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Market Audit - 1
Starbucks – Marketing Audit
Market Audit - 2
Table of Contents
Executive Summary.................................................................................................3
Environemental Aspects
Demographics….………………………………………………………………………4
Culture……….….………………………………………………………………………7
Markets…………….……………………………………………………………………8
Market Needs .........................…………………………………….……9
Market Trends .......................…………………………………………10
Market Forecast ........................…………………………………….…11
Competition .......................….…………………………………………12
SWOT Analysis
Strengths...........................................................................................................14
Weaknesses......................................................................................................16
Opportunities.....................................................................................................17
Threats…………………………………………………………………………...……19
Marketing
Mission.………………………………………………………………………….……20
Objectives….…………………………………………………………………………21
Marketing Mix
Product/Strategies…………………………………………………………………24
Price/Strategies….…………………………………………………………………26
Distribution/Strategies……..………………………………………………………27
Promotion/Strategies………………………………………………………………29
Marketing Information System/Recommendations …..………………………31
Market Audit - 3
Starbucks Marketing Audit
Executive Summary
The US specialty coffee market continues to have an increasing number of
firms looking to enter the market. Starbucks must be aware of competition on all
levels and maintain its operational performance if it is to retain its status as the
world’s leading specialty coffee retailer. The company’s focus on taste, quality
and customer service is consistent with the market segment. The current product
mix is in line with the industry and market forecast. Continual product review,
particularly in non-food items, for additional sources of revenue is needed to
increase sales. The current product line would be improved through a more
regional perspective on consumer demand. The present pricing is competitive with
other specialty coffee stores. The company has protected itself from the volatile
coffee prices and could use pricing advantage should the cost of coffee rise.
Customers view Starbucks products from a value perspective rather than a price
perspective, consequently pricing could be increased. Due to the recent price increase
adjustments are not recommended until 2006 or later. More aggressive advertising
would reduce the risk of competition and a slumping US market. Additional marketing
would expand awareness of new programs, generate interest in recent promotion efforts
such as free refills and deliveries, and lead to increased sales of Starbucks non-food
items. Taking advantage of the company’s significant social contributions would
increase global brand image. To keep competitors from entering the US market, the
use of non-traditional methods of expansion is suggested. The declining US hot drinks
market and growing global market should shift marketing focus on overseas markets.
Market Audit - 4
Asia and Europe represent 73% of the hot drink market. To maintain Starbucks position
as the premier purveyor of the finest coffee in the world, a doubling of efforts toward
overseas markets in Europe is warranted.
Environmental Aspects
Demographics.
The growth rate of the US has been between 1.10% and .90% from 1999-
2003. The market demands are constantly increasing. Their unique approach to
expansion goes beyond the traditionally accepted methods. Starbucks has broken
the rules and set a new standard amongst its competitors. Starbucks primarily
chooses to focus on the demographics, psychographics, and lifestyle of their
customers. Starbucks targets both males and females, ranging in age from 18-30
year olds, and middle to upper middle class. Starbucks caters to all needs; they
offer non-caffeinated drinks, for children or non-coffee drinkers, sandwiches,
sweets, and a variety of juices and pastries.
In 1991, as the company continued to grow, Howard Schultz formed an in-
house team of architects and designers to ensure each store would convey the
right image and character. The company didn’t buy real estate, spaces were
leased so stores had to be custom designed in order to maintain consistency of
atmosphere and appearance. Stores were predominately located in suburban
retail centers, airport terminals, university campus areas, or busy neighborhood
shopping areas convenient to pedestrian foot traffic. Similar materials and
furnishings were used to keep the look of each store consistent, no two stores
ended up being exactly alike (McGraw-Hill, 1997) .
Market Audit - 5
Locations of all stores are carefully selected for convenience and Starbucks
specifically targets places that are heavy with pedestrian street traffic. Starbucks
has leased space in supermarkets, airports, and shopping centers. Starbucks has
been successful even with their non-traditional approach towards retail locations.
Since Starbucks watchword is convenience, they have broken the rules by
saturating a small area with numerous stores. Offering numerous locations in a
small area assures that customers have choices, and that the choice remains
Starbucks.
“Not surprisingly, today's most devoted coffee shop patrons are 18- to 34-
year-olds and those with annual incomes over $75,000. Forty-two percent of
18- to 34-year-olds and 46 percent of those who earn more than $75,000
say that when they drink coffee away from home, they head straight for
Starbucks-like shops, compared with just 32 percent of all away-from-home
coffee drinkers. The younger folks are attracted to the coffee-bar
atmosphere, music selections and what tends to be a younger customer
base, according to the report, while the wealthy simply want the best”
(DAWIDOWSKA, 2002).
