Professional Certificate in Marketing (New Syllabus) 521 – Assessing the Marketing Environment Starbucks Case Study March 2009 © The Chartered Institute of Marketing 2009 © The Chartered Institute of Marketing 2009 All rights reserved. This assessment, in full or in part, cannot be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of The Chartered Institute of Marketing. Assessing the Marketing Environment Case Study March 2009 – New Syllabus Important notes for candidates The examination is designed to assess your knowledge and understanding of the Assessing the Marketing Environment syllabus in the context of the chosen case study. The examiners will be marking your scripts on the basis of questions put to you in the examination room. You are advised to pay particular attention to the mark allocation on the examination paper and plan your time accordingly. Your role is outlined in the Candidate’s Brief and you will be required to recommend clear courses of action. You are advised not to waste valuable time collecting unnecessary data. The cases are based upon real-life situations and all the information you will require about the chosen organisation is contained within the case study. No useful purpose will therefore be served by contacting companies in the industry and you are strictly instructed not to do so as it may cause unnecessary confusion. As in real life, anomalies may be found in the information provided within this Case Study. Please simply state your assumptions, where necessary, when answering questions. The Chartered Institute of Marketing is not in a position to answer queries on case data. You are tested on your overall understanding of the case and its key issues, not on minor details. There are no catch questions. As part of your preparation for the examination, you need to carry out a detailed analysis of this Case Study. You will then need to condense your analysis into both a PESTEL and a SWOT analysis (a maximum of FOUR sides of A4, no smaller than font size 11). Although no marks are awarded for the analyses, you will be awarded marks for how you use them to answer the questions set. The analyses must be attached, with a treasury tag, to your answer booklet at the end of the examination. The copying of pre-prepared ‘group’ answers, including those written by consultants/tutors, or by any third party, is strictly forbidden and will be penalised by failure. The questions will demand analysis in the examination itself and individually composed answers are required in order to pass. Important Notice The following data has been based on real-life organisations, but details have been changed for assessment purposes and do not necessarily reflect current management practices of the industry or the views and opinions of The Chartered Institute of Marketing. Candidates are strictly instructed NOT to contact individuals or organisations mentioned in the Case Study or any other organisations in the industry. Copies of the Case Study can be downloaded from the CIM student website www.cimlearningzone.co.uk Page 3 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus PROFESSIONAL CERTIFICATE IN MARKETING ASSESSING THE MARKETING ENVIRONMENT CASE STUDY Preparation In preparation for the examination you will need to analyse the Starbucks case material provided in order to prepare both PESTEL and SWOT analyses of the company. You will be given a clean copy of the Case Study on the day of the examination, but you should bring your PESTEL and SWOT analyses with you into the examination. Your written analyses should not exceed FOUR A4 pages and must include your CIM membership number on each page. The written analyses should be submitted with your answer book as appendices on completion of the examination. Page 4 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus CASE STUDY Starbucks Corporation Introduction The Starbucks Corporation is the leading retailer, roaster and brand of speciality coffee in the world. The first outlet was opened in Seattle in 1971 and international expansion started with the opening of a coffee shop in Japan in 1996. Entry into the UK occurred in 1998, with the opening of 65 coffee shops. By early 2007, the company had opened 13,165 outlets worldwide. This comprised 9,400 based in the US and 3,765 in the 38 other countries where the company operates. The principal activity of the Group is the purchase and roast of high-quality whole bean coffee. These beans are sold along with fresh rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of food items, coffee-related accessories and equipment, a selection of premium teas and a line of compact discs. Mission Statement, Guiding Principles and Objectives Starbucks’ Mission Statement is: ‘To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.’ The company has also established the following six guiding principles to help it to measure the appropriateness of its decisions. These are: • • • • • • to provide a great work environment and treat each other with respect and dignity to embrace diversity as an essential component in the way we do business to apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee to develop enthusiastically satisfied customers all of the time to contribute positively to our communities and our environment to recognise that profitability is essential to our future success. The company’s objective is to establish Starbucks as one of the most recognised and respected brands in the world. To achieve this goal, the company plans to: • • • continue rapid expansion of its retail operations grow its speciality operations, and selectively pursue other opportunities to leverage the Starbucks brand through the introduction of new products and the development of new channels of distribution. Product Range Starbucks’ product range includes: • • • • • • 30 blended and single-original espresso coffees Tazo teas Frappuccino bottled blended coffees and juice blends DoubleShot coffees Ethos water premium ice creams Page 5 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus • • sandwiches, and salads. According to Key Note, Starbucks’ worldwide revenues are made up as follows: • • • value beverages 77% food 14%, and equipment and coffee beans 9%. Laptop facilities and internet access are available in many branches and CD compilations of its own ‘Hear Music’ music are also sold at the coffee shops and on line. The company also has its own credit card. Innovation Starbucks seeks opportunities to drive growth and long-term success through innovation. The company’s innovation programme includes the development of imaginative new beverages and food offerings. Lunch programmes have been expanded to a total of 4,150 stores and the facilities to offer warm pastries and hot breakfast sandwiches have been introduced to many stores. Starbucks has also continued to innovate, introducing a wide range of food and beverage options, from indulgent treats to lower-fat and reduced-calorie choices for all consumers’ tastes. Providing a consistent experience for customers is one of Starbucks’ greatest strengths. At the same time, the company recognises the need to be respectful of local communities throughout the world and aims to be locally relevant. When possible, it modifies its store environment and customer experience in various ways. For instance, menus have been adapted to include special food items in Asia, Europe and elsewhere; the days and hours of store operations have been adjusted depending on local customs; the unique character of local neighbourhoods has been incorporated into architectural elements in store design; and different types of store environments have been created that are culturally attuned to and meet customers’ needs. In the UK, Starbucks has an initiative aimed at incorporating features that make its stores relevant to the local communities. For example, in Manchester, Starbucks has purchased several items for local stores from Benchmark Furniture Design, a local maker of wood furnishings with a social mission. Channels The operations of the Group are carried out through two operating segments. These are: • • company-operated retail stores, and the speciality operations. The company-operated retail stores sell a wide range of regular and decaffeinated coffee beverages, a variety of Italian-style espresso beverages, a choice of cold blended beverages, a selection of iced shaken refreshment beverages and specialist ranges of teas and roasted whole bean coffees which are distinctively packaged. All channels outside the company-operated retail stores are collectively known as ‘speciality operations’. This segment includes the sale of coffee and tea products through franchised channels and licensed trademarks. Page 6 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus According to Key Note, 6,010 outlets in the US are company owned and 3,390 are franchises. Outside the US, around 1,510 outlets are company owned and 2,255 are licensed franchises. All of the UK outlets are company owned. The UK is Starbucks’ second most important market after the US, representing 68% of total Western European outlets. Although most outlets are located on high streets and in shopping centres, Starbucks has also opened stores in other prime locations such as: • • • • bookshops railway stations department stores, including Harrods Sainsbury’s supermarkets. In addition, Starbucks products are sold in grocery multiples under licence to Kraft. Marketing Strategy Starbucks' marketing strategy focuses on positioning the local Starbucks outlet as a ‘third place’. This is the place