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STARBUCKS A Case Analysis

STARBUCKS A Case Analysis. PREPARED AND PRESENTED BY: WASSEM AMIN, DARREN APPLEGATE, TIM KELLY, BARBARA KERSHNER, ERALD SINO, EWA SITARSKI, KLITON XHEMALI. GR 732 Marketing Management 2007. Case Analysis Outline. I. Executive Summary ~ T. Kelly

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STARBUCKS A Case Analysis

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  1. STARBUCKSA Case Analysis PREPARED AND PRESENTED BY: WASSEM AMIN, DARREN APPLEGATE, TIM KELLY, BARBARA KERSHNER, ERALD SINO, EWA SITARSKI, KLITON XHEMALI GR 732 Marketing Management 2007

  2. Case Analysis Outline • I. Executive Summary ~ T. Kelly • II. Situation Analysis ~ W. Amin / E. Sino / K. Xhemali • Environment • Industry • Organization • Marketing Strategy • Problems Found in Situation Analysis ~ D. Applegate / B. Kershner • Statement of Primary Problems • Statement of Secondary Problems • Strategic Alternatives for Solving Problems ~ D. Applegate / B. Kershner • Selection of Strategic Alternative and Implementation ~ D. Applegate / B. Kershner • Statement of Selected Strategy • Justification for Selected Strategy • Description of Implementation of Strategy • VI. Summary ~ T. Kelley • VII. Appendices ~ E. Sitaskri • Financial Analysis • Technical Analysis

  3. Vision • Be known as one of the world’s great companies • Create one of the world’s greatest brands • Maintain an uncompromising commitment to coffee quality • Create a great work environment and believe in the power or our people • Lead with integrity, courage and passion • Maintain our commitment to our communities and the environment

  4. EXECUTIVE SUMMARY Worlds Largest Coffeehouse Sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks, ice cream, and items such as mugs, coffee beans, and music. Over 13000 Stores in over 40 Countries Retail brick and mortar locations as well as licensed outlets, grocery stores, and the internet. Annual Revenues in excess of $7 Billion Over 140,000 employees Founded in 1971 in Seattle, Washington Starbucks incorporated in 1987 (Howard Shultz) Has aggressive growth plans: 40,000 retail stores worldwide

  5. Situational Analysis • Consumption Trends 108 million consumers 164 million per year 54% of the population • Consumption Data 9.7 lbs of coffee 3.1 cups per day • Today’s Consumption Trends • Coffee- Soft Drinks • Younger Drinkers

  6. Situational Analysis • Labor disputes • 2004 Workers joined IWW • 2005 Kent, Washington • 2006 Reinstatement of 5 workers • 2006 Pay increase in New Zealand

  7. SITUATIONAL ANALYSIS • Coffee bean market • Although it has endured much criticism for its purported monopoly on the global coffee-bean market, Starbucks only accounts for roughly two percent of global coffee production. • According to Starbucks, they purchased 4.8 million pounds (2,180 t) of Certified Fair Trade coffee in fiscal year 2004 and 11.5 million pounds (5,220 t) in 2005. They have become the largest buyer of Certified Fair Trade coffee in North America (10% of the global market) and the only company licensed to sell Certified Fair Trade coffee in 23 countries. • Of the almost 300 million pounds of coffee Starbucks purchased in 2006, about 6 percent was certified as fair trade.

  8. Starbucks ~ Organizational and Marketing Strategy 12

  9. Tim Horton’s ~ Organizational and Marketing Strategy 13

  10. Dunkin Donuts ~ Organizational and Marketing Strategy 14

  11. SITUATIONAL ANALYSIS • Starbucks has continued to post net income and revenue since 2002 • The company recorded revenues of $7787 million in the fiscal year • of October 2006, an increase of 22.3% over 2005. • Starbucks Corporation generates revenues through three business divisions: • US (79.3& of total), international (16.7%), and consumer products group (3.9%). • Its very strong financial position allows it to expand aggressively domestically • Internationally. Organization: Financial Condition:

  12. SITUATIONAL ANALYSIS • Top Management believes in Day-to-Day involvement in the activities of the • Corporation: Hands On approach. • Employees enjoy unsurpassed benefits in the industry. Schultz strongly believes • that Employee satisfaction is directly related to customer satisfaction. • “Partners are at the heart of the Starbucks Experience. One of the reasons • Starbucks has been so successful is because of the human connection • customers and partners share every day in our stores around the world. • We remain steadfastly committed to creating a great work environment, • and to offering health benefits for eligible full- and part-time partners despite • The significant rise in health care costs. In turn we are gratified to see • partners provide a great experience for our customers.” ORGANIZATION: Management Philosophy and Organizational Culture

  13. Organizational Culture (contd) • However, although the company has a better pay scale than its competitors, individual employee productivity has remained relatively lower. • Starbucks’ revenue per employee was $53,408 in 2006 as compared to an industry average of $93,330 per employee. • Additionally, Starbucks' net profit per employee is $3,870, as compared to an industry average of $8,299 per employee. • Attributed to higher cost of training per employee.

