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Catching the Starbucks Fever

Starbucks History 

Starbucks opened operations in Seattle's Pike Place Markets in 1971 with the future aim of providing coffee to a number of restaurants and surrounding bars. With the recruitment of Howard Schultz who led the marketing and retail efforts of Starbucks in 1982, the company took a change in direction through the views of Schultz, who after visiting Italy tried to

adapt the same principles in order to a strong bar culture. Schultz then utilized Starbucks ability to provide quality coffeebeans and opened up a new store called Il Giornale, which brewed coffee from these particular beans. By 1987, Il Giornalehad decided to take over the assets of Starbucks and also, further changed its name to Starbucks Corporation. By the endof the year, Starbucks had increased the number of stores to 17 and furthered its location span by entering Chicago andVancouver.

In 1990, the company took further steps forward with expansion of the Seattle headquarters and an increase in resourceswith the opening of a new roasting plant. Relationships and other ventures also took off during the early nineties as thecompany looked to development organizations to further its progress. By 1995, the company really established its namewith the opening of the 676th store as well as increasing the products in store with the addition of compact discs a resultof a previously popular experiment with 'in-house' music. In 1996, the company kept on stretching its reach by enteringinto the market of Japan, Singapore and Hawaii. This was achieved through joint ventures including the one formed withSazaby Inc., which pushed through the development of coffee houses in Japan. By the year 2000, things had progressedso far that 3,300 stores were already opened, the company had ventured into countries ranging from England to Australiaand a website was created to keep up operations with the latest technology (starbucks.com).

The current international situation for Starbucks seems to be an emerging part of their business and the reorganization of 

this is proved by their aim to become a leading global company through making a difference in peoples lives all around theworld (http://www.starbucks.com). This goal is quite close to being achieved as proved the Starbucks current locations ininternational markets and the successfulness of these ventures. The current countries in which Starbucks are located inare: Australia, Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia, New Zealand, Oman, PeoplesRepublic of China, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Switzerland, Taiwan, Thailand, Untied ArabEmirates, United Kingdom, and the United States. (starbucks.com) 

Overall, the aim of becoming a worldwide global brand seems to be working in favor of the company and is helping it toattract the attention of many major companies who would like to share a partnership (starbucks.com). This is all positivenews for the company because it provides a strong basis for future development of international markets, which furtherstrengthens the mission to become one of the leading specialty coffee retailers in the world. In addition to the fact thatStarbucks has already successfully opened around 3,500 stores, the 'push' to achieve their goal is proved more than everby the aim to open at least 650 stores just in Europe by the year 2003. It's these types of goals which prove the potentialof this brand to become so popular and well known, that it would be as recognizable as major names such as McDonaldsand Coca-Cola.

Vision 

As stated on the website, the company's vision is to 'establish Starbucks as the most recognized and respected brand inthe world.'  

This is a fitting vision because it is a broad comprehensive picture of what the company wants Starbucks to become. Wewill examine the vision using four components. First the vision is built on a foundation of the organizations core values.Starbucks only uses the finest coffee beans when brewing its variety of blends and therefore wants to be looked at withthe respect of a company that uses and provides the best. Secondly, the company desires a top of the mind recognition.Starbucks not only wants consumers to remember who it is, but think about Starbucks first, having a shining image. Thirdis a summary of what the organization does. Starbucks is lacking in this component because it fails to provide a statementannouncing what exactly what business Starbucks is in. It assumes that as a recognized brand it does not need to specifywhat business the company is in. The mission statement in the next section provides a much better description of thiscomponent. Finally, the vision states broad goals of what the company could be. Starbucks wants to be the mostrecognized and most respected brand in the world. The most recognized and the most respected are the two broad areasof this statement. Ideally the two mean number one, or above all others, but there is no numeric goal, or timeline for thisobjective.

The overall company operations are based around purchasing and roasting high-quality whole bean coffees and sellingthem along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, coffee-relatedaccessories and equipment. This is achieved through the huge number of company operated retail stores, a specialty salesgroup, supermarkets, a direct response business and also on the World Wide Web at the Starbucks.com website(starbucks.com). The attainment of this goal is boosted by the rapid expansion of new retail stores, in addition to thedevelopment of many new opportunities in terms of products and distribution channels.

Mission 

The mission of Starbucks is to establish Starbucks as the premier purveyor of the finest coffee in the world whilemaintaining our uncompromising principles while we grow. None of this success would have been possible without a set of goals that the company aimed to achieve and a set of principles, which governed the decision making process.

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 Starbucks has a clear set of guidelines which has to be followed and uses these as a direction tool for the future of thebusiness. Traditionally, the guidelines would more appropriately be connected to the vision, however the company has setthem with the mission statement.

The six principles of Starbucks are stated as (starbucks.com):

  Provide a great work environment and treat each other with respect and dignity.

  Embrace diversity as an essential component in the way we do business.

  Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.

  Develop enthusiastically satisfied customers all of the time.

  Contribute positively to our communities and our environment.

  Recognize that profitability is essential to our future success.

Application of these principles can be used as a guideline for all employees from managers to workers to aim to achievethe company's goals, while maintaining a certain type of standard. This mission statement along with the set of guidelinesprovides a focus for employees as they make strategic decisions. It not only supports the employees, but supports thecustomers as well, making a note that they should satisfied all of the time. The mission shows alignment with the vision bystating how the company plans to reach the broad goals set by the vision statement. Another supporting sentence in themission statement is that the company apply the highest standards of excellence to the purchasing, roasting and freshdelivery of its coffee. This statement supports the idea that Starbucks uses the best available resources to give it arecognized and respected name.

Timeline 

Overview 

We will take the company timeline and strategic decisions portion in two main sections. The first is when Starbucks was aPrivate Company, from its inception in 1971, to it's initial public offering in 1992. Then we will discuss some of the majoractions of the publicly held company from 1992 to present. We believe that there since the beginning, Starbucks strategyhas been one of growth. They have demonstrated all dimensions of a growth strategy: Internationalization in expandinginto new countries and the global market. It has shown concentration in being creative and relying on it's core competencyof making high quality coffee and coffee equipment to develop new products and markets. Horizontal Integration has beenevident in the many strategic acquisitions, partnerships, and joint ventures. Vertical Integration has been another keysuccess factor as Starbucks Corporation has integrated backwards in opening coffee roasting plants, and forwards incontrolling the distribution of it's many products. This growth has taken it from a single store in Pikes Place Market inSeattle, to a worldwide company with sales of over $2.1 Billion and operations in almost thirty countries, in just 21 shortyears (fortune.com).

Private Company 

1971: Starbucks began when three friends-English teacher Jerry Baldwin, history teacher Zev Siegel, and writer GordonBowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle (Thompson).The three original partners each invested about $6,350 in the store, and believed they build a client base in the Seattlearea. This was a strategic decision because each they saw an opportunity in the fine coffee market, as they saw anothersimilar store have success in the San Francisco Bay area. (Thompson) The store sold coffee beans, and high quality coffeemaking equipment. The owners prided themselves on their knowledge of coffee bean and of educating customers aboutthe benefits of dark roasting coffee. (Thompson) 1972: after the success of the first store, a second Starbucks was openedin Seattle (Thompson).

September 1982: Howard Schultz, current chairman of Starbucks, was hired to manage retail sales and marketing(Business & Company, 2002). After meeting with the owners early in 1982, Schultz was taken in by Starbuckscommitment to quality and of educating customers of the benefits of slow roasting dark coffee beans. By this timeStarbucks had expanded to operating five stores, and a small coffee bean toasting facility. (Business & Company, 2002)

1983: After visiting Milan, and seeing that the vast quantity of coffee and expresso bars, Schutlz realizes that Starbucksshould be selling expresso, cappuccino, and fresh brewed coffee, as well as selling coffee beans and high quality coffeeequipment (Thompson). He was met with resistance as the owners did not want Starbucks to sell beverages (Business & Company).

