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Emily ThomasProfessor GervaisStrategyStarbucks CaseApril 2, 2012Starbucks’ Strategy and Internal Initiatives to Return to Profitable GrowthStarbucks has been the world’s premier roaster and retailer of coffee since its founding in 1987. Today they operate stores in over 50 countries. They have 8,812 company-owned stores and 7,583 licensed stores. Sales accumulate on average to about $10 billion dollars. Starbucks along with the rest of the world was hit hard with the worldwide recession beginning in 2008. They were forced to change the way in which they operated. Starbucks is a rapidly expanding company and it is imperative through the leadership of Howard Schultz that they continue to evolve. Summarize the overall strategy of Starbucks Management in its effort to create and develop a new concept and a rapidly expanding company. During the 1990’s it was evident that Starbucks needed to adapt and make changes in order to benefit their rapidly expanding company. The Chief Executive of Starbucks, Howard Schultz, decided that the way they would expand the company was by increasing distribution channels as well as acquiring more market segments. They increased their distribution channels by making products more accessible. By acquiring additional segments they aimed to create new products that cater to a larger group of consumers. They chose to focus on these changes in order to create sustained growth in the long run. Starbucks started working hard to expand their company using the new distributions channels and expanding to new market segments. They started with new distribution channels by selling their products to existing Universities, hotels, country clubs, hospitals, airlines, and restaurants. They also decided to work with large distributors who resided in the U.S. such as Sysco and US Foodservice. Both distributors began delivering Starbucks products to their clients soon after the partnership with Starbucks was formed. In order to break into new market segments Starbucks created new partnerships. Firstly, in 2007 they partnered with PepsiCo in order to create the International Coffee Partnership. The International Coffee Partnership sold Starbuck’s ready-to-drink beverages to countries around the world. In 2008 Starbucks also joined with Suntory and Arla Foods in 2010 to sell ready ready-to-drink beverages in Japan and the United Kingdom. Starbucks decided they would also expand their new market segments into ice cream. In order to do so they created a partnership with Dreyer’s Grand Ice Cream in 1995. This partnership dwindled and in 2008 Starbuck’s formed a new partnership with Unilever the largest ice cream manufacturer in the nation. This partnership was far more attractive due to Unilever’s offer of exclusive marketing, manufacturing and distribution of the new ice cream with the Starbucks name. Starbucks acquired Tazo Tea in 1999 to continue expanding their market segments. This allowed Starbucks to create ready-to-drink Tazo beverages within their existing partnership with PepsiCo. Kraft Foods began to distribute Starbucks coffee products (beans and grounds) to mass retailers and grocery stores within the United States. Kraft Foods was responsible for the distribution, advertising, promotions, and markets of the coffee products giving Starbucks a set percentage of their net sales. They were also able to include Tazo Tea in this distribution by Kraft Foods. Another acquisition Starbucks had in 2003 was that of Seattle’s Best Coffee. Seattle’s Best Coffee kept its name on all its products and stores. Due to their relationship with PepsiCo they were once again able to create ready-to-drink beverages with the Seattle’s Best Coffee name, and through their Kraft Foods partnership Seattle’s Best Coffee began being distributed in grocery stores throughout the U.S.They continued increasing their brand with the purchase of Ethos Water, and a partnership with Jim Beam Brands. Jim Beam and Starbucks created a Coffee Liqueur available for sale. In 2009 they also started Starbucks VIA Ready Brew. This allowed for on the go consumers to place a small packet of coffee in hot or cold water and mix it together creating a coffee beverage. Starbucks also partnered with iTunes to make their music selections available for sale. Overall, Starbucks greatly increased their market segments and increasing distribution channels in various ways.Starbuck’s had a specific strategy when it came to opening new locations. They believed more in licensing locations as opposed to franchising new stores because of the lack of control that comes with franchising. Starbucks also wanted to enter more international markets realizing that these new markets could increase revenues drastically. All of these things helped Starbucks as a rapidly expanding company. Which one of the five generic competitive strategies discussed on Chapter 5 most closely approximates the competitive approach that Starbucks is employing?Although Starbucks follows many of the five generic competitive strategies the strategy they follow most closely is the broad differentiation approach. Starbucks has put an emphasis on product differentiation in order to keep up with their ever-expanding company base. They have been extremely successful in their differentiation compared to their competitors. Starbucks offers such a multitude of products, which allows them to appeal to a variety of consumers. There are seven differentiating features of the generic competitive strategies. The following are ways in which the differentiating features prove that Starbucks follows a broad differentiation approach. Strategic Target- Starbucks has a broad market