas being tried and tested in its stores having new plans for food such as hot
sandwiches and breakfasts, as well as new drinks such as coffee liqueurs, even a pumpkin
spice late for the holidays. My analysis and research of the market have resulted in keys
findings as follows: - Starbucks is … (I will finish this after the project is over)

Overview
"After oil, coffee is the second largest import in the United States, with U.S. consumers
drinking one-fifth of the world's coffee, making them the largest consumers of coffee in
the world. As a result, the U.S. coffee industry is extremely competitive on all fronts-with
retail and coffee house segments just a part of the total market" . (MarketResearch.com.
Retrieved on November 10, 2004 from Coffee has an exciting potential in bar service,
with a range of genres to choose from: traditional blends, single origin coffees, espresso
roasts; in a wide menu of styles including straight coffees, flavored coffees, cold coffee
drinks, and cappuccino; and by the assortment of technologies from manual to super
automatic, in filter, urn, and espresso machine formats. The bottom line remains to
satisfy the client, cup by cup of coffee, and produce a repeat sale. Starbucks Corporation
purchases and roasts whole bean coffee and sells them alongside with fresh, rich-brewed
coffees, Italian-style espresso beverages, cold blended beverages, a variety of
complementary food items, coffee-related accessories and equipment, a assortment of
first-class teas and a line of compact disks, principally through company- operated retail
stores. Starbucks does not normally give up operational control of its retail stores in the
United States. In situations in which a master concessionaire or another company controls
or can provide enhanced right to use a wanted retail space, the Company licenses its
operations. Starbucks receives licenses fees and royalties from those licensees that have
to buy coffee and related products for resale from Starbucks. The store experience is
attractive, comfortable, and even entertaining, designed to attract customers and keep
them coming back to the stores. Customers can find comfy chairs, wireless internet
connection, and a selection of music. The company started offering wireless high-speed
Internet access in its stores in 2001 to improve the experience for students, business
travelers, and web surfers who take advantage of this service at the same time as drinking
their preferred coffee. Historical Background Starbucks opened its first location in
Seattle's Pike Place Market in 1971 but only in 1982, when Howard Shultz joined
Starbucks as director of retail operations and marketing, Starbucks begins providing
coffee to fine restaurants and espresso bars, but only in 1985 Starbucks Corporation was
formed. In 1991 the company becomes the first privately-owned U.S. Company to offer a
stock option program that includes part-time employees and in 1992 it completes initial
public offering with Common Stock being traded on the NASDAQ National Market
under trading symbol"SBUX". Even coffee being the company's main products, in 1995,
based on an extremely popular in-house music program, begins selling compact discs. At
the same year, the Frappuccino blended beverages started being sold. In 1996, Starbucks
Ice cream became the number one brand of coffee ice cream in the U.S. Also at the
same year, North-American partnership Starbucks and Pepsi-Cola begins selling a
bottled version of Starbucks Frappuccino. In 1998 introduces Tiazzi blended juice tea,
expanding its marketing and in 1999 Starbucks acquired Tazo, a Portland, Oregon based
tea company and Hear Music, A San Francisco based music company. In 2001,
Starbucks begins to offer high speed wireless interned access in stores and begins
offering the Starbucks card and in 2002 it launches high-speed wireless internet service
branded T-Mobile Hotspot in more than 1,200 Starbucks stores. In 2003, the company
developed a next-generation Starbucks Card combining credit and stored value
technologies, launched Starbucks Card Duetto Visa, a payment card blending Visa credit
card functionality with the reloadable Starbucks card and expands high speed wireless
service, T-Mobile Hotspot to more than 2,700 Starbucks stores. Finally, in 2004 It
launches in-store CD burning service powered by HP that allows customers to make
personalized CDs at the Starbucks Hear Music Coffeehouse in Santa Monica, California;
announces Jim Beam Brands Co. contract to build up and market a superpremium
Starbucks-branded coffee liqueur outside of Starbucks stores; debuts tactical marketing
association with WM Satellite Radio featuring a 24-hour "Starbucks Hear Music"
Channel, and introduces a new Frappuccino Light blended coffee beverages. Company's
Missions and Goals Mission: "To establish Starbucks as the premier purveyor of the
finest coffee in the world while maintaining our uncompromising principles as we
grow" . Six Guiding Principles will help us measure the appropriateness of our decisions:
* 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 f 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. Starbucks is committed to a role of environmental
leadership in all facets of their business. Their 2003 Annual report states that "we fulfill
this mission by a commitment to: * Understanding of environmental issues and sharing
information with our partners. * Developing innovative and flexible solutions to bring
about change. * Striving to buy, sell and use environmentally friendly products. *
Recognizing that fiscal responsibility is essential to our environmental future. * Instilling
environmental responsibility as a corporate value. * Measuring and monitoring our
progress for each project. * Encouraging all partners to share in our mission." Goals:
"The company objective is to establish Starbucks as the most recognized and respected
brand in the world. To achieve this goal, the Company plans to continue to rapidly
expand its retail operations, grow its specialty sales and other operations, and selectively
pursue opportunities to leverage the Starbucks brand through the introduction of new
products and the development of new distribution channels)" . Non-financial goals *
Starbucks is all about connections – In the U.S. predominantly, there is a shortage of
closeness. The company's president wants Starbucks to embrace the place of"Third
Place" between home and work. A place to chat, read and renovate the strength. * Offer
a great work atmosphere and care for each other with value and dignity. * Embrace
diversity as an indispensable element of the way they do business. * Apply the top
principles of excellence to the purchasing, roasting and fresh delivery of their coffee. *
Develop enthusiastically pleased clientele all of the time. * Contribute positively to the
community and to environment. Financial Goals: * Be aware of that profitability is
crucial to the company's upcoming success. * The stock carries a low preventability of
financial return and carries a high risk of price instability. * Achieving sales revenue
increase of 20% in 2004, 20% in 2005 ad 21% in 2006. * Raise earnings per share
(EPS) 22% per year. * The Company continues to target capital expenditures of $600 to
$650 million for fiscal 2005. * Starbucks continues to target earnings per share of $1.12
to $1.15 for fiscal 2005 * The Company intends to fund its fiscal 2005 capital projects
including retail expansion, with cash generated from operations * The earnings per share
target range equates to 20 to 25 percent growth over $0.92 to $0.93 per share, which is
the Company's fiscal 2004 earnings per share target adjusted for the $0.02 impact of the
53rd week. * For fiscal 2005, Starbucks continues to target total net revenue growth of
approximately 20 percent, excluding the impact of the 53rd week in fiscal 2004 * The
Company continues to believe comparable store sales growth in the range of three to
seven percent is the right level to target longer-term, however it is possible that
comparable store sales growth may again exceed the Company's target range during fiscal
2005. * Starbucks continues to target opening 1,500 new stores in fiscal 2005, bringing
its fiscal 2005 year-end total to more than 10,000 locations worldwide in 60 countries. *
In the U.S., Starbucks estimates it will open approximately 550 Company-operated
locations and 525 licensed stores, for a total of 1,075 * Internationally, the Company
plans to open approximately 100 Company-operated locations and 325 licensed stores,
for a total of 425 new locations * The Company now targets a long-term potential of
30,000 stores worldwide with 15,000 in the U.S. and 15,000 in international markets. *
For the next three to five years, the Company estimates that revenues will grow by
approximately 20 percent per year with earnings per share increasing by 20-25 percent
per year. Present Situation Company Starbucks is the leading retailer for roaster and
brand specialty coffee in the world. In the last seven years, Starbucks has introduced their
brand around the world and operates in 34 countries. Starbucks at present (October 2004)
has approximately 8 ,500 stores which are located in the United States (about 6,100 in
the U.S), Canada, Europe, Asia and the Middle East. The company is aiming to open
30,000 stores with half of those in the United States but has not set a date for the 30,000
stores opening yet. The company is committed to offering the highest quality coffee and
the"Starbucks Experience". Besides high quality coffee drinks, Starbucks sells bottled
coffee drinks, such as Frappuccino® and Starbucks DoubleShot™. Starbucks revenue is
growing by 20% a year and is opening approximately three stores every day. Starbucks is
capable of managing its successful operations by having steady market growth. It
achieved this by financing through their cash flow instead of franchising, selling stock or
increasing their financial leverage. Its strategy to success is"blanket an area completely."
This approach is to"cuts down on delivery and management costs, shortens customer
lines at individual stores, and increases foot traffic for all the stores in an area," that gives
Starbucks a competitive advantage. Starbucks sells coffee and tea products thought
different channels, and, through certain of its equity investees, it also produces and sells
bottled Frappuccino and Starbucks DoubleShot coffee drinks and a line of premium ice-
creams. These non-retail channels are collectively known as Specialty Operations. The
company has two operating segments, United States and International, each one include
Company-operated retail stores and Specialty Operations. On fiscal year 2003, the
United States number of Company-operated locations (sell coffee and other beverages) is
4,095 and International number of Company-operated locations is 451. The United States
represent 86% of retail revenues, 81% of specialty revenues and 85% of total net
revenues. International operations represent the 14% retail remaining revenues, 19% of
specialty revenues and 15% of total net revenues. The Company's retail mix by product
type was comprised of approximately 78% beverages, 12% food items, 5% whole bean
coffees and 5% coffee-making equipment and accessories. It is currently looking at
additional opportunities in distribution channels for Starbucks products, whether in
foodservice, grocery, licensed stores or business alliances. Product sales and royalty and
license fee revenues from international licensed retail stores accounted for approximately
17% of specialty revenues in fiscal year 2003. In total, worldwide retail store licensing
accounted for approximately 39% of specialty revenues in fiscal 2003. Corporate culture
The Corporate Culture Is widely referenced as the "Starbucks Experience". Serwer
describes Starbucks as a company that "strives to mix capitalism with social
responsibility." These guiding principles emphasize a strong workplace environment and
diversity in employees and suppliers, with commitments to product quality, customers,
community, environment, and the bottom line. Starbucks refers to employees as
"partners," reinforcing their importance to the company. Part-time employees working
more than 20 hours a week receive stock options and medical benefits; unique offerings
in the service industry, and an excellent means of retaining a high quality staff. The
Starbucks Foundation supports youth and literacy programs. "Urban Coffee
Opportunities," a joint venture with Magic Johnson, opens Starbucks retail outlets in
underserved U.S. communities as a catalyst to community and business renewal.
Individual stores contribute to their local communities and select local charities to receive
outdated coffee and leftover pastries. The "Commitment to Origins" program supports
social, economic and environmental issues critical to the livelihood of coffee farmers
through a line of coffee exclusive to Starbucks. Starbucks sells a line of Fair Trade coffee
as part of this program. As Starbucks 2002 annual report explains, "We are passionately
committed to fostering sustainability in coffee-origin countries. We plan to continue our
long-standing practice of paying a premium price for the highest quality Arabic green
coffee beans. That commitment helps to ensure the excellence of our coffee and
contributes to the well-being of the people working on a small-scale coffee farms in
origin countries, many of whom have been financially devastated by a dramatic and
sustained drop in coffee prices." Customer Increasingly, brands are widely accepted as
bottom-line revenue boosters, fostering customer loyalty. BusinessWeek and Interbrand
identify Starbucks as one of the world's 100 most valuable brands, capturing a valuation
of $2.14 billion (businessWeek, 2003). Initially just yuppies went to Starbucks, but now
it attracts a much wider demographic of customers including people of different ethnic
backgrounds and ages. Today, Starbucks has the remarkable number of 25 million
people visitors in its stores each week. This success is due to the combination of high
quality drinks and friendly environment with good music, comfortable chairs, and good
services. This creates the"Starbucks experience" which customers can relate to that lead
to brand loyalty. In addition, Starbucks needs to deal with customers' cultural preferences
in all its worldwide locations to maintain customers' loyalty. (See Figure 2) Also see
Figure 3 for influences on the consumer purchase decision process. See Figure 4 on
Influences on Consumer Purchase Decision Process. Target Points of Difference:
Starbucks cannot expect to grow by offering the same products as its competitors.
Starbucks must offer "points of difference" that will make customers want to come to
Starbucks rather than competitors. The "points of difference" that make Starbucks
distinctive relative to competitors fall into four important areas: * Brand Experience and
Recognition: At Starbucks you aren 't just drinking a beverage, but are undertaking in an
emotional experience by the surroundings in a place that is pleasant, with nice people,
with music, with nice and comfy couches and most of all, you are being "fashionable". *
Brand Quality: Starbucks has been recognized for exceeding expectations by the quality
of their products and their service. This is what will create their loyal customers. *
Perceived Health: People that are active are perceived to be healthier then those not
active. According to a simple survey that I made with co-workers and neighbors in a
total of 15 people (See Figure 6), aside from the coffee, Starbucks is perceived as a
healthy establishment, which makes the new coffee-free Frappuccinos, cocoa (hot
chocolate) drinks and new blends made for Christmas appear healthy as well. *
Convenient Access: Starbucks is everywhere and easily accessible. In many locations
Starbucks offers drive-thru windows, which are more convenient then its competitors.