  14. Marketing Strategy:Analysis of Sales, Profit, and Market Share • The companies purchases and sells high quality coffees, along with whole coffee beans, espresso beverages, a variety of food items such as sandwiches and baked goods, coffee related equipments and accessories, a line of premium teas, and a record label which features prominent artists and a satellite radio channel. • Three operating segments: US, International, and Global Consumer Products Group (CPG). • At the end of fiscal year 2006, Starbucks had over 16,200 Corporate accounts. • The company recorded revenues of $7,787 million at the end fiscal 2006, which was an increase of 22.3% over 2005.

  15. Analysis (Cont’d) • Revenue divided per division was US (79.3%), International (16.7%), and CPG (3.9%). In dollars and cents, each group posted $6,178.6 million, $1,302.9, and $305.5, respectively.

  16. SWOT Analysis

  17. SWOT Analysis • Strengths • Worldwide Brand • Ranked 91st in top 100 Global Brands • Combined Value of the brand was $3.1 Billion Dollars • Profit has increased an average of 26% over the past four years. • Over 13,000 stores, 44 million customers per week, and 146,000 employees.

  18. SWOT Analysis • Opportunities • New markets domestically and internationally • Announced a plan to increase stores from 11,000 to 40,000! • Growing specialty market accounted for 15% of U.S Coffee Purchases. Expected to grow 125% in the next 3 years. • Weaknesses • Retail sales are derived from 77% beverages, 15% food items, 3% whole coffee beans, and 5% coffee making equipment and other merchandise. • Low Employee Productivity

  19. SWOT Analysis (Continued) • Threats • Intense Competition from restaurants, donut shops, and local coffee shops. • Pricing Strategy Internationally • Extremely Volatile Coffee and Dairy Prices • Coffee is the largest cost input, accounts for 20% of COGS • Had to increase domestic prices by 5 cents recently, the second time in less than 12 months, due to dairy prices • There is an expected gap in Worldwide Coffee production between 2007-2008.

  20. STARBUCKS PERFORMANCE The Company’s stock symbol is SBUX $24.47 price per share as of 9/21/07 16,653 shareholders as of 12/06 The company never paid dividends on its common stock and plans to use the retained earnings in its business. 24

  21. Comparison to Major Competitors

  22. REVENUES GROWTH 26

  23. REVENUE GROWTH 27

  24. REVENUES GROWTH 28

  25. REVENUES GROWTH 29

  26. Fiscal 2008 Targets ·   New store openings of approximately 2,600 · International openings by 200 stores ·  Comparable store sales growth in the range of three to seven percent ·  Total net revenue growth of approximately 18 percent ·  Fiscal 2008 earnings per share growth of approximately 20 percent to 22 percent 30

  27. Problems Found in Situation Analysis • Is Starbucks overextending themselves by expanding their food base? • Can Starbucks continue to compete locally with their current pricing strategy? • Can Starbucks compete internationally with their current pricing strategy • Is Starbucks a “rich-man’s” coffee?

  28. Primary and Secondary Problems • Can Starbucks continue to compete locally with their current pricing strategy? • Fewer Starbucks stores around • Reduced customer base • Not willing to pay increased prices • Can Starbucks compete internationally with their current pricing strategy? • Regular cup of coffee in Egypt was 28 Egyptian Pounds equivalent to a three course dinner. • Coffee quality was not different then other competing shops

  29. Strategic Alternative for Solving Problems • Should Starbucks reduce the price of their coffee? • Should they reduce the quality of their beans? • Should they not focus on environment awareness programs to save money and purchase cheaper / non recycled products? • Should they continue to expand their other lines such as clothing and food to make money their and reduce the price of their coffee • Should Starbucks purchase Dunkin Donuts • Should Starbucks open a “generic” branch of itself?

