STARBUCKS CASE ANALYSISEXECUTIVE SUMMARYThe following three issues stated below that Starbucks is currently faced with include:

1. The need for an increase in brand awareness and market presence in domestic and international markets through global expansion.

2. The development of innovative products to expand the product line and differentiate themselves from competition

3. Continue to implement the strong commitment to company core values to meet high quality standards in all areas of the organization.

INTRODUCTIONCEO Howard Schultz, founded Starbucks in 1987 as a modest nine-store operation in Seattle,

Washington. Starbucks is a premium roaster and retailer of specialty coffees worldwide that prides itself on offering its customers a passionate and enjoyable coffee experience. Starbucks was initially created by three academics: Jerry Baldwin, Zev Siegel, and Gordon Bowker. After visiting one of their store locations, Schultz was struck by their product knowledge, commitment to providing great customer service, and their passion for coffee. After years of discussion, Schultz joined the Starbucks team, left the company after a few years and stated his own venture called Il Giornale, and later acquired Starbucks in August 1987 for $3.8 million.

After acquiring Starbucks, Schultz incorporated the methodology of offering high quality products with exceptional customer service into his company’s core competencies. Schultz took the knowledge that he had learned from previous job titles, and combined the company’s differentiating factor of top quality, fresh-roasted, whole-bean coffee with the emulation of authentic Italian coffee/espresso bars to attract a large number of consumers and gain market share within the gourmet coffee industry.

With being a dominant industry leader, and generating increasingly high annual revenues, Starbucks is still faced with some underlying issues that require attention. Due to the sudden economic downturn of 2008-2009, Starbucks was faced with declining sales, forcing them to close 800 underperforming stores in the U.S., 100 stores in other countries, reduce its workforce by 6,700 employees, and participate in a rigorous cost containment and efficiency program. The three main issues Starbucks needs to focus on include developing a global expansion strategy, product line expansion strategy, and the implementation of company core values into every day business procedures.

ANALYSIS1. The Need for Global Expansion To expand Starbucks global footprint, the addition of more retail stores both domestically and

internationally is required To achieve target revenue growth in the low teens, Starbucks needs mid-single-digit comparable

store sales growth, 1,000 net new store openings, and strong growth through the CPG segment To maintain revenue growth and meet the transformation objective of “invest and grow”,

Starbucks needs to open 500 new stores in the Americas, 400 new stores in the China/Asia Pacific region, and 100 new stores in Europe, the Middle East, Russia, and Africa

2. Innovation Through Product Line Expansion Strategic campaign to expand Starbucks product offering beyond its retail stores and pursue sales

of Starbucks products in a wider variety of distribution channels and market segments Alteration of menu offerings in stores to respond to customer requests for more wholesome

food and beverage options promoting product innovation and differentiation With global expansion, Starbucks needs to vary the product mix depending on size of store and

location of each outlet to adapt to local cultures

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3. Commitment to Company Core Values To promote best practices across all stores worldwide, there must be a strong emphasis on

instilling company values and objectives in every employee through intensive training programs Cornerstone value in Starbucks effort “to build a company with soul” was that the company

would never stop pursuing the perfect cup of coffee by buying the best beans and roasting them to perfection

Key values instilled in employees used as guiding principles into the Starbucks culture to convey a strong sense of organizational purpose

DISCUSSIONAlternatives to Issue #1: Global Expansion

1. Conduct market research in order to determine what emerging foreign markets will be profitable to expand into.

(PRO): Japan has long been Starbucks biggest foreign market outside North America (PRO): According to Schultz, Asia represents the most significant growth opportunity on a go-

forward basis (PRO): India and Vietnam are two country markets believed to be potentially lucrative, with no

new store openings yet in these markets (PRO): China main focal point of company’s global expansion efforts and is largest market outside

of the U.S. with 1,500 stores by 2015

2. Focus expansion on domestic markets only through store openings in the United States. (PRO): Productivity of Starbucks employees in U.S. company-operated retail stores increased

from an average of 9.8 transactions per labor hour in fiscal 2008 to 11.3 transactions per labor hour in fiscal 2011

(PRO): Long-term profitability target of Starbucks for its retail stores in the U.S. has an operating profit margin in the high teens

(PRO): More experience conducting market research and understanding consumer trends on the demographics in the United States

(CON): More profitable for the company as a whole if they were to continue growth through stores operated in the U.S. and foreign markets – equal amount of stores operating in the U.S. and international markets: 4,161 licensed stores U.S., 4,124 licensed stores internationally

