S1RA1ECIC MAAACEMEA1 OF S1ARBUCKS CORPORA1IOA

INTRODUCTION
The Iocus Ior the strategic management will cater to Starbucks Corporation in engaging to
appropriate inIormation and research ways as the corporation had began in the year 1971 when
the academics English teacher , history teacher and writer opened a store called Starbucks
CoIIee, Tea and Spice in the touristy Pikes Place Market in Seattle. Thus, there is a need to
understand the market and industry processes oI Starbucks and must be able to integrate valid
and reliable SWOT analysis so as to determine Iuture strategies Ior business development and
growth in the global market.
SWOT ANALYSIS
Starbucks Corporation is a specialty coIIee retailer, producing and selling a wide variety oI hot
and cold beverages, as well as pastries and conIections, through 8500 coIIee shops across 32
countries worldwide. The company recorded an increase in revenues and proIits. It Iaces the
threat oI reduction in margins due to rising dairy costs.




Strengths
lobal presence
Starbucks has a widespread global presence. The company operates about 8500
retail store locations, the majority oI which are company owned and operated across 32 countries
worldwide. The company`s widespread presence provides it with widespread brand recognition
and a strong customer base.

A disciplined innovator

Starbucks is a disciplined innovator. The company eIIectively manages its innovation time line
generating consistency in same store sales. In Iiscal 2002, the company introduced new
Frappuccino Blended Beverages, and in 2003, the "Iced Shaken" reIreshments product line was
launched. In 2004, it introduced the new Frappuccino Light blended coIIee. Starbucks` ability to
roll out new products relatively quickly is a considerable competitive advantage Ior the
company.
Increase in revenues and proIits
The company recorded revenues oI $5294.2 million during the Iiscal year ended September
2004, an increase oI 29.9 over 2003. The company`s revenues grew at a compounded annual
growth rate oI 25 Irom Iiscal 2000 and Iiscal 2004. Furthermore, the operating proIit oI the
company during Iiscal 2004 was $610 million, an increase oI 43.7 over Iiscal 2003. Its net
earnings also increased by 46 in Iiscal 2004. This signiIicant rise in revenues and proIits
provides the company with a strong Iinancial base and enables it to undertake new business
ventures.
Clustering oI company units
With the continued growth oI the coIIee market, the company has looked to expand its business,
including those areas where it has an established presence. Working on the basis that a key driver
oI business is the convenience oI the company`s outlet location, Starbucks has targeted clustering
its units so as to dominate particular areas. The Iinancial reward derived Irom this practice has
been Iound to be considerable, as new outlets have not been Iound to eat into the business oI
existing outlets. A continued strategy oI unit clustering, and a Iocus on stores that have
convenient access Ior pedestrians and drivers, represents Iurther opportunity Ior Starbucks to
capture an increasing share oI the coIIee market.

Weaknesses
Reliance on US market
Starbucks`, headquartered in Seattle, derives approximately 85 oI its revenue Irom its
domestic US market. iven the company is an international brand with wide ranging operations,
it should be looking to generate a greater proportion oI revenues Irom outside the US. Such is
Starbucks` reliance on this market, the company entire perIormance will be materially aIIected
should the company`s US unit under-perIorm, as a result oI economic conditions or increased
levels oI competition.


Reliance on beverage innovation
An important long-term risk to the company`s stock is a lower valuation caused by a slowdown
in US sale store growth. Starbucks` store sales growth has been largely driven by beverage
innovation, but there are questions over how long this can last. Diminishing return Irom beverage
innovation, one oI the company`s competitive strengths, would have a signiIicant adverse eIIect
on the company`s perIormance.
Lower revenues and income per employee
The company generates lower revenues and income per employee as compared to the industry
average. Its revenue per employee was $71,544 during Iiscal 2004, as compared to the industry
average oI $110,841. Furthermore its net income per employee is $5294 as compared to the
industry average oI $9500. The company`s lower returns per employee as compared to the
industry average reIlects adversely upon its employee eIIiciency.
Lower return on equity than peers
The company`s Iive year average returns on equity have been lower than the industry average.
Its Iive year average return on equity was 13.65 as compared to the industry average oI
15.09. The company would need to eIIectively manage its Iinances to ensure that returns are at
par or higher than industry average.
Problems in some international operations
The company has been Iacing certain diIIiculties in some oI its international operations.
Starbucks` has Iaced problems oI expansion, with a number oI openings Iailing to be successIul.
Starbucks has experienced continued same-store sales sluggishness in its Japanese operations.
Also, in 2003 Starbucks CoIIee International ended its joint venture with the Delek roup oI
Israel. Following this decision, Shalom CoIIee Company, the joint venture between Starbucks
CoIIee International and the Delek roup, closed its six Starbucks stores in Tel Aviv. This
adversely aIIects the international operations oI the company and thus the growth prospects in
the region.