April 1984: Schultz finally convinced the owners to open a sixth "test" store in Seattle area. (starbucks.com) It was anExpresso Bar that was designed to sell coffee, expresso, and capuccinno, and the store had immediate success(Thompson).

April 1986: Schultz left Starbucks to fulfill his idea of building expresso bars around the Seattle area and opens II Giornale.(Thompson) In a year and half two more II Giornale expresso bars would be opened, all serving Starbucks coffee.(starbucks.com) March 1987: II Giornale, and Howard Schultz acquired Starbucks for $3.84 million. (Thompson) Theyacquired the Starbucks name, roasting plant, stores, etc. The new name of the company would be Starbucks Corporation,

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and Howard Schultz was the new CEO. Schultz has a strategic vision of Starbucks becoming a national company. His goalwas to open 125 stores in the next five years. Schultz had already demonstrated his corporate vision and growth strategywith II Giornale, now he was horizontally integrating in the Seattle market by acquiring Starbucks. This would be the firstmajor acquisition in Starbucks history.

Between 1987 through 1990 Starbucks entered new markets, and continued to grow. Schultz announced a five-yeargrowth plan to build 125 new stores. (Thompson) At the end of 1987, there were 17 Starbucks locations, and by 1990there were 84 (starbucks.com) During this four year growth phase Starbucks entered the markets of Chicago, Vancouver, and

Portland. (starbucks.com) In 1988 the company started a mail order catalog for it's fine dark roasted coffee beans and highquality coffee equipment (Business & Company, 2002).

1991: Schultz makes Starbucks, "the first privately held company to establish an employee stock option program thatincluded part-timers." (Business & Company, 2002). Schultz had a business strategy to retain high quality employees bymaking Starbucks a great place to work. He referred to every employee as a "partner" in the company (Thompson).

1991 - Starbucks Company entered next big market, California. Management believed this would be a favorable marketbecause of it's "trendy" nature (Thompson). 1992 - Starbucks had opened 150 new stores between the five-year period of 1987-1992, 25 more than the original plan (Thompson). This was a tribute to the high sales and success that Starbuckswas having throughout it's markets. People were associating Starbucks with high quality coffee and it was becoming a verysocial atmospheres.

Public Company 

June 1992 - Starbucks Company was very successful after its initial public offering on the NASDAQ exchange (Thompson).1993 - during this year Starbucks opened in the Washington, D.C. market, opened its second roasting plant, and began it's

long-term relationship with Barnes & Noble, Inc. to sell coffee products at its bookstores (Business & Company, 2002)(starbucks.com).

1994-1995 - these years represent more growth and partnerships, including an acquisition of The Coffee Connection, Inc.for $23 million (Business & Company, 2002). During these years Starbucks penetrated the approximately 15 more markets(cities) in the United States (starbucks.com). It also formed a strategic alliance with PepsiCo, the North American CoffeePartnership, to manufacture and distribute coffee drinks. This strategic decision turned out very lucrative as Frappuccino®,an iced coffee drink, has had an incredible amount of success in grocery and convenience stores. Starbucks also openedtwo more major accounts; Sheraton Hotels, and United Airlines (starbucks.com) 

1996 - Starbucks Coffee International, a subsidiary of Starbucks Corporation, formed a joint venture with SAZABY Inc., aJapanese corporation, to bring Starbucks into Japan in 1995 and in 1996 it opened it's first international location in Tokyo,Japan. This marked the beginning of its International growth, which would see locations in Singapore at the end of 1996;Taiwan, Thailand, New Zealand and Malaysia by 1998; China, Lebanon, and South Korea by 1999; and Spain, Puerto Rico,and San Juan by end of 2002 (Business Wire) (starbucks.com) By 2002, Starbucks had locations in almost thirty countries(starbucks.com). Also in 1996 Starbucks formed an alliance with Dreyers Ice Cream to introduce coffee ice cream products,which, according to starbucks.com, became the "number one brand of coffee ice cream in the United States." By 1996 there

were 1,015 Starbucks locations (starbucks.com) 1998 - Starbuck acquired the Seattle Coffee Company, located in the UnitedKingdom and comprised of 56 locations, for over US$60 million (BBC News Online, 1998). This is the beginning of Starbuck's president's goal of opening 500 stores in Europe by 2003. (BBC News Online, 1998)

1999 - There were two major events during 1999. The first was the acquisition of Tazo®, a tea company. (Business & Company, 2002) The second was a long-term contract with Albertson's supermarkets (Albertson's,1999). In this deal morethan 100 Starbucks Coffee bars would be opened in Albertson's grocery stores in the U.S. This was also a strategy byStarbucks to introduce Frappuccino®, Tazo® tea, and other merchandise to new markets across the Midwest, whereAlbertson's is centralized (Albertson's, 1999).

2000- During 2000, approximately 1,865 Starbucks locations were opened in the United States and abroad (starbucks.com).In addition, Starbucks entered into a contract with Host Marriott International, as this continued their growth into the hotelindustry (starbucks.com).

2001- This year represented another year of substantial location growth, with over 1,400 new locations, bringing the totalamount to 4,709. In addition Starbucks Japan, Ltd, ("Starbucks Japan") saw the opening of it's 300th Japanese locationafter winning immense popularity in Japan and financial success after it's Initial Public Offering on Nasdaq JapanSeptember of 2001 (starbucks.com) (Business Wire).

2002- This year Starbucks continues to break through into new markets in new countries. In March of 2002 Starbuckscelebrated it's first store opening in Spain, and announced plans to open hundreds of new stores internationally (Puget,2002).Starbucks Size 

Starbucks is a global corporation with 4,709 total locations in the United States and worldwide (starbucks.com). Withoperations in almost thirty countries, such as the United States, Australia, Germany, United Kingdom, and Qatar, to namea few, they reported revenues of over $2.64 Billion in 2001 (Starbucks Corporation). The company reported total assets of $1.851 billion in 2001. Starbucks continues to grow at a rapid pace, with plans to open over 600 locations in Europe aloneby 2003 (starbucks.com). Starbucks has quickly become well established in the United States having locations in every major

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city. Starbucks employed over 59,000 people during 2001, with a employment growth rate of 24% (fortune.com).

Starbucks Scope 

Starbucks Corporation competes in the global arena. As previously mentioned in this case study, it has operations inalmost thirty countries, most prominently in the United States. Starbucks has used high quality coffee as it's corecompetency, and is currently in many different markets. These include ice cream, supermarket coffee beans, restaurants,coffee bars, coffee brewing equipment, coffee flavored drinks, tea's, and also books and compact discs. Starbucks sells its

product through many avenues, including Starbucks Coffee locations, mail-order catalogs, and its website starbucks.com. 

Starbucks Financial Performance 

During the fiscal year ending September, 2001, reported revenues were $2.649 Billion. This was over $500 million higherthan the previous year. Reported gross profit increased over $100million from 2000 to $581 million. Starbucks reported2001 Operating Income of $252.5million, and Total Net Income $181.2 million, both figures increasing substantially fromthe previous year (Starbucks Corporation).