Starbucks is quickly becoming known as the best coffee in the world. “Cup
by cup Starbucks has changed the way people from different continents drink
coffee” (Isidro, 2004). Their expansion into numerous countries has them leading
the world in a coffee revolution. Locations include, but are not limited to; Australia,
Austria, Beijing, France, Germany, Greece, Japan, Hawaii, Hong Kong, Malaysia,
Market Audit - 6
New Zealand, Shanghai, Singapore, South Korea, Spain, Switzerland, Taiwan,
Thailand, Turkey, and the United Kingdom.
Starbucks differentiation is that the Starbucks Corporation does not change
its menu when it changes venues. The products are the same weather one is in
the US or in Hong Kong. Contrary to traditional marketing strategies, Starbucks
does not personalize their coffees or have different products to suit various
countries' tastes.
The table below is a measure of the number of Starbucks stores per 10,000
populations in cities across the U.S., as of March 2005. The cities with the highest
store-to-population ratios nationally are provided. (Analysis is limited to cities with
at least 10,000 people, using the 2000 census figures. Supermarkets and other
stores selling coffee beans were not included in the totals. Store locations were
based on the addresses cited on the Starbucks Web site.)
COMMUNITY POPULATION STARBUCKSPER 10,000 PEOPLE
Falls Church, VA 10,377 7.7
Katy, TX 11,775 6.8
Greenwood Village, CO 11,035 6.3
Issaquah, WA 11,212 5.4
Palm Beach, FL 10,468 4.8
Littleton, CO 40,340 4.5
Destin, FL 11,119 3.6
Lincoln, CA 11,205 3.6
Sherwood, OR 11,791 3.4
COMMUNITY POPULATION STARBUCKSPER 10,000 PEOPLE
Naples, FL 20,976 3.3
Williamsburg, VA 11,998 3.3
Lynnwood, WA 33,847 3.2
Spring, TX 36,385 3.0
Bel Air, MD 10,080 3.0
Alpharetta, GA 34,854 2.9
Market Audit - 7
Fairfax, VA 21,498 2.8
Vienna, VA 14,453 2.8
Freehold, NJ 10,976 2.7
Duluth, GA 22,122 2.7
Grand Haven, MI 11,168 2.7
Brentwood, CA 23,302 2.6
Lake Oswego, OR 35,278 2.6
Silverdale, WA 15,816 2.5
Auburn, CA 12,462 2.4
Tumwater, WA 12,698 2.4
March, 2005Sources: ePodunk; Starbucks.com; U.S. Census Bureau
Culture
Starbucks ultimate goal is to provide a third place outside of work and
home. Providing a place where people can relax and enjoy top-quality coffee and
coffee-related products, while creating an atmosphere of comfort and belonging.
“David Chichester, Chief Financial Officer Starbucks Coffee Japan says: “The
culture is so important at Starbucks that all executives also go through an
orientation during which they spend several days or more actually working at the
store level to get the feel of the Starbucks experience and culture” (Coffee Culture
article). Starbucks culture has been compared to the old Japanese traditional
business style where members of the company are considered family.
A large piece of the Starbucks culture is a strong focus on environmental
awareness and preservation. Starbucks Corporation takes their role to society
very seriously. The Corporate Social Responsibility Report addresses many social
concerns and issues important to Starbucks. Concerns addressed include, but are
not limited to; coffee and farmer equity practices, investing in social programs,
building strong community ties, The Starbucks Foundation - supporting youth
Market Audit - 8
education, being responsible to our customers, understanding environmental
issues and sharing with our partners, and fostering diversity and inclusion
(Corporate Social Responsibility annual report, 2004).
Markets
The United States hot drinks market is the largest in the world, accounting
for roughly a fifth of all global sales. Despite this leading position, the market has
been performing badly for a number of years now with growth rates consistently
negative, and thus the market steadily shrinking.
The US hot drinks market reached a value of $11.9 billion in 2003, having
decreased with a compound annual growth rate (CAGR) of -1.1% in the 1999-2003
periods. This decline went against the general trend of the global hot drinks
market. The decline lead to the US’s market’s global share to decrease by 2
percentage points between 1999-2003, accounting for 19.2% of the global market
by the end of this period. The leading revenue source for the US hot drinks market
in 2003 was the coffee sector, which accounted for nearly 85% of the market’s
value. In value terms the coffee sector was worth $10.1 billion in 2003, a decrease
of 4.9% since 1999. The decline of 4.9% in 1999 made this sector the poorest
performing within the market. The sector showing the best performance was tea,
but even this declined in value by 0.4% between 1999 and 2003.
Looking ahead, the market is expected to experience consistent negative
growth rates. By 2008, the market forecast is to reach a value of $11.7 billion,
which equates to a compound annual growth rate (CAGR) of -0.4% in the 2003-
2008 periods, lower than the global market. Indeed, of all the major hot drinks
Market Audit - 9
markets in the world, the United States is the only one expected to decline in
value. The result of this analysis indicated that the US’s global market share will
have decreased dramatically from 21.2% in 1999 to 17.1% in 2008.
