Starbuck’s International Operations

Sanjib’ Dutta and K. Subhadra

Case Abstract

This is a case study of a company called Starbucks Corp. In March 2003, the company

successfully featured in the list of Fortune 500 companies. Starbucks started as a

coffee bean retailing store. A man named Schultz has changed Starbucks from a small

retailing store to a big company and well-known coffee restaurant all over the world.

The early strategy used by Schultz was to open as many Starbucks stores beginning

with the expansion to Chicago, Los Angeles and other major cities in U.S. By 1993,

there were around 100 Starbucks store all over U.S. and continued to increased to 145

in 1994. The strategy adopted was to reduce the distribution cost as well as waiting

period for customers in its stores. Starbucks also became the first privately owned

company that offers employee stock option and it was listed on the New York Stock

Exchange in 1992 at a price of $17 per share. Starbucks can also be considered as a

dynamic company. The company also has strategic alliances such as Canadian

Airlines, United Air Lines, Starwood Hotels and Barnes & Nobles in order to serve

Starbucks coffee.

Internationally, Starbucks managed to enter Asia Pacific market when it opened its first

store in Japan and subsequently to other Asian Region. Its efforts not just stop there.

Starbucks also penetrated European market when it opened the first store in England

in 1998 and soon expanded its presence to Switzerland, Germany and Greece.

Starbucks also went for licensing in the Middle East. Starbucks used their ability to

adapt to local cultures to strengthen their presence in the region the have entered. In

2005, because of the successful of existing stores in international market, Starbucks

had announced that by 2005, they would increase the number of international stores

up to 10,000. But some analysts pointed out that Starbucks might not succeed in

international markets.

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It was soon been proved when many problems occurred in its international markets.

Mostly local political problems like what had happened in Iraq and the boycott of US

goods of services due to Shultz closeness to Jewish Community. There are also

problem in economics situation, for example economic recessions in Switzerland,

Germany and Japan in early 2000. They also faced stiff competition from well

established local players in Europe, and also sales drop problem in Japan. But

whatever the problem was, Starbucks has succeed to put its name in the international

market and financially strong because the company relatively debt free and had

around $300 million in free cash flows.

1. What are the strenghs and weaknesses of Starbucks’ International?

Strengths

1. Entered a joint venture with Sazaby Inc. – a leading Japanese teashop and interior-goods retailer.

2. No smoking principle.

3. Ability to adapt to local culture.

4. Self-service mode of operation.

5. Debt free and $300 million in free cash flows.

6. Alliance with various players.

7. Innovation in products.

Weaknesses

1. Did not like the taste of Starbucks coffee.

2. Complex joint ventures and licensing agreements.

3. Invest huge amount in imparting training to the employees and promoting products.

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4. Lack of trained workforce and suitable real estates for its stores.

2. What are the opportunities and threats facing Starbucks’ International?

Opportunities

1. Eagerness among the younger generation in Asia Pacific to imitate Western lifestyle.

2. Sazaby’s knowledge about Japanese coffee drinking habits.

3. Strong coffee drinking culture in Europe.

4. The taste had gone awry in Europe.

Threats

1. Tough competition from sidewalk cafes in France, coffeehouses of Vienna and espresso bars of Italy

2. Volatile political environment in the Middle East

3. War on Iraq.

4. Economic Recession in Switzerland, Germany and Japan.

5. Stiff competition from well-established local players that offered specialty at lower prices.

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3. What are the strategic factors facing Starbucks’ International?

