Starbucks Case AnalysisEssay Preview: Starbucks Case AnalysisReport this essayStarbucks Case AnalysisI. Company OverviewStarbucks was founded in 1971 in Seattle Washington. Their prime product was the selling of whole bean coffee in one Seattle store. By 1982, the business had grown to include five stores selling coffee beans, a roasting facility, and a wholesale business for local restaurants. Howard Schultz was recruited to be the manager of retail and marketing in the early Ð80s. Schultz got the idea for the current Starbucks format from a trip to Italy where coffee was a major draw for Italian cafes. He bought Starbucks from the original owners for $4 million in 1987 and set about expanding his concept.
{2} Starbucks in the 1980s began with one of the first roasts in the U.S. What it didn’t do particularly well was sell large quantities of roasting products, such as coffee. Starbucks began to sell roasts for coffee on the European market on a one to one basis, but its stock of coffee beans declined rapidly. At the start of this decade, Starbucks spent $300 million on acquisitions, ranging from a new coffee firm that produced a roasting operation to a new company that focused entirely on a product line for the coffee of its own making. However, even then, the company didn’t win a large market. On March 1, 2002, the first “Starbucks for sale” in the world came, under the name “American Express Superstore.” Though it had been in existence for a short time, in 2003 and 2004 it announced a deal with German coffee giant Eau de l’Air. As the largest e-commerce site, the e-commerce website took a big leap forward in 2013, reaching 2 million unique user visits and an annual sales of $1 billion—$20 million higher than the previous year’s estimate of $1 billion. Eau de l’Air, as was the case before it, had been looking for acquisitions, and the deal worked well enough to become one of them. On July 9, 2015, the coffee giant decided to take advantage of its “Starbucks for sale” agreement by giving out hundreds of shares of its stock in a bid to buy nearly the entire stock of Eau de l’Air. As is typical with major corporations investing in “Starbucks for sale” events, it was decided that it was time to put a stop to it. In the case of Superstore, the idea was that the store on which the company was building their empire was only one of many retail outlets to follow, and it was no coincidence that they all had a connection there. Instead, they were the first to find out that they didn’t already own a store in Eau de l’Air—it did come to the store in 2001, but only had to buy a single stock of the stock in order to get there.
{3} The two-year, $250 million deal with Starbucks was a one-of-a-kind success story. It was the culmination of years of research and development and it marked the first time in over half a century that the store would open in the United States. The company came off without a single shareholder (as if it were already defunct in many countries), and investors had been eagerly waiting to see what would happen to the company they were investing in. It was a major step toward taking control of Eau de l’Air and, in the case of the Superstore, ensuring they were not just one of the most popular retailers in the
{2} Starbucks in the 1980s began with one of the first roasts in the U.S. What it didn’t do particularly well was sell large quantities of roasting products, such as coffee. Starbucks began to sell roasts for coffee on the European market on a one to one basis, but its stock of coffee beans declined rapidly. At the start of this decade, Starbucks spent $300 million on acquisitions, ranging from a new coffee firm that produced a roasting operation to a new company that focused entirely on a product line for the coffee of its own making. However, even then, the company didn’t win a large market. On March 1, 2002, the first “Starbucks for sale” in the world came, under the name “American Express Superstore.” Though it had been in existence for a short time, in 2003 and 2004 it announced a deal with German coffee giant Eau de l’Air. As the largest e-commerce site, the e-commerce website took a big leap forward in 2013, reaching 2 million unique user visits and an annual sales of $1 billion—$20 million higher than the previous year’s estimate of $1 billion. Eau de l’Air, as was the case before it, had been looking for acquisitions, and the deal worked well enough to become one of them. On July 9, 2015, the coffee giant decided to take advantage of its “Starbucks for sale” agreement by giving out hundreds of shares of its stock in a bid to buy nearly the entire stock of Eau de l’Air. As is typical with major corporations investing in “Starbucks for sale” events, it was decided that it was time to put a stop to it. In the case of Superstore, the idea was that the store on which the company was building their empire was only one of many retail outlets to follow, and it was no coincidence that they all had a connection there. Instead, they were the first to find out that they didn’t already own a store in Eau de l’Air—it did come to the store in 2001, but only had to buy a single stock of the stock in order to get there.
{3} The two-year, $250 million deal with Starbucks was a one-of-a-kind success story. It was the culmination of years of research and development and it marked the first time in over half a century that the store would open in the United States. The company came off without a single shareholder (as if it were already defunct in many countries), and investors had been eagerly waiting to see what would happen to the company they were investing in. It was a major step toward taking control of Eau de l’Air and, in the case of the Superstore, ensuring they were not just one of the most popular retailers in the
The initial focus of Starbucks expansion was the premium customer who valued the “Starbucks experience” Ð- great coffee, first-rate music, and a comfortable and upbeat meeting place. Starbucks grew rapidly in the U.S. with over 10,000 retail stores representing 79% of their total revenue. Recently, Starbucks has attempted to reach the middle class market and expand through additional distribution channels such as grocery, joint ventures, and online through the StarbucksStore.com website. Additional expansion has been achieved through international markets including Japan, the U.K., China, and Mexico bringing the total international retail locations to over 1600. Finally, Starbucks has expanded into entertainment using vehicles such as books, music products, and film to add revenue.
Starbucks has been voted one of Fortunes top 100 companies to work for in 2007 and has been lauded as one of the few companies that offer comprehensive benefits to their part time employees. They also have an extensive corporate social responsibility program that supports literacy programs in the U.S. and China and sustainable coffee production in coffee growing regions such as Guatemala and Costa Rica. Their mission statement today is “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow”.
