Starbucks’ Beverages

Starbucks’ Beverages

Market Plan Part 1 5/6/2013

Authors: Suzanne Souva Chris Tagliavia Leina Rabanal Kirk Kaubish

STARBUCKS’ BEVERAGES 1

Table of Contents Executive Summary ........................................................................................................................ 4

Introduction ..................................................................................................................................... 6

Situation Analysis ........................................................................................................................... 6

Market Summary ............................................................................................................................ 7

Geographics .................................................................................................................................... 7

Demographics ................................................................................................................................. 7

Behavior Factors/Psychographics ................................................................................................. 10

Market Needs ................................................................................................................................ 10

Market Trends ............................................................................................................................... 11

Market Growth .............................................................................................................................. 12

SWOT Analysis ............................................................................................................................ 13

Strengths ................................................................................................................................... 13

Weakness .................................................................................................................................. 14

Opportunities............................................................................................................................. 15

Threats....................................................................................................................................... 15

Competition................................................................................................................................... 16

Product Offering ........................................................................................................................... 17

Keys to Success............................................................................................................................. 17

Critical Issues ................................................................................................................................ 17

Marketing Strategy........................................................................................................................ 18

Value Proposition...................................................................................................................... 18

Mission ...................................................................................................................................... 18

Marketing Objectives ................................................................................................................ 18

Financial Objectives.................................................................................................................. 19

Target Markets .......................................................................................................................... 19

Positioning ................................................................................................................................ 19

Strategies ................................................................................................................................... 19

Marketing Mix .............................................................................................................................. 20

Pricing ....................................................................................................................................... 20

Distribution ............................................................................................................................... 20

Marketing Communication ....................................................................................................... 21

Marketing Research ...................................................................................................................... 21

Financials ...................................................................................................................................... 22


Break-Even Analysis ................................................................................................................ 22

Sales Forecast............................................................................................................................ 24

Expense Forecast ...................................................................................................................... 24

Controls ......................................................................................................................................... 24

Implementation ............................................................................................................................. 25

Marketing Organization ................................................................................................................ 26

Contingency Planning ................................................................................................................... 26

References ..................................................................................................................................... 28

Appendix 1: Market Survey .......................................................................................................... 31

Appendix 2: Variable Cost Calculation ........................................................................................ 32


List of Tables and Figures

Figure 1: Number of Respondents by Age Group ………………………………………………..6

Figure 2: Based on Age, Would You Buy Starbucks' Alcoholic Beverages…………………...…8

Figure 3: Based on Occupation, Would You Buy Starbucks' Alcoholic Beverages?.……….……9

Table 1: Preferred Drink…………………………………………………………………………10

Table 2: Ingredients……………………………………………………………………………...16

Figure 4: Supply Chain for Coffee ………………………………………………………….…...20

Figure 5: Supply Chain for Alcohol ……………………………………………………….…….20

Table 3: Spiked Hot Chocolate ………………………………………………………………….21

Table 4: Irish Coffee……………………………………………………………………………..21

Figure 6: Spiked Hot Chocolate Break Even Chart…………………………………………..….22

Figure 7: Irish Coffee Break Even Chart………………………………………………………...22

Table 5: Sales Forecast…………………………………………………………………………..23

Figure 8: Starbucks’ Organizational Chart……………………………………………………....25

Table 6: Spiked Hot Chocolate Variable Costs Per Unit ………………………………………..31

Table 7: Irish Coffee Variable Costs Per Unit …………………………………………………..31


Executive Summary

Starbucks is a well-known company that operates in 40 countries and has over 17,000 coffee

shops. The company provides coffee drinks, food products, coffee beans, accessories, and

various teas. In 2010, Starbucks implemented its Evenings Menu that consisted of beer, wine and

small entrées.

Starbucks believes there is a niche market where consumers would like to have an occasional

drink without going to a bar, club, or restaurant. When the company introduced its Evenings

Menu in Seattle, people enjoyed the idea. Starbucks has then expanded the menu to 19 different

locations including Los Angeles, Chicago, Seattle, Atlanta, and Portland. In order to serve the

needs of this niche market, Starbucks has decided to introduce two new drinks; the Irish coffee

and spiked hot chocolate.

Starbucks believes their target market for its new drinks are consumers between the ages of 21

and 50 that are working professionals and college students. These consumers have highly active

social lives and are singles, couples, homeowners, renters, college alumni, and high school

graduates.

The Irish coffee and spiked hot chocolate are both made with Baileys Irish Cream liqueur.

Starbucks material costs will be $1.78 for the spiked hot chocolate and $2.49 for the Irish coffee.

After adding in labor, variable production, variable fixed costs, and markup, the drinks will sell

for $6.00 and $6.25 respectively. With these prices, Starbucks goal is to sell 2,850 Spiked Hot

Chocolates and 2,850 Irish Coffees a month.

