· Alliance with The New York Time. The Times will use its advertising resources to promote the Starbucks brand, Starbucks will promote The Times.
Mail order sales:
Starbucks mail order catalogs offered coffee, candies and pastries, and select coffee-making equipment and accessories, distributed six times a year. Starbucks targeted direct-response marketing effort to expand retail into new markets and reinforce brand recognition in existing markets
International expansion:
Since Starbucks Coffee’s opening in 1971 in Pike Place Market, the company has grown significantly both within the United States and abroad. The company’s ultimate goal is to establish Starbucks, as the world’s most respected and recognized coffee brand. Starbucks plans to achieve this objective through its continued rapid expansion of retail operations, growth of new products and other operations, as well as the development of new distribution channels. Interbrand Corporation, the world ’s leading brand consultancy, recently ranked Starbucks as one of the top 75 global brands.
Much of its growth abroad can be attributed to Starbucks Coffee International, a wholly owned subsidiary of Seattle-based Starbucks Coffee Co. This part of the company has entered new partnerships with prime international companies that have allowed it to expand and open retail stores in strategic locations.
Foreign currency exchange risk was accounted for when the Company has entered into forward foreign exchange contracts to hedge foreign currency risk in fiscal 2001.
Starbucks targeted international expansion through licensing a reputable and capable local company in selected countries to develop and operate the stores.
· Joint Ventures in stores outside US, SCI to overlook international expansion and build the Starbucks brand name globally via licensees.
· By the end of 2000, Starbucks had more than 3,500 locations worldwide, serving more than 12 million customers per week in 17 countries (annual report, 2001).
· Plan to have 650 locations through out Europe by the end of 2003.
· Please view details of International expansion in Appendix F, (b).
The Future:
Renee Mauborgne, (FT, 11/10/99) in support of Shultz’s vision claims that the Starbucks story is about value innovation. Offering buyers fundamentally new and superior value in traditional businesses through innovative ideas and knowledge.
The Company ’s retail goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing superior customer service, thereby building a high degree of customer loyalty. Starbucks strategy is directed towards increase of Starbucks’s market share in existing markets and new markets worldwide to support the Starbucks brand through the introduction of new products and the development of new distribution channels.
Starbucks strategic expansion till now was achieved via its joint ventures with Pepsi and Dreyer’s, its move to sell coffee in supermarkets, the possibility of marketing fruit-juice drinks and candy under the Starbucks label, and world wide web presence represented an ongoing drive on Schultz’s part to continually reinvent the way Starbucks did business.
Starbucks’ expansion carries inherent risks. Many brands cannot do both retail and packaged goods. Too many extensions can erode a brand’s identity. Wall Streeters say Starbucks should move onto supermarket shelves under a dual-brand strategy, but Mr. Schultz says that will not happen because the brand might suffer.
In addition to fluctuating coffee prices, management believes that in the future, the Company’s results of operations and earnings could be significantly impacted by other factors such as increased competition within the specialty coffee industry, the Company’s ability to find optimal store locations at favorable lease rates, the increased costs associated with opening and operating retail stores in new markets, the Company’s continued ability to hire, train and retain qualified personnel, and the Company’s ability to obtain adequate capital to finance its planned expansion. Potential financial problems are described in Appendix G.
Conclusion:
In relation to Starbucks’s strategy for world presence, Starbucks’s annual report states: “Going forward, we will pursue only those opportunities that we feel will complement our core operations.”
Therefore, Starbucks’s global sustainability and strategic development lays in ability to successfully reconfigure their value chain in a way that improves value for money and their competitive position. Synergy was achieved through continuous market development, product development and backward integration strategies.
Starbucks continues to expand globally, seeks new ventures within the industry and hopes to remain competitive.
Appendices:
Appendix A:
Sumantra Ghoshal of INSEAD proposed a framework comprising three categories of strategic objectives and three sources of advantage that can be used to achieve them. Assembling these into a matrix results in the following framework:
Strategic Objectives Sources of Competitive Advantage
National Differences Scale Economies Scope Economies
Efficiency in Operations Exploit factor cost differences Scale in each activity Sharing investments and costs
Flexibility Market or policy-induced changes Balancing scale with strategic & operational risks Portfolio diversification
Innovation and Learning Societal differences in management and organization Experience – cost reduction and innovation Shared learning across activities
Appendix B:
Products:
· In 1997, the company introduced its Starbucks Barista home espresso machine.
· Power Frappuccino, packed with protein, carbohydrates, and vitamins—was tested in several markets during 1997
· Fruit-juice beverages in 1997.
· Chai Tea Latt?, a combination of black tea, exotic spices, honey, and milk appeared in stores in 1998.
· Jazz and blues CDs, with Starbucks background music, appeared for sale on customers’ request and proved to be a significant addition to the product line.
