24507744-group7-case10-starbuck-company

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GROUP 7



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Yoseph

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Bee

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K en

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Duy

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Moon

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OutlineOutline

Introduction about Starbuck

Corporation

Starbuck Successful Factors

Marketing strategies SWOT A nalysis

Controllable and Uncontrollable

Elements

Financial A nalysis

R isks and The Solutions

A nswer and Question



Introduction about Starbuck CorporationIntroduction about Starbuck Corporation

Starbucks is one of the largest chains of coffee shops in the world. They started their business in the early 80s as a tiny chain of Seattle coffee shops,

grew rapidly in the 90s and now own 5,689 coffee shops in 28 countries. This chain of coffee shops is v ery well managed b y a well seasoned management team popularly known as H2O,

because of Howard Schultz (Chairman and Chief Global Strategist), Howard Behar ( Head of North A merican Operations), and Orion Smith (CEO).




In 1971

Starbucks opened operations in Seattles Pike Place Markets with the future aim of pro v iding coffee to anumber of restaurant and surrounding bars.

In 1982 the company took a change in direction throughthe v iews of Schultz, who after v isiting Italy tried to adapt the same principles in order to a strong bar culture.

In 1987 Giornale had decided to take o v er the assets of Starbucks and also, further changed its name to Starbucks Corporation. B y the end of the year, Starbucks had

increased the number of stores to 17 and furthered its location span b y entering Chicago and Vancou v er.

In 1990 the company took further steps forward withexpansion of Seattle headquarters and an increase in resources with the opening of a new roasting plant.




In 1995

the company really established its name withthe opening of the 676th store as well as increasing the products in store with the addition of compact discs aresult of a pre v iously popular experiment with in-house

music.In 1996 the company kept on stretching its reach b y entering into the market of Japan, Singapore and Ha wai.

B y the year 2000 things had progressed so f ar that 3,300 stores were already opened, the company had

v entured into countries ranging from England to A ustralia & China.

By last quarter of 2008 total international stores became 5113 store in United States.



Successful FactorsSuccessful Factors A. Sustaining A. Sustaining CoffeeCoffee

Quality Quality

B. CreatingB. Creating a Sustainablea Sustainable Approach Approach

yStarbucks consider it an opportunity to share their passion and knowledge of coffee, ser v e the highest-quality be v erage, and deli v er an

experience so rewarding that this customer becomes their customer. Starbucks stri v e to create the ultimate Starbucks Experience for all of customers, all of the time.

yStarbuck trav eling to coffee-growing regions around the world, they hav e come to deeply appreciate the care that goes into producing high-quality

coffee. Their coffee buyers, quality experts and agronomists spent considerable time in the field, sometimes trav eling great distances to reach a particular

coffee f arm.



Q uick Coffee FactsQ uick Coffee Facts

Source : http://www.starbucks.com/aboutus/csrannualreport.pdf



Successful FactorsSuccessful Factors

Through our close working relationships with coffee f armers and suppliers, Starbuck hav e alwa ys emphasized the importance of quality as the best, most sustainable

dri v er of higher prices paid. Starbuck understand that coffee f arming, like any business, must be profitable to be sustainable.

Furthermore, Starbuck know that when coffee f armers do not earn enough to co v er their production costs and/or pro v ide a reasonable income, they ma y switch to other crops or perhaps stop growing coffee altogether.

C. TheC. The Link Between Quality and PriceLink Between Quality and Price



C. The Link Between Q uality and PriceC. The Link Between Q uality and Price (Cont)(Cont)

2. Economic A ccountability (prerequisite)

C. A .F.E. Practices suppliers are required to submit e v idence of pa yments made at all le v els along our coffee supply chain. 3. Social Responsibility (evaluated

components)

C. A .F.E. Practices suppliers

and other entities within their supply network must hav e certain practices in place that ensure safe, f air and humane working conditions; the protection of workers rights; and adequate li v ing conditions.

4. Environmental Leadership (evaluated components)In the growing and/or processing of coffee, en v ironmental measures must be in place to manage waste, protect water quality, conser v e water and energy use, preser v e biodi v ersity and reduce agrochemical use.

1. Product Quality (prerequisite)

All coffee purchased from C. A.F.E.Practices suppliers must meetStarbucks high-qualitystandards.

Coffee and Farmer Equity (C.A.F.E.) PracticesCoffee and Farmer Equity (C.A.F.E.) Practices




y Starbucks belie v es e v ery person deser v es to be treated withrespect and dignity, and is entitled to a f air, safe and

humane work en v ironment.y This is a deeply held value at

Starbucks and one of Starbuck Guiding Principles. Starbuck

commitment to this value applies as much to Starbuck own workforce as it does to the

workers employed b y Starbuck

suppliers.