Dunkin’ Donuts and Peet’s Coffee are Starbucks’ main competition and neither of those

companies has implemented an Evenings Menu. This distinguishes Starbucks as a well-known

coffee shop to offer its worldwide known menu with an Evenings Menu.

Starbucks’ main concern for the new additions to the Evenings Menu is that it may not be able to

build a strong relationship with Baileys. If Starbucks cannot buy Baileys at a discounted price


then production costs would be too high and Starbucks would not be able to sell enough.

Although this is a concern, Starbucks is confident in building a strong relationship with Balieys.


Introduction

The following sections will refer to an unpublished, group-conducted survey by all authors of

this paper. This survey will be referred to as Starbucks Survey. The survey was taken by the

peers of all the authors combined. The Starbucks Survey was sent via Facebook and email. There

were seven questions and the most important of those seven asked for age, gender, occupation

and whether they would, or would not, buy Starbucks’ alcoholic beverages. There were 100

respondents and it is important to note how many people of each age group took the survey.

Figure 1 reflects how many people from each age group took the survey.

Figure 1. (L. Rabanal, S. Souva, K. Kaubish, & C. Tagliavia, Survey, February, 2013).

Situation Analysis

Starbucks has set itself apart from its competitors by creating over 87,000 drink combinations.

The company’s innovativeness brought in over $11 billion in revenue in 2011, which has

steadily increased since 2001. Creating an Irish coffee and spiked hot chocolate option on its

Evenings Menu will encourage customers to enjoy the ambiance of Starbucks with a new

alcoholic customized beverage (Starbucks, 2013). The company has already step foot in the

alcoholic beverage market by selling both beer and wine to Chicago, Atlanta, Seattle, Portland,

and Los Angeles locations. With expanding upon its already existing “Starbucks Evenings

Menu”, the company would be satisfying the customer’s craving of an alcoholic drink.

1

8

19

7

65

0 10 20 30 40 50 60 70

62+

51-61

40-50

29-39

21-28

62+ 51-61 40-50 29-39 21-28

Number of Respondents byAge Group

1 8 19 7 65

Number of Respondents by Age Group


Market Summary

The idea of introducing hot alcoholic drinks to select cities would meet the needs of the target

market. Our main focus is the younger age group of 21-28. According to the Starbucks Survey,

39 of 65 (60%) in that age group, said they would order hot alcoholic beverages. “Younger

workers average $24.74 per week on coffee while workers over 45 spend an average of $14.15

per week” (AgBeat, 2012). People drink Four Lokos, a caffeinated alcoholic drink, in order to

stay up later while maintaining a buzz. Often many adults will have an alcoholic coffee drink

after dinner. “Liqueurs are poured into after-dinner coffee by adults looking for the same sort of

effect that Four Loko fans seek: an extension of the night without a surrender of the buzz”

(Spiking Coffee, Opening Eyes, 2010).

“Starbucks averages about 33 million customers per week. On a daily basis that equals about 4.7

million per day” (ChaCha, 2012). Many of these customers are loyal customers and have a high

usage rate. This means that many of Starbucks’ customers come in repeatedly and if there is

another coffee shop nearby they will choose Starbucks instead.

Geographics

Geographic segmentation is dividing a market into different geographic sections. This is

important because it focuses directly on where the company plans to operate the business.

Starbucks targets heavily populated cities because it allows for product introduction. Product

introduction will allow Starbucks to test the market and assess whether the product will be

successful. One strategy for the introduction stage is to carefully select where a company wants

to place its new product(s) (Kotler & Armstrong, 2012). For Starbucks, the selected locations

would be centered in heavily populated cities. The selected cities are Portland, Los Angeles,

Atlanta, Chicago, and Seattle.

Demographics

It is crucial for companies to know the demographics it intends to sell to. Basic demographic

information includes age, gender, family life cycle, occupation, income, education, and race

(Kotler & Armstrong, 2012). Starbucks has a few crucial demographic variables for its alcoholic

beverages. The first demographic variable is age. Age is important for legal reasons because


alcohol is involved. The legal drinking age in the United States is 21. It is important to know

what age groups will be interested in buying Starbucks’ alcoholic beverages.

Question seven from the Starbucks Survey asked, “If Starbucks were to offer Irish coffees and/

or spiked hot chocolate, would you purchase either one?” Figure 2 shows the percentage of each

age group and whether they would (indicated in blue), or would not (indicated in red), buy

Starbucks’ alcoholic beverages.


It is important to note that 60 percent from ages 21-28 and 53 percent from ages 40-50 would

buy Starbucks’ alcoholic beverages.

The next demographic variable is gender. It is important to know whether males, females or both

will buy a specific product. The Starbucks Survey results reflect that 48 percent of men and 56

percent of women say they would buy spiked hot chocolates and Irish coffees (L. Rabanal, S.

Souva, K. Kaubish, & C. Tagliavia, Survey, February, 2013).

60%

43%

53%

25%

100%

40%

57%

47%

75%

0%0%

20%

40%

60%

80%

100%

21-28 29-39 40-50 51-61 62+

Age Groups

Based on Age, Would You Buy Starbucks' Alcoholic Beverages?

