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Handelshögskolan in Göteborg 2006-10-18
Tutor: Martin Öberg
Logistics C&D, Retailing in the Marketing Channel
Departure of Business administration
Starbucks
Not just a cup of coffee
Andreas Eiman 760423
Antonio Sanz Moreno 831019
Birte Nageler 830621
Gregory Caulliez 860927
Johan Lindgren 841002
Nicklas Knape 800711
Abstract
Starbucks Coffee Company is one of the largest retailer, roaster and supermarket storebrand
of coffee. It has about 2,500 retail locations world wide. The concept has been very succesful
and has over the past years made some big expansions abroad. They are trying to locate stores
all over the world, for example in Europe and Asia. The succes have varied, much depending
on the market.
This report focuses on descriping the company and its strategies, out of a retail perspective.
We will try to analyse if they use different strategies in the U.S and Europe, or if they use
some kind of a global one?
To answer this question we will have a closer look on Starbucks itself (historic and financial
analysis), and an analysis of the US and European (we have focused on our different home
countries) strategy. Finally we will analyse and compare the two strategies in order to
conclude which strategy Starbucks use.
The analysis resulted in a conclusion, Starbucks use a global strategy. Based on this result we
made a SWOT-analysis which made it easier to see different positive and negative sides using
a global strategy.
The report is summed up with our conclusion which is based on Starbucks products, the brand
and on their expansion strategies.
INDEX OF TABLE
ABSTRACT .......................................................................................... I
1. COMPANY HISTORY ................................................................... 1
1.1 BRIEF ANALYSIS OVER THE LAST SIX YEARS ...................................................................... 2
1.1FINANCIAL ANALYSIS ......................................................................................................... 4
2. CORPORATE RESPONSIBILITY .............................................. 5
2.1 THE STARBUCKS FOUNDATION.......................................................................................... 5
3. STRATEGY IN THE U.S ............................................................... 6
3.1 STARBUCKS MAIN STRATEGY IN THE U.S TODAY – RETAIL PERSPECTIVE .......................... 6
3.2 TO BE AN ADVENTURE ....................................................................................................... 7
3.3 PLACE ................................................................................................................................ 7
4. STRATEGY IN EU ......................................................................... 8
4.1 STARBUCKS IN SPAIN ........................................................................................................ 8
4.2 STARBUCKS IN GERMANY ................................................................................................. 8
4.3 STARBUCKS IN FRANCE ..................................................................................................... 8
4.4 LOCATION AND PRODUCT .................................................................................................. 8
4.5 COMPETITORS .................................................................................................................... 9
4.6 FUTURE ........................................................................................................................... 10
4.7 CONCLUSION ................................................................................................................... 10
5. ANALYSIS ..................................................................................... 10
5.1 EXPANSION ...................................................................................................................... 10
5.2 PLACE .............................................................................................................................. 10
5.3 PRODUCT MIX .................................................................................................................. 10
5.4 COMPETITION .................................................................................................................. 11
5.5 SWOT-ANALYSIS OF STARBUCKS ................................................................................... 11
6. CONCLUSION .............................................................................. 13
6.1 PRODUCTS ....................................................................................................................... 13
6.2 BRAND ............................................................................................................................ 14
6.3 EXPANSION STRATEGY .................................................................................................... 14
7. APPENDIX ..................................................................................... 15
8. SOURCES....................................................................................... 16
8.1 BOOKS ............................................................................................................................. 16
8.2 ELECTRONIC SOURCES ..................................................................................................... 16
1
1. Company History
Starbucks Coffee Company was founded in 1971 in Seattle, Washington by three academics,
two teachers and one writer. They all shared a love for fine coffees and exotic teas. They
called the store Starbucks Coffee, Tea and Spice. The company name was chosen in honor of
Starbuck, the coffee loving first mate in Moby Dick. The company grew and opened several
stores in the Seattle area.
In 1981, Howard Schultz, vice president and general manager of U.S operations for
Hammarplats – a Swedish maker of stylish kitchen equipment and housewares – met the
owners of Starbucks. For Howard, the meeting resulted in a job as head of marketing and
overseeing the retail stores. In September 1982, Howard took on his new responsibilities at
Starbucks.
In 1985, Howard decided to leave Starbucks and start his own company. His plan was to open
espresso bars in high-traffic downtown locations. He got some investors and opened a
company which was called Il Giornale Coffee Company. The first store opened in April, 1986
and was followed by two new stores shortly thereafter. The goal was to open 50 stores in five
years.
In March 1987, sixteen years after the opening of Starbucks, the founders decided to sell the
whole operation in Seattle – the stores, the roasting plant, and the Starbucks name. Howard
knew immediately that this was an opportunity, and within weeks he had convinced his board
of directors and his stockholders and he finally managed to raise the 3.8 million dollars he
needed to buy Starbucks. The acquisition was completed in August 1987.