Starbucks Corporation has quite a few very strong financial ratios, which we will now look at. The P/E ratio(profit/earnings) in 2001 was 49.08, which is far superior to the Industry average of 27.58 (Ratio, 2002). Starbucks EPS,earnings per share, of 81.79 is over five times higher than the industry average of 12.67 (Ratio, 2002). The quick ratio,which relates total current liabilities to cash, marketable securities, and receivables of 1.48 is a strong figure. StarbucksCorporation's Current Ratio of 0.91 is stronger than the industry average of 0.56. As the Current Ratio is the company'scurrent assets / current liabilities, this indicates that Starbucks Corporation has the ability to satisfy it's current liabilitieswith it's current assets, and with the ratio of 0.91 it is a signal of financial strength. Some other ratios found fromMultex.com include a Return on Assets of 11.31, a Return on Investment of 14.52, and a Return on Equity of 14.86.

Starbucks ROA, and ROI are both stronger the industry average, but the ROE is slightly weaker than the industry averageof 17.80. Inventory Turnover ratio is 11.48, which indicates that Starbucks Corporations inventory is highly liquid, and itsoperating cycles are very healthy (Ratio, 2002). This ratio is one more strong measure that Starbucks is a corporation thathas exhibited strong financial performance.

Starbucks Nonfinancial Performance 

Starbucks Corporation was voted by Fortune Magazine as one of the Top 100 Best Companies to Work For in 2002, rankednumber 58 to be exact (fortune.com). As of 12/1/2001 Starbucks Coffee has 51,914 employees in the United States, and7,627 employees outside of the U.S. (fortune.com). Starbucks Corporation created 12,650 new jobs in 2001 from a pool of over 720,000 applicants, with a 24% Job Growth Rate (fortune.com). 26% of it's workforce is made up of minorities (non-Caucasion), and 60% of it is made up of women (fortune.com). Starbucks Corporation chairman Howard Schultz believesthat Starbucks should be a great place to work, and should treat every one of their employees as partners. Someexamples of his good faith have been employee stock options plans, and health coverage that allow any employee, part-time or full-time, to benefit from. The plans have succeeded in having a low voluntary employee turnover rate in 2000 of 23% (fortune.com).

Product Usage Rate 

Usage Rate: The usage rate varies according to each type of product. In terms of coffee, the average usage rate for coffeedrinkers is around three cups per day. It should be mentioned that every person has their own personal amount of coffeeneeded each day and so, it is hard to base this fact as a general description but on average, regular coffee drinkers wouldconsume about two-three cups a day. In terms of the other food & beverage products, it would be fair to base the usagerate on the number of coffees that are consumed during the day. Once again, it is important to state that each person hastheir own personal amounts but usually those that purchase a drink of coffee would probably purchase a biscuit orchocolate. Other products such as coffee related equipment would only be purchased once in a while or when they wereneeded. Music would be purchased on a personal basis depending on if the consumers like the music available.

Performance / Need Analysis 

Consumers, especially those who are working, have the need to go straight into the store and straight out as quickly aspossible. This is a major objective because the quicker the service is, the more satisfied customers will be. This is provedby the take-away nature of Starbucks and its catering facilities for the working class.

In terms of actual coffee products, consumers are in need of having high quality coffee variations made up from highquality coffee beans (http://www.coffee.com.au/coffee_robusta.htm). Consumers are appealed to by those companies who deal withthe roasting and brewing of high quality coffees. Starbucks proves this point because it only purchases and roasts highquality whole coffee beans as well as adapting them into a number of different coffee variations.

Consumers in addition to high quality coffee want to be able to taste many types of coffee variations. It is vitally importantthat those more popular coffee products are available to consumers while other variations are introduced on an occasionalbasis. Within in this, it is necessary to make sure that the coffees are made of high quality beans and meet therequirements of consumers. These requirements include thick, uniform cream at the top of Espressos, strong flavor that ismaintained and that the freshness of the beverage stays longer while undesirable flavors are minimized(http://www.coffee.com.au/coffee_freshness.htm ). Basically, the less these requirements are met, the less appealing coffee will be toconsumers. Starbucks meets these requirements through providing many variations of coffee in order to satisfy as many

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people as possible. Examples include the walnut flavor of Colombia Narino Supremo, the creamy sweet Café Verona andthe smooth, buttery Sulawesi (http://www.starbucks.com/shop/product.asp ). The fact that Starbucks is mainly associated withcoffee, some consumers who don't drink coffee will be less attracted by the store. Many consumers who don't drink coffeeusually drink something similar like tea. With Starbucks, the acquirement of the Portland (USA) based Tazo® TeaCompany has allowed the product offerings to be expanded even further. Tazo® Tea provides a number of premium teasas well as herbal teas, in addition to tea accessories and gift packs. This was a useful acquisition by Starbucks because itallowed them to better meet the requirements of even more consumers and therefore, expanded the attractiveness of thestore on a whole new level.

Through the selling of coffee-related products such as brewing equipment and accessories, many consumers can enjoyhigh quality coffee at home rather than traveling out of their way. The equipment available includes Expresso machines,stainless steel coffee filters, and Starbucks cleaner and canisters. This is another example of how Starbucks is meeting theneeds of current customers as well as increasing its attractiveness to potential customers. In addition to meeting thosebeverage needs of consumers, sometimes there is the need to have an assortment of small foods that are quick toconsume and easy to carry. This is sometimes the case when people are looking for a quick snack to have along with theirdrink. Starbucks has met this requirement through providing a number of chocolate variations like gift boxes and chocolatebars while also offering sweets such as after-coffee mints and lollipops. The benefits of this are further increased by thefact that sometimes these chocolates can complement a coffee and therefore, when one is bought, the other one also hasa greater chance of being purchased.

There are also less important needs that if required can sometimes bring about potential success. These needs are oftenapart of the whole experience and include things like music. Starbucks meets the need of consumers by anotheracquirement, this time it's the music company, Hear Music. The connection here is that customers can purchase musicthrough Starbucks as a result of the agreement with Hear Music. Throughout the world, many café's have some type of music playing the background and this is a key identification feature that further expands the experience. Hear Music

provides Starbucks with a number of songs that are played throughout the day and this is quite an attraction for customersas proved by their constant questioning of what song is playing (http://www.starbucks.com/hearmusic/product.asp ). Further, HearMusic provides Starbucks with a number of compilation albums as well as favorites in order to make customers feel moreat home.

Strengths and Weaknesses Operations 

Starbucks specialty operations strive to develop the Starbucks brand outside the Company-operated retail storeenvironment though a number of channels. By establishing relationships with well-known third parties that share theirvalues and commitment to quality, Starbucks is able to reach customers where they work, shop, and travel. Theserelationships take various forms, including grocery channel licensing agreements, warehouse club accounts, internationalretail store licensing agreements, direct-to-consumer market channels, joint ventures and more. Although Starbucks doesnot usually outsource operational control of its retail stores in North America, in situations where another company canprovide improved access to desirable retail space, the Company licenses its operations. Starbucks has a long-termlicensing agreement with Kraft Foods, Inc. to market and distribute Starbucks whole bean and ground coffees in thegrocery channel in the United States. Kraft manages all distribution, marketing, advertising and promotions for this

particular product. The Company has two non-retail domestic 50-50 joint ventures. This includes one with PepsiCo, Inc.who develops and distributes ready-to-drink coffee-based products. Also, they have a joint venture with Dreyer's GrandIce Cream, Inc. to develop and distribute Starbucks premium coffee ice creams. Starbucks also makes their coffee andcoffee-related products available via mail order and online. For the most part, Starbucks is vertically integrated, controllingits coffee sourcing, roasting, and distribution through its retail stores.Score: +2