D. R t f r W rk r ¶ H RightD. R t f r W rk r ¶ H Right




y Starbucks paper cups, used for hot be v erages, are made of paper fiber with a lining of low-density polyeth ylene

plastic.y The paper pro v ides the

rigidity for the cup, while the plastic la yer keeps the paper

la yer intact b y protecting it from the hot be v erage. This plastic la yer also makes the hot be v erage cups unrecyclable in most paper

recycling systems.

E. ANATOMY OF A CUPE. ANATOMY OF A CUP

Paper cups provide a convenientway to serve Starbuc s ot

bevera es, but t ey also result

in some environmental impacts.



Building the Starbucks Brand

y So f ar, Starbucks had spent v ery little money on ad v ertising, preferring instead to build the brand cup b y cup with customers and depend on word-of-mouth

and the appeal of its storefronts.y Howe v er, the company was engaged in a growing effort

to extend the Starbucks brand and penetrate new markets.

y Starbucks had recently begun selling its coffees in supermarkets.



Perfect Cup of Coffee

Starbucks history has shown that they place a huge emphasis on product quality. Their coffee, e v en if

priced slightly more expensi v e than expected, is notorious for satisfying customers with its rich,

delicious taste and aroma.



Thir l c

From the v ery beginning, the Starbucks marketing strategy has focused on creating the third place for e v eryone to go to between home and work. Creating this unique and relaxing experience and atmosphere for people has been v ery important for the company as they hav e realized that this is

one of the strongest concepts attached to the company, to which customers hav e been strongly attracted



Customer Satisfaction

Customer satisf action is a v ery important issue with Starbucks.

From entrance to the store to the v ery last drop of their coffees, it is a must that customers feel the

uniqueness of enjoying their Starbucks coffee experience.



Creating a Starbucks Community

The Starbucks marketing strategy has e v en expanded to create acommunity around their brand.

On their website, indi v iduals are encouraged to express their experiences with Starbucks history, and the company stri v es

to personally join in the discussions.



Smart Partnerships

Starbucks Coffee Company has been known to create strategic partnerships that demonstrate the f act that another wa y to

grow your business is to partner smart. Ov er the years, the Starbucks Corporation has greatly increased sales just b y

using this strategy.



Partnership



Partnership

3,600 flights a day , 855destinations in 155 countries.

14% Starbucks customers

had their first Starbuckscoffee on the U A flight.

6 Starbucks coffee ice

cream beating HaagenDazs product.

Most selling in coffee icecream segment.



Partnership

Created Ready-To-Drinkcoffee in cans and bottles.

Under ³Frappuccino´

trademark. ³Frappuccino´ sales reached

$125 million in 1997, 80%penetrated to the RTD

segment. Starbucks coffee beans

are distributed by Kraftin North America.



Innovation

Through the years, the Starbucks Coffee Company has been known to think up creati v e and inno vati v e ideas to add to their

products or ser v ices. They v e added different flav ors to their coffee, more food on their menu, and e v en became one of the

firsts to offer internet capability in their stores.



Brand Marketing

The Starbucks marketing strategy has alwa ys focused on word-of-mouth ad v ertising and letting the high quality of

their products and ser v ices speak for themsel v es. For years, this has been uniquely

Starbucks, and it has pla yed ahuge part in making Starbucks Coffee Company a success.



Strengths

y Starbucks Corporation is a very profitable organization, earning inexcess of $600 million in 2004.

y Company generated revenue of morethan $5000 million in the same year.

y Starbucks has a reputation for new

product development and creativity .y It is a global coffee brand built upona reputation for fine products andservices. It has roughly 16,000 cafesin almost 40 countries.

y Starbucks was one of the Fortune Top 100 Companies to Work For in 2005.

The company is a respected employerthat values its workforce. y The organization has strong ethical

values and an ethical missionstatement as follows, 'S tarbucks iscommitted to a role of environmental leadership in all

facets of our business.'



Wea nessesWea nesses

Starbucks has a reputation for new productStarbucks has a reputation for new productdevelopment and creativitydevelopment and creativity.. However , theyHowever , theyremain vulnerable to the possibility that their remain vulnerable to the possibility that their

innovation may falter over timeinnovation may falter over time..The organization has a strong presence in theThe organization has a strong presence in the

United States of America with more than threeUnited States of America with more than threequarters of their cafes located in the homequarters of their cafes located in the home

market. It is often argued that they need to lookmarket. It is often argued that they need to lookfor a portfolio of countries, in order to spreadfor a portfolio of countries, in order to spread

business risk.business risk.The organization is dependant on a mainThe organization is dependant on a main

competitive advantage, the retail of coffeecompetitive advantage, the retail of coffee.. ThisThiscould make them slow to diversify into other could make them slow to diversify into other

sectors should the need arisesectors should the need arise..



pportunities

yStarbucks are very good at takingadvantage of opportunities. In2004 the company created a CD-burning service in their SantaMonica (California US A) cafe withHewlett Packard, wherecustomers create their own musicCD.

yThe company has the opportunityto expand its global operations.New markets for coffee such asIndia and the Pacific Rim nations

are beginning to emerge.yCo-branding with other manufacturers of food and drink, and brand franchising tomanufacturers of other goods andservices both have potential..



