Mala Ai, Riley Brown, Mckenzie Granston, Hailey Sagmoen, & Becca Watsek

Strategic Planning Project Write Up

2/11/20

Starbucks was first opened as a small coffee shop in Seattle, Washington in 1971. Nearly 50 years later, it
has grown into a coffee behemoth with over 30,000 stores worldwide. Starbucks has become more than just a coffee
retailer, but a lifestyle brand that has started trends that shape popular culture, reimagined what successful
businesses have to look like, and brought joy to millions of customers. However, while Starbucks has expanded into
similar areas like tea and food, it has largely stayed true to its core purpose as a coffee company. We believe that
Starbucks is missing out on an untapped potential to enter and become extremely successful in the skincare industry.
While the skincare and coffee industries don’t appear to have a lot of obvious synergies, Starbucks’ brand and
company values can merge these two industries together into something great.
To first understand why Starbucks could be so successful in skincare, we must first evaluate the skincare
industry itself through Porter’s Five Forces Framework. The global skincare market was valued around $135 billion
in 2018 and is projected to grow to $189.3 billion by year 2025 1. Since skincare has blossomed into such a massive
industry, there are many opportunities as well as risks to consider before Starbucks enters. To start, we can look at
Porter’s force of rivalry among competitors. The skincare industry is highly competitive with many players vying
for market share. Current key players include Shiseido Company Ltd., Procter & Gamble, The Estee Lauder
Companies, Inc., The Avon Products Inc., Colgate-Palmolive Company, and Unilever Plc, just to name a few.
Players in the skincare industry mainly compete on price as many have similar products in their skincare lines.
However, they can also capitalize on product differentiation by playing into different areas of skincare such as all-
natural, anti-aging, luxury, as well as specializing in a certain product type such as oils, creams or face masks.
The list of industry players is nowhere near complete though, thanks to Porter’s second force of barriers to
entry. While key players have worked hard to gain traction in this highly saturated market, the barriers to entry are
relatively low. Given that anyone is able to take common ingredients to make scrubs, oils and other skincare
products, the risks associated with entering this industry as well as sustaining the desired scale is low. In fact, there
are thousands of websites that preach about skincare products consumers can make at home with products in their
pantry. Even though entering and sustaining a company at a smaller scale is much easier than creating a multi-
million-dollar corporation, barriers to entry are relatively low with commodity goods readily available.
That brings us to Porter’s third force, the power of buyers. Since there are so many different brands
available and relatively low switching costs between products, buyers have high power. Furthermore, there is a ton
of accessibility to the skincare market, as everyday buyers can go through the various selling outlets such as online,
in-store, or even more grass-roots options like purchasing at farmers markets. Many consumers also will use many
products from multiple brands, so skincare companies need to work hard to create brand loyalty among their
customers. However, it’s important to note that there is another type of buyer to consider in this industry besides
everyday consumers: and that is retailers. Retailers like Sephora, Ulta, and more also have high power since they
control the shelf space and have many different brands and products to choose from. Getting into those retailing
outlets can be extremely difficult and expensive for skincare companies, which adds to the ferocity of the industry.
On the other hand, while buyers have high power, suppliers tend to have low power in this industry. Most
natural skincare products are made from commodities easily found in someone’s kitchen. So, since many players in
the industry create their product around price differentiation and multipurpose ingredients, they can switch suppliers
easily. For example, if a consumer was making a homemade scrub or mask from relatively inexpensive ingredients
found in-store or online, this would give little to no power to the supplier.
Lastly, Porter’s final force is the threat of substitutes. For the skincare industry, the threat of substitutes is
relatively high. At the end of the day, skincare can be viewed as a luxury good; something individuals can and
sometimes do go without. So, while there are a lot of competitors within the industry that customers can switch to, at
the end of the day, every competitor also has to compete with the idea that the customer even needs their product at
all. Additionally, many natural ingredients such as coconut oil and shea butter can be used as standalone products.
Therefore, marketing the benefits skincare products provide above and beyond what a consumer could gain from
these wholistic ingredients is of utmost importance. To combat substitutes, many companies try to capitalize on
brand awareness and loyalty to increase consumer trust and dependence.
With all of these industry factors in mind to consider, we must also evaluate Starbucks’ intrinsic
characteristics to fully paint a picture as to why they should enter the skincare market. To do so, we can use the
VRIO Framework. To start, Starbucks as a company has incredibly high value. Their strategic decisions over the
years have allowed them to develop into a globally appreciated brand that is supported by an incredibly loyal
customer base. Most notably, Starbucks is best known for their global consistency. Loyal customers can expect the
same skinny, nonfat, tall, vanilla latte in Seattle or Tokyo. Through the unparalleled quality and consistency of their

