Case Study # 10
Starbucks
Going Global Fast
Group 5

Group Members
Mauricio Gonzalez
Bui Thi Thuy
Chantharas Kanchanakool
Nina Krapf
Vincent Tenchavez
Julia Vassiljeva

Outline
I. Starbucks Case Study Background
II. Entering the Global Market
A. Controllable Elements
B. Uncontrollable Elements
III. Sources of Risk and Potential Solutions
IV. Overall Corporate Strategy
V. Starbucks in Japan

Starbucks Case Study
Background
Julia

Factsheet
• Founded in 1971, Seattle, U.S.A
• Went public in 1992 under trading symbol SBUX
(NASDAQ)
• Stores – 16,680:
- USA (50 states)
7,087 company operated
4,081 licensed stores
- International (43 countries)
1,796 company operated
2,792 Joint Venture and Licensed stores
Largest markets: Canada, Japan and the UK

Factsheet
• Mission
To inspire and nurture the human spirit— one person, one cup, and one neighborhood at a time
• Objective
To establish Starbucks as one of the most recognized and respected brands in the world.
• Strategy
To continue disciplined expansion of its retail operations, to grow its specialty operations and to selectively pursue other opportunities by introducing new products and developing new channels of distribution.

Operating segments
Starbucks has three reportable operating segments :
• United States (81% -> 76% of revenue)
• International (15% -> 20% of revenue)
• Global Consumer Products Group (“CPG”) (4% of revenue)

Going Global Fast

11
10
9
8
7
6
5
4
3
2
1
0
Starbucks revenues
Billion USD
9,4
10,4
9,8
Revenue
Operating Income 7,8
6,4
5,3
4,1
3,3
2,6
2,2
0,2 0,3 0,3 0,4 0,6
0,8 0,9 1,1 0,5 0,6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
56,0% 58,0%
59,0% 58,6% 58,5% 59,1% 59,2% 57,5%
55,3% 55,8%
9,8% 10,6% 9,7% 10,4% 11,5%
12,3% 11,5% 11,2%
4,9% 5,7%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Gross profit margin EBIT margin

Entering the Global Market
Thuy/Vince

Controllable elements
The controllable elements are:
• promotion
• price
• product
• channels of distribution
• research and development

Controllable elements
• Promotion- The Company has controlled its promotional strategy and has saved a lot of marketing cost by mainly relying on worth of mouth promotion and the company has good brand name in national market as well as in overseas market.

Controllable elements
• The price level is a possible step to simplify the expansion into another country. In general the coffee in Italy is much cheaper than
Starbucks´ coffee. An espresso in northern
Italy is offered for approximately 67 cents; in the south just 55 cents. By that reason
Starbucks would have to lower the prices, entering the Italian market.

Controllable elements
• Product: Starbucks could try to extend its menu selection to include drinks related to particular cultures. For example, the Chinese culture focuses more on tea than coffee, and although
Starbucks has a selection of different types of tea, it could further entice this consumer segment by introducing boba, a drink that incorporates little balls of jelly called tapioca. It could present similar drinks that are popular in other cultures as well.

Controllable elements
• Channel of distribution- The Company has its outlet from Beijing to Bristol which shows that the company has good controlled over the channel of distribution. The Company has expanded its business in various countries
England, Japan, etc.

Controllable elements
• Research and development- The Company has also controlled over its research and development process such as in 800 locations it has installed automatic espresso machines to increase the speed of service and it has also offered the pre paid card which has the range from $ 5 to $ 500 have the swipe system and it reduce the transaction time in half.

Controllable elements
The uncontrollable elements are:
• different laws and regulations
• local culture
• local competition
• local price range of commodities

Uncontrollable elements
• Different Rules and Regulations – Starbucks has gotten a lot of issues regarding overworked but underpaid employees as it continues its growth globally. And dealing with local rules and regulations, proves to be one of the uncontrollable elements .
• For example, France has very generous labor benefits as opposed to what Starbucks is currently implementing.

Uncontrollable elements
• Local Culture – Capturing the local cultural appeal of different countries may prove to be challenging especially to a brand going global. There has to be a certain amount of standardization while applying the right localization.

Uncontrollable elements
• Local Culture
• For example, in the Philippines, people are known to have a sweet tooth. Sweet beverages appeal to
Filipinos. For coffee, Filipinos are much more attracted to extra sweet Frappuccinos and other sweet beverages compared to the bitter black coffee. Starbuck’s has done a good job catering to that criteria in the Philippines.

Uncontrollable elements
• Local Competition – Coffee is a beverage that has a worldwide appeal. Starbucks entering the global market might face stiff competition from local coffee brands in different countries.
While Starbucks may hold an advantage in terms of brand recognition worldwide, local brands can hold an advantage in terms of local appeal and cultural familiarity.

Uncontrollable elements
• Local Price Range of Products – Although price of Starbucks products are controllable for
Starbucks itself, price range of commodities locally isn’t. So looking at it from the other perspective, if the pricing of Starbucks products are way above the local price ranges of local products, it may work to their advantage or it may also work totally against them.

