STARBUCKS CONFIRMS RAPID-GROWTH STRATEGY
Howard Schultz, the chairman of Starbucks, confirmed growth plans for the world’s largest chain of
coffee shops. The business will open at least 10 000 new cafés over the next four years by using
internal growth. Schultz said at the company’s annual meeting that he planned to double the size of
the business eventually.
China will be the main focus of this growth strategy. The US giant opened its first Chinese branch in
1999 and has plans to open 1000 outlets there. ‘No market potentially has the opportunities for us as
China hopefully will,’ said Schultz. Like many Western retailers, Starbucks sees China as its key
growth area due to its fast-growing economy, lack of strong local competitors and sheer size of
population.
There are plans to increase sales of non-coffee products to reduce its reliance on just hot drinks. It
has expanded its sale of audio books and music, and Sir Paul McCartney, the former Beatles member,
became the first artist to release an album on Starbucks’ Hear Music label.
This rapid internal expansion has not been without problems. Consumer Reports magazine recently
ranked McDonald’s coffee ahead of Starbucks’, saying it tastes better and costs less. The chairman
has also criticised the time-saving policy of designing stores uniformly rather than with some local
decoration. In 2013 Starbucks was criticised for charging high prices to consumers in China but the
company responded by stating that operating costs were higher than in some other countries and
high investment in China had to be paid for.
1. Define the term ‘internal growth’. [2]
Internal growth is where a business expands and becomes bigger by using its own resources,
which generates increased sales and profit that can later be reinvested.
2. Outline two reasons why Starbucks has adopted a rapid expansion strategy. [4]
They noticed other companies started selling hot beverages as well (McDonald’s, for example),
so to beat competition they opted for a rapid expansion strategy. Another reason they opted
for a rapid expansion strategy is the big opportunity of spreading to the huge Chinese market
which could significantly increase their profit, allowing them to reinvest it.
3. Analyse the possible advantages of Starbucks focusing growth in China. [4]
The economy of China is growing rapidly and there is barely any local competition for the kind
of products Starbucks is selling. The population of China is huge, and therefore they are hoping
to earn a lot from this new market.
4. Evaluate the potential economies of scale that Starbucks might experience from further
expansion. [10]
Some potential internal economies of scale they might experience are financial (there will be
less financial risk for them as they grow), marketing (they are going to sell large amounts of
their products), commercial (they can buy in bulks and that way save a lot of money), riskbearing (different portfolio of product in different markets, especially the new Chinese
market). Some potential external economies of scale might be the consumers, that are much
different in the Asian market than in the American market, and finally the employees.