Alternatives to Issue #2: Product Expansion1. Participate in extensive R&D and market research to better understand changing demographics in

emerging foreign markets. (PRO): To better adapt to local cultures in menu and product offerings at each store location,

Starbucks needs to conduct market research on these consumer markets to better target their specific needs and offer products that relate to the country of origin

(PRO): R&D contributes to effective alteration of menu offerings to meet specific consumer needs, and gives Starbucks executives a better understanding of how to serve their customers better

(PRO): Targeting specifically to consumer trends allows for Starbucks to continue its commitment to providing excellent customer service in all store locations

2. Expand only their coffee blends to focus on coffee products only (CON): Utilize cheaper robusta coffees used in supermarket blends to attract a larger consumer

base and offer lighter-bodied coffees to allow for higher yields (CON): Robusta coffees have negative impact on the flavor and aroma of the coffee as they are

subject to burning

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(CON): By offering a lower quality coffee bean so that it would last longer in its packages goes against Starbucks core values and beliefs as a company. This contradicts their mission and vision for success, and will have a negative effect on customer perception of the brand

Alternatives to Issue #3: Commitment to Company Core Values1. Continue with the implementation of intensive training programs and the offering of benefits and

incentives to all employees (PRO): Retraining programs for all store employees to reignite their emotional attachment to

customers (PRO): Intensive training programs for part-time, full-time and managerial employees through

training sessions and workshops (PRO): Instituting health and dental care coverage for all employees (PRO): Stock option and stock purchase plans made available to all employees and the

recognition of employees as partners (PRO): Recognition programs to reward employees that adopt and promote company culture and

values

2. Focus more attention on community involvement and corporate citizenship to contribute to Starbucks’ corporate social responsibility

(PRO): Starbucks stores and employees regularly volunteering in community improvement projects and initiatives to have meaningful impact on the localities of store locations

(PRO): Company goal of getting Starbucks partners and customers to contribute more than 1 million hours of community service annually by 2015

(PRO): During fiscal 2011, the company sponsored a special global month of service in which more than 60,000 people in 30 countries volunteered for over 150,000 service hours and completed 1,400 community service projects

RECOMMENDATIONStarbucks is an industry leader in the gourmet coffee industry. Many of its decisions today can

play a major role in the success of the company for the future. Effective, strategic decisions made by the company can help drive revenues and allow for sustainable competitive advantage within the industry. Major transformation and strategic objectives set out by the Starbucks executive team include the pursuit of a global expansion strategy, the expansion of menu and product offerings, and the long-lasting commitment to company core values. Thus, Starbucks will benefit from the implementation of the following three strategies in 2015:

Global expansion both domestically and internationally. Product expansion through the alteration of menu offerings and the increase of Starbucks

branded products. Strong commitment to company core values and competencies through intensive training

programs, corporate responsibility, and ethical policies and procedures.

The implementation of a global expansion strategy will assist in Starbucks increasing its market share and building more brand awareness and market presence in foreign markets. Foreign markets such as China, India and parts of Europe offer opportunity for rapid growth and profitability. To build more brand awareness for the company, store expansion is key. Senior executives plan to open 1,000 net new stores in 2015. This will increase brand reach among a wide range of potential consumers, and will strengthen the brand on a global scale.

By selecting alternative 1 to the global expansion strategy of conducting extensive market research to determine consumer trends, Starbucks will achieve greater results in the expansion into other domestic and international markets. There are foreign markets including Japan, India, and Vietnam that appear to

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be highly profitable, and have yet to be expanded into. Starbucks can conduct further research to better understand the culture and trends of these foreign markets, and target them accordingly.

The implementation of a product line expansion through the alteration of menu and product offerings will allow for Starbucks to attract a larger consumer base, and ultimately drive sales of both coffee and non-coffee products. The alteration of the menu to offer more wholesome food options for healthy-conscious consumers increases Starbucks’ target market, and acts as a differentiating factor for the company. Changes made to the menu and product offerings help promote product innovation and diversification in the premium coffee industry. Starbucks can capitalize on the expansion of their product mix as this will attract more consumers and ultimately increase store revenues.

With the selection of alternative 1 of extensive R&D and market research for the product expansion strategy will yield profitable results for Starbucks. Effective R&D and market research will allow for Starbucks to better target specific cultures and geographical areas based on their demographics and consumer preferences. Market research assists Starbucks in better understanding their consumer base, and are then able to target them more specifically, based on their wants and needs. By focusing on the consumer specifically, this contributes to Starbucks strong commitment to providing excellent customer service and a satisfying coffee experience.