Marketing and Sales 

One of the main strengths of Starbucks over the years has been their tireless effort to make their product an uplifting partof people's daily lives. Starbucks' strategy for expanding its specialty operations is to reach customers where they work,travel, shop, and dine by establishing relationships with prominent third parties who share their values and commitment toquality. Starbucks has carried out their strategy by moving distribution into grocery stores, convenience stores,department stores, movie theatres, businesses, airports, schools, and homes. Starbucks has shown to use less of traditional advertising; instead relying more on its image advertising, such as movie and television placement, in order topromote the success of the business.Score: +2

Customer Service 

One of Starbuck's primary objectives is to provide a superior level of customer service. One of their guiding principles intheir mission statement states, "Develop enthusiastically satisfied customers all of the time" . In building customer loyalty,not only does Starbucks offer high levels of customer service, but they also strive to educate customers about coffeequality. There is an information section in each store that provides customers a good resource for becoming moreknowledgeable about the world of coffee. Starbucks also publishes and distributes a mail order catalog and a catalog of business gifts that offer coffees, certain food items and select coffee-making equipment and accessories. The company hasseveral other initiatives to enhance the customers' experience at Starbucks retail stores. For example, the Company iscurrently in the process of implementing wireless Internet access in its stores. Starbucks does provide a "comment card"on their web site that allows customers to give constant feedback about their experiences or concerns they may have. This

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is used as a means of improving the business where necessary.Score: +2

Procurement 

Starbucks depends upon both its outside brokers and its direct contact with exporters for the supply of green coffee.Coffee sought by Starbucks tends to trade on a negotiated basis, usually quite a bit higher in price compared to theircompetitors. Supply and price can be affected by many factors in the producing countries, such as weather, political, and

economic conditions. To reduce the risks associated with the unpredictability of coffee price and supply, Starbucks entersinto long-term fixed price contracts with its suppliers to ensure an adequate supply of quality green coffee over extendedperiods of time. Starbucks is confident with such relationships and believes the risks of non-delivery on such purchasecommitments are remote. Starbucks believes how they choose partners is critical to their success and have listed a fewcriteria:

  Shared values and corporate culture

  Strong multi-unit retail/restaurant experience

  Dedicated human resources

  Commitment to customer service

  Quality image

  Creative ability, local knowledge and brand-building skills

  Strong financial resources

During the past year Starbucks has been developing a new set of coffee sourcing guidelines. These sourcing guidelines area flexible point system that rewards performance in sustainable categories with financial incentives. Ultimately, those whoqualify for 100 points will be granted preferred supplier status with the Company's coffee buyers.Score: +1

Technological Development 

Starbucks is continuously searching for ways to better a customers' experience. With the introduction of the StarbucksCard for example, the Company has created the opportunity to improve customer service, shorten lines and make acustomer's visit at Starbucks quicker and more convenient.Score: +1

Human Resource Management 

Starbucks realizes that one of their most valuable resources are their employees. The first guiding principle in their missionstatement even addresses the Company's belief towards employees: "Provide a great work environment and treat eachother with respect and dignity" . Management understands that their employees play a major role in the growth of the

company. All employees at Starbucks are referred to as "partners", no matter what job position they occupy. TheCompany's cultural values gives employees a sense of meaning to their work even if it is just pouring a cup of coffee. Eachpartner (even part-time employees) is eligible to receive health care, participate in the Bean Stock program, and get a freepound of coffee each week. Under the Bean Stock program, employees are offered stock below the fair market valueseveral times a year. Starbucks' employees also participate in a 401(k) profit sharing plan. Starbucks believes they are inthe coffee business as well as the "people development" business. Each employee is required to complete an extensivetraining program that includes product expertise, a commitment to customer service, and well-developed interpersonalskills. Professional coffee bartenders for Starbucks complete up to 24 hours of training before entering their assignedstore. This training gives them knowledge to answer any questions about coffee or the Company, and the knowledge toarrange sample tastings and demonstrations with any of the equipment in the store. While the industry turnover rate isabout 400 percent, Starbucks maintains a turnover rate of only 50 percent. Due to this low turnover, Starbucks haslowered their training time and costs. Additionally, Starbucks is proud to note that it was again rated as on of the bestcompanies to work for by Fortune magazine.Score: +2

Firm Infrastructure 

Starbucks has proved to be a leader in identifying market trends and positioning themselves accordingly. For example,before the recent economic slowdown, management noticed a decrease in traffic. Rather than pull back from theirexpansion strategy, Starbucks launched a series of small adjustments to improve efficiency, and continue with their plans.

Starbucks strives to offer an environmentally safe product, as it believes that the welfare of people, plant and product arelinked. Starbucks prides itself on being a "good citizen" locally and in the international scene. They make significantcontributions to local charities that focus on children, the environment, the homeless, and AIDS research/support. Statedin the Starbucks Environmental Mission Statement; "Starbucks is committed to a role of environmental leadership in all facets of our business. We fulfill this mission by a commitment to:

  Understanding of environmental issues and sharing information with our partners

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  Developing innovative and flexible solutions to bring about change

  Striving to buy, sell and use environmentally friendly products

  Recognizing that fiscal responsibility is essential to our environmental future

  Instilling environmental responsibility as a corporate value

  Measuring and monitoring our progress for each project 

  Encouraging all partners to share in our mission" 

Score: +3

Production-Operations 

Starbucks stores are typically clustered in high-traffic, high-visibility location in each market. Stores vary in size, with anaverage of approximately 1,500 square feet. Since the Company is able to vary the size of its stores, Starbucks stores arelocated in a variety of settings, including office buildings, downtown and suburban retail centers, airport terminals, andkiosks located usually in building lobbies. Whatever location the Company chooses to be in, its focus will be on attractinghigh pedestrian street traffic. The product mix in each store varies depending on the size and location of the store.Starbucks takes great care in picking the right location. Analyst Mitchell Speiser says that, "while chains like McDonaldsand Wendy's routinely shutter 50 to 100 restaurants a year, Starbucks has closed only a small number of outlets in its 30-year history". Starbucks has focused on improving efficiency and increasing its gross profit margins. Milk, for example, isthe second most expensive product after coffee beans. Where Starbucks once had 65 different milk suppliers in the U.S.,they now have fewer than 25. Without a doubt, this efficiency gain has saved them a lot of money.Score: +3

Marketing 

Starbucks is the leading specialty coffee retailer in the nation, with over 5,000 locations in 22 international markets.Starbucks positions their products on a relatively simple plane. They focus on quality and experience, rather than price. Acomparison of specialty drinks with its competitors reveals very minor differences. Starbucks' image is one of the keyelements to their success. The company has realized that people don't only come for the coffee; they come for theatmosphere. People socialize, read, study, or just enjoy the music while drinking their coffee. Knowing this, Coffee shopstry to make their stores unique in some way or another that will create an appealing atmosphere. Starbucks has less of adistinct setting for their locations; instead, they focus on having plenty of comfortable seating so that people feel welcometo stay longer than they might have planned. Starbucks also positions each store individually according to the specificlocation it is in. This flexibility has attributed to the great success of the Company in the past decade. Another importantpart of Starbucks' positioning is that they are environmentally friendly. While other retailers position themselves in similarways, no one focuses to the extent that Starbucks has. Consumers seem to respond to environmentally friendly companieswho seem to truly care about the future of the world.

