Starbucks Corporation

Case Study

Rehan Ali
Maaz Zafar
Hassan Mehmood
Waqar Ahmed
POLITICAL

A wide range factors can affect Starbucks sales and profitability which includes the
recession period in which consumer buying power were decrease.

Starbucks have to close 600 stores across USA after 2009 recession, increase in price of
Coffee can also a negative factor and its sales

ECONOMICAL

This industry experienced a major slowdown in 2009 due to the economic crisis and
changing consumer tastes, with the industry revenue in the US declining 6.6% to $25.9
billion.

Coffee prices are also increasing which ultimately hit the overall prices of Starbucks. They
put up strong alliance with other coffee companies to increase their market share.
SOCIAL

Starbucks has been criticized by environmental experts for pouring millions of

gallons of water down the drain in its shops.in order to counter this criticism they
come up with a new strategy for Drought hit Namibia in Africa with the name of
Dipper well to improve their social gestures for creating good image about them
in the society.

Their stores are community friendly, focused on recycling and reducing waste.
They build goodwill among communities where they operate.

TECHNOLOGICAL

Starbucks introduced their App along with Mobile payment plan in order to compete
with other competitors in the market.

They made significant investments in technology to support their growth every

year.
 PORTER 5 FORCES
THREATS TO NEW ENTRANTS:

There is a direct risk of new contestants into the business as the boundaries to passage are not
sufficiently high to debilitate new contenders to enter the market.
The occupant firms like Starbucks have a bigger scale and degree.
At a restricted level, little coffeehouses can contend with any semblance of Starbucks and Dunkin
Brands.

THREATS TO SUBSTITUTES:

There are numerous sensible substitute refreshments to espresso, which are mostly tea, organic
product juices, water, soda's, caffeinated drinks and so on. Bars and Pubs with non/mixed drinks
could likewise substitute for the social experience of Starbucks
Buyers could likewise make their own home delivered espresso with family unit premium espresso
producers at a small amount of the cost for purchasing from premium espresso retailers like
Starbucks.
There are no exchanging costs for the purchasers for changing to substitutes, which makes the
danger high.
BARGAINING POWER OF BUYERS:
There are a wide range of purchasers in this industry and no single purchaser can request value concession.
It offers vertically separated items with a differing shopper base, which make moderately low volume buys,
which disintegrates the purchaser's energy.
Shoppers have a direct affectability in premium espresso retailing as they pay a premium for higher quality
items yet are attentive of over the top premium in connection item quality.

BARGAINING POWER OF SUPPLIERS:

The fundamental contributions to the esteem chain of Starbucks is espresso beans and premium Arabica
espresso developed in select areas which are standard data sources, which makes the cost of exchanging
between substitute providers, decently low.
The providers in the business additionally represent a low danger of going up against Starbucks by forward
vertical mix, which brings down their energy.
Starbucks additionally frames a very critical piece of the providers business, due its size and extension, which
make the energy of the providers lower. Given these components, providers represent a respectably low
dealing power.

INTENSITY OF COMPETITIVE RIVALRY:

