ANDY

CATHY

MARY NAN

RINKAMARTIN

The largest international coffee and coffeehouse chain in the worldwith 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 coffee-shop 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

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

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

Economic crisis

Image Maintenance

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

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 (ستاربكس) – Howard 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

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

Question 2 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

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

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