Market Needs
Starbucks’ immediate goal is to continue adding new stores throughout the
US and internationally. In 1992 and 1993 Starbucks developed a three-year
geographic expansion strategy that targeted areas which not only had favorable
demographic profiles but which also could be serviced and supported by the
company's operations infrastructure. For each targeted region, Starbucks
selected a large city to serve as a "hub"; teams of professionals were located in
hub cities to support the goal of opening 20 or more stores in the hub in the first
two years. Once stores blanketed the hub, then additional stores were opened in
smaller, surrounding "spoke" areas in the region. To oversee the expansion
process, Starbucks created zone vice presidents to direct the development of each
region and to implant the Starbucks culture in the newly opened stores. Each of
the new zone vice presidents Starbucks recruited came with extensive operating
and marketing experience in chain-store retailing.
Market Trends
In 2003, the US market accounted for 19.2% of the global hot drinks sales.
Europe remains the largest regional market in the world, accounting for 41.9% of
global hot drinks sales. The Asia-Pacific accounts for a further 31.5% of the global
hot drinks market.
Market Audit - 10
Much of this decline can be blamed on a consumer shift away from coffee towards
soft drinks, as coffee accounts for a large proportion of hot drinks sales in the US.
However, there is evidence of manufacturers trying to broaden the range of
products that they sell, possibly learning from the success enjoyed by Starbucks
and their vast range of different flavored coffees. One possible area for product
development is within the herbal and fruit tea sector, particularly considering the
recent American fascination with health and wellbeing. The American tea sector is
in comparison fairly small but still enjoys healthy sales and growth rates. Tata Tea
and Unilever lead the sector with their Tetley and Lipton ranges. Private labels
perform distinctively better in the tea sector than in coffee, managing to claim over
a third of all retail sales.
Market Forecast
Market Audit - 11
In 2008, the United States hot drinks market is forecast to reach a value of
$11,653.3 million, a decrease of 1.9% since 2003. The compound annual rate of
change of the market in the period 2003-2008 is predicted to be a fall of 0.4%.
Due to the high consumption levels within the US hot drinks market, there is little
scope for increased volume sales.
Competition
The global coffee market is a very competitive sector, The US specialty
coffee market continues to grow, and an increasing number of firms are looking to
enter the market. The US has the largest coffee sector in the world, and is led by a
number of global players. Procter & Gamble lead the sector with their two major
brands, Folgers and Millstone, covering a variety of whole bean, ground and
Market Audit - 12
instant coffees. Kraft Foods comes in a close second in the sector with its vast
range of different coffee brands, including General Foods International, Gevalia,
Yuban and Maxwell House. Nestlé is the other large company in the sector, having
a history of success with its Tasters Choice and Hills Brothers brands. It also
introduced the Nescafe brand to the US back in 2002 with a new Frothé line of
instant coffee, and has already experienced strong and expanding sector share.
Kraft Foods owns Starbucks, which accounts for a healthy proportion of US
coffee sales through its specialist coffee shops. Starbucks' closest competitor,
Second Cup, a Canadian franchisor with stores primarily in Canada, was less than
one-third its size. Second Cup, a franchisor of specialty coffees, has stores
located primarily in malls throughout the United States. No other rival has as many
as 250 stores, but there were at least 20 small local and regional chains that
aspired to grow into rivals of Starbucks, most notably New World Coffee, Coffee
People, Coffee Station, Java Centrale, and Caribou Coffee.
SWOT Analysis
Datamonitor’s Business Information System reports; Starbucks Corporation
Company Profile and Marketingteacher.com SWOT Analysis Starbucks provides
the following.
“Starbucks Corporation, a specialty coffee retailer, producing and selling a
wide variety of hot and cold beverages, as well as pastries and confections,
Market Audit - 13
through 8500 coffee shops across 32 countries worldwide. The company
recorded an increase in revenues and profits. It faces the threat of reduction
in margins due to rising dairy costs.
Strengths Weaknesses
Global presence A disciplined innovator Increase in revenues and profits Clustering of company units Starbucks Corporation is a very
profitable organization, earning in excess of $600 million in 2004.The company generated revenue of more than $5000 million in the same year.
It is a global coffee brand built upon a reputation for fine products and services.
a respected employer that values its workforce.
committed to a role of environmental leadership in all facets of our business.
Reliance on US market Reliance on beverage innovation Lower revenues and income per
employee Lower returns on equity than peers Problems in some international
Operations strong presence in the United States
of America with more than three quarters of their cafes located in the home market.
dependant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the need arise.
Opportunities Threats
Growth in global coffee market New product Strong record of taking
advantage of opportunities. New products and services that
can be retailed in their cafes, such as Fair Trade products.
The company has the opportunity to expand its global operations. New markets for coffee such as India, the Pacific Rim, and
Market expansion Volatile coffee markets Rising dairy costs Slowing US retail sales Competition Market entry of many competitors
and “copy cat” brands that pose potential threats.
Market Audit - 14
European nations Co-branding with other
manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.