Advertising strategies used by Starbucks has also been a key success factor. Starbucks has found more successadvertising on a local level rather than to the nation as a whole. The Company advertises a lot through print mediums, asStarbucks' target market tends to be educated people who do more reading than the average person.Score: +3

Research and Development 

Starbucks's organizational culture is one of innovation and creativity. This is evident through the continuous developmentsof new and exciting products. Whether it's the new 4-cup thermal coffeemaker recently introduced to the market, or theStarbucks 'DoubleShot' Espresso beverage, Starbucks seems to be the market leader when it comes to new products andideas. In November 2001, the Company introduced the 'Starbucks Card', which is a stored-value card that can be loadedand re-loaded in denominations up to $500. The Starbucks Card is a wonderful convenience tool for customers that canserve as great gifts, and reduces time spent at the cash register. This contributes to the overall enhancement of thecustomer's experience. Starbucks is extremely pleased with the ongoing positive customer response to the Starbucks Card.It is through the introduction of new products and the development of new distribution channels that Starbucks focuses ontheir Company's goal of becoming the most recognized and respected brand in the world. Starbucks is one of the fastestgrowing companies in the U.S.; from just 17 coffee shops in 1987 to over 5,000 today. Future plans include opening atleast 1,200 new stores during 2002 and by 2005, to have over 10,000 stores worldwide.

Score: +2

Financial and Accounting 

Financially, Starbucks has had solid earnings and return. Despite still following a 'fast-growth' strategy, the Company hasmanaged to continue healthy operations while generating enough public funds to finance store expansion. For the firstquarter of fiscal 2002, Starbucks reported record revenues and earnings. These consolidated net revenues are an increaseof 21 percent to $805 million from $667 million for the first quarter of fiscal 2001. Starbucks expects full-year revenues togrow approximately 20 percent in fiscal 2002. Starbucks ended last year with more than $300 million in cash and virtuallyno debt.Score: +2

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Management 

Starbucks firmly believes that their employees are one of their important assets and that it's through their high qualityworkforce, that they are able to maintain a competitive advantage. They have successfully built a nation wide RetailCompany by creating pride in the labor force produced through an empowering corporate culture; exceptional employeebenefits, and employee stock ownership programs. Employees are empowered by management to make decisions withouthaving to first report to management, and are encouraged to think for themselves as an entity of the business. The culturetowards employees can be described as 'relaxed' and supportive. Starbucks has avoided a hierarchical organization

structure and has no formal organizational chart. It is evident that employees at Starbucks share common goals. Anemployee was quoted as saying; "We all have this common belief in the product we sell".Score: +3

Information Systems-Information Technology 

Starbucks deploys Blue Martini's order management system to its retailers and channel partners. The system providesStarbucks with the ability to centrally manage and deliver contract-based products and pricing in different languages for itsglobal distribution.Score: +1

Summary of Scores 

Overall, Starbucks seems to be a strong, well-established, and well-rounded company. As the industry leader, they havebuilt a strong brand image that has helped them to gain a considerable greater share of the market in comparison to theircompetitors. Management has shown to have the ability to foresee market trends and changes in consumer behaviors.Management has also created a corporate culture that promotes high productivity levels by their competent employees.

Financially, Starbucks is stable despite its rapid and continuous growth strategies. The Company has done well to establishreliable, long-term relationships with suppliers. For the most part, as individual scores indicate, Starbucks is fairly to verycapable in most areas of its business. In areas where they do perhaps lack expertise, skills, or competencies, they haveformed strategic alliances with companies that can be more efficient and effective.

Value Chain Activities +13 of a total +21

Internal Audit +13 of a total +18

Total +26 of a total +39

Stock Prices 

Chart One: Starbucks vs. Industry 

This Chart compares Starbuck's stock to the Special Eateries Industry average. As depicted by the graph, Starbuck's hasbeen a defining force in the industry, as the industry average follows the exact same pattern/line, just slightly belowStarbucks, for the past five years.

(Source: hoovers.com) 

Chart Two: Starbucks vs. Competition 

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This Chart Compares Starbucks with three major competitors in the market.NWCI - New World Coffee Inc.DDRX - Diedrich Coffee, Inc.GMRC - Green Manhattan Coffee Inc.

Because of the diversity of Starbucks competition, in the past three years the stocks do not seem to be a parallelpopulation to each other. In specific, Green Manhattan stock peaked the highest of the four around one year ago.Starbucks Corporation stock has been on a steady and consistent rise for the past five years, and Diedrich Coffee, Inc.,

possibly because of the increased market share competition put on by Starbucks Corporation and Green Manhattan Inc,has seen a steady drop in stock prices over the past two years.

(Source: hoovers.com) 

Chart Three: Starbucks vs. Dow Jones 

This graph charts Starbucks Corporation versus the Dow Jones Industrial Average over the past five years. We chose thisaverage because we feel it best represents the restaurant industry that Starbucks is a member. This is reflected by someof the similar upward and downward movements of both lines in the graph. Overall Starbucks Corporation stock has beenconsistently higher than the Dow Jones, and has grown in price at a higher rate than the average.

(Source: hoovers.com) Opportunities and Threats 

Economic Forces 

Economic factors are an important aspects that concern the nature and direction of the economy in which a firm operates.Since the relative affluence of various market segments will affect the consumption patterns, companies must take this

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into consideration when planning its strategy. In periods of normal price variation, the demand for coffee is price inelastic.However, when coffee prices show big increases, consumers tend to reduce their consumption commensurately.

The Company's net revenues increased from $1.3 billion in fiscal 1998 to $1.7 billion in fiscal 1999, due primarily to theCompany's store expansion program and comparable store sales increases. As part of its expansion strategy of clusteringstores in existing markets, Starbucks has experienced a certain level of cannibalization of existing stores by new stores asstore concentration has increased. However, management believes such cannibalization has been justified by theincremental sales and return on new store investments. This cannibalization, as well as increased competition and other

factors, may continue to put downward pressure on the Company's comparable store sales growth in future periods.(starbucks.com) Score -1

Sociological Forces 

As a result of Starbucks closely following their objectives, the company has installed a list of principles that further outlinethe company's willingness to make sure that its affect on the environment is as positive as possible. These principles arestated as (starbucks.com):

  Understanding of environmental issues and sharing information with our partners.

  Developing innovative and flexible solutions to bring about change.

  Striving to buy, sell and use environmentally friendly products.

  Recognizing that fiscal responsibility is essential to our environmental future.

  Instilling environmental responsibility as a corporate value.

  Measuring and monitoring our progress for each project.  Encouraging all partners to share in our mission.

The importance of these guidelines is further illustrated by the company's mission to show leadership towardsenvironmental issues. This can only be seen as a positive for the image of the company and shows that they are willing toutilize their resources in order to more than satisfy requirements. In addition to this, Starbucks doesn't just rest on itslaurels, it demonstrates it through participating and organizing activities such as neighborhood clean-ups and walk-a-thons. Once again, the company's image is strengthened by its actions and shows that it is able to actively contribute withthe right focus behind its activities. Further examples of the company's actions towards environmental friendliness includethe recycling and reusing of resources in order to enhance the lives of people around the world(http://www.starbucks.com). Policies that also have been implemented are the buying policies, which only allow thecompany to purchase from those other businesses (suppliers) who follow the same environmental strategy as Starbucks.This illustrates the integrity of the company as they can sometimes sacrifice opportunities if they don't follow what thecompany stands for. In addition to waste reduction, Starbucks also aims to reduce energy usage and once again,demonstrates this by doing energy audits and then using the results to change store design or procedures so that theysave as much energy as possible. Lastly, to integrate these policies to new employees, Starbucks has employed the

services of a few partners which congregate together to create a 'Green Team,' which installs the environmental views intotrainees as well as coming up with inventive ways of helping the environment.Score: +3