The new name of the combined companies was Starbucks Corporation. Howard Schultz, at
the age of 34, became Starbucks' president and CEO.
Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them,
along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended
beverages, a variety of pastries and confections, coffee-related accessories and equipment, a
selection of premium teas and a line of compact discs, primarily through Company-operated
retail stores.
In addition to sales through its Company-operated retail stores, Starbucks sells coffee and tea
products through other channels of distribution including its Business Alliances business unit
and other specialty operations (collectively, Specialty Operations). Starbucks, through its joint
venture partnerships, also produces and sells bottled Frappuccino coffee drink and a line of
premium ice creams1.
1 http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html
2
1.1 Brief analysis over the last six years
During 1999 Starbucks opened 625 new stores worldwide. Nowadays they have 2500 stores
in 13 countries2.
In 1999 narrative annual report Starbucks focus is on showing how they grow in the
international market. They also show how new products, such as ice-cream and “bottled
Frappuccino” now are introduced. Furthermore Starbucks from this year has agreements with
over 8500 grocery stores in the US where you can buy Starbucks coffee daily. There have also
been discussions about opening self-service beverage stations in the major grocery stores.
Other plans discussed in 1999 annual report are about playing certain music in the stores.
Starbucks wanted to attract customers by offering live music, special listening stations where
people can find music that they don’t find elsewhere. This whole discussion is about how to
attract customers by offering other things than just the base assortment. As they say in the
report: “It’s a hangout, it’s a meeting spot, it’s a library, it’s a community centre”.
In 2000 Starbucks obviously found out about storytelling. The beginning of this annual report
starts with “once upon a time there was a little Starbuck store in Seattle”3.Starbuck said that
they in the end of year 2000 had stores in 17 countries. This year they opened the biggest
Starbuck store so far. It’s situated in Seoul, South Korea, and is 5 stories tall with over 200
seats. In 2000 Starbucks went to a lot of new markets in Asia. The main focus in this year
narrative annual report is just as mentioned in the beginning, storytelling.
Our guess is that from this year storytelling has been a part of Starbucks retailing strategy.
2001’s report focused on the farmers. Worldwide farmers are a part of this year annual report.
The storytelling idea began to make sense. Starbucks demonstrated how they selected the best
coffee beans from different suppliers around the world4. In the letter to Starbucks
shareholders they started by saying that coffee, especially the quality and taste of Starbucks
coffee, is the strength of Starbucks brand. Furthermore they said that this year the 9/11
accidents has effected many of Starbucks employees, customers and other people having a
relation with Starbucks. Starbucks started the “Starbuck cares” which is a programme to
support the victims of September 11 act of terrors.
In 2002 there were Starbuck stores in 30 countries. Starbucks started to ask themselves if their
business idea was still valid even though they nowadays are a huge worldwide company5.
This year Starbucks opened stores in Vienna, Berlin, Madrid, Jakarta and more. Starbucks has
chosen to tell about the opening of new store in Spain. They showed how different cultures
can cooperate easily just by being “human”. “The spirit of Starbucks connects us all”. The
goal for Starbucks is to have 25 000 stores worldwide in 2005.
As in USA, where Starbucks started up programs to help, Starbuck does the same in Spain.
There they joined “Save the children” in different kind of help-programs. This was one part of
Starbucks continued retailing storytelling strategy which we could see all over Starbucks
world.
Finally, in 2002´s narrative report, Starbucks said that they managed to keep their philosophy,
which is “one person – one moment – one cup at a time”. Even though Starbucks growth to be
2 http://library.corporateir.net/library/99/995/99518/items/37555/102640_narrative2.pdf
3 http://library.corporate-ir.net/library/99/995/99518/items/34139/2000ar_narrative.pdf
4 http://library.corporate-ir.net/library/99/995/99518/items/57146/ar01_narrative.pdf
5 http://media.corporate-ir.net/media_files/irol/99/99518/pdf/ar02_narrative.pdf
3
an enormous company they still can deliver with such a feeling that each person buying coffee
from Starbucks get that special feeling you only get from Starbucks. As they say “Our feeling
is in the sky, our feet on the earth”.
To experience today. To imagine tomorrow. That’s how Starbucks began in 2003’s narrative
annual report. This year Starbucks introduced wireless internet connection in their stores6.
In the year 2003 was the best financial year in Starbucks history. Starbucks ascribed it as a
result of their strong beliefs in to “treat every single person with respect and dignity, tirelessly
source and roast the finest arabica coffee beans”.
This year Starbucks also introduced a VISA card with a coffee-reloading function that was the
first card of its kind worldwide. This was a big success. Business week said that this card was
one of the best new products in 2003.
2004 years narrative annual report main message was about how Starbucks started up
something called “Coffee master certification programme”. When attended and passed this
course you are certified according to Starbucks high standards. The goal for this programme is
that at least one person in each Starbucks coffee store should be licensed as Coffee Master7.