Strengths
Global Presence. Starbucks has a widespread global presence. The
company operates about 8500 retail store locations, the majority of which are
company owned and operated across32 countries worldwide. The company’s
widespread presence provides prevalent brand recognition and a strong customer
base.
A Disciplined Innovator. Starbucks is a disciplined innovator. The company
effectively manages its innovation timeline generating consistency in same store
sales. In fiscal 2002, the company introduced new Frappuccino Blended
Beverages, and in 2003, the "Iced Shaken" refreshments product line was
launched. In 2004, it pioneered the new Frappuccino Light blended coffee.
Starbucks’ ability to roll out new products relatively quickly is a considerable
competitive advantage for the company.
Increase in revenues and profits. The company recorded revenues of
$5294.2 million during the fiscal year ended September 2004, an increase of
29.9% over 2003. The company’s revenues grew at a compounded annual growth
rate of 25% from fiscal 2000 and fiscal 2004. Furthermore, the operating profit of
the company during fiscal 2004 was $610 million, an increase of 43.7% over fiscal
Market Audit - 15
2003. Its’ net earnings also increased by 46% in fiscal 2004. This significant rise in
revenues and profits provides the company with a strong financial base and
enables it to undertake new business ventures.
Clustering of company units. With the continued growth of the coffee
market, the company has looked to expand its business, including those areas
where it has an established presence. Operating on the basis that a critical driver
of business is the convenience of the company’s outlet location, Starbucks has
targeted clustering its units so as to dominate particular areas. The financial
reward derived from this practice is considerable. Existing outlets are not hurt by
the new stores. A continued strategy of unit clustering, and a focus on stores that
have convenient access for pedestrians and drivers, represents further opportunity
for Starbucks to capture an increasing share of the coffee market.
Weaknesses
Reliance on US market . Starbucks’, headquartered in Seattle, derives
approximately 85% of its revenue from its domestic US market. The company is an
international brand with wide ranging operations, consequently it should be
generating a greater proportion of revenues from outside the US. Should the
company’s US unit under-perform due to economic conditions or increased levels
of competition, Starbucks’ performance will be materially affected.
Reliance on beverage innovation. An important long-term risk to the
company’s stock is a lower valuation caused by a slowdown in US sale store
Market Audit - 16
growth. Starbucks’ store sales growth has been largely driven by beverage
innovation, but there are questions over how long this can last. Diminishing return
from beverage innovation, one of the company’s competitive strengths, would have
a significant adverse effect on the company’s performance.
Lower revenues and income per employee. The company generates lower
revenues and income per employee as compared to the industry average. Its
revenue per employee was $71,544 during fiscal 2004, as compared to the
industry average of $110,841. Furthermore its net income per employee is $5294
as compared to the industry average of $9500. The company’s lower returns per
employee as compared to the industry average reflect adversely upon its
employee efficiency.
Lower return on equity than peers. The company’s five year average
returns on equity have been lower than the industry average. Its five year average
return on equity was 13.65% as compared to the industry average of 15.09%. The
company would need to effectively manage its finances to ensure that returns are
at par or higher than industry average.
Problems in some international operations. The company has been facing
certain difficulties in some of its international operations. Starbucks’ has faced
problems of expansion, with a number of openings failing to be successful.
Starbucks has experienced continued same-store sales sluggishness in its
Market Audit - 17
Japanese operations. Also, in 2003 Starbucks Coffee International ended its joint
venture with the Delek Group of Israel. Following this decision, Shalom Coffee
Company, the joint venture between Starbucks Coffee International and the
Delek Group, closed its six Starbucks stores in Tel Aviv. This adversely affects the
international operations of the company and thus the growth prospects in the
region.
Opportunities
Growth in coffee market. The specialty coffee sector accounts for roughly
15% of the US retail coffee market, which is worth $21 billion. By 2005, the retail
coffee market is expected to be worth $22 billion, and the specialty coffee sector
will grow to account for 41% of this market. Starbucks has a market share of over
40% of the specialty coffee market, and the anticipated growth in this category will
offer the company considerable opportunities for further growth and expansion in
the near future.
Market Audit - 18
New products. Starbucks has expanded its beverage categories by signing
an agreement with the wine and spirits group Jim Beam Brands to develop and
market a Starbucks branded coffee liqueur drink. The partnership with Jim Beam
Brands provides Starbucks with access to a nationwide sales and distribution
network. It also offers a partner with a proven track record in product development
and marketing. In the US, cordials and liqueurs represent a $4-5 billion opportunity
and approximately 20 million cases. Liqueurs flavored with coffee or often mixed
with coffee represent a substantial segment of the liqueur market. Additionally, US
specialty coffee consumption is on the rise. Research indicates that there is a
significant overlap between consumers of liqueurs and consumers loyal to the
Starbucks brand which provides the company a strong revenue potential.
