Philippine Christian University

Graduate School of Business and Management

CASE STUDY ON STARBUCKS CORPORATION - 2009

Presented to

The Faculty of the Graduate School of Business and Management

Master in Business Administration

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In Partial Fulfillment for the Requirements in

Management Research
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Submitted to
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Professor Edilberto Lagunda

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By:

Romel E. Reyes
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 Case Analysis of Starbucks Corporation
POINT OF VIEW:

Howard Schultz, President & CEO

HOWARD SCHULTZ, is the founder of Starbucks Corporation and serves as our chairman and
chief executive officer. Mr. Schultz has served as chairman of the board of directors since our
inception in 1985, and in January 2008, he reassumed the role of president and chief executive
officer. He served as president until March 2015. From June 2000 to February 2005, Mr. Schultz
also held the title of chief global strategist. From November 1985 to June 2000, he served as
chairman of the board and chief executive officer. From November 1985 to June 1994, Mr.
Schultz also served as president. From January 1986 to July 1987, Mr. Schultz was the chairman
of the board, chief executive officer and president of IL Giornale Coffee Company, a predecessor
to the Company. From September 1982 to December 1985, Mr. Schultz was the director of retail
operations and marketing for Starbucks Coffee Company, a predecessor to the Company.

TIME CONTEXT:

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Third Quarter of 2009

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Starbucks was founded in 1971 by Gordon Bowker, Jerry Baldwin, and Zev Siegl, who joined
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forces to open a coffee shop in Seattle, Washington. By 1972, with the success of the first store,
they opened a second store in University Village, Washington. Its wholesale business, which
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sold coffee primarily to local restaurants, changed its name to Caravali out of concern that the
Starbucks’ name would become tarnished by retailers who sold the coffee after its shelf life has
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expired. In the next 10 years, the business expanded to five stores and hired Howard Schultz to
manage retail sales and marketing. By 1993 the company ventured into the East Coast market in
Washington, D.C., and entered into a venture with Barnes & Noble to sell its coffee at the
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bookseller’s stores. At this point, the company had licensed 12 stores and was operating 260
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company-owned facilities with revenues reaching $176.5 million and net earnings at $8.3
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million. Starbucks opened 200 new stores outside of the United States during 2000, 150 of
which were in the Asia-Pacific region, and opened its first stores in Dubai and Hong Kong, and
its 100th stores in both Japan and the United Kingdom. The following year, Starbucks opened a
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store in Zurich, Switzerland, marking its first venture into continental Europe. Starbucks
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experienced its first setback in 2002 when its Japanese operation posted a $3.9 million loss,
despite a 15 percent increase in revenues and 108 new store openings, and the first low
performance locations were closed. But not discouraged by this, international expansion
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continued as Starbucks opened its first store in Turkey and acquired 129 Seattle’s Best Coffee
coffeehouses, as well as certain wholesale distribution rights. In the following two years, its
long-term U.S. expansion goal was set at 50 percent and Starbucks announced it will eventually
open 15,000 domestic outlets, and 30,000 worldwide. However, then the worldwide economic
recession hit in 2007 and simultaneously McDonald’s entered the coffee business big time.
Starbucks closed 600 underperforming stores in the United States in 2008 and plans to open
only about 200 new stores in 2009.

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 II. ENVIRONMENTAL ANALYSIS

A. GENERAL ENVIRONTMENT
A.1 OPPORTUNITIES:

A.1.1 Socio-Cultural-Demographic Forces

Multitude Product Mix:

 Starbuck portfolio of products accommodates to all age groups and in consideration with the
demographic factors.

Product offerings:
 Starbucks recently started to expand product mix by venturing into the tea and fresh
juice product offerings with a mergers and acquisition. This provides significant
opportunities for Starbucks products and product-lines
 Starbucks has opportunity to increase its revenues based on increasing demand for
specialty coffee, which is due to a growing coffee culture and a growing middle class
around the world.
 Starbucks has the opportunity to widen its array of healthful products to attract health-

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conscious customers to Starbucks cafes.

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A.1.2 Politico-Legal Forces eH w
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 Emerging Markets: The increase satiety and self-competition in the US market makes its
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international strategy even more significant. Starbucks has established good start into
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many countries, with India recently added into the list with a joint venture of 18 Starbucks
has a great growth potential in further expanding into the emerging and developing
markets. The Philippines also sees a huge boom in Starbucks stores across the country. It
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can weight its size, experience, financial prowess and efficiencies to add new market
share.
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A.1.3 Technological Environment

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 Technological advances: Starbucks has leveraged the use of mobile devices applications
and the social media. It has partnership with Square, a mobile payments app fully
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integrated with its Starbucks app. The ease of use process for customers, aligns customer
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loyalty through reward programs. Starbucks has already set the standard in the industry
with this advancement. About 10% of Starbucks’ transactions in the US have been made
using mobile apps. This growing field would drive more business to the stores as
technology progresses.
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 Rise of Social Media: Social media has now been a major player in advertising major
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brands like Starbucks. Facebook alone has billion of users which can translate to hefty
profits if utilized properly.
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A.1.2 Economic Forces

The High Economic growth Of developing countries and the declining unemployment rates
create opportunities for Starbucks to gain more revenues from market around the world to.
However, the rising labor cost in developing countries is the external factor that threatens
Starbucks because it increase the companies spending for ingredients .