Uncontrollable elements
• Local Price Range of Products
• If the market accepts Starbucks, Starbucks may be viewed as a premium item, with the upper class market instantly captured.
• Or if the market doesn’t respond positively,
Starbucks may be viewed as another high-cost expense for an unneeded luxury.

Sources of Risk and Potential
Solutions
Mauricio

OVERSATURATION
• Focusing in the growth, opening more and more stores.

OVERSATURATION specially in U.S.
• 4,247 stores scattered across the United
States and Canada.
• Big cities, affluent suburbs, and shopping malls are full to the brim.
• In coffee-crazed Seattle there is an Starbucks outlet for every 9,400 people.
• In Manhattan's 124 square miles Starbucks has 124 cafes, with 4 more on the way this year. That's one for every 12,000 people.

…BECOME NATIONAL JOKE!
“A New Starbucks Opens in Restroom of Existing
Starbucks”
• Starbucks is becoming an ordinary cafe place without innovation in their products and issues that could help the brand to be unique and special.

Starbucks should…
• Make some strategic studies about opening stores in strategic places instead of opening stores wherever there is an empty space making a visual contamination of their own brand to the customers.
• Look for innovation and try to push the brand to be unique and special where everyone goes there because is a joyful place to have a tasteful coffee and to because it “hypnotizes” you.

Starbucks’ Overall Strategy
Mod

Starbucks Strategy
Marketing Strategy
• Stores expansion; in the U.S. and globally
• Predatory real estate strategy
• Positioning itself as a modern fancy coffee shop

Stores Expansion in the U.S.
Growing continuously rapidly, Starbucks has done clustering several locations in a small geographical area. Doing so eventually will inevitably act to cannibalize existing locations same store sales.
“New Starbucks Opens in Restroom
Of Existing Starbucks”

Stores Expansion Globally
Stores expansion in other countries too rapid to concern the real preferences and habits of local consumers and competitors.

In the U.S.
So…..
Starbucks should reduce its US expansion efforts because the specialty coffee industry in the United States has entered the mature stage. One of the qualities inherent to the mature stage of the industry lifecycle is overcapacity.

Global
And…..
As to overcome cultural challenges, study and researches on coffee consumptions habits of locals and markets should be carried out before investing a new store and realize the fact that the market can become saturated.

Predatory real estate strategy
Buying out competitors' leases
Not only it is claimed as an unfair attempt to drive out small, independent competitors who could not afford to pay inflated prices for premium real estate, this also leads to monopoly and then leaves customers annoyed with fewer choices.

Positioning itself as a modern fancy coffee shop
Considered as Hip also Haughty
Two-edged Sword
To one customer, it is hip and trendy.
To another, it is snob and too pretentious.

Starbucks Strategy
Internal Strategy
Human Resources Concern
Trying to attract manpower and conveying a sense of a nice place to work, however the image has gradually changed.

Labour Disputes & Involvement in
Lawsuit
Because of Starbucks’ payment and policies toward its part-time and full-time employees do not complied with working hours and duties.

Starbucks in Japan
Nina

How might Starbucks improve profitability in Japan?
www.starbucks.com
http://findarticles.com/p/articles/mi_m0NTN/is_49/ai_110
807927/pg_3/?tag=content;col1

Competitors
• Doutor Coffee: cheaper , well-established , local coffee chain
• Excelsior Caffe: offering superior food and beverages, separate smoking areas
• Tully’s Coffee
• Smaller privately owned coffee houses
• Secondary coffee providers: McDonalds,
Burger King, Dunkin Donuts

Improvements
• Building up special areas for non-smokers – as far as we know a lot of Japanese are heavy smokers  rearranging areas for non-smokers to make them feel content and welcome
• Creating a new kind of atmosphere due to store rearrangements and new decoration  stores may become more liked as dating areas or for party celebrations

Starbucks in Japan
• Searching for another target group  in Japan the majority of Starbucks customers are successful business people, mostly women, who don’t care that much about the exorbitant coffee prices – trying to convince other targets to become customers (younger people; old, rich people,….)
• Convince people that Starbucks coffee is superior to other coffees and beverages and try to keep drinking coffee as a fashion item – Doutor coffee is just for consumption, Starbucks coffee has a great taste and can be seen as stylish accessories

Starbucks in Japan
• Invest in extensive research and development efforts to develop new flavors, blends, or even roast fusions  start by providing free samples for a limited period of time to introduce the novelties to the market
• Offering new beverages according to the Asian or Japanese culture  wider range of different, delicious teas or soft drinks

Starbucks in Japan
• Offering special, Japanese food in Starbucks stores  Japanese candies, cakes or sweets or even small snacks – Starbucks’ may become more Japanese!!!!
• More healthy options of food, natural ingredients
• Other “quick‐grab” foods apart from pastries like burgers, burritos, tacos, sushi, snack food

Starbucks in Japan
• Creating new benefits for customers  bonus programs, member cards (birthday presents, special promotions, cheaper products), additional accessories related to the coffee consume
• Lowering the input prices  chance to reduce the prices of special coffees to be more competitive compared to other coffee chains in Japan

Current focus areas
• Improved customer experience
• Optimized cost structure
• Relevant innovation and profitable growth platforms