The business has a monopolistic rivalry, with Starbucks having the biggest markets offer and its nearest rivals
additionally having a noteworthy piece of the overall industry, making huge weight on Starbucks.
Customers do have any cost of changing to different contenders, which cases high force in competition.
In any case, it's vital to take note of that Starbucks keep up some upper hand as it separates its items with
premium items and administrations, which cause a direct level of force in rivalry.
 EFE MATRIX
Opportunities Factor Weight Ranking Score
1 Expansion into Emerging Markets 0.08 3 0.24
2 Expanding Product mix and offerings 0.1 3 0.3
3 Expansion of retail operations 0.05 4 0.2
4 Technological advances 0.06 4 0.24
5 New distribution channels 0.03 3 0.09
6 Brand Extension 0.03 2 0.06
7 Acquisitions and Mergers 0.07 3 0.21
8 Alliances with Courtesy Products 0.05 3 0.15
9 Customer Centric approach 0.03 4 0.12
10 New logo introduction with new vision 0.04 2 0.08
Threats
11 Increasing competition day by day. 0.07 3 0.21
Changing Consumer tastes and lifestyle
12 0.06 3 0.18
choices.
13 Developed Countries Economy. 0.08 3 0.24
14 0.06 2 0.12
Developed Countries Market Saturation
15 0.05 3 0.15
Price Volatility in the Global Coffee Market
16 Envirnomental Agency pressure 0.05 3 0.15
17 Economic Recession 0.03 4 0.12
18 Dunkin' Brand Inc 0.02 3 0.06
19 Wholesale & mail-order suppliers. 0.02 3 0.06
20 Anti-Starbucks policy 0.02 3 0.06
Total 1 3.04
 CPM MATRIX
Starbucks Dunkin Donuts
Critical Success Factors Weighted Ratings Weighted Score Weighted Ratings Weighted Score

Provide high quality Products 0.08 3 0.24 0.09 4 0.36

Strong Management 0.1 3 0.3 0.11 3 0.33
Customer Centric Approach 0.08 2 0.16 0.08 3 0.24
International Market Sales 0.04 3 0.12 0.05 3 0.15
Strong Financial Position 0.05 3 0.15 0.06 3 0.18
Marketing Strategy 0.05 2 0.1 0.06 3 0.18
Expansion in global operations,
Branding. 0.1 3 0.3 0.09 4 0.36
Using Advances Apps. 0.1 2 0.2 0.09 2 0.18
Their stores are community
friendly, focused on recycling
and reducing waste. 0.1 2 0.2 0.05 3 0.15
Product line extension 0.09 3 0.27 0.1 3 0.3
Market Share Concentration 0.08 4 0.32 0.08 4 0.32
Targeting Snacks Industry too. 0.13 2 0.26 0.14 3 0.42
1 2.62 1 3.17
 FINANCIALS
Ratios 2010 2009 2008
Liquidity Ratios
Current Ratio 1.55 1.29 .79
Quick Acid Ratio 1.24 .87 .48
Leverage Ratios
Debt to Asset Ratio .42 .45 .56
Debt to Equity Ratio .74 .83 1.28

Activity Ratios
Inventory Turn Over 8.2 6.5 6.7
GPM (Gross Profit Margin %) 58.36 55.75 55.26
OPM (Operating Profit Margin %) 13.42 5.72 4.43
NPM (Net Profit Margin%) 8.86 4.00 3.04

Profitability Ratios
Return on Investment 15.0 7.0 5.56
Return on Equity 25.81 12.83 12.66
VALUE CHAIN ANALYSIS
 VALUE CHAIN
Primary Activities
Inbound Logistics- Purchasing High Quality Arabica Beans from Coffee Farms of Latin America, Africa
and Asia.
Operations In early 2011, Starbucks has a total of 16,635 stores in 50 countries, consisting of 8,832
company-operated stores and 7,803 are licensed stores.
Outbound logistics Most of its product mix are sold in-store and some through large box retailers.
Payment around source through point of sale, prepaid Starbucks Cards and mobile payments.
Marketing and Sales Traditionally, investment in marketing activities have not be significant and
relied mainly on the growing reputation of premium quality product mix and superior customer services
to give the Starbucks Experience to drive customers to their stores and products.
Service - Starbucks has a reputation for providing supreme level of customer services to their
consumers.
Support Activities
Firm Infrastructure. They have well designed, aesthetically pleasing stores. They have efficient level of
finance, accounting and legal departments to support the firms infrastructure.
Human Resource Management Great benefits, employee empowerment and amazing corporate culture
makes Starbucks drive efficient management of human capital.
Technology development Investments in innovative technologies like the well like mobile app.
Procurement Starbucks procures its products from a diverse group of supplier and has fixed contracts
with some of the suppliers.
 HUMAN RESOURCE

Starbucks employees approx. 137,000 people worldwide (October 3, 2010).