SWOT ANALYSIS Internal Analysis: Strengths: * In my opinion, the main strengths of
the company are great management and brand recognition. * Established logo, developed
brand, copyrights, trademarks, websites and patents. Brand acknowledgement; *
Company being credited with increasing the overall market for specialty coffee. * The
company respects customers and culture of each country and it operates reflecting the
unique characteristics of a specific market also keeping the consistency of a Starbucks
location. * A large range of beverage and food options that cater the customers'
individual preferences. * The company have been steadily adding locations and
introducing new products. * The launching of ventures and formation of strategic
partnerships. * Alliance with CI (Conservation International) and Starbucks using a field-
to-cup approach to community level conservation that includes all aspects of producing,
processing and marketing specialty coffee. This partnership will provide economic
incentives and technical assistance that will enable small-scale farmers to adopt
conservation practices while producing high quality coffee. * Ability to roll out new
initiatives and products relatively quickly. It continues to experiment and introduce new
products in the market, while making sure that it maintains the consistent strength of its
core product– coffee. * Disciplined innovation. One of the primary reasons behind the
company's success in generating consistent high level of same store sales. * Excellent
product diversification: coffee, baked goods, CDs, online access inside stores, juices,
teas, decaffeinated products as Frappuccinos and accessories such as coffee grinders,
coffeemakers, coffee filters, storage containers, travel tumblers and mugs. *
Approximately 1,200 stores carry a selection of"grab and go"sandwiches and salads. *
Company operated Retail Stores, International Stores * Company selectively locates
stores in suburban malls with high visibility; it focuses on stores that have convenient
access for pedestrians and drivers. * Valued and motivated employees: low employee
turnover * Good relationship with coffee suppliers * Not a franchise * Coffee industry
market-leader – 40% of the market. * Starbucks is globalized * Each store varies its
products mix depending upon the size of the store and its location Weaknesses * Ever-
increasing number of competitors in growing market * Clustering of too many shops in a
small area: self cannibalize stores at a rate of 30% a year. * Cross Functional
Management * Expensive price * In China, the company is facing challenges trying to
sell a cup of java for around 3 bucks in a tea-drinking country where the average weekly
wage is less than 20 dollars. External Analysis: Opportunities * Further international
market Expansion as for example: * China and Japan have become the focus as one it the
company's fastest growing market and the other is a slumping one that still remains its
second most important outside the United States. * Launch new products. Starbucks is
planning to sell its ready-to-drink coffee products in Japan, given the huge market for
these products there. * Starbucks enters into agreement to establish joint venture in its
Malaysian operations acquiring an equity position in its Malaysian licensee; Berjaya
Coffee Company which will change its name to Berjaya Starbucks Coffee. * Starbucks
Coffee International and its joint Venture partner Group Vips, opening stores in Paris. *
Distribution agreements * Brand extension * Expansion into retail operations *
Technological advances * Fining new distribution channels, i.e. delivery Threats *
Starbucks faces copywriting infringements but it is a less China issue and more a global
concern that all successful franchises endure. * The company has become the bane of
antiglobalization folks around the world because of its status a symbol. * According to a
research conducted in 2003 by Mintel Consumer Intelligence, more than half of all
coffeehouses in the United States are independently owned, and industry experts
indicate that the majority of independents opened within the last decade have survived. *
Occasionally, a community group opposes the company's plans to expand in their
neighborhood as locally owned business, independent coffeehouses, or activist groups. *
Poorly treated farmers struggling to make a living in those countries supplying the coffee
beans – negative publicity. * The rise in global coffee production, while consumption has
remained relatively static creating a coffee surplus that has driven prices down, which is
devastating for many coffee farmers. They are not earning enough to cover their costs of
production or make a profit. * Protests regarding fairly traded coffee as the one that
targeted 300 cities in Europe in 2001 and the one on the topic of the investigation of
Mexico's coffee crisis in 2000 where a member staff of the Organic Consumer
Association found that is a "lie" that Starbucks intends to pay fair trade prices for all their
coffee. * Supply and price of coffee being subject to significant volatility. Supply and
price can be affected by various factors in the producing countries as: * Actions of
different organizations and associations to attempt to influence commodity prices of
green coffee establishing new quotas or restricting coffee supplies worldwide. * The
company's capability of raising sales prices in reply to rising coffee prices may be
restricted, disturbing the Company's profitability. * Increase of competition within the
specialty coffee industry. * Fluctuated dairy product's prices. * Lack of ability to find
good store locations and lease rates. * Increase costs related with opening and operating
retail stores. * Continued ability to hire, train and retain qualified personnel. * Being an
international company, Starbucks is exposed to market risk associated to overseas
currency adjust rates, equity security prices and changes in interest rates. * Competition:
restaurants, street carts, supermarkets, other coffee shops, other caffeine products * US
Coffee saturated market by 2004 * Coffee price volatility in developing countries *
Consumer trends toward more healthy ways and away from caffeine * Increase in the
minimum wage may create pressure to increase the pay scale of employees. * Increase of
competitive pressure of the restaurant industry. * Recent dietary trends and negative
publicity on products high in carbohydrate content may have an adverse impact on sales.
Internationalization International Growth Starbucks likes to keep close control of its
brand, but in order to be "locally relevant" in the country in which it expands, the
company chosen to engage in joint ventures, partner in company-owned operations, and
license the Starbucks brand. In January 2004, 1,791 stores, or 26% of all Starbucks stores
are located outside the U.S (See Figure 20) Challenges of International Growth: While
coffee lovers in New York might have a little different tastes than coffee drinkers in
Miami, the Starbucks prepared model for its domestic growth has been fairly simple:
maintain tight control of the brand name, maintain efficient, high quality operations that
give way a dependable product, and repeat the accomplishment as quickly as possible.
Starbucks' international growth is likely to be much more time and energy consuming
than the rapid domestic growth. Each new country offers a distinctive set of
regional/local preferences and tastes, also social, economic and political challenges.
Starbucks must select the sites for stores and obtain on partners who are experts in the
local business environment, at the same time that is maintaining its brand integrity. It is
important for Starbucks that each new customer to have the same "Starbucks Experience"
no matter where in the world they are enjoying their Caramel Macchiato Latte. In Canada
for example, where Starbucks' international challenges might seem minor compared to
other countries, there is more complexity than we can imagine because opening a store in
Quebec, for example, requests adding a new language (French) to the Starbucks
operational glossary. It also means adjusting the product in small ways, to appeal to local
tastes because in Montreal, customers have a strong coffee culture. After a long vetting
process, Starbucks chose Interaction Restaurants to be its ambassador to Quebec. The
process of choosing partners is time consuming because Starbucks is concerned about
maintaining the integrity of its brand's image. In China, Starbucks faces intellectual
property violations, similar to the experience of the very popular KFC. In spite of
registering several versions of the Starbucks name in Chinese, local stores are copying
the Starbucks logo and name for coffee shops. These violations attest to the strength and
popularity of the Starbucks brand. Strategies Starbucks 10 main strategies: 1) Start with a
good business concept Starbucks is a great success because it believed on a concept that
didn 't existed before: not a place only to get a gourmet coffee but a coffeehouse to get-
together, socialize and have intellectual discussions. Starbucks created an unique ambient
that was interesting and differentiated, turning a common and modest product as coffee
into an amazing experience that customers were willing to embrace. 2) Think big
Starbucks used the slow-but-sure approach to business growth. It was not a quick success
but with perseverance, patience, management and financial smarts, the Company became
to be internationally recognized. 3) Think outside the box Starbucks has the talent to spot
opportunities, even if that means to expose to ridicule the falseness of some retail trends.
The company does not follow the retailing systems of find locations to its stores. Instead
of looking for a location based only on its demographics, traffic patterns, location of
competitors it gathers its stores in specific areas making Starbucks omnipresent in many
city streets. The clustering of many shops in a small area can lead to self-cannibalization
but is a strategy that deters competitors from opening stores within the Starbucks
saturated area. While each store might become less profitable individually, all of the
profits go to Starbucks if they "box out" the competition. 4) Partner Smart In order to
achieve goals, even large companies need help and the reality is that the key factor for
starbucks' success is its strategic partnerships. To mention few: * In 1993 begins Barnes
& Nobles Inc, relationship starting the strategy to gain foothold in the bookstore
segment. Very smart moves for both companies since both are concerned about customer
service quality and customer loyalty. Barnes & Nobles philosophy is to have a place for
people to sit and read and starbucks is to have its stores as a third place to go after home
and work. * In 1995 Starbucks was awarded the American Airlines account and in the
same year the formation with Canadian bookstore Chapters Inc., was a great way for the
company to be acknowledged, recognized and trusted in Canada. As I mentioned before,
Canadians are very peculiar with their coffee, and this alliance gave Starbucks' customers
the chance to try out the coffee. * In 1996 Starbucks entered into a partnership with
Pepsi-Cola to start the business venture called North American Coffee Partnership. The
alliance with Pepsi-Cola was to product the bottled version of Starbucks Frappuccino
blended beverage was very profitable for both companies. They were in need of
something different and innovative to compete in the market. The alliance between two
trusted companies was a success and customers were able to find starbucks drinking
everywhere not having to drive until a Starbucks' store. In the same year, Starbucks
entered into a partnership with Dreyer's Grand ice Cream, Inc that introduced Starbucks
Ice Cream and Starbucks Ice Cream bars. Starbucks Ice Cream quickly becomes the
number one brand of coffee ice cream in the U.S. * In 1998 Starbucks signed a licensing
agreement with Kraft foods to extend the starbucks brand into grocery channels across
U.S. making the company's coffee more attractive and accessible for customers,
increasing sales and in 2004 Tazo (Starbucks Tea line) and Kraft Foods announce
licensing agreement to distribute Tazo super-premium teas in U.S. grocery channels.
(Please remind that a Kraft food is one of Starbucks competitors and it distributes coffee
products in supermarkets and convenience stores, which may serve as substitutes for
Starbucks' coffees and teas). * In 1999 Enters agreement with Albertson's, Inc. to open
more than 100 Starbucks locations in their supermarkets in the year 2000. * In 2000, in
order to be more competitive in the market and be recognized as environmental friendly,
Starbucks enters into licensing agreement with TransFair USA to market and sell Fair
Trade Certified Coffee and introduces a commitment to Origins coffee category that
includes shade grown, organic and Fair Trade Certified selections. * In 2001 Starbucks
enters in partnership with Hyatt Hotels Corp and in 2003 introduces Shade Grown
Mexica and Fair Trade Certified coffees to the coffee selections available to Hyatt hotel
and resort's guests. * In 2004 it signed agreement to open Seattle's Best Coffee cafes in
More than 400 existing Borders Books & Music stores over the next several years in the
continental U.S. and Alaska, and within new Borders stores as they open. The marketing
strategy is amazing and very well-planned. Thanks to the company quality and
recognition, those agreements are being possible. * Starbucks recently teamed up with
Bank One to offer the Starbucks Card Duetto Visa. This is a stored-value card and
traditional credit card. Starbucks has also introduced a T-Mobile Hotspot service in more
than 1,200 starbucks stores (expanding it to more than 2, 7000 stores in 2003), which
allows the Starbucks customer to have access to wireless internet for a fee. Offering more
services like the Visa card, wireless internet and customized CD will add more value to
the Starbucks experience and help draw more customers to Starbucks which will lead to
higher revenues. Starbucks also shows and practices its social commitments objectives
and had joined a number of organizations as CARE (the international relief and
development organization) introducing the CARE coffee sampler. In 1998 forms Urban
Coffee Opportunities, a joint venture with Earvin "Magic" Johnson's Johnson
Development Corp., to develop Starbucks Coffee locations in under-served, urban
neighborhoods throughout the U.S., In 1997 establishes the Starbucks Foundation,
benefiting local literacy programs in communities where Starbucks has coffeehouses
among others. Because Starbucks joined strategic alliances with the right companies, it
was able to achieve its objectives that are being recognized and successful. 5) Create a
unique experience Starbucks creates stores that are designed to attract customers and
keep them coming back because of its comfort, entertainment and good coffee. * In
1995, based on an extremely popular in-house music program, Starbucks starts selling
compact discs, which is another reason for customers to visit the stores. * The CD sales
was a success so Starbucks acquired in 1999 Hear Music, a San Francisco based Music
Company, now the company is capable of create its own CDs giving the customers the
opportunity to create their own CDs, which is very attractive. When a customer buys a
CD, there are always few songs that you don't like. Using Starbucks, customers can
customize their CDs. * In 2001 Starbucks begins to offer high-speed wireless internet
access in stores. Now, besides being able to listen and customize their CDs, customers
will also spend their times online, sipping their coffee. With this new strategy, business
travelers, students and web surfers will purchase instead of only one coffee, two or three
cups along with something to eat. Creating profits. Those advantages, plus the stores'
ambiance promotes an environment that complements the coffee drinking experience. 6)
Keep Customers Happy. The company's mission statement says "Develop
enthusiastically satisfied customers all the time", so every strategy pursued by the
company has the objective of please its customers whether they are just buying a coffee
for their coffee break or staying in the store all day long doing their school assignments.
For customers that are not willing to stop their cars or are late for work (for example)
Starbucks make their "deluxe coffee style" as accessible as possible, creating drive-thru
stores (The Company said its drive-through locations reported sales that averaged 40 per
cent higher than walk-in stores in 2004. One-third of the new stores the company opened
in the United States last year included drive-through windows). In some areas and a great
amount of stores relatively close to each other, so customers can find a local closest store,
not having to walk one or two more blocks out of their route to buy coffee. Starbucks also
created the ready-to-drink beverage category and a heightened focus on lunch items
(contributing to sales growth was an increase in which the company says added sales of
about $30,000). 7) Dig deep into customer's wallets. Starbucks is always creating new
products to get customers to spend more money in their stores. As mentioned before,
CDs burners, online access are few attractions but also customers wants something else
with their coffee, or few do not like the caffeine, others like to have hot sandwiches and
pastries. Below are listed few of new Starbucks innovations: * The launch of
Frappuccino blended beverages. A line of low-fat, creamy, iced coffee beverages for
customers that are more concerned about their health, attracting different types of
customers as the ones that goes to the gym and are concerned with their figures not
giving up indulging themselves sometimes. * For customers that do not like the taste of
strong premium coffees Starbucks introduced Milder Dimensions, a lighter and milder
tasting line, targeting and attracting another type of customers. * For customers that do
not like coffee at all, the line of a blended juice tea, called Tiazzi, was introduced. It has a
refreshing mixture of tea, fruit juice and ice. * Begins offering the starbucks card for
users to use and reload being easier and very "tempting" to buy coffee frequently. * For
customers that love innovation, the company introduced Iced Shaken Refreshments, a
handcrafted and refreshing new beverage category featuring coffee and tea shaken over
ice. 8) Ability to roll out new initiatives. Starbucks has a disciplined innovation strategy
that generates consistent high level of same store sales. The company continues to
experiment and introduce new products in the market, at the same time making sure that
coffee remains their core product. New ideas are being created as hot sandwiches and
breakfasts, also drinks such as coffee and liqueurs (the probably sell of liqueurs in the
stores created some malicious comments from few customers that are against Starbucks
selling alcohol) and even a pumpkin spice lattes for the holidays. Also: * Starbucks
expand supermarket sales for their whole beans. * In 2002 the company introduced a
ordering program. Customers can pre-order and prepay for beverages and pastries via
phone or on the Starbucks Express website. 9) Good management. Howard Shultz joined
Starbucks as director of retail operations and marketing and he was the responsible for
Starbucks being the success that it is nowadays. The company's management team is
always developing successful strategies and one of the best decisions was not franchise
maintaining stores company-owned which maintain its image, providing customers a
standard quality of service. Analyzing the company's annual statements, I notice hat the
company do not pay interest, which means it dos not need to borrow money to grow. It
expands with its own cash flow spending only one percent of its revenues in marketing
and do not advertise on TV. The company relies on mouth-to-mouth and its brand's
charisma to promote itself. Also, the company nowadays has the resources to hire the best
minds in the industry but in the beginning Howard Shultz was the brain being the chief
architect of the many winning strategies of Starbucks. 10) Diversified revenue stream
The company keeps a healthy financial position and growth of revenues for not relying in
only certain products lines. As mentioned before, Starbucks has a retail sales mix that are
beverages, food items, whole beans coffee, coffee making equipment and accessory. It is
currently looking for additional opportunities in distribution channels in grocery,
licensed stores and business alliances. The company is expanding its business. Below are
few examples: * In 2002 it introduced Starbucks Barista Quattro thermal coffeemaker. *
Opens Starbucks Coffee Agronomy Company in San Jose, Costa Rica. A great
investment, producing high quality coffee and employment. * In 2003 Starbucks acquires
Seattle Coffee Company, which includes Seattle's Best Coffee and Torrefazione Italia
coffee brands, increasing the company's coffee quality and profitability producing its
own coffee. * In 2004 Starbucks debuts a strategic marketing alliance with XM Satellite
Radio featuring a 24-hour "Starbucks Hear Music"channel. Financial Situation Industry
Starbucks industry is called "Specialty Eateries". Those are companies that own, operate,
and/or franchise limited menu eateries, including gourmet coffee houses and bagel shops.
