Starbucks Marketing Plan

Katie Tewell

Bethany Odom

Kelly Snider

December 12, 2006

Executive Summary

What was once a small coffee shop opened by Gerald Baldwin, Gordon Bowker, and Ziev Siegl in 1971, Starbucks Coffee Company has grown into the number one specialty coffee retailer. With over 10,000 coffee shops in more than 30 countries, of which 4,200 are licensed and franchised and 6,000 are owned, the company’s main objective is to establish Starbucks as the “most recognized and respected brand in the world,” (Moon).

Currently, Starbucks is relying on retail expansion, product innovation, and service innovation to achieve a long-term goal once set by current chairman Howard Schultz:

“The idea was to create a chain of coffeehouses that would become America’s “third place.” At the time, most Americans had two places in their lives – home and work. But I believed that people needed another place, a place where they could go to relax and enjoy others, or just be by themselves. I envisioned a place that would be separate from home or work, a place that would mean different things to different people,” (Moon).

By working toward this goal, Starbucks wants to open new stores in both new and

existing markets, expand their product development process, and cater to customers’ needs to eventually improve their financial position and dominate market share. Market Summary

• Target Markets o In the early stages of development for Starbucks, Schultz identified their

target market as “affluent, well-educated, white-collar patrons (skewed female) between the ages of 25 and 44,” (Moon).

o Over time, market research teams have recognized the new target market

as “younger, less well-educated, and in a lower income bracket than their more established customers,” (Moon).

o Nonetheless, the original target market has not disappeared, but has

expanded into the demographic of the store location. For example, southern California stores cater to a growing number of Hispanic customers.

• Market Demographics

o Geographics (Moon)

Data from 2002 showed that in the Southeast there was only one store for every 110,000 people. Whereas in the Pacific Northwest, there was one store for every 20,000 people. Hence, the company was far from reaching existing markets.

International plans showed Starbucks was operating in over 300

company-owned stores in the United Kingdom, Australia, and Thailand. Also, 900 licensed stores were operating in Asia, Europe, the Middle East, Africa, and Latin America.

o Demographics

Young, affluent, tech-savvy customers (Hoovers)

A 1999 estimate showed that 70% of customers were internet

users, and today the estimate has exceeded 90% (Hoovers). Moms with strollers (Hoovers)

People combining work and a coffee break (Hoovers)

The most frequent customers average 18 visits per month, whereas

the typical customer visits five times per month (Moon).

Average age for an established customer was 40, new customers was 36 (Moon).

Customers that started visiting Starbucks in 2002 were 45%

female, 55% male (Moon). • Market Needs

o Starbucks wants to create an experience for their customers that combine

their on-the-go schedule, as well as a place to relax. Senior vice president of administration in North America Christine Day explains that, “people come here for the coffee, but ambience is what makes them want to stay,” (Moon).

o Selection

Starbucks menu contains brewed coffee, espresso traditions and

favorites, cold beverages, coffee alternatives, frappuccinos, and the sale of whole beans.

o Accessibility

Starbucks operates over 10,000 retail stores. Most of the 4,200 franchised stores are located in shopping malls and airports. Starbucks coffee brands are also marketed through grocery stores in the form of beans and even ice cream flavors.

o Customer Service

Starbucks employees are referred to as “partners.” As of 2002,

Starbucks employed 60,000 partners worldwide, 50,000 of those in the United States. From the beginning when Howard Schultz took over Starbucks, he believed, “Partner satisfaction leads to customer satisfaction,” (Moon).

o Competitive Pricing

For North American stores in the 2002 fiscal year, the average

price of an order was $3.85. The drinks come in three sizes: tall, grande, and venti (Italian for small, medium, and large). The least expensive price for a tall drink is $1.40 for brewed Coffee of the Day. The most expensive price for a venti is $4.15 for frappuccino. Whole beans are sold in half and whole pound bags ranging from $5.20 to $15.95 (Moon).