where people would choose to spend time when they are between home and work. The layout, design and atmosphere of their stores are designed to reflect this, with comfortable chairs, and tables with hard-backed chairs. Ample electrical outlets provide customers with free electricity for their portable music devices or laptop computers. Most stores also have wireless internet access (although this access is not free, as it is in some independent coffee shops). Advertising and Promotional Activity According to Key Note, there is little advertising done by Starbucks, which tends to rely on the visibility on its outlets. However, there can be various point-of-sale promotional activities and some advertising. Starbucks offers its own CD compilations exclusively for sale at its outlets. Competitive Structure According to research by Key Note, rival Costa has overtaken Starbucks as the market leader in terms of the number of UK outlets, although financial data show Starbucks to have a significantly higher turnover than Costa. The third-largest player in terms of outlet numbers and turnover is Caffè Nero. Market Trends The Fairtrade Foundation aims to obtain better prices and longer-term contracts for people in developing countries, thus achieving a better standard of living for them. According to Key Note, Fairtrade now accounts for an estimated 25% share of the ground coffee market by value; its coffees have moved into the coffee shop sector and Starbucks offers Fairtrade coffees in its outlets. Longer working hours and shorter lunch breaks can work to the advantage of coffee shop retailers, although they can face competition from other retailers offering similar facilities, such as grocery multiples and department stores, according to Key Note research. Women tend to be more significant users of coffee outlets than men, and have a greater tendency to visit these outlets more than once a week. Frequent coffee outlet usage tends to be highest among the over 35 year olds. Expansion Page 7 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus across the UK of coffee outlets by the major coffee shop retailers should lead to improved profits and a much wider and expanding customer base. A small amount of competition to coffee shops may come from domestic coffee systems that will make expresso-type coffee at home comparable to that offered at coffee outlets. However, research by Key Note suggests that after initial success, sales of such coffee systems have declined. Corporate Social Responsibility (CSR) For 35 years, one of Starbucks’ goals has been to show that running a profitable business and being a good neighbour are not mutually exclusive. Starbucks’ recognition as one of ‘100 Best Corporate Citizens’ by Business Ethics Magazine for the seventh consecutive year is proof of the company’s conviction that, by choosing to run the business a little differently, it can help create a better world for everyone. Its approach to CSR includes developing ethical sourcing practices for products such as coffee and cocoa, strengthening involvement in education programmes focused on cultural diversity globally, funding water projects in developing countries and reducing the company’s environmental footprint. In 2006 the company reviewed its own arrangements for reporting matters relating to CSR, to ensure they met international guidelines and standards. Specifically, the topics and indicators covered in its CSR Report reflected Starbucks’ significant economic, environmental and social impacts, and those of its stakeholders. The assessment process was based on a variety of sources – both internal and external. These sources included: • • • • • • • • • company objectives, strategies, policies, programmes and risk factors partner (employee) surveys and other input gathered through various feedback mechanisms customer contact feedback shareholder resolutions and anecdotal feedback input gathered through stakeholder dialogues informal input from coffee suppliers media coverage and blog discussions of issues stakeholder feedback specific to Starbucks’ CSR Report Global Reporting Initiative (GRI) recommendations of topics and data for inclusion. After reviewing these sources, a list of issues was compiled and prioritised according to the following criteria: • • • the importance of the issue to – and potential impact on – Starbucks the importance of the issue to – and potential impact on – external stakeholders the amount of reasonable control Starbucks has over a particular issue. Based on this assessment and evaluation, the company determined those issues of greatest importance to Starbucks and its stakeholders, and those issues over which the company has a reasonable level of control. The resulting priorities form the basis for the company’s CSR policies and