Opportunities
rowth in coIIee market
The specialty coIIee sector accounts Ior roughly 15 oI the US retail coIIee market, which is
worth $21 billion. By 2005, the retail coIIee market is expected to be worth $22 billion, and the
specialty coIIee sector will grow to account Ior 41 percent oI this market. Starbucks has a market
share oI over 40 percent oI the specialty coIIee market and the anticipated growth in this
category will oIIer the company considerable opportunities Ior Iurther growth and expansion in
the near Iuture.
New product
Starbucks has expanded its beverage categories by signing an agreement with the wine and
spirits group Jim Beam Brands to develop and market a Starbucks branded coIIee liqueur drink.
The link up with Jim Beam Brands will give Starbucks access to a nationwide sales and
distribution network, and a partner with proven track record in product development and
marketing. In the US, cordials and liqueurs represent a $4-5 billion opportunity and
approximately 20 million cases. Liqueurs Ilavored with coIIee or oIten mixed with coIIee
represent a substantial segment oI the liqueur market. Additionally, US specialty coIIee
consumption is on the rise. Furthermore, research indicates that there is a signiIicant overlap
between consumers oI liqueurs and consumers loyal to the Starbucks brand which provides the
company a strong revenue potential.
Market expansion
The company is targeting 15,000 international stores in the next Iew years. Starbucks expects
major expansion potential in China. The company is also looking towards markets such as
Brazil, India, Russia Ior expansion opportunities. Starbucks sees China as its next big
international opportunity. Citing its large urban population, rising economy and increase in
coIIee consumption, Starbucks estimates that China could ultimately be one oI its largest
markets. In China, the company will continue to Iocus on current markets such as Beijing and
Shanghai along with rapid expansion in new cities. This would provide the company with new
opportunities Ior revenue growth.

Threats
Volatile coIIee markets
The supply and prices oI coIIee experience high volatility. The company`s requirements Ior
quality standard coIIee exposes it to multiple Iactors in the producing countries, including
weather, political and economic conditions which may adversely aIIect the company`s business.
reen coIIee prices have been aIIected in the past, and may be aIIected in the Iuture, by the
actions oI organizations and associations that have in the past attempted to inIluence prices oI
green coIIee through agreements establishing export quotas or restricting global coIIee supplies.
The actions oI these associations could cause a degree oI disruption to Starbuck`s operations.
Rising dairy costs
The company Iaces the threat oI rising dairy costs. Dairy prices have risen considerably and this
could adversely aIIect Starbucks` margins. Raw milk prices in 2004 are expected to be above the
2003 levels. Milk and other dairy products represent between 3 and 5 oI sales, and sustained
increase in prices could aIIect the company`s margins.
Slowing US retail sales
The company Iaces long-term concerns regarding its US store growth potential. II current
growth continues, saturation levels within the North American retail division will be reached
within Iive years. This represents a considerable concern Ior Starbucks, given that over the last
two years, domestic retail has been the source oI about 75 oI the company`s revenue growth
and an even greater proportion oI proIit growth. BeIore reaching saturation point, US retail sales
growth will slow considerably over the next three to Iive years, Iurther increasing the pressure on
the international division to justiIy the company`s investment in expansion.