Starbucks brand coffee sold in grocery stores are similar to these

prices found in the cafes. • Market Trends (Moon)

o Total U.S. Retail Coffee Market (both in-home and out-of-home

consumption):

2002E - $21.5 billionStarbucks Share of

Specialty Coffee Market 42% (estimate)

Traditional Coffee

73%

Specialty Coffee27%

2005E - $22 billionStarbucks Share of

Specialty Coffee Market 50% (estimate)

Traditional

Coffee69%

Specialty Coffee

31%

o Estimates for the U.S. retail coffee market in 2002 include: In-the-home consumption was an estimated $3.2 billion business.

Starbucks was estimated to have a 4% share. Specialty coffee was an estimated $5 billion business in the food-

service channel. Starbucks was estimated to have a 5% share. • Market Forecast (Moon)

o Over the next few years, an estimate for the U.S. retail coffee market

expects specialty coffee to have a compound annual growth rate (CAGR) between 9%-10%.

o Starbucks was also estimated in 2002 to grow at a CAGR of about 20%

top-line revenue growth. o As of 2002, coffee consumption had risen with more than half of the

population (about 109 million people) drinking coffee everyday, and an additional 52 million drinking coffee on occasion.

• Market Growth

o Reports show in 2002, the number of specialty coffee drinkers has become

the market’s biggest growth. o An estimated one-third of all U.S. coffee consumption takes place outside

of the home and in places such as offices, restaurants, and coffee shops (Moon).

SWOT Analysis • Strengths

o The company is good at taking advantage of opportunities. o Starbucks is very profitable and has a strong financial base, therefore allowing

the company to undertake new business ventures. Revenue increased to $5294.2 million in 2004, a 29.9% increase from

2003 (DataMonitor) Profits increased to $610 million in 2004, a 43.7% increase from 2003.

Net earnings increased 46% (SWOT).

o The company is internationally recognized and has a global presence. Their reputation is one of fine products and services.

Almost 9,000 cafes in almost 40 countries (SWOT)

Widespread brand recognition, which in turn becomes brand preference, and ideally eventually brand loyalty

Strong customer base

o Respected employer

Values its workforce

Voted onto Fortune’s “Top 100 Companies to Work For” (2005)

o Strong ethical values and mission statement o Disciplined innovator

Understands the Adapt-or-Die theory of marketing

Has the ability to roll out new products relatively quickly, which

translates into a considerable competitive advantage o Clusters company units

Expands business with the continuing growth of the coffee market,

especially in areas where the company is already well established, and groups stores in an area, therefore able to dominate the region

Leads to considerable financial reward without suffering from

cannibalism (DataMonitor) Focus on opening stores that have convenient access for pedestrians

and drivers Helps the company capture an increasing share of the coffee market

• Weaknesses

o Reliance on beverage innovation

Vulnerable to the possibility that their innovation may falter over time

Company growth is mostly driven by beverage innovation. If U.S. store growth decreases, stock is lowered in value.

Diminishing return from beverage innovation would have an adverse

effect (DataMonitor). o More than 75% of the company’s stores are in the USA (DataMonitor).

May need to look for an assortment of countries in which to open more

shops in order to spread business risk 85% of revenue is from its domestic US market (DataMonitor).

• Has high international brand recognition and should look to

generate a greater proportion of revenue from outside the USA • Would suffer greatly if U.S. stores underperformed because of

economic conditions or increased levels of competition o Dependent on the retail of coffee, which could make them slow to diversify

into other divisions if the need should arise o Employee efficiency is poor.

Lower revenue per employee ($71,544—fiscal 2004) compared to the

industry average ($110,841) (DataMonitor) Lower income per employee ($5,294) compared to the industry

average ($9,500) (DataMonitor) o Lower Return on Equity than peers

Company’s 5 year average ROE (13.65%) have been lower than the

industry average (15.09%) (DataMonitor). Need to effectively manage its finances to ensure that returns are at par

of higher than industry average o Problems in some international operations

Problems of expansion: A number of openings are failing to be

successful. Japanese operations: The company has experienced some same-store

sluggishness.