activities: i. coffee purchasing practices: prices paid to coffee farmers/suppliers, respect for workers’ human rights, long-term availability of high-quality coffee Page 8 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus ii. iii. iv. v. growth and expansion: impacts on local communities environmental impacts: climate change, energy consumption, paper cups health and wellness: products, nutrition information workplace practices: culture and benefits, and satisfaction and engagement. People Partners (employees) are at the heart of the ‘Starbucks Experience’. Starbucks remains steadfastly committed to creating a great work environment, and to offering health benefits for eligible full- and part-time partners, despite a recent significant rise in health care costs. The company constantly assesses and updates its total pay package to make sure it remains competitive. It tries to create a workforce in each store that reflects the overall diversity of its community, a philosophy that continues to pay dividends. In a recent global partner survey, Starbucks’ partners had an exceptionally high rate of participation (84%) and high marks for overall satisfaction (86%). The company’s inclusion in the Diversity Inc ‘Top 50 Companies for Diversity’ acknowledges its commitment to creating a diverse, inclusive global workforce. Volunteer Programme Six years ago, Starbucks introduced its ‘Make Your Mark’ volunteer programme to support partners’ (employees’) desire to connect with and contribute to the communities they service. Through Make Your Mark the company matches partners’ voluntary activities with a donation of $10 to their designated non-profit organisation for every hour of volunteer work completed, up to a maximum of $1,000 per project. In 2006, Starbucks’ partners and customers in the US and Canada volunteered 383,000 hours in support of thousands of local community organisations – equivalent to 183 people working full-time for the whole year. Ethical Purchasing – CAFE Practices The Conservation Principles for Coffee Production, a set of multi-stakeholder criteria launched in 2001, became the original platform that Starbucks used to evolve and eventually develop a more holistic set of coffee-buying guidelines that is now known as Coffee and Farmer Equity (CAFE) Practices. These guidelines were designed to ensure the sustainable supply of high-quality coffee, achieve economic accountability, promote social responsibility within the coffee supply chain, and protect the environment. CAFE Practices cover various sustainability measures that are defined by 28 criteria, extending to both the farming and the processing of coffee. The criteria fall into four focus areas: product quality; economic accountability; social responsibility; and environmental leadership. Thousands of participants – from Starbucks’ largest coffee suppliers to many smallholder farms and co-operatives – have applied and been approved as CAFE Practices suppliers since 2004. When suppliers apply to CAFE Practices, they must undergo a third-party evaluation to verify the degree to which their practices are aligned with the criteria. As a result of this, they receive a score that is used to determine their particular level as a CAFE Practices supplier. Page 9 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus When Starbucks first introduced CAFE Practices, it was inspired and motivated to help create a better future for coffee farmers and their communities, based on a shared interest in sustaining the production of high-quality coffee. The amount of time, energy and resources needed to implement and manage CAFE Practices across such a complex, diverse and sprawling supply chain are considerable. One challenge has been to make CAFE Practices as accessible to small-scale producers as it is to larger coffee producers. Carbon Footprint In 2004, Starbucks compiled an inventory of its 2003 Greenhouse Gas (GHG) emissions as part of a broader effort to better understand and quantify its environmental footprint. The company used the World Resources Institute Greenhouse Gas Protocol to produce the inventory of major emissions from its company-operated retail stores, coffee roasting operations, administrative operations and distribution network. The inventory shows that 81% of Starbucks’ GHG emissions are attributable to electricity purchased for use in stores, while 18% comes from coffee roasting. This inventory has been used to guide development of the company’s strategy to help reduce climate change. This strategy focuses on emission sources under direct control, primarily electricity used in stores and coffee roasting. Paper cups account for nearly 9% of typical in-store waste by volume, although most cups are disposed of outside the store after use. Efforts to reduce the