A.2 THREATS

A.2.1 Socio-Cultural-Demographic Forces

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 A.2.2 Economic Forces

A.2.3 Politico-Legal

A.3

B. OPERATING ENVIRONMENT

B.1 OPPORTUNITIES

B.1.1 Rivalry Among Competing Firms

B.1.2 Industry Growth

B.1.3 Community Perception

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B.2 THREATS

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B.2.1 Rivalry Among Competing Firms
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C. INTERNAL ENVIRONMENT
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C.1 STRENGTHS
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C.1.1 Marketing
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C.1.2 Production Operations

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 Retail operations: Starbucks sell its packed coffee products, iced beverages and
merchandizes through large retailers. This market’s potential is yet to be fully realized
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and this provides Starbucks great prospects for the future to monetize their brand.
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 Global Brand: Starbucks has a substantial geographical presence across the world and
maintain a 36.7% market in the United States. It has operations in over 60 nations.
Starbucks is the most familiar brand in the coffee restaurant sector and is ranked 91st in
the best global brands of 2013.Starbucks leverages its popular brand by marketing
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products and licensing its brand logo. Its market position and brand recognition allows
the company to have competitive advantage thus expanding into international markets
and also help register higher growth in both domestic and international markets. Star
bucks achieved economies of scale with greater distribution channels and supplier
relationships.

C.1.3 Location

 Store location and design: Starbucks has stores in the most prime and strategic location
across the world. Their stores are distributed to premium, high-traffic, high-visibility

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 locations near number of places, in retail areas, offices, universities, and in some rural
and off-highway locations across the globe. Their stores are visually tempting and have a
‘cool’ factor attached to it with being designed to reflect the character of the
neighbourhood they serve in and environmentally friendly. They provide Wi-Fi, music,
great service, warm atmosphere and provide an environment of community meeting
spot, which forms a wider part of the ‘Starbucks Experience’.

C.1.4 Quality Assurance

 Product Quality: They give utmost importance to the quality of their products and avoid
standard quality for greater production output

C.1.5 Human Resources

 Starbucks is known for its highly knowledgeable staff. They are the key assets of the
company and they are given with better remunerations like stock options and retirement
benefits. Their human capital management translates into great customer services. It is rated
as one of the 100 best places to work for by Fortune Magazine.

C.1.6 Corporate Social Responsibility

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 Return costumers due to CSR Initiatives: Their stores are locale friendly, they
advocate recycling and reducing waste. They build good reputation among the communities

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Consumer loyalty: Starbucks has cult following status among patrons and they have

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also applied loyalty programs to drive trustworthiness with the employment of the Starbucks
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Rewards programs and Starbucks Card. The Starbucks Card is a value card program that
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provides accessibility, support gifting, and upturn the regularity of store visits by cardholders
and integrated with their mobile devices.

C.1.7 Supply and Distribution Chain

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 Distribution channels: Starbucks has a beta version of a new delivery system known as
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Mobile Pour. This is a great opportunity for the future in the expansion of its end product
distribution systems and could drive more revenue from successful implementation.
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 Brand extension: Starbucks carries a strong brand image that it can leverage it to extend
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the horizontal lines of its organization and venture into diversified products.
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C.1.8 Research and Development

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 Technology: Starbucks capably leverages technology with its “Starbucks App’ in apple and
android devices. They make substantial investments in technology to upkeep their growth
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every year.
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C.1.3 Organization & Management

C.2 WEAKNESSES

C.2.1 Marketing

.7 Financial Environment

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  Product Cost: Starbucks does differentiate their goods with high quality couple with the
‘Starbucks Experience’, in times of economic slowness, customers go switching costs to other
player’s products with lower prices to avoid paying a premium. These higher prices could also
show some weakness for Starbucks’ growth in developing countries.

A.8 Operations

 Self-Competition: Due to aggressive growth and overload due to overcrowding in the

market leads to aggressive same-brand competition. This diminishes long term growth targets
of Starbucks. In the United States alone Starbucks operates 8078 stores.
 Overdependence in the US Market: In line with self-cannibalization of the US market.
Starbucks generates an enormous fraction of its total revenue from the US and this makes it
affected to prospects of the US economic situation.
 Negative image of large corporation: Like other large corporation, Starbucks does come
under greater scrutiny and have to invest in CSR. It also maintain tight control over labor
practices.

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