Threats

y

Starbucks are exposed to rises inthe cost of coffee and dairy products.

y W ho knows if the market forcoffee will grow and stay infavour with customers, or

whether another ty pe of beverage or leisure activity willreplace coffee in the future?

y Since its conception in Pike PlaceMarket, Seattle in 1971,Starbucks' success has lead to the

market entry of many competitors that pose potentialthreats.



Controllable elementTechnological development

Placement

Advertising

Research & Development



Technologicaldevelopment

Starbuc s Card for example, t e Company

as created t eopportunity to improve

customer service,s orten lines and ma ea customer¶s visit atStarbuc s quic er andmore convenient.

Placement

People socialize, read,study, or just enjoy t emusic w ile Drin in t eir coffee.

Modifyin Coffee s ops toma e t eir stores uniquet at will create an appealinatmosp ere.

T ey focus on avin plentyof comfortable seatin sot at people feel welcome tostay lon er t an t ey mi t

ave planned.



A dvertising

Successful in advertisinon a local level rat er t an to t e nation as aw ole. T e Companyadvertises t rou print

mediums, as Starbuc s¶tar et mar et tends to beeducated people

Research & Development

Researc developments of new and excitin products

li e

4-cup t ermal coffeema er

µDouble S ot¶ Espresso

bevera e Starbuc s Card is a

wonderful convenience toolfor customers t at can serveas reat ifts, and reducestime spent at t e casre ister.



Uncontrollable element

Economic Factors

Sociolo ical factors

Demo rap ic Factors



Economic Factors

1.In normal price variation, the demand for

coffee is price inelastic. when coffee pricesshow increases, consumers reduce their consumption.

2.Net revenues increased from $1.3 billion infiscal 1998 to $1.7 billion in fiscal 1999, dueto Company¶s store expansion program



Sociolo ical factors

Made outline of the company¶s willingness tomake sure that its affect on the environmentis as positive as possible. These principlesare like:

1.Understandin of environmental issues2.Developin innovative solutions to brin

about c an e.3.Strivin to buy, sell and use

environmentally friendly products.4.Reco nizin t at responsibility towardsour environmental future.

5.Instillin environmental responsibility asa corporate value.



Demo rap ic Factors

People a es 15-64 ma e up t e lar est percenta e of t e

population, and will ave reater control of t e mar et. T isimplies t at t e most important tar et mar et for Starbuc sare people wit in t is a e roup.

2 lar est et nic roups in t e U.S. are w ite 83.5% and blac

12

.4%

. T e et nic bac round is important to a companybecause it influences tastes, trends, perceptions, values andbeliefs of an individual

per capita purc asin power parity of $36,200 su ests t atAmericans can buy specialty coffee drin s from an

expensive, quality-intensive or anization suc as Starbuc s.

An inflation rate in consumer prices in t e year 2000 of 3.4%is a i inflation rate. T ere would be recession, it could beexpected t at consumers would spend less on premiumluxury items suc as Starbuc ¶s coffee.



Financial AnalysisThe general financial performance for Starbucks in

2008 was declining from the previous yearsdramatically. The following analysis will show thisfact.

InvestmentReturns % Company Industry

R eturn on Equity 12.6 25.8

R eturn on A ssets 5.6 13.2

Both the ROE and RO A are lower than theindustry¶s average, which means that the companyis not using both the equity and their assets

properly to increase their revenue.



Fi a cial alysis

Profit Margin % Company Industry

Gross Margin 16 27

Pre-Tax Margin 4.4 13.2

Net Profit Margin 3.03 8.5

Starbucks margins are lower also that theindustry¶s average, especially in 2008 where

the net profit margin reduced to 3.03 from 6.3 in2007



Financial AnalysisFinancialCondition

Company Industry

Debt/Equity Ratio 0.4 0.46

Current Ratio 0.8 1Quick Ratio 0.48 0.7

Starbucks generally manages their debts and

liabilities wisely, and this considers a financialstrength for the company.



Financial Analysis

Y ear (in

usd)

2008 2007 2006 2005

Sales 10,383,000 9,411,497 7,786,942 6,369,300

Net income315,500 672,638 564,259 494,467

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reports Annual



Financial Analysis

Although the total sales was increased in the last4years, the net income was reduced, especially in2008 when it reached almost half 2007.



Risk and SolutionsRisk: Market Threat

Solution:1.Starbucks must push to be the first mover 2.Innovate new products to stay ahead of suchcompetitive tactics.3.Should become alert towards competitivemarket



Q uestion & Answer

Question No.1.

Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global

market.



Name of Name of

thethe

countrycountry

ElementsElements

ControllableControllable UncontrollableUncontrollable

(ForeignEnvironment)(ForeignEnvironment)

JapanJapan i. Competition among rival shops in .

ii. Economic depression.

FranceFrance i. Political and legal bindings. (¶s arcane

regulations and generous labor

benefits).

ItalyItaly Price (Italian coffee bars prosper by serving

food as well as coffee, an area wherestarbucks still struggles. Also Italian coffee

is cheaper than java say, Italian purists,

much better. Americans pay about &1.5 for

an espresso, on the other hand northern

Italy the price is 67 cents, in the south just

55 cents.

ViennaVienna Culture (young are always enthusiastic

about new and they embrace the new.

So, starbucks will get positive

advantages in expanding their business

in compared to existing coffee shops

there).



Q uestion No.2. What are the major sources of risk

facing the company and discuss the potential

solutions?

Answer: Basically Starbucks faced three major risks at domestic region. On of which was saturatedmarket condition (US A). Fifteen years ago theyinitially started with 17 coffee shops in Seattle and5,689 outlets in 28 countries. Now, amazingly 4,247

stores scattered across the United State andCanada. In Seattle there is outlet for every 9,400 people. And the company considers that the upper limit of coffee shop saturation.



Another risk is loosing customers, becausefewer options are available for the customer.

And third risk is less but not the least theyoung generation feels comfortable.

Global expansion poses huge risks for Starbucks. For one thing, it makes less moneyon each overseas because most of them are

operated with local partners.



Potential solutions: Basing on the risks faced by

Starbucks, we can suggest the following solutions.One of the risks that they faced in US A-the risks of market saturation can be over come in focusing oninternational or global marketing. They may focus onthe fact of reducing employee disruption to increasethe quality of service and coffee for which they arewell known.

As they were facing ominously hostile reception fromits future consumer , they should reposition their product according to customers need, so that theyfind can the $3 they are paying for a cup of coffee is

reasonable.



They can also change their pricing strategy.

As coffee is the core product of them to servethey should give more focus on improving thequality of coffee. They may make arrangement

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Q uestion No.3. Critique Starbucks overallQ uestion No.3. Critique Starbucks overall

corporate strategy.corporate strategy.

Answer:Answer: Starbucks are incurring losses for mismatch betweentheir corporate strategies and the customer¶s expectations.

Those are described below:

1.When Starbucks is blanketing some specific cities for dominance, still eight states in the United States are with noStarbucks stores. Starbucks free cities are - Butte, Mont., andN.D.

2.They believe that the more the outlet the more the sale.Basing on this strategy they are increasing their outlets day byday in their domestic region as well as abroad. Withoutsatisfying the customers need, by increasing the numbers theywill not be able to succeed in their mission.



3. Starbucks¶s target customers are the Baby boomers

or older generation, it has no differential pricing for the Generation X or younger generation.

4. Starbucks is about to become a global company. Butits spending does not match with its status. Starbucks

only spends 1% of its revenue as advertisement;whereas most companies its size spend at least 10%revenue. Low spending on advertisement hampersStarbucks¶s brand building outside the US A.

Q i N 4 H i h b k i



Q uestion No.4. How might starbucks improve

profitability in Japan?

Answer:1. To improve the profitability in Japan they should

reposition their product and service. The Japanese

are less conscious about the price. According to thepresent cultural trend in Japan, younger generationis inclined towards spending their time in aconstructive manner. The source from internet says

that the Japanese youth have very less time for their leisure. Besides sipping a cup of coffee in acoffee shop they love to learn English Language.



2. Starbucks and its competitors in Japan areproviding the same fare. As a result,

competitors can easily eat up Starbucks¶sshare. So, Starbuck should either reduce theprice or increase benefits in Japan.

3. Starbucks can introduce US style online

system in Japan, so that busy Japanese canprovide their order in the internet.

4. Starbucks can introduce various cultural

campaign or entertainment campaign inJapan, so that Japanese youth feelattraction to come Starbucks. In times of economic recession extra activities are

necessary to boost up sales.



y Starbucks and its competitors in Japan are pro v iding the same f are. A s a result, competitors can easily eat up

Starbuckss share. So, Starbuck should either reduce the price or increase benefits in Japan.

y Starbucks can introduce US style online system in Japan, so that busy Japanese can pro v ide their order in

the internet.y Starbucks can introduce various cultural campaign or

entertainment campaign in Japan, so that Japanese youth feel attraction to come Starbucks. In times of

economic recession extra acti v ities are necessary to boost up sales.

y So, for attracting the Japanese market in addition to coffee, arrangement of internet f acility and other

amenities should also be pro v ided.

24507744-group7-case10-starbuck-company

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