and they are able to meet the needs of a multitude of consumers. They are able to reach the more on-the-go customers through their VIA Ready Brew, health conscious customers with their Vivanno smoothies, at home consumer through their grocery store sales, as well as international consumers through their overseas petitive Strategy- Starbucks has always emphasized that the products Starbucks sells are important but just as important is the atmosphere of each individual Starbucks location. Each location is designed specifically to fit its geographical location. These specialized stores allow for even further differentiation from competitors whose stores are usually the same no matter the location with slight variations. Product Line- Starbucks has an immense number of products in which they offer compared to its competitors. They offer everything from the specialty coffees sold in stores to ice cream, t-shirts and other merchandise, liqueur, food products, etc. Starbucks product line is ever expanding and evolving. Product Emphasis- Usually when a company offers an immense number of products the quality of each individual product dwindles. However, Starbucks’ products are guaranteed high quality even with such a broad variety of products available. From the beginning of Starbuck’s their claim to fame and emphasis has been on the high quality of their goods especially coffee. This is one of their main differentiating principles to make sure they always have the highest quality products available to the consumer. Marketing Emphasis- Another differentiating factor of Starbucks is the atmospheres of each individual location. They make sure that customers are comfortable and happy with the service. They train their staff intensely in order to provide the best customer service possible. This helps market to a variety of consumers who know the high quality of both the products and service available at Starbucks. Keys to Maintaining Strategies- Starbucks is constantly innovating their products and store locations. They have gained many new partnerships and entered many new market segments. They have created partnerships with companies spanning from iTunes to food distributors such as Kraft Foods. Starbucks is continuously becoming more innovative through their various offerings. Capabilities Required- Starbucks offers broad differentiation by providing products that are extremely high in quality and an extremely innovative business model. This allows for differentiation across the entire spectrum of the Starbucks Corporation.What are the key policies, practices, business principles, and procedures that underlie how Howard Schultz and Starbucks’ management have implemented and executed the company’s strategy?Starbucks has many business principles that are key to the company’s success. The main two are the high quality costumer service, and their commitment to having the highest quality products (especially coffee discussed in the following section). Since the beginning of Starbucks one of their major draws to consumers was their high quality costumer service and overall store ambiance. Starbucks wasn’t just a place to pick up your coffee and run there was a certain degree of comfortability within each store. Costumers are able to sit and read a newspaper with their morning coffee, meet and catch up with friends, or even to come and complete some work. The main reason Starbucks locations are so comfortable is due to the people who work there. Starbucks emphasis on their staff all stemmed from Howard Schultz belief that the success of the company was most directly dependent on a positive in store experience. In order to make this possible the first step is to have a pleasant workplace environment. Starbucks does not refer to their workers as employees, but rather as “partners”. Starbucks empowers their workers through other ways such as encouraging them to offer up any ideas they should have. Employees also are regularly given awards for a job well done. There are a variety of awards (18 total) employees can obtain and each one is meant to further motivate employees to continue improving. Starbucks offers benefits for both full-time and part-time employees, which is a major draw to working at Starbucks and motivates employees to keep their jobs. Even when the company fell on hard times Schultz made sure that health care was not touched. Another draw for Starbucks employees are the available stock options for employees. They are awarded options based on Starbucks’ success and profitability in said year, the size of base wages per employee, and the stock option price. Furthermore, after 90 days of working Starbucks employees are offered a stock purchase plan. Within this plan employees can devote from 1-10% of their base earnings to buy Starbucks stock. This makes it so that employees have a monetary incentive to make the company successful because they have their own money invested within the company. In order for someone to become and employee of Starbucks they must enter intensive training. Within the first few weeks of employment new employees are expected to complete at least 24 hours of training. They learn about coffee history, drink preparation, retail skills, and of course customer service. There is also basic training on how to work the register, clean, set up equipment, and how to interact with customers. Within these trainings it is instilled in each new member that their service was invaluable in the quest for pleasing costumers. Managers go through much more extensive training which culminates in making sure that managers support increasing sales, instilling customer service values on new employees, keeping up with the company’s environmental