Revenues stem primarily from food and alcohol sales. Eateries from these businesses are
located in airports, coffeehouses, coffee carts, and independent restaurants. While most
operate their own restaurants, some firms in this category help manage places like the
cafeterias in health care organizations. There seems to be a lot of firms that sell coffee,
bagels, or other bread-related items. The specialty coffee market is strongly competitive
and greatly fragmented. With low barriers to entry, competition in the industry is
anticipated to enlarge from national and regional chains, as well as from local specialty
coffee stores. Following the industry family tree we find: Restaurants and Cafes
Specialty Eateries Leisure Besides Starbucks, other company's that are in the Specialty
Eateries' Industry are: BAB Holdings Inc.: Operates and franchises specialty bagel,
muffin and coffee retail units under the Big Apple Bagels, My Favorite Muffin and
Brewster's Coffee trade names Flanigan's Enterprise Inc.: Owns and/or operates
restaurants with lounges, package liquor stores and an entertainment oriented clubs
(collectively the"units"). All of the Company's package liquor stores, restaurants and
clubs are operated on leased properties. They operate under the names ``Flanigan's
Seafood Bar and Grill'' restaurants and ``Big Daddy's'' retail liquor stores. Diedrich
Coffee: Diedrich Coffee is a specialty coffee retailer that sells specialty brewed coffee
and espresso-based beverages such as cappuccinos, lattes, mochas and espressos and
various blended drinks through its retail locations. To complement beverage sales, they
also sell light food items, specialty whole bean coffee and accessories at retail locations.
Brands include Diedrich Coffee, Gloria Jean's, Coffee People and Coffee Plantation.
Einstein/Noah Bagel Corp.: Operates retail bagel stores. Stores are unique bagel cafes
and bakeries featuring fresh baked bagels, a variety of cream cheese spreads; specialty
coffee drinks, soups, sandwiches and salads. New World Coffee: Owns, operates and
franchises stores and operates a coffee roasting facility. The company's stores are the first
in the industry to combine a coffee bar and bagel bakery under one roof. This two-in-one
concept allows New World Coffee & Bagels stores to generate continuous traffic for
breakfast, lunch and between meals, maximizing store sales. With the acquisition of
Manhattan Bagels Company, Inc. they are now considered one of the largest coffee/bagel
franchisor's in the U.S. (PR) Panera Bread: Panera Bread Company operates a retail
bakery-cafe business and franchising business under the concept names Panera Bread
Company and Saint Louis Bread Company. The concept specializes in high quality food
for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on
freshly baked breads, soups, salads, custom roasted coffees, as well as other cafe
beverages, and targets suburban dwellers and workers by offering a premium specialty
bakery and cafe experience with a neighborhood experience Uniservice Corporation:
Holds a 99.97% interest in Kentucky Foods Chile S.A. which, in turn, currently owns and
operates, under license, 34 Kentucky Fried Chicken restaurants in Chile, the majority of
which are located in the capital Santiago. Please note that not all the companies' in the
industry are starbucks competitors. Competitors Starbucks started small with big
ambitions and its first office was open in Seattle's Pike Place Market in 1971 and was
made public in 1982. Currently the company holds 40 percent of specialty coffee market,
and the expected growth in this category will offer the company considerable chances
for further growth and expansion in the future. It is said that Starbucks is"at its early
stages to colonize the globe" . Starbucks competes in a straight line against all other
premium coffee roasters, wholesalers and retailers, including other brands of
coffeehouses, and mall coffee stores, restaurant and beverage outlets that serve coffee and
a growing number of espresso kiosks, stands, and carts (very common in Miami). In
addition all those competitors, Starbucks competes to draw consumers of standard or
commercial coffee to premium coffee. Starbucks top Competitors are Caribou Coffee,
Diedrich Coffee, and New World Restaurants. It also competes with a growing number
of specialty coffee retailers. Below you can find few competitors and their main
characteristics. Diedrich Coffee – Gloria Jean's Coffee - at June 30, 2004, there were 282
Gloria Jean's coffeehouses in 13 foreign countries. The largest concentration of stores is
in Australia where there were 196 stores at June 30, 2004. International operations had
grown rapidly in the past three years. Total international revenues were $1,345,000 in
fiscal 2002, $1,801,000 in fiscal 2003 and $3,134,000 in fiscal 2004. Caribou Coffee -
founded in Minneapolis, moved this year to a new facility in Brooklyn Center. Is a
privately held company that is not yet public traded; with annual sales in 2002 of $100
million and $120 million in 2003 and will post sales of more than $150 million this year
(2004), has currently has 295 stores in nine states and the District of Columbia and is the
company that owns and operates the second largest non- franchising chain in the U.S
after Starbucks., Interesting enough, a taste test named Caribou Coffee the nation's best
brew. The company's coffee was the only brand among 42 tested to garner a rating of
"excellent." Eight O'Clock ranked second and Dunkin' Donuts third in the test, which
rated packaged beans, not coffee sold by the cup. Industry giant Starbucks came in 11th.
New World Coffee & Bagels - Bagels and coffee are key ingredients for New World
Restaurant Group. The company is one of the largest bagel shop operators in the US,
with about 710 owned and franchised locations in 32 states and the District of Columbia.
About 460 of its restaurants are company-owned. Its quick service eateries operate under
a number of brands, including Chesapeake Bagel Bakery, Einstein Bros., Manhattan
Bagel, and Noah's New York Bagels. The shops typically serve fresh-made bagels and
spreads, along with coffee and other sandwich items. New Restaurants owns and
operates two brands within Starbucks' competitive space: New World Coffee - New
World Coffee is a division of New World Restaurant Group, Inc. New World Coffee
consists of franchised and company-owned stores. There are currently 21 New World
Coffee locations in five DMAs in the northeastern United States. Charting rapid annual
growth, New World recorded sales of $398.6 million with an annual net loss of $40.5
million in 2003 for all of its brands. Coffee Beanery Ltd. Coffee Beanery franchises and
has over 200 locations throughout the U.S. (with over 166 franchises in 8 countries
throughout the world) and is recognized as an industry leader for its unique family
business approach, corporate culture and commitment to quality.( After hours of research
more detailed information regarding the company was not found. I could not find Annual
Reports or any information regarding company's goals and revenues). Tim Hortons - The
chain's focus on top quality, always fresh product and friendly, efficient customer service
has helped make Tim Hortons one of North America's largest coffee and fresh baked
goods chains. Today, Tim Hortons has more than 2, 350 stores across Canada and a
steadily growing base of 228 locations in key markets within the United States. In 1995,
Tim Hortons merged with Wendy's International, Inc., a company with the same strong
core beliefs in quality, value and customer service. Tim Hortons is traded on the New
York Stock Exchange (NYSE) under the WEN symbol. Its products are cappuccino,
Mocha and Iced Cappuccino, Sandwiches and soups, donuts, tarts, cookies, Danishes,
specialty deserts and so froth. In Canada is leader in the market with 70% of coffee and
backed good's share and is on track to top $3 billion in sales. Its revenues went from $143
mil in 1992 to $807mil in 2003 . Barnie's – S &D, (In 1927, just before the Great
Depression, J. Roy Davis, Sr. and Lawrence Switzer began by providing fresh roasted
coffee to local and regional grocery stores. As the company grew, they learned about
buying the raw beans, the intricacies of different roasting processes and, especially, the
simple but deep pleasure that a quality cup of coffee can bring. Their new packaging
facility expansion in 2001 doubled their capacity to 100 million pounds annually) is
proud to offer as their premier branded line, Barnie's Coffee. There are 100 company-
owned and franchised Barnie's Coffee & Tea Company stores worldwide. Barnie's Coffee
& Tea Company, Inc. also distributes, through licensed coffee vendors, its branded coffee
products to offices, restaurants and supermarkets. The company competes with Starbucks
and has a powerful selection of products to be offered to its customers besides a fine
coffee. It sells gourmet cocoas, tableware, candies and deserts, syrups for sale, gourmet
treats just mentioning few. The company also signed a master franchising agreement that
will result in the opening of Barnie's Coffee & Tea stores throughout China opening in
Beijing, Shanghai and Guangdong provinces over the next two years. Headquartered in
Concord, North Carolina, currently serve over 40,000 customers nationwide from leading
restaurant chains to large lodging and c-store chains, to healthcare and office facilities.
Tully's Coffee - Opened first store in 1992 is a privately held company with 100 locations
in four states. The company offers the coffee experience to million of customers a day
making Tully's coffee the world's third largest company-owned specialty coffee- retailer.
Overseas, Tully's has 120 licensed outlets in both Japan and South Korea, overall
recorded sales of $50.8 million, and a company-wide net loss of $9.9 million in 2003.
Tully's competes with Starbucks offering its customers kiosks equipped with windows
mobile 2003 pocket PCs to offer customers a chance to experience wireless access from
Cometa Networks at Tully´s Coffee Shops. The Wi-Fi-enabled kiosks allows customers
try browsing the Internet, using streaming media, sending an instant message and
learning about the Wi-Fi service available at Tully´s Coffee on the latest Microsoft®
Windows Mobile-based Pocket PCs. Peet's Coffee - Founded in Berkeley, Calif. In 1966,
Peet's Coffee & Tea, Inc. is a specialty coffee roaster and marketer of fresh, deep-roasted
whole bean coffee for home and office enjoyment. Peet's fresh-roasted coffee, hand-
selected tea and related items are sold in several distribution channels including specialty
grocery and gourmet food stores, online and mail order. Recorded 2003 sales of $119.8
million, with net income of $5.2 million operates 95 retail stores in California, Oregon,
Washington, Colorado, Texas, Illinois and Massachusetts and has been rapidly increasing
its sales in grocery stores nationwide. The quarter ending Sept. 26, 2004 was a torrid one
for fast-growing Peet's Coffee & Tea Inc. of Emeryville, which reported a net revenue
gain of 19.5 percent. Sales for the company's third quarter were $34.5 million, compared
to $28.8 million during the same period a year ago. Net income for the quarter increased
to $2 million, or 14 cents per share, a far cry from a loss of $300,000 during the third
quarter of fiscal 2003. A number of nationwide coffees manufactures, such as" Kraft
Foods, Proctor & Gamble and Nestle, distribute coffee products in supermarkets and
convenience stores, which may serve as substitutes for Starbucks' coffees. To ensure
further market growth and be competitive, Starbucks is developing new products for non-
coffee drinkers. Starbucks provides its existing customers and attracts new customers not
only with the excellence of its products but also with varieties flavors that customers'
desire (See Figure 3). The biggest competitors to these new products are Dunkin' Donuts
and Krispy Kreme, both are national chains. These companies use aggressive price-
cutting, up to 20%, for their drinks. Their direct competitors for the new product line are
Orange Julius, Jamba Juice, fast food chains such as McDonald's and Burger King, and
other small coffee alternative providers. Curiosity "Café Cubano" is the Number one
Starbucks Competitor in Miami The word 'coffee'originates from the Arabic word
'kaweh', meaning strength or vigor. Drink some Cuban coffee and you will feel the vigor,
that's for sure. There are as many ways to drink coffee as there are countries so when I
talk about Cuban coffee I am really talking about a way of making and drinking it, not the
kind of coffee beans used. Brazil is actually the largest producer of coffee in the world.
While many of us are comfortable walking into a Starbucks and ordering a non-fat, half-
caf latte, the Cuban coffee drinks popular in Miami may still be intimidating. Here is a
primer for translating the drink names as well as some customs for drinking them. Most
Cuban restaurants have walk-up windows out front which offer coffee and some
appetizers like croquetas, empanadas (cuban turnovers) y pastelitos (cuban pasteries).
Drinking coffee here is meant to be a social event, often a ritual to share with friends and
family. Don't be surprised if the person next to you strikes up a conversation while you
are waiting for your order; this is all part of the ritual. By taking part in this warm Cuban
tradition, you are opening up yourself to learn even more about the culture. The price is
usually extremely reasonable when you compare it with a chain like Starbucks. Cuban
Coffee only costs about .50 cents and a café con leche ranges from $.50 - $2.00
depending on the location. cafecito or café Cubano : Cuban-style espresso. Served in a
small espresso cup, it is very strong and very sweet. Whether to sip it or down it like a
shot is up to personal taste, so whichever way you prefer is accepted. espumita :
Otherwise known as foam or "crema", this is the key element. The first few drops that
come out of the top of the coffee maker are poured into a cup containing 4 - 6 teaspoons
of sugar. This is then beaten by hand with a spoon until creamy. The finished coffee is
poured into the cup with the sugar and mixed gently. colada : Being a social drink, café
can be ordered ready to share with friends. Order a colada and your drink will come in a
large cup with a lid along with little plastic espresso cups. After lunch, you will see
stores and businesses all over Miami having cafecito. cortadito : Basically 1/2 cuban
coffee (espresso) coffee mixed with 1/2 milk. Either way, it's a great way to try Café
Cubano for the first time to get the taste of it. café con leche (coffee with milk) : Similar
to a latte. You are served a cup of hot milk (or evaporated milk) and a shot of Café
Cubano in a separate cup. Just dump the coffee into the milk when you are ready for it.
You usually won't need sugar, since the shot is sweetened already. Because I live in
Miami, I can choose between having Starbucks or Café Cubano in the mornings
depending on my "mood". Honestly speaking, I would not choose Starbucks over a Café
con leche (coffee and milk) and a "tostada" (Cuban toast) for my breakfast. Starbucks'
growth in the U.S. has been phenomenal, and has "added new outlets faster than any
other quick-service franchise, including McDonalds". It is "the fastest growing takeout
franchise ever" even compared to McDonalds (2002) . | Starbucks | McDonald's |
Estimated sales per square foot: | $516 | $533 | Operating margin per store: | 20.1% |
14.4% | Total annual sales growth rate: | 25% | 1% | Same-store sales growth rate: | 7% |
0% | Analyzing the company's competitors, I could verify that all of them offer their
customers almost the same quality of products and services that Starbucks does. Caribou
Coffee, for example, also offers nutritional information on its products; it is also privately
owned and does not offer franchising opportunities. The company is concerned about the
quality of its products and customer's satisfaction as Starbucks is. When in Minneapolis, I
had the opportunity to try Caribou Coffee. I asked for a Late that was the most similar to
Starbucks Caramel Macchiato Late, which is my preferred one. The taste was similar, but
I noticed that Caribou coffee was "softer" than Starbucks. I liked Caribou's taste better.
