Starbucks Case StudyEssay Preview: Starbucks Case StudyReport this essayIntroductionStarbucks share price and market valuation declined steadily from 2006 to 2008 even though revenue and earnings continued to show year on year growth. This case study analyzes the reason for Howard Schultz’s concern with the company’s performance over that period and subsequent transformation agenda of the Starbucks Coffee Company and its applicability to Sears.
Seeds of a CrisisStarbucks Revenue had grown consistently year on year through domestically and internationally expansion up until 2008, however declining comp store sales and investor confidence were showed signs of distress. (Exhibit 2)
Starbucks decline attributable to external and internal pressuresStarbucks share price declined 75% between from 2006 to 2008. The share price performed worse than the Nasdaq, and McDonalds Corp, its closest competitor, had been climbing steadily in value over the same period (Exhibit 1). Starbucks beta of 0.76 indicates that its stock performance should be less volatile than the market. The graph shows that while Starbucks was impacted by the macroeconomic conditions, there were other fundamental issues at play that were making it more sensitive to the market. McDonalds was also outperforming Starbucks and the market over the same period.
Failure to recognize growing competitive threatsStarbucks’ leadership did not recognize the growing competitive threats that they were facing for several reasons, including their belief that they were superior to their competition; this belief could be attributed to following achievements: 1) Revenues increasing at an annual growth rate of 36% since the company went public in 1992 2) Opened over 12,000 stores in under a decade 3) Stock market capitalization reflecting a rise from $300 million in June 1992, to almost $29 billion in June 2006 and 4) Sheer age of the companys existence (nearly 35 years).(Koehn et al. 3,5) With Starbucks’ extremely rapid growth and success, it is believed that leadership in the company was too caught in the moment to really analyze the competition surrounding them. When McDonald’s and Dunkin’ Donuts were making their big push to enter the coffee market, Starbucks found no reason to take them seriously as their direct competition because they believed that the product they served was inimitable, compared to what they had to offer. In contrast, Consumer Reports test proved that this was not the case; McDonald’s coffee was actually “very well-received by consumers” and beat out both Starbucks and Dunkin’ Donuts.(Koehn et al. 7) Starbucks did not react or recognize their competition until it was too late. Once the competition was recognized, Starbucks had already been faced with the issue that their sales had been declining rapidly. Dunkin’ Donuts and McDonald’s were targeting Starbucks directly with marketing hits right in Starbucks’ home town of Seattle; a McDonald’s billboard read, “Four Bucks is Dumb” and McDonald’s website “unsnobbycoffee.com”.(Koehn et al. 7) Schultz admitted, “We had never had much competition, everything we did more or less worked.”(Koehn et al. 7) Once Starbucks realized their growing competitive threat, they knew they had to act or else they would be in serious trouble both financially and competitively. Schultz’s approach to fighting this battle was to return to the beginning roots of the company when they “were fighting for survival, doing whatever [they] had to do.”(Koehn et al. 7)
Economic TurmoilThe economy was in turmoil in 2008. Large financial institutions collapsed, prices on everyday items such as oil and milk were rising, and the unemployment rate was averaging at an astonishing 5.8% (Exhibit 3). For distressed consumers, average income was declining and they became more conscious of spending. With less disposable income, consumers constrained their discretionary spending (Koehn et al. 19) This affected Starbucks since their entire brand was a luxury commodity. Schultz believed consumers would pay more for the experience of the brand and the ambiance. The competition was using a cost focus strategy while Starbucks was continuing with a Differentiation strategy. This strategy allowed low cost competitors to appeal to consumers by targeting Starbucks’ luxury status. Dunkin’ Donuts took aim at Starbucks’ jargon while McDonald’s targeted their prices.
The Problem
Since 2008, most businesses have had a number of problems in the United States. Because of this, many Starbucks customers are struggling to find customers. Customers and the businesses that employ them suffer from a variety of issues. Starbucks has no plans to implement a “zero-hour” policy for employees, particularly when dealing with their employees. To address these issues, Starbucks announced in February that it planned to impose no-wages and zero pay-to-work rules on more than 3 million Starbucks employees, as well as in six more retail location locations in the United States: Chicago, San Francisco and Seattle. The company is already offering a similar change to its current pay plan.
In a statement following the new rules, Starbucks noted that “this change will significantly improve our ability to deliver on our promise to our customers that we will continue to work hard and offer new ways to achieve our business goals.” The company said more than 20,000 of the 5.4 million retail workers in its stores will no longer receive a minimum wage, which will be reduced to $10.35 per hour (Exhibit 4). If customers fail to meet their own minimum wage, Starbucks will consider creating a “no-wages policy in the future” that would penalize the company for failing to comply with an employer’s minimum wage policy. In addition, Starbucks has imposed a no-wages policy “in the future,” and that policy currently “will remain in place until we address our new wage plan and eliminate the current minimum wage.” According to the National Labor Relations Board, many employers may opt against accepting the No Trespassing and “yes-trespassing” policy. The company is also planning to continue to set up its own employee retirement company and has promised to expand the company’s online business in the hope of changing the way people buy coffee.