· Starbucks selling coffee in supermarkets 1998
· In 1999, Starbucks opened up its new prototype Internet cafй called Circadia, providing 18 Internet connections, laptop rentals, a computer kiosk and a 10-person conference room equipped with a large-screen computer of presentations.
In 2000, Tazo ?tea and Hear Music ™
Appendix C:
Roasting Plants:
By 1998, Starbucks had three roasting plants:
· The company’s first plant was built in 1989 to supply the company’s mail-order needs for the next 10 years.
· In 1993, a 305,000-square-foot plant was opened in Kent, Washington, output mainly catered to stores west of the Mississippi.
In 1994, the company began construction of an $11 million roasting facility in York, Pennsylvania, that could be expanded to 1 million square feet to supply stores east of the Mississippi.
Appendix D:
Real Estate, Store Design, Store Planning, and Construction:
Starting in 1991 in-house team of architects and designers were set up to create a store development process to ensure that each store would convey the right image and character, as majority of the sites were rented and differed in shape and size.
Fireplaces, leather chairs, newspapers, couches, and lots of character added a cozy living room like feel to Starbucks. Each store also reflected the personality of the community and the neighborhood. As majority of sites were positioned in busy down town locations, Starbucks emphasized atmosphere of ambience that offered customers an escape from their busy lives into a peaceful place to relax, chat, meet friends or read a news paper.
In 1995 Starbucks decided to reduce average store-opening costs by centralizing the buying process, developing standard, often fixed contracts with suppliers, favoring contractors with good cost-control practices.
Standard minimum amount of equipment needed by each store was outlined by operations, orders were placed in volumes accordingly at 20-30% discounts, and delivered to stores just in time from vendors or Starbucks warehouses.
Store layouts and costs involved were developed electronically. All these measures allowed for cost cutting and reduced store development time from 24 to 18 weeks.
Schultz and Olsen took Starbucks ambiance concept even further, when confronted their project team with a “stores of the future project” in 1995. Their vision of the store was of: “an authentic coffee experience that conveyed the artistry of espresso making, a place to think and imagine, a spot where people could gather and talk over a great cup of coffee, a comforting refuge that provided a sense of community, a third place for people to congregate beyond work or the home, a place that welcomed people and rewarded them for coming, and a layout that could accommodate both fast service and quiet moments.”
Extensive research was undertaken by a team of developers into the history of coffee, from coffee growing to coffee-making techniques. Based on already evolved corporate identity of Starbucks, four new store designs were created, each identified with one of the stages of coffee making. In 1996, Starbucks opened new stores based on one of the four templates: growing, roasting, brewing, and aroma—each distinguish by own color combinations, and lighting scheme.
New structure eased a problem of expansive store customization, as now the company could vary the materials and details to adapt to different store sizes and settings: downtown buildings, college campuses, shopping areas.
Two mini-store formats and movable stations in line with design concept described above were introduced the same year, to cater to office-building lobbies, and other stores.
According to …this project has accomplished: better store designs, lowered store opening costs, and expanded sales as new formats allowed for new positioning strategies.
Appendix E:
HR:
Starbucks’s annual report states, that People are crucial to ensuring that the company delivers the Starbucks Experience every day. Starbucks is attempting to plant its values in the company culture to give employees a sense of meaning to their work even if it is just pouring a cup of coffee. Starbucks’s ongoing commitment to providing a great work environment has also had many positive impacts on partners and customers. To ensure that partners share in Starbucks success, they are provided stock option grants to eligible partners under the Bean Stock Plan for the 10th consecutive year, 401K option is also available.
Starbucks’ has a strong management team, hiring people with extensive experience in managing and expanding retail chains.
· The four key executives during the company’s formative years—Howard Schultz, Dave Olsen, Howard Behar, and Orin Smith—contributed the most to defining and shaping the company’s values, principles, and culture.
· Shultz added people experience growing a retail chain, capable of adding valuable perspectives to the board of directors.
Store personnel is put through intense 24 hour training session before entering the store. Classes include: coffee history, drink preparation, coffee knowledge (four hours), customer service (four hours), and retail skills, plus a four-hour workshop called “Brewing the Perfect Cup.”
When stores are open in a new markets, recruiting efforts are undertaken 10 weeks prior to opening, experienced teams of managers and sales were sent to location to assist training on one-to one basis.
Appendix F:
a) The Original Store Expansion Strategy:
In 1992 and 1993 Starbucks developed a three-year geographic expansion strategy that targeted areas with favourable demographic profiles, that could be serviced and supported by the company’s operations infrastructure. A large city was selected to serve as a focal point for each targeted region. Starbucks professional teams were strategically positioned at these focal points to supervise opening of another 20 stores in each city in the first two years. Following focal point success additional stores were opened in smaller surrounding areas. Zone Vice presidents with extensive experience in chain-store retailing were in charge of expansion process locally.