All company's also offers different products, for example Barnie's sells candies, deserts
and even syrups, and of course, good roasted coffee in along with nice stores. The reason
why Starbucks is so successful, in my opinion, is that the company introduced the
"Coffee Mania". As what happened to Xerox, customers are already identifying the
product as the first company that created it. I noticed here in Miami people don't say "let's
go by a coffee at starbucks"; they say "let's buy a Starbucks". Even with so many
boycotts and competitors, the integrity of the brand seems to be intact and is having an
interesting influence on the international markets it enters. The "Starbucks Effect" is a
term that is being used to illustrate the impact of Starbucks prices on local coffee shops.
Because of Starbucks, drinking coffee became more stylish, increasing revenues for
Starbucks' competitors as well as Starbucks itself. This was especially apparent in Japan,
where the local Doutor Coffee chain regained business it lost due to Japan's deflationary
economy after Starbucks made premium coffee fashionable again) . Starbucks and Its
Competitor's Ratio Analysis. Starbucks sales are equivalent to 87.9% of the industry,
having a market Cap of 91.8% of industry. The percentage difference of starbucks'
market Cap growth was 550.9%; while the industry market Cap average was 1,042mil,
starbucks had an amazing number of 5,739mil. While Starbucks had 7.3% of company
return on Assets, the industry's average return on assets was (9.0%). (See Figure 10) I
will use financial statements to provide information about Starbucks actual position as
well as its operations over some past period. Starbucks financial statements will help me
predict its financial position in the future and to determine expected earnings and
dividends. The financial statement analysis will be useful both as a way to anticipate
future conditions and, more important, as a starting point for planning actions that will
influence the future course of events. Analyzing the company's selected financial Data
from 1999 to 2003, I was able to notice that in 2001/2002, even with the problems that
the entire nations suffered with the economy, starbucks still had revenues, shareholds'
equity, and working capital increase. The return rate for net revenues, within 5 year
analysis was 19.30%, the shareholds equity increased 16.73% and the assets increased
7.65%. The company's working capital (that is concerned with the ability of a business to
be able to pay its way, being able to spending and save money appropriately) had an
increase of 18.44%. Between September 30, 2001 and September 29, 2002, the company
has an increase f its working capital of 108.56%. For now, the company is capable of
managing its operations by having steady market growth. If someday, the company
needs to borrow money, creditors will be secure that the company will be able to afford
to pay the debt but for now, Starbucks do not have to worry about paying any creditors
since the company uses its own capital to expand. Ratios Liquidity Ratio: (How well the
firm was able to meet its current obligation). 2003
http://www.bized.ac.uk/compfact/ratios/liquid1.htm * Leverage Ratios which show the
extent that debt is used in a company's capital structure. * Liquidity Ratios which give a
picture of a company's short term financial situation or solvency. * Operational Ratios
which use turnover measures to show how efficient a company is in its operations and
use of assets. * Profitability Ratios which use margin analysis and show the return on
sales and capital employed. * Solvency Ratios which give a picture of a company's ability
to generate cash flow and pay it financial obligations http:// www.finpipe .com/
equity/finratan.htm Current Ratio 2003 2002 Current assets = $924,029 = $772,642
Current Liabilities = $ 608,703 = $ 462,595 Inventory Level = $ 342,944 = $ 263,174
2003 Current Ratio = Current assets / Current Liabilities Current Ratio= 924,029/
608,703 = 1.52 % (times) 2002 Current Ratio = Current assets / Current Liabilities
Current Ratio= 772,643/ 462,595 = 1.67 % (times) "Current liabilities are rising slower
than current assets, the current ration will raise, which is good" Quick or Acid Test Ratio
2003 Quick ratio = (Current Assets – Inventories) / Current Liabilities Quick ratio =
(924,029 – 342,944) / (608,703) Quick ratio = 0.95 times 2002 Quick ratio = (Current
Assets – Inventories) / Current Liabilities Quick ratio = (772,643 – 263,174) / (462,595)
Quick ratio = 1.10 Times "Ability of a firm to pay off short-term obligations without
relying on the sale inventory" Asset Management Ratio 2003 Inventory Turnover Ratio =
Costs of goods sold / Inventories Inventory Turnover Ratio = 1,685,928 / 342,944
Inventory Turnover Ratio = 4.42 times 2003 Inventory Turnover Ratio = Costs of goods
sold / Inventories Inventory Turnover Ratio = 1,350,011 / 263,174 Inventory Turnover
Ratio = 3.72 times "Purchases of inventory, thus the cost of goods sold figure, occur over
the entire year whereas the inventory figure is for one point of time. That is the reason
why an average inventory measure was used because the firm is seasonal it is better to
make this adjustment. In this case, to compare with the industry average, the average
inventory figure was not used." Day Sales Outstanding (DSO) – "also called average
collection period" 2003 DSO = Receivables / Average sales per day DSO = DSO = 2002
DSO = Receivables / Average sales per day DSO = DSO = "I could not find this
information. Is it at the end of page 21 (annual report)?" Fixed Assets Turnover 2003
Fixed Assets Turnover = Sales / Net fixed Sales Fixed Assets Turnover = 4,075,522 / ???
Fixed Assets Turnover 2002 Fixed Assets Turnover = Sales / Net fixed Sales Fixed
Assets Turnover = 3,288,908 / ??? Fixed Assets Turnover Total Assets Turnover 2003
Fixed Assets Turnover = Sales / Total Assets Fixed Assets Turnover = 4,075,522 /
2,729,746 Fixed Assets Turnover = 1.49 times 2002 Fixed Assets Turnover = Sales /
Total Assets Fixed Assets Turnover = 3,288,908 / 2,214,392 Fixed Assets Turnover =
1.49 times Debt Ratio 2003 Debit Ratio = Total Debt / Total Assets Debit Ratio =
608,703 + 38,616 / 2,729,746 Debit Ratio = 0.24 = 24% 2002 Debit Ratio = Total Debt /
Total Assets Debit Ratio = 462,595 + 28,608 / 2,214,392 Debit Ratio = 0.22 times
"Creditors prefer low debt ratios, because the lower the ratio, the greater "cushion"against
creditors loses in the event of liquidation. Because Starbucks does not have much it
means that it does not have financial difficulties. If someday Starbucks need to borrow
money, creditors will be willing to lend it." Times Interest Earned (TIE) 2003 Times
Interest Earned (TIE) = EBIT / Interest charges Times Interest Earned (TIE) = 424,713 /
11,622 Times Interest Earned (TIE) = 36.54 times 2002 Times Interest Earned (TIE) =
EBIT / Interest charges Times Interest Earned (TIE) = 316,388 / 9,300 Times Interest
Earned (TIE) = 34.02 times "TIE measures the extend to which earnings before interest
and taxes, can decline before the firm is unable to meet its annual interest costs. Because
the interest is paid with pretax dollars, the firm's ability to pay current interest is not
affected by taxes. Starbucks interest is covered 36.54 times it sounds to me a pretty good
margin, but I would have to verify the industry average to be sure about this
information." Major Issues Functional Level Strategy: Functional Level Strategy: Having
analyzed the external and internal forces of Starbucks it is now possible to generate three
possible future strategic decisions. These strategies will be analyzed thoroughly before
one of them is recommended as the best way forward. The options I have chosen to
analyze are Diversification, Mergers and Expansion. Diversification: | | Sep-02 | Sep-03 |
%Increase | United States | | | | | Company-Owned Stores | 3,209 | 3,779 | 17.76% | |
Licensed Stores | 1,033 | 1,422 | 37.66% | | Total | 4,242 | 5,201 | 22.61% | International | |
| | | Company-Owned Stores | 671 | 767 | 1 .31% | | Licensed Stores | 973 | 1,257 | 29.19%
| | Total | 1,644 | 2,024 | 23.11% | Total Stores | 5,886 | 7,225 | 22.75% | | | | | | . Product
Life-Cycle: Maturity – sales are at a continuous increase but profits aren't. Historical
Marketing Plans: * Price: Preserve market share, increase profit. * Place: More outlets
(rapid store growth and wholesale acquisition). * Promotion: Stress competitive
differences (branding). * Product: more options (greater variety of beverages). Current
Market Situation: Potential customers: teenagers with disposable income. Product-based
competitor: coffee, tea, juice, milk. Global competitor: No global competition in retail
sector. Market-share: in 2003 "WE HAVE LESS THAN 7 PERCENG MARKET
SHARE OF COFFEE CONSUMPTION IN THE U.S". Growth Cycle – EARLY DAYS.
THE BRAND START TO EMERGE INTERNATIONALY STARBUCKS ENDED
FISCAL 20023 WITH 7,255 COMPANY OPERATED AND LICENSED
OPERATIONS IN 32 COUNTRIES, INCLUDING ALL THE U.S. STATES PLUS THE
DISTRICT OF COLUMBIA. THIS YEAR, RETAIL OPERATIONS ACCOUNTED
FOR 85% OF STARBUCKS REVENUES, WHILE REMAINING REVENUES WERE
FROM SPECIALTY OPERATIONS. (SEE CHART ON THE WEBSITE COPY/PASTE
HERE!!!!! ANNUAL REPORT- ENVIRONMENTAL MARKETING STRATEGY
Starbucks introduced the Hear Music media bar, a service, powered gy HP technology
djblade311 writes "SEATTLE (Reuters) - Starbucks Corp., the world's largest coffee
shop chain, will launch a new music service next week and expand it into 2,500 of its
cafes over the next two years, BusinessWeek magazine reported in its latest edition.
Starbucks customers will be able to choose from 250,000 songs to burn onto CDs and
take home, building on a limited assortment of CDs currently for sale in Starbucks cafes,
the magazine reported. This to me sounds like a desperate attempt to get more money.
Seriously, Starbucks is a place where you can get good coffee. Leave it at that.
Companies that do not focus on their primary market or niche, tend to lose sight of their
company's mission statement or objective. What else will Starbucks wanna do as well?
WAIT, I know. How about Starbucks add a car wash that is automated. This way, the
consumer exits their car to get coffee and gets their car washed while waiting in line for
20 mins to get one cup of coffee. If they are finished with their transactions before the car
wash is completed, th
ey can also download music and burn them on CDs and listen to the newly burned CD in
their car. ( http://www.thedjgroove.com/article80.html ) Click here for all published
questions for SBUX Starbucks Corporation (Nasdaq:SBUX) Question: What is
Starbucks' level of rivalry within the specialty coffee industry? What is the level of power
that it has over its suppliers and its customers? What is Starbucks' threat of substitution?
Finally, what are the barriers of entry and exit into the industry? Answer: Thank you for
your question. Information regarding Starbucks competition may be found in our most
recent 10-K, that was filed with the Securities and Exchange Commission (SEC) on
December 20, 2001. I have included an excerpt from the 10-K below. The full report may
be accessed via our link to the SEC on Starbucks Investor Relations web pages at the
following URL: www.starbucks.com/aboutus/investor.asp Excerpt from Starbucks Fiscal
Year 2001 10-K:"

The Company's primary competitors for coffee beverage sales are restaurants, coffee
shops, and street carts. In almost all markets in which the Company does business, there
are numerous competitors in the specialty coffee beverage business, and management
expects this situation to continue. Although competition in the beverage market is
currently fragmented, a major competitor with substantially greater financial, marketing
and operating resources than the Company could enter this market at any time and
compete directly against the Company. "For additional industry information, you may
visit the Specialty Coffee Association on the web at www.scaa.org. You will find recent
survey reports detailing the competitive environment, and market reports. Jenelle Ubigau,
Investor Relations Question From: Monica Correa Individual California
( http://www.qawire.com/published/80cef5d:eec6c93740:-7f3d.html ) Starbucks
Corporation (Nasdaq:SBUX) Question: To whom it may concern, How would you best
describe Starbucks Maketing Mix (Product, Place, Price and Production)? Answer: Thank
you for your interest in Starbucks Coffee Company. I've included the description of
Starbucks business below. Most of this information comes from our annual 10-K filing
with the Securities and Exchange Commission. If you would like to see the complete
filing, it may be accessed through the link to SEC filings on our Investor Relations pages
at the following URL: http://www.starbucks.com/aboutus/investor.asp. Clips from
Starbucks Fiscal Year 2001 10-K "General. Starbucks Corporation (together with its
subsidiaries,"Starbucks" or the"Company") purchases and roasts high-quality whole bean
coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso
beverages, cold blended beverages, a variety of pastries and confections, coffee- related
accessories and equipment, a selection of premium teas and a line of compact discs
primarily through Company-operated retail stores. In addition to sales through its
Company-operated retail stores, Starbucks sells coffee and tea products through other
channels of distribution including the Business Alliances business unit and other
specialty operations (collectively, "Specialty Operations"). Starbucks, through its joint
venture partnerships, also produces and sells bottled Frappuccino® coffee drink and a
line of premium ice creams. The Company's objective is to establish Starbucks as the
most recognized and respected brand in the world. To achieve this goal, the Company
plans to continue to rapidly expand its retail operations, grow its Specialty Operations
and selectively pursue other opportunities to leverage the Starbucks brand through the
introduction of new products and the development of new distribution channels."
"Starbucks retail stores are typically located in high-traffic, high-visibility locations.
Because the Company can vary the size and format of its stores, they are located in a
variety of settings, including downtown and suburban retail centers, office buildings and
university campuses. While the Company selectively locates stores in suburban malls, it
focuses on stores that have convenient access for pedestrians and drivers.""Each
Starbucks store varies its product mix depending upon the size of the store and its
location. Larger stores carry a broad selection of the Company's whole bean coffees in
various sizes and types of packaging, as well as an assortment of coffee and espresso-
making equipment and accessories such as coffee grinders, coffee makers, espresso
machines, coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks
stores and kiosks typically sell a full line of coffee beverages, a more limited selection of
whole bean coffees and a few accessories such as travel tumblers and logo mugs.""To
ensure compliance with its rigorous coffee standards, Starbucks controls its coffee
purchasing, roasting and packaging, and the distribution of coffee to its retail stores."We
look closely at pricing and price our coffee competitively within the given market.
Starbucks concentrates on creating value with excellent products and customer service.