Internal Audit

Internal Factor Analysis (IFAS) Matrix

Internal Strategic Factors Weight RatingWeighted

ScoreComments

Strenghs1. Special concept of

service0.5 3 1.5 No smoking

principle and self service mode of operation

2. Alliance with various players.

0.10 3 0.3 Use advantage of alliance

3. Business adaptation 0.05 4 0.2 Able to adapt to local culture

4. Financial position 0.15 4 0.6 Debt free and $300 millions free cash flow

5. Product innovation 0.15 3 0.45 GoodWeaknesses1. Taste of cofee 0.20 3 0.6 Good but

deteriorating2. Joint Venture and

licensing0.10 3 0.3 Very complex

3. Training and promoting expenditure

0.15 2 0.3 Over expand

4. Workforce competency 0.05 2 0.1 Lack of trainingTotal Scores 1.00 4.35

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External Audit

External Factor Analysis (EFAS) Matrix

External Strategic Factors Weight Rating WeightedScore

Comments

Opportunities1. Current trends in Asia Pacific 0.15 4 0.60 Younger

generation trying to imitate western lifestyle

2. Japanese coffee drinking habits

0.10 4 0.6 Sazaby’s knowledge

3. European market 0.15 2 0.3 Strong coffee drinking culture

4. Quality of coffee in Europe 0.10 1 0.1 Had gone awryThreats1. European competition 0.15 2 0.3 Tough

competition2. Political environment in Middle

East0.10 4 0.4 Volatile

3. Economic situation in Europe. 0.10 4 0.4 Recession in Switzerland, Germany and Japan

4. Price competition 0.15 2 0.3 From well established local players

Total Scores 1.00 3.0

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TOWS Matrix

Strengths Weaknesses

S1 Special concept of service.

S2 Alliance with various players

S3 Business adaptation.S4 Financial position.S5 Product innovation.

W1 Taste of coffee.W2 Joint Venture and

licensing.W3 Training and promoting

expenditure.W4 Workforce competency.

Opportunities S-O Strategies W-O Strategies

O1 Current trends in Asia Pacific.

O2 Japanese coffee drinking habits.

O3 European market.O4 Quality of coffee in

Europe.

S3,S4,O3 -Expand business in other European countries.

S3,S4,S5,O5 – Expand and use product innovation in Asia Pacific region.

W2O2 – Simplify Joint Venture and licensing agreement with Sazaby’s.

W1O4 – Cooperate with European coffee maker to diversify taste of coffee.

Threats S-T Strategies W-T Strategies

T1 European competition T2 Political environment in

Middle East.T3 Economic situation in

Europe.T4 Price competition.

S1,T1,T4 – Find new attraction and innovations to win competition

S4T1 – Take over small European local players.

W3T3 Tighten budget expenditure on training and promotion

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Internal Factors (IFAS)

External Factors(EFAS)

Recommendations

Strategy 1

Expand business in other European countries.

Strategy 2

Expand and use product innovation in Asia Pacific region.

Strategy 3

Simplify Joint Venture and licensing agreement with Sazaby’s.

Strategy 4

Cooperate with European coffee maker to diversify taste of coffee.

Strategy 5

Find new attraction and innovations to win competition

Strategy 6

Take over small European local players.

Strategy 7

Tighten budget expenditure on training and promotion

4. Does Starbucks’ International have any core competencies? If ‘yes’, what are they?

Yes, Starbucks International has core competencies as below:

i) Human Resource strategy

Company culture – Employee as a partners

The company is a respected employer that values its workforce

Employee benefits – coverage to permanent and part time employee

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Quality control training strategies- All employee attend a minimum

training 24 on customers service skill, coffee knowledge and beverage

making technique

ii) Product

Well known as a global coffee brand

Reputation for consistent, high quality product and services

Differentiating its coffee and coffee related product

iii) Price

Starbuck pricing its coffee competitively with the prevailing high end

coffee price –combination of price, features, high quality, good services

iv) Location

Put outlets in suburban markets and providing comfortable coffee house

chains

5. Does Starbucks’ International have a distinctive competency? If ‘yes’, what it is?

Yes, starbucks’ distinctive competency is store ambience and innovative coffee

drinks. Starbucks’ giving to customers not just a good cup of fresh coffee but also

give passion for the soul of people, quality products excellent customers services

and the experiences and understanding of the culture of coffee

6. What are the keys to success in Starbucks’ International?

The keys to success in Starbucks’ International can be seen in the Mackenzie’s

Seven Stars analysis below:

Strategy - Starbucks’ strategy is considerably aggressive, focusing on global

expansion and market domination. Its tactics are to create a

culture that employees would be proud to work for, and quality

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products and services that keep customer’s retention. Its

competitive strategy is to rapidly expand to a market and

dominate it completely before moving on. In the process, it hopes

that these rapid expansions would create a higher barrier to entry,

discourage competitors from expanding, and eventually acquires

weak competitors who wants to exit.