  30. Alternatives Discussed • Should Starbucks reduce the price of their coffee? • Reduce profits • Gain more market share • Not feasible • Should they reduce the quality of their beans? • Starbucks IS STARBUCKS because of the quality of their beans • Lose customer base • Not advisable • Should they not focus on environment awareness programs to save money • Starbucks prides themselves on being environmentally aware • This change would not follow their mission and values statement • Not advisable

  31. Alternatives Discussed • Should they continue to expand their other lines such as clothing and food to make money there and reduce the price of their coffee • Valid Strategic plan • However, risk losing the “feel” of Starbucks by expanding their product base. More “shop-like” • Not advisable, “stick with what you know” • Should Starbucks purchase Dunkin Donuts • Worth looking into • Risk of blending brands, confusing customers • Question social and environmental beliefs of the Starbucks customers • Continue to carry out Starbucks “mission and values” in a Dunkin Donuts environment? • Advised against this option

  32. Alternatives Discussed • Should Starbucks open a “generic” branch of itself? • How would this be perceived? • Could we do this and still maintain Starbuck's mission and values? • Can we hit a “happy medium” and still maintain our environmentally aware ethics? • This was a do-able, valid option to expand Starbuck’s customer base without compromising their mission and values

  33. Our Solution • Starbucks welcomes LIL’ Bucks • Cater to the “on-the-go” crowd • Enhance drive-thru service • Reduce product base • Focus on regular coffees • No extra products such as sandwiches, ice creams, etc… • Less training for employees needed • More casual environment, therefore less $$ needed to support computers, fireplace, music, etc… • Same quality of coffee and beans • Maintain environmental awareness • Maintain Community values • Maintain and support current Starbuck’s mission and value statements

  34. Justification of LIL’S Bucks • Great potential for expanding their market share into a different group of consumers • Capture some of the Dunkin Donuts consumer base • Attract consumers who could not afford Starbuck’s coffee before • Enable current customer base to have another alternative for faster “on-the-go” service along with increased Starbuck’s locations

  35. LIL’ Bucks Implementation Strategy • Same Mission and Values • Same quality of beans • Same dedication to community and environment • Same interest and dedication to employees • Same welcoming environment • Same great service, just faster

  36. LIL’ Bucks Implementation Strategy • More casual environment • No sofas or fireplaces • No internet set up • New trendy, comfortable, casual environment with the same Starbuck’s feel • More limited coffee selection • No specialty drinks • Reduce price of running LIL’ Bucks • Less training for employees • Less costly equipment • Overall • Welcoming to everyone • Encourages current customer’s to utilize the new locations when “on-the-go” • Enables more customer’s to afford the same great taste • Promotes a feeling of acceptance / trend when being seen with a Starbuck’s coffee • Allows a broader customer base to support an environmentally aware company with a solid mission and value statement

  37. LIL’ Bucks’ Prepares for Opening • Current factories will be utilized to prepare needed inventory / equipment • Already established delivery routes with slight deviations to expand the current market base • Coffee and menu already established, just needs to be trimmed to fit new customer base • Promotional advertising with coupons, frequent visitor cards and other specials • International appeal as “everyone” is on the run

  38. LIL’ Bucks’ Roll Out Plan • In order to make this new venture work for Starbucks they must take some time getting the market used to the idea.  This entails opening up “LIL’ Bucks” in select cities around the U.S.  The markets we suggest focusing on are ones where one of two things is true. • 1)      Dunkin’ Donuts has a large market share. • 2)      Low-income areas where Starbucks is struggling.  • By focusing on these two segments, Starbucks will be able to see the actual effects of the new stores.  In addition to seeing immediate effects they will also be introducing the new stores directly into the heart of the target markets. 

  39. Roll Out Plan Continued • With the role out of the new stores, there will be lots of advertising starting slowly about two months before the actual opening.  The level of advertisements will grow steadily until two days before the grand opening.  This will be the climax in the number of advertisements and then with the grand opening there will be a general pull back in the number of ads.  This will maximize the brand awareness in the areas that are targeted.  Due to the fact that the areas targeted are not high income we are not expecting the overall cost of the ad campaign to be too expensive.  • In the ads, there will be an emphasis on the convenience of our locations as well as the low cost of the product offering.  The low cost is a key but only in conjunction with the high quality of the coffee offered.  • The stores will have well trained and helpful partners who will make every customers visit impeccable.  Speed and quality will be the main goals of the baristas during the first few weeks.  This will be done in order to get people talking about “LIL’ Bucks

  40. SUMMARY “LIL-Bucks” – private label (leverage Starbucks Brand) Continued focus on company overall growth Maintain Starbucks: Culture, Values, guiding principles and ‘soul’. Solution to competitive pricing problem: Diversification and innovation.

  41. Latest Company Updates • July 26, 2007: Starbucks plans to enter Argentinean Market. • July 26, 2007: Starbucks increases prices by 9 cents • July 24, 2007: Starbucks puts off plans to enter Indian Market. • July 20, 2007: Starbucks and Hershey’s announce collaboration. • June 22, 2007: Starbucks and Ethiopia reach licensing agreement.

  42. STARBUCKS QUESTIONS ? GR 732 Marketing Management 2007

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