At Starbucks, our customers can enjoy the finest coffee at competitive prices. Jenelle
Ubigau, Investor Relations Question From: gaby mavi Individual Florida
( http://www.qawire.com/published/80cef5d:eec6c93740:-7f52.html ) Answer: April 18,
2002 Thank you for your question. Information regarding Starbucks competition may be
found in our most recent 10-K, that was filed with the Securities and Exchange
Commission (SEC) on December 20, 2001. I have included an excerpt from the 10-K
below. The full report may be accessed via our link to the SEC on Starbucks Investor
Relations web pages at the following URL: www.starbucks.com/aboutus/investor.asp
Best regards, - - - - - - - - - - - - - - - - - - Excerpt from Starbucks Fiscal Year 2001 10-K:
"The Company's primary competitors for coffee beverage sales are restaurants, coffee
shops, and street carts. In almost all markets in which the Company does business, there
are numerous competitors in the specialty coffee beverage business, and management
expects this situation to continue. Although competition in the beverage market is
currently fragmented, a major competitor with substantially greater financial, marketing
and operating resources than the Company could enter this market at any time and
compete directly against the Company."Mary Ellen Fukuhara, Investor Relations
Question From: Virginia Villegas Individual California
http://www.qawire.com/published/80cef3e:ebf768e72a:-7f52.html Ana, check this
website: http://www.powerhomebiz.com/vol144/starbucks2 .htm
http://businessmajors.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=businessmajors&
zu=http://www. edgar- online .com% 2Fbrand/eol/glimpse/glimpseframe_vnav.asp?
sym=SBU X http://www.coursework.info/i/62759.html - awesome!!!!!
http://biz.yahoo.com/bw/041014/145958_1.html (STARBUCKS OUTLINES
INTERNATIONAL GROWTH STRATEGY; FOCUS ON RETAIL EXPANSION AND
PROFITABILITY) Appendix Figure 1 TOP GROUND DECAFFEINATED COFFEE
BRANDS, 2002 Based on sales for the year ending November 3, 2002 Starbucks is in
third place among top ground decaffeinated coffee brands with a 7.8 percent market
share. This is an increase of 2.6 percent compared to its market share in 2001. TOP
GROUND COFFEE BRANDS, 2002 Based on sales for the year ending November 3,
2002 Starbucks is in fifth place among top ground coffee brands with a market share of
6.66% and $109.2 millions in sales. TOP WHOLE BEAN COFFEE BRANDS, 2002
Starbucks falls among four top whole bean coffee brands and has a 21.7% market share
of the whole bean category this places the company in second place after Eight O 'clock.
In 2001 Starbucks had only 19.1% Figure 2 CULTURAL INFLUENCE ON THE
CONSUMERS BEHAVIOR DIFFERENCE By increasing its market share worldwide
Starbucks needs to deal with cultural issues. For instance, in Europe 85% of coffee
customers like to spend time in coffeehouses, in the USA this number is only 14%, the
remaining 86% prefer to have their coffee to go. Starbucks needs to consider new ways to
increase foreign markets. One way is by adopting its menu and service to segment
markets. Figure 3 FLAVOR PREFERENCE SURVEY To create its 2004 summer drinks
Starbucks sponsored a survey during which it was revealed the degree of flavor
preferences. This survey shows that Americans most enjoy the taste of chocolate (41%),
strawberry (29%), and VANILLA (28%). As a result, Starbucks for 2004 developed new
drinks: Java Chip Frappuccino, Double Chocolate Chip Frappuccino, Strawberries &
Crème Frappuccino, and Café Vanilla Frappuccino. Figure 4 Sociocultural influences
Personal influence Opinion leaders – Important associates drink Starbucks coffee you
want to too. Word of mouth – A friend mentions how great the new Frappuccino flavors
are. Reference groups Membership group such as college students or business associates.
Family Parents go to Starbucks when child matures will remember the experience. Social
class Middle to upper class business associates and college students. Marketing mix
influences Product Coffee products and Starbucks experience. Price More expensive than
average coffeehouses. Promotion In-store advertisements, interviews and articles in
newspapers and magazines. Place Everywhere, you don't have to go far to find a
Starbucks Psychological influences: Motivation Physiological need Personality
Compliant - prefer known brand names Perception Selective exposure, notice Starbucks
when tired or thirsty. Attitude Favorable attitude toward Starbucks experience. Belief
You will always receive good coffee and service Lifestyle Busy, fast-paced Consumer
purchase decision process Problem recognition: Feeling thirsty, need of energy caffeine
Information search: Friend's relatives, advertising and display of posters Alternative
evaluation: Other acceptable brands of coffee drinks Purchase decision: Assessment of
receiving value for given price Postpurchase behavior: Satisfaction from product and
experience Situational influencesPurchase taskWant an energizer boost and a good
experience.Social surroundingsPeople reading, doing homework, just sitting drinking
coffee, relaxed surrounding. | Physical surroundingJazzy and relaxing music, funky
décor, plush velvet chairs, unique light fixture and comfortable atmosphere.Temporal
effectsIn a hurry, drive-thru and quick ready to eat pastry.Antecedent statesTired? Get
coffee. Short on cash? Use Starbucks card. | Figure 10 Industry Name: Specialty Eateries
| | | Company | Industry Total | Percentage of Industry | Sales | 2,541 Mil | 2,891 Mil |
87.9% | Market Cap | 5,739 Mil | 6,250 Mil | 91.8% | Short Interest Shares: | 18,816,584 |
19,814,412 | 95.0% | Number of Analysts: | N/A | 21 | N/A | Number of Institutions: | 744
| 954 | 78.0% | | | Company | Industry Average | Percentage Difference | Historical Growth
Rate: | N/A | N/A | N/A | Estimated Growth Rate: | N/A | N/A | N/A | Average Analyst
Recommendation: | N/A | Moderate Buy | N/A | Number of Analysts: | N/A | 4 | N/A | PE
Ratio: | | 9.2 | | PE Based on Fiscal Year Estimate: | N/A | 12.6 | N/A | PE Based on Next
Year's Estimate: | N/A | 18.9 | N/A | Insider Ownership: | N/A | N/A | N/A | Institutional
Ownership: | N/A | 21.6% | N/A | Short Interest Ratio: | 4.7 | 2.2 | 113.6% | PEG Ratio: |
N/A | .9 | N/A | Price to Book Value: | N/A | 3.2 | N/A | Dividend Yield: | .0% | .3% |
(100.0%) | Return on Equity: | 9.6% | 11.3% | (14.8%) | Return on Assets: | 7.3% | (9.0%)
| N/A | Debt-to-Equity: | .0 | .7 | (100.0%) | Profit Margin:| 5.1% | (7.3%) | N/A | Beta: | .9
| .4 | 136.8% | One Year Return: | (24.9%) | (14.4%) | 72.5% | Five Year Return: | 82.4% |
76.5% | 7.7% | Market Cap: | 5,739 Mil | 1,042 Mil | 550.9% | | Figure 5Percentage of
total annual spending on non-alcoholic beverages away from home, by household type
Non-Alcoholic | Total married | Married couples, | Married couples, | Single parent at |
Single person | beverages away | couples | no children | with children | least one child | |
from home | 62.20% | 17.90% | 38.60% | 5.20% | 18.90% | Average annual spending of
consumer units on non-alcoholic beverages away from home, by household type, in
thousands Non-Alcoholic | total married | Married couples, | Married couples, | single
parent at | single person | beverages away | couples | no children | with children | least one
child | | from home | 191.77 | 135.83 | 232.66 | 147.84 | 101.41 | Percentage of total annual
spending on non-alcoholic beverages away from home, by age Non-Alcoholic | total |
under 25 | 25 - 34 | 35 - 44 | 45 -54 | 55 - 64 | 65 - 74 | 75+ | beverages away | consumer
units | | | | | | | | from home | 100.00% | 6.50% | 20.90% | 28.50% | 23.80% | 11.80% |
5.60% | 2.40% | Average annual spending on non-alcoholic beverages away from home,
by age, in thousands Non-Alcoholic | total | under 25 | 25 - 34 | 35 - 44 | 45 - 54 | 55 - 64 |
65 - 74 | 75+ | beverages away | consumer units | | | | | | | | from home | 158.55 | 136.7 |
192.3 | 206.39 | 188.28 | 144.14 | 83.94 | 38.76 | This information is based on unpublished
data collected by the Bureau of Labor Statistics' Consumer Expenditure Survey, an
ongoing, nationwide survey of household spending. From this data we have found that
when going out for non-alcoholic beverages householders spanning the ages of 25– 54
spend the most overall. We also conclude married couples with children at home spend
more than other household types when going out for non-alcoholic beverages. With this
data we have decided to target the segment of married couples ages 25– 54 with children
at home. | Nationwide survey of household spending: From this data I found that when
going out for non-alcoholic beverages householders across the ages of 25– 54 spend the
most in general. Married couples with children at home spend more than other household
types when going out for non-alcoholic beverages. Figure 6 Figure 6Small Random
Survey Besides the coffee aspect, do you view Starbucks as a healthy establishment? |
Yes: | 12 | No: | 3 | This survey was taken on my work place and my neighbors.
Interesting, when I was asking questions, few interviewers mentioned that because we
were talking about starbucks, they felt like buying a starbucks. Even my boyfriend, that
does not drink coffee, is addicted to Coffee Mocha Frappuccino. | Figure 20
http://www.journeygroup.com/personal/globetrotters/starbucks.html
http://www.scaa.org/pdfs/ 2003_StateofSustainableCoffee_Part1 .pdf
http://www.scaa.org/pdfs/2004_Coffee_Markets.pdf --------------------------------------------
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Publications. ## Starbucks Corporation It doesn't matter if you are a coffee drinker or
not. Most of us have heard of Starbucks. As one of the most successful companies in the
marketplace today, the little corner coffee store from Seattle has grown into an
international company worth $4.1 billion dollars. Starbucks now boasts over 7,000 stores
in the United States and in 43 countries worldwide. From their trademark beverages to
the strategic relationships they have created, we can all take a few notes from the
Starbucks management team. Based on the numerous awards they have earned including:
"100 Best Companies to Work For" 1998- 2000 and 2002-2008,"Ten Most Admired
Companies in America" 2000-2007 and one of 100"Best Corporate Citizen" 2000-2007
award and the methods they have used, Starbucks has built the coffee empire we all know
and love today. Starbucks Coffee, Tea, and Spice was started in 1971 by three friends;
Jerry Baldwin, Zev Siegel, and Gordon Bowker. It was located in Pike Place Market in
Seattle and sold premium, fresh roasted coffee and coffee brewing equipment. Although
they did not offer fresh-brewed coffee by the cup, samples were sometimes available.
The retail store was a success, with sales exceeding expectations and a second store was
opened in 1972. With the departure of Siegel, Baldwin and Bowker continued perfecting
their coffee roasting techniques and the education of consumers to the quality of their
product. The transformation from that corner store to Starbucks that we know today
actually began with a seemingly innocent observation of Howard Schultz. As the vice
president and general manager of Hammarplast, a Swedish maker of kitchen equipment,
he noticed that Starbucks was placing very large orders for coffeemakers. This sparked
his curiosity, causing him to visit the store. During that visit, he experienced love at first
sight and was quoted as saying"It was like magic". Schultz could not stop thinking about
what it would be like to be a part of the Starbucks enterprise. Though he had no
experience in this type of business, it did not stop him from pursuing Starbucks. Even
when it became apperant they were not comfortable with bringing in an outsider,
especially a New Yorker. Baldwin and Bowker did not want to commit themselves to the
vision that Schultz was proposing for Starbucks, feeling it was too risky. However,
Schultz's tenacity was rewarded, and in 1982, he was hired as the head of marketing and
to oversee the retail stores. In his first few months at Starbucks, Schultz spent most of his
waking hours in the now four Seattle stores. He worked behind counters, tasting
different kinds of coffee, talking with customers, and getting to know the store
employees. He wanted to be educated in all aspects of the business. This was the first of
many occasions when he demonstrated his desire to manage not only with referent and
legitimate power, but also with expert power. He was overflowing with ideas for the
stores, but his biggest idea for Starbucks came during visit to Milan, Italy where he was
amazed at the popularity and vibrancy of the Italian coffee bars. He came to a revelation
that Starbucks was missing a much larger market opportunity. He envisioned expanding
beyond retail coffee bean sales and recreating the Italian coffee bar culture in the United
States, making it the differentiating factor of Starbucks. On Schultz's return to the U.S,
his ideas for modifying the format of Starbucks stores were met with great resistance by
Baldwin and Bowker. It was not until a year later that Schultz was given permission to
test an espresso bar. Thought it was an instant success, Baldwin and Bowker would not
support expanding the service offerings to include an espresso bar. Convinced of the
potential success, and frustrated by the company's lack of vision, Shultz left Starbucks,
and started his own company, II Giornale. His plan was to open espresso bars in high-
traffic locations that would emulate the friendly, vibrant atmosphere he encountered in
Italy. He opened his first store in April 1986, and after refining a few details, he started to
experience success with the concept and sales. In March 1987, Baldwin and Bowker
decided to sell the whole Starbucks operation in Seattle. This included the stores, the
roasting plant, and the Starbucks name. Schultz knew this was the opportunity to realize
his vision and that he had to buy Starbucks. Due to his now acquired knowledge of the
coffee business, the success of Il Giornale, and the strength of his vision, he was
successful in raising the needed capital and was able to purchase the company he had
once so passionately pursued. The evolution of Starbucks to the company as we know it
today began when Schultz assumed the helm of the company. His leadership, vision, and
fortitude set the foundation for the achievement of creating the coffee bar culture that is
commonplace today and established Starbucks as a household name. To understand how
this transformation took place and how Schutlz was successful in his reinvention of
Starbucks, a review of leadership is required. Leadership is defined as the process of
inspiring, influencing and guiding others to participate in a common effort and there are
practically no bounds to what focused leadership can accomplish when top management
possesses key leadership traits. An early trait profile, given to us in our text, states that,
"A reviewer uncovered moderate agreement on only five traits. In the reviewer's words,
the average person who occupies a position of leadership exceeds the average member of
his group in the following respects: (1) intelligence, (2) scholarship, (3) dependability in
exercising responsibilities, (4) activity and social participation, and (5) socioeconomic
status (Kreitner, 2004)". Starbucks clearly has these traits present in their leadership
foundation, hence their continued success. The traits of intelligence and scholarship are
shown to exist in Howard Schultz, Chairman, President and CEO of Starbucks, on many
occasions. One such occasion was on May 28, 2008 as part of the John Wooden Global
Leadership Program, legendary coach and author John Wooden presented the inaugural
award to Schultz. The Dean of UCLA Anderson School of Management said that,
"Howard Schultz is an inspiring choice for this award as he embraces Coach Wooden's
leadership ideals and values and has led his company to become one of the most
respected brands in the world ("John Wooden," 2008). Both early and modern traits are
present in the leadership foundation of Starbucks. Modern traits are more focused on
emotional intelligence, which is defined as the ability to monitor and control one's
emotions and behavior in complex social setting. Emotional intelligence is expressed in
four leadership traits, self-awareness, self-management, social awareness, and
relationship management. As we take an in-depth look at the leadership structure of
Starbucks we are able to identify many of these emotional intelligence leadership traits in
the company's top leaders. Orin Smith exemplifies self management or having the ability
to not allow moods and emotions to disrupt honest and straightforward relationships. "He
(Smith) initiated many changes internal to the company when funds were needed to
compensate for the increase cost of beans and low Christmas sales". Howard Behar
exemplifies social awareness by having the ability to read others emotions and reactions
and subsequently adapt in a constructive and caring fashion. He (Behar) has been
credited for bringing many new ideas to Starbucks mainly by listening to the requests
from customers. Howard Schultz exemplifies social-awareness; he has the ability to read
emotions and is better equipped to assess strengths and limitations, which make him an
extraordinary innovator and visionary. The final emotional intelligence leadership trait is
relationship management, having the ability to build a strong and lasting relationship, has
been integrated into Starbuck's leadership foundation. Starbucks initially treated the
coffee that they sold as if it were produce, not realizing the potential of the company just
yet. But soon, they began to focus "efforts on building a coffee bar culture and opening
coffee houses like those in Italy. Just as important, the company maintained control over
the coffee from start to finish—from the selection and procurement of the beans to their
roasting and blending to their ultimate consumption (Keller, 2008)." By keeping hands on
approach to their beans, Starbucks has exhibited dependability in providing a truly
premium product and experience. Starbucks has done well owning the many key
leadership traits that must be present to succeed in business today. Social Participation
and socioeconomic status go hand-in-hand when discussing the leadership traits of
Starbucks leaders when we hear,"For years now the company has paid fair-market prices
to Third World coffee farmers and helped develop ecologically sound growing practices.