Closures of stores in Israel and Tel Aviv: Hurts growth prospects in

the region

• Opportunities

o In 2004, created a CD-burning service where customers can create their own music CD

o Opportunities for revenue growth by expanding its global operations

New markets for coffee are beginning to emerge; for example, in India

and the Pacific Rim (SWOT). Targeting 15,000 international stores in the next few years

• Expansion potential questionable in Brazil, India, and Russia • China could be one of the largest markets, and therefore the

company will focus on Beijing and Shanghai.

o Large urban population o Rising economy o Increase in coffee consumption

o Co-branding with other manufacturers of food and drinks and brand-

franchising to manufacturers of other goods and services Creates loyalty for Starbucks brand

Recently signed agreement with Jim Beam Brands to develop and

market a Starbucks-branded coffee liqueur drink (DataMonitor), which has strong revenue potential because:

• Liqueurs represent $4-5 billion opportunity (DataMonitor). • Liqueurs with coffee represent a considerable segment of the

liqueur market. • There is a significant overlap between consumers of liqueurs

and consumers loyal to the Starbucks brand (DataMonitor). o Growth in coffee markets: Starbucks has a market share of over 40% of the

special coffee market (DataMonitor). Therefore growth in this category would

result in considerable opportunities for further growth and expansion in the near future.

• Threats

o Coffee may not stay in favor with customers, and another type of beverage or

leisure activity could replace it. o Rises in the costs of dairy products could affect the company’s margins. o Competition

Competitive coffee shops

Copy cat brands

Restaurants

Street carts

Competition could enter the market at any time.

• The U.S. specialty coffee market continues to grow, and an

increasing number of firms are looking to enter. • At any time, a company with greater financial, marketing, and

operating resources could enter the market and compete directly with Starbucks.

o Volatile nature of the coffee market

Multiple factors, including weather, political, and economic conditions

for example, can potentially negatively affect the company’s business. Green coffee prices may be affected due to agreements establishing

export quotas or restricting global coffee supplies. o Slowing U.S. retail sales

Domestic retail accounts for about 75% of the company’s revenue

growth and an even greater proportion of profit growth (DataMonitor). If current U.S. store growth continues, saturation levels within the

North American division may be reached within five years. Before reaching this point, US retail sales growth will slow significantly (DataMonitor).

• Competition o Competition comes in several forms:

Independent/Local coffee shops

Social and inclusive

Diverse and intellectual

Artsy and funky, typically cozy and very welcoming

Liberal and free-spirited

Lingering encouraged

Particularly appealing to younger coffee house customers

Wide variety of beverages/food

Appeals to the non-traditional crowd

Franchise/Large Companies

o Generally well-recognized names (McDonald’s, Krispy Kreme,

Dunkin’ Donuts, etc.) o More convenient and accessible o Easy access in and out o Appeals to the more mainstream coffee drinkers

• Services (Company)

o Starbucks purchases roasts of the highest quality of whole bean coffees. o Fresh and rich brewed Italian espresso o Offers pastries and other appetizing confections o Sells coffee-related accessories (mugs, coffee makers, cups, espresso, etc.) o Expanded sales into supermarkets of whole bean coffee

o Introduction the widely popular drink, Frappuccino, to the public o Strives for satisfied customers and a welcoming environment o Works to have highest standards of excellence in way of business o Offers newspapers and other reading material, popular music, and Internet

access (provided by T-Mobile) • Keys to Success (Company)

o Rapidly expand retail operations o Growth in its specialty sales and other operations o Selectively pursue opportunities to leverage the Starbucks brand through the

introduction of new products o Continue to be widely available and welcoming o Maintain reputation for having specialty and gourmet coffee o Make customers feel welcome with friendly service