Structure - The organization structure at Starbucks has no formal

organization chart, and pushes to avoid being hierarchical. Hence,

overlaps exist in divisions, such as between Marketing and Retail

North America, resulting in many employees reporting to two

division heads. This proves to be a flaw in the system, creating

confusion and wasteful redundancy, is a potential area for

improvement.

Systems – For quality control, Starbucks has a specialized process for

roasting the perfect coffee bean. It is implemented with the roaster

determining by sight, smell, hearing, and computer, if the beans

are perfectly done. Additionally, the color of the beans is tested in

an Agtron blood-cell analyzer. If the sample is deemed imperfect

in any of these processes, the whole batch is discarded.

Starbucks’ departmental systems are organized into functional

and production divisions such as Supply Chain Operations,

Human Resources, Accounting, etc... Starbucks employs

approximately 15,000 individuals to operate its retail stores and

regional offices, and 1,600 individuals to work on administrative,

sales, real estate, direct response, roasting, and warehousing

operations.

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Style - Management style at Starbucks is very laid-back and supportive,

encouraging employees to think of themselves as partners in the

business. Managers also support employees to make decisions

that enhance customer satisfaction without requiring manager

authorization. An example is if a customer is dissatisfied with the

purchase, the employee is authorized to replace it right on the

spot. Furthermore, management encourages employees to make

suggestions to improve the business, and to share concerns with

others through a public forum. These processes further transpire

the notion that employees are valued by management, regardless

of their position. Such supportive environment give rises to the

company’s low barista turnover rate of 60% as supposed 140% in

the fast food industry.

Staff - The demographics of Starbucks’ partners is comprised of 80%

white, 85% college-educated, and average age being 26 years

old. This says a lot about the working environment here, that

young people who are educated and have the potential to work

elsewhere chose instead to work at Starbucks. This implies a

group of people who are contended and satisfied with the salary,

benefits, and culture of the organization.

Shared Values- Schultz’s vision and values for Starbucks has been transpired

Values effective across everyone in the organization. From

valuing the customers and employees to being philanthropic,

Starbucks has created a unifying culture. Example of this includes

offering stock options unilaterally to all employees back when it

was still a private company, providing employee benefits

programs to full-time and part-time employees, or ensuring a job

for the worker with AIDS or health insurance even if he leaves the

organization. Furthermore, Starbucks also values its indirect

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employees, the coffee farmers and workers, establishing

guidelines for minimum employment wage, living condition, and

child labors. Thus this further reinforces the philanthropic image of

the corporation and how concerned the corporation with the well-

being of its employees. Thus, all these values ties back to

Schultz’s belief that happy employees are the key to

competitiveness and growth.

Skills - To ensure qualified barista, roasters, and other employment

positions, Starbucks offers at least 24hr employee training to all of

its partners. This allows for experienced individuals who can

represent the company well by providing quality service for the

customer. Furthermore, Starbucks ensures quality through

promoting coffee roaster from within the company. In fact, Schultz

believes that Starbucks’ only sustainable advantage is the quality

of its work force.

7. What products does Starbucks’ International offer?

Products offered by Starbucks’ International

Vanilla Bean Frappuccino® Blended Crème - whip Vanilla Crème - no whip Vanilla Crème - whip Vanilla Latte White Chocolate Mocha - no whip White Chocolate Mocha - whip White Chocolate Mocha Frappuccino® Blended Coffee - no whip White Chocolate Mocha Frappuccino® Blended Coffee - whip White Chocolate Mocha Frappuccino® Light Blended Coffee White Hot Chocolate - no whip White Hot Chocolate - whip Pumpkin Spice Latte - whip Steamed Apple Juice Strawberries & Crème Frappuccino® Blended Crème - no whip Strawberries & Crème Frappuccino® Blended Crème - whip Syrup Flavored Latte