Competition
The global coIIee market is a very competitive sector, and Starbucks must compete against the
likes oI restaurants, coIIee shops, and street carts. A major competitor, with substantially greater
Iinancial, marketing and operating resources than Starbucks, could enter this market at any time
and compete directly against the company. The US specialty coIIee market continues to grow,
and an increasing number oI Iirms are looking to enter the market. Starbucks must be aware oI
competition on all levels and maintain its operational perIormance iI it is to retain its status as the
world`s leading specialty coIIee retailer.
RESOURCES LED AND MARKET LED STRATEGIC DEVELOPMENT
Moreover, Mr. strongly believed that Starbucks` success was heavily dependent on customers
having a very positive experience in its stores. This meant having store employees who were
knowledgeable about the company`s products, who paid attention to detail, who eagerly
communicated the company`s passion Ior coIIee, and who had the skills and personality to
deliver consistently pleasing customer service. Many oI the baristas were in their 20s and worked
part-time, going to college or pursuing other career activities on the side. The challenge to
Starbucks, in `s view, was how to attract, motivate and reward store employees in a manner that
would make Starbucks a company that people would want to work Ior and that would result in
higher levels oI perIormance. Thus, wanted to cement the trust that had been building between
management and the company`s workIorce. The company`s proIitability had improved to the
point where could pursue another employee program he believed would have a positive long-
term eIIect on the success oI Starbucks a stock option plan Ior all employees.12 Schultz wanted
to turn all Starbucks employees into partners, give them a chance to share in the success oI the
company and make clear the connection between their contributions and the company`s market
value.
Starbucks believed that its eIIorts to make the company an attractive, caring place to work were
responsible Ior its relatively low turnover rates. Whereas most national retailers and Iast-Iood
chains had turnover rates Ior store employees ranging Irom 150 to 400 percent a year, the
turnover rates Ior Starbucks` baristas ran about 65 percent. Starbucks` turnover Ior store
managers was about 25 percent compared to about 50 percent Ior other chain retailers. There was
evidence that Schultz`s approaches, values, and principles were aIIecting company perIormance
in the intended manner. One Starbucks store manager commented, "Morale is very high in my
store among the staII. I`ve worked Ior a lot oI companies, but I`ve never seen this level oI
respect. It`s a company that`s very true to its workers, and it shows. Our customers always
comment that we`re happy and having Iun. In Iact, a lot oI people ask iI they can work here."
The expansion process, Starbucks created zone vice presidents to direct the development oI each
region and to implant the Starbucks culture in the newly opened stores.
usiness Level-Strategy:
The business strategy oI Starbucks' is identical to the corporate level strategy since the company
is a single business company, Iocusing on only coIIee-related products and retail stores.
Corporate Level-Strategy:
Starbucks corporate strategy has been to establish itselI as the premier purveyor oI the Iinest
coIIee in the world, while maintaining their uncompromised principles as the grow. The Iirm
principles oI the company are seen with its maintenance oI a great and proven work environment
Ior every staII member in its retail stores. It upholds diversity and promises the highest standards
Ior its products. The company satisIies customers and gives back to the community and the
environment. Also, Starbucks persists to be proIitable and it is. They live by a strict, slow growth
policy completely dominating a market beIore setting its sights Iurther abroad. This strategy has
gained them the advantage oI being one oI the Iastest growing companies in the country.
Structure and Control Systems:
Starbucks believes that their employees are one oI their important assets in that their only
sustainable advantage is the quality oI their workIorce. They have accomplished building a
national retail company by creating pride in the labor produced through an empowering
corporate culture, exceptional employee beneIits, and employee stock ownership programs. The
culture towards employees is laid back and supportive. Employees are empowered by
management to make decisions without management reIerral and are encouraged to think oI
themselves as a part oI the business. Management stands behind these decisions. Starbucks has
avoided a hierarchical organizational structure and has no Iormal organizational chart. The
company has both Iunctional and product based divisions. There is some overlap in these
divisions with some employees reporting to two division heads.
Starbucks has become a well-known company Ior selling the highest quality coIIee beans and
best tasting coIIee products. It was one oI the Iirst companies to realize that the real money to be
made was in beverage retailing, not just coIIee beans. Starbucks created a coIIee Ior the coIIee
connoisseurs and go to great lengths to acquire only the highest quality oI coIIee beans. They
have set new precedence by outbidding the European buyers Ior an exclusive crop oI coIIee
beans, which produces one oI the best coIIees in the world. Roasters oI Starbucks coIIees are
extensively trained Ior one year. Starbucks has the distinction oI 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 Ior this product. There are no other national coIIee bar competitors in the
same scale as Starbucks. Starbucks is the only competitor in the coIIee bar market that has a
recognized brand image. The diIIerence between Starbucks and other coIIeehouses is that they
own all their stores and do not Iranchise. Starbucks stores operates in most metropolitan areas oI
the United States and also has a direct mail business to serve customers in every state. They have
introduced gourmet Ilavored decaIIeinated coIIees as well as specialty Ilavors and whole bean
coIIees Ior the IaithIul coIIee drinkers. They have also added light lunch Iare to their menu.
Starbucks had recently expanded its emphasis internationally as well as there are opportunities
waiting in possible joint ventures with other corporations to design new product associations
with Starbucks' coIIee.
MERITS OF POTENTIAL FUTURE STRATEGIES
Starbucks has become a great successIul company in the coIIee bean and beverage business and
its strategy has been very eIIective. From the beginning, Schultz, the company's owner, has
proIessed a strict, slow growing policy. He Ieels it is also important to keep all the stores
company owned to improve and grow the business Iurther. To Iurther grow, Starbucks will need
to expand Iurther in other areas oI 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 Ilavors. Other joint ventures will allow Iurther expansion into the
brewery business, which will produce beer with Starbucks' coIIee beans. Other partnerships will
bring new products Ior Starbucks, such as jazz CDs, and tandem units with bagel bakeries. As
the company expands, the culture and corporate strategy must be maintained Ior success. This
will ensure the health oI the organization throughout any Iuture expansion. Starbucks
Corporation purchases and roasts high quality whole bean coIIees and sells them, along with
Iresh, rich-brewed coIIees, Italian-style espresso beverages, cold blended beverages, a variety oI
pastries and conIections, coIIee-related accessories and equipment, and a line oI premium teas,
primarily through its Company-operated retail stores. In addition to sales through its Company-
operated retail stores, Starbucks sells coIIee and tea products through other channels oI
distribution.
Starbucks, through its joint venture partnerships, also produces and sells bottled Frappuccino
coIIee drink and a line oI premium ice creams. The Company's objective is to establish
Starbucks as the most recognized and respected brand in the world. Starbucks specialty
operations strive to develop the Starbucks brand outside the Company-operated retail store
environment through a number oI channels. Starbucks specialty operations include retail store
licensing agreements, wholesale accounts, grocery channel licensing agreements and joint
ventures. Starbucks specialty operations also include direct-to-consumer marketing channels. In
certain licensing situations, the licensee is a joint venture in which Starbucks has an equity
ownership interest. During Iiscal 2000, specialty revenues accounted Ior approximately 16
percent oI the Company's net revenues. Although the Company does not generally relinquish
operational control oI its retail stores in North America, in situations in which a master
concessionaire or another company controls or can provide improved access to desirable retail
space, the Company may consider licensing its operations. As part oI these arrangements,
Starbucks receives license Iees and royalties and sells coIIee and related products Ior resale in
the licensed locations. Employees working in the licensed locations must Iollow Starbucks
detailed store-operating procedures and attend training classes similar to those given to Starbucks
store managers and employees.
Starbucks publishes and distributes a mail order catalog that oIIers its coIIees, certain Iood items
and select coIIee-making equipment and accessories, and the Company maintains a web site at
with an on-line store that allows customers to browse Ior and purchase coIIee, giIts and other
items via the Internet. The Company believes that its direct-to-consumer operations support its
retail store expansion into new markets and reinIorce brand recognition in existing markets.