Starbucks also opened their first “hear Music™” bars in 2004. These media bars opened in 45
stores in USA. Starbucks also had live concerts with famous musician Ray Charles in several
stores in USA.
During 2004 Starbucks opened 1344 new stores worldwide. This was a new record in the
amount of new opened stores in one year.
In 2005’s narrative annual report Starbucks said that they are aware of the fact that their
financial status is not only measurable in financial terms. They said “we believe that we have
built trust with our partners, customers, suppliers and communities, and with that trust comes
a responsibility to our growth in a sustainable way for coffee framers, our neighbourhoods
and the environment”8.By doing this Starbucks wanted to mediate that they are a company
who not only focus in earning money. Furthermore they said that the company wants to
develop products and accessories that is good not only for the company itself, but also for the
customers, the environment etc. These things were considered as positive things for the
upcoming demands when trying to get into new markets, attract new customers and facing
new kind of resistance. They referred to their past accomplishments and said to be aware of
that they could not survive on that. In 2006 Starbucks plan to open 1800 new stores and that is
more stores opening in one year than Starbucks had during the first 25 years as company!
What Starbuck in 2005’s narrative annual report mainly want to mediate is that they are
growing fast, they’re focusing on setting standards in coffee and farmer equity practises and
they also wants to show the world that they really are taking responsibility global issues. This
mainly contains environmental issues but also internal standards for Starbucks ongoing
activities.
6 http://library.corporateir.net/library/99/995/99518/items/178280/Annual_Report_2003_part1.pdf
7 http://library.corporateir.net/library/99/995/99518/items/178283/Annual_Report_2004_part1.pdf
8 http://library.corporateir.net/library/99/995/99518/items/178285/Annual_Report_2005_part1.pdf
4
1.2 Financial analysis
In this section we examine some numbers collected from the last six annual financial
statements and calculate performance indicators. The figures mentioned in the text can be
found in the table in the Appendix.
Total revenue is increasing at a high, steady pace not matching the growth speed of number of
outlets but not lagging too much either. We also notice that the American share of total
revenues are decreasing leaving Starbuck a little better off concerning diversifying the
financial risks across the world lessening the reliance on the American market.
During the last five years the profit margin has increased steadily from 7,4 % to 12,5 %, and
during these years the cost of operations as a part of sales has been held more or less constant;
this shows that Starbucks have improved efficiency in areas outside the retailing business.
Studying the inventory turn over rate we notice that inventory is turned over about five times
every year and has stayed at about the same level for the entire period studied.
Return on equity has risen from 10,8 % in the year 2000 to 38,1 % in 2005 and the solidity
has decreased from 77 % to 59,5 % in the same period showing that the company are willing
to accept higher levels of risk in their financing, and this is not surprising since the levels of
long term debt for Starbucks are very low, less than one percent in 2005 and has been
decreasing steadily over the last six years at least.
Another interesting fact is that the average sale per store has started to rise in the last couple
of years after a period of decline. The American market has increased sale per store in four
out of the last six years, 2002 and 2001 while the international stores has had a rising sale per
store in two of the years we examined, but those were the last two years, and might be an
indicator of better times on the international market for Starbucks. This is very important
because of their dependence on the American market.
5
2. Corporate Responsibility
Howard Schultz's effort to "build a company with soul" included a broad-based program of
corporate responsibility was set up 1997. Starbucks was the largest corporate contributor in
North America to CARE, a worldwide relief and development organization that sponsored
health, education, and humanitarian aid programs in most of the Third World countries where
Starbucks purchased its coffee supplies; Starbucks began making annual corporate
contributions to CARE when it became profitable in 1991.
Since then they have donated, opened different programs, opened an environmental
committee which has raised millions of dollars and helped a lot of people.
2.1 The Starbucks Foundation
A few years later, in 1997, Howard Schultz established “the Starbucks Foundation” which
was inspired his childhood experiences9.
The Foundation is dedicated to it´s mission: creating hope, discovery, and opportunity in
communities where Starbucks lives and works. Since then the Starbucks Foundation has
maintained a focus on improving young peoples’ lives by supporting literacy programs for
children and families. To date, the Foundation has provided over $12 million to more than
700 youth focused organizations in the United States and Canada.
All the work and money Starbucks spend on corporate and social responsibility of course lead
to an improvement of their brand, which obviously is profitable for them. This kind of work is
common among the big, well known companies, for example McDonald´s and gives the
company a wider market and makes their brand even better known10
.
9 http://www.starbucks.com/aboutus/foundation.asp
10 http://www.starbucks.com/aboutus/foundation.asp
6
3. Strategy in the U.S
Expansion strategies at Starbucks
Historically, Starbucks has expanded by finding an area with the right demographics, selected
a large city (to use as a “hub” for their logistics) and started looking for locations (in the
United States at least). After finding suitable locations in the hub and blanketing that market
the expansion continued in satellite cities around the hub. Nowadays it seems as this strategy
has served its role and a new way of attacking the market seems to evolve. In Harlem a brand
new Starbucks has opened up its doors, in a neighborhood that would not have been
considered a couple of years ago. The locations in Harlem have "given us tremendous
confidence that we will open a store today in almost any neighborhood in America if we feel
the density is there” says Howard Schultz, chairman.