The implementation of the continued commitment to company core values and competencies ensures full integration among all departments of the organization. Following these core values and principles help guide employees to work to the highest of standards, ensuring safe working environments, quality product offerings and great customer service.

Finally, by selecting alternative 1 for the company core value strategy, Starbucks will be able to continue its commitment to its many core values and beliefs through respecting and rewarding its employees (partners). Starbucks can effectively implement its core competencies in all aspects of its business through the retraining of all store employees, igniting their emotional attachment to customers and to the brand as a whole. In addition to this, offering their partners health, dental and pension plans, and also stock option and stock purchase plans shows their dedication to their employees, and the recognition of their role in the company. Reward programs and employee incentives help promote company culture, and ultimately instill the core values of Starbucks in every employee.

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APPENDIX I: EXTERNAL ANALYSIS1. Dominant Economic FeaturesMarket Size

(Specific to Starbucks) - Blonde Roast coffee blends $1 billion market opportunity in the U.S. Instant and single-serve coffee category was $23 billion market Single-cup coffee packs represent a $3 billion market, constitutes 8% of total coffee revenue Global market for premium at-home espresso/coffee machines estimated $8 billion

Number of Buyers and Sellers (Specific to Starbucks) – April 2012: 4,161 licensed stores in the U.S., and 4,124 licensed stores

internationally (Specific to Starbucks) – Annual sales expected to exceed $13 billion in fiscal 2012 (Specific to Starbucks) – Fiscal 2009: $372.2 million revenues from providing whole bean and

ground coffees to 21, 000 foodservice accounts (Specific to Starbucks) – Frappuccino ready-to-drink beverages achieved national supermarket

penetration of 80%, $125 million revenues in 1997, $10 billion annual sales from foreign markets (Specific to Starbucks) – Coffees available in 33, 500 grocery and warehouse clubs in the U.S., and

5, 500 retail outlets outside U.S., sales $370 million in 2009Geographic Boundaries

(Specific to Starbucks) - April 2012: 17, 400 store locations in more than 55 countries (Specific to Starbucks) - Rapid expansion through metropolitan city “hub” store openings,

licensing agreements domestically and internationally, and international expansion through company-owned-and-operated stores or licensed retail stores

Type of Distribution Channels Company-owned-and-operated stores Licensing agreements both domestically and internationally Distribution of products through food sourcing distributors such as SYSCO Corporation and US

Foodservice Joint venture arrangements for mass distribution Partnerships with varying companies to offer added services and products to customers (Apple

iTunes, Tazo Tea, PepsiCo, etc.) Ground coffee grocery and mass merchandise channels Direct sales of packaged coffees to supermarkets and to warehouse club stores

Market Supply/Demand Conditions Supply of products through foodservice distributors into different market segments Demand for coffee beans to be sold in grocery and mass merchandise channels Demand for coffee products in the single-cup coffee segment – instant coffees, single portion

coffee packs for single-cup brewers, and single-cup brewing machines Store menu offerings to include healthier options for more health-conscious consumers Product offerings including: variety of whole coffee beans, gourmet food items, teas, coffee

mugs, coffee grinders, coffee-making equipment, filters, storage containers, and other accessories

Extent of Vertical Integration (Specific to Starbucks) - Coffee sourcing to 30 foreign countries to offer a greater range of coffee

varieties, and reduce risk regarding weather, price volatility, and changing economic and political conditions

Fixed-price and price-to-be-fixed purchase commitments for pricing and purchasing arrangements

Ethical sourcing through partnership with organizations such as Conservation International’s Center for Environmental Leadership (C.A.F.E.) to develop specific guidelines

Roasting plants to create coffee beans and warehouse and ship coffees

Pace of Product Innovation/Technological Change Reloadable cards allowing for customers to pay for their purchases and earn/redeem rewards

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Membership cards and reward programs Cell phone equipped apps for iPhones and Android-based smartphones Laptops and Internet-based software for scheduling of employees Point-of-sale system for stores

Level of Product Differentiation Top quality, fresh-roasted, whole-bean coffee and meticulous dark-roasting process for full flavor

optimization Commitment to the education of customers to appreciate the qualities of fine coffees Recreation of authentic Italian espresso/coffee bar culture in North America and foreign markets Coffee bar as an experience, a special treat, a place to meet friends and visit Stores acting as billboards for the company through store design, ambience, and location Internet access capability and enhanced digital entertainment at store locations to heighten the

overall experience WOM marketing

Affect of Scale Economies Sharp economic downturn of 2008 strong negative effect on coffee industry (Specific to Starbucks) – closing of 800 underperforming stores in the U.S., 100 stores

internationally, reduction of expansion plan, and reduction of 6700 employees (Specific to Starbucks) – Went from rapid global expansion plan to cost containment and

efficiency programLearning/Experience Curve Effects

Increased efficiency in store operations at the expense of good customer service does not yield high profitability