1
https://www.statista.com/statistics/254612/global-skin-care-market-size/
products, Starbucks has gained the trust of consumers around the world. Starbucks has also undeniably integrated
their brand into the daily lives of millions of people across the globe. To many, Starbucks is a primary office or a
second living room, not just a coffee shop. This welcoming culture attracts loyal customers, who rely on Starbucks
for more than just a cup of coffee. Furthermore, Starbucks has created traditions that are cherished and celebrated by
their consumers. For example, Starbucks has customers counting down the days until Fall for the introduction of the
seasonal “PSL”, or pumpkin spice latte. Likewise, consumers eagerly anticipate the festive red cups as a symbolic
start to the Christmas holiday season every winter. These strategic marketing decisions have helped Starbucks
develop into a lifestyle brand. In recent years, Starbucks capitalized on the experience behind a cup of coffee and
launched over 40 “Reserve Bars” and 6 roasteries. These luxury shops offer exclusive drinks and interactive
experiences that engage the customer with Starbucks’ behind the scenes processes. Starbucks’ commitment to
providing an all-encompassing experience has allowed them to surpass their competitors in the highly concentrated
coffee industry and we believe they can do the same in the skin care industry.
Over 450 million cups of coffee are consumed each day in the United States alone 2. Coffee is a commodity
that can be found nearly everywhere, and that fact unfortunately does not bode well for VRIO’s second component:
rarity. Consumers have a wide range of options that vary from instant coffee at home to global corporations and
everything in between. With no switching costs, coffee is a highly substitutable product. The beverage industry has
been growing and customers have endless options between teas, kombuchas and energy drinks. Despite specializing
in a commodity, Starbucks has excelled in differentiating its brand from competitors. Starbucks has positioned
themselves as a luxury coffee provider in the industry. The consistency in quality and experience across all 30,000+
stores across the globe is undeniably unique. Starbucks brand image allows them to charge a premium on a
commodity, and we believe this brand image will also allow them to achieve success in the skin care industry.
Next, very few competitors can compete on the same global scale as Starbucks, which adds to the next
component of VRIO: inimitability. Starbucks has secured a large portion of market share which keeps it difficult for
competitors to operate on the same scale. In particular, Starbucks has optimized their economies of scale and
efficiently operates over 30,000+ stores in over 70 countries. This global reach is unmatched by fellow competitors
such as Dunkin Donuts and Pete’s Coffee. Over time, Starbucks has carefully crafted long standing trusting
relationships with their customers. Competitors struggle to steal market share due to Starbucks' incredibly loyal
customer base. We believe Starbucks’ previous experience in a highly concentrated industry with low entry barriers
will allow them to successfully navigate the similarly structured skin care industry. In addition, we believe the loyal
fan base will follow Starbucks’ brand across industries.
Lastly, in terms of organization, Starbucks’ actions are well aligned with their corporate mission: to inspire
and nurture the human spirit. Starbucks values all individuals that contribute to their customers’ experiences, and to
demonstrate that they refer to all employees as “partners” to ensure everyone feels responsible to the company
mission. Additionally, in 2018 two African American men were wrongfully arrested in a Starbucks in Chicago at the
request of a partner. Mortified by this incident, Starbucks promptly closed down over 8,000 stores, forfeiting all
profit, to conduct a 4-hour implicit bias training session to reinforce the idea that all Starbucks is a welcoming
environment to all3. This organizational consistency contributes to their ongoing success and will allow them to
thrive in the skin care industry, where ethics and transparency are highly valued.
So with both industry and internal evaluations in mind, it seems like Starbucks could be competitive in the
skincare market. Furthermore, there are some key market trends for Starbucks to take advantage of in order to
develop strategic brand positioning and a competitive edge within the industry. First and foremost, the skincare
industry has been growing so quickly due to society’s increased focus on health and beauty. For example, according
to Statista, about 65% of women report using a skincare product every day, and 37% of men reported the same.
While beauty has always been a societal value, other aspects of health have become increasingly important such as
physical and mental health. Skincare is in a unique position in that it not only helps people maintain their
appearance, but also can help improve physical health through the skin’s quality. Skincare products often have
ingredients such as Vitamin B3 and antioxidants that help prevent melanoma and other skin conditions, as well SPF
built in that protects the skin from damaging UV rays. The skincare industry is often now associated with “self-care”
which people turn to in order to better deal and address mental health too.
Furthermore, the rise of new channels for selling such as online retailers and social media has proved
lucrative for the skincare industry. People can communicate much easier to see if products were effective and offer
reviews to others before purchasing or repurchasing a product. Also, social media in particular has developed a new
form of marketing often dubbed “influencer” or “viral” marketing. Celebrities or “influencers” with a high social