• Critical Issues (Moon)

o Must increase customer satisfaction through improvements to service

o Friendlier and more attentive staff

o Faster and more efficient service

o Increase in personal treatment (remember customer’s name and order)

o More knowledgeable staff

o Better overall service

o Offer better prices/incentive programs

Free cups after “x” number of visits

Reduction of price

Offer promotions, sales to increase customer satisfaction

o OTHER

Offer better quality and variety of products

Improve atmosphere (friendly, welcoming)

Reaching out to community through involvement and awareness

More stores and convenient locations

o Other critical issues Starbucks is criticized for and must be aware of are:

Clustering

Driving out independents

Loss of diversity

Its policy toward farming communities in developing countries

Fair trade

Many of these issues are vital for Starbucks to improve their

customers’ satisfaction (Simmons).

Critical Issues

21%

28% 34%

31%

Increase CustomerSatisfaction throughImprovements toServiceOffer BetterPrices/IncentivePrograms

OTHER

Undecided/AlreadySatisfied

Slice 5

Marketing Strategy

• Starbucks Mission Statement (Company)

“Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.

The following six guiding principles will help us measure the

appropriateness of our decisions:

o Provide a great work environment and treat each other with respect and dignity.

o Embrace diversity as an essential component in the way we do business.

o Apply the highest standards of excellence to the purchasing, roasting,

and delivery of our fresh coffee

o Develop enthusiastically satisfied customers all of the time.

o Contribute positively to our communities and our environment.

o Recognize that profitability is essential to our future success.” • Environmental Mission Statement (Company)

“Starbucks is committed to a role of environmental leadership in all facets of our business.

We fulfill this mission by a commitment to:

o Understanding of environmental issues and sharing information with

our partners. o Developing innovative and flexible solutions to bring about change. o Striving to buy, sell, and use environmentally friendly products. o Recognizing that fiscal responsibility is essential to our environmental

future. o Instilling environmental responsibility as a corporate value. o Measuring and monitoring our progress for each project. o Encouraging all partners to share in our mission.”

• Other points of importance to Starbucks:

o “Building customer loyalty around cappuccinos, lattes, and other fancy beverages,” (Overholt).

o Want to create a sense of community o Want to create a memorable experience for a customer that inspires the

customer to return often, as well as to tell a friend o Striving to become the most recognized and respected brand in the

world o Putting people before products (Company) o What a Starbucks store should be: “An authentic coffee experience

that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments” (Thompson).

• Marketing Objectives (Moon)

o To create a Starbucks experience that makes people come for the coffee,

stay for the ambience and environment, and return for the connection o To build an image separate from smaller coffee chains

o To clearly communicate the values and commitments of the Starbucks

business to their customers, instead of only growth plans publicized in the media

• Financial Objectives (Moon)

o Have each store reach a $20,000 weekly sales level o Open new stores with lower store-opening costs (about $315,000 per store

on average).

• Target Marketing (Moon)

o Based on a sample of Starbucks’ 2002 customer base, the attitudes toward the brand were:

NEW CUSTOMERS (FIRST VISIT THIS YEAR)

EXISTING CUSTOMERS

(FIRST VISIT 5+ YEARS AGO)

High-quality brand 34% 51% Brand I trust 30% 50% For someone like me 15% 40% Worth paying more for 8% 32% Known for specialty coffee 44% 60% Known as the coffee expert 31% 45% Best-tasting coffee 20% 31% Highest-quality coffee 26% 41% Overall opinion of Starbucks 25% 44%

o The chart shows that the new customers have a poorer attitude toward

Starbucks in every category than the existing customers. o The new customer type that needs attention is:

45% female, 55% male

Average age of 36

37% have a college degree

Average income is $65,000

Drink an average of 15 cups of coffee per week

• Store Expansion Strategy (Thompson)

o Target areas with favorable demographic profiles, as well as areas that can

be serviced and supported by the company’s operations infrastructure. For each targeted area, select a large city to serve as a focal point.