Starbucks is also green, humane, and politically correct, sells a popular product and
provides a comfy place to hang out and consume same (Fisher, 2007)." But leaders must
be aware of exercising responsibility to their customers. Growing at a rapid pace can
cause unintended consequences like losing the company's identity and the dilution of the
unique customer experience Starbucks delivers. Starbucks has certainly come a long way
from its humble beginnings in the Pike Place Market to become one of the world's most
recognized brands. The management style of Starbucks has evolved in alignment with,
and at the same pace of the business plan and mission of the company. This evolution
was necessary to achieve the current success of the company and to support the rapid
expansion in both locations and products. The initial autocratic/directive style was not in
alignment with the strategy to become a multi-national product and service company that
is dependent on the individual interactions between customer and employees. While a
commitment to a single vision and strategy was needed to ensure success, the
management and implementation of that vision did not require an authoritarian
environment and instead started to thrive in a democratic setting that encouraged the
collaboration and engagement of all employees, down to the individual baristas who set
the tone at each Starbucks. One of the first methods the management team used was a
strong and unique business concept. Starbucks is a household name today because it was
able to leverage a concept that hadn't existed before – the coffeehouse as a 'third home"
(the other two being home and work). Instead of just being a shop to buy your favorite
gourmet coffee, it became another choice for social and intellectual discussion,
particularly between the college student and the young professional. Another method was
to spot opportunities that went against traditional retail trends. Accepted retail thinking
warns against locating stores nearby, but Starbucks went directly against the norm and
implemented clustering its stores. The practice helped achieve quicker market dominance
and cut the cost to deliver supplies and manage its stores. The company's size insured it
against any losses that may have resulted from cannibalization threats. One of the most
powerful things the company has done is to create the "Starbucks Experience." Each
Starbucks has the same vibe when you visit. Contrary to the normal model of getting the
highest customer count in and out as fast as possible, they have created an experience that
is actually designed to encourage customers to stay a while. The company's thinking is
"the longer you stay, the more you buy."It is obviously working. Each store is outfitted
with comfortable seating, free wireless Internet connection, and along with their staple
foods and beverages, a selection of music and books to chose from. Starbucks began
offering wireless high-speed Internet in 2001 to augment the experience for its java
sipping patrons. Now almost every fast food chain and restaurateur offers "Free Wi-Fi"as
a selling point to attract more customers. The end result is a store ambiance that promises
a gratifying experience for the customer – an experience that is unfailing from Seattle to
Atlanta! From the beginning, the company has been blessed with a grassroots, word-of-
mouth marketing program. The mystique and acceptability of its brand basically markets
itself. As a result, Starbucks only spends 1 percent of its annual revenues on marketing
and advertising. Those"extra" marketing expenses are allocated to new product launches
and the introduction of new coffee flavors. Starbucks' success is in large part to its
strategic partnerships. In 1993, Starbucks and Barnes and Noble booksellers joined ranks
that made its beloved coffee available in each B and N bookstore throughout the U.S.
Later, Starbucks began to diversify and started competing in the supermarket sales arena.
To help sell a bottled version of their Frappuccino flavored drinks, Starbucks partnered
with the Pepsi-Cola Company in 1996. Also that same year, the company teamed up with
Dreyer's Ice Cream and brought Starbucks® Ice Cream and Ice Cream bars to the
masses. The brand quickly became the best selling coffee ice cream in the country.
Through each synergistic partnership, Starbucks has been able to enhance their
competitiveness and get products and services to market faster. While Howard Schultz
had a transformational idea for coffee production and service based on the experiences he
had in Italian espresso bars, it is his management style that has brought Starbucks both
accolades and success. This transformation in both the company and management style is
evidenced in the approach and changes Schultz took to create a "great place to work". His
rationale was that if you treated your employees well, meeting their needs and listening
to their requests, they would in turn treat the customers well. His management style was
based on the belief that better benefits attract and keep good people longer. He also
stressed that sharing the company's success with those who make it happen helped
employees better value both their individual contributions and the success of the
company as a whole. As a result, employees were now called partners and their
importance to the company's success is emphasized. They experience a generous benefit
package that is also provided to part-time employees, which make up two-thirds of
Starbucks workforce. A sampling of these benefits include: full health benefits, paid
vacation and sick leave, stock optionsl 401(k) plan, income protection, a savings
program, adoption benefits, tuition reimbursement and partner perks such as discounts on
merchandise, including a"coffee benefit" that gives employees a free pound of beans
weekly. This strategy to treat workers well and respond to their needs was shown for its
effectiveness when the previously unionized stores and coffee roasting plant were
decertified. But it's not just the benefits that attract and retain employees. A company
survey found that the top two reasons why people work for Starbucks are"the opportunity
to work with an enthusiastic team" and"to work in a place where I feel I have value."
Schultz knew that the achievement of a coffee house atmosphere that encouraged
customers to return and become regulars was dependent on the first customer
experiences, and those were owned by the store personnel. While Starbucks as a
company has moved to a democratic management style that encourages and rewards
individual employees for suggestions and improvements, the ability to ensure consistency
of experience does require a level of directive management. Though the exact decorations
of each Starbucks store may vary, the experience is finely tuned to be the same regardless
of a customer location of Alaska or Miami. The venti, non-fat, no whip, white mocha,
will taste the same in each location. The offerings, atmosphere, and convenience is
replicated and standardized. While Starbucks works hard to ensure their partners have a
voice and a feeling of engagement, it has been careful to not alter a winning combination,
unless of course, that change leads to even greater success. Starbucks has a well-seasoned
management team that continues to develop winning strategies for the company. The
depth of management resources is a huge asset for Starbucks as they have the tools to
hire the best minds to work on various facets of its operations. Much of this success is
directly related to Schultz's innovative and transformational management style. Business
Week named Schultz one of the country's top 25 managers in 2001. This "innovation at
the top" seems to permeate throughout Starbucks and flow to all partners. The
management teams' innovation, communication, and dedication to the company have
helped Starbucks gain worldwide recognition. Fortune 500 named Starbucks number 6 in
the top 100 for the category of People Management in 2007. They were also ranked
number 10 in Innovation. While this speaks highly of Schultz' management and
leadership, it also embodies the culture of management that is encouraged and promoted
in Starbucks. Starbucks is dedicated to contributing positively to the communities in
which it does business. They have established several programs that demonstrate this
commitment. The Make Your Mark (MYM) volunteer program brings partners and
customers together to work on projects that directly affect their community. In the
Choose to Give! Gift Matching Program, Starbucks matches each partner's charitable
contributions, up to $1,000 annually. In fiscal 2007, Starbucks cash and in-kind
contributions were valued at $18.0 million, or 1.7 percent of the company's earnings
before income tax. The Starbucks Foundation, a separate charitable organization,
receives the majority of its funding from Starbucks Coffee Company. The remaining
funding is from private donations. In fiscal 2007, The Foundation made 141 grants to
nonprofit organizations, totaling just over $8 million dollars. The Starbucks Foundation's
activities in fiscal 2007 included: Special projects to support the U.S. Gulf Coast,
Education Programs in China, Ethos Water Fund and World Water Initiatives, Social
Development Grant – CARE. Starbucks is committed to environmental stewardship and
they instill environmental responsibility as a corporate value. They strive to buy, sell and
use environmentally friendly products. Their programs and strategies include: Starbucks
Greenhouse Gas Emissions, Use of Renewable Energy, Energy and Water Conservation,
Greening Stores through Design, Recycling, Reusing and Waste Reduction Initiatives.
They continually measure and monitor progress for each project. Starbucks is a member
of the U.S. Environmental Protection Agency's (EPA) Green Power Partnership. In 2006,
they were recognized by the EPA with the Green Power Partner of the Year Award, for
their program aimed at"greening" their supply chain. Starbucks encourages customer to
'go green' by offering 10-cent discount if they use their own"commuter" mugs for their
beverages. Customers can also request that their beverages be served in a ceramic mug if
it's a"for-here" order. They are exploring options that create incentives for customers to
use their own mugs more often. They introduced the Grounds for Your Garden program,
which offers complimentary five-pound bags of used coffee grounds to customers to use
as a nutrient additive to their soil. Starbucks prides itself in developing the talent of their
partners. Their "Look Internal First" philosophy is reflected in the following figures from
fiscal 2007: 85 percent of shift supervisor positions were filled by Starbucks baristas;
approximately 72 percent of assistant store and store managers were filled by internal
partners; 70 percent of district manager positions and 80 percent of regional director
positions were filled by internal partners. Many career planning tools are featured on their
award-winning website, MyPartnerCareer. Managers and assistant store managers take a
10-week retail management course. Computer, leadership and coffee knowledge classes,
as well as diversity training, also are available to partners. At the corporate level, many
new employees start their Starbucks careers with immersion training. Starbucks believes
its intense training program contributes to generating greater profits in the long run by
maximizing the potential of its frontline employees. They spend more on partner
recruitment and development than they do on advertising. Pride in self, pride in leaders
and pride in the company makes Starbucks a great place to work. While Starbucks
appears to have expanded overnight, they have actually used the slow- and-steady
approach to growing its business. The company went public in 1992, about a decade after
it started. One of the best decisions management made early on was its strategy of
foregoing franchising and keeping each of its stores company-owned. This allowed the
company to maintain control of its image and provide excellent service across the board
as it instilled its culture into every employee. In expanding their offerings, Starbucks
provides teas, pastries and in some markets sandwiches and salads. Starbucks
merchandise includes espresso machines and coffee brewers and grinders, a line of
premium chocolate, coffee mugs, and coffee accessories. In promoting the third home
concept, Starbucks has also moved beyond comfort food to also provide the experience
and the ambiance that is Starbucks. This is made available by the offerings that include
the finest music, books and films to take with you. It's like taking a piece of Starbucks
home. They want to hook you not only on caffeine, but also on the mood, experience, and
complementary products if Starbucks. While Starbucks had experienced success and
benefited from visionary leadership and progressive management, even it is not immune
to economically influences. In early July 2008, Starbucks announced that it will close 600
US stores by the end of 2009. The majority of these stores are ones that are not making a
profit, are not expected to make a profit in the near future, and were opened after 2006.
Even for Starbucks it appears that expansion can have its limits. A strong leadership team
recognizes this and makes adjustments before it is too late. It will be interesting to watch
and see if the Starbucks leadership has acted in time, in haste, or with the meticulous
vision they have become known. In summary, Starbucks has been shown to be a
trendsetter, with transformational leaders, and proven management techniques. They have
illustrated that they value their employees and their contributions, as well as the impact
they leave on their communities and environment. While the ownership has changed
since that first magic moment experienced by Schultz, the passion and energy that first
captivated him continues to exist and thrive. In the early 1990s, Starbucks' senior
executive team, lead by Howard Schultz, and its partners (Starbucks-speak for
employees) contributed to defining and shaping the company's core values, principles and
culture when they penned the company's mission statement laying out the guiding
principles behind the company. Starbucks' (2008) mission is to establish itself as the
premier purveyor of the finest coffee in the world while maintaining uncompromising
principles as they grow. In order to achieve this, Starbucks includes six guiding principles
that helps measure the appropriateness of their decisions. The six principles are (1)
provide a great work environment and treat each other with respect and dignity; (2)
embrace diversity as an essential component in the way they do business; (3) apply the
highest standards of excellence to the purchasing, roasting and fresh delivery of coffee;
(4) develop enthusiastically satisfied customers all of the time; (5) contribute positively to
the communities and environment and (6) recognize that profitability is essential to future
success. The first principle in Starbucks' mission statement is to provide a great work
environment and treat each other with respect and dignity. Starbucks leadership is
committed to their mission statement and guiding principles because they have
established internal checks to make sure that leaders are living the company's espoused
values (Michelli, 2007). Two of Starbucks internal checks are the Mission Review
Committee and Partner View Surveys. The review committee is where partners are
encouraged to voice their opinions about if the company practices are consistent with the
mission statement and guiding principles and the Partner View Survey's which are
conducted every 18-24 months seek anonymous feedback from partners around the
globe. Howard Schultz's vision had little to do with making great coffee and everything
to do with partners receiving and offering exceptional customer service. Starbucks' main
competitive strategy is its communication with its partners and customers. For example,
partners are given extensive training in product knowledge, guiding principles of
success, personal empowerment, and the importance of creating warm customer
experiences. Starbucks consistently spends more on training than it does on advertising
and it pays huge dividends for Starbucks in retaining employees, maintaining
connections with current customers, and bringing new customers into its stores (Michelli,
2007). Jim Alling, president of Starbucks U.S. Business, notes the accomplishments of
Starbucks leadership are not the result of magic, "it's just who we are." Maybe there is
something magical about founding a business that aspires to enrich human spirit
(Michelli, 2007). Starbucks claims to live every day by their mission statement and
principles. According to Michelli (2007), the Starbucks Experience has two very distinct
levels in the company: its unique corporate culture and its passing down of these values
to its partners. In its corporate culture, Starbucks' management creates a culture for
employees in which empowerment, entrepreneurship, quality and service define the
values of the firm. In passing down these values, the partners create a unique and
personal experience for customers. The Starbucks Experience reflects doctrines that are
simple, results-oriented and very powerful (Michelli, 2007). They are Make It Your
Own, Everything Matters, Surprise and Delight, Embrace Resistance and Leave Your
Mark. Michelli (2007) stated, "In the spirit of Starbucks, these principles encourage us to
listen and respond with a greater awareness of opportunity. They remind us that we are
responsible for unleashing passion that ripples outward from behind the scenes, through
the customer experience, and ultimately into our communities" (p. 17). Through
Starbucks mission, guiding principles and their doctrines the organization avoids
misalignment between its values. The responsibility for keeping an organization informed
falls squarely on the shoulders of the company's leadership. Communication from leaders
to partners, partners to customers and partners to suppliers must be modeled, nurtured
and practiced consistently. Starbucks is so committed to this principle that they have open
lines of communication between the main headquarters and its partners. According to
Gallo (2008), "Schultz's vision was not to build a coffee shop, but instead to build a
company that treats people with dignity and respect" (¶ 4). During an interview last year
with CNBC's Donnie Deutsch, Howard Schultz said, "we're in the people business. It's
all human connection." Gallo goes on to say, "what we can learn from Schultz is that
respect for employees will translate into better customer service, which ultimately leads
to a stronger bottom line" (¶ 9). Starbucks has successfully used conflict-resolution to
grow business and increase profitability. One conflict involved the lack of paid leave for
adoptive parents vs. natural parents (Michelli, 2007). In a matter of a few weeks, the
issue made it to the Mission Review Committee and Starbucks leaders provided this
parent-group with a two week benefit. This is one example of how Starbucks leaders
resolved one issue that conflicted with one of their guiding principles. ##
Executive Summary

The purpose for this individual assignment is to study strategic planning process and
apply strategic analysis, choice and implementation using Starbucks as a case study.