mission, and overall creating a welcome environment for customers. Employee’s happiness correlates into how hard and efficiently they work for their employer. Starbucks recognizes this to be true and therefore puts a large emphasis on the well being of their “partners”. The variety of stock option and benefits each employee is offered as well as the praise and awards they may receive are all key in creating a welcome environment for customers. What “values” does Starbucks have? How well do they connect to the strategy and to the manner in which the company conducts its business? Are they successful in implementing them?Starbucks cornerstone vale is “to build a company with soul”. This value has been instilled since the company was created. They strived to do so especially by creating the highest quality coffee possible by buying the best beans and brewing them to perfection. They also value employees’ input on what pleases customers. Employees were given the theme “just say yes” in order to keep customers coming into Starbucks locations. They also want employees to speak their minds in order to voice what they believe is going wrong within Starbucks as well as any thing they have seen as positive or working well for the company. In Starbucks’ Mission Statement there are six main values that are to be focused on. They are: Our Coffee, Our Partners, Our Customers, Our Stores, Our Neighborhood, and Our Shareholders. Starbucks is successful in implementing these values in the following ways:Our Coffee- Starbucks has always strived to have the highest quality coffee. They do so by buying the best beans, and continuing to make sure that the roasting of the coffee was done to perfection. They also make sure that the small coffee growers Starbucks uses for their beans were able to have enough earnings to compete in the global market.Our Partners- Starbucks as discussed previously holds a special importance on the well being of their employees or partners. In order to do this they offer incentives, benefits, and awards to their employees to make sure they understand their importance within the company. The success in this can be measured by their inclusion on the Fortune magazine “100 Best Companies to Work For” list. Our Customers- Starbucks goal has always been to make their locations are a pleasant place to visit. They are successful in doing this through the extensive training given to new employees to teach them customer service. Our Stores- Starbucks first influence were the Espresso shops in Italy. They saw how happy the people inside were and how fantastic the ambiance of each store was for costumers. In order to emulate a similar atmosphere their various locations are also designed specifically to fit the geographical area each store is in. This helps to make customers feel more at home and at peace when they visit Starbucks.Our Neighborhood- Starbucks understands that each store is a part of a specific community. They also know that they must contribute positively to their surrounding communities. They do so through being good neighbors, and also engaging in many different community service projects such as the Starbucks Youth Action Grant, which is given to young people within specific communities monetary aid in community service Our Shareholders- Starbucks also recognizes that they have a duty to their shareholder to make their company as successful as possible. Their goal is to keep investors happy and do whatever is possible to make the company thrive to benefit said investors. They have done this so far by becoming the global powerhouse that Starbucks is today. What is your evaluation of Starbucks social responsibility strategy? How much does it helps to create their public image?Howard Schulz main effort to “build a company with soul” includes an extensive social responsibility strategy. He wanted to make sure that Starbucks had a way of doing business that was both socially and environmentally conscious. In 1997 the Starbuck Foundation was created in order to manage the company’s philanthropic activities. Starbucks corporate responsibility has four main elements: Ethically sourcing all of the company’s products- This has to do with their activity in buying from suppliers of coffee beans that are only Fair Trade Certified or practice C.A.F.E guidelines. This means that supplier practices responsible growing and harvesting practices. They also make sure that they practice fair labor. By 2015 Starbucks hopes to purchase 100% of their coffee through Fair Trade suppliers. Community involvement- Starbucks strives to be active within the communities they reside in. They have a goal of having their partners and customers contribute 1 million hours of community service by 2013. Starbucks also created the Starbucks Youth Action Grants in order to help young people get involved in community improvement projects. All of these community involvements are key in Starbucks CSR initiatives. Environmental stewardship- Starbucks also strives to decrease their waste, use renewable energy, increase recycling, make facilities more green, and overall to help address the climate change more. They have set many goals such as by 2015 to ensure that all of its cups were reusable or recyclable, to have front-of-store recycling in each store, and to reduce water consumption by 25%. Starbucks also entered the Business for Innovative Climate Change and Energy Policy coalition in 2009. Farmer Loans- Starbucks has given more that $15 million to coffee farmer loan funds in order to support the small family farms Starbucks uses as coffee suppliers. They hope to give $20 million by 2015. All of these initiatives have led to a very positive image for Starbucks