In July, Starbucks CEO Howard Schultz and his team received backlash from protesters, some of whom called for an end to “zero-hours, no-wages.” There was no evidence from the protests that the business would end without the No Trespassing policy, but one recent report suggested that some of the protests might be related to potential lawsuits. In a similar way, Schultz’s team has repeatedly called on the Trump administration and its allies to drop plans to expand the business entirely and move to the state of California. Starbucks will have an additional $100 million available in public assets this year, but no changes on the cost and timing of the company’s expansion to California have been publicly publicized.
[RELATED: ‘Starbucks’ CEO: ‘I Know It’s Not About Making My Customers Happy’]
On the day of the no-trespassing rule, employees were still allowed to protest in a Starbucks. Starbucks told the San Francisco Chronicle that “We are not stopping protesters from doing anything. We’re just not giving them a reason to do any of this.” In general, no formal demonstration was planned from the first day of “No Trespassing” on Twitter or anywhere. Starbucks employees said they were working on an organized protest. But later that day, a Starbucks member posted in response to a question: “What do we expect from the president if he decides to stop this group of protesters from coming to Starbucks?” Other Twitter users called for a boycott, though they seemed to take the matter to its logical endpoint. At some point on this past day, the Twitter hashtag #NoTrespassing also launched.
In June of 2012, Starbucks told customers that the No Trespass policy was to prevent protesters from gathering outside a store, but no change was made in this policy since the No Trespass policy began earlier this year. The no-trespassing policy in particular was based on concerns that no-trespassing protestors might harass or intimidate customers. Starbucks is concerned that people might use signs that read the No Trespass slogan to “be peaceful.” A number of Starbucks employees claimed in an interview that they did not stop protestors from going after shoppers at Starbucks, and that customers could “be in charge,” but did not act to stop them.
As with other Starbucks employees, Starbucks is concerned about the perception that protesters might harass customers.
In early September, Facebook launched a “No Trespass” campaign against protests, asking people to sign a petition or other form to demand an end to the policy. An estimated 20,000 demonstrators met on Facebook’s site in support of this effort, with more than 1,300 joining by the time the new policy became law.
An open letter to Starbucks CEO Howard Schultz, dated Oct. 25, 2011, read “Fully Responsible Businesses Speak Out; Protect your Customers.” Facebook said that it had reviewed an initial policy put in place for Starbucks, but decided to take time away from the project without providing updates. Starbucks didn’t publicly announce it was taking this action, but employees said
Even more worrisome is the possibility that the law will become more complex in the future, possibly allowing the company to use its additional taxpayer funding and the additional $10 billion in private savings to make this plan possible. This scenario could potentially raise the cost of developing an alternative to the corporate minimum wage system by 15% in 2017. (See the article in question for details on this potential scenario.)
While Starbucks is not likely to have any changes in this situation in the foreseeable future, the timing of the change could potentially be significant. Since 2005, the company has been required to publish federal minimum wage and related data each year, making it impossible to determine how often each group will be required to file annual wage and related statistics. According to this data, as well as the data provided by the federal government, employers have reported to the Department of Labor that employers in the United States have taken into account the new and prior federal minimum wage. As such, any company that voluntarily reduces its employees’ spending if their employees
The Problem
Since 2008, most businesses have had a number of problems in the United States. Because of this, many Starbucks customers are struggling to find customers. Customers and the businesses that employ them suffer from a variety of issues. Starbucks has no plans to implement a “zero-hour” policy for employees, particularly when dealing with their employees. To address these issues, Starbucks announced in February that it planned to impose no-wages and zero pay-to-work rules on more than 3 million Starbucks employees, as well as in six more retail location locations in the United States: Chicago, San Francisco and Seattle. The company is already offering a similar change to its current pay plan.
In a statement following the new rules, Starbucks noted that “this change will significantly improve our ability to deliver on our promise to our customers that we will continue to work hard and offer new ways to achieve our business goals.” The company said more than 20,000 of the 5.4 million retail workers in its stores will no longer receive a minimum wage, which will be reduced to $10.35 per hour (Exhibit 4). If customers fail to meet their own minimum wage, Starbucks will consider creating a “no-wages policy in the future” that would penalize the company for failing to comply with an employer’s minimum wage policy. In addition, Starbucks has imposed a no-wages policy “in the future,” and that policy currently “will remain in place until we address our new wage plan and eliminate the current minimum wage.” According to the National Labor Relations Board, many employers may opt against accepting the No Trespassing and “yes-trespassing” policy. The company is also planning to continue to set up its own employee retirement company and has promised to expand the company’s online business in the hope of changing the way people buy coffee.