2
https://recipes.howstuffworks.com/coffee-facts.htm
3
https://www.nytimes.com/2018/04/17/business/starbucks-arrests-racial-bias.html
media presence can promote their products of choice to their followers and instantly reach millions of people. For
example, reality tv star and media mogul Kylie Jenner created her own cosmetics and skincare line and through
primarily just promoting it through her own gigantic social media following, she developed the brands to be worth
over $1 billion4. Starbucks currently has over 18 million followers on Instagram alone, so they would be able to
reach tons of potential consumers for a new product within seconds.
Lastly, in recent years, there has been an obvious trend towards organic, natural, and cruelty-free products.
Consumers want something that doesn’t have a lot of chemicals that they don’t recognize, that haven’t been tested
inhumanly on animals, and that are safe to use. As there has been an increased awareness of health among
consumers, they are wanting to know more about the effects of the products they put both in and on their bodies. As
evidence of this trend, according to the Organic Trade Association, organic foods sales have more than tripled over
the course of a decade, from around $15 billion in 2006 to over $50 billion in 2018 5. Competitors are aware of this
trend and are increasingly pushing out products that cater to this. For Starbucks specifically, who is known for the
quality of our ingredients, we will be able to effectively break into the market and take advantage of this trend.
So with these market trends in mind, Starbucks is aiming to position ourselves by highlighting natural and
simple ingredients in our products that will appease the health conscious consumer. We aim to start with three
skincare products using ingredients Starbucks is known for: a coffee body scrub made from Starbucks’ beans, a
green tea face masks made from Starbucks’ Teavanna teas, a cacao butter lotion from current cacao suppliers, and
potentially various seasonal products made from ingredients such as pumpkin or peppermint. Using our existing
brand perception of having high quality products, we will effectively market the quality of our ingredients to show
the effectiveness of our skincare. Furthermore, while Starbucks is known for their delicious coffees and teas that are
enjoyed around the world, their focus on sustainability will also be a key differentiator into our skincare plan as
well. Our products will be sourced entirely from ethical and sustainable farms across the world, like all of
Starbucks’ other products. The main way we can differentiate ourselves from our competition is by using our
existing brand equity to translate the quality of our existing products into our skincare. They know the quality of our
products, and the novelty of our skincare line is increased with the continual seasonal products available.
Furthermore, since Starbucks will be positioning its skincare brand by highlighting its high-quality
ingredients, it’s worth noting why commodities such as coffee, green tea, and cacao even belong in the skincare
industry in the first place. Coffee boasts huge skincare benefits such as calming effects due to its antioxidants, and
may help decrease the appearance of sunspots, redness, and fine lines as well6. Coffee is also attributed to have anti-
inflammatory effects due to chlorogenic acid as well as melanoidins found within it 6. Another benefit is to treat dark
circles since the contents in coffee is thought to help dilate blood vessels that cause dark circles 6. Similarly, Green
tea provides skin protection for sensitive skin and black tea helps with de-puffing and tightening oily skin7. Green
tea compounds contain high levels of antioxidants, anti-inflammatory, and anti-carcinogenic properties that highly
benefit our skin7. In terms of black tea, it is rich in tannins, which are antioxidants that shield the skin from
environmental damage, hydrate, and fight bacteria. Just like coffee, it is high in caffeine so it will de-puff and firm
the skin7. Lastly, cacao is also a highly regarded ingredient in skincare as it contains powerful antioxidants that
enrich and nourish the skin8. It contains omega-6 fatty acids that promote cellular healing, provide hydration, and
help heal scars. It also protects skin from damaging UV rays which promotes youthful skin as well 8. All of these
natural ingredients are key to safe and cruelty-free skincare, and are highly sought after in the skincare industry due
to market trends.
So with a solid product and brand positioning in mind, Starbucks’ business model choices will also be key
in ensuring their success into the skincare industry. Specifically, we are focusing on Starbucks’ value proposition,
target customer segment, suppliers, distribution, promotion, and costs to evaluate their business model. In terms of
Starbucks’ value proposition in the skincare industry, as previously noted, we will highlight the quality and
sustainability of the skincare products’ major ingredients such as coffee, cacao, and green tea. Consumers have
learned to trust and love putting Starbucks’ products in their body, so using the same materials outside their body
should create a similar experience. Rather than focusing on complex ingredients that people can’t pronounce,
Starbucks’ skincare line will be made with whole ingredients sourced from the same places as their drinks.
With that value proposition in mind, our target segment is a high end, health conscious and even eco-
conscious consumer. Since we are only using whole, sustainable ingredients in our product line, it will likely attract