Economic conditions can have strong negative effect on buying patterns of consumersSummary

Multi-segment billion dollar retail market for fresh brewed coffee and coffee products Many competitors within the segment – Starbucks leading industry member Company owned stores, licensing agreements, foodservice distributors, joint ventures, grocery

and warehouse clubs to sell products domestically and internationally Outsourced production to coffee bean farmers, commitment to ethical sourcing, high quality

coffee beans Product offering, atmosphere and store design are forms of differentiation in coffee industry –

theme developed from European inspiration Economic downturns have major effects on profitability of all ground coffee industry members

2. PESTEL AnalysisPolitical

Laws & regulations to follow when outsourcing to foreign coffee bean farms Foreign importing and exporting policies when expanding globally

Economic Economic downturn of 2008-2009 major effect on revenues Change in consumer buying patterns results in need for revamp of menu and pricing mix Contributions to charitable organizations depend on current state of economy

Social Ethical sourcing of products – responsible growing practices Community involvement & corporate citizenship Charitable contributions through grants, relief efforts, non-profit organizations

Technological Reloadable cards, loyalty programs, membership cards, iTunes cell phone apps for direct

purchases Laptops & Internet-based software for scheduling

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Point-of-sales systems in placeEnvironment

Environmental responsibility for outsourced production Environmental stewardship: recycling, reduce waste, energy efficient, renewable energy sources,

conserve water, go greenLegal

Contractual obligations with outsourced production with coffee bean farmers Purchase commitments, price-to-be-fixed contracts

3. Porter’s 5 Forces Model1. The rivalry among competing sellers in the industry – Moderate

(Specific to Starbucks) – Competitive advantage with regards to the introduction of European coffee/espresso style cafes into North America

Head-to-head competition with Nestles Nespresso and Keurig premium at home coffee/espresso machines

2. Firms in other industries offering substitute products – Weak Substitute products include: instant coffee, single portion coffee packs, single-cup brewing

machines Focus on at-home brewing options for consumers: Nestle Nespresso and Keurig

3. The potential entry of new competitors – Moderate Potential threat of new market entrants with similar business models, but will be hard for them

to compete with current premium ground coffee industry members such as Starbucks (Specific to Starbucks) – Strong consumer base and large percentage of premium coffee market

share to sustain competitive advantage over new market entrants4. The bargaining power of suppliers – Weak

Coffee beans grown in 70 tropical countries, and is the second most traded commodity 25 million small farmers grow coffee, most of which living on the edge of poverty (Specific to Starbucks) – Prides themselves for ethical sourcing of products, but with the use of

purchasing agreements and outsourced production in foreign markets, the bargaining power of Starbucks over their suppliers is high

5. The bargaining power of buyers – Weak With near monopolistic power in the premium coffee industry, Starbucks buyers have limited

bargaining power, and standardization of prices is prevalent in the coffee industry Consumers relate the higher priced items with having higher levels of quality and are less price

sensitive to the pricing mixSummary

Some competition prevalent in premium coffee industry with existing members and threat of new market entrants, Starbucks has near monopoly to sustain competitive advantage

Weak bargaining power of suppliers and buyers in the industry, as Starbucks has strong bargaining power over both segments

4. Driving Forces of Change1. Strong commitment to customer service and company core values2. Innovation through product offering and store design 3. Global expansion through addition of new retail stores in foreign markets

Summary Strong customer service is important for success in this industry as customer engagement and

human connection yields an emotional attachment to customers and the delivery of superior customer service

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The implementation of core company values amongst all levels of the organization ensures high standards of the distribution of quality, premium roasted coffee in a positive environment for both employees and customers

Innovate through increased variety in product offerings – coffee roasts, food menu options, coffee accessories, and expansion into single-cup coffee segment

Innovation through store design and ambience – creating an inviting, stimulating environment that contributes to a satisfying customer experience

Global expansion domestically through the opening of new stores in the Americas, and internationally through the introduction of new retail stores in emerging foreign markets such as China/Asia Pacific region, Europe, the Middle East, Russia, and Africa

5. Competitor Analysis* Insufficient information provided in the case to complete a competitive analysis. Table will be based on Starbucks specifically

COMPETITIVE FACTOR STARBUCKSSales Revenue/Market Share Annual sales expected to exceed $13 billion in fiscal 2012

$372.2 million revenues from foodservice accounts Frappuccino beverages $125 million in 1997 $370 million revenues from grocery and warehouse clubs The Seattle’s Best subsidiary revenues of $150 million fiscal 2010,

and $175 million fiscal 2011 $250 million from VIA products in 2011 11% dollar share of market for single-cup coffee packs in U.S.