Demographic Factors 

Starbucks originated in the United States, which is the sector we will be examining for demographics. According to the CIAWorld Factbook, the population of the U.S. as of July 2001 was estimated at 278,058,88 (CIA). Population facts areimportant to Starbucks because they can give Starbucks valuable statistics, such as US population base per Starbucksstore. People ages 15-64 make up the largest percentage of the population, and therefore will have greater control of themarket than any other sector (CIA). This implies that the most important target market for Starbucks are people withinthis age group. The two largest ethnic groups in the U.S. are white 83.5% and black 12.4. The ethnic background isimportant to a company because it influences tastes, trends, perceptions, values and beliefs of an individual. EstimatedGDP in 2000 was $9.963 trillion (CIA). GDP real growth rate was 5% (CIA). The growth rate of GDP suggests that theeconomy is growing, and therefore there is opportunity for Starbucks to expand business. A very large per capitapurchasing power parity of $36,200 suggests that Americans have the opportunity to buy specialty coffee drinks from anexpensive, quality-intensive organization such as Starbucks (CIA). An inflation rate in consumer prices in the year 2000 of 3.4% is a high inflation rate. This suggests that the economy could be heading towards recession. During a recession, itcould be expected that consumers would spend less on premium luxury items such as Starbucks' coffee.Score +2

Legal / Political Forces 

Right now, Starbucks has two class action suits pending since 2001. The lawsuits entitled Carr vs. Starbucks and Sheildsvs. Starbucks are challenging the status of Starbucks California store managers and assistant managers as exemptemployees under California wage and hour laws. Starbuck's is denying all liabilities in these cases, however; the companyhas agreed to the settlement in order to take care of all of the plaintiffs' claims without having to get involved in anyprotracted litigation.

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Starbucks also only imports all their coffee beans, so possible threats could include a change in import laws. A change inthe status quo as far as imports go could greatly affect numerous areas of production for the company. For example, if itcosts more to import or the process is made more difficult the result could ultimately be a change in price, which wouldaffect the level of consumption for Starbucks coffees. (starbucks.com):Score -2

Summary of Scores 

The Economic Force was scored as a -1 due to the fact that an increase in coffee prices does affect the level of consumption of the good. Economic factors, such as price, raises pose to be a threat, however it is a minor threatconsidering that Starbucks has established its customer base. It is apparent that an increase in price might affectconsumer behavior, but it will not drastically change consumer habits. The technological sector was scored as a +3. Thereasoning behind that is that new technological changes that Starbucks is undergoing poses to help open the door for newproducts by improvements being made in marketing and manufacturing techniques. Also the changes will assist inimprovements in existing products. The technological improvements, advancements, and innovations create a great deal of opportunity for the organization by staying ahead of what competition is doing. In the Sociological sector, Starbucks wasgiven a +3. Justification for this score is that Starbucks has created an image of being environmentally friendly. This is astrong opportunity to build on the organization's market share because the company can attract more consumers from itscompetition because of its strong reputation. Starbucks scored a +2 in the Demographic sector primarily because the U.Spopulation is growing, with an increasing GDP and large per-capita purchasing power. Starbucks must be weary of a highinflation rate, as this could suggest recession.Porters Five Forces Current Competitive Force 

Porter's first force that Porter describes is current rivalry among existing firms. In the specialty eateries industry,

Starbucks' current and direct U.S competitors are Diedrich Coffee, Seattle's Best Coffee, and Einstein/Noah BagelCorporation (hoovers.com). The competition, however, is not equally balanced. Diedrich Coffee operates 370 coffeehouses in37 states and 11 countries (hoovers.com). Seattle's Best Coffee operates 160 coffee cafes and 20 Italian coffee cafes in 17states and 8 countries (hoovers.com). Einstein/Noah Bagel Corporation operates 460 bagel cafes in the U.S (hoovers.com).Starbucks has 4,709 locations in over 20 countries (hoovers.com). It is clear that Starbucks has few major competitors, andthe competition has nowhere Starbucks' volume of operations. Starbucks is the leading retailer, roaster and brand of specialty coffee in the world. Smaller competitors, however, pose potential threats to the company. For example, theaverage Starbucks location draws on a population base of 200,000 (msn.com). In San Francisco and Seattle, Starbucksdraws on population bases between 17,000 and 19,000 (msn.com). In cities where Starbucks does not draw on smallpopulation bases, smaller competitors can attract some of Starbucks' 200,000 person population base. A slowing industrymarket growth is another threat facing Starbucks. According to the market research firm Allegra, compound marketgrowth between 1997 and 2001 was 57% (hoovers.com). From 2002 to December 2004, the market it estimated to grow14%. (hoovers.com). Competitors are selling similar products, including specialty coffees as well as high quality foods. In thisslowing market, competition is high.Score: -2

Threat of Potential Entrants 

Porter's next force is the threat of Potential Entrants. Starbucks, being the world leader in its industry, has controlledaccess to distribution channels. Starbucks has exhibited this control over distribution channels by setting guidelines fortheir suppliers to follow. These guidelines will be discussed in more detail in the discussion of the industry bargainingpower of suppliers. Starbucks is Fortune's number one most admired company in the food industry (fortune.com). One of their key attributes to success is innovation, where Fortune ranks Starbucks number one in the industry (fortune.com).Starbucks is constantly innovating and showing strong product differentiation in their industry. The industry, followingStarbucks' lead, is becoming more differentiated. For example, five months after Starbucks introduced a prepaid Starbucksdebit card, Seattle's Best launched its version of the marketing product (hoovers.com). This industry differentiation is anopportunity for Starbucks, and a threat to potential entrants. Statistics have shown the industry to be slowing down,therefore making competition high and the threat of new entrants low. Some believe, however, that there is a differentkind of potential entry threat. Ted R. Lingle, executive director of the Specialty Coffee Association of America, believes thatnational food servers like McDonalds and Denny's could create strong coffee menus and become "the strongest competitorfor Starbucks' business." (msn.com).Score: -3

Bargaining Power of Buyers 

Porter's next force is Bargaining Power of Buyers. Starbucks' customers are the buyers. The Preferred Office CoffeeProvider is a plan developed by Starbucks in which companies can buy the ingredients and tools necessary to brew "theperfect cup of Starbucks Coffee," in large quantities for their offices (starbucks.com). This is the only opportunity found inStarbucks.com for a customer to buy large quantities of their products. Starbucks' typical customer buys small quantitiesof their products. Products purchased at Starbucks are highly differentiated and unique. From personal experience, weknow that there is an enormous selection of coffees at a Starbucks' coffee shop. At Starbucks.com, it is possible to buy alarge number of products, from coffees, ice cream and Frapuccino ™, to music and coffee mugs. This is an opportunity forStarbucks. Customers will face no switching costs in switching premium coffee suppliers from Starbucks, to, for example,Seattle's Best. This is a threat to Starbucks. Another threat to Starbucks is that their customers have the ability to brewtheir own coffee. Starbucks has tried to offset this threat by offering Preferred Office Coffee Providers as well as directionson how to make the perfect cup of Starbucks Coffee at home, called the "Four Fundamentals of Coffee" (starbucks.com). The

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perfect cup of Starbucks Coffee includes, of course, Starbucks' ingredients! It is clear that Starbucks customers have somebargaining power in the industry.Score: -2