Yes

No


The last demographic variable for Starbucks’ alcoholic beverages is occupation. It is crucial to

know the occupation of customers because one’s occupation reflects income and education.

Students, working professionals, and the unemployed have interest in buying the alcoholic

beverages. The students’ interest is reflected by 65 percent saying they would buy the alcoholic

beverages. Working professionals are targeted because they represent a high percentage of the

population in big cities.

According to the Starbucks Survey; Figure 3 is grouped by potential customer’s occupation and

shows the percentage of people that would (indicated in blue), or would not (indicated in red),

buy Starbucks’ alcoholic beverages.


Starbucks’ demographics are in the Midtown Mix and Middleburbs of PRISM’s 14 social

groups. The Midtown Mix is classified under urban areas where the population is high and where

people have highly active social lives. People in the Midtown Mix are singles and couples,

homeowners and renters, college alumni and high school graduates (Nielsen, 2012). The

Middleburbs group is classified under the suburbs category where populations are high and

65%

41%

33%

56%

35%

59%

67%

46%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Student Working Professional Retired Unemployed

Occupation

Based on Occupation, Would You Buy Starbucks' Alcoholic Beverages?

Yes

No


where people have a casual active life. Middleburbs residents have plenty of disposable income

according to PRISM (Nielsen, 2012).

Behavior Factors/Psychographics

The focus of offering hot coffee drinks is to segment it in the evening. A limited amount of

Starbucks locations already offer nighttime drinks including wine and beer. Our hope is to add

hot alcoholic drinks to the Evenings Menu in hopes to capture more of the existing market and

create “hype.” A quote in an article in the Los Angeles Times states, "It's hard to imagine as it is

right now, but I'd come and see what it's like," said Tam, 27. "Anywhere there's alcohol, there

are people cheers-ing." Starbucks also stated in an article from USA Today, “The company hasn't

released numbers on whether the new drinks have increased traffic, but it says the change has

been popular with customers...It could also be a way to attract higher-end customers, a tack

many companies are taking as the middle class is squeezed by the weak economy” (n.a, 2012).

Many of Starbucks customers are loyal customers and have a high usage rate. This means that

Starbucks’ customers come in repeatedly and if there is another coffee shop nearby they will

choose Starbucks instead. “41% of Starbucks’ customer base is considered loyal to the company”

(QSR, 2011) and with that, “A loyal customer will bring in repeat business and can generate

about 80% of your company’s sales” (Business Knowledge Source). By simply promoting these

coffee drinks in store, the loyal and high usage customers will share this with their friends.

Market Needs

“We seek to create a new occasion for customers to relax and connect with friends in the

evening,” a Starbucks company spokesman replied when asked about the newly implemented

Evenings Menu (“Starbucks Adds Boozy”, Torris). The newest addition of the beer, wine, and

new appetizer options has been successful, according to the company. According to the

Starbucks Survey, when asked whether they would purchase either the spiked hot chocolate or

Irish coffee option, 39 out of the 65 people from the 21-28 age range answered “Yes” and 10 out

of 19 people from the 40-50 age range answered “Yes” (L. Rabanal, S. Souva, K. Kaubish, & C.

Tagliavia, Survey, February, 2013). This data proves that over half of people within these age


ranges would purchase the proposed products. According to Larry Silva, the general manager of

the Buena Vista in San Francisco, 2,000 Irish Coffees are sold each day (“Perk up your St.

Patrick’s,” Locke). Starbucks would be satisfying the needs of those who enjoy a hot alcoholic

beverage in the evening, but do not want to go to a restaurant or bar in order to do so. The

following chart analyzes the preferred drink by demographic, showing that there is in fact a

demand for liquor beverages.

Table 1. (Preferred Drink, July 2010)

This table shows the highest demand for liquor with men, between 18-24, in the Midwest, and

South. The Irish cream liqueur will satisfy the needs of those who do not want beer or wine and

enjoy the taste of coffee. Over 67% of United States adults consume alcohol (Newport, 2010).

This percentage proves that there is a desire for alcoholic products.

Market Trends

The increase in the amount of coffee drinkers can be attributed to the various trends present in

the coffee industry. With more coffee shops entering the marketplace, each shop must

differentiate itself to compete. Starbucks in particular has made this clear with the introduction of

an extensive menu of drinks, limited time offerings, free Wi-Fi, foods other than pastries, and

Starbucks glassware.


As stated by Starbucks’ latest 10-K filing, the retail sales were broken up into four categories.

They reported that 75% of sales were drinks, 19% were food, 4% were whole bean and soluble

coffees, and 2% were coffee making equipment and other merchandise (Starbucks 10-K Report,

2012). In looking at one of Starbucks’ competitors, Peet’s Coffee and Tea offers many of the

same products in its stores. Peet’s Coffee and Tea provides food, drinks, Peet’s brand products

and Wi-Fi. Although some of these products and services may seem fitting to a coffee shop

environment, most of these trends weren’t introduced into the market until the fall of the

economy. In an NPR interview Howard Schultz, the CEO of Starbucks, expressed what the

company had to do to turn around from the recession. “Some of the headlines were just brutal.

