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OutlineOutline•Introduction about Starbuck

Corporation

•Starbuck Successful Factors

•Marketing strategies

•SWOT Analysis

•Controllable and

Uncontrollable Elements

•Financial Analysis

•Risks and The Solutions

•Answer and Question

Introduction about Starbuck Corporation Introduction about Starbuck Corporation

Starbucks is one of the largest chains of coffee shops in the world. They started their business in the early 80s as a tiny chain of Seattle coffee shops, grew rapidly in the 90s and now own 5,689 coffee shops in 28 countries. This chain of coffee shops is very well managed by a well seasoned management team popularly known as H2O, because of Howard Schultz (Chairman and Chief Global Strategist), Howard Behar ( Head of North American Operations), and Orion Smith (CEO).

Introduction about Starbuck Corporation Introduction about Starbuck Corporation •In 1971 – Starbucks opened operations in Seattle’s Pike Place Markets with the future aim of providing coffee to a number of restaurant and surrounding bars. •In 1982 – the company took a change in direction through the views of Schultz, who after visiting Italy tried to adapt the same principles in order to a strong bar culture.•In 1987 – Giornale had decided to take over the assets of Starbucks and also, further changed its name to Starbucks Corporation. By the end of the year, Starbucks had increased the number of stores to 17 and furthered its location span by entering Chicago and Vancouver.•In 1990 – the company took further steps forward with expansion of Seattle headquarters and an increase in resources with the opening of a new roasting plant.

Introduction about Starbuck Corporation Introduction about Starbuck Corporation

•In 1995 – the company really established its name with the opening of the 676th store as well as increasing the products in store with the addition of compact discs a result of a previously popular experiment with ‘in-house’ music.•In 1996 – the company kept on stretching its reach by entering into the market of Japan, Singapore and Hawai.•By the year 2000 – things had progressed so far that 3,300 stores were already opened, the company had ventured into countries ranging from England to Australia & China.•By last quarter of 2008 – total international stores became 5113 store in United States.

Successful FactorsSuccessful FactorsA. Sustaining Coffee A. Sustaining Coffee QualityQuality

B. Creating a Sustainable B. Creating a Sustainable ApproachApproach

Starbucks consider it an opportunity to share their passion and knowledge of coffee, serve the highest-quality beverage, and deliver an experience so rewarding that this customer becomes their customer. Starbucks strive to create the ultimate Starbucks Experience for all of customers, all of the time.

Starbuck traveling to coffee-growing regions around the world, they have come to deeply appreciate the care that goes into producing high-quality coffee. Their coffee buyers, quality experts and agronomists spent considerable time in the field, sometimes traveling great distances to reach a particular coffee farm.

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

Successful FactorsSuccessful Factors

Through our close working relationships with coffee farmers and suppliers, Starbuck have always emphasized the importance of quality as the best, most sustainable driver of higher prices paid. Starbuck understand that coffee farming, like any business, must be profitable to be sustainable.Furthermore, Starbuck know that when coffee farmers do not earn enough to cover their production costs and/or provide a reasonable income, they may switch to other crops or perhaps stop growing coffee altogether.

C. The Link Between Quality and PriceC. The Link Between Quality and Price

C. The Link Between Quality and Price C. The Link Between Quality and Price (Cont)(Cont)

2. Economic Accountability (prerequisite)

C.A.F.E. Practices suppliers are required to submit evidence of payments made at all levels along our coffee supply chain.

3. Social Responsibility (evaluated components)

C.A.F.E. Practices suppliers – and other entities within their supply network – must have certain practices in place that ensure safe, fair and humane working conditions; the protection of workers’ rights; and adequate living conditions.

4. Environmental Leadership (evaluated components)

In the growing and/or processing of coffee, environmental measures must be in place to manage waste, protect water quality, conserve water and energy use, preserve biodiversity and reduce agrochemical use.

1. Product Quality (prerequisite)

All coffee purchased from C.A.F.E. Practices suppliers must meet Starbucks high-quality standards.

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

Successful FactorsSuccessful FactorsStarbucks believes every

person deserves to be treated with respect and dignity, and is entitled to a fair, safe and humane work environment.

This is a deeply held value at Starbucks and one of Starbuck Guiding Principles. Starbuck commitment to this value applies as much to Starbuck own workforce as it does to the workers employed by Starbuck suppliers.