Market expansion. The company is targeting 15,000 international stores in
the next few years. Starbucks expects major expansion potential in China. The
company is also looking towards markets such as Brazil, India, and Russia for
expansion opportunities. Starbucks envisions China as its next significant
international opportunity. Citing its large urban population, rising economy and
increase in coffee consumption, Starbucks estimates that China could ultimately be
one of its largest markets. In China, the company will continue to focus on current
markets such as Beijing and Shanghai along with rapid expansion in new cities.
These developments will provide the company with new opportunities for revenue
growth.
Market Audit - 19
Threats
Volatile coffee markets. The price and available supply of coffee experience
high volatility. Starbucks’ requirements for quality standard coffee creates
complications within the producing countries. Barriers may include; weather, and
political and economic conditions which may adversely affect the company’s
business. In the past, the actions of some organizations and associations have
affected the prices of green coffee. This has been accomplished through
agreements establishing export quotas or restricting global coffee supplies. The
actions of these associations could cause a degree of disruption to Starbuck’s
operations.
Rising dairy costs. The company faces the threat of rising dairy costs. Dairy
prices have risen considerably and this could adversely affect Starbucks’ margins.
Raw milk prices in 2004 are expected to be above the 2003 levels. Milk and other
dairy products represent between 3% and 5% of sales, and sustained increase in
prices could affect the company’s margins.
Slowing US retail sales. The company faces long-term concerns regarding
its US store growth potential. If current growth continues, saturation levels within
the North American retail division will be reached within five years. This represents
a considerable concern for Starbucks, given that over the last two years, domestic
retail has been the source of about 75% of the company’s revenue growth and an
Market Audit - 20
even greater proportion of profit growth. Before reaching saturation point, US retail
sales growth will slow considerably over the next three to five years, further
increasing the pressure on the international division to justify the company’s
investment in expansion. (MAY 2005)
Marketing Strategy
The Starbucks Mission Statement and Six Guiding Principles are foundation
of the entire organization. The mission statement reads as follows:
To establish Starbucks as the premier purveyor of the finest coffee in
the world while maintaining our uncompromising principles as we
grow.
The Six Guiding Principles are as follows;
1. Provide a great work environment and treat each other with respect
and dignity.
2. Embrace diversity as an essential component in the way we do
business.
3. Apply the highest standards of excellence to the purchasing,
roasting, and fresh delivery of our coffee.
4. Develop enthusiastically satisfied customers all of the time.
5. Contribute positively to our communities and our environment.
6. Recognize that profitability is essential to our future success.
Marketing Objectives/Financial Objectives
Market Audit - 21
Starbucks revenue had more than doubled since 2000. For the year ended
October 1, 2000 Starbucks reported revenue of $2.17 Billion and reported
revenues of $5.29 Billion for the year ended October 3, 2004. Starbucks has taken
a very aggressive approach to opening new stores both in the United States and
around the world. Based on their track record it is difficult to disagree with their
tactics. All Starbucks coffee shops opened in the United States are owned by the
corporation, they currently do not offer franchising opportunities. Starbucks has
expanded into 35 countries outside of the United States. The following is a list of
the international store counts for each country: (SEC filing 10-k)
Asia Pacific Europe/Middle East/Africa AmericasJapan 534 Germany 35 Canada 66 China 152 Saudi Arabia 32 Hawaii 45 Taiwan 136 United Arab Emirates 31 Mexico 32 South Korea 102 Spain 27 Chile 9 Philippines 70 Kuwait 27 Puerto Rico 6 Malaysia 52 Greece 25 Peru 3 New Zealand 36 Switzerland 18 Indonesia 24 Turkey 15
Lebanon 10 Austria 8 Qatar 6 Bahrain 5 France 4 Oman 3 Cyprus 2
Starbucks focuses their efforts in three areas of development; product
enhancement, licensing relationships, and store development. Their rapid
increase in sales (and profits) is directly related to these three areas of growth.
Market Audit - 22
“In fiscal 2004, the Company expanded its licensing relationship with Kraft
Foods, Inc. (“Kraft”) to include a larger selection of Starbucks® whole bean
and ground coffees, as well as Seattle’s Best Coffee® and Torrefazione
Italia® branded coffees and a selection of premium Tazo® teas, in grocery
and warehouse club stores throughout the United States. Kraft manages all
distribution, marketing, advertising and promotion and pays a royalty to
Starbucks. By the end of fiscal 2004, the Company’s coffees and teas were
available in approximately 20,000 grocery and warehouse club stores,
19,000 in the United States and 1,000 in International markets. Revenues
from this category comprised 27% of specialty revenues in fiscal 2004. The
Company has licensed the rights to produce and distribute Starbucks
branded products to two partnerships in which the Company holds a 50%
equity interest: The North American Coffee Partnership with the Pepsi-Cola
Company develops and distributes bottled Frappuccino® and Starbucks
DoubleShot® coffee drinks; and the Starbucks Ice Cream Partnership with
Dreyer’s Grand Ice Cream, Inc., develops and distributes superpremium ice
creams. In fiscal 2004, the Company entered into an agreement with Jim
Beam Brands Co., a unit of Fortune Brands, Inc., to develop, manufacture
and market a Starbucks-branded premium coffee liqueur product in the
United States. The Company conducted tests of this product in two U.S.
