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Case Study: Starbucks Growth Strategy

Starbucks was founded in 1971 in Seattle, by Gordon Bowker, Jerry Baldwi and Ziv Siegl. By1982, Starbuck had five retail stores and was selling high quality whole bean and ground coffee

products to restaurants and espresso stands in the Seattle area. In the same year, Howard

Schultz joined Starbucks to manage retail sales and marketing. After convincing the firm toopen a down town Seattle coffee bar in 1984, which was successful, Schultz left Starbucks toopen his own coffee bar, II Giornale, which served Starbucks coffee. Schultz acquiredStarbucks in 1987, and locations were opened in Chicago and Vancouver. The company

published its first mail order catalog in 1988. in 1991, Starbucks became the first U.S. basedprivately held company to offer stock options to all employees. The company went public in1992.

Today, Starbucks coffee shops and Kiosks can be found in a variety of shopping centers, officebuildings, bookstores, and other outlets. Starbucks is capitalizing on taste changes that predatethe companys founding. In the early 1960s, American adults consumed on an average of threecups of coffee each day. Today, consumption has declined to less than two cups, with only halfof American adults as coffee drinkers. During this time, decaffeinated coffee sales soared. Inaddition, a new category of intensely loyal coffee drinkers was born. This group of adultsconsumes specialty or premium coffees, including regular and decaffeinated versions with

a variety of origins and flavors. Sales of specialty coffee have climbed from about $45 millionannually to more than $2 billion today, accounting, for about 20 percent of all coffee sales.

Because Starbucks markets whole beans and coffee beverages, its competition comes from twodistinct groups of firms. A number of regional coffee manufacturers distribute premium coffeesin local markets, while several large national coffee manufacturers such as Nestle, Proctor &Gamble, and Kraft General Foods market and distribution specialty coffees in supermarkets.Coffee beverages are distributes by restaurants, grocery stores, and coffee retailers. SeattlesBest Coffee is a fierce competitor.

Chairman Howard Schultz projects that Starbucks will grow from its present 6,000 stores to

more than 20,000, 75 percent of which are in the Unites States. The company added 280intentional locations in 2001 and is targeting an additional 650 stores in Europe by 2004 and

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900 locations in Latin America predominantly Mexico by 2005, Starbucks is also moving intoChina. Retail stores account for more than 80 percent of revenues, with specialty operationsaccounting for the remainder.

Case Challenges:

What are some of the challenges associated with Starbucks aggressive growthstrategy?

Could an unanticipated change in coffee consumption patterns disrupt Starbucks in thesame way that it paved the way for the companys growth in the 1980s?

What problems might arise from Starbucks efforts to expand rapidly into nations suchas India.

Comment on the pricing strategies of Starbucks. How would you see the competition of Starbucks in India, with players like Costa

Coffee, Mc donalds, Barista and Caf Coffee day. Draw out acompetitive strategy forStarbucks.

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