ANDY
MARY
NAN
MARTIN
RINKA
CATHY
The largest international coffee an
coffeehouse chain in the world
with 16,635 stores in 49 countries
Head Quarter based in Seattle,
Washington, United States
Product
Starbucks sells drip brewed coffee,
espresso-based hot drinks, other hot and
cold drinks, snacks, and items such as
mugs and coffee beans. Through the
Starbucks Entertainment division and Hear
Music brand, the company also markets
books, music, and film.
 Many of the company's products are
seasonal or specific to the locality of the
store. Starbucks-brand ice cream and
coffee are also offered at grocery stores

Starbucks Turnover
Revenue
▲ US$10.383 billion (2008)
Operating income
▼ US$503.9 million (2008)
Net income
▼ US$315.5 million (2008)
Total assets
US$5.673 billion (2008)
Total equity
US$2.491 billion (2008)
Employees
128,898 (2009)
Corporate social responsibility
Environmental impact
Recycling - Starbucks gives customers a 10-cent discount when
they bring their own reusable cup, and it now uses corrugated
cup sleeves made from 60 percent post-consumer recycled
fiber.
 Fair trade - using high quality coffee bean
 Staff training - educates employees in coffee tasting, growing
regions, roasting, and purchasing (including fair trade)
 Ethos water - fund clean water projects for under-developed
areas
 Product Red - In2008 began selling product red goods,
enabling the supply of AIDS medicine for 3,800 people for a
year
 New Orleans - In 2008 announced a volunteer program


Several Starbucks locations were
vandalized during the WTO meeting
held in Seattle in 1999
 For the protesters, Starbucks is symbol
of free market capitalism run amok,
another multinational to colonize the
globe
 Though at that time Starbucks was still
unremarkable, protesters weren’t wrong
about their thinking

Transformation of Coffee as a Pedestrian
Commodity into an Upscale Consumer Accessory

Starbucks just started with 17 coffee shops in Seattle
and now has 16,635 stores in 49 countries. Since the
company became public, sales and thus profits have
climbed up

Starbucks name and image connect with millions of
consumers around the globe

At one time it was one of the fastest growing brands in a
Business Week Survey on top 100 global brands

Starbucks was one time the ‘great growth story’ of Wall
Street

After September 11 attack, there was a slowdown but then
sales rocketed one again
Market Saturation

In Seattle there is a Starbucks outlet for
every 9,400 people, and the company
considers that the upper limit of coffeeshop saturation

There’s a room for more stores in areas
where the people/store ratio is less
“A New Starbucks Opens in Restroom of
Existing Startbucks”
-a headline in a satirical publication – The Onion
Starbucks has the practice of blanketing an area with
stores which help achieve market dominance but then
it can cut sales at existing outlet.
“We probably self-cannibalize our stores at a rate of 30
percent a year.” – Schultz
“Starbucks is at a defining point in its growth. It’s reaching
a level that makes it harder and harder to grow, just due
to the law of large numbers” – Speiser
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Starbucks have expanded all over the world
Stores have been opened in Vienna, Zurich,
Madrid, Berlin, Indonesia, Athens, Mexico and
Puerto Rico
Global expansion accompanies a risk for
Starbucks – it makes less money on each
overseas store because most of them are
operated with local partners
Though it makes it easier to start in a foreign
territory, it reduces the company’s share of profits
to only 20 – 50%.
Predictable Challenges for Starbucks
Generation X

The company faces a cold reception from its future
consumers – the 20 or 30 something’s of Generation X
Activists among them are turned off by the power and
image of the well known brand
 They don’t feel comfortable in such ambiance

Economic crisis


Loyalists love for Starbucks coffee can’t be taken
for granted
Starbucks executives believe that loyalists won’t
cut back on spending for coffee even during times
of economic crisis, since this was once proven
after terrorists attack in the US when store
comparisons stayed positive while those of their
competitors skidded
Image Maintenance

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Taking care of the image wasn’t a problem before
when all stores were company owned
Now Starbucks have 4,304 franchisees
This means that the risk of damaging the
company’s image when franchisees do not adhere
with the standard management is always present
Employee Dissatisfaction

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During the 1980s Starbucks' benefits were
enviable: part-time baristas not only had medical
insurance, they had stock options
But now even though employees are paid better
than comparable workers elsewhere, many regard
the job as another fast food gig
Dissatisfaction of employees over their job and
pay affects the quality of service and coffee as well
Labor disputes
In 2001, managers in about 470 California
stores sued Starbucks for allegedly
refusing to pay legally mandated overtime
 Though the company was able to settle the
case for $18 million worth the heart of the
complaint – feeling overworked and
underappreciated – doesn’t seem to be
going away

Starbucks Strong points

Starbucks is nearly free of debt as fuels its
expansion with internal cash flow

Starbucks saves a lot on marketing. The company
just spends roughly 1% of revenues annually
usually just for new products for marketing since
they rely on mystique and word of mouth, whether
in US or other countries

Starbucks has no nationwide competitor unlike
McDonalds and Gap

Starbucks has a good management team.