4
https://www.businessinsider.com/kylie-jenner-sells-600-million-majority-stake-in-makeup-company-2019-11
5
https://ota.com/resources/market-analysis
6
https://www.healthline.com/health/coffee-benefits-for-skin
7
https://www.healthline.com/health/coffee-benefits-for-skin
8
https://www.ecodivabeauty.com/blogs/ed/diy-lab-the-benefits-of-cacao-in-skincare
a higher end customer that is willing to pay a premium for higher quality inputs. Competitors’ products can range
from $10 upwards to $50, however to keep our product somewhat accessible, we will likely price the products
around $20. Furthermore, our value proposition for only using whole sustainable ingredients will likely be more
attractive to health-conscious consumers who are not only aware of what they put in their body, but on it too.
A key competitive advantage for Starbucks entering this industry is that they can already use existing
suppliers to source nearly all of the ingredients needed for their skincare line. With key resources being coffee,
cacao, and green tea, Starbucks has multiple partners across the world that provide them with high quality
ingredients. Especially since we are targeting a more health-conscious consumer, it’s important that Starbucks has
already committed to having 100% ethically and sustainably sourced coffee, cacao, and tea by 2020 from its
suppliers9. Furthermore, they can use their current suppliers for creating cups to also make some sort of similar
packaging for the skincare line as well.
In terms of distribution, Starbucks will start by piloting their skincare products only in their 50 locations of
Starbucks Reserve Bars and Roasteries. There are several key reasons for this distribution decision. The first is that
the consumers of Starbucks’ Reserve Bars and Roasteries are very similar to the skincare line’s target customer.
Starbucks Reserve Bars are unique cafes that do not feature Starbucks’ regular menu or interior. These cafes often
feature special, high quality drinks like a Cold Brew Float or Nitro Dirty Chai that you can’t find anywhere else.
Furthermore, the Reserve and Roastery customers are less price conscious than the typical Starbucks customer, as
the average customer’s check at one of Starbucks’ Roasteries is $29 10. Customers frequenting the Reserve and
Roasteries are looking for a rich experience and are willing to splurge for it. Furthermore, each Roastery, as well as
Reserve Bar, has a special merchandise section where our skincare products would live. The other key reason that
our distribution would all be in-house is so that the skincare products do not have to compete for shelf space at
cosmetic or retail stores such as Sephora or Ulta. Trying to fight for shelf space can be difficult and expensive,
especially as a new entrant to the market. After piloting the program in the stores, Starbucks could then move to
offering the skincare products through an online channel too in order to be able to reach more consumers.
Starbucks can promote its skincare line in several ways. First and foremost, making a display within its
Reserves and Roasteries to highlight the new products will be key so that they can catch customer’s attention. Also,
Starbucks can offer free samples for customers to try when they’re in the Reserve or Roastery, in order to allow
customers to experience the ingredients in their drinks in an entirely new way. However, as mentioned earlier, viral
marketing has become increasingly popular, and with a social media presence of over 11 million followers on
Twitter and 18 million followers on Instagram, Starbucks can use this to their advantage. They can do a social media
campaign revolving around the production and creation of their skincare line. Furthermore, by only offering the
products through Reserve and Roasteries at first too, the added element of exclusivity could drive up foot traffic to
the Reserve and Roastery locations.
Lastly, entering this industry would not add significant costs to Starbucks. By keeping suppliers and
distribution in-house, Starbucks will not need to dramatically increase costs by licensing or selling at a wholesale
price to retailers. It currently costs Starbucks about $0.31 for a cup, lid, and plastic stirrer, so by using the same
suppliers, we could expect our packaging to cost a similar amount per unit11. Furthermore, most coffee scrubs
require coffee grounds rather than coffee beans themselves in order to get that exfoliating texture that consumers
want. Coffee grounds are essentially byproducts of the coffee that Starbucks makes, so Starbucks won’t have to
order any additional coffee for its skincare line. In fact, many Starbucks locations give out coffee grounds for free in
their stores; so, by simply collecting coffee grounds from their existing stores, Starbucks can keep costs extremely
low, despite charging a price premium. Other inputs to the masks and scrubs include natural ingredients like sugar,
coconut oil, vanilla and other extracts. Since these are all commodity goods, they are not significantly expensive
either. By researching wholesale prices of these commodities and looking at the average quantities needed in face
masks and scrubs, we estimate that in total additional ingredients will cost within $2.48 and $3.54 (Appendix 1). So,
for example, if the coffee scrub cost about $2.48 to make and sold for a $20 price point, Starbucks would gain
around $17 in profit per unit excluding labor and shipping costs. After labor and shipping costs, we estimate that we
would be within or near industry standard profit margins of around 60%12.
So, with a business model plan in place, the last major thing Starbucks must assess before entering the
skincare industry are the key risks and mitigation process involved in doing so. The risks of expanding into the
skincare market include lack of specific industry experience, volatility of the luxury goods market, legal and ethical