• Goal of each focal city: Open 20 or more stores in that city

in the first two years. • Once stores cover the city, open additional stores in

smaller, surrounding areas in the region. With this plan, the company had only closed 2 of the 1,500 sites it

had opened between 1992 and 1997.

o Stores must be custom-designed. The company does not buy freestanding structures, and therefore

each store is a different shape and size. Most stores range in size from 1,000 to 1,500 square feet.

o Most stores are located in high-trafficked, high-visibility areas, such as:

Office buildings

Downtown and suburban retail centers

Airport terminals

University campuses

Busy neighborhood shopping areas convenient to pedestrian traffic

o International expansion (Moon)

As of 2004, the company operated over 300 company-owned

stores in the United Kingdom, Australia, and Thailand, as well as 900 licensed stores in Asia, Europe, the Middle East, Africa, and Latin America.

Goal: Have 15,000 international stores

o Other things to consider:

Kiosks

Drive-through windows

• Positioning

o Store Ambience

Goal: To make customers want to linger

Social Appeal—Offer a sense of community, a place where people

can come together Physical layout

• Seating areas to encourage lounging

• Appear upscale yet inviting

Aromas

• Smoking is banned in all stores • Employees are asked to refrain from wearing perfumes or

colognes, and prepared foods are kept covered so customers would only smell coffee aromas.

Sounds

• Play soothing CDs that are also for sale • Often offer live music

o Customer Service

The company sees a direct link between customer satisfaction and

customer loyalty. The company believes that employee satisfaction leads to customer

satisfaction (Moon). • Voted onto Fortune’s Top 100 Places to Work • Employee satisfaction remains consistently around 80-90%. • Turnover rate is 70%, one of the lowest in the industry • Focuses on manager stability in order to decrease employee

turnover, but also to help recognize regular customers and provide personalized services

Employees are trained to connect with customers and focus on

“customer intimacy.” • Greet customers with a smile. • Enthusiastically welcome customers into the store. • Establish eye contact. • Try to remember customers’ names and orders if they are

frequent customers.

“Just Say Yes” policy, in order to keep the customer happy, which

may go beyond store rules • Example: Always compensate dissatisfied customers with

a Starbucks coupon entitling them to a free drink • Example: Give a customer a free refill if he/she spills their

drink. o Advertising—The company spends very little on advertising and depends

on word-of-mouth promotion. o Involvement in the Community

Contributing positively to surrounding communities is one of

Starbucks’ guiding principles in the company’s mission statement. Howard Schultz had the plan to “build a company with soul

(Student). Starbucks has been the largest corporate contributor in North

America to CARE, a worldwide relief and development organization to help Third World countries where Starbucks purchases its coffee supplies.

The company has an Environmental Committee that looks for

ways to reduce, reuse, and recycle waste, as well as contribute to local community environmental efforts.

The company donated almost $200,000 to literacy improvement

efforts (Student). Starbucks has many community building programs to “contribute

positively to the communities where our partners (employees) and customers live, work, and play” (Corporate).

“As part of Starbucks ongoing commitment to share the comfort of

coffee during times of crisis, the company continues to demonstrate our support of the men and women serving in the U.S. military overseas” (Company).

The Starbucks Foundation (Company)

• Established in 1997 by Howard Schultz

• Inspired by Schultz’s childhood experiences and those of other inner city children

• Dedicated to creating hope, discovery, and opportunity in

the communities of Starbucks

• Marketing Mix

• Marketing Research o Schultz wanted to use research in order for Starbucks to challenge the

status quo, be more innovative and take bigger risks. o Examples of questions he asked were (Moon):

What could Starbucks do to make its stores an even more elegant

“third place” that welcomed, rewarded, and surprised customers? What new products and new experiences could the company

provide that would uniquely belong to or be associated with Starbucks?

What could coffee be – besides being hot or liquid?

How could Starbucks reach people who were not coffee drinkers?