In July, Starbucks CEO Howard Schultz and his team received backlash from protesters, some of whom called for an end to “zero-hours, no-wages.” There was no evidence from the protests that the business would end without the No Trespassing policy, but one recent report suggested that some of the protests might be related to potential lawsuits. In a similar way, Schultz’s team has repeatedly called on the Trump administration and its allies to drop plans to expand the business entirely and move to the state of California. Starbucks will have an additional $100 million available in public assets this year, but no changes on the cost and timing of the company’s expansion to California have been publicly publicized.
[RELATED: ‘Starbucks’ CEO: ‘I Know It’s Not About Making My Customers Happy’]
On the day of the no-trespassing rule, employees were still allowed to protest in a Starbucks. Starbucks told the San Francisco Chronicle that “We are not stopping protesters from doing anything. We’re just not giving them a reason to do any of this.” In general, no formal demonstration was planned from the first day of “No Trespassing” on Twitter or anywhere. Starbucks employees said they were working on an organized protest. But later that day, a Starbucks member posted in response to a question: “What do we expect from the president if he decides to stop this group of protesters from coming to Starbucks?” Other Twitter users called for a boycott, though they seemed to take the matter to its logical endpoint. At some point on this past day, the Twitter hashtag #NoTrespassing also launched.
In June of 2012, Starbucks told customers that the No Trespass policy was to prevent protesters from gathering outside a store, but no change was made in this policy since the No Trespass policy began earlier this year. The no-trespassing policy in particular was based on concerns that no-trespassing protestors might harass or intimidate customers. Starbucks is concerned that people might use signs that read the No Trespass slogan to “be peaceful.” A number of Starbucks employees claimed in an interview that they did not stop protestors from going after shoppers at Starbucks, and that customers could “be in charge,” but did not act to stop them.
As with other Starbucks employees, Starbucks is concerned about the perception that protesters might harass customers.
In early September, Facebook launched a “No Trespass” campaign against protests, asking people to sign a petition or other form to demand an end to the policy. An estimated 20,000 demonstrators met on Facebook’s site in support of this effort, with more than 1,300 joining by the time the new policy became law.
An open letter to Starbucks CEO Howard Schultz, dated Oct. 25, 2011, read “Fully Responsible Businesses Speak Out; Protect your Customers.” Facebook said that it had reviewed an initial policy put in place for Starbucks, but decided to take time away from the project without providing updates. Starbucks didn’t publicly announce it was taking this action, but employees said
Even more worrisome is the possibility that the law will become more complex in the future, possibly allowing the company to use its additional taxpayer funding and the additional $10 billion in private savings to make this plan possible. This scenario could potentially raise the cost of developing an alternative to the corporate minimum wage system by 15% in 2017. (See the article in question for details on this potential scenario.)
While Starbucks is not likely to have any changes in this situation in the foreseeable future, the timing of the change could potentially be significant. Since 2005, the company has been required to publish federal minimum wage and related data each year, making it impossible to determine how often each group will be required to file annual wage and related statistics. According to this data, as well as the data provided by the federal government, employers have reported to the Department of Labor that employers in the United States have taken into account the new and prior federal minimum wage. As such, any company that voluntarily reduces its employees’ spending if their employees
Transformation and RenewalImportant Components of the TransformationMany components went into the transformation of Starbucks throughout the mid-2000s. Some of the most important components included the strategically positioned leaders, the drive and ability of Starbucks to pursue innovation, and the ability of the CEO and leadership team to clearly and effectively communicate their vision, mission and goals. These components were the most impactful based on the seven “Big Moves” the company was striving toward, as seen in exhibit 9 within the case. All of these initiatives involved innovation and communication from the top-down.
Strategically positioning leaders is one of the most critical components of the Starbucks’ transformation. The organization needed a leadership team that was on-board with what the company was striving to accomplish. The necessary message, motivation and goals to transform Starbucks would not have been effectively communicated down to the lower levels of the organization without having the appropriate individuals in the right positions of leadership.
Starbucks’ desire and ability to pursue innovation also played an important role in their transformation. In order for Starbucks to survive in the 21st century, it had to pursue innovation, but this did not mean it had to stray from its core values. Starbucks managed to incorporate new products and digitalize as a company without losing sight of the core company values. It managed to create a new type of home brew, the Instabrew. The Instabrew appealed to a different market than that of the typical Starbucks day-to-day consumer, it instead appealed to customers who are “simply too busy to stop at Starbucks store.” (Koehn et al. 25) Even though the Instabrew coffee was a household quick-serve coffee beverage, it still held the Starbucks name which was associated with luxury and class. Starbucks also digitalized by creating apps, social media pages, developing rewards systems and soliciting for customer feedback on a website. All of these digital innovations turned out to be successful and important to the transformation of Starbucks. The first 24 hours that the “My Starbucks Idea” site launched, users posted over 7,000 ideas. On top of that,