who in 2010 was named to the Corporate Responsibility Magazine’s “100 Best Corporate Citizens”. This honor helps Starbucks reach their socially responsible consumers who require the companies they buy from to be good corporate citizens. All of Starbucks CSR initiatives make them extremely attractive to consumers and boosts their public image. Compare the US and international share of yearly revenue, revenue growth and operating income/revenue. What do these rations tell you? What is your overall assessment of Starbucks’ financial performance during fiscal years 2005-2009? Explain the performance of Starbucks stock. Starbucks United States 20092008200720062005Revenue $ millions $6,572.10 $6,997.70 $6,560.90 $5,495.20 $4,539.50 Growth rate %-6.10%6.70%19.40%21.10%Operating Income $m$531.80 $454.20 $1,005.20 $955.20 $818.50 Operating Income/Revenue %8.09%6.49%15.32%17.38%18.03%Starbucks International20092008200720062005Revenue $ millions$1,608.00 $1,774.20 $1,437.40 $1,087.90 $852.50 Growth rate %-9.40%23.40%32.10%27.60%Operating Income $m$92.90 $110.00 $137.70 $108.50 $82.30 Operating Income/Revenue %5.78%6.20%9.58%9.97%9.65%Looking at the data for both Starbucks performance in the United States as well as Internationally it is clear that the United States market is much larger and more profitable. Firstly, when looking at yearly revenue the revenue in the United States market in 2009 alone was around four times as higher than the International market revenue. The United States had revenue of $6,572.10 million while the International revenue was only $1,608.00 million. Next comparing the revenue growth rate percentages both did have a negative growth rate in 2009, but Starbucks International growth rate was about 3% lower still than that of the United States. This is a rarity however for up to 2009 in both sectors their had been a consistently positive growth rate. However, due to the economic recession, which struck in 2008-2009, it is not surprising that there was a significant decrease in growth within both markets. Before this downturn the growth rate in the United States had began to slow since 2006, but the figures were still positive once again until 2009. Internationally the growth rates have been fluctuating since 2006 but they remained quite high reaching 32.1% growth in 2007. This is due to Starbucks trying to expand more into the international markets in recent years. Looking at the operating income for the United States and International markets once again there was a significant difference. Starbucks United States operating income was much higher. This is due to the much larger size of the market and revenues in the United States compared to the International market. Looking also at the operating income to revenue percentage the United States is comparatively high once again. As it gets closer to the present; however, for example in 2009 the operating income to revenue ratio is much closer. For the United States it is 8.09% and for the International market it is 5.78%. This is once again due to the recession, which leveled most economies to a similar level. Overall, Starbuck is on average a healthy and profitable company. The only years that they saw a decrease in sales was during the recession which is quite common in most companies. However, Howard Schultz had a plan for this decline in sales in which he cut stores, and made sure to refocus the company on sustaining growth. In fact, in 2009 Starbucks gave out its first ever dividend to shareholders or $.10 per share. This is a good sign for the financially health of Starbucks. What are the key elements and your evaluation of Howard Schultz’s transformation agenda for Starbucks during 2008-2010? What do you think of the letters shown on page C-364 and C-365? Has Schultz do a good job since his return as Starbucks’ CEO? Why or why not? Reading the letters from Howard Schultz in the text it is clear what a strong and powerful leader Schultz is. I believe that he is extremely passionate about the success of the entire Starbucks Company. He is always thinking about the ever-evolving nature of consumers how Starbucks can adapt to these new trends. He also strives to empower and inform his employees to the best of his ability. He has created goals and agendas in order to have Starbucks be profitable and sustainable for years to come. I believe that he has done an amazing job since his return as Starbucks’ CEO and it is clear through his letters that he will continue to work his hardest to allow Starbucks to continue to rise as one of the most powerful companies in the world. The main elements highlighted in Howard Schultz’s transformation agenda were to strengthen the core, elevate the experience, and invest and grow. All of these elements are extremely important in order for Starbucks to see long-term growth and sustainability. If all of the following elements can be enacted and their goals fulfilled there is no doubt that Starbucks will be a successful and sustainable company for years to come. Strengthen the Core- In order to do this there would have to be some store sacrifices. Schultz wanted to make sure that each store was able to be successful and those that were would have to be closed for the good of the company. This included around 900 stores in hopes that the stores who survived would have a revamp in their success. There was also a new program started in which best practices were taught throughout the entire Starbucks company.Elevate the Experience- Another way Schultz planned on transforming Starbucks was through making small changes which would help make costumers experience that much more pleasant. For example, they got rid of the breakfast sandwiches in order