Bargaining Power of Suppliers 

Porter's fourth industry force is bargaining power of suppliers. Coffee is the world's second largest traded commodity(Bruce). South and Central America produce the majority of coffee traded in the world. Starbucks depends upon both

outside brokers and direct contact with exporters for the supply of green coffee (Bruce). The supply of coffee is affected byweather conditions, and the health of coffee trees. According to the article "Coffee Industry to Adopt New Pricing Plans,"the major players in the coffee industry have seen profits decline because of over-crowding of the market (Brains Trust).An over-crowded market will give the coffee suppliers bargaining power. According to a 1996 Starbucks Case Profile, theprice of the coffee bean could rise in the future due to lower supply, and heightened demand. For the industry, these arealarming threats. The quality of coffee sought by Starbucks is very high, and Starbucks has traditionally paid premiumprices for its green coffee, at least $1.20 per pound (starbucks.com). There are no substitute products for the coffee beansStarbucks must buy. This is a potential threat to the company. Starbucks, however, has exhibited how little control itssuppliers might actually have. In 2001, Starbucks announced new coffee purchasing guidelines, developed in partnershipwith The Center for Environmental Leadership in Business (starbucks.com). These guidelines are based on the following fourcriteria: Quality baselines, social conditions, environmental concerns, and economic issues. Only suppliers who can meetStarbucks' coffee standards will be able to supply the giant company. The supplying industry to Starbucks, therefore, hasfew companies. This is a potential threat. Starbucks will offset this threat by paying a premium of up to ten cents perpound of coffee to vendors based on how well their coffee meets Starbucks' standards (starbucks.com). Glenn Prickett,executive director of the Center for Environmental Leadership in Business, said, "With these guidelines, Starbucks is takinga leadership role in addressing the environmental and social issues surrounding the global coffee industry." Starbucks hasa degree of control over its suppliers in an industry where it is possible for suppliers of premium coffees to have an

enormous amount of bargaining power.Score: -2

Threat of Substitute Products 

In the premium foods and coffees industry, there are substitute products. According to Mary Coulter, the best way toevaluate this threat is to ask whether other industries can satisfy the customer need that this industry is satisfying(Coulter). Other beverage industries can satisfy the customer's need for a drink, and other food industries can satisfy thecustomer's need to eat. There are obviously good substitutes to Starbucks' products. This is why image is very importantfor Starbucks, as well as the company's ability to innovate and differentiate. Starbucks has added a line of tea, Taza teas,to their menus, and will be adding beer to their menus in the future. The article "Hot Prospects," notes Starbucksfashionable image. "Frapuccinos are a kind of badge; People like to be seen with them," said the author (hoovers.com). Thereis a large threat of substitute products in a food and drink industry. Starbucks has created an image, and has differentiatedso that many of their substitute products are part of the company. At a Starbucks coffee shop, a customer can eat icecream, and drink a Pepsi, while his friend drinks tea while eating a pastry.Score: -3

Summary of Scores 

It is necessary to understand that Starbucks Corporation is the world leader in their industry. The scores, generally low,reflect this leadership position. Starbucks has found ways to minimize the threats in each industry force. The company'ssize offsets many of the threats of competition. Starbucks' ability to innovate and differentiate has minimized the risk of potential entrants. Efforts to integrate Starbucks into the home have minimized threats of customer bargaining power.Starbucks has offset the potentially high bargaining power of its suppliers by issuing coffee guidelines, and payingpremium prices for suppliers who can meet these guidelines. This is why the highest score was negative three. We gave ascore of negative three to the threat of substitute products because Starbucks is in a food and drink industry, and in thisindustry, there are many good substitute products. A score of negative two means that Starbucks should be weary of thethreats in their specific environment, and continue to find ways to exploit its opportunities, and minimize its threats.Issues and Recommendations Facing Starbucks Corporate Strategic Questions 

What measures can Starbucks take to ensure that their brand image and reputation for quality is not tarnished whileimplementing a growth strategy?  

Starbucks has, and will continue to have, a major corporate growth strategy. As corporations grow there can be atendency to focus too heavily on increasing output and locations, and less focus on quality and brand image. Starbucksneeds to stay with its values and ideals that have made it successful. Those ideals are a great place for employees to work,which creates happy, productive employees with low turnover, which has a direct impact on the customer's experience andsatisfaction. Also a commitment to quality cannot be sacrificed as Starbucks locations will likely double in the next fiveyears. If Starbucks can keep a consistent atmosphere that combined with consistent, excellent quality coffee products,they can ensure their brand image and reputation.

How does Starbucks corporate decision of not franchising affect its business? What would be the advantages and disadvantages of franchising for Starbucks?  

In general, franchising shifts the financial risk from the corporation to an individual. So an advantage of Starbucks

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franchising would be to open hundreds of new stores with less risk to the company, and make profits in doing so. Inaddition Starbucks would have less research and development costs because the franchisee would have greater knowledgeof the local market in terms of demographics, psychographics, geographic, and local/state/country regulations. Thedisadvantages of franchising are that Starbucks would give up a certain amount of control over the store, and the way itoperates. Despite the high amount of rules and regulations that Starbucks would hypothetically have in place for afranchisee, the each store would be run slightly different. If Starbucks franchised, there is the risk of different storesdeleting some of the menu to it's standards, and picking and choosing what products (music, coffee equipment, books) tomake available for the customers. By keeping all stores corporately owned Starbucks can control and monitor all location's

operations and ensure a high employee and customer relations through consistent management, store operation, andlocation environments.

What will Starbucks do once the International growth strategy has become saturated, that is, once Starbucks has penetrated all foreseeable worldwide markets?  

Starbucks has the potential for finding a new type of growth strategy once the International growth strategy is no longerbeneficial. We believe that in this case Starbucks will need to concentrate on its core competency, high quality coffeeproducts, and use a Concentration growth strategy. Starbucks will stay in the same industry, so the two main sub-strategies would be Product Development, and Product-Market Diversification. It is important to understand this in theProduct Development phase they would need to focus solely on making their existing products better. The company coulddemonstrate Product Market Diversification through research and development, and creativity. The company could beextra sensitive to changes in customer tastes, and the external environment. In doing so Starbucks could quickly react toenvironmental changes and make sure to entice as many people as possible into their stores. For example, Starbuckscould start a line children's fruit drinks and "yummy" milkshakes which would help bring families into the store. This waythe mothers and fathers could go to Starbucks and get their favorite coffee drink while making their children happy.

Competitive Strategic Questions 

The biggest threat to Starbucks right now, some believe, is that national food servers such as McDonalds and Denny'scould create high quality coffee menus. What could Starbucks do to counter-act this?  

In order to compete against this possible market threat, Starbucks must push to be the first mover. Starbucks mustconstantly innovate new products to stay ahead of such competitive tactics. If they have any chance of stopping thecompanies from being the innovator, it can do so by being the innovator itself. Starbucks needs to be extremely aware of what is going on in the competitive markets. A way they could fight this type of competition is by entering intoagreements, long-term contracts, with the food service companies that they are competing against. This way their coffeewould be sold at these outlets, rather than competitors, and they would gain access to a new market and increase saleswhile decreasing competition. This option would have a chance of harming the companies' brand image and reputation forquality and its coffee drinking atmosphere. This would, of course, take much top management debate that would be a "lastresort" in the case of an extreme competitive threat. If, for example, McDonalds entered into a coffee agreement withDiedrich Coffee, Starbucks could respond by acquiring Diedrich Coffee. Through acquisition Starbucks would ultimatelygain a greater market share, salvage its brand image and decrease the threat of competition. Another possibility would befor Starbucks to create a subsidiary that specializes in catering to the food service industry. This would be another way for

Starbucks to compete without the risk of damaging its reputation and brand image.

Could Starbucks gain a significant amount of market share by entering the markets of less populated cities in the United States, contradicting its current strategy of only entering markets with high population and affluence?  

