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Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world. The goal of Starbucks is to establish the company as the premier purveyor of the finest coffee in the world while maintaining the organization's uncompromising principles. In addition, Starbucks wants to develop its brand beyond being the preferred outlet from which to purchase coffee to becoming the preferred consumer brand. The coffee company has capitalized on the new found popularity of specialty coffee with its addition of coffee bars globally.
Starbucks Common Stock increased from $ 3. 31 per share in 1994 to $ 10. 00 per share by the mid 1990 's. Despite the success of Starbucks, the company is faced with many challenges to continue the growth of its business. The key strategic problem that Starbucks faces is maintaining the quality of their brand while leveraging the brand image and going into different sales and distribution channels. SWOT Analysis Strengths 1.
Is the leader in specialty coffee industry (p 7). 2. Its commitment to quality (p 7), values (p 8), & principles (8). 3. Its policy toward its employees (pgs 8, 17). 4. Its openness to innovation a. Pepsi-Coal - Frappuccino. b.
Distinct Roasting equipment and process. (longer shelf life; p 10) c. AOL Caf'e. 5. Worldwide resources for coffee beans. a. 50 % from Latin America. b. 35 % from Pacific Rim.
c. 15 % from E. Africa. d. SB trains exporters. 6. Supply Chain Operation (SCO) 7. Page 11: a.
Its coffee. b. Employees. c.
Merchandising. d. Ownership philosophy. e. Real estate approach. (Location, building, & cluster strategies) f. Image. 8.
Extensive training for Starbucks' "baristas" (employees). 9. Mall kiosk program. 10. Its Brand image. 11. Key specialty sales partners (p 14). 12. Diverse distribution channels. Such as: a.
Grocery chains. b. Dreyers. c. Pepsi-Cola.
d. Kiosks. e. Airlines. 13. "Encore" mail order program (p 16). 14. The vision and leadership of Howard Schultz (pgs 16 - 17). 15. Its Six Guiding Principles.
Weaknesses 1. Rapid growth is taxing Sco's (p 11; also see Strengths # 7) 2. The challenge of finding good employees (p 12; also see Strengths # 8) 3. Consistently merchandising its promotions nationally, with stores dealing with individual suppliers. 4. Lacks capital to expand rapidly (p 14). Dependent upon equity & debt financing (p 20). 5.
Effectively leveraging its brand-name and size (p 20). Opportunities 1. Reinforcing its brand-image (p 8). 2. Global expansion. a.
Higher coffee consumption in foreign markets than in the U. S. b. Already has contact with foreign exporters. 3. Marketing in higher echelon restaurants and day-part chains (p 16). 4. "Concretely defining its brand-image" (p 20). Threats - 1.
Adequate number of "A" sites in "A" markets nationally (p 13). 2. Individual and small chain competitors overshadowing Starbucks' brand in local markets. Issue Analysis Starbucks' lead in the specialty coffee industry exemplifies the result of deftly executing a well-planned business strategy. Moreover, Starbucks is well positioned for what is expected to be a continuing rise in the popularity of specialty coffee products.
The question before Starbucks' leadership, however, is what avenues will lead to Starbucks' goal of remaining true to its core, the highest quality coffee products while providing a "total coffee experience" for its customers? A review of the estimated growth in retail sales of coffee over the next four years indicates that while sales of non-specialty coffee products are expected to decline, sales of ground specialty coffee products and whole bean coffee should rise. Further, sales of ready-to-drink products are projected to rise almost 50 %. The focus leading Starbucks' production of specialty coffee products and reinforcing its partnership with Pepsi-Cola to market the Frappucino coffee drink products, indicates an astute alignment with the trend.
As leadership at Starbucks looks to the future, they recognize the opportunities that lie in a global marketing strategy, as well as the challenges they face developing distribution channels to accommodate global expansion. Additionally, as strong as the Starbucks brand has become nationally, the company is challenged to hedge against the smaller specialty coffee chains and even the individual local coffee outlets. The fact that coffee consumption in foreign markets far surpasses that of the United States provides adequate justification for taking Starbucks to the international market. Its rapid growth over the past few years, while notable, has not generated capital sufficient to finance a broad entrance into the international market. Starbucks' entry into the Asian-Pacific Rim market has served as a learning experience for venturing beyond the national boarders. Whereas, Starbucks has built a strong Supply Chain Organization (SCO) to serve its national expansion, the need to further develop its SCO has become obvious.