D. Respect for Workers’ Human RightsD. Respect for Workers’ Human Rights

Successful FactorsSuccessful FactorsStarbucks paper cups,

used for hot beverages, are made of paper fiber with a lining of low-density polyethylene plastic.

The paper provides the rigidity for the cup, while the plastic layer keeps the paper layer intact by protecting it from the hot beverage. This plastic layer also makes the hot beverage cups unrecyclable in most paper recycling systems.

E. ANATOMY OF A CUPE. ANATOMY OF A CUP

Paper cups provide a convenient way to serve Starbucks hot beverages,

but they also result in some environmental

impacts.

Building the Starbucks BrandSo far, Starbucks had spent very little money

on advertising, preferring instead to build the brand cup by cup with customers and depend on word-of-mouth and the appeal of its storefronts.

However, the company was engaged in a growing effort to extend the Starbucks brand and penetrate new markets.

Starbucks had recently begun selling its coffees in supermarkets.

“Perfect Cup of Coffee” Starbucks history has shown that they place

a huge emphasis on product quality. Their coffee, even if priced slightly more expensive

than expected, is notorious for satisfying customers with its rich, delicious taste and

aroma.

“Third Place”From the very beginning, the Starbucks marketing strategy has focused on creating the “third place” for everyone to go to between home and work. Creating this unique and relaxing “experience” and “atmosphere” for people has been very important for the company as they have realized that this is one of the strongest concepts attached to the company, to which customers have been strongly attracted

“Customer Satisfaction”Customer satisfaction is a very important issue with Starbucks. From entrance to the store to the very last drop of their coffees, it is a must that customers feel the uniqueness of enjoying their Starbucks coffee experience.

“Creating a Starbucks Community”

The Starbucks marketing strategy has even expanded to create a community around their brand. On their website, individuals are encouraged to express their experiences with Starbucks history, and the company strives to “personally” join in the discussions.

“Smart Partnerships”Starbucks Coffee Company has been known to create strategic partnerships that demonstrate the fact that another way to grow your business is to partner smart. Over the years, the Starbucks Corporation has greatly increased sales just by using this strategy.  

Partnership

Partnership• 3,600 flights a day , 855

destinations in 155 countries.

• 14% Starbucks customers had their first Starbucks coffee on the UA flight. • 6 Starbucks coffee ice

cream beating Haagen Dazs product.

• Most selling in coffee ice cream segment.

Partnership

• Created Ready-To-Drink coffee in cans and bottles.

• Under “Frappuccino” trademark.

• “Frappuccino” sales reached $125 million in 1997, 80% penetrated to the RTD segment. • Starbucks coffee

beans are distributed by Kraft in North America.

“Innovation”Through the years, the Starbucks Coffee Company has been known to think up creative and innovative ideas to add to their products or services. They’ve added different flavors to their coffee, more food on their menu, and even became one of the firsts to offer internet capability in their stores.

“Brand Marketing”The Starbucks marketing strategy has always focused on “word-of-mouth” advertising and letting the high quality of their products and services speak for themselves. For years, this has been uniquely Starbucks, and it has played a huge part in making Starbucks Coffee Company a success.

Strengths

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

C ompany generated revenue of more t han$5 0 0 0 million in the same ye

ar.Starbucks has a reputation for

new product development and creativity.

It is a global coffee brand built upon a reputation for fine products and services . It has roughly 16,000 cafes in almost 40 countries .

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

2 0 0 5 . The company is a respecte dempl oyer that val ues i ts workforce .

The organization has strong ethical values and an ethical mission statement as follows, 'Sta

rbucks is committed to a role of en vironmental leadership in all facet

s of our business.'

WeaknessesWeaknesses

•Starbucks has a reputation for new Starbucks has a reputation for new product development and creativityproduct development and creativity . .

However, they remain vulnerable to the However, they remain vulnerable to the possibility that their innovation may falter possibility that their innovation may falter

over timeover time . .• The organization has a strong presence in The organization has a strong presence in

the United States of America with more tha the United States of America with more tha n three quarters of their cafes located in th n three quarters of their cafes located in th e home market. It is often argued that they e home market. It is often argued that they

need to look for a portfolio of countries, in need to look for a portfolio of countries, in order to spread business risk. order to spread business risk.

•The organization is dependant on a main The organization is dependant on a main competitive advantage, the retail of competitive advantage, the retail of coffeecoffee . . This could make them slow to This could make them slow to diversify into other sectors should the diversify into other sectors should the

need ariseneed arise . .