Starbucks Corporation has become an international coffeehouse based in a small Seattle
city of the United States. It is the world's biggest specialty coffee chain, with 16,858
stores in 50 countries, that upholds one of the most recognizable brands in the world.
First, there is an appraisal of the relevant business environments. Afterwards, there is an
internal appraisal of company resources and capabilities, and financial performance, to
derive distinctive competencies. Strategic options are being review and recommendations
for future strategic direction are being defined. Implementation structures, systems and
policies are followed. Last but not least, an assessment of strategic management models
for this study is outlined. In conclusion, Starbucks has recovered from focus too much on
aggressive expansion affect product and service quality result in poor business
performance in 2008. Although the economic slowdown and weak growth figures could
indicate saturation in domestic market, international segment has grown rapidly. The
intensive competition from McDonald's include aggressive marketing campaigns on large
cost differential battered Starbucks. Therefore, Starbucks should learn from the lessons
and continue its success through innovation. Starbucks should not compete with lower
price but continual upgrade their distinctiveness of unique 'Starbuck Experience'. 1.
INTRODUCTION An expanding number of forward-thinking companies are seeking
pathways to a more sustainable future in today's global economy (Reilly, 2009).
Rijamampianina et al (2003) established that continual succeed is based on the existence
of sustainable competitive advantage. Strategic management is defined by Andrew
(1987) as a setting long-term direction process for a company comprised the
identification of the purpose and major objectives of the organization and the plans and
actions to achieve it. Some strategists argued that it is finding opportunities,
experimenting and establishing competitive advantage over time as conditions change
(Quinn, 1980). The core thrust of strategic management is achieving a sustainable
competitive advantage of an organization by some unique value-adding strategy that is
not imitated by rival simultaneously (Bharadwaj et al. 1993). The above section
introduces the topic and subject, a framework of strategy process is composed of three
main phases, analysis and formulation, implementation as well as evaluation - see Table
A1 in Appendix. In the study, it concentrated on phase 1 and 2. In this paper, we will
first, examine external environments; next, appraise company internal resources and
performance to diagnose the core competencies. Further generate potential options and
recommendations for future strategic direction. Finally, offer perspectives and
suggestions for implementation.

2. Background Starbucks is a coffee retailer known for selling premium coffee and
present the unique "Starbucks Experience" to the global customers. Starbucks like other
global organization is facing the formidable economic challenges. "we continued to
improve our Starbucks Experience, further leverage our coffee authority, differentiate
Starbucks from competitors and forge deeper connections with consumers around the
world through our loyalty program and social and digital media efforts and continue
innovation. " said Howard Schultz, founder and CEO of Starbucks. They committed to
source and roast Arabica coffee ethically in the world under fair trade policy and to a role
of environmental leadership in all facets. In 2010, Starbucks open 223 net new stores
globally, sells brewed coffee, espresso beverages, coffee beams, equipment and ready
brew instant coffee.

3. External Assessment In twenty-first century, the world's environmental and social

challenges are emerging with 'green' issues and corporate social responsibility (Makower,
2009). To undertake a broader sense, evaluate events beyond the control of firm in order
to understand the present and predict the future environment. 3.1 PESTEL Analysis
Political The contemporary business trend emerged the continentals into one global
world. Companies are enthusiastically grow across borders and blurring boundaries over
the around. Starbucks face political resistance in entering some developing countries.
Economic Since economic downturn, people have scrupulosity on spending, price and
quality conscious in additional to increasing unemployment and inflation rates give
society a great pressure. Today most of the household have duo-income earners thus
continue to uplift their quality life. People are looking forward to convenience goods and
high-tech products. Meanwhile, they expect higher customer service. The consumer base
in Hong Kong is not only the spender from mainland but also from the adjacent Asia
states. Under Hong Kong's linked exchange rate system, it is being actively argued as a
cause of recession in short run but Yam (2000) convinced that the stable, secure and
predictable regime beneficial in long term. Social Hong Kong has been characterized
broadly as culture mix, hybrid, in-between and international. According to a recent study
by the University of Hong Kong upon socio- demographic trends, there is aging
population, low fertility ratio, rather collectivist and raising life expectancy. From the
global ACNielsen online survey (2006) result shows that Hong Kong people is the
biggest shopaholics, 93% people admit to shopping as entertainment but necessity. It is a
therapeutic way to balance the fast pace lifestyle and work pressure. Young adult are
ambitious, work-hard, lifestyle-conscious and brand-conscious thus more willing to
spend for personal image. The demand shift is very high. Provided that people concern
more on healthcare, they look for products that are free from chemical and are organic.
Technological Refer to the Internet World Stats in June 2010, there is 68.8% of the
population is internet users, and mobile usage continue grow up to 175% in Hong Kong.
The high penetration is creating a worldwide diverse culture. Consumers look for
convenience as an advantage therefore online shopping. The adoption of new technology
today encourage social network take place anywhere and anytime. High technology
investment on manufacturing facilities and machine could leads to better profits.
Starbucks first launch Starbucks Card to tide coffee up with the information system. It
gives Starbucks the opportunities to investigate customer preference.

Environmental
It become world's major concerning issue due to worse and worse global warming. Now,
there is environmental law and environmental protection department enforces the anti-
pollution laws. Starbucks is challenged by environmental pollution through coffee cups
sequentially they encourage customers use tumblers to help reduce environmental impact.
Legal Hong Kong has a strong legal system and rigorously enforced anti-corruption
regime. The Employment Ordinance provides a comprehensive code of employment
framework. In 2011, the government first introduces a new pay law - the statutory
minimum wage but still far below other international cities (AFP, 2010). The above
factors indicate opportunities from areas of economic, social and technology. It is
fostering to create a quality living environment and developing knowledge economy. 3.2
Porters Five Forces "It is clear that Starbucks has few major competitors, and the
competition has nowhere near Starbucks' volume of operations." Kembell (2002)
explained. But more intensive competition after competitors such as Pacific Coffee, the
late comer and imitator and a new competitor McDonalds – McCafé who is definitely a
threat who competes with cost leadership. Through product development strategy,
McCafé is able to foray into high- margin specialty coffee market. However, new
entrants required high economies of scale to compete with top retailers and have to
establish strong brand name. The prices of coffee commodity and dairy continue to rise.
Starbucks as an industry leader who known for its strong product differentiation and
innovative style, must be aware of the threats to potential entrants and existing strong
competitor who decides to gain share over them. Caffeinated soft drinks could be one of
substitute of coffee. Today coffees are being canned or separate containing as instant
coffee pack. In terms of time saving and lower price, the substitutes are easily purchased
from convenience stores or supermarkets nearby. Nowadays, coffee is the second largest
traded commodity in the world. Central American produce the coffee trade has been
direct influence Starbucks. There are no substitute products for the coffee beans
Starbucks must buy. Fortunately, Starbucks has gone through the coffee bean price war
in 2001 and is willing to pay extra, namely fair trade policy to their coffee famers. By
paying fairly for their crops, using set minimum price to secure a reliable and high quality
supply of green coffee. The number of specialty coffee buyers consistently increase. On
top of the small number of automated coffee machines suppliers, an over-crowded
market will give the coffee suppliers bargaining power. On the contrary, the bargaining
power of buyers is less powerful due to individuals who do not make large purchases and
not many specialty coffee chain in the market even though there is no switching cost for
buyers. Lastly, the rivalry among the competing firms includes competitors like
restaurants, specialty coffee shops, supermarkets and those who sell hot and cold coffees.
Starbucks face global food and drink giant companies and national coffee manufacturers
that position variously. However, Starbucks has stand strongly upon its strength to
differentiate through quality drink and quality place with excellent service they provided.
To conclude, it remains an attractive industry and relative high profit potential. – see
Table A2. 3.3 Competitive Profile Matrix Refer to Table A3, Starbucks display highest
score, McCafé is second highest and the lowest score is Pacific Coffee. Among the
weights of critical success factors, the product quality represents the most important item
that might set Starbucks apart from two chief rivals. And this is also a competitive
advantage of Starbucks. The advertising weight rate at medium level among critical
success factors, Starbucks is significantly lower performance than McCafé. In additional
to price competitiveness, Starbucks scores the lowest.

KEY SUCCESS FACTORS

1. Internal Analysis Competitive advantages are the attributes that an organization has the
capabilities to deploy the tangible and intangible resources into activities and can deliver
over its competitors. Some intangible assets like human resources, innovations and
network relationships are crucial resources to set an organization apart (Porter, 1998).
Tangible Resources An organization's tangible resources are not focusing only on its
book value, the potential for creating competitive advantage. Starbucks have $1.2 billion
cash, $2.4 billion property, plant and equipment and $543 million inventory. Apart from
strong financial basis, a large amount of information technology utilization, Corporate IT
System, and sophisticated coffee chain locations near libraries and major shopping malls.
In Yunnan, Starbucks has its first Farmer Support Center in Asia to increase volume and
expand coffee acreage which possesses specialized invented machines. Knowledge
Resources It includes the explicit knowledge and formally recorded information of
planting coffee beans effectively at a lower cost. Starbucks owns a Farmer Equity
(C.A.F.E.) Practices that assist farmers improve coffee quality and reduce cost. Also the
innovative ideas such as newly invented beverage, the Frappucino and the barista
techniques to make coffee are the tacit knowledge Starbucks owns. Corporate Culture
The contribution to become an industry leader is not dependent on one person - Mr.
Schultz the CEO, but Starbucks has a remarkable, experienced management team
(Fombrun, 2000). He decided to treat employees like a family and partners. Even part-
time staffs enjoy the training and health insurance benefits. In order to attract higher
capabilities candidate to join their family, Starbucks paid higher, reward more and highly
empower employees. "We believed very early on that people's interaction with the
Starbucks experience was going to determine the success of the brand." Schultz believed.
In addition, it gives global customers a remarkable perception of products and services.
Having mutual trust between company and employees result in creating extraordinary
'Starbucks Experience' and personal relationship with its customers definitely
differentiated it from rivals. High Brand Equity The brand name of Starbucks is a form of
reputational asset that is the customer confidence towards an organization. It derived
from corporate responsibility, customer oriented and fair trade with suppliers. The
company successfully expand to Europe under minimal advertising due to Starbucks has
phenomenal brand recognition in the world, through positive word of mouth and movie
placements (Pendergrast, 2002). With their core identifiable product, Schultz leverage
Starbucks innovation and R&D technology resources to invent the cold coffee drink
Frappuccino not only sell in coffee chain but other convenient stores. Ted Lingle
commented that proven its retail concept, established management team, substantial
financial asset and a good game plan, Starbucks have strong potential to do well. Strong
local partners who have same values and aggressive growing vision are crucial too. By
relying on business partner's local knowledge to certain extent, this allows Starbucks
expand rapidly with same resources and share core competencies. Starbucks has
managed to maintain a squeaky clean image to promote their ecologically friendly coffee.
Distinctive Competitiveness and Sustainability According to the VRIO framework in
A.7, although there are certain core competencies that are performing better than rivals
but there is no patent on anything that easily can imitate by outsiders that possibly
weaken its sustainability. The development path of brand recognition and complex social
phenomena such as interpersonal trust and reputation with suppliers and customers take
time, it may at lease share by some business imitator or other industrial leader who
strategically diversify into specialty coffee market. Strength scarce resources such as
brand, supply reliability for high quality coffee beams, global distribution network and
beverage innovator are critical action to take. Starbucks did leverage its global coffee
leadership, they share its coffee knowledge and best practices to help Yunnan become a
top-quality coffee producing region in Asia. Furthermore, the Starbuck card launch in
US leads to gain access to achieve primary data from current customers; Starbuck should
take advantage of those materials to undertake better relationship marketing prior to
competitors. 2. Financial Performance Starbucks perform outstanding in 2010 and gain
strong top line results through loyalty program, VIA instant coffee and customize
frappuccinos drove traffic to stores. It drove the consolidated operating margin to 14.1%
of sales. EPS followed suit, it is shown in Table 4. increase 85% to a record $0.37 a
share from $0.20 of 2009. For the year, net revenues climbed 17% to $2.84 billion.
Starbucks reported net income attributable to $945.6 million, which impressively
turnaround. Global same-store sales rose 8% enjoyed by high traffic and average tickets.
Also see Appendix A. 8 There is almost record high growth in operating margin of
13.3% indicated the operating margin surpass the previous record in fiscal 2005. The
profit boost due to Create excitement around new beverages and continues to drive traffic
and generate incremental sales. Overall, Starbucks 5. FUTURE STRATEGIC
DIRECTION According to PESTEL analysis, it shows the opportunities exploited from
social and economic such as global demand on specialty coffee continue to increase;
demand on healthy and non-chemical products and conscious on green environmental
issue. Meanwhile, it helps the company alert of threats like the major economic change,
volatile of raw materials. It determine the specialty coffee market is under steady to rapid
growth. Besides that, from the CPM evaluation, Starbucks gain the highest score 3.14
which represent it has strong competitive power against its rivals. Starbucks financial
review display how well they operate last year. It determines Starbucks has a strong
competitive position. Therefore, refer to the market option matrix model in Figure 1. in
Appendix A.9, Starbucks locates at Quadrant I. As Quadrant I firms are in an excellent
strategic position and have been concentrating on market development and products.