Many people thought that, you know, this was against all odds. And I think what’s gratifying is

that we were determined not to allow the outside world define the company’s future”

(“Innovation Helps Starbucks”, August 02, 2010). After restructuring, Starbucks looked toward

innovation as its way to future success.

Market Growth

The coffee industry as well as its marketplace has been growing rapidly over the past two years.

The U.S alone has more than 20,000 coffee shop businesses, which brought in about $10 billion

in 2011 (“Coffee Shop Business”, 2012). Today, the amount of revenue has dramatically

increased due to the rising number of people who drink coffee on a daily basis. In a “National

Coffee Drinking Study,” statistics show that 40% of 18-24 year olds drink coffee every day. This

is a 9% increase compared to 2010. Fifty-four percent of people who are between the ages of 25

and 39 said they drink coffee every day. This is a 10% increase compared to a 44% reported in

2010 (“Coffee Drinker Statistics”, 2012). It is estimated that 83.3% of all hot beverage sales can

be traced back to coffee alone and the percentage of coffee consumption is to raise 2.7%

annually (“Coffee Shop Product Trends”, 2012). With establishing a hot alcoholic drink to an

Evenings Menu, Starbucks will continue to help the market grow. In a study conducted by

Department of Community and Family Medicine at the University of California San Diego, a

relationship was confirmed between caffeinated coffee drinkers and their consumption of

alcohol. The article states, “Caffeinated coffee drinkers drank more alcohol” (“Clustering of

Atherogenic Behaviors”, 1990). As the studies continue to show how coffee drinkers are related


to drinking alcohol, the launch of a hot alcoholic drink to Starbucks’ Evening’s Menu will help

to close this market gap.

In response to the economic crisis, Starbucks needed to increase its in-store sales. One way the

company did this was by implementing its Evenings Menu. The idea came about when Starbucks

realized that they needed to increase its evening sales. Since the introduction of the menu to

certain Starbucks locations, the company has been pleased with the response of its customers.

The reason behind this new menu came about when Starbucks made the shift into “more of a

consumer-products company versus a retail shop chain” (Starbucks To Expand, 2012).

Starbucks is now planning to expand the Evenings Menu into more markets (Starbucks To

Expand, 2012). With the addition of two new alcoholic drinks to the menu, Starbucks has the

potential to reach a diverse customer base in its new markets. By adding a variety of drinks to the

menu Starbucks could attract more customers who have a variety of tastes in alcoholic drinks.

SWOT Analysis

Strengths

Currently Starbucks operates 18,000 stores worldwide. One of Starbucks’ strengths is that it has

high visibility locations to attract customers. By using store-site strategy Starbucks is able to

establish their stores on the driver side (in the U.S), on corners, in shopping malls, in bar

districts, and in high-populated areas (C. Taylor,“Starbucked”). Another one of Starbucks’

strengths is the valued and motivated employees that work for Starbucks. All employees receive

full health insurance benefits, stock awards, and free coffee. These benefits give Starbucks an

advantage over their competitors, which leads to a high employee retention rate (“100 Best

Companies to Work For”, 2012).

Starbucks has a large base of customer loyalty. Even with the rise of competitors within the

marketplace, Starbucks continues to be at the top. One way that Starbucks kept their customers

loyal was by introducing the “Starbucks Gold” program. This program is a card reward program

giving “Gold Members” 10 percent off every purchase. The objective of the plan is to


acknowledge the frequent customers and give them more value for their dollars. (“Starbucks

Takes Next Step”, 2012).

The main strength that Starbucks has is that they are an industry market leader with a brand that

is distinguishable from any other brand. Brand loyalty for Starbucks has been about more than

just the coffee. Starbucks has created an experience. Couches and free Wi-Fi have made

customers feel just as comfortable as they would at home. Starbucks has managed to pull in

brand loyal customers by providing convenience, a warm welcome, and all of its offerings in

uniform. These factors have ultimately brought Starbucks to be the market leader that it is today

(“Starbucks Brand Loyalty”, 2013).

Weakness

One weakness of Starbucks’ company is its high prices. According to a report done by Daily

Finance, Starbucks has just completed its most profitable quarter. Instead of lowering their

prices because of the decreasing costs of coffee beans, Starbucks refuses to budge. The article

states, “Meanwhile, Starbucks has stuck firmly to its sticker price, refusing to follow the market

down, or share its good fortune with its customers” (Smith, 2013). The company’s high prices

provoke customers to try the products of competitors. This weakness turns potential customers

off to buying current or future Starbucks’ products.