markets in the fiscal fourth quarter and expects to introduce the product
nationally during the fiscal second quarter of 2005 in retail locations licensed
to sell distilled spirits, such as restaurants, bars and retail outlets where
Market Audit - 23
premium distilled spirits are sold. The Company will not sell the liqueur
product in its Company-operated or licensed retail stores. The associated
revenues from this category accounted for 1% of specialty revenues in fiscal
2004“ (www.starbucks.com/aboutus/investor).
The specialty licensing division recorded revenues of $565.8 million in 2004,
an increase of 38.1% over fiscal 2003. The specialty foodservice and other
division recorded revenues of $271.1 million in 2004, an increase of 25.3% over
fiscal 2003.
Marketing Mix
Starbucks Corporation’s marketing mix involves the product determination,
pricing considerations, channels of distribution, and promotions adapted by the
company to ensure that the desired level of sales will be achieved in Starbucks’
target markets.
The company's products and services include:
Beverages:Brewed coffeesItalian-style espresso beveragesCold blended beveragesRoasted whole bean coffeesTea productsFruit juiceSodasCoffee liqueur
Food:SandwichesSaladsPastriesIce creams
Non food items:MugsTravel tumblers CoffeemakersCoffee grindersStorage containersCompact discsGames Seasonal novelty itemsStarbucks cardMedia bar
Market Audit - 24
Product Strategy
Starbucks Corporation’s product strategy involves the generation of new
products and the enhancement of existing products. This strategy achieves both
the advantage of introducing product evolution within the company and the
retention of old and existing products that symbolizes the Starbucks tradition. The
company's retail sales mix was roughly 61 percent coffee beverages, 15 percent
whole-bean coffees, 16 percent food items, and 8 percent coffee-related products
and equipment. The product mix in each store varied, depending on the size and
location of each outlet
With coffee as its main product, Starbucks continues to introduce new
goods so that consumers spend more time and money in their stores. In addition to
coffee, Starbucks also offers coffee mugs, coffee grinders, coffee-making
equipment, filters, storage containers, and other accessories for sale. Food
products include pastries, hot and cold sandwiches, salads, breakfast sandwiches,
and tea. As of 2001 Starbucks began to offer wireless Internet to patrons and later
this year, plans to increase the stores music products by implementing CD burners
to enable customers to sample online music from its subsidiary HearMusic.
The introduction of new products in the company is demonstrated through
the promotion of the following products: the ready-to-drink Starbucks Doubleshot,
Starbucks Ice Cream, and Starbucks Coffee House Blend brand. The RTD drink
Doubleshot is a new Starbucks product aimed to satisfy the needs of consumers
who are always in a hurry. Thus, Doubleshot is a Starbucks product that is “the
Market Audit - 25
ideal way to start a busy day!” Meanwhile, Starbucks had moved to expand its
supermarket sales of ice cream (available in 6 flavors), the Doubleshot, and their
whole beans. The special signature brand House Blend Coffee of Starbucks
introduces a new way wherein home-based consumers will also enjoy the
goodness of Starbucks coffee. This product comes in different flavors (ranging
from African, Arabian, to French Roast flavors), customized to fit the coffee-lover’s
taste and need for new, yet, equally delicious taste of the traditional Starbucks
coffee.
Starbucks continuously researches and implements new products as well as
enhanced its existing products in order to create diversity and added features to
the traditional lineup of coffee beverages and services. Customers play a large
part in this; feedback has been the catalyst for many new products and services
currently available through Starbucks. An example of the company’s product
strategy with its existing products is the introduction of the Tazo Tea and Crème
Frappuccino beverages in the traditional Starbucks menu list. Adding extra
features in the beverages enhances Starbucks’ famous product, Frappuccino.
That is, new flavors and variations of the said product were introduced.
Furthermore, Frappuccino blended beverages have become accessible to
consumers with the introduction of the bottled Frappuccino. These product
strategies focused on the product’s packaging, making the product commercially
available everywhere, especially where Starbucks retail stores are not available.
Market Audit - 26
With the introduction of prepaid purchase cards and the ability to preorder
via the telephone and online, Starbucks has enhanced their ability to assist
consumers with orders and purchases. Starbucks also introduces seasonal drinks
to its menu for the holidays, the Pumpkin and Gingerbread lattes have become
staples of the holiday coffee repertoire.
