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Neeharika Chowdhary Karan Gulati Marcus Tsoi Raymond Chan

Neeharika Chowdhary Karan Gulati Marcus Tsoi Raymond Chan. How to best achieve long term sustainable growth?. How can Starbucks Entertainment grow its music business internationally?. Brand. Mature Market. Snack and Scoop. Divest Hear Music. Add-ons. Expand into Ice-cream Shops.

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Neeharika Chowdhary Karan Gulati Marcus Tsoi Raymond Chan

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  1. Neeharika Chowdhary Karan Gulati Marcus Tsoi Raymond Chan

  2. How to best achieve long term sustainable growth? How can Starbucks Entertainment grow its music business internationally? Brand Mature Market Snack and Scoop Divest Hear Music Add-ons Expand into Ice-cream Shops

  3. Share Price will Increase by 17%

  4. Starbucks Will be Able to…

  5. Starbucks Faces Two Key Issues… Brand Mature Market

  6. Starbucks needs to leverage its strong brand Accessibility Quality Unwinding Atmosphere Premium and Loyalty

  7. The US Market for Speciality Coffee is Mature Increase market share Speciality Coffee Sales New markets New products Time

  8. Starbucks Should Divest Its Entertainment Division Starbucks Company Starbucks Entertainment Does not leverage model Not best way to achieve long-term growth

  9. Starbucks Will Extract More Value From Add-Ons Easier to sell more to an existing customer Customers will buy more if prompted

  10. A Change in the Customer Decision Flow… Customer entry Awareness of Starbucks Customer decision Customer purchase

  11. Now Prompted to Purchase Add-On Prompt customer Customer entry Awareness of Starbucks Customer decision Customer purchase Increase value per transaction

  12. Starbucks to Establish Ice Cream Scoop Stores Similar market model Premium Ice-Cream Leverages brand Drive ice-cream sales

  13. 10% Uptake of Add-ons from Existing Customers Cost - 70 cents Profit - 30 cents

  14. Starbucks to Open 750 Ice-Cream Stores

  15. Ice-cream Financials Raw Material 12% Others 18% Labour 27% Lease 13% Profit 30%

  16. Value-add of Strategies $14.7b $12.6b

  17. Timeline of Add-ons Implementation Communicate Increase Order Change Menu Week 4 Week 2 Week 3 Week 1

  18. Timeline of Add-ons Milestones Launch 4% 8% 10% Year 4 Year 2 Year 3 Year 1

  19. Starbucks Scoop Stores will be positioned… Premium Size

  20. Starbucks Will Look at the Following Locations Underperforming Stores (100) Other High Foot Traffic Areas

  21. Starbucks Will Sell the Following Products Low Fat Latte Mud Pie Classic Coffee Java Chip Coffee Almond Fudge Caramel Cappuccino Swirl ? Coffee Fudge Brownie Vanilla Double Chocolate Chip Neapolitan

  22. Starbucks Will Leverage Its Competencies Industry Specialist (Hire) Robust Supply Chain Management Dreyer Partnership for Production Location Selector/ Store Designers

  23. Looking at the Timeline of Scoop Stores Location Develop Distribute Hire 100 200 300 Year 3 Year 4 Year 1 Year 2

  24. How to best achieve long term sustainable growth? How can Starbucks Entertainment grow its music business internationally? Brand Mature Market Snack and Scoop Divest Hear Music Add-ons Expand into Ice-cream Shops

  25. Backup Index Main Presentation Strategy Risk and Response Customer/ Competitor Response – Add-ons Customer/ Competitor Response – Scoop Customer Values Industry Drivers Alternative Strategies Current vs New Strategy Positioning of Coffee Timeline of Divestment HR Changes Financials Divestment Financials Divestment Financials 2 Projected Financial Music Music Market Potential Physical CD Minimal Value Physical CD – Sensitivity Analysis Digital CD Minimal Value Digital CD – Sensitivity Analysis Assumption – Add-ons DCF – Add-ons Assumptions – Add-ons (USA) Assumptions – Add-ons (International) Assumptions – Ice Cream DCF – Ice Cream Ice Cream – Sensitivity Add-ons – Sensitivity

  26. Risk and Response

  27. Customers’ and Competitors’ Response- Snack • Customers • Will start to buy more per transaction • Competitors • Will copy addition to model • Will become an industry standard

  28. Customers’ and Competitors’ Response- Scoop • Customers • Initially- curious about new product • If they like it, increased loyalty to company • Competitors • Limited response: do not have robust models to leverage like Starbucks does

  29. Customers’ Values

  30. Industry Drivers Unpacked

  31. Alternative Strategies

  32. Current vs New Strategy

  33. Positioning Quality Convenience

  34. Timeline of Divestment Due Diligence Shortlist Transfer Rebrand Q4 Q2 Q3 Q1

  35. Shift of Human Capital

  36. Divestment Financials

  37. Divestment Financials Cost of Capital = 15% NPV = $117 Million

  38. Backup – Projected Financial for Music

  39. Backup – Limited Profit Potential

  40. Backup - Physical CD Adds Minimal Value NPV = $146m

  41. Backup - Sensitivity – Physical CDs

  42. Backup – Digital CD adds Minimal Value NPV = $77m

  43. Backup – Sensitivity – Digital Albums

  44. Backup – Assumptions – Add-ons (USA)

  45. Backup – DCF- Add-ons (USA)

  46. Backup – Assumptions – Add-ons (Int)

  47. Backup – DCF- Add-ons (Int)

  48. Backup – Assumptions – Ice-Cream

  49. Backup – DCF- Ice-Cream (USA)

  50. Backup – Sensitivity – Ice-Cream

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