The first weakness of implementing Irish coffee and spiked hot chocolate is the increased

demand that it would place on the supply chain. The company would have to supply each

establishment with the correct amount of ingredients. The company would require more

suppliers through the demand for alcohol. Therefore, material costs would go up. The need for

more corporate management to oversee the chain will increase labor costs as well.

Another weakness is the training that the company would have to provide for all of its

employees. Starbucks would have to provide alcohol awareness training for its workers. This

would guide each worker through the steps of safely serving alcohol, and identification. Each

employee would need to be trained on monitoring each customer’s alcohol consumption as well

as keeping up with incoming orders. During 2011, Los Angeles authorities gave 27 more DUI’s


than in 2010 (Greater Number of DUIs, Admin). Monitoring the intake of the Evenings Menu

drinks is extremely important because of the fatality and risk of driving under the influence. The

purpose of creating these options is to offer a safe place where people can enjoy a peaceful drink,

not to encourage binge drinking. The high cost and thorough monitoring needed could become a

weakness.

The temptation of trying the new beverages might result in underage drinking. According to

Students Against Drunk Driving, a 30 day test showed 26% of individuals between the ages of

12-20 have drank alcohol (Underage Drinking, 2012). The amount of underage customers might

create risk for the company.

Opportunities

The first opportunity for introducing Irish coffee and spiked hot chocolate is to supply the

beverages for “make-at-home.” This idea will be similar to Starbucks’ existing instant coffee,

VIA, which is sold in grocery stores. VIA has been successful and accounted for more than half

of their four percent increase of sales in 2009 (Kotler & Armstrong, 2012). Today’s American

culture has shifted towards the fast paced on-the-go items. Introducing the new alcoholic

beverages in grocery stores and liquor stores would reach the make-at-home customer.

Threats

The idea of adding alcohol in specific drinks at Starbucks will not be easy. Starbucks must take

into account the legal actions that involve selling alcohol. For instance, Starbucks must obtain a

liquor license. One factor is that because the drinks being offered will contain distilled spirits

they must obtain a higher-class license (restaurant, club, tavern). Plus if Starbucks sells over a

certain percentage of sales in alcohol it might have to apply for a different liquor license

(Dummies, 2013).

In obtaining a liquor license, Starbucks must make sure their employees are of age. “Thirty-

seven (37) states and the District of Columbia permit adults age 18 or older to serve alcoholic

beverages in on-premises establishments. Only three states require a server to be age 21 and one

state permits persons age 17 to serve alcoholic beverages” (Alcohol Problems and Solutions).


Starbucks will have to take this into account and possibly have to fire some of their employees or

at least move their shifts around to accommodate for the alcoholic drinks.

Competition

The main competitors that Starbucks faces in the market are: Dunkin’ Donuts, Peet’s Coffee,

McDonald’s, and Nestle. These companies are direct competitors and challenge Starbucks to

continuously innovate its services and products to stay ahead (“Starbucks Corporation,”

2013). In the case of Dunkin’ Donuts, it has marketed many of its products in a similar way that

Starbucks has. The company offers coffee, tea and assorted food items. Dunkin’ Donuts’

company website reveals that it offers all of its coffee selections in packages for the at home

coffee brewer. The company also offers its coffee in grocery aisles. All of these marketing

strategies have directly competed with Starbucks on both in-store retail sales and grocery sales

(“Browse Our Coffee Aisle,” 2013).

Peet’s Coffee competes in many of the same areas as Starbucks. Peet’s Coffee offers the same

ambiance, and similar products as Starbucks. Not only is Peet’s a competitor in the coffee

business but, it competes with Starbucks in the tea business as well.

Since McDonald’s upgraded its coffee in 2006, more customers were choosing the popular

American chain over Starbucks. McDonald’s then continued with the growth in the coffee

market by introducing the “McCafe” in 2008 (“Starbucks Looks To Win,”2010). McDonald’s

has also knocked down Starbucks by acknowledging that Starbucks markets to image-conscious

consumers. McDonald’s has competed with Starbucks by not charging its customers a premium

for its coffee. With the introduction of the McCafe and improvement of its quality of coffee,

McDonald’s has increased its market share from 2% in 2004 to 6% in 2010. McDonald’s is also

a competitor in the “take-away” business. Both Starbucks and McDonald’s have drive-thrus

making both competitors for consumers who value convenience. Starbucks opened up a drive-

thru option in the hopes to compete more closely with McDonalds. Starbucks stores with drive-

thrus now account for about 45% of the chains operating profit.


Since the introduction of VIA, Starbucks has acquired another competitor. After the introduction,

Nestle came into the market with a “counter offense, passing out free samples of its Nestle

Tasters Choice instant coffee across several key U.S cities” (“Instant-coffee war,” 2009). Nestle

has marketed its product on Twitter and other social networking sites encouraging customers to

go out and find the brand reps on street corners in selected cities. The Taster’s Choice Coffee had

a tag line that stated: “A lot of hype or a lot of flavor. Taste for yourself.” This came as a low

blow toward Starbucks for appealing to the image-conscious crowd (“Instant-coffee war,” 2009).