What strategic paths should Starbucks pursue to achieve its

objective of becoming the most recognized and respected brand of coffee in the world?

o At the retail stores, a pamphlet is available for customers to share their

thoughts about their Starbucks experience. *See Exhibit 1 o Starbucks uses “Customer Snapshots,” similar to mystery shoppers, to

evaluate partner performance in the retail stores (Moon).

The four basic service evaluations include:

• Service – Did the register partner verbally greet the

customer? Did the partners make eye contact with the

customer? Say thank you?

• Cleanliness – Was the store clean? The counters? The

tables? The restrooms?

• Product Quality – Was the order filled accurately? Was the

temperature of the drink within range? Was the beverage

properly presented?

• Speed of Service – How long did the customer have to

wait? The company’s goal was to serve a customer within

three minutes, from back-of-the-line to drink-in-hand.

2001-2003 Customer Snapshot Scores (North American Stores):

Financials

• Recent Financial Information

o Attached is a graph from www.starbucks.com, showing historical

revenues dating back to the 1995 fiscal year up to the 2006 fiscal year. *See Exhibit 2

Starbucks Corporation Annual Income Statements

amounts in millions of US dollars (except per share amounts)

Year Revenue Gross Profit

Operating Income

Total Net Income

Diluted EPS (Net Income)

Sept. '05 6,369.3 3,764.1 780.6 494.5 0.61 Sept. '04 5,294.3 3,102.8 608.2 390.6 0.47 Sept. '03 4,075.5 2,389.6 424.7 268.4 0.34

Quarterly Income Statements amounts in millions of US dollars (except per share amounts)

Year Revenue Gross Profit

Operating Income

Total Net Income

Diluted EPS (Net Income)

June '06 1,963.7 1,158.8 214.6 145.5 0.18 Mar. '06 1,885.8 1,124.9 201.9 127.3 0.16 Dec. '05 1,934.1 1,156.0 279.9 174.2 0.22 Sept. '05 1,659.2 980.3 196.4 123.6 0.16 June '05 1,601.8 952.0 199.6 125.6 0.16

source: Hoover's, Inc. 2006. D&B Company. 4 Dec. 2006 <http://hoovers.com>.

Starbucks Corporation Annual Balance Sheet

amounts in millions of US dollars (except per share amounts) Sept. '05 Sept. '04 Sept. '03 Assets Current Assets

Starbucks Corporation Annual Cash Flow Statement

amounts in millions of US dollars (except per share amounts) Sept. '05 Sept. '04 Sept. '03 Net Operating Cash Flow 923.6 820.2 566.5 Net Investing Cash Flow (221.3) (658.5) (499.3) Net Financing Cash Flow (673.8) (66.5) 30.8 Net Change in Cash 28.8 98.2 101.2

Cash 307.0 653.0 350.0 Net Receivables 261.6 203.9 175.9 Inventories 546.3 422.7 342.9 Other Current Assets 94.4 71.3 55.2 Total Current Assets 1,209.3 1,350.9 924.0 Net Fixed Assets 1,842.0 1,551.4 1,384.9 Other Noncurrent Assets 462.7 488.2 420.8 Total Assets 3,514.1 3,390.6 2,729.8 Liabilities and Shareholders' Equity Liabilities Current Liabilities Accounts Payable 774.2 624.2 534.5 Short-Term Debt 277.8 0.7 0.7 Other Current Liabilities 175.1 121.4 73.5 Total Current Liabilities 1,227.0 746.3 608.7 Long-Term Debt 2.9 3.6 4.3 Other Noncurrent Liabilities 193.6 166.4 34.3 Total Liabilities 1,423.4 916.3 647.3 Shareholders' Equity Preferred Stock Equity -- -- -- Common Stock Equity 2,090.6 2,474.2 2,082.4 Total Equity 2,090.6 2,474.2 2,082.4 Shares Outstanding (mil.) 767.4 397.4 396.5 source: Hoover's, Inc. 2006. D&B Company. 4 Dec. 2006 <http://hoovers.com>.