Fortunately, the relationships Starbucks has developed with exporters in the major coffee producing regions of the world may serve them well to develop a global SCO for expediting shipments of Starbucks products anywhere in the world. While the international market presents a great opportunity for expansion, much opportunity exists nationally for Starbucks. Although Starbucks has built its brand on the strength of its national retail stores, through a diversity of other business opportunities it has enhanced its brand-image throughout the U. S.
Starbucks has demonstrated flexibility in its innovation and partnering to broaden its customer base with new products. Starbucks, struggle with brand-image may be the result of this diversity. It is no longer only a specialty coffee store with a special ambiance; it is an ice cream flavor, a cold coffee drink, and a mail order business. It is a whole bean and ground coffee product on the supermarket shelf, a mail order business, a coffee service for airline companies, and an assortment of specialty products such as mugs and coffee makers. Can Starbucks link these various distribution channels to make its brand-image even stronger? A factor in the Starbucks's tragedy that may be challenged is the belief that expansion of its sales in supermarkets will "pull customers out of lower priced [coffee] categories. " There is a greater likelihood that such a strategy will pull customers out of the Starbucks' retail stores, while alluring new customers only in moderate numbers.
One of Starbucks' greatest strengths is the confidence shown by its rising stock price. After a steady increase, Starbucks's tock experienced a two for one split in 1995. The confidence in Starbucks stock is probably supported by the steady rise in its earnings per share. It is estimated that Starbucks' earnings per share will have risen to $ 1. 00 by 1998.
This is an increase of over 100 % from the 1996 level. Starbucks' financial performance has generally been steady and strong. Maintaining a philosophy of owning and operating all of its retail stores, Starbucks has not allowed the franchising of retail outlets as has its major competitor, Second Cup. Although franchising may have provided more capital to finance its expansion, sticking to its ownership philosophy has allowed Starbucks to ensure the quality of its products and services and through the steady experience of its leadership, developed into a financially stable and profitable business. Surely, one of Starbucks weaknesses is tight capital. Having to pay for expansion through equity and debt financing could be risky if the rise in specialty coffee consumption levels off or decreases.
However, with specialty store coffee consumption projected to be 54 % of total coffee consumption in the U. S. by 1999, and the fact that the U. S.
significantly trails the European and Asian markets in consumption, Starbucks should be able to sustain a very health growth pattern while maintaining its financial stability and profitability. One of the keys to Starbucks success has been its selection and training of its "baristas, " the partners (rather than employees) who operate the individual retail stores and kiosk outlets in malls around the United States. Focusing on hiring individuals who have the wherewithal to serve Starbucks coffee to its more affluent and intellectual clientele, Starbucks has gained a reputation for treating its staff in a manner above the norm. As a result, it has experienced an employee satisfaction surpassing that of its competition. Starbucks' customers have also benefited by this practice finding the Starbucks stores to be consistently well run and having an environment that entreated their return. A challenge that may be found internationally as well as nationally, is finding the caliber of people in the numbers needed to staff Starbucks' expansion of new retail outlets.
Starbucks' leadership should be less concerned with defining its brand-image, in that the diversity in special coffee products and in distribution channels has created exposure that collectively aligns the Starbucks name with almost everyone's thoughts of specialty coffee - that is, of course, in markets that are already penetrated by Starbucks. Therein lies the key issue: What markets should Starbucks pursue in order to leverage the strong brand image while maintaining the quality of the overall Starbucks experience for their customers? Discussion of Alternatives In order for Starbucks to reach its goals, the company has already implemented several ideas that have given the company a competitive edge over other coffee retailers. The market strategy of Starbucks is to create a memorable experience while gaining new customers to embrace the business.
Starbucks has decided to have the state-of-the-art roasting and manufacturing equipment to maintain and offer the highest quality Arabica coffee beans to its customers. The specialty sales and marketing team for Starbucks has also focused on new channels of distribution through specialty stores such as Barnes and Nobles, United Airlines and a joint venture with Pepsi Cola. Most importantly, Starbucks has entered into the international markets to beat its competitors to an emerging market. In an effort to further capitalize on a few key correlations drawn from the SWAT analysis, Starbucks leadership must have the plan laid out and the commitment to execute the plan. It is paramount to at this point recognize the key correlations. Starbucks is the leader in the specialty coffee industry, and has established itself as a household icon in markets that have been entered.
Considering the fact that sales in US specialty coffee stores is expected to grow from 19 % to 54 % by 1999, there is a tremendous growth opportunity for Starbucks domestically both...
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