We believe that Starbucks would gain a considerable amount of market share if it entered into markets with lesspopulation, and affluence. Starbucks has a reputation throughout the United States, and we think that this image will carrythrough and make certain profitability and increased market share in smaller markets. We will demonstrate this opinion byusing Springfield, Missouri as an example. Springfield does not have a Starbucks coffee, yet it the third largest city inMissouri. According to business4springfield.com , Springfield has a population of over 300,000 people, a population growth of 2.3% and a workforce of over 180,000 people. Most people from Springfield are very much aware of Starbucks, which islocated in Kansas City and St. Louis. In Springfield, Starbucks would be forced to compete against Churchills Coffee, whichis well established in the area. Starbucks could use many tactics to overcome this competition and gain the Springfieldmarket share in the high quality coffee industry. Some tactics include building many locations combined with a heavymarketing campaign to draw customers from Churchill's. Another option could be to use Starbucks incredible purchasingpower to acquire Churchill's. This also goes along with its growth strategy and history of acquiring its competition.

Our main point is Starbucks reputation precedes itself. It has shown to be successful in every new market penetration, andto move into smaller city markets would be no different.Functional Strategic Questions 

Starbucks Corporation continues to grow, and has goals of greater international expansion. For example, The companyplans on opening 500 stores in Europe by 2003 (BBC News Online, 1998). Starbucks plans on opening hundreds of newstores internationally, as well as continuing to grow in the United States. Research has shown that industry growth rate isslowing. Threats loom from the Starbucks' general and specific environment. How can Starbucks continue to be the worldleader in their industry? This large question can be partially answered by answering future functional strategy questions.Functional strategies, according to Mary Coulter, are the short term goal-directed decisions and actions of theorganization's various functional units, which include production and operations, marketing, and financial/accounting(Coulter).

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 In the face of an uncertain future, what kind of Research and Development emphasis and timing should Starbucks employ in order to facilitate its continuing expansion?  

Starbucks is ranked as Fortune's #1 most innovative company in the food services industry. Starbucks has differentiatedits product lines to include teas, sodas, ice creams, foods, etc.Starbucks organizational culture is one of innovation andcreativity. The company has been a first mover into the market with products such as the Starbucks Card, or the'DoubleShot' Espresso beverage.

Starbuck's Research and Development should emphasize product development. Product differentiation has proven anexcellent defense to threats such as bargaining power of buyers. Developing new products will offset potential risks. Forexample, if the prices of coffee beans rise dramatically, Starbucks will be able to use sales from its diverse array of products to soften the blow of reduced coffee sales. An R&D emphasis on product development is often synonymous withcompany growth, and company growth will continue to be a major corporate strategy of Starbucks.

Starbucks should continue to be a first mover into markets with new products and ideas. An advantage of being a firstmover into a market, according to Mary Coulter, is a reputation for being innovative and an industry leader. Image will bevery important to Starbucks' international marketing strategies. Starbucks image will be crucial if the company does notwant to become a commodity. Being a first mover of new products into new international markets will be an excellent wayfor Starbucks to build customer loyalty and uphold its image as an innovative company.

Should Starbuck's employees continue to be Starbuck's most important asset? Should Starbucks change its HRM style inits international markets? 

Starbucks' employees, it is shown, share common goals, such as believing in the product they sell. Starbucks employees

are referred to as partners, and even part-time employees are eligible to receive health-care, participate in the Bean Stockprogram, and get free coffee! All Starbucks' employees are well trained. The investment in training obviously pays off, asStarbucks has a far lesser turnaround than the industry average.

Employees should continue to be Starbucks' most important asset, and resource. The extremely low turnover rate of employee has contributed to the development of Starbucks' image, and brand image is vital to the future success of theexpanding company.

The Human Resource Management strategy, however, should be tailored to the host country's culture. Starbucks must besensitive to the performance appraisal, and compensation techniques that best fit the country in which they are operating.For example, in the United States, an individualistic culture, individual reward systems are useful and employed(Hodgetts). In Asian countries such as China, who have collectivist cultures, individual reward systems would not motivateemployees (Hodgetts). Rather, group reward systems, and group recognition is coherent with the culture of the country.

Geert Hofstede's popular cultural dimensions can be used by Starbucks to develop uniquely tailored Human ResourceManagement Strategies. The four dimensions are power distance, uncertainty avoidance, individualism, and masculinity(Hodgetts). Understanding these cultural dimensions can lead Starbucks to the most effective ways to communicate with

employees (top-down or bottom-up), and appraise performance.

It is critical that Starbucks avoid an ethnocentric disposition of their Human Resource Management techniques. TailoringHRM strategies to different cultures is critical to the success of their brand image.

What marketing differentiation strategy best fits with Starbucks' goal of expansion? How should Starbucks position their brand in new markets? How can their marketing strategies offset potential environmental threats such as a slowing of themarket?  

Starbucks positions their products based on quality and image. Starbucks created the coffee shop revolution, and theyhave had the ability to be the public educator on espresso coffee. According to magazine article found on Starbucks.com,the company's brand is a member of the coming century's top twenty-five brands (starbucks.com). It is critical that Starbucksposition their brand for what the brand stands for: an innovative industry leader that produces high quality products.Brand image, as already shown, is a goal that all the future functional strategies will work to attain.

Starbucks must differentiate their products based firstly on image and secondly on the product itself. Considering thatinternational markets such as Italy are renowned for high quality coffees, it will be difficult for Starbucks to differentiatetheir products on quality alone. Combined with its research and development emphasis on product development and beingthe first mover into a market, Starbucks should differentiate its new products based on their unique features and brandimage.

Starbucks must position its brand as an experience. The Starbucks' experience is what will entice new customers to visittheir locations and create customer loyalty. First impressions will be vital in ensuring repeat customers.

Starbucks will be able to combat the threats of bargaining power of buyers, substitute products, and competitive forces bycontinuing to market based on their highly differentiated products and unique brand image.

How should Starbucks locate their operations and layout in new markets? Should Starbucks cannibalize in order tominimize the threats of smaller competitors?  

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 Starbucks' coffee shops are typically clustered in high traffic, high visibility locations. Varying store sizes also allowsStarbucks' to be situated in various settings, such as airports, grocery stores, office buildings, and street corners.Starbucks has traditionally taken great care in picking the right locations. In the United States, the average Starbuck'slocation draws on a population base of 200,000 (hoovers.com). In some cities, Starbucks draws on much smaller populationbases, flooding the market and reducing the threat of smaller competition, but increasing the risk of cannibalization.

Starbucks should not flood new markets to drive out threats of smaller competition. If cannibalization occurs, and

Starbucks is forced to close some of its operations, this could seriously damage their reputation. Starbucks' image is tooimportant an asset in the company's international expansion efforts to let reputation tarnish it.

Starbucks' should continue to locate their operations in high traffic areas, high visibility areas. The company shouldcontinue to take excellent care in picking locations. It is extremely important that Starbucks' international stores reflect auniqueness in their location and layout. Having locations in a variety of locations will ensure large market exposure.

Sources 

BBC News Online: Business, "Starbucks bags UK coffee shops." (April 30, 1998).Retrieved 22 April, 2002 on the World Wide Web: http://news6.thdo.bbc.co.uk/low/english/business . 

Business & Company Resource Center, "Starbucks Corp. - Chronology" (April 15, 2002).Business Wire. Retrieved 21 April, 2002 on the World Wide Web: http://www.businesswire.com . 

Fortune.com; Best Companies to Work For.Retrieved 22 April, 2002 on the World Wide Web: http://www.fortune.com/lists/bestcompanies . 

Hoovers.com.Retrieved 19 April, 2002 on the World Wide Web: http://www.hoovers.com . 

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