OpportunitiesStarbucks are very good at taking advantage of opportunities. In 2004 the company created a CD-burning service in their Santa Monica (California USA) cafe with Hewlett Packard, where customers create their own music CD.

The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge.

Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential..

Threats

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

Who knows if the market for coffee will grow and stay in f avour with customers, or w

hether another type of beve rage or leisure activity will r

eplace coffee in the future? Since its conception in Pike

Place Market, Seattle in 197 1, Starbucks' success has le ad to the market entry of ma ny competitors that pose po

tential threats.

Controllable element

•Technological development

•Placement

•Advertising

•Research & Development

Technological developmentStarbucks Card for

example, the Company has created the opportunity to improve customer service, shorten lines and make a customer’s visit at Starbucks quicker and more convenient.

Placement

People socialize, read, study, or just enjoy the music while Drinking their coffee.

Modifying Coffee shops to make their stores unique that will create an appealing atmosphere.

They focus on having plenty of comfortable seating so that people feel welcome to stay longer than they might have planned.

Advertising

Successful in advertising on a local level rather than to the nation as a whole. The Company advertises through print mediums, as Starbucks’ target market tends to be educated people

Research & Development Research developments

of new and exciting products like

4-cup thermal coffeemaker

‘Double Shot’ Espresso beverage

Starbucks Card is a wonderful convenience tool for customers that can serve as great gifts, and reduces time spent at the cash register.

Uncontrollable element

•Economic Factors

•Sociological factors

•Demographic Factors

Economic Factors

1.In normal price variation, the demand for coffee is price inelastic. when coffee prices show increases, consumers reduce their consumption.

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

Sociological factors

Made outline of the company’s willingness to make sure that its affect on the environment is as positive as possible. These principles are like:

1.Understanding of environmental issues

2.Developing innovative solutions to bring about change.

3.Striving to buy, sell and use environmentally friendly products.

4.Recognizing that responsibility towards our environmental future.

5.Instilling environmental responsibility as a corporate value.

Demographic FactorsPeople ages 15-64 make up the largest percentage of the population, and will have greater control of the market. This implies that the most important target market for Starbucks are people within this age group.

2 largest ethnic groups in the U.S. are white 83.5% and black 12.4 %. The ethnic background is important to a company because it influences tastes, trends, perceptions, values and beliefs of an individual

per capita purchasing power parity of $36,200 suggests that Americans can buy specialty coffee drinks from an expensive, quality-intensive organization such as Starbucks.

An inflation rate in consumer prices in the year 2000 of 3.4% is a high inflation rate. There would be recession, it could be expected that consumers would spend less on premium luxury items such as Starbuck’s coffee.

Financial AnalysisThe general financial performance for Starbucks in 2008 was declining from the previous years dramatically. The following analysis will show this fact.

Investment Returns %

Company Industry

Return on Equity

12.6 25.8

Return on Assets

5.6 13.2

Both the ROE and ROA are lower than the industry’s average, which means that the company is not using both the equity and their assets properly to increase their revenue.

Financial AnalysisProfit Margin %

Company Industry

Gross Margin 16 27Pre-Tax Margin 4.4 13.2Net Profit Margin

3.03 8.5

Starbucks margins are lower also that the industry’s average, especially in 2008 where the net profit margin reduced to 3.03 from 6.3 in 2007

Financial AnalysisFinancial Condition

Company Industry

Debt/Equity Ratio

0.4 0.46

Current Ratio 0.8 1Quick Ratio 0.48 0.7

Starbucks generally manages their debts and liabilities wisely, and this considers a financial strength for the company.

Financial Analysis

Year (in usd)

2008 2007 2006 2005

Sales 10,383,000

9,411,497

7,786,942

6,369,300

Net income

315,500 672,638 564,259 494,467

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

Financial AnalysisAlthough the total sales was increased in the last4 years, the net income was reduced, especially in 2008 when it reached almost half 2007.

Risk and SolutionsRisk: Market Threat

Solution:1.Starbucks must push to be the first mover2.Innovate new products to stay ahead of such competitive tactics.3.Should become alert towards competitive market

Risk and SolutionsRisk : Offering only one productSolution:1.The company could demonstrate Product Market Diversification through research2.Environmental changes and make sure to entice as many people as possible into their stores.