Pricing Strategy
Starbucks Corporation’s pricing strategy is largely based on competition,
especially since many specialty coffee shops are emerging after Starbucks’
success in the commercial market. In 2004, prices of nine chains in eight cities,
including Seattle, were compared to see how the coffee company fared against
companies such as Tully's Coffee Corp, Peet's Coffee & Tea, and Coffee Bean &
Tea Leaf. The result: Starbucks regular coffee was 4 percent less expensive and
its iced blended drinks were as much as 30 percent less expensive when
compared with specialty competition. Increased milk and green coffee bean prices
are primarily responsible for higher overall prices.
In October of 2004, Starbucks increased retail prices for beverages by an
average of 11 cents per cup. Starbucks last price increase, during August of 2000,
was an average of about 7 cents per cup in August 2000. With whole bean prices
ranging from a minimum of $8 and a maximum of $18, Starbucks coffee are in the
average price range for the specialty coffee market. These prices are maintained
throughout the company’s retail stores in America. International prices, however,
tend to be lower or higher due to currency adjustments and variations in exchange
Market Audit - 27
rate. By marketing their products and developing a culture, it is not the price
consumers focus on but the value of the products.
Distribution Strategy
Starbucks’ wide range of business activity allows it to utilize numerous
channels of product of distribution. The company adapts the vertical channel
integration so that distribution of the company’s wide range of products and
services will be effectively distributed to the consumers. Starbucks specifically
adapts the Corporate Vertical Marketing System (or Corporate VMS) wherein a
corporation owns and operates its own production facilities, warehouses, and retail
stores.
Starbucks Corporation uses coffee beans which are directly produced for
the company. Through the company’s funding, coffee farms in Mexico and Latin
American nations are cultivated according to Starbucks’ quality standards.
Establishment of the company’s own coffee farms reduces the problem of quality
coffee beans often encountered by specialty coffee shops like Starbucks. Under
the company’s supervision, coffee beans are produced and categorized according
to their unique taste and quality: the Fair Trade blend, Organic, Farm Direct
(commonly produced in Costa Rica), and Conservation, which is cultivated
primarily in Mexico.
Another advantage in Starbucks’ distribution strategy is that the company
does not allow franchising; rather, licensed stores are only allowed, giving the
Market Audit - 28
Starbucks Corporation full control of the management and operations of the retail
store. This policy is applied in both domestic and international business operations
of Starbucks. This strategy is used in order to maintain the quality of Starbucks
coffee despite the different locations and environment in which the store is located.
The Starbucks strategy aims to introduce to consumers to the original Starbucks
coffee taste regardless of nationality. Using the Corporate VMS allows Starbucks
Corporation to have a significant degree of control over the entire distribution
system. Ensuring that the company’s products adhere to the Starbucks’ standards
beginning with the raw ingredients and concluding with the finished product.
The Starbucks Company has had notable success in identifying top retailing
sites for its stores. The company has the best real estate team in the coffee-bar
industry. It is also recognized for its’ sophisticated system which enabled it to
identify the most attractive individual city blocks and the best store location. The
company’s site location track record is so good that as of 1997 Starbucks only
closed 2 of the 1,500 sites it had opened (McGraw-Hill, 1997).
“Today the company that weaned us away from the free mud in the office
kitchen and hooked us on $3 tall double caramel macchiato (with nonfat milk,
please) has 5,945 stores in the United States and 2,392 more overseas and in
Canada” (Stone, 2005).
Market Audit - 29
Promotion Strategy
Publicity Strategy
Starbucks Corporation primarily relies upon news stories, conferences and
public service announcement to gain publicity about the company’s products and
services. Starbucks promotes new product lineups or new promotions through
press releases and conferences, and is often used when launching a print and/or
broadcast advertisement about a new or enhanced product.
Starbucks utilizes public service announcements and sponsorships as its
main publicity strategy. Through the promotion of programs and activities that aim
at the company’s sense of ‘social responsibility,’ Starbucks Corporation is able to
project to the consumers the good and quality product that the company is
producing and distributing in the commercial market. Examples of these programs
that promote Starbucks’ social responsibility to its consumers are evident through
its community building programs, Starbucks Foundation, and environmental
preservation programs. It sponsors community-building programs through its local
support programs (funded by the Starbucks Foundation) such as the establishment
of Seattle Hometown and Zion Preparatory Academy, and grants such as library
grants for the company’s literacy program and funding projects.
Market Audit - 30
Advertising Strategy
Print ads and broadcast (television) are the primary media source Starbucks
uses in its advertising campaigns. Examples of Starbucks’ advertising campaigns
are TV ads that promote the bottled Frappuccino and Starbucks Doubleshot
products. These ads are both 15 minute-ads that are strategically played ‘back-to-
back’ for greater brand and product retention. Starbucks mainly uses product
rather than institutional advertising. Because of the audiovisual appeal of TV ads,
most of the company’s advertising campaigns are through the broadcast media.
Furthermore, the accessibility and flexibility of the television medium allows
everyone to receive information about Starbucks and its products. Similarly, print
media are also used because of Starbucks’ business employees/executives target
market are primary consumers of newspapers, allowing the company’s dominant
consumers to gain access to information about Starbucks’ new products. Both
media are therefore useful in proliferating the Starbucks Coffee Company and its
wide range of products.