to relieve an unwanted smell created by the eggs. Schultz also retrained employees in order to amp up the relationship between employees and customers. When it came to new stores new designs were put in place in order to reflect the different geographically locations they were set it. Invest and Grow- In order to grow Schultz realized there was a golden opportunity waiting within in China and Japan. These two countries are ever growing and presented the most promising opportunity for growth. The company also decided to start focusing on raising the return on capital flow especially in new stores. They thought this would be key for Starbucks success. What issues confront the company as of mid-2010? What should Starbucks’ management be worried about? What are the challenges in expanding internationally?As of the mid-2010 the recession was the biggest issue confronting Starbucks, as was how to deal with the recent decline in sales caused by the recession. Management should be extremely worried about this seeing as never before had they had a decline in sales. Starbucks must confront the issue of their higher prices compared to their competitors. With the recession people are less willing to spend money on simple things like coffee every morning. Starbucks must reconnect with customers reminding them of the high quality of the coffee and even perhaps they should slightly lower their price point, because it is higher compared to other coffee shops. They also faced the challenges of expanding internationally. Breaking into international markets is always hard for companies. One reason it is hard to break into international markets is due to the lack of brand awareness. Since Starbucks was started as an American company there is a good chance that in other countries their awareness of Starbucks and what it stands for may be weak. This reduces the chance of a company’s success drastically. Also Starbucks has always emphasized that the atmosphere of each store location corresponds with the geographic location. If Starbucks were to continue to expand internationally they would need to put a great deal of time and money into researching the customs and atmosphere of the countries they were moving into. Expanding internationally is extremely difficult to do.What recommendations would you make to Howard Schultz to sustain the company’s growth and support continued strong financial performance in the years ahead? Consider both the US and International strategies. Lower Prices- In order to reach more consumers who may shy away from Starbucks due to their high coffee prices Starbucks may want to think about slightly lowering their prices. This would help to reach more consumers who don’t feel comfortable with the current high prices. Alternatively if the management did not feel comfortable in doing this perhaps by offering new deals such as a buy one get one free offer during obscure hours for example, from 3-6pm on week days. This would help increase the flow into Starbucks during the non-“rush hours”. This would also attract more consumers who perhaps have never tried Starbucks but are interested in the deal. When they taste the high quality of the brew they may be more willing to splurge on a good cup of coffee. K-Cup Availability- The Keurig system has become increasingly popular within the United States. Especially during the recent recession when consumers are more likely to make coffee at home than buy it on their way to work. This opens up an opportunity for Starbucks to break further into the at home coffee market. The Keurig machines brew single cups of coffee using their K-Cups, which are easily disposable after use. This system allows you to make coffee mess free and quickly at home. Starbucks could easily partner with Keurig in order to create Starbucks K-Cups for sale. They could start with basic blends of Starbucks coffee for sale in local grocery stores. Starbucks’ competitors such as Dunkin Donuts have already broken into this market, and I believe it would be a golden opportunity for Starbucks to do the same.International Growth- Although Starbucks is currently located in over 50 countries, I believe the idea Howard Schultz had to expand into Japan and China is a good one. Japan outside of the United States has been the largest consumer of Starbucks products. This opens up the door for Starbucks to open up a multitude of stores in Japan. Due to China’s ever expanding economy and its large ties with the United States it would also be beneficial to open up a large number of Starbucks there. It is important to start opening stores strategically in large cities within these companies and recording their growth. This way the locations that are failing can be shut down, and stores that are thriving can be focused on. United States Growth- Although the United States has an extremely large number of stores the number of drive thru locations is still fairly small. In order to cater to the on-the-go American coffee drinkers I believe that more drive thru locations are necessary. This would also allow for quicker customer turnover due to dividing the customers between coming inside to order, and the outside drive thru window. Of course it is imperative that Starbucks with the addition of the drive thru windows keeps the high quality costumer experience alive. This would be done through nice flower beddings around the drive thru area as well as training employees how to work efficiently at the window. Works CitedThompson, Arthur A. Crafting and Executive Strategy: the Quest for Competitive Advantage: Concepts and Cases. New York: McGraw- Hill Higher Education, 2011. Print. ................
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