THE STARBUCKS-

A CASE STUDY
MISSION / CORPORATE
STRATEGY

 To establish STARBUCKS as the premier

purveyor of the finest coffee in the world
while maintaining our uncompromising
principles as they grow
VISION

 STARBUCK envisions that its green &

white logo will be seen on 25,000 outlets &
dozens of products in millions of retail
outlets around the world
SHORT-TERM GOALS
 To move each store closer to the $20,000 level in the terms of
weekly sales
 Transform a commodity into an upscale cultural phenomenon
 Create a chain of coffeehouses that became Americas “Third
Place” ( besides home & work )
 Give people a place to relax & enjoy
 Create a place that meant different things to different people
LONG-TERM GOAL

 To make our coffee available where

people shop, travel, play, and work so it
bursts into the national consciousness
 OBJECTIVES
Objectives Possible Strategies

 To be the most  Expand retail locations and develop new

recognized and products and channels that capitalize on
respected brand STARBUCKS name
in the world
 Control as much of the supply chain as
possible.
 Work directly with growers in various
countries of origin to purchase green
coffee beans, oversee the custom-
roasting process, & control distribution to
retail stores around the world.
 BRAND STRATEGY
Strategy Tactics

 Create an experience around

 “ LIVE COFFEE ” the consumption of coffee ,that
mantra could weave into the fabric of
their daily life
 Maintaining the product quality
 Maintaining the customer
intimacy
 Maintaining the congenial
atmosphere
 COMPANY’S
BACKGROUND

• In 1971 Gerald Baldwin, Gordon Bowker and Ziev Siegl opened a coffee
shop in Seattle specializing in whole Arabica beans.

• Howard Schultz, the founder and current chairman joined the team in 1982
and bought Starbucks for $4 million from its founders a few years later.

• By 1992 company had 140 stores, a roasting plant and a flourishing local
wholesaling business catering to affluent and well educated customers aged
between 25 and 44.

• Schultz decided to take the company public the same year raising
$25million.
 COMPANY’S BACKGROUND

•As 2002 ended, STARBUCKS has more than 6,000 outlets in the
US & more than 1,500 stores abroad ( most of them franchisee ) in
31 countries outside the US.
•Thecompany is now serving 20 million unique customers &
opening on average 3 new stores a day.
•The company has become a familiar brand in many parts of the
world. In fact in mid -2002, ranking compiled by business week ,
Starbucks was included among the fastest-growing global brands.
•You can now find STARBUCKS in many distant locales including
Thailand, Australia, Bahrain, Israel, Japan, Austria & China.
•Its latest destinations include Greece, Germany & Spain.
STRENGTHS
 PRODUCT
 
High standards for its coffee

 DIVERSITY: Offers variety of coffee, including whole

bean coffees, rich brewed coffees, Italian style
espressos, blends of the day, lattes, mochas,
cappuccinos , premium teas ......
 Coffee can be iced/flavoured with syrups, whatever suits
the customers ( cold blended beverages )
 Offers the highest-quality coffee in the world ( arabica
coffee beans ), sourced from the Africa, Central &
South America, & Asia-Pacific regions.
 PRODUCT MIX
 
 IN 1996, STARBUCKS formed an alliance with
DREYER’s to create STARBUCKS ice cream, which
quickly became the best selling brand of coffee ice
cream
 In the US STARBUCKS also partnered with Pepsi Co.
to produce & market FRAPUCCINO a bottled ready-to-
drink iced coffee that became a runaway success in
NORTH AMERICA
 NOW the joint venture is targeting canned DOUBLE
SHOT, which has “ the delicious intensify of rich
espresso mellowed by a sweet touch of cream.”
 Entered into long term agreement with KRAFT
FOODS to market & distribute whole-bean &
ground coffees in retail stores in retail in US

company’s music subsidiary, Hear Music, regularly

releases CDs, some in collaboration with major
record labels, that are then sold through Starbucks
retail stores

Have introduced decaffeinated coffees, “ toffee nut

latte” , added light lunch fare & packaged &
prepared premium tea to their menu
 PROFITABILITY
 
 2005E - $22 Billion

Specialty
Coffee, 41% Specialty Coffee
Traditional Traditional Coffee
Coffee, 59%

 Starbucks Share of Specialty Coffee Market 50% (estimate) – 20.5% Total

Market Share

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PLACE
 Specifically targets the places with heavy
pedestrian traffic such as malls, busy street
corners, and even grocery stores