Personal Selling Strategy
One of Starbucks’ main business operations is the distribution and offering
of the company’s services through the Office Beverage Service and Office Delivery
Service. These personal selling strategies provide small business offices a
continuing supply of Starbucks coffee without going into the nearest Starbucks
coffee shop. The Office Coffee Provider service offers the traditional Starbucks
coffee using a special thermal brewing system that will be supplied to the office
Market Audit - 31
(consumers). Starbucks coffee in retail packs are also available and can be
delivered to establishments interested in using the company’s products through the
Office Delivery Service. These two services provide additional convenience to
consumers.
Sales Promotion Strategy
Although Starbucks introduces many short-term promotions to increase
sales, its Starbucks Card is a special sales promotion program that helps
consumers to buy Starbucks products online as well as at outlets. Purchasers of
this Starbucks Card can take advantage of the company’s special promos and
deals, which includes discounts, special gifts and rewards, and other Starbucks
freebies. Such benefits are exclusively distributed to Starbucks Cardholders.
Conclusion/Recommendations
Market Audit - 32
Starbucks marketing information has been consistently accurate. When it
has been wrong, sales have exceeded expectations. Based on the SWOT
analysis and industry research, Starbucks current marketing decisions have been
extremely effective and timely. They are targeting the global market, primarily in
the Pacific Rim and Europe. They have increased pricing with little affect on
demand. They have also improved their distribution and protected themselves
from a slow US market. Their products have been consistently updated based on
consumer demand. Success can be somewhat deceiving. Starbucks may have
“left money on the table” by not being more aggressive, more targeted to local
segments and not concentrating their efforts toward the global market.
Starbucks Corporation’s Mission Statement: “To establish Starbucks as the
premier purveyor of the finest coffee in the world while maintaining our
uncompromising principles”, and its strategic planning seem to be in line. The
objectives for sales and revenue have consistently been achieved. The critical
issue for Starbucks is the decline of the US hot drinks market. To take advantage
of the company’s strengths and considering the weaknesses, opportunities, and
threats we recommend the following marketing strategies.
Revamp product lines to meet specific location consumer demands both
regionally and globally.
Use aggressive advertising to reduce the risk of increased competition and
mitigate the risk from the downturn of the US hot drinks market.
Leverage the company focus on Corporate Social Responsibility in
marketing its brand image.
Market Audit - 33
Focus expansion on additional overseas markets (Europe)
Increase pricing if the price of coffee rises in 2006-2008.
Continue to expand in the US market to mitigate the threat from
competitors.
Continue to add additional non-food/beverage products and services to
increase sales and meet higher level customer needs.
REFERENCES
Anonymous. SWOT: Starbucks. Retrieved June 1, 2005 from http://www.marketingteacher.com/SWOT/starbucks_swot.htm
BOLT, K. M., Starbucks' same-store sales spring a surprise9% increase tops analysts' 7.4% expectationsSEATTLE POST-INTELLIGENCE May 5, 2005 Retrieved May 17, 2005 from seattle.bizjournals.com
Clearly, M. Marketing Manager. Starbucks Corporation Retrieved June 1, 2005 from http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html
Datamonitor Business Information Center Hot Drinks in the United States Industry Profile November 2004
Datamonitor Business Information Center Starbucks Corporation Company Profile May 2005
DAWIDOWSKA, K. ePodunk; Starbucks.com; U.S. Census Bureauhttp://www.findarticles.com/p/articles/mi_m4021/is_2002_April_1/
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ISIDRO, I. Learning from Starbucks: 10 lessons for small business Retrieved May 5, 2005 from http://www.powerhomebiz.com/vol144/starbucks.htm
LINN, A. Starbucks Hopes to Expand in 2002 Associated Press February 27, 2002 Retrieved May 26, 2005 from
Market Audit - 34
http://www.organicconsumers.org/starbucks/expanding2002.cfm
Official Web site of Starbucks Coffee Company (Starbucks Corporation). Available at: http://www.starbucks.com.
STARBUCKS COFFEE JAPAN How Starbucks Perked Up Japan’s Coffee Culturehttp://www.accj.or.jp/document_library/FDICaseStudies/1069040679.pdf. March, 2005
Starbucks Company Background Retrieved May 28, 2005 from http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html (McGraw-Hill, 1997
Starbucks company profile Retrieved May 28, 2005 from http://www.starbucks.com/aboutus/CompanyProfileFeb05.pdf
STONE, R. Grande Plans Retrieved May 23, 2005 from http://www.msnbc.msn.com/id/6100243/site/newsweek/
Starbucks SEC report 10-K filed 2/18/2005, accessed on http://ir.10kwizard.com/?source=518 through http://80-dbic.datamonitor.com.ezproxy.apollolibrary.com/companies/company/?pid=E86AFA79-07E1-4115-AA0C-0016416541FE
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