Starbucks US employed approx. 107,000 people, with 101,000 in company-operated

retail stores and the remainder in administrative and regional offices, and store

development, roasting and warehousing operations.

Approx. 30,000 employees were employed outside of the US, with 29,000 in company-

operated retail stores and the remainder in regional support facilities and roasting and

warehousing operations.
 MARKETING
Starbucks Card The Starbucks Card program is designed to increase customer loyalty and the frequency
of store visits by cardholders.
Starbucks customers in the US have earned free beverages through the My Starbucks Rewards program.
Gold Level members earn a free drink after fifteen purchases at participating Starbucks stores.
Members also receive free select syrups, milk options and refills on tea or brewed coffee during a store
visit. Starbucks Cards are accepted at all company-operated and most licensed stores in North America.
The cards are also accepted at a number of international locations.

RESEARCH AND DEVELOPMENT

R&D team responsible for technical development of food and beverage products and new equipment.
Approx. $9 million, $7 million and $7 million during fiscal 2010, 2009 and 2008, on technical R&D, in
addition to customary product testing and product and process improvements in all areas of its business.
 Internal Factor Evaluation (IFE) Matrix
S. No. Key Internal Factors Weight Rating Weighted Score
Strengths
1. Worlds largest coffee company/ Brand identification 0.10 4 0.40
2. Strategic partnership 0.05 3 0.15
3. Premium quality products 0.04 4 0.16
4. Global expansion 0.08 4 0.32
5. Expanding product line s 0.04 4 0.16
6. Mobile payment plan 0.04 4 0.16
7. Customer service 0.05 3 0.15
8. Work environment and loyal employees 0.04 4 0.16
9. Helping suppliers to develop 0.03 3 0.09
10. Financial ratios 0.04 4 0.16
Weaknesses
11. High Price coffee 0.09 2 0.2
12. Waste water claim 0.04 1 0.04
13. Little diversification 0.06 2 0.12
14. High operating expenses 0.06 1 0.07
15. Increasing competition 0.04 2 0.08
16. Operation difficulty in new countries 0.04 2 0.10
.17. Products not available at supermarkets 0.04 2 0.08
18. More investment to saturated US market 0.04 1 0.04
19. Less marketing and advertising efforts 0.05 2 0.10
20. Inconsistency in Quality 0.03 1 0.03
Total 1.00 2.77
ANALYSIS OF CURRENT STRATEGIES
KEY GENERIC STRATEGIES
One of the key strategy that Starbucks followed since its inception is that of product differentiation offering
differentiators such as premium product mix, locations, coffee beverages reputation and supreme customer service
that translated to building a premium valued brand which is costly to imitate for competitors.

Starbucks has also followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didnt
follow franchising model and operated company oriented stores and joint ventures in international markets.

Starbucks has made some key acquisitions such as Teavana (Tea products), Bay Breads (premium bread products),
Evolution Fresh (fresh juice products) etc. to use the product diversification strategy.

The core competence of Starbucks has been its ability to effectively leverage their cornerstone product
differentiation strategies by offering a premium product mix of high quality beverages and snacks. Starbucks brand
equity is built on selling the finest quality coffee and related products.
 MAJOR ISSUES
Corporate Level
Starbucks coffees price much expensive than other market competitor product. is because Start
bucks purchased only high quality coffee beans. This will increase the quality of the product as
well as the pace of the product As Starbucks have competitors. this will be an advantage of the
competitor People are also nowadays looking forward for cheap products. Even though
Starbucks has its own customer who spends the money to get the quality coffee, it still has to
look for the other people who are running to the next store.

Functional Level
Starbucks have poor marketing strategy on advertising. They prefer to build the brand by
promoting the drinks cup-by-cup with customers. b this way, the advertisement ends until they
drink the coffee, while some groups of people willing to support the advertisement for timing
hiring just to taste the drink for free.
 MINOR PROLEMS

Expensive Products: While Starbucks does differentiate their products with being highly quality
couple with the whole Starbucks Experience, in times of economic sluggishness, consumers to
have so switching costs to competitors products with lower prices and forgo paying a premium.
These premium prices could also pose some weakness for it to succeed in developing countries.