 Store are carefully selected for convenience

 Either in the form of large store or just a small

kiosk ideal for quick take away coffee or for a
nice light lunch break
PROMOTION
 Upfront sales of FRAPPUCCINO & DOUBLE
SHOT at supermarkets, convenience stores,
grocery stores & drugstores in the US &
CANADA
 Company almost spent nothing on the
advertising. Marketing primarily consisted of
point-of-sale materials & local-store
marketing & was far less than industry
average of 3-6%
 PEOPLE
Human Resource Management Policy
 

STARBUCKS has firm belief in the analogy that

  happy employees lead to satisfied customers
and repeat business
EMPLOYEE TRAINING
LEARNING TO BE A BARISTA
 
 All employees are called partners, and those who
prepare & serve coffee are called “ baristas” [ mostly
hourly wage employees ] .
 As many as 400-500 employees per month nationally
are carefully trained to “ call” and explain Italian drink
names to customers, make drinks, clean espresso
machines, & deliver quality customer service
 They are taught “coffee knowledge” so that among
other things they know how everything tastes
ENSURING PRODUCT QUALITY

“Retail skills” are taught to the employees

which entails :

How -
 to wipe oil from the coffee bin
 open a giant bag of beans

 clean the milk wand on the espresso machine

 “ brewing the perfect cup at home ” helps the baristas to teach

customers how to use the espresso machines & coffee they buy at
STARBUCKS to replicate the product they get in the coffeehouse.
OUTSTANDING EMPLOYEE
RELATIONS

STARBUCKS has three guidelines for

on-the-job interpersonal skills :

 Maintain and enhance self-esteem

 Listen and acknowledge
 Ask for help
 
BENEFITS
 A GREAT WORK ENVIRONMENT
 SATISFIED CUSTOMERS
 
 According to one analyst “ 10%” of their
customers come in twice a day
 Loyal customers visit them as often as 18
times a month
 Consistency of the service & products has
ensured that the STARBUCKS experience is
always the same, always positive
PHYSICAL EVIDENCE
 STARBUCKS has seating areas to encourage
lounging and layouts
 Provides an upscale yet inviting environment
 Atmosphere has universal appeal & makes the
customer stay
 Well lighted interiors and features plenty of
light cherry wood and artwork.
 Jazz or opera music plays softly in the
background. The stores range from 200 to
4,000 square feet, with new units tending to
range from 1,500 to 1,700 square feet.
 PROCESS
SERVICE STANDARDS
 
 NO pot of STARBUCKS coffee sits on a burner
for more than 20 mins
 An espresso machine with unused coffee must
be purged regularly
 No one goes to home until everything is
completed, cleaned, and polished according to
the service standards in the manual
 MEASURING SERVICE PERFORMANCE

 Tracks service performance using variety of metrics,

including monthly status report and self report checklist.
 Mystery shopper program called ‘customer snapshot ’
was most prominent tool, where store was visited by
mystery shopper three times a quarter and rate on four
‘basic service’ criteria:

 Service
 Cleanliness
 Product Quality
 Speed of Service
SERVICE INNOVATIONS
 Automatic espresso machines ( verismo
machines ), reduced the number of steps
required to make an espresso beverage ,
reduced waste, improved consistency
 Latest Innovation was its T-Mobile Hotspot
wireless internet service which would offer
high speed access to internet in Starbucks
stores for $49.99 a month.
TECHNOLOGICAL INNOVATIONS

STARBUCKS AND THE INTERNET

 www.starbucks.com , lets patrons find the nearest

STARBUCKS outlet, subscribe to the newsletter,
purchase CDs & coffee, of course, as well as sign
up for & then manage a STARBUCKS card

 Partnered with T-Mobile to provide hi-speed

wireless internet access.
 GIVING BACK TO THE
COMMUNITY
 Heavily involved in charity, donations & the arts
 Actively participates in AIDS awareness
campaigns
 Rehab-cum-shelter centre for underprivileged
children
 Of late has sponsored the Special Olympics, the
Chicago Jazz festival, the International Film
Festival in Washington & DC…
ENVIRONMENTAL COMMITMENT

 Offers 10% discount to the customers who

reduce waste by using their own mugs /
refillable coffee bags

 Stimulates environmental responsibilities

amongst its customers by encouraging
recycling & conservation
LEVERAGING THE BRAND
 CHANNELS OF DISTRIBUTION
Revenue
Channels Of Distribution Sales %