Product Offering

The two products being proposed for the Evenings Menu include Irish coffee and spiked hot

chocolate. The products would be sold alongside Starbucks’ existing Evening Menu items.

Table 2. Ingredients

Spiked Hot Chocolate Irish Coffee

2.5 ounces of Bailey’s Irish Cream 6 .5 ounces of Starbucks’ brewed coffee

6 ounces of milk 3.5 ounces of Bailey’s Irish Cream

3 tablespoons of hot chocolate mix 2 ounces of whipped cream

2 ounces of whipped cream

Keys to Success

The following factors are essential in order for Starbucks’ alcoholic beverages to be successful

quickly. One major key to success is to advertise the alcoholic beverages. Advertising is crucial

for new products because this is where potential customers learn about a new product. Another

key to success is to reach the make-at-home customer. This can be achieved by following the

successful model of the current VIA product. Conversely, it is also crucial to successfully reach

the customer that does not want to go home right after work. This is achieved by creating a niche

market where hot alcoholic beverages are offered only in the evening.

Critical Issues

Critical issues correlate with the threats generated from the SWOT analysis. Starbucks must

identify their showstoppers and create a defense in order to be successful. If Starbucks is unable

to obtain a liquor license for certain locations then this will hinder implementation. Another

showstopper might be that there are underage drinkers obtaining alcohol when they should not


be. Although, Starbucks will only offer alcohol drinks in mugs that are for only drinking inside,

the company must also realize that some people will disobey this. If this becomes too large of an

issue it might bring bad publicity to the store and law enforcement may shut the business down.

Marketing Strategy

The value that we will offer our target market is an alcoholic option on the Starbucks menu. The

spiked hot chocolate and Irish coffee additions will give customers the ability to enjoy the

ambiance of Starbucks without having to go to a restaurant or bar. Starbucks will build and retain

customer relationships by offering the same quality ingredients with a new exciting twist.

Through creating contract with Baileys, Starbucks will use Bailey’s Irish Cream for both the

Irish coffee and spiked hot chocolate recipes. Value is created to the products with each drink by

partnering with the well-known brand. By having a single supplier, Starbucks will be able to

keep quality assurance consistent with its products and retain customer satisfaction. By

implementing the new additions to the Evenings Menu, Starbucks will be able test the products

and decide whether they will continue in the future.

Value Proposition

For customers who are fed up with noisy bars and crowded social scenes, Starbucks is creating

options that will allow them to enjoy the quality of its alcoholic drink choice. Unlike bars and

restaurants, Starbucks has created an affordable signature drink that is convenient and fitting to

urban lifestyles.

Mission

Starbucks’ believes that its new spiked hot chocolate and Irish coffee will offer an exciting twist

to its signature taste.

Marketing Objectives

In the Starbucks’ survey discussed earlier 57% of people between the ages of 21-50 said they

would buy one of the hot alcoholic beverages. If we have one person purchase either a spiked hot

chocolate for $6.00 or an Irish coffee for $6.25 our sales will be small. However, if we can

persuade those customers to buy more frequently, then sales will increase. We must convince


customers that Starbucks’ hot alcoholic beverages are the new hot item. Encouraging new and

existing Starbucks customers to purchase the new drink will be the goal of our marketing plan.

Financial Objectives

Due to the fact that there are no fixed costs we expect to make profits on opening day. We must

sell 5,700 total units or $34,912.50 in sales a month to reach our intended goal.

Target Markets

Starbucks plans to sell to men and women between the ages of 21 and 50 that are working

professionals and college students. Fifty-seven percent of those surveyed said they would buy a

hot alcoholic beverage (L. Rabanal, S. Souva, K. Kaubish, & C. Tagliavia, Survey, February,

2013). These consumers have highly active social lives and are singles and couples, homeowners

and renters, college alumni and high school graduates (Nielsen, 2012).

Positioning

Starbucks’ hot alcoholic drinks will be positioned in a “more for the same” product category.

There are many competitors in this industry; however, none of our competitors such as Peet’s are

offering hot alcoholic drinks. Hot alcoholic drinks are offered in restaurants but that is not

Starbucks’ pull. Starbucks is able to position itself in a relaxed atmosphere where one can get a

hot alcoholic drink without the business and loudness of restaurants and bars. Since our product

is offered in a niche market, where no other coffee chain is offering hot alcoholic drinks, we will

offer a better atmosphere for the same price.

Strategies

The marketing strategy of Starbucks is focused on encouraging new and existing customers to

become loyal to the spiked hot chocolate and Irish coffee additions. The target market is college

and working professionals of drinking age that avoid noisy social scenes. The new product will

appeal to the target market by delivering the highest quality hot alcoholic beverage and a quiet

place to enjoy it. The marketing mix which includes pricing, distribution, and marketing

communication, will all help to attract new and existing Starbucks customers to the products.