Self-Cannibalization through Overcrowding: By aggressive expansion and high saturation due

to overcrowding in the market leads to self cannibalization and diminishes long term growth
targets of Starbucks. This is happening especially in the United States where Starbucks operates
8078 stores.17
 STATEGIC ANALYSIS
STRENGTHS
1. High Market Share and Market Growth.
2. Global Brand Recognition.
3. Product of the Highest Quality.
4. Strong Human Resource Management.
5. Location and Aesthetic Appeal of Stores.
6. Diverse Product Portfolio.
7. Goodwill among Customers due to Social
Responsibility Initiatives.
8. Customer-based Loyalty.
9. Use of Technology and Mobile-Outlets.
10. Limited Number of Competitors.
OPPORTUNITIES
1. Expanding into Emerging Markets.
2. Product Diversification.
3. Expansion of Retail Operations.
4. Technology Advances.
5. New Distribution Channels.
6. Brand Extension.
7. Market Penetration.
8. Mergers and Acquisitions.
9. Co-branding with Other Food Manufacturers.
10. High Growth Rate in Emerging Markets.
SWOT Matrix
WEAKNESS
1. Expensive Products.
2. Self-Cannibalization due to Overcrowding.
3. Over-dependence on the USA Market.
4. Negative Large Corporate Image.
5. American/European Coffee Culture Clash with Other Countries.
6. Inability to show Consistency in Quality across Starbucks Stores
Worldwide.
7. Centralized Control.
8. High Operating Cost.
9. Environmental Issues.
10. Increased Financial Debts.
THREATS
1. Intense Competition/ Substitutes / Rivalry.
2. Price Volatility in the Global Expansion Market.
3. Developed Countries Market Saturation.
4. Changing Customer Taste and Lifestyle Choices.
5. Health Consciousness.
6. Incompatibility with Foreign Markets.
7. Brand Detachment.
8. Labor Union Issues.
9. Entry Barriers in International Markets.
10. Security Risks.
 STATEGIC ANALYSIS
TOWS Matrix
SO
1. High Market Share and Market Growth will be captured by
New Distribution Channels. (S1, O5).
2. Global Brand Recognition will be acquired by Product
Diversification. (S2, O2).
3. Diverse Product Portfolio due to Brand Extensions (S6,O6).
4. Use of Technology and Mobile Outlets due to Technology
Advancement. (S9,O4).
5. Strong Human Resource Management cause Expansion of
Retail Stores. (S4,O3).
WO
1. High Operating Cost can be Overcome by Co-branding with
Other Food Manufacturers. (W8,O9).
2. Over-dependence on the USA Market can be reduced by
Expanding into Emerging Markets (W3, O1).
3. Environmental Issues can be reduced by Technological
Advancement (W9,O4).
4. American/European Coffee Culture Clash with Other
Countries can be reduced by Mergers and Acquisitions (W5,
O8).
ST
1. Product of the Highest Quality overcome the Changing
Customer Taste and Lifestyle Choices. (S3, T4).
2. Diverse Product Portfolio eliminates Incompatibility with
Foreign Markets. (S6, T6).
3. Strong Human Resource Management overcome Labor
Union Issues (S4,T8).
4. Customer-based Loyalty reduce Brand Detachment (S8,
T7).
WT
1. Discard Expensive Products to avoid Incompatibility with
Foreign Markets (W1, T6).
2. Avoid Inability to show Consistency in Quality across
Starbucks Stores Worldwide to minimize Changing
Customer Taste and Lifestyle Choices (W6, T4).
3. Eliminate American/European Coffee Culture Clash with
Other Countries to reduce Entry Barriers in International
Markets (W5, T9).
4. Reduce High Operating Cost to avoid Price Volatility in the
Global Expansion Market (W8, T2).
Industry Sales Growth Rate (Percentage)
High Medium Low
-20 0 +20
1.0
High
0.50
Medium
BCG MATRIX
Relative Market Share
0.0
Low
GRAND STRATEGY (GS) MATRIX
Rapid Market Growth