Starbucks has had notable success in identifying top retailing sites for its stores. The company
had the best real estate team in the coffee-bar industry and a sophisticated system that enabled
it to identify not only the most attractive individual city blocks but also the exact store
location that was best. Usually these locations are on corners, near heavily trafficked roads or
on campuses. As mentioned above, these locations in the very center of cities has been crucial
until a short time ago.
3.1 Starbucks main strategy in the U.S today – retail perspective
The main strategy of Starbucks in order to get customers is to be close to them. That can for
example be that the stores are situated near where people are working, living, travelling,
eating dinner or shopping. In order to “be there” Starbuck has a number of cooperations with
companies and places that is situated where Starbucks potential customers are. For example
Starbucks has agreement with almost every big mall or shopping centre within the United
States. They also have agreements with airports, warehouses, companies and more.
Starbucks' strategy for expanding its retail business is to increase its market share in existing
markets and to open stores in new markets where the opportunity exists to become the leading
specialty coffee retailer. In support of this strategy, the Company opened 647 new stores
during the fiscal year ended September 30, 2001. At fiscal year end, Starbucks had 2,971
Company-operated stores in 38 states, the District of Columbia and five Canadian provinces
(which comprise the Company-operated North American retail operations), as well as 252
stores in the United Kingdom, 25 stores in Thailand and 18 stores in Australia (which
comprise the Company-operated international retail operations). Company-operated retail
stores accounted for approximately 84% of net revenues during fiscal 2001. Starbucks retail
stores are typically located in high-traffic, high-visibility locations. All Starbucks stores offer
a choice of regular and decaffeinated coffee beverages, including at least one "coffee of the
day," a broad selection of Italian-style espresso beverages, cold blended beverages, a selection
of teas and distinctively packaged roasted whole bean coffees. Starbucks stores also offer a
selection of fresh pastries and other food items, sodas, juices, coffee-making equipment and
accessories and a selection of compact discs. Each Starbucks store varies its product mix
depending upon the size of the store and its location11
.
11
http://www.hospitalityguild.com/Financial/Restaurants/Starbucks%20Corporation.htm
7
The marketing director of Starbucks, Peter Maslen, says in an interview John Karolefski at
brandchannel.com that Starbucks absolute convince is that everything “is about building one
store at a time and one cup of coffee at a time”12
. What he says is that Starbucks doesn’t want
to be a mass-marketing company. He believes that Starbucks mainly survives on it’s good
reputation. Mr Maslen means that the company survives on repeat purchase and loyalty to the
store. Furthermore he claims that the customers catch of Starbucks depends on the in-store
experience.
Even though Starbucks main business are selling coffee Starbucks vice marketing manager,
Hayes Roth, claims that the business is not about selling coffee. “It’s about coffee drinking
and the coffee house experience”.
Starbucks retail stores located outside of North America, the United Kingdom, Thailand and
Australia are operated through a number of joint venture and licensing arrangements with
prominent retailers. During fiscal 2001, the Company expanded its international presence by
opening 282 new international licensed stores, including the first stores in Bahrain, Saudi
Arabia , Switzerland and Israel . At fiscal year end, the Company had a total of 634 licensed
international stores, including 289 stores in Japan, 74 in Taiwan, 62 in China, 33 in the
Philippines, 30 in Singapore, 26 in Hawaii, 26 in New Zealand, 24 in South Korea, 21 in
Malaysia, 12 in the United Arab Emirates, 11 in Saudi Arabia, nine in Kuwait, six in
Switzerland, five in Lebanon, three in Qatar, two in Bahrain and one in Israel13
.
3.2 To be an adventure
Another strategy that you can connect with retailing is that Starbucks wants their customers to
experience something more than just have a coffee-break. By doing the best tasting coffee in
the market Starbucks wants the customer to feel a demand for to get Starbucks coffee. This
they are doing with a few different tactics. For example Starbucks offer a wide range of music
options for their customers, they also had live concerts in some stores. Furthermore they also
shows different kind of arts in some stores. Nowadays they also offer other products such as
juice, sodas, coffee beverages, espressos, tea, fresh foods, and roasted coffee beans. Starbucks
even sells equipment for making coffee, compact discs and more. Today Starbucks also has
wire-less internet connection in many of their stores.
3.3 Place
Now when Starbuck has grown to be what it is today the strategy regarding retailing mainly
consists of increasing market share in already existing markets but also in new markets where
there are opportunities to become the leading coffee retailer. The stores are mainly located in
areas where a lot of people pass by, in so called A-streets. The location of the stores is in such
places where the visibility is good.