9
https://www.starbucks.com/responsibility/sourcing/coffee
10
https://www.cnbc.com/2018/01/25/eight-weeks-in-starbucks-shanghai-roastery-is-raking-in-insane-sales.html
11
https://coffeemakersusa.com/pricing-breakdown-cup-coffee/
12
https://www.forbes.com/sites/ryancaldbeck/2014/02/06/why-you-should-think-about-investing-in-beauty-instead-of-bitcoin/#4e831a0b6f84
considerations, competition and sustainability. Despite these risks, our team has identified several mitigation actions
to tackle these potential issues and prevent any significant losses to the company.
The skincare industry is one that can be very complex and oversaturated. The risk for Starbucks is that they
don’t have any experience within this industry which could lead to poor strategic decision-making, operational
inefficiency or negative brand reputation. Fortunately, Starbucks has a competitive advantage in its strong
relationships they’ve developed with suppliers of coffee, cacao, tea, and other critical raw materials. These
relationships will help Starbucks maintain an edge over their competition in this industry and alleviate some of the
risk of not having any experience. To mitigate this risk, it is also crucial that Starbucks focus on the quality of their
products and ingredients that they’re known for, rather than trying to overstep and claim expertise on other areas of
the skincare industry. A further risk is that our intended products qualify as a luxury good which is extremely
sensitive to downturns in the economy. To alleviate this risk, the product will only be offered in our luxury, roastery
locations where the consumer is less price sensitive and more loyal to the Starbucks brand.
Producing skincare products begs the question of legality and federal regulation measures. Fortunately,
FDA approval is not required for cosmetics products, unless they contain color additives, before they go on the
market13. However, it is required that Starbucks adhere to the Federal Food, Drug, and Cosmetic Act by not
participating in adulteration or misbranding their products13. This means packaging and labeling must be truthful
and provide proper conditions of use. Starbucks would be liable for the safety of their products. To mitigate these
regulatory and ethical risks, there will be no color additives in our new skin-care products and we will ensure
accurate labeling and marketing. Furthermore, we will practice cruelty-free testing by utilizing technological testing
methods.
Next, there is a considerable risk of if the product will take-off or be profitable for Starbucks. In such a
saturated market with high levels of rivalry, the issue of fighting for shelf space is significant. In order to mitigate
the risks of pricey negotiations and low product appeal, Starbucks will sell every product in-house, rather than sell to
other retailers. This strategy will not only keep costs down for Starbucks, but allow them to closely monitor
customers’ perceptions and feelings towards the products.
Lastly, in an increasingly sustainably-conscious society, the question of environmental sustainability is an
important risk to consider. Key issues include natural resource depletion, environmental degradation, and pollution.
Fortunately, through Starbucks current partnerships and developed relationships with suppliers and non-profits, they
have already alleviated many pressures regarding sustainability and ethical sourcing. Starbucks partners with
Conservation International to ethically source cocoa, coffee, and tea products. They are the only coffee retailer to
ethically source 99% of their coffee and are actively working toward a goal of 100% by the end of 2020 14. Starbucks
also partners with Ethical Tea Partnership, Eastern Congo Initiative, and Mercy Corps’ Community Health and
Advancement Initiative (CHAI) Project15. These mitigations actions, in combination with money toward research
and development groups for sustainability, allow Starbucks to cater to the sustainably-conscious society that is
growing internationally.
Overall, the brand extension is not extremely risky. Starbucks will be using the same ingredients, channels,
and operational processes to repurpose their products to go on the body, rather than in the body. In fact, the
Starbucks mission statement is: “To inspire and nurture the human spirit - one person, one cup and one
neighborhood at a time.” A skincare line is simply another way of allowing people to care for themselves, or as
Starbucks puts it, nurture the human spirit. So with a new set of products and an industry that is synergistic with
Starbucks’ current values and mission, we know that this venture will be a great success.

13
https://www.fda.gov/cosmetics/resources-industry-cosmetics/small-businesses-homemade-cosmetics-fact-sheet#1
14
https://www.starbucks.com/responsibility/sourcing
15
https://www.starbucks.com/responsibility/sourcing/tea
 Appendix

Appendix 1: Cost Estimations For Raw Ingredients