Product Offerings 2008 Pike Place Roast coffee blend 2012 Blonde Roast coffee blend 2009 Starbucks VIA Ready Brew 2011 Starbucks K-Cup Portion Packs for Keurig 2012 Verismo coffee machine 2008 alteration of menu offerings, 2009-2011 reformulated recipes

to offer healthier options Fiscal 2011: overall sales mix in retail stores was 75% beverages,

19% food, 2% coffee-making equipment and 3% other merchandiseMarketing and Advertising Fiscal 2011: advertising expenditures $141.4 million

In-house sales and marketing group to handle direct sales and distribution of Starbucks-branded coffees and Tazo Tea products to supermarkets and warehouse clubs

2010 formed Consumer Products Group (CPG) responsible for sales of Starbucks products sold in all channels other than Starbucks stores and management of partnerships

Manufacturing Roasting plants in Washington; Pennsylvania; Minden; Nevada; Charleston; South Carolina; and The Netherlands

Coffee department, computerized roasters, roasting personnel, blood-cell analyzer, vacuum-sealed bags

Distribution Outsourced production to 30 foreign coffee farms Company-owned-and-operated retail stores, licensed stores Foodservice distributors, supermarkets, warehouses Joint venture arrangements

Partnerships & Licensing Agreements

Joint ventures with PepsiCo 1994, International Coffee Partnership (ICP) 2007

Dreyer’s Grand Ice Cream 1995, Apple iTunes 2008 Purchased Tazo Tea in 1999 for $8.1 million Licensing relationship with Kraft in 1998 2008 licensing agreement with partnership formed by PepsiCo and

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Unilever Purchase of Seattle’s Best Coffee in 2003 for $70 million Fiscal 2012 CPG acquired Evolution Fresh for $30 million

Additional Competitor Information Stated in Case:- Strategic initiatives from McDonalds and other fast food chains offering premium coffees and

coffee drinks at prices below those charged by Starbucks- Head-to-head competition with Nestles Nepresso machine, and Green Mountain’s low-pressure

Keurig brewers with launch of VerismoSummary

High revenues generated from multiple market segments and product offerings Many different product offerings: coffee roasts, food menu options, coffee accessories, and

single-cup coffee products In-house marketing sales group to handle sales and distribution of Starbucks products Company owned roasting plants, high degree of coffee roasting processes to ensure quality Outsourced coffee bean production and licensing agreements Multiple joint venture arrangements and partnerships with wide variety of companies

6. Key Success FactorsGlobal Market Expansion

New store growth both domestically and internationally major competitive factor in premium coffee industry

Brand awareness in foreign markets strengthens the brand on a global scale and contributes to increases in revenues and market share

Product Mix Expansion Product expansion contributes to company innovation and differentiation among competitors Many different product market segments in the coffee industry; companies can capitalize on this

by expanding their product mix to attract more consumers and increase revenuesCommitment to Company Core Values

Strong commitment to key values ensures integration among all departments, and guides employees to work to the highest of standards to ensure safe working environments, quality product offerings and great customer service

7. Industry Attractiveness Brand Positioning – To be perceived as a strong brand in the mind of consumers, significant

funding and marketing approaches must be set in place to properly communicate brand offerings and develop a brand identity consumers want to be a part of. In the coffee industry, positioning the company through differentiation tactics such as product offering, atmosphere or store design, offers sustainable competitive advantage

Ability to Capitalize on Growth Opportunities – Penetrating other market segments in the coffee industry is a good way to increase the company consumer base and overall revenues. These other markets can include new product line extensions, or the expansion into foreign markets

Reinforcement of Company Values – Ensuring company values are instilled in all aspects of the organizations allows for full integration among departments, and develops a high level of quality for everyone to follow. The implementation of strong customer service is important for success in this industry as customer engagement yields emotional attachment to the brand and strong brand resonance with the consumers

APPENDIX II: INTERNAL ANALYSIS1. Starbuck’s Present StrategyVision: To become the most respected brand name in the premium coffee industry and meet the highest standards of excellence in the minds of our customers. Mission: To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a timeObjectives:

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Opening a net of 500 new stores in the Americas which licensed stores comprising approximately one-half of the new additions

Opening a net of 400 new stores in the China/Asia Pacific region, which licensed stores comprising approximately two-thirds of the new additions

Maintaining its plan to open a net 100 new stores in Europe, the Middle East, Russia, and Africa, which licensed stores comprising approximately two-thirds of the new stores.