RECOMMENDATION AND CONCLUSION
In conclusion thereIore, Starbucks was on its way to becoming the Nike or Coca-Cola oI the
specialty coIIee segment. It was the only company with anything close to national market
coverage. The company's most immediate objective was to have stores in operation and be able
to become recognized and respected brand oI coIIee in the world. The company's eIIorts to
greatly increase its sphere oI strategic interest via its joint ventures as well as move to sell coIIee
in supermarkets, and the possibility oI marketing Iruit-juice drinks and candy under the
Starbucks label represented an ongoing drive on Schultz's part to continually reinvent the way
Starbucks did business. For the recommendation, Starbucks should be able to sustain the
company's growth and make the business become strong global brand, Schultz believed that the
company had to challenge the status quo, be innovative, take risks and alter its vision oI who it
was, what it did, and where it was headed. Under the owner`s guidance, management was posing
a number oI Iundamental strategic questions that are to be noted and realized: What could
Starbucks do to make its stores an even more elegant milieu that welcomes, rewards and give
surprises to customers? What new products and new experiences could the company provide that
would belong to and be associated with Starbucks? and how could Starbucks reach people who
were not coIIee drinkers?


The company had the best real estate team in the coIIee industry and a sophisticated system that
enabled it to identiIy not only the most attractive individual city blocks but also the exact store
location that was best. The company's site location track record was so good that and had closed
only 2 oI the 1,500 sites it had opened. Starbucks must continue the Iixed-price purchase
commitments in order to secure an adequate supply oI quality green coIIee beans and to limit its
exposure to Iluctuating coIIee prices in upcoming periods. When satisIactory Iixed-price
commitments were not available, the company purchased coIIee Iutures contracts to provide
price protection. Although Starbucks enjoyed success in the past Iew years, there are a Iew
obstacles looming. Since the popularity oI the coIIee house idea has grown, some cities wish to
issue regulations on the coIIeehouses due to complaints oI late night patrons becoming
uncontrollable. The cost oI coIIee beans is expected to rise in the Iuture due to lower supply,
which may tighten the margins on coIIee merchants. The higher costs have cut into markets,
which have heightened the competition in a crowded market. People are cutting down on
caIIeine but the consumption oI decaIIeinated coIIee has not seen an increase as Starbucks is
interested in gaining recognition and growth in Europe, they will not be pioneers in the European
coIIee market as they were in the United States. Then, what are useIul strategic paths should
Starbucks pursue to achieve its objective oI becoming the most recognized and respected brand
oI coIIee in the world?