12
http://www.brandchannel.com/features_effect.asp?fa_id=78 13
http://www.hospitalityguild.com/Financial/Restaurants/Starbucks%20Corporation.htm
8
4. Strategy in EU
In May 1998 Starbuck decided to go to Europe in building their first store in the United
Kingdom. They realized the opportunity in reanimating the European coffee tradition by
establishing their retail chain like it happens in the fast-food sector with Mc Donald some
years ago. Indeed the coffee business has been vanished for many years and Europe is also a
big market with not a lot of direct competitors and Starbucks introduced a new concept to
have coffee.
During our searching through the Internet about Starbucks, we discover that the differences
between strategies for the European countries are so little that’s why we can talk about a
“European retail strategy”. First, let’s just have a look on the Starbucks’s history in Spain,
Germany and France and then let’s analyse its retailing strategy and try to define it and find
maybe some differences between these three countries.
4.1 Starbucks in Spain
In October 2001 Starbucks initiated plans to open stores in Spain. By April 2002 Starbucks
had successfully entered the Spanish market with the opening of two stores in Madrid. Shortly
after, two new stores were opened in Barcelona. There are currently 43 stores in Spain located
in Madrid, Barcelona, Sevilla, and Valencia in the near future.
4.2 Starbucks in Germany
In 2002 Starbucks decided to go into the German market. Their goal till the end of 2007 was
to have 180 coffee shops, but after some difficulties and a split up with the participator
KarstadtQuelle the new goal will be 100 shops till 2007. Now, one year before, in Germany
are 67 Starbucks shops in 17 cities existing and seven will follow till the end of this year. 14
4.3 Starbucks in France
In September 2003, Starbucks decided to open coffee shops in France. In January 2004
Starbucks opened its first store in Paris. Now there are 26 stores in France: 22 in Paris and 4
in the Parisian suburbs and they plan to open new ones in other cities.
4.4 Location and Product
To minimize the risk and to be well known of the coffee market (consumers, tradition,
competition…) Starbucks decided to form joint ventures with enterprises of experience in the
restaurant or retail sector in the targeting country like Grupo Vips in France and Spain or
KarstadtQuelle in Germany. However Starbuck offers no franchisees opportunities. The
strategy to enter an international market is to search for a joint venture partner because it is
easier to control the shops and this permits to create a brand image which is paramount
especially in the first three years to get into the market. In order to establish joint ventures
Starbucks pays attention to the experience of the company in the market and of course to the
14
http://www.ftd.de - Starbucks defies McDonald's
9
company’s financial resources. Another important point is that the company may have the
same philosophy and group culture to expand. In the following parts we will analyse the retail
strategy.
The location of the stores is one of the most important points of the retailing strategy so
Starbucks looks for being in shopping and business areas, but this leads to a main problem; it
is very difficult to find a free local in the city centre and it means, to make great investment.
In doing so they reach their main targets that’s to say working and “shopping” people.
A lot of other points make Starbucks different from traditional coffee shops. Indeed,
Starbucks really want to create a comfortable and warm atmosphere that is to say they want
the people to relax, providing Internet access, nice decoration, free music events on the
weekend, expositions or activities for children …or to have a quick coffee to go. For the
people Starbucks can be a place to read or meet friends. Also the social engagement is special
in compare to other coffee shops. The staffs are also very important (they call them
“partners”) because they contribute to create an image of quality for the customers. Each
partner had a training in how to make the coffee and to treat customers right. Starbucks want
the customers to be loyal so Starbucks handed out discount and pay cards to their customers.
Starbucks offer a wide and deep assortment of coffee from a simple coffee with some more
special and coffees that the customer can create on their own. They had also some special
coffees for certain months. Coffee and quality of the products are one of the most important
things for Starbucks that’s the reason why you can’t smoke in Starbucks coffee shops.
Starbucks also offers a very huge range of teas. Finally, to have Starbucks at home every
coffee shop has a merchandising area where the costumers can buy mugs, coffee machines,
flasks, coffee grinder.
4.5 Competitors
For the moment Starbucks has no direct competitors in Spain, Germany and France that is to
say that it doesn’t exist another big competitor who offers the same products, services and
who target the same consumers. Of course in Spain and in France there are a lot of
“traditional” small coffee shops who constitute some competitors for Starbucks but the target
is not the same. Indeed these coffee shops target more the older generation who like the
tradition of the small black coffee in a typical cafe and it is often associated with a cigarette.
Starbucks targets more the young people who are searching for something different and who
are ready to pay more but they expect to have a good drink, a good atmosphere, a nice coffee
shop and a lot of services (music, internet…).
But there exists some competitors like Columbus café in France 50% of its profit with take-
away and they are located more in the train stations and airports or malls.
But in Germany are existing competitors too for example Balzac Coffee, Meyerbeers or
McDonalds with McCoffee (130 shops)15
.