II. Problem StatementThe Starbucks concept is near saturation in the U.S. market Ð- some analysts give Starbucks only two years at most before that comes to fruition. Starbucks must expand globally to maintain the returns theyve experienced over the last decade. The chain only operates 1200 international outlets which leaves plenty of white space for expansion. Starbucks expects to grow the number of its stores worldwide, to 10,000 in three years, but there are huge risks in global expansion. One major factor is that unlike its U.S. locations, Starbucks international outlets are operated with local partners who can help identify locations, sift through tax issues, and give Starbucks more local community appeal. The addition of a partner, however, reduces the companys share of the profits to only 20% to 50%. It also makes it harder than in the U.S. to control costs Ð- a major profit killer overseas has been real estate and labor costs far higher than those in the U.S.
II. Trouble StatementThe Starbucks concept is near saturation in the U.S. market Ð- some analysts give Starbucks only two years at most before that comes to fruition. Starbucks must expand globally to maintain the returns theyve experienced over the last decade. The chain only operates 1200 international outlets which leaves plenty of white space for expansion. Starbucks expects to grow the number of its stores worldwide, to 10,000 in three years, but there are huge risks in global expansion. One major factor is that unlike its U.S. locations, Starbucks international outlets are operated with local partners who can help identify locations, sift through tax issues, and give Starbucks more local community appeal. The addition of a partner, however, reduces the companys share of the profits to only 20% to 50%. It also makes it easier than in the U.S. to control costs Ð- a major profit killer overseas has been real estate and labor costs far higher than those in the U.S..
II. Trouble StatementThe Starbucks concept is near saturation in the U.S. market Ð- some analysts give Starbucks only two years at most before that comes to fruition. Starbucks must expand globally to maintain the returns theyve experienced over the last decade. The chain only operates 1200 international outlets which leaves plenty of white space for expansion. Starbucks expects to grow the number of its stores worldwide, to 10,000 in three years, but there are huge risks in global expansion. One major factor is that unlike its U.S. locations, Starbucks international outlets are operated with local partners who can help identify locations, sift through tax issues, and give Starbucks more local community appeal. The addition of a partner, however, reduces the companys share of the profits to only 20% to 50%. It also makes it harder than in the U.S. to control costs Ð- a major profit killer overseas has been real estate and labor costs far higher than those in the U.S..
II. Trouble StatementThe Starbucks concept is near saturation in the U.S. market Ð- some analysts give Starbucks only two years at most before that comes to fruition. Starbucks must expand globally to maintain the returns theyve experienced over the last decade. The chain only operates 1200 international outlets which leaves plenty of white space for expansion. Starbucks expects to grow the number of its stores worldwide, to 10,000 in three years, but there are huge risks in global expansion. One major factor is that unlike its U.S. locations, Starbucks international outlets are operated with local partners who can help identify locations, sift through tax issues, and give Starbucks more local community appeal. The addition of a partner, however, reduces the companys share of the profits to only 20% to 50%. Every dollar it costs, it costs more. In the U.S. the total amount Starbucks is spending now is $33 billion, to $34 billion. The total profits are expected to be roughly $70 billion annually for Starbucks.
II. Business AnalysisThe Starbucks concept is near saturation in the U.S. market Ð- some analysts give Starbucks only two years at most before that comes to fruition. Starbucks must expand internationally to maintain the returns theyve experienced over the last decade. The chain only operates 1200 international outlets which leaves plenty of white space for expansion
Another potential issue with global expansion is backlash against American companies worldwide. Some see the Starbucks expansion as corporate colonialism, American
idealism, and even an attempt to change foreign cultures. Especially in a time of war, Starbucks remains a symbol of America to many cultures worldwide. Much like McDonalds has experienced in international markets, Starbucks too has been boycotted by antiwar protesters in Lebanon and criticized in New Zealand by advocates for higher coffee prices to growers. Starbucks even had to pull out of Israel due to the risk of terrorist attacks.
Finally, in emerging countries such as Mexico, China and India, the ability of the customer to pay $3 for a cup of coffee is not guaranteed. In these countries, most local coffee versions retail at $.50 per cup. The question of whether Starbucks should alter its uniform pricing policy in emerging markets is a valid one.
III. SWOT AnalysisStrengthsLeader in premium coffee market shareWidespread global presence and brand recognitionÐ- the company operates over 8500 retail store locations across 32 countries worldwide including Japan, England, and Mexico
Quality Products and a well recognized brand in the coffee industry. Starbucks is committed to have the best quality products; they have formed relationships with the farmers, who are also considered their partners, to ensure that they provide nothing to the best to their customers
Employee retention – Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. Stock option plan provides ownership to all levels of the company
Partnerships to provide brand extension Ð- Starbucks has entered into new areas and channels via partnership with other companies to either increase retail opportunities (Borders and Kroger) or complement their product offering (Apple)
Distribution channels – CafД©s and carts in hospitals, banks, office buildings, supermarkets, and shopping centers, e.g. Nordstrom, Barnes & Noble, United Airlines, and Target
WeaknessesDeclining stock priceRising energy and labor costs as well as increase in supply costs (coffee beans, milk)Lack of diversification in stores outside U.S. ÐÑ* of stores are currently in the U.S. which makes Starbucks reliant on U.S. economy and susceptible to USD devaluations.
Sales growth slowing Ð- stores open for more than one year having difficulty maintaining