Starbucks and

McDonald’s

Background

◼ Howard Shultz, Chairman & Original CEO

◼ 1982, Began career with Starbucks Coffee Company

◼ 1983, Inspired by coffee bars in Milan while on a buying trip to Italy

◼ Proposed idea of expansion into a coffee bar

◼ Board of directors rejected his idea

◼ 1985, Created his own coffee bar company “Il Giornale”

◼ 1987, After 2 years of success, Il Giornale purchases the Starbucks name and assets

◼ Changed the name of its retail outlets to Starbucks

Corporation

Background

◼ 2nd most traded commodity next to oil

◼ Specialty coffee made up 31% of total coffee consumption

◼ 22% of U.S. coffee population purchased specialty coffee

◼ Single people purchased 39% more than average consumer

◼ College students purchased 49% more than average consumer

Demographics

Background

◼ Specialty coffee originated from Arabica beans

◼ Premium prices demanded for Arabica beans because of quality

◼ Exact price of a certain coffee depended on quality and quantity available at a particular time

◼ Starbucks sourced 50% of its beans from Latin America, 35% from the Pacific Rim, and 15% from East Africa

◼ Starbucks used proprietary computer software to patent their unique roasting process

Specialty Coffee

Strategy Description

GOALS

CORE

ACTIVITIES

PRODUCT MARKET

FOCUS

VALUE

PROPOSITION

•Become leading specialty coffee

retailer in the worldwide

•Provide superior customer service

Sell the finest quality coffee and

• related products

•Continental North America

•Europe

•Asia Pacific

•Middle East

•Australia

A memorable experience

•Retail operations

• Sourcing Beans

•Roasting Technology

•Joint Ventures

SWOT Analysis

StrengthsStrong brand equity

Good platform for product innovations

Logistics and manufacturing organization

High quality coffee

Real-estate approach to Locations

Flat organizational structure

SWOT Analysis

WeaknessNeed for more high quality suppliers

Labour intensive retail

Difficult for its real estate staff to generate 20 to 40

stores per month

Needs more Internal financing to roll out stores (no

franchising)

SWOT Analysis

Opportunities◼ Growth in domestic and international retail markets

◼ New specialty sales partners

◼ Penetration in the grocery channel

◼ online mail order business.

SWOT Analysis

ThreatsProduct-based competition

Retail-based competition

Real Estate costs and competition for store

location

Prices and availabilities of raw materials (Beans)

Political Economic Social Technological

PEST Analysis

MICRO FORCES

Supply Competition Demand

MACRO FORCES

PEST Analysis

Political

•Most countries

regulate coffee

sales

•Licenses for

businesses are

regulated

MACRO FORCES

PEST Analysis

Political Economic

•Coffee=the 2nd most

traded commodity

•Very difficult to get

price confirmations

•Volatile Supply

MACRO FORCES

PEST Analysis

Political Economic Social

-Rise in popularity due to 4 consumer trends:

-adopting healthier lifestyle by replacing alcohol with coffee

-coffee bars offered a place where people could meet

- demand for affordable luxuries

-consumers were becoming more knowledgeable about

coffee

MACRO FORCES

PEST Analysis

Political Economic Social Technological

• Computerized roasters

• Roasting and blending

process

MACRO FORCES

Political Economic Social Technological

PEST Analysis

MICRO FORCES

Supply

--Supply could be affected by nature (weather

conditions, disease and infection caused by

insects)

- Varying quality of bean supply

- Many buyers of beans

Political Economic Social Technological

PEST Analysis

MICRO FORCES

Supply Competition

•-The rising trend of specialty

coffee has different

coffeehouses

and grocery chains competing

for market share

•-Tea, juices, soft drinks,

alcohol and non-coffee related

drinks

•-More than 3,485 competitors

in the market

Political Economic Social Technological

PEST Analysis

MICRO FORCES

Supply Competition Demand

The specialty coffee

industry is growing by

15% per year

Diamond E Framework

Organization EnvironmentStrategy

ManagementPreferences

Resources

• Aggressive• Entrepreneurial• Risk taking• Need to Satisfy Shareholders

• Flat Organization

•Employee Focused

• Brand Equity• retail locations• $2 billion in sales• Roasting Technology• Volatile Bean Supply

• Differentiated product• Rapid Growth• Partnerships • Joint Ventures,• Strategic Alliances

• Changing Demographic• Shift to specialty coffees • cafes and coffee bars

Joint Venture with McDonalds

Pros• There are more than 30,000 McDonald’s

restaurants in 121 countries• Establish brand recognition worldwide• Reliable source of demand• Potential Economies of Scale• Deter McDonald’s from sourcing their own

coffee beansCons

• Culture and management differences• Focus taken from retail outlets• McDonald’s quality requirements• Bean Supply

Conclusion

Starbucks should decline McDonald’s

offer because….

….it does not have the beans