Nitesh Kayastha Brand management assignment

STARBUCKS: MANAGING A HIGH GROWTH BRAND

Starbucks, originally based in Seattle, was established in 1971 and today with more than 6,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim, Starbucks Coffee Company established itself as the dominant and most aggressive retailer in the coffee house segment. The company has transformed a simple beverage into a lifestyle accessory with as much elegance as the latest fashion (Starbucks.com). It offers whole bean coffees, espresso beverages, confectionery and bakery items and equipment in its retail stores. The retail strategy has been to put a coffee shop on every corner and to make fresh-brewed coffee by selling only the highest-quality products and charging a premium price. However, the product mix has changed significantly over the years, with beans accounting for about 15% of the chain's sales. Meanwhile, Starbucks is expanding its offerings with a line of ice cream for supermarkets and a joint venture with Pepsi Cola to market, frappuccino. The quality of the product has attracted a loyal and growing following among consumers. I. Case Profile/ Company History Three Seattle entrepreneurs started the Starbucks Corporation in 1971. Their prime product was the selling of whole bean coffee in one Seattle store. By 1982, this business had grown tremendously into five stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. Howard Schultz, a marketer, was recruited to be the manager of retail and marketing. He brought new ideas to the owners, but was turned down. Schultz in turn opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed Starbucks coffee. By 1987, Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $4 million. He changed the name of his coffee bars from Il Giornale to Starbucks. His intention for the company was to grow slowly with a very solid foundation. He wanted to create a top-notch management by wooing top executives from other well-known corporations. For the first two years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks' expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1991, Starbucks' sales increased by 84% and the company was out of debt. Starbucks grew to 26 stores by 1988. By 1996 it grew to 870 stores with plans to open 2000 stores by the year 2000. II. Situational Analysis

Business Level-Strategy:

Nitesh Kayastha Brand management assignment

The business strategy of Starbucks' is identical to the corporate level strategy since the company is a single business company, focusing on only coffee-related products and retail stores. Corporate Level-Strategy: Starbucks corporate strategy has been to establish itself as the premier purveyor of the finest coffee in the world, while maintaining their uncompromised principles as the grow. The firm principles of the company are seen with its maintenance of a great and proven work environment for every staff member in its retail stores. It upholds diversity and promises the highest standards for its products. The company satisfies customers and gives back to the community and the environment. Also, Starbucks persists to be profitable and it is. They live by a strict, slow growth policy completely dominating a market before setting its sights further abroad. This strategy has gained them the advantage of being one of the fastest growing companies in the country. Structure and Control Systems: Starbucks believes that their employees are one of their important assets in that their only sustainable advantage is the quality of their workforce. They have accomplished building a national retail company by creating pride in the labor produced through an empowering corporate culture, exceptional employee benefits, and employee stock ownership programs. The culture towards employees is laid back and supportive. Employees are empowered by management to make decisions without management referral and are encouraged to think of themselves as a part of the business. Management stands behind these decisions. Starbucks has avoided a hierarchical organizational structure and has no formal organizational chart. The company has both functional and product based divisions. There is some overlap in these divisions with some employees reporting to two division heads. III. SWOT Analysis Starbucks has become a well-known company for selling the highest quality coffee beans and best tasting coffee products. It was one of the first companies to realize that the real money to be made was in beverage retailing, not just coffee beans. Starbucks created a coffee for the coffee connoisseurs and go to great lengths to acquire only the highest quality of coffee beans. They have set new precedence by outbidding the European buyers for an exclusive crop of coffee beans, which produces one of the best coffees in the world. Roasters of Starbucks coffees are extensively trained for one year. Starbucks has the distinction of being the public's educator on Expresso. They have also recently started to expand to packaged and prepared tea in response to the growing demand for this product. There are no other national coffee bar competitors in the same scale as Starbucks. Starbucks is the only competitor in the coffee bar market that has a recognized brand image. The difference between Starbucks and other coffeehouses is that they own all their stores and do not franchise. Starbucks stores operates in most metropolitan areas of the United States and also has a direct mail business to serve customers in every state. They have introduced gourmet flavored decaffeinated coffees as well as specialty flavors and whole bean

Nitesh Kayastha Brand management assignment

coffees for the faithful coffee drinkers. They have also added light lunch fare to their menu. Starbucks had recently expanded its emphasis internationally. There are opportunities waiting in possible joint ventures with other corporations to design new product associations with Starbucks' coffee. Although Starbucks has enjoyed tremendous success in the past few years, there are a few obstacles looming. Since the popularity of the coffee house idea has grown, some cities wish to issue regulations on the coffeehouses due to complaints of late night patrons becoming uncontrollable. The cost of coffee beans is expected to rise in the future due to lower supply, which may tighten the margins on coffee merchants. The higher costs have cut into markets, which have heightened the competition in a crowded market. There is an enthusiasm of health consciousness growing in the United States. People are cutting down on caffeine but the consumption of decaffeinated coffee has not seen an increase. Although Starbucks does not have major national competitors, they do have regional ones. Tourists become confused when ordering, since they cannot simply order a cup of coffee. Although Starbucks is interested in gaining recognition and growth in Europe, they will not be pioneers in the European coffee market as they were in the United States. Strengths. o 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. o It is a global coffee brand built upon a reputation for fine products and services. It has almost 9000 cafes in almost 40 countries. o Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. The company is a respected employer that values its workforce. o 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.' Weaknesses. o Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time. o 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. o 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.

Nitesh Kayastha Brand management assignment

Opportunities. o Starbucks are very good at taking advantage of opportunties. In 2004 the company created a CD-burning service in their Santa Monica (California USA) cafe with Hewlett Packard, where customers create their own music CD. o New products and services that can be retailed in their cafes, such as Fair Trade products. o The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to emerge. o Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential. Threats. o Who knows if the market for coffee will grow and stay in favour with customers, or whether another type of beverage or leisure activity will replace coffee in the future? o Starbucks are exposed to rises in the cost of coffee and dairy products. o Since its conception in Pike Place Market, Seattle in 1971, Starbucks' success has lead to the market entry of many competitors and copy cat brands that pose potential threats. IV. Recommendation Analysis Starbucks has become a great successful company in the coffee bean and beverage business and its strategy has been very effective. From the beginning, Schultz, the company's owner, has professed a strict, slow growing policy. He feels it is also important to keep all the stores company owned to improve and grow the business further. To further grow, Starbucks will need to expand further in other areas of the United States as well as internationally. Future joint ventures will expand the products into grocery and convenience store shelves through bottled beverages and ice cream flavors. Other joint ventures will allow further expansion into the brewery business, which will produce beer with Starbucks' coffee beans. Other partnerships will bring new products for Starbucks, such as jazz CDs, and tandem units with bagel bakeries. As the company expands, the culture and corporate strategy must be maintained for success. This will ensure the health of the organization throughout any future expansion.

INDUSTRY FINANCIAL SUMMARY SBUX purchases, roasts and sells high quality whole bean coffees, rich-brewed coffees, Italianstyle espresso beverages, cold blended beverages and a variety of pastries. For the 26 weeks

Nitesh Kayastha Brand management assignment

ended 4/1/01, net sales rose 25% to $1.30 billion. Net income rose 40% to $81.2 million. Revenues reflect the opening of new retail stores and higher comparable store sales. Net income also reflects a higher gross margin due to an increase in sales prices.