15
http://www.rp-online.de - Starbucks attacks Tchibo
10
4.6 Future
In Europe the trend shows a potential of more shops, because the trend to go out to have a
coffee will rise. So that their expansion is right now at the beginning, and the main target will
be to become the market leader. For example the German coffee association esteem that in the
next 3-5 years the consumption of coffee drunken outsight the own walls will raise (now
25%)16
.
4.7 Conclusion
Starbucks has in Europe a policy of high prices and wide and deep assortment as well as shop
located in the city centre. In conclusion these characteristics show us the Starbucks
positioning as targeting “active buyers” and we think that Starbucks is completely the new
trend of consumption like “shopping, eating and fun” or “leisure, pleasure and entertainment”.
And as a self appointed special trader Starbucks offers coffee seminars.17
The development strategy adapts to different markets addressing local needs and requirements
for example food, opening hours etc.
5. Analysis
5.1 Expansion
As described in the previous part the expansion strategies are identical in Europe and in the
US, using the “hub and spoke”-strategy. In doing so they usually start out in the largest city
(in Europe this has meant the capital of the country) and expand to other large cities after the
adaptation period.
5.2 Place
Starbucks wants to be a place where people can meet and hang out, to be some sort of
community centre. Also, the customers they are targeting, usually, can be found in these
areas. To achieve this all stores need to be located in highly visible places with a lot of
pedestrians passing the front door, also called “A-locations”.
5.3 Product mix
Since patrons visit Starbucks mainly for the coffee and coffee-related products, this segment
of the product mix is, more or less, universal. We did find differences in the assortment of
food among the investigated countries, but it is natural to adapt to the preferred taste of the
locals. They also focus a lot on the quality of the coffees and they offer a wide and deep
assortment combined with high prices. In doing so, they focus on active buyers who expect a
high level of services and to enjoy their coffee in a pleasant surrounding.
16
http://www.ftd.de - Starbucks defies McDonald's 17
http://www.rp-online.de- Starbucks attacks Tchibo
11
5.4 Competition
There is no direct global competition; even if competitors exist Starbucks is quite the only one
to offer this kind of concept. If we compare with McDonalds we can say that there is no
Burger King for Starbucks.
There are four major ways of growing a business: diversification, retail format development,
market penetration and market expansion18
. It is possible to diversify in two ways, related and
unrelated diversification. The difference is that related diversification is made as a prolonging
of one or more of the present target markets while unrelated diversification do not have
anything in common with the present business, vertical integration is an example of unrelated
diversification.
Starbucks chose to expand the market which means moving their business into new territories.
Several options are available for this expansion such as direct investment, joint ventures,
franchising and strategic alliances19
. Starbucks use both joint ventures and strategic alliances.
This permits Starbucks to have an easier control in order to create a real brand image. Since
Starbucks is a premium brand and needs to keep tight control of their image and therefore
they have chosen not to use franchising as a means of expansion.
They use a global strategy based on their products, brand positioning, and expansion strategy.
5.5 SWOT-analysis of Starbucks
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats and is a
systematic assessment, used to analyze a company or part of a company on several
dimensions. Strengths and Weaknesses are (usually) company specific factors while
Opportunities and Threats are focusing on the competitive environment in which the company
operates; factors such as environment, regulations and trends to mention just a few. One
should not list all strengths and weaknesses listed in a SWOT-analysis but focus on the
critical success factors20
.
Now there will follow an analysis over common examples of each area but focus will lie on
Starbucks strategy. What are the positive- and negative sides of using a global strategy? What
kind of opportunities and threats do they face using this strategy21
?
Strengths can be used to gain a competitive advantage, for example recognized as market
leader, adequate financial resources, strong management team and proprietary technology.
Starbucks Corporation is a very profitable organization, earning in excess of $600
million in 2004. The company generated revenue of more than $5000 million in the
same year.
It is a global coffee brand built upon a reputation for fine products and services. It has
almost 9000 cafes in almost 40 countries.
18
Kotler et al; Principles of Marketing – European Edition; 2001; Prentice Hall; Harlow 19
Kotler et al; Levy, Weitz 20
Charney, Cy; Leader’s Tool Kit; 2005; Amacom Online (E-book)
Kotler, P et al; Principles of Marketing – European Edition; 2001; Prentice Hall; Harlow 21
http://www.marketingteacher.com/SWOT/starbucks_swot.htm
12
Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. The
company is a respected employer that values its workforce.
The organization has strong ethical values and an ethical mission statement as follows,
Starbucks is committed to a role of environmental leadership in all facets of our
business.
Their global strategy makes it easier to recognize them. The stores, the products and
the inventory looks almoust the same everywhere which gives the customers a
knowledge of what they are ordering – whether they are in USA or in France.
They have good marketing skills
They always open a store at a good location, much beacuse of their budget.
Weaknesses are important because they need to be corrected in order to meet your goals. For
example: costs disadvantage with competitors, weak market image, no clear strategic
direction, lack managerial depth, outdated facilities.