Marketing Mix

Pricing

Starbucks will be selling the spiked hot chocolate for $6.00 and the Irish coffee for $6.25. These

prices are definitely competitive in this niche market. O’Brien’s Oyster Bar & Restaurant sells its

Irish coffee for $8.50. The general manager says, “It’s one of our top-selling drinks” (Winters,

2013).

Distribution

Typically, coffee goes through multiple channels. Figure 4 demonstrates this.

Figure 4. Supply Chain for Coffee (Kosti)

However, Starbucks has made it a point to build relationships with farmers and this has led to the

company obtaining coffee directly from farmers. Using this strategy, Starbucks will build

relationships with Baileys. Figure 5 shows the distribution channel for its hot alcoholic

beverages.

Figure 5. Supply Chain for Alcohol (Kosti)

Farmer Collector Miller

Exporter/Broker Importer Consumer

Baileys/Bushmills Distributor Retail Stores Consumer


Marketing Communication

Starbucks does not use national advertising campaigns; rather it does parties to promote its

products (Starbucks takes unique, 2006). Parties are perfect for these new drinks because there is

a unique relationship between the customers and the baristas. Furthermore, parties are not

unfamiliar territory. Starbucks has entertained its own parties with over 5,000 people at one

event (Starbucks takes unique, 2006). These parties will take place at the 19 different locations

and they will occur once at each store. During the parties, Starbucks will offer free sampling of

the new drinks.

Marketing Research

The primary research we conducted was taken from a survey that we sent out to family and

friends. We had a total of 100 respondents living in different parts of California all of whom

were of the drinking age. The survey was seven questions which asked our surveyors their

occupation, age, if they were a Starbucks customer, how often they go to Starbucks on a weekly

basis, and if they would consider buying one of the two new drinks. The data was used to help

find the age of our target market and if the new additions would be desirable.

Company websites, reputable articles and journals, company data, and surveys were all part of

our secondary research. We used online articles and Starbucks annual reports to research market

trends. The sources used can be found in the reference section.

Future market research will be used to determine whether Irish coffees and spiked hot chocolates

will be implemented in future Evenings Menu. If these new additions prove to be popular,

Starbucks will implement them into more locations. It is important to analyze the success of the

new additions before expanding into new markets.


Financials

The next few sections of this report illustrate our Financial Analyses.

Break-Even Analysis

Table 3. Spiked Hot Chocolate

Price Per Unit $6.00

Number of Units Sold 2850

Total Sales $17,100 100%

Less: Variable Production Costs $5,073 29.7%

Less: Variable Selling Costs $0 0%

Total Variable Costs $5,073 29.7% $1.78

Contribution Margin $12,027 70.3%

Less: Fixed Production Costs $0 0%

Less: Fixed Selling and Administration Costs $0 0%

Total Fixed Costs $0 0% $0

Income Before Taxes $12,027 70.3% $4.22

Table 4. Irish Coffee

Price Per Unit $6.25

Number of Units Sold 2850

Total Sales $17,813 100%

Less: Variable Production Costs $7,097 39.8%

Less: Variable Selling Costs $0 0%

Total Variable Costs $7,097 39.8% $2.49

Contribution Margin $10,716 60.2%

Less: Fixed Production Costs $0 0%

Less: Fixed Selling and Administration Costs $0 0%

Total Fixed Costs $0 0% $0

Income Before Taxes 10,716 60.2% $3.76


Figure 6. Spiked Hot Chocolate Break Even Chart

Figure 7. Irish Coffee Break Even Chart

* For both Irish Coffee and Spiked Hot Chocolate the Total Costs equals Total Variable Costs,

this is why there is not a separate line for Total Variable Costs.

($1,000)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

0 50 100 150 200 250 300 350 400 450 500 550 600 650 700

Mo

nth

ly R

eve

nu

e

Units Sold Per Month

Spiked Hot Chocolate

Sales

TFC

TC

Profits

($1,000)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

0 50 100 150 200 250 300 350 400 450 500 550 600 650 700

Mo

nth

ly R

eve

nu

e

Units Sold Per Month

Irish Coffee

Sales

TFC

TC

Profits


Sales Forecast

Starbucks’ goal is to sell 2,850 units of both alcoholic beverages each month. This totals to 5,700

drinks per month. This equates to $104,737.50 for a three month period at $6 and $6.25

respectively for the new beverages. However, the company is not expecting to operate at its goal

immediately. Starbucks believes the company will be able to sell 60 percent of its goal in the first

quarter. At 60 percent, the company would receive $31,421.25 during the first quarter. Table 5

shows the company’s sales forecast for the first three years of operation.

Table 5. Sales Forecast

Expense Forecast

There will be Marketing Expenses that Starbucks will incur throughout implementing the two

new options. Listed below are not included in the previous named measurable expenses

(Appendix 2).

Variable Cost:

Website and Facebook Maintenance

Launch Party Materials (depending on guests)

Fixed Cost:

Continuous renewal of liquor license

Controls

Starbucks’ new drinks will be deemed successful when it sells 2,850 of each drink per month.