environmental impact of the company’s disposable cups began in the mid-1990s. Over the last decade, several actions have been taken, including: • • • eliminating most double-cupping by utilising corrugated hot beverage sleeves made of 60% post-consumer recycled fibre offering customers a $0.10 discount when they use their own reusable cups. Customers in the US and Canada took advantage of this offer more than 17 million times in 2006, keeping 674,000 pounds (306,000 kilograms) of paper from going to landfill introducing hot beverage paper cups made with 10% post-consumer recycled content. These cups, which are the first direct contact food packaging containing post-consumer recycled content to receive a favourable safety review by the US Food and Drug Administration (FDA), were introduced in US and Canadian stores in 2006. Howard Schultz, Chairman, and Jim Donald, President and Chief Executive Officer stated that: ‘As we reflect on Starbucks’ 35th anniversary, we are extremely grateful for the way we have been embraced by customers worldwide. We understand that with success comes increased scrutiny, be it from the media, activists or from concerned customers who want to know that the company is fair and principled. We’ve always believed that leadership companies must set a higher standard for how business is done. And we want to assure you that we remain committed to our core values and our vision to do business in a different way – a way that creates long-term value for our shareholders while honouring the contributions of the farmers and our people who make our success possible.’ Source: Starbucks’ website Page 10 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Appendix One Worldwide Financial Performance of Starbucks Corporation ($bn, $m and number), 53 Weeks rd nd st Ending 3 October 2004 and Years Ending 2 October 2005 and 1 October 2006 2004 2005 2006 Revenue and Operating Income Net revenue ($bn)* 5.29 6.37 7.79 Operating income ($m) 606.5 780.5 894.0 Store Numbers** US International 6,177 2,392 7,353 2,888 8,896 3,544 Total Store Numbers 8,569 10,241 12,440 *around 80% of revenues are accrued in the US **company-operated stores and licensed stores Source: Starbucks Corporation Annual Report 2006/Keynote 2007 th Financial Results for Starbucks Coffee Company (UK) Ltd (£000), 53 Weeks Ending 30 nd st September 2004 and Years Ending 2 October 2005 and 1 October 2006 2004 2005 2006 Turnover (£000) 204,055 244,216 286,645 Pre-tax profit (£000) -12,188 -8,106 -5,348 Source: ICC Juniper database/Keynote 2007 The Leading Operators of Branded Coffee Shops by Number of Outlets in the UK and the Republic of Ireland (number and %), 2004 - 2007 % Share of May the Top 12 2004 2005 2006 2007 2007 Costa 285 Starbucks 425 Caffè Nero 162 Caffè Ritazza 95 BB’s Coffee & 90 Muffins Puccino’s 106 Tchibo 25 Café Nescafé 44 Coffee 65 Republic Source: Key Note 2007 336 470 214 115 430 510 262 135 555 547 310 170 26.5 26.1 14.8 8.1 115 140 160 7.6 106 38 44 106 60 47 106 73 50 5.1 3.5 2.4 55 44 42 2.0 Selected Major operators of Branded Coffee Shops by Turnover (£m), 2004 – 2006* 2004 2005 Starbucks Coffee Company (UK) Ltd 204.1 244.2 Costa Ltd 111.7 126.1 Caffè Nero Group Ltd 50.5 70.1 Tchibo Great Britain Ltd 29.3 43.8 Coffee Republic Plc 22.0 17.6 AMT Coffee Ltd 13.8 15.3 BB’s Coffee & Muffin Ltd** 10.8 9.0 Puccino’s Ltd** 5.9 7.0 Total 448.1 533.1 * turnover figures cover varying financial years ** turnovers of company-owned outlets only, and/or fees and royalties from franchisees n/a not available Source: ICC Juniper database/Keynote 2007 Page 11 of 18 2006 286.6 143.0 90.7 n/a 14.9 15.7 n/a n/a n/a Assessing the Marketing Environment Case Study March 2009 – New Syllabus Market Size and Forecast of Branded Coffee Shops, At Current And 2006 Prices, 2001 - 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Mintel Current Prices £m 305 375 450 530 610 675 736 801 874 948 1023 Index At 2006 Prices £m 355 420 489 561 627 675 716 760 806 848 890 45 56 67 79 90 100 109 119 129 140 152 Index 53 62 72 83 93 100 106 113 119 126 132 The Forecast Growth in Branded Coffee and Sandwich Shops by Number of Outlets (number and %), 2007 - 2011 2007 2008 2009 2010 2011 Coffee shops Top 12 brands % change year-on-year All branded 2,300 2,575 2,830 3,085 3,330 - 12.0 9.9 9.0 7.9 3,100 3,400 3,625 3,850 4,100 36 37 38 39 % of total 35 coffee shops Source: Key Note Ltd 2007 Summary of Responses (% of respondents), 2007 I have visited a branded coffee shop such as Starbucks, Costa or Caffè Nero in the last 3 months I have visited a branded sandwich shop such as Subway, Greggs, Bakers Oven, O’Briens or Pret A Manger in the last 3 months I have visited branded coffee shops more frequently in the past 12 months than previously I have visited branded sandwich shops