Depreciation & Amortization 377.3 325.6 256.3 Capital Expenditures (644.0) (412.5) (365.3) Cash Dividends Paid -- -- -- source: Hoover's, Inc. 2006. D&B Company. 4 Dec. 2006 <http://hoovers.com>.

Starbucks Corporation Earnings Estimates

Period Period Ends

Mean EPS

# of Estimates Year Ago Actual

Q1 Dec. '06 0.26 17 0.17 Q2 Mar. '07 0.19 16 0.18 Q3 Jun. '07 0.22 16 0.16 Q4 Sept. '07 0.22 16 0.22

P/E Ratio: 39.79

5-Year Growth Rate: 26.55

source: Hoover's, Inc. 2006. D&B Company. 4 Dec. 2006 <http://hoovers.com>.

Starbucks Corporation

Comparison To Industry & Market

Valuation Company Industry1 Market2

Price/Sales Ratio 1,963.7 1,158.8 214.6 Price/Earnings Ratio 1,885.8 1,124.9 201.9

Price/Book Ratio 1,934.1 1,156.0 279.9 Price/Cash Flow Ratio 1,659.2 980.3 196.4

1Industry: Eating and Drinking Places 2Market: Public companies trading on the NYSE, AMEX, and NASDAQ

Top Competitors

Starbucks Diedrich Coffee Dunkin New World

Restaurants

Annual Sales 6,369 59.5 517.0 389.1 Employees 115,000 -- 953 7830

Market Cap ($ mil.) 27,047 17.9 0.0 0.0 source: Hoover's, Inc. 2006. D&B Company. 4 Dec. 2006 <http://hoovers.com>.

Controls

• Problems and Solutions (Moon)

o In 2002, our fellow associates, including Christine Day, recognized that

customer service needed to be improved upon, and one idea to conquer

this problem was to invest $40 million annually in 4,500 stores.

o By adding almost $9,000 to each store, this would allow an additional 20

hours of labor per week.

o Day said, “The idea is to improve speed-of-service and thereby increase

customer satisfaction.”

o According to a survey of customers, 65% believed fast service was a key

attribute to their satisfaction.

o In the past when we thought of adding more labor hours to our retail

stores, we decided against it due to the struggling economy, especially

since labor was already our biggest expense.

o Another option instead of increasing labor hours is to increase the

efficiency of the partners that we currently employ. We removed the non-

value-added tasks, simplified the production process, and manipulated the

store layout to take better advantage of store space.

o Additionally, we installed an automatic espresso machine that was faster,

reduced waste, and improved consistency while still fulfilling our

customer’s needs. We want to continually implement the use of these

machines in more of our stores.

o Furthermore, we want to add more drive-thru lanes to our stores. In doing

so, we can still serve our customers who want a taste of Starbucks on-the-

go.

• Marketing Organizations

o Although we have been considered one of the world’s most effective

marketing organizations, we lack a strategic marketing group (Moon).

o Instead, we have smaller divisions (Moon):

Market research group – gathered and analyzed market data

Category group – developed new products and managed the menu

Marketing group – developed quarterly promotional plans

o However, we need to find a way to get these divisions to collaborate so

information about market and customer trends is not overlooked like it has

been in the past and we can make better decisions about driving our

business in the future.

o In 1995, a “Stores of the Future” project team was formed (Student).

Their goal was to come up with the next generation of Starbucks stores to be debuted in 1996.

Schultz communicated with the team and envisioned the retail

stores to look and feel like, “an authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments.”

The team researched the art and literature of coffee throughout the

ages, studied coffee-growing and coffee-making techniques, and looked at how our retail stores have already evolved in terms of design, logos, colors, and mood.

The team decided upon four store layout designs:

• A store for each stage of coffee making: growing, roasting,

brewing, and aroma. • Each store had its own color combinations, lighting

scheme, and component materials. • Also, the stores adapted to the environment, whether the

store was downtown or on a college campus, for example.

• Contingency Planning

• Time Implementation

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