Their strategy can be a problem when it comes to adapt to a new market. There may
arise to problems regarding their concept. It is a possibility that it is more difficult for
them to change things reguarding their strategy if it turns out that something is not
working out in some countries/markets, than it is for other coffeshops. This can lead to
big problems in the long run.
Starbucks has a reputation for new product development and creativity. However, they
remain vulnerable to the possibility that their innovation may falter over time.
The organization has a strong presence in the United States of America with more than
three quarters of their cafes located in the home market. It is often argued that they
need to look for a portfolio of countries, in order to spread business risk.
The organization is dependant on a main competitive advantage, the retail of coffee.
This could make them slow to diversify into other sectors should the need arise.
Opportunities could allow you to improve your position in the market or grow your business.
You can have a opportunity to expand your product line, add related service, form strategic
alliance, target new market.
Starbucks has a big opportunity to grow by entering new markets in an international
expansion. They have realized this themselves according to what represents of
Starbucks said22
in an interview with Gulfnews 2006-10-07. In this interview
representatives of Starbucks say that they will change their long-term goal in opening
of new stores from 30,000 to 40,000 new stores worldwide. They did not mention in
what time they wanted this to be a fact but in the end of 2007 Starbucks expects to
have over 14,000 stores worldwide. Starbucks do say that at least half of these 40,000
stores will be outside U.S.
Due to the expansion in new and existing markets Starbucks can continue to develop
new products. The last years Starbucks has introduced a wide range of new products
and other extras in their stores. By expanding international, into new regions with
different culture than those cultures in already existing markets, Starbucks has a huge
opportunity to introduce and invent products suitable for these new markets.
22
http://archive.gulfnews.com/articles/06/10/07/10072812.html
13
Another opportunity for Starbucks due to the expansion is the number of new
franchising options that will appear.
We also see an opportunity for Starbucks to make researches in the regions and
markets where they want to expand. Starbucks can for example measure the
population in a certain region and calculate the amount of coffee drinkers that are
potential customers.
Threats represent potential problems that you should consider and address. For example: entry
of a strong competitor, increased regulation, change in customer buying preferences.
Starbucks will meet strong competition in existing and new markets. Brands like
Barista, The Coffee Bean and Gloria Gear’s are already today competitors to
Starbucks. By entering new markets, new competitors will also appear.
The coffee prices worldwide are volatile. Due to the international coffee organizations
ICO indicator price conclusion23
the prices for coffee are instable which can be a
factor that Starbucks has to deal with in the future. Also in different regions the prices
are highly volatile24
.
When expanding into new markets Starbucks can face different kind of cultural
resistance to their activity. Our guess is that this has been a reason to why Starbucks
hasn’t expanded to certain regions earlier.
6. Conclusion
In the future we expect to find stores in other locations due to increasing competition of class
A-locations and rising rents in the city centers. The first step in this direction has already
taken place, like Harlem, New York. Another reason might be that the average customer of
Starbucks is growing older and can be found in other places today than ten or fifteen years
ago.
6.1 Products
Nowadays Starbucks has a well developed product assortment that they will be suitable in a
world wide market. Even though Starbucks has products that are substainable in regions
where they plan to expand, we think that they will be forced to adjust their product assortment
on different markets reguarding for example cultural matters. This might mean that they have
to come up with new products to attract and satisfy new customers in new markets. If
Starbucks will be succesful in their expansion they have to come up with products that are
attractive for new markets, not only because of what we just said, but also because in the new
markets there are competitors that they have to differentiate from. If they want to
marketleaders it´s crusial that they position themselves in a different way than the potential
competitors. That´s what the next headline is about.
23
http://www.ico.org/prices/p2.htm 24
http://www.ico.org/asp/display10.asp
14
6.2 Brand
Starbucks has great experience of how to differentiate and position itself to be marketleaders.
Throw the yerars they have improved their brand by always have a top class assortment
together with creating different emotions and exeriences for the customers visiting the stores.
The company is aware of how to mediate things that matters to people. They have for
example raised a fund called the Starbucks Foundation, which of course is positive for the
brand, Starbucks. Starbucks is facing a great challenge when it comes to make the brand
attractive in the markets where they plan to expand. Maybe the biggest challenge is to adjust
their own brand strategies to fit the new markets.
6.3 Expansion strategy
We don’t know if Starbucks has developed special strategies for the expansion. The only
thing we know is that they want to open 40,000 stores within a nonspecified time. We think
that having this as a vision and not as a time specified goal, Starbucks has the opportunity to
grow in its own suitable time although Starbucks will face some complications when it comes
to adjust its own expansion strategy and to adapt new cultural matters. If Starbucks succeed
with this we believe that they will be markets leaders in all regions that they expand in.