Weak Competitive Position

Strong Competitive Position

Quadrant II Quadrant I
Market development Market development
Market penetration Market penetration
Product development Product development
Horizontal Integration Integration (any direction)
Divestiture Liquidation Related diversification

Quadrant III
Quadrant IV
Retrenchment
Joint Ventures
Related Diversification
Strategic Alliances
Unrelated Diversification
Horizontal Integration Merger Acquisition
Divestiture Related Diversification
Unrelated Diversification
Liquidation

Rapid Market Growth

QSPM Alternative 1 (SO) Alternative 1 (ST)
Expand Market Share Maintain Market Share
Key Factors Weight AS TAS Weight AS TAS
Strengths
Successful and Popular Product Lines 0.15 4 0.6 0.15 2 0.3
Access to High Quality Arabica Coffee Beans 0.1 4 0.4 0.1 2 0.2
Strong Supply Chan Management 0.1 4 0.4 0.1 3 0.3
Strong Intellectual Property & RnD Capabilities 0.05 4 0.2 0.05 4 0.2
Strong Financial Muscle 0.1 4 0.4 0.1 2 0.2
Strong Brand Image 0.1 3 0.3 0.1 3 0.3
Reputable Customer Service 0.05 3 0.15 0.05 2 0.1
Strong and Reputable Partners 0.05 4 0.2 0.05 1 0.05
Variety of Flavors 0.05 0 0 0.05 0 0
Weaknesses
Overextension of Product Portfolio 0.1 0 0 0.1 4 0.4
High Prices of Products 0.05 4 0.4 0.1 4 0.4
Environmental Issues 0.05 1 0.05 0.05 3 0.15
Sum Weights 1 1
Opportunities
High Growth Rate in Emerging Markets 0.2 4 0.8 0.2 1 0.2
High Growth Potential of a Single Served Coffee Market 0.1 4 0.4 0.1 2 0.2
High Growth Potential for Flavored Coffee in US Market 0.05 4 0.2 0.05 2 0.1
High Growth Potential for Courtesy Coffee Products 0.05 4 0.2 0.05 2 0.1
Threats
High Bargain Power of Suppliers 0.15 3 0.45 0.15 4 0.6
Trademark Infringement in Emerging Markets 0.1 4 0.4 0.1 4 0.4
Increased in Competition from Local and new entrants 0.15 4 0.6 0.15 4 0.6
Saturated Market in Developed Economies 0.1 3 0.3 0.1 4 0.4
Increasing Price Sensitivity of Customers 0.1 3 0.3 0.1 4 0.4
Sum Weights 1 1
Sum Total AS 6.75 5.6
 RECOMMENDATIONS
Increase international expansion: The first & foremost recommendation for Starbucks would be to increase its
existence in international countries (excluding United States of America). Aggressive marketing strategies shall
be followed at Starbucks to expand its operations.

Technology friendly atmosphere: Starbucks shall try to build a technology friendly atmosphere. With the rise in
internet facilities an increasing shifts have been made from consumers work locations to home offices.

Become environment friendly: Many efforts have been made by Starbucks to improve their image as an
environment friendly store; still there is scope for further improvements. Some of the ways which shall be
followed by Starbucks to become an environment friendly store would be to recycle the porcelain cups,
encourage the customers not to waste the food products & recycle the plastic Starbucks cards

Continuous Improvements in the coffee: It would be quite an important task for Starbucks to continually
improve the taste of the coffee. In order to improve the quality of coffee, Starbucks shall analyze its brewing
systems on timely basis and consider renovations. They shall patent & copyright their way of accomplishing the
brewing process. This will add as a competitive advantage for Starbucks.