Case Study # 10Starbucks

Going Global FastGroup 5

Mauricio GonzalezBui Thi Thuy

Chantharas KanchanakoolNina Krapf

Vincent TenchavezJulia Vassiljeva

Group Members

I. Starbucks Case Study BackgroundII. Entering the Global Market

A. Controllable ElementsB. Uncontrollable Elements

III. Sources of Risk and Potential SolutionsIV. Overall Corporate StrategyV. Starbucks in Japan

Outline

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 operated4,081 licensed stores

- International (43 countries) 1,796 company operated2,792 Joint Venture and Licensed storesLargest markets: Canada, Japan and the UK

Factsheet

• MissionTo 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.

• StrategyTo 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)

Starbucks The whole customer

experience IS the advertising

Going Global Fast

Starbucks revenuesBillion USD

Entering the Global MarketThuy/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.

• 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.

OVERSATURATION specially in U.S.

“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.

…BECOME NATIONAL JOKE!

• 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 should…

Starbucks’ Overall StrategyMod

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 in other countries too rapid to concern the real preferences

and habits of local consumers and competitors.

Stores Expansion Globally

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.

So…..

In the U.S.

And…..

Global

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 JapanNina

How might Starbucks improve profitability in Japan?

www.starbucks.comhttp://findarticles.com/p/articles/mi_m0NTN/is_49/ai_110807927/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

• 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

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

• 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

Starbucks in Japan

Current focus areas

• Improved customer experience

• Optimized cost structure

• Relevant innovation and profitable growth platforms