Achieving revenue growth in the low teens, driven by mid-single-digit comparable store sales growth, 1,000 net new store openings, and continued strong growth in the Consumer Products Group segment.

Achieving earnings per share of $1.81 to $1.84, representing a 19 to 21 percent increase over fiscal 2011 EPS of $1.52. EPD growth was expected to be approximately 25 to 29 percent in the second half of fiscal 2012.

Competitive Approach: Starbucks is involved with many partnerships, licensing agreements, and joint venture programs

providing them with many opportunities for growth Each store is used as a billboard for the company to create a consistent, inviting, and stimulating

environment to provide a satisfying experience for all customers Store expansion in major cities allows for the reduction in delivery times, management costs, line

waiting times, and an increase in foot traffic for each store location With a strong focus on social responsibility, Starbucks ethically sourcing all of its products, and

focuses on fair purchasing and pricing agreements, environmental stewardship, community involvement, and charitable contributions to non-profit organizations

Key Performance Indicators: In 2012, Starbucks expects to open 1,000 new stores globally In 2012, Starbucks increased their international market sales by 20% from successful

partnerships and the introduction of new products such as the ready-to-drink Frappuccino As of 2012, Starbucks had 4,161 licensed stores in the United States, 4,124 licensed stores

internationally and a total of 17,420 worldwide stores In 2009 Starbucks had revenues of $372.2 million and have increased every year since. Starbucks purchased Seattle’s Best Coffee for $70 million, which intern generated $175 million in

2011.Summary:

Starbucks has been successful with increasing revenues every year of operation except for 2008, as the economic downturn severally impacted company sales.

Steady sales in the North American market and there are many opportunities for growth in foreign markets

Strong partnerships, licensing agreements, and joint venture programs offer sustainable competitive advantage

2. VRIN AnalysisResource Valuable Rare Inimitable Non-substitutable

Product Mix Yes No Yes NoBrand Positioning Yes Yes Yes No

Differentiation Strategies

Yes Yes Yes No

Partnerships and Agreements

Yes No Yes No

Distribution (Outsourcing)

Yes No Yes Yes

Supplier Relationships

Yes No Yes No

Globalization Yes No Yes No

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StrategiesSummary:

The product mix of Starbucks is valuable as there is opportunity to offer more healthy choices to attract more consumers. This is not rare as many companies are using this product offering, and it easy imitated by other industry members. Healthy and convenient food options are non-substitutable because not offering these kinds of products would go against the mission and vision of Starbucks.

Brand positioning is very valuable as it contributes to differentiation, and the brand positioning of Starbucks is rare within the coffee industry. It can be easily imitated or copied by other members, and because it is done so well by Starbucks it is non-substitutable as it yields competitive advantage.

The partnerships, licensing agreements, and joint ventures Starbucks is involved in are very important to the success of the company offering Starbucks many opportunities for growth. It is not rare for companies to do this, and this strategy can be easily imitated. With regards to Starbucks, this resource is non-substitutable as it offers additional sources of revenue and expansion.

Outsourcing production is a valuable resource for Starbucks as it yields high ROI and is directly related to building strong supplier relationships. It is not rare among industry members and is imitable, but very important for success, as outsourcing production to companies in North America or through an in-house production team would be costly.

Expanding the Starbucks brand globally is very valuable as it contributes to increases in revenues and the development of brand awareness on a global scale. It is not rare and easily imitated as many companies expand into international markets, but in most cases global expansion is the best way for further success of a company.

3. SWOT AnalysisSTRENGTHS WEAKNESSES

Premium roaster and retailer of specialty coffee worldwide

Multiple partnerships, licensing agreements, and joint ventures with other successful companies

Ethical sourcing for production, and strong distribution channels

Strong brand image and awareness, with a loyal consumer base

Financially stable, and strong commitment to customer service and quality practices

High corporate social responsibility

Higher priced coffee products targets a specific consumer segment

Economic downturn had negative impact on company sales in 2008-2009

In process of transformation through retraining of employees, menu offerings, company resources, product innovation, and global expansion

In process of cost-containment program The hiring of Jim Donald in 2005 – focus on

increasing store efficiency resulted in declining levels of customer service

OPPORTUNITIES THREATS Global expansion domestically in North

America, and internationally in emerging foreign markets

Innovation through product offering and changes in the design of Starbucks stores