Appropriate strategies to consider are market and product development, market
penetration, 3-dimension integration and lastly concentric diversification. According to
the TOWS Matrix shown in Appendix A.8, matching the four kinds of factor, feasible
alternative strategies are generated. The SO, ST, WO and WT strategies are not the best
and is not all can be put into practice. It seems customer have less money and are more
likely to forgo a high price premium coffee become a huge threats against Starbucks
where many competitors take advantage of offering a cheaper alternative. Even though
the price is not competitive, reducing price is never a good strategy, especially for a
luxury good. 6. RECOMMENDATION 1. CORPORATE LEVEL In 2009, the
retrenchment strategy successfully slow down the over expansion problem and back to
normal track. It can continue expand new stores in China. After took full ownership in
Brazil, they can plans to expand that market too. As mention above, reduce price is not
appropriate strategy for Starbucks. It will affect the image and perception of customer. It
is recommended to further instill customer perception through strength the
environmental-friendly practice and emphasis on interactive connection with stakeholders
to enhance brand equity. A cup of Starbuck coffee is value for money. To spread the risk
on single product, it can diversify to related business such as other kind of food and
beverage category. 2. BUSINESS LEVEL At present, Starbucks is being differentiated as
top-of-line image in the industry. To remain pricing high, either by raising the value of
outputs or by lowering the costs of its inputs in order to outperform rivals and earn
above-average returns. Furthermore, it should backward integration such as
manufacturing facilities, dairy products to reduce the bargaining power of supplier. For
domestic business unit, it should focus on product development to face hard competition.
For International unit, it should focus on reduce costs throughout the value chain. 3.
FUNCTIONAL LEVEL Marketing Allocate more budgets on promotion and advertising
for new product and new policy such as promoting Starbucks card and tumbler replace
paper cups. Research and Development It can continue be innovative and increase
innovation capacity for new beverages, coffee knowledge and coffee related products,
complementary products and by products. Operation Strategy Restructuring stores to
provide a better place and applying lean-manufacturing methods to improve customer
experience. Diversify services such as wifi service, battery quick charge service, books
and music materials. Packed coffee has been distributed to other outlets by Kraft Foods.
Keep close relation with Kraft, ensure their mutual customers are well served. 7.
IMPLEMENTATION The recommended structure should formulate new strategy, when
new administrative problems arise, the organizational performance declines thus new
organizational structure established and performance improves. As a successful
implementation base on people, the team leader and team members requires experience,
depth, skills to drive functional areas, generate ideas, manage groups, growth and change.
For example, firm can implement the above strategies by eliminates tasks duplication to
reduce confusion between employees and increase efficiency. Moreover, it is
recommended the evaluation and control policy should undertake quarterly to avoid any
accumulative problems and act quickly to correct it. The proposed evaluation method is
balanced scorecard to access outcomes in four perspectives: Financial, Customer, Internal
and Innovation and learning. 8. The usefulness of strategic models The PESTEL model
shows the advantage of making such microenvironment evaluation for business. It assist
Starbucks take a top view to seek potential opportunities along the environmental change
of a particular market. It proves that the importance to search six factors will eventually
affect the business operations. The social environment has indicated the way a company
should target demographics such as Yuppies and Teens who are more willing to spend
for personal image. The technological factors presented the opportunities to effectively
market company products and services. The economic factors represent the trend and
potential market. The Porter's Five Forces Model (1979) is often used to investigate the
market attractiveness before making strategic judgments. The evaluation includes such
components as the suppliers, buyers, potential entrants, substitutes and most importantly
the competitive rivalry. It is an effective external-audit model for Starbucks to deploy
since the forces among foreign countries vary. The competitive profile matrix is one of
evaluation tool to gather competitor information and data about objectives, strategies,
assumptions and capabilities. It is comparatively minimal use compared to the two
mentioned above, as the factors might not be relative to all rivals and scores are
strategist's perception without supportive data. But it ideally provides vacancy to spot out
low score area for improvement. The VRIO Framework is a great mechanism for quick
test the sustainability of competitive advantage. It is easy to use just simply ask the four
questions in sequence. However, the initial assessment of resource and capabilities is
required. And it does not provide direct contribution on formulating strategies. Among
several strategic management models, TOWS Matrix is a most practical tool for
generating respective strategies. It serves as a conceptual framework for future strategy
development oriented from the combination of external factors and those internal to the
enterprise. Weihrich explained that it is equally crucial that the matrix compulsory to
analyze the situation of their firm and to develop strategies, tactics, and actions for the
effective and efficient attainment of its mission and objectives. Although matching the
set of variables is in a systematic flow, many authors argued those firms ignore other
important relationships, such as the challenge of overcoming weaknesses. Provided that
all organizations or division can be positioned into either quadrant, based on two
evaluative dimensions – competitive position and market growth, appropriate strategies
to consider are stated in rank order. Market Option Matrix is useful and particularly
quicker model than TOWS matrix. Since all options are pre-listed for each quadrant, it
guides strategist to achieve business strategy types in a short time. Appendix A.1
INTRODUCTION Strategic management is defined by Andrew (1987) as a setting long-
term direction process for a company comprised the identification of the purpose and
major objectives of the organization and the plans and actions to achieve it. This
definition classifies as prescriptive strategy where it is plan in advance and execute over
time. Some strategists have an alternative view of strategic management that emphasize
future uncertainty. Quinn (1980) disputed that strategic management is finding
opportunities, experimenting and establishing competitive advantage over time as
conditions change. In other words, it is an emergent strategy. A.2 Table A1. Strategy
Planning Process |Strategy Phases | |Phase 1: Analysis |Internal / external environments | |
|Firm Resources | | |Vision, mission and objectives | | Formulation |Generate Options | | |
Select options | | |Find strategic route forward | |Phase 2: Implementation |Resource
allocation | | |Strategic planning & control | | |People issues & change | |Phase 3:
Evaluation |Continually examine strategies | | |Change and adapt to shifts | A.3 Starbucks
Mission Statement Our mission: to inspire and nurture the human spirit – one person,
one cup and one neighborhood at a time. Environmental Mission Statement Starbucks is
committed to a role of environmental leadership in all facets of our business. Here are the
principles of how we live that every day: Our Coffee It has always been, and will always
be, about quality. We're passionate about ethically sourcing the finest coffee beans,
roasting them with great care, and improving the lives of people who grow them. We care
deeply about all of this; our work is never done. Our Partners We're called partners,
because it's not just a job, it's our passion. Together, we embrace diversity to create a
place where each of us can be ourselves. We always treat each other with respect and
dignity. And we hold each other to that standard. Our Customers When we are fully
engaged, we connect with, laugh with, and uplift the lives of our customers – even if just
for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our
work goes far beyond that. It's really about human connection. Our Stores When our
customers feel this sense of belonging, our stores become a haven, a break from the
worries outside, a place where you can meet with friends. It's about enjoyment at the
speed of life – sometimes slow and savored, sometimes faster. Always full of humanity.
Our Neighborhood Every store is part of a community, and we take our responsibility to
be good neighbors seriously. We want to be invited in wherever we do business. We can
be a force for positive action – bringing together our partners, customers, and the
community to contribute every day. Now we see that our responsibility – and our
potential for good – is even larger. The world is looking to Starbucks to set the new
standard, yet again. We will lead. Our Shareholders We know that as we deliver in each
of these areas, we enjoy the kind of success that rewards our shareholders. We are fully
accountable to get each of these elements right so that Starbucks – and everyone it
touches – can endure and thrive. Source: Starbucks Company Website A. 4 Chart A1
Starbucks Revenues by Category [pic] A.5 Table A2 Porters five forces Porter's Five-
force model helps the Company's strategists to evaluate the industry growth, market
development and organization Strategy accompanied with the good intuitive judgment.
Below is the external audit result for Starbucks: |Porters five forces |Details |Analysis | |
Potential entry of new |High barrier for new entry, chain location affect stream of
customer |Medium to high | |competitors |Food industry giant diversify market at low cost
| | | |There is predictable high growth and high revenue returns in the market| | |Potential
development of |Caffeinated soft drinks |Medium to low | |substitute products |
Inexpensive canned beverage | | | |Instant drink pack | | |Bargaining power of suppliers |
Supplier cost continue rise |High | | |Few coffee machine suppliers | | |Bargaining power
of buyers |End consumers |Low | | |Small volume purchase | | | |No switching cost | | |
Rivalry among competing firms |Intense competition in coffee market |Medium | | |
Different places who provide hot and cold coffee operate longer hours | | | |Many
international and localize coffee shops offer wider range of foods| | | |and drinks in their
menu. | | A.6 Table A3 - competitive environment evaluation |Competitive Profile Matrix
| | | |Starbucks |Pacific Coffee |McCafé | |CSF |WT |Rating |Score |Rating |Score |Rating |
Score | |Advertising |0. 15 |2 |0. 3 |2 |0. 3 |4 |0. 6 | |Product Quality |0. 17 |4 |0. 68 |3 |0.
51 |2 |0. 34 | |Price Competitiveness |0. 08 |2 |0. 16 |2 |0. 16 |4 |0. 32 | |Management |0.
07 |3 |0. 21 |3 |0. 21 |3 |0. 21 | |Financial position |0. 05 |3 |0. 15 |2 |0. 1 |4 |0. 2 | |
Customer loyalty |0. 15 |3 |0. 45 |3 |0, 45 |2 |0. 3 | |Global expansion |0. 1 |4 |0. 4 |2 |0. 2
|4 |0. 4 | |Employee benefits |0. 1 |4 |0. 4 |3 |0. 3 |2 |0. 2 | |Customer service |0. 13 |3 |0.
39 |3 |0. 39 |2 |0. 26 | |TOTAL |1 | |3.14 | |2.62 | |2.83 | A.7 VRIO Framework |Valuable? |
Yes |The relationship with suppliers help them gone through the coffee beams | | | |price
war | | | |The management ability to seek strong local partner to exploit market | | | |
development properly leverage the current resources | |Rare? |Yes |The technique to plant
high quality green beams at lower cost | | | |The heart and soul and the conscience of the
company | | | |Unique taste coffee and innovative new products | | | |Tacit knowledge
resources | |Costly to imitate? |No |No patent on anything that can be easily copied by
anyone | |Capable of being exploited by |Yes | | |the organization | | | |Competitive
implications |Temporary | | | |competitive | | | |advantage | | |Comparative economic |Above
normal | | |performance to be expected from| | | |the resource | | | A.8 TOWS Analysis | |
Strengths – S |Weaknesses – W | | |1. High Brand Equity |1. Uncompetitive price | | |2.
Highly qualified employees give |2. Rely on single product | | |excellence services |3.
Lack of value added to current product| | |3. Great Working Environment |4. Slow New
product TTM | | |4. Financial conditions are good |5. Lack of advertising | | |5. Market
Leader when new product comes |6. lack of distributor channels | | |to market (has
monopolistic advantages) | | | |6. Business is more environmental | | | |friendly | | |
Opportunities – O |SO Strategies |WO Strategies | |1. New market like brazil, India |
Stronger promotion for new product and |Adjust the price and adopt high | |2. Global
demand on specialty coffee |new policy (eg Tumbler) (S1, S4, S5, O3, |penetration
advertising method. (W1, W5, | |continue increase |O4) |O1, O2) | |3. Demand for healthy
and non-chemical |Innovate more beverages and add healthy |Invest more on R&D to
shorten TTM and | |foods and drinks |products to diversify current menu (S5, |improve the
bottle coffee sell in | |4. 'Green' environmental conscious |O3) |convenience stores and
supermarkets (W3, | |5. Convenience Service and convenience |Use the strong brand to
further expand in|W4, O2, O5) | |food (eg internet service, customer pack |new markets.
(S1, S4, O1, O2) |Related diversification to spread the | |food) | |risk on single business
(W2, O1, O3) | |6. Product diversification | | | |Threats – T |ST Strategies |Wt Strategies | |
Economic Recession and Inflation problem |Differentiate by increase market value |
Create new complement products, sell at | |Volatile coffee and dairy products |deliver to
customer to defend cost |lower cost to attract new customer (W1, | |Low price competitor
|leadership (S1, S2, S3, S5, T3) |T1, T3) | |Huge resistance in international |Backward
integration to avoid raw |R&D invents new packing for whole beams, | |countries over
cultural and political |material frustration. (S4, S5, T2) |instant coffee pack to sell in | |
issues |Reduce price to compete with competitor |supermarkets. (W3, W6, T1) | |
Competitor minimize differentiation by |when economic downturn (S4, S5, T1, T3) | | |
imitating | | | A.9 Market Option Matrix [pic] Fig 1. Market Options Matrix A.10
Financial Analysis Data |Table 4. 3-Year Income Statement | | | | |Currency in Millions of
U.S. $ | | | | | |2008 |2009 |2010 | |Total Revenues |10383.0 |9774.6 |10707.4 | |Gross Profit
|5737.7 |5449.7 |6248.8 | |Operating Income |657.2 |772.5 |1324.3 | |Net Income |315.5 |
390.8 |945.6 | |Table 5. 3-Year Balance Sheet | | | | | | | | | |Currency in Millions of U.S. $ |
2008 |2009 |2010 | |Total Cash and Short term investments |322.3 |666.1 |1449.7 | |Total
Current Assets |1748.0 |2035.8 |2756.4 | |Total Assets |5672.6 |5576.8 |6385.9 | |Total
liabilities |3181.7 |2531.1 |2711.2 | |Total Equity |2490.9 |3045.7 |3674.7 | Table A4
Efficiency Ratio Raio Table A5 Profitability |Cash Conversion Cycle |10 | |Average
Collection Period |10 | |Receivables Turnover |37 .3 | |Inventory/Sales |5.1 | |Accounts
Payble/Sales |2.64 | |Assets/Revenue |0.56 | |Net Working Capital Turnover |10.96 | |Fixed
Assets Turnover |2.95 | |Total Assets Turnover |1.8 | |Revenue per $ Cash |9.20 | |Revenue
per $ Plant |4.43 | |Revenue per $ Common Equity |2.91 | |Revenue per $ Capital Invested
|2.53 | | Current Raio |1.5x | |Quick Ratio |1.0x | |Total Debt/Equity |15x | |Total
Liabilities/Total Assets |42.5x | |Return on Equity |28.14% | |Return on Capital Invested |
21.10% | |Return on Assets |13.84% | |Gross Profit Margin |58.36% | Reference
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