Question & Answer

Question No.1. Identify the controllable and uncontrollable elements that Starbucks has encountered in

entering global market.

Name of Name of the the countrycountry

ElementsElementsControllableControllable UncontrollableUncontrollable

(Foreign Environment)(Foreign Environment)

JapanJapan i. Competition among rival shops in .ii. Economic depression.

FranceFrance i. Political and legal bindings. (’s arcane regulations and generous labor benefits).

ItalyItaly Price (Italian coffee bars prosper by serving food as well as coffee, an area where starbucks still struggles. Also Italian coffee is cheaper than java say, Italian purists, much better. Americans pay about &1.5 for an espresso, on the other hand northern Italy the price is 67 cents, in the south just 55 cents.

ViennaVienna Culture (young are always enthusiastic about new and they embrace the new. So, starbucks will get positive advantages in expanding their business in compared to existing coffee shops there).

Question No.2. What are the major sources of risk facing the company and discuss the potential solutions?

Answer: Basically Starbucks faced three major risks at domestic region. On of which was saturated market condition (USA). Fifteen years ago they initially started with 17 coffee shops in Seattle and 5,689 outlets in 28 countries. Now, amazingly 4,247 stores scattered across the United State and Canada. In Seattle there is outlet for every 9,400 people. And the company considers that the upper limit of coffee shop saturation.

Another risk is loosing customers, because fewer options are available for

the customer. And third risk is less but not the least the

young generation feels comfortable.Global expansion poses huge risks for Starbucks. For one thing, it makes less money on each overseas because most

of them are operated with local partners.

Potential solutions: Basing on the risks faced by Starbucks, we can suggest the following solutions.One of the risks that they faced in USA-the risks of market saturation can be over come in focusing on international or global marketing. They may focus on the fact of reducing employee disruption to increase the quality of service and coffee for which they are well known.As they were facing ominously hostile reception from its future consumer, they should reposition their product according to customers need, so that they find can the $3 they are paying for a cup of coffee is reasonable.

They can also change their pricing strategy.

As coffee is the core product of them to serve they should give more focus on

improving the quality of coffee. They may make arrangement

Question No.3. Critique Starbucks overall Question No.3. Critique Starbucks overall corporate strategy.corporate strategy.

Answer: Answer: Starbucks are incurring losses for mismatch between their corporate strategies and the customer’s

expectations. Those are described below:

1.When Starbucks is blanketing some specific cities for dominance, still eight states in the United States are with no Starbucks stores. Starbucks free cities are - Butte, Mont., and N.D. 2.They believe that the more the outlet the more the sale. Basing on this strategy they are increasing their outlets day by day in their domestic region as well as abroad. Without satisfying the customers need, by increasing the numbers they will not be able to succeed in their mission.

3. Starbucks’s target customers are the Baby boomers or older generation, it has no differential pricing for the Generation X or younger generation.

4. Starbucks is about to become a global company. But its spending does not match with its status. Starbucks only spends 1% of its revenue as advertisement; whereas most companies its size spend at least 10% revenue. Low spending on advertisement hampers Starbucks’s brand building outside the USA.

Question No.4. How might starbucks improve profitability in Japan?

Answer: 1. To improve the profitability in Japan they should reposition their product and service. The Japanese are less conscious about the price. According to the present cultural trend in Japan, younger generation is inclined towards spending their time in a constructive manner. The source from internet says that the Japanese youth have very less time for their leisure. Besides sipping a cup of coffee in a coffee shop they love to learn English Language.

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

competitors can easily eat up Starbucks’s share. So, Starbuck should either reduce the price or increase benefits in Japan.

3. Starbucks can introduce US style online system in Japan, so that busy Japanese can provide their order in the internet.

4. Starbucks can introduce various cultural campaign or entertainment campaign in Japan, so that Japanese youth feel attraction to come Starbucks. In times of economic recession extra activities are necessary to boost up sales.

Starbucks and its competitors in Japan are providing the same fare. As a result, competitors can easily eat up Starbucks’s share. So, Starbuck should either reduce the price or increase benefits in Japan.

Starbucks can introduce US style online system in Japan, so that busy Japanese can provide their order in the internet.

Starbucks can introduce various cultural campaign or entertainment campaign in Japan, so that Japanese youth feel attraction to come Starbucks. In times of economic recession extra activities are necessary to boost up sales.

So, for attracting the Japanese market in addition to coffee, arrangement of internet facility and other amenities should also be provided.