The use of environmentally friendly resources and commitment to social responsibility

Another economic downturn in domestic or international markets

Changing laws and regulations of international trade and outsourced production of coffee beans

New market entrants with similar product mix and pricing strategies

An increase in price conscious consumers resulting in a decreasing consumer base or the need to offer lower priced items

Summary Major strengths include the offering of premium coffee blends and products, the utilization of

strong partnerships and agreements, participating in ethical sourcing of coffee beans, and strong brand awareness in minds of consumers

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Major weaknesses include high priced products, the need for company transformation due to initiatives set out by Jim Donald, and the requirement for a cost-containment program

Major opportunities include global expansion into foreign markets, product innovation, store design and atmosphere, and continuation of company social responsibility

Major threats with the repeat occurrence of an economic downturn, laws and regulations with regards to international trade and production, new market entrants, and changing buying patterns of consumers

4. Value Chain AnalysisPrimary Activities:Supply Chain Management:

Starbucks imports its coffee beans from low-income countries in Central America, East Africa, and Asia through a partnership with the Conservation International’s Center for Environmental Leadership to develop specific guidelines when importing

Ethical outsourced production to coffee bean farms in foreign markets Licensing agreements, partnerships, and joint venture agreements for mass production of

Starbucks branded productsOperations:

Strong emphasis on using only freshly ground premium coffee beans for all coffee products sold at Starbucks stores

Starbucks operates its stores through offering superior customer service to provide emotional attachment and human interaction to build long lasting relationships with their consumers

Distribution: 5 regional distribution centers in the U.S., two of which are company-owned, and three managed

by third-party logistics 48 central distribution centers worldwide – products distributed by truck from these central

distribution centers to store locations In 2012, Starbucks had 17,420 stores worldwide: 6,714 company operated in the U.S., 2,421

company operated internationally, 4,161 licensed stores in the U.S., 4,124 licensed stores internationally

Sales and Marketing: High dependence on WOM marketing, building their brand through the offering of strong

customer service and high quality products, ensuring a satisfying experience for each customer Increasing sales every year of operation except for 2008-2009 during Economic Crisis Increase in advertising efforts in 2008 to combat strategic initiatives of fast-food chain

competitors Sales through in-store purchases, grocery and supermarket purchases, and online-purchases

Service: Strong focus and commitment to providing excellent customer service to every customer – one

of the company’s core values Combination of store ambience, design, atmosphere, employees, product offerings and

additional services to offer superior customer service Special retraining program for all store employees to reignite emotional attachment to

customers

Support Activities:Product R&D, Technology, and Systems Development:

New additional resources and tools for store employees, including laptops, an Internet-based software for scheduling work hours for store employees, and a new point-of-sale system for all stores in the U.S., Canada, and the United Kingdom

Constant refreshing of menu offerings at Starbucks stores to keep customers engaged and focus on offering healthier options to target more consumers

Human Resources Management:

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Strong company/employee relationship through the offering of health, dental and pension plans to employees depending on part-time or full-time employment

Intensive training programs for baristas and store managers Employee recognition programs to reward employees for work and commitment to company

Summary: Use of outsourced production, partnerships, licensing agreements, and joint ventures to import,

manufacture, and distribute Starbucks branded products Operations through quality coffee bean products and quality customer service Distribution through company-owned-and-operates stores and licensed stores in the U.S. and

international markets Sales through in-store purchases, grocery and supermarket purchases, and online-purchases WOM marketing, other means of advertising to sustain competitiveness Company resources and technology for store employees, and development of menu offerings to

keep customers engaged Good employee relationships through dental, health and pension plans and intensive training

programs

5. Competitive Strength Assessment:Starbucks McDonalds Nestles Nespresso

Key Success Factors

Importance Weight

Strength Rating

Weight Score

Strength Rating

Weight Score

Strength Rating

Weight Score

Global Expansion

.50 10 5 10 5 8 4

Product Expansion

.30 10 3 10 3 4 1.2

Company Core Values

.20 9 1.8 8 1.6 6 1.2

Total 1.00 9.8 9.6 6.4(Rating scale 1= very weak: 10= very strong)Summary:

The ‘Global Expansion’ key success factor was rated at an importance rate of 50% because rapid expansion domestically and internationally is a key initiative of Starbucks.

As competitor McDonalds focuses heavily on global extension as well, Starbucks needs to be aware of this and attempt to gain more market share before more competition arises.

‘Product Expansion’ was rated at an importance rate of 30% because it allows for product innovation and differentiation among competitors.