This is a reasonable objective because Starbucks plans to sell 95 drinks each day. This will help

Measurement of Time Beginning on: Units Sold Sales

1st Quarter June 1, 2013 10,260 62,842.5

2nd Quarter September 1, 2013 11,970 73,316.25

3rd Quarter December 1, 2013 13,680 83,790

4th Quarter March 1, 2013 15,390 94,263.75

2nd Year June 1, 2014 17,100 104,737.5

3rd Year June 1, 2015 17,100 104,737.5


in keeping the company profitable while delivering a unique value to its customers.

Implementation

Starbucks must negotiate with possible alcohol companies such as Bailey’s, Smirnoff, and other

brands to find the best supplier. The goal is to agree on a price that both Starbucks and an alcohol

company can agree on. Because our product will only be offered to dine-in customers, they must

use Starbucks’ in-store mugs. These mugs will need to be designed in a way that is easily

noticeable in order to make sure all those that are drinking it are of age. Then Starbucks must

notify the appropriate locations of the new menu items. Since we are not adding hot alcoholic

drinks to all Starbucks locations we will have to adjust our supply chain.

Once a date is chosen to introduce the hot alcoholic drinks, Starbucks must plan its shipping

process. Starbucks already has scheduled shipments to all of its various stores based on inventory

management. Therefore, Starbucks’ alcohol suppliers must be on board with this to minimize

Starbucks’ shipping costs by shipping all of the essential supplies in one shipment.

In the preparation for the opening day, Starbucks will begin to focus on public relations and

creating “hype.” “A party is coming to Starbucks” with free sampling and in addition to the

current Evening's Menu. Everyone is invited but customers must RSVP in advance. Throwing a

party for these drinks will show customers the value in Irish coffees and spiked hot chocolates.

Meanwhile, employees will be trained how to make the drinks.


Marketing Organization

Figure 8. Starbucks’ Organizational Chart

Unlike most of its competitors, Starbucks doesn’t buy into big national advertising campaigns

but “chooses parties and other in-person encounters to promote its products.”(Starbucks takes

unique, 2006). Marketing management will need event planners to properly introduce the new

additions. The launch parties will take place in the selected cities. Before the product launch the

social media and website team will need to create hype for the upcoming alcoholic beverages.

The website should be updated with the new Evenings Menu. The social media site should

include pictures from the launch party and ask “likers” to share the news of the drinks.

Contingency Planning

There could be numerous reasons that could lead to our product extension failing. If Baileys is

not willing to supply Starbucks with its product, it will prevent Starbucks from entering the hot

alcoholic drinks market. To find a solution, Starbucks may need to start its own alcoholic brands.

This could lead to lower costs but, might not have the quality that name brands have. If

Starbucks is unable to succeed in a profitable return in this market, Starbucks might have to stop

production. However, there could be a possibility of Starbucks accepting a loss the first few

years as more and more people catch on. If this product extension fails to succeed over a few

years, Starbucks could drop it or Starbucks could make another public relation or marketing


push. Starbucks could also focus the hot alcoholic drink market to stores that are doing better

than others. To keep customers happy Starbucks could also offer promotions to buy more hot

alcoholic beverages.


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Appendix 1: Market Survey

1. What is your age range?

a. 21-28

b. 29-39

c. 40-50

d. 51-61

e. 62+

2. What is your gender?

a. Female

b. Male

3. What is your current occupation?

a. Student

b. Working Professional

c. Retired

d. Unemployed

4. Are you a Starbucks customer?

a. Yes

b. No

5. If selected yes, how often do you visit Starbucks on a weekly basis?

a. 1 or less

b. 5 or less

c. More than 5

6. Do you drink alcohol?

a. Yes

b. No

7. If Starbucks were to Offer Irish Coffees and/ or Spiked Hot Chocolate, would you purchase

either one?

a. Yes

b. No


Appendix 2: Variable Cost Calculation

Table 6. Spiked Hot Chocolate Variable Costs Per Unit

Raw Material Portion Size Calculation Cost Per Portion ($)

Baileys Irish Cream 2.5 oz. 1 oz. = $0.54 $1.35

Milk 6 oz. 1 oz. = $0.03 $0.18

Fontana Bittersweet Chocolate

Mocha Sauce

3 tbsp. (1.5

oz.)

1 oz. = $0.11 $0.17

Whipped Cream 2 oz. 1 oz. = $0.04 $0.08

Total: $1.78

Table 7. Irish Coffee Variable Costs Per Unit

Raw Material Portion Size Calculation Cost Per Portion ($)

Baileys Irish Cream 3.5 oz. 1 oz. = $0.54 $1.89

Coffee 6.5 oz. 1 oz. = $0.08 $0.52

Whipped Cream 2 oz. 1 oz. = $0.04 $0.08

Total: $2.49

There are no fixed costs included with our product extension.

Documents

Starbucks’ Beverages