In 1995, new stores generated an average of $700,000 in revenue in their first year, far more than the average of $427,000 in 1990. Success could be assigned partially to growing reputation of the brand, and successful identification of top retailing sites for stores.
b) Details of International Expansion:
· In 1998, SCI had 12 retail stores in Tokyo (Japan is the world’s third-largest importer of coffee);
· 7 stores in Hawaii through partnership with The Mac Naughton Group, a unit of Hawaii-based investors. Because Hawaii is an integral part of the Pacific, it fit into Starbucks’ strategy to expand internationally.
· 6 stores in Singapore, and 1 in the Philippines.
· Taiwan and Korea Thailand, and New Zealand stores in 1998. The company and its licensees had plans to open as many as 40 stores in the Pacific Rim by the end of September 1998, with 200 Taiwan potential. The possibility of locating stores in Europe and Latin America was being explored.
· 257 international locations were opened by the end of 2000, including: 63 locations in UK, also in Lebanon, the United Arab Emirates, Qatar, Hong Kong, Shanghai, and Australia.
· Retail location in Kuwait through an agreement with M.H. Alshaya Co. W.L.L. Kuwait. Kuwait will serve as the gateway into the rest of the Middle East countries to include Saudi Arabia, Oman, Bahrain, United Arab Emirates, Qatar and Lebanon. Kuwait represents Starbucks’ eleventh international market to open retail locations.
· First store in Beijing, China opened in early 1999 with plans to open 500 more stores in Asia by 2003. China represents Starbucks ninth Pacific Rim market to open retail locations.
Appendix G:
Potential Financial problems:
Starbucks annual report states that, in connection with various bank loans entered into by Starbucks Coffee Japan Limited, the Company has guaranteed $25.4 million of the outstanding debt in the event of default by Starbucks Coffee Japan Limited. In the normal course of business, the Company has various legal claims and other contingent matters outstanding. Management believes that any ultimate liability arising from these actions would not have a material adverse effect on the Company ’s results of operations or financial condition as of and for the fiscal year ended October 1,2000. Despite these potential problems, Starbucks remains excited about future growth and continues to be hopeful about the future.
Appendix H:
Operational Structure:
In 1994, Starbucks acquired all of the capital stock of The Coffee Connection, a roaster/retailer of specialty coffee. Starbucks New Venture was created in fiscal 1994 to develop coffee-based beverages in partnership with the Pepsi-Cola Company. In October 1995, SBI was created to pursue development of Starbucks stores internationally, and Starbucks Holding Company was created to enter into a joint venture with Dreyer’s Grand Ice Cream, Inc. to develop and distribute Starbucks premium coffee ice creams.
Bibliography
References:
1.
Title: Stock Master News for : STARBUCKS CORP (SBUX)
Heading: Profile: Starbucks Corp (SBUX)
Copyright 1993-1998
http://news.stockmaster.com/profile.asp?ticker=SBUX
2.
Title: Company
Heading: Company Overview
Date of document: copyright 1999
URL: http://www.starbucks.com/company/?sid=&&
3. de Wit, Bob & Meyer, Ron (1998), Strategy: Process, Content, Context, International Thomson Publishing Company,London
4.
Title: Company
Heading: Mission Statement
Date of document: copyright 2000
URL: http://www.starbucks.com/company/?sid=&&
5. Housing Complex
Title: February 1999 President’s Report
Heading: Over a Thousand People to Attend “Campaign for Kids” Event
http://www.wolfenet.com/~bgckc/pr/febpr.htm
6.
Title: Washington CE0 December 1997: Cover Story
Heading: Pouring His Heart Into It
URL: http://www.waceo.com/archive/dec97/1297-CoverStory.html
7. Tea & Spice
Title: The Seattle Times, Today’s Top Stories: Howard Schultz’s book tells how he put the steam under Starbucks
Heading: The Seattle Times, Today’s Top Stories: Howard Schultz’s book tells how he put the steam under Starbucks
Date of document: October 17, 1997
URL: http://www.seattletimes.com/extra/browse/html97/altstar_082897.html
8. Starbucks Story
Title: Starbucks Company Timeline
Source: Starbucks Homepage
Date of document: copyright 2000
URL: http://www.starbucks.com/company/timeline.asp?sid=&nav=1a
9. Starbucks Products
Title: Beyond the Bean
Title: Beyond the Bean
Date of document: copyright 1999
http://www.starbucks.com/beyond/?sid=&&
10. Food outlets
Title: StockMaster News for : Farmer Bros. Co (FARM)
Heading: Profile: Farmer Bros Co (FARM)
Date of document: copyright 1993-1998