Starbucks rated highest in ‘Company Core Values’ as staying committed to their missions and key values helps to guide the way their business operates. This contributes to a differentiating factor over competitors, and Starbucks should continue to follow and practice these principles.

Starbucks and McDonalds had very close weighted scores, as McDonalds is a strong competitor with an established consumer base and a similar business model. With such close scores, Starbucks needs to be aware of McDonalds strategic moves, and change their methodologies appropriately to react to market changes.

6. Strategy Execution ProcessA. Staffing the organization Starbucks hires only able and willing employees, attracting them through incentives such as

employee benefits and intensive training programsB. Building the organizational capabilities Special retraining program: barista 24 hours training in first 2 weeks; management 8-12 weeks of

training on store operations, practices and procedures, information systems, and basics of managing people

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Effective systems set in place in recruitment and training in order to ensure employees adopt and practice company core values

C. Creating a strategy-supportive organizational structure Starbucks recognizes their employees as “partners”, and by doing this, they support their

company core values of instilling quality customer service and employee morale Employee training and workshop support to ingrain company values, principles, and cultureD. Allocating sufficient resources to strategic execution Funding for small farmer support programs through organizations that make loans to small

coffee growers Funding for partner recognition programs that consist of 18 different awards and programs

offered to employeesE. Instituting policies and procedures that facilitate strategy execution Procedures set in place for conducting ethical sourcing of coffee bean production Partnering only with other companies that are committed to environmentally friendly and ethical

policies and proceduresF. Adopting best practice and business processes that drive strategy execution activities The adoption of the differentiating feature from the first Starbuck’s owners of purchasing only

the finest Arabica coffees and using a meticulous dark-roasting process to bring out the full flavors of the coffee beans

Commitment to providing top quality, fresh-roasted, whole bean coffee and educating customers about coffee products

G. Installing information and operating systems that enable company personnel to do their strategic roles proficiently

Resources and tools provided for employees including laptops, an Internet-based software for scheduling work hours, and point-of-sales systems

H. Trying rewards and incentives directly to the achievement of strategic and financial targets Use of employee stock purchase plan and granting stock option plans for partners resulting in

24.8 million shares purchased from 30% of Starbucks partners that participatedI. Instilling a corporate culture that promotes good strategy execution Emphasis on developing good employee morale where employees are encouraged to speak their

minds without fear of retribution from upper management, and have employees feel involved and contribute to the process of making Starbucks a better company

J. Exercising the internal leadership needed to propel strategy implementation forward Leadership from Schultz as CEO; chief creative officer responsible for elevating the in-store

experience of customers and achieving new levels of innovation and differentiation

7. Strategic Issues1. To increase market presence and brand awareness, what strategic initiatives should Starbucks

take to ensure rapid expansion into global markets? 2. What strategies can Starbucks implement in order to contribute to product innovation and

differentiation among competitors?3. In what ways can Starbucks continue its commitment to company core values in order to meet

the highest standards of excellence in all aspects of the organization?

Starbucks Financials

Profitability Ratios

2007 2008 2009 2010 2011Gross Profit Margin 57.51% 55.26% 55.75% 58.36% 57.70%

Operating Profit Margin

11.20% 4.85% 5.75% 13.26% 14.77%

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Return on Assets (ROA)

12.59% 5.56% 7.01% 14.81% 16.92%

Return on Equity(ROE)

46.14% 20.23% 18.45% 38.63% 39.42%

Return on Capital Employed

(ROCE)

33.06% 14.47% 14.06% 38.55% 39.40%

Liquidity/Leverage Ratios

2007 2008 2009 2010 2011Working Capital -$459 -$442 $455 $53 $822

Total Debt to Assets 0.24 0.22 0.10 0.09 0.07Total Debt to Equity 0.94 0.88 0.52 0.07 0.68

Growth Rates

2007 2008 2009 2010 2011Revenue Growth

Rate9.67% -6.75% 9.58% 7.46%

EBIT Growth Rate -52.19% 11.53% 152.56% 21.78%Net Income Growth

Rate-53.09% 28.37% 141.97% 31.74%

Starbucks Consumer Products Group (CPG)

2007 2008 2009 2010 2011% Of Total Net

Revenues8.24% 7.89% 8.93%

Revenue Growth Rate

4.89% 21.64%

Operating Profit Margin

41.79% 36.95% 31.73%

Net Revenue for Worldwide Locations

2007 2008 2009 2010 2011Net Revenue per #

of Locations1.88 1.90 2.03 1.88 1.77

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