more frequently in the past 12 months than previously I prefer to visit coffee or sandwich shops for lunch than go to pubs or restaurants I prefer to visit restaurants or pubs for lunch, rather than a coffee or sandwich shops I have visited the coffee/sandwich shop at grocery multiples such as Tesco, Sainsbury’s or ASDA in the last 3 months I have visited the coffee/sandwich shop at department or variety stores such as Debenhams, Bhs or Marks & Spencer in the last 3 months I welcome the expansion of branded coffee or sandwich shops across the UK I do not welcome this expansion as it threatens the existing smaller independents I have bought takeaway sandwiches, rolls, wraps, etc. from grocery retailers such as Tesco, Sainsbury’s, Marks & Spencer, Boots, Co-ops in the last 3 months I prefer the coffee or sandwiches sold in branded chains or coffee sandwich shops to those sold by other retailers I regard coffee, sandwiches, etc. sold by branded coffee and sandwich shops as expensive I have been spending more on eating or drinking outside the home in the past 12 months than previously Weighted sample: 1,000. Base: All adults aged 16+ Source: Key Note/NEMS Market Research July 2007 Page 12 of 18 39.4 46.4 20.9 20.8 35.8 50.9 40.7 32.5 60.9 27.2 56.3 38.2 65.6 31.1 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Appendix Two Storm in a coffee cup: Starbucks defends itself over Oxfam campaign Source: Ashley Seager The Guardian, Friday January 19 2007 © Guardian News & Media Ltd 2007 Page 13 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Appendix Three The man who knows why we're so hooked on coffee Source: David Smith, The Observer, Sunday January 28 2007 © Guardian News & Media Ltd 2007 Page 14 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Appendix Four Assessing the Starbucks brand Brand When Starbucks entered the UK market in 1998, it was the first coffee-shop chain to make an impact. Since then, the brand has grown impressively and is now synonymous with the high street. Its American heritage is a big part of the brand and there is a strong association with a down-town American life-style. Starbucks’ philosophy is that any store should be regarded as home; anyone should feel as comfortable there as they do in their own front room. The novelty of Starbucks, however, has worn off, and care must be taken that it doesn’t become the next McDonald’s. Starbucks’ focus on the local community, growers and sustainability will help. Experience Providing a consistent experience is what Starbucks excels at. The store atmosphere (the décor, lighting, seating, fittings and fixtures) are identical – what differs is their configuration, based on the customer mix in store. Stores used by lots of professional people have more, smaller tables with wireless connection in store, compared to stores used by lots of students who have more armchairs and big tables. The order process can be confusing for any customer who is not experienced with Starbucks, potentially missing out on up-selling opportunities. Sometimes queues are long and there is a long waiting time for a drink. Product Among coffee drinkers there are split opinions about the quality and taste of the coffee. However, when looking at the number of full stores, it is clear that the coffee, as well as other products, are rated highly by consumers. Starbucks is no longer really seen as a coffee specialist as much as other players in the market such as Caffé Nero. However, Starbucks’ leads in terms of product innovation, with products such as Frappuccinos, Tazo teas and their all-time favourite gingerbread latte drink. The food offer has been improved, providing a wider range of lunchtime options. Value Positioning Coffee in Starbucks is certainly not cheap but its pricing is in line with other similar coffee chains. The food offer, however, is relatively expensive for what you get and this may prevent more customers buying it. People don’t spend in Starbucks just for the coffee, but for the experience. Recommendations 1. Communicate local and community aspects strongly – it is a global brand but it doesn’t have to be a corporate giant 2. Consider updating the stores – they are starting to look a little frayed [i.e.run-down] 3. Further non-drink product development to include wider food options e.g. salads/soups 4. Educate consumers regarding coffee quality and origin – gives more of a sense of expertise Source: Marketing Week, 10-Sep-06 © Marketing Week Page 15 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Page 16 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Page 17 of 18 Assessing the Marketing Environment Case Study March 2009 – New Syllabus Moor Hall, Cookham Maidenhead Berkshire, SL6 9QH, UK Telephone: 01628 427120 Facsimile: 01628 427158 www.cim.co.uk Page 18 of 18