So, we still believe that Starbucks isn’t just a cup of coffee
15
7. Appendix
Chosen figures from Annual Financial Statements Year 2005 2004 2003 2002 2001 2000 1999
Revenue
Retail 5 391 927 4 457 378 3 449 624 2 792 904 2 229 594 1 823 607 1 423 389
Special 977 373 836 869 625 898 496 004 419 386 354 007 263 439
USA 5 346 967 4 501 287 3 480 164 2 828 253 2 301 013 1 910 092 1 467 410
Rest of world 1 022 333 792 960 595 358 460 655 347 967 267 522 219 418
Total 6 369 300 5 294 247 4 075 522 3 288 908 2 648 980 2 177 614 1 686 828
Growth of revenue 1,20 1,30 1,24 1,24 1,22 1,29 n.a.
US part of revenue 0,84 0,85 0,85 0,86 0,87 0,88 0,87
Costs
Cost of goods sold 2 605 212 2 191 440 1 681 434 1 350 011 1 112 785 953 560 741 010
Store operating 2 165 911 1 790 168 1 379 574 1 109 782 875 473 704 898 543 572
Other costs 197 024 171 648 141 346 106 084 93 326 78 374 54 566
Depreciation and amortization 340 169 289 182 237 807 205 557 163 501 130 232 97 797
General and administrative 357 114 304 293 244 550 234 581 151 416 110 202 89 681
Total costs 5 665 430 4 746 731 3 684 711 3 006 015 2 396 501 1 977 266 1 526 626
EBIT 796 444 620 727 432 472 338 999 288 047 160 570 164 026
Assets
Current assets 1 209 334 1 350 895 924 029 772 643 593 925 458 234
Inventory 546 299 422 663 342 944 263 174 221 253 201 656
Total assets 3 514 065 3 386 541 2 729 746 2 214 392 1 851 039 1 491 546 n.a.
Liabilities and equity
Current liabilities 1 226 996 746 259 608 703 462 595 445 264 311 666
Long term debt 2 870 3 618 4 354 5 076 5 786 6 483
Equity 2 090 634 2 470 211 2 082 427 1 723 189 1 375 927 1 148 399
Total liabilities and equity 3 514 065 3 386 541 2 729 746 2 214 392 1 851 039 1 491 546 n.a.
Return on income 0,125 0,117 0,106 0,103 0,109 0,074 0,097
Operating Costs/Sales 0,780 0,784 0,786 0,780 0,786 0,798 0,794
Gross profit 0,573 0,572 0,567 0,559 0,577 0,590 0,592
Inventory turnover 4,979 5,362 5,148 5,511 5,063 4,431 n.a.
Return on capital 0,227 0,183 0,158 0,153 0,156 0,108 n.a.
Return on equity 0,381 0,251 0,208 0,197 0,209 0,140 n.a.
Solidity 0,595 0,729 0,763 0,778 0,743 0,770 n.a.
Number of stores
USA 6229 5273 4300 3556 2756 2022 1583
World 2471 2068 1680 1265 813 532 343
Total 8700 7341 5980 4821 3569 2554 1926
No of stores growth speed 1,19 1,23 1,24 1,35 1,40 1,33 n.a.
Sale per store
USA 858 854 809 795 835 945 927
World 414 383 354 364 428 503 640
Total 732 721 682 682 742 853 876
Growth of sale per store
USA 1,01 1,05 1,02 0,95 0,88 1,02 n.a.
World 1,08 1,08 0,97 0,85 0,85 0,79 n.a.
16
8. Sources
8.1 Books
Charney, Cy; Leader’s Tool Kit; 2005; Amacom Online (E-book)
Kotler, P et al; Principles of Marketing – European Edition; 2001; Prentice Hall; Harlow
8.2 Electronic sources
http://archive.gulfnews.com/articles/06/10/07/10072812.html
http://library.corporate-ir.net/library/99/995/99518/items/34139/2000ar_narrative.pdf
http://library.corporateir.net/library/99/995/99518/items/37555/102640_narrative2.pdf
http://library.corporate-ir.net/library/99/995/99518/items/57146/ar01_narrative.pdf
http://library.corporateir.net/library/99/995/99518/items/178280/Annual_Report_2003_part1.
http://library.corporateir.net/library/99/995/99518/items/178283/Annual_Report_2004_part1.
http://library.corporateir.net/library/99/995/99518/items/178285/Annual_Report_2005_part1.
http://media.corporate-ir.net/media_files/irol/99/99518/pdf/ar02_narrative.pdf
http://www.brandchannel.com/features_effect.asp?fa_id=78
http://www.hospitalityguild.com/Financial/Restaurants/Starbucks%20Corporation.htm
http://www.ico.org/asp/display10.asp
http://www.ico.org/prices/p2.htm
http://www.marketingteacher.com/SWOT/starbucks_swot.htm
http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html
http://www.rp-online.de-“Starbucks attacks Tchibo“
http://www.starbucks.com/aboutus/foundation.asp
http://www.ftd.de – “Starbucks defies McDonald's”