Orin C. Smith was President and CEO of Starbucks
from 2001 to 2005

Starbucks' chairman, Howard Schultz, has talked about
making sure growth does not dilute the company's
culture and the common goal of the company's
leadership to act like a small company

In January 2008, Chairman Howard Schultz resumed
his roles as President and CEO after an eight year
hiatus, replacing Jim Donald, who took the posts in
2005 but was asked to step down after sales slowed in
2007. Schultz aims to restore what he calls the
"distinctive Starbucks experience" in the face of rapid
expansion
Growth
Schultz thinks there is still room for
growth in the US even though stores are
stealing profit from each other
 According to the management team
opening more and more stores and
clustering is good for business
 Starbucks can design and open a store
in less than 16 weeks and recoup the
initial investment in 3 years

Real estate strategy
They pay more than market-rate to keep
the competitors out of the picture
 This strategy could backfire because
there will be no other choice for
customers
 Also, analysts say that Starbucks can
keep up this kind of growth for only 2
more years, after that, they will have to
depend on overseas growth

Innovations
Specialty business accounts for about
16% of sales and includes sandwiches,
desserts, CD’s and selling packaged
coffee in supermarkets
 Test program of serving hot breakfast
 It has installed automatic espresso
machines in 800 locations to speed up
service
 Starbucks cards for cutting transaction
time

Innovations
Starbucks Express – experiment where
you can pre-order coffee through phone
or the internet and pick it up later
 Starbucks provides a Wi-Fi network in
their shops and among others, hopes to
attract younger generations who feel
uncomfortable being in stores

Employees
During their big growth from the mid to late
1990’s, they had the lowest employee
turnover rate of any restaurant or fast-food
company
 Employee discontent today is a lot larger
than before due to their workload
 They even got sued by baristas (their
bartenders) for having to give a part of their
tips to the shift-supervisors and had to pay
over $100 million due to violating labor
laws

Starbucks worldwide
Israel (‫ – )ستاربكس‬Howard Schultz (CEO)
has been accused of sending parts of its
profits to Israeli Defense Force and being
an active supporter of the Israeli state
 Italy – there are over 200.000 coffee bars
so there is doubt that Starbucks will be
successful
 France – biggest competitor is Columbus
Café and they doubt that Starbucks can
make it because there are a lot of
regulations and the labor force is
expensive

Starbucks in Japan (スターバックス)
The coffee shop in Tokyo was the first
Starbucks outside North America
 They beat their expectations there and
opened more than 800 stores since
1996
 Starbucks’ top foreign market was
gaining profit until more and more rivals
started copying the taste and offering
lower prices

Question 1

Identify the controllable and uncontrollable elements that Starbucks
has encountered in entering global markets.

Controllable elements can be found in Austria and they are good
ones – coffee shops there are all old and young people are craving
for something new and delicious like Starbucks coffee
The situation is mostly uncontrollable in Japan because of the
increasing competition and economic depression
France also has some uncontrollable elements – their regulations
and labor benefits make problems for Starbucks
One more controllable element is coffee price in Italy – their coffee
bars prosper by serving food with coffee. Also, their coffee is
cheaper than in the US. Americans pay about $1,50 for a cup of
coffee while Italians pay between 55 and 67 cents
The attitude Palestinians in the Middle East have toward Schultz
and Starbucks seems like an uncontrollable element since they
think Schultz is funding the Israeli Defense Force
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Question 2

What are the major sources of risk facing the
company and discuss potential solutions.

Major sources of risks for Starbucks are the
saturated market condition in the US, losing
customers due to the fewer options they have
and not getting the younger generations to
come drink coffee in coffee shops
Global expansion also poses a huge risk for
Starbucks because they don’t make as much
money as in the US due to the fact that most
of the coffee shops abroad are operated by
local partners
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Question 2
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The solution to market saturation in the US can be to stop
expansion and opening new shops. Already now, some
shops are stealing profit from others
Starbucks can draw younger generations by making new
innovations. They have already started with their Wi-Fi
network. Also, outside of US, Starbucks is seen as
something new and therefore it will draw more customers
(including the younger ones)
Since coffee is the core product of Starbucks they should
focus more on improving the quality and choice of coffee
In overseas countries coffee is too expensive so they should
either make it cheaper or develop new items that go with
coffee because countries like Italy have a wide choice of
sweets in coffee shops
Question 3

Critique Starbucks’ overall corporate strategy.

Starbucks’ target customers are the Baby boomers or older
generation, it has no differential pricing for the Generation X or
younger generation.
Starbucks spends only 1% of its revenue on advertising
Oversaturation is a problem Starbucks need to resolve because
there is no room for other competitors and customers like to try
out something new now or then
Their strategy in real estate has put up high barriers for other
competitors which is a good thing but they are unnecessarily
spending too much money on renting space for their shops
The amount of money they pay their employees is not enough
to match their workload and causes great dissatisfaction
Starbucks opened so many coffee shops in the US that they are
self-cannibalizing their stores at a rate of 30% a year
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Question 4

How might Starbucks improve profitability in Japan?

Starbucks was a hit when the first store was opened
in 1996 and the success continued as it opened more
stores
Ironically, as the market gets saturated the crowd gets
lesser
Thus, for Starbucks to keep their customers, it has to
have more knowledge of them so as to make
adjustments to continuously cater to their changing
preferences
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Question 4
In Japan, Starbucks has a lot of rival
shops that offers the same fare
 Thus, to make Japanese choose
Starbucks instead, the company should
consider either changing their pricing,
lowering it down to the point that they
still can gain profit or by providing added
amenities