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Tazo® Black Shaken Iced Tea Tazo® Black Shaken Iced Tea Lemonade Tazo® Chai Frappuccino® Blended Crème - no whip Tazo® Chai Frappuccino® Blended Crème - whip Tazo® Chai Iced Tea Latte Tazo® Chai Tea Latte Tazo® Green Shaken Iced Tea Tazo® Green Shaken Iced Tea Lemonade Tazo® Green Tea Frappuccino® Blended Crème - no whip Tazo® Green Tea Frappuccino® Blended Crème - whip Tazo® Green Tea Latte Tazo® Passion™ Shaken Iced Tea Tazo® Passion™ Shaken Iced Tea Lemonade Tazo® Tea Vanilla Bean Frappuccino® Blended Crème - no whip Iced White Chocolate Mocha - no whip Iced White Chocolate Mocha - whip Java Chip Frappuccino® Blended Coffee - no whip Java Chip Frappuccino® Blended Coffee - whip Java Chip Frappuccino® Light Blended Coffee Milk Mocha Frappuccino® Blended Coffee - no whip Mocha Frappuccino® Blended Coffee - whip Mocha Frappuccino® Light Blended Coffee Peppermint White Chocolate Mocha - whip Peppermint White Chocolate Mocha - no whip Pumpkin Spice Crème - no whip Pumpkin Spice Crème - whip Pumpkin Spice Frappuccino® Blended Coffee - no whip Pumpkin Spice Frappuccino® Blended Coffee - whip Pumpkin Spice Frappuccino® Blended Crème - no whip Pumpkin Spice Frappuccino® Blended Crème - whip Pumpkin Spice Frappuccino® Blended Crème Pumpkin Spice Frappuccino® Light Blended Coffee Pumpkin Spice Latte - no whip Honey Latte - whip Honey Latte - no whip Hot Chocolate - no whip Hot Chocolate - whip Iced Brewed Coffee Iced Caffè Americano Iced Caffè Latte Iced Caffè Mocha - whip Iced Caffè Mocha - no whip Iced Caramel Macchiato Iced Honey Latte - whip

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Iced Honey Latte - no whip Iced Peppermint White Chocolate Mocha - whip Iced Peppermint White Chocolate Mocha - no whip Iced Pumpkin Spice Latte - no whip Iced Pumpkin Spice Latte - whip Iced Sugar-Free Syrup Flavored Latte Iced Syrup Flavored Latte Iced Tazo® Green Tea Latte Iced Vanilla Latte Cinnamon Dolce Frappuccino® Blended Coffee - whip Cinnamon Dolce Frappuccino® Light Blended Coffee Cinnamon Dolce Latte - no whip Cinnamon Dolce Latte - whip Cinnamon Dolce Latte with Sugar-Free Syrup Coffee Frappuccino® Blended Coffee Coffee Frappuccino® Light Blended Coffee Coffee of the Week Decaf Coffee of the Week Double Chocolaty Chip Frappuccino® Blended Crème - no whip Double Chocolaty Chip Frappuccino® Blended Crème - whip Espresso Frappuccino® Blended Coffee Espresso Frappuccino® Light Blended Coffee Honey Crème - whip Honey Crème - no whip Honey Frappuccino® Blended Coffee - whip Honey Frappuccino® Blended Coffee - no whip Honey Frappuccino® Blended Crème - whip Honey Frappuccino® Blended Crème - no whip Honey Frappuccino® Light Blended Coffee - no whip Apple Juice Caffè Americano Caffè Latte Caffè Misto/Café Au Lait Caffè Mocha - whip Caffè Mocha - no whip Caffè Vanilla Frappuccino® Blended Coffee - no whip Caffè Vanilla Frappuccino® Blended Coffee - whip Caffé Vanilla Frappuccino® Light Blended Coffee Cappuccino Caramel Apple Spice - no whip Caramel Apple Spice - whip Caramel Frappuccino® Blended Coffee - no whip Caramel Frappuccino® Blended Coffee - whip Caramel Frappuccino® Light Blended Coffee Caramel Macchiato Chocolate Milk

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Cinnamon Dolce Crème - no whip Cinnamon Dolce Crème - whip Cinnamon Dolce Frappuccino® Blended Coffee - no whip

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