Non- Company- Operated Retail Channels 15

North American Food Service Companies 27
North America Licensed Stores 18
International licensed Stores 55
Joint-Ventures 7
Partnership 5
 STARBUCKS GOES
GLOBAL
 The chain now [in August 2002] operates 1,200
international outlets, from Beijing to Bristol.
 Indeed, about 400 of its planned 1,200 new
stores this year will be built overseas,
representing a 35% increase in its foreign base.
 Starbucks expects to double the number of its
stores worldwide, to 10,000 in three years.
 CHALLENGES
 According to some reports, the number of STARBUCKS’
outlets in the US, will soon reach the point of saturation

 Whereas numerous “baby boomers” are enamored with the

STARBUCKS concept, some members of Generations X
and Y disdain the expensive, fancy coffees and new age
music that characterize the outlet

 The employee harmony has been eroding. Evidently some

store managers and counter workers have tired of relatively
low pay and odd working hours (such as arriving very early
in the morning to open an outlet )
 Beyond different taste preferences , each foreign markets
has other attributes that needs to be dealt with, such as
various employment-related regulations in France, lower
coffee prices in Italy, and an anti-US sentiment in some
parts of the world

 The complexity of the baristas job has also increased

over the time; given the product proliferation and
increased demand by the customers for customization of
their drinks.

 This has created a tension between pre-established

quality standards and customers expectations
 Every time they customize the drink, it slows down the
service delivery and due to clamoring lines, it’s not that
easy for the baristas to strike a conversation with a
customer

 Company lacked strategic marketing group and had no

chief marketing officer, no coherence amongst the
marketing departments working as three separate groups

 Marketing was every senior executive’s responsibility in

Starbucks. Everyone got involved in collaborative
marketing effort.

 Great at measuring things and collecting the data but not

disciplined to use the data for decision making.
 Starbucks is not always meeting their customers
expectations in the area of customer satisfaction
despite of high customer snapshot scores

 In the customer poll “improvement to service” or

“speed of service” was mentioned most frequently.

 No one was really looking at the bigger picture

STARBUCKS BRAND MEANING
AND CHANGING CUSTOMER
 Very little image/product differentiation between Starbucks
and the smaller coffee chains in the minds of customers.
 Starbuck’s brand image had some rough edges.
 Increased number of customers thought that ‘Starbucks cares
primarily about making money’ & ‘building more stores’.
 Team discovered that Starbucks newer customers tended to
be younger, less well educated and in lower income brackets.
 They visited the stores less frequently and had a different
perceptions of brand as compared to established customers.
 Team discovered that although most frequent customers
averaged 18 visits a month, typical customer visited just 5
times.
OPPORTUNITIES
 Increase Customer Satisfaction
 Customer Quota
 Increase the number of stores
 Domestically/Internationally
 Create New Products & Services

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 THREATS
 Expected increase in the price of
the coffee beans due to lesser supply
thereby resulting in tighter merchant margins
 Competition
 Donut & Bagel Chains
 Small scale specialty coffee chains
 COFFEE BEANS- the biggest competitor
 Perils Of Globalization
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PROBLEM

 Key Problem: Maintaining a customer

focused brand image while continuing
expansion
 Customer Satisfaction
 Lost sight of the consumer
 Lost connection between customers and growing
business
 Service gap

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EXISTING PLAN
 Investment Plan
 $40 million annually in company’s 4,500 stores
 Add 20 labor hours a week
 Maintain 3 minute service time goal
 Increase customer satisfaction

 Goal: All stores achieve $20,000 increase in

weekly sales, improve speed-of-delivery and
thereby increase customer satisfaction.

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CATCH-22 SITUATION

 The company was reluctant to hire more baristas

in the recent years, due to recession. Labour was
already the company’s largest expense item in
North AMERICA , and STARBUCKS stores
tended to be located in urban areas with high
wage rates.
REINVIGORATING A
CUSTOMER FOCUSED IMAGE
 Starbucks should move away from seeing
labour as an expense to seeing it as a
customer-oriented investment

 New Incentives for customer

 Ideas: Drink of the day, membership cards, serve
at your seat

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 Incentives for Partners

 Adding 20 hours during peak hours to maintain 3

minute time

 More authority to regional retail managers

 Install a rolling menu policy

 Increasing the barista efficiency by removing all non-
value-added tasks

 Simplifying the beverage production process

 Tinkering with the facility design to eliminate

bottlenecks.
MAINTAINING EXPANSION
 Moving into new domestic and international
markets
 Not saturating existing markets
 Instead: move into untapped domestic markets
and increase through put at current stores through
added hours
 open stores in new markets while
geographically clustering stores in existing
markets
 Advantages: Will appear more customer focused
locally, faster
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