To: Howard Schultz

From: Xiaorun Wu; Blanca Vianney Peña Najera

Date: October 23, 2018
Subject: Starbucks' choices for new challenges and opportunities.

Executive Summary
In order to make people's experience of Starbucks a memorable; In order to continuously
strengthen the brand equity and brand image of Starbucks; In order to broaden the industrial
chain of enterprises, around the of coffee and people. Starbucks has encountered new
challenges and opportunities while achieving good results.

I will give some advice to Starbucks on new challenges and opportunities, similar to specialty
sales partners, penetration of grocery channel, and future potential of mail order.

Analysis
(The following is an external environment analysis based on the Porter Five Force model)
The brand value carried by Starbucks is built around coffee and people, and the coffee industry
is the foothold of Starbucks.
In order to ensure the quality of coffee beans, Starbucks is very strict in everything from
purchasing, storage, roasting and packaging. For example, the purchased coffee beans are
shipped to the United States for roasting and then shipped to stores in different countries. This
is the advantage of Starbucks, which means that it is difficult for new entrants to surpass.
When people think of Starbucks, the first thing that comes to mind is the laid-back afternoon,
the comfortable environment, and the petty bourgeoisie. Therefore, new competitors who want
to threaten Starbucks status must provide similar consumption environment and brand identity.
However, it is not easy to do this, which also constitutes Starbucks' unique product
differentiation and brand advantage. So the potential entrants are not a big threat to Starbucks.

The price and quality of substitutes affect the profitability of existing companies in the industry.
Obviously, the lower price of substitutes and better quality means stronger competitive
pressure they can generate.
The substitute for coffee is a green drink such as juice or tea. Although the price of Starbucks
coffee is obviously high and the cost performance is low, it shows a certain degree of threat to
Starbucks, but the threat is actually not that great. First of all, Starbucks is not selling simple
coffee. Considering the experience and environment provided by Starbucks, if customers give
up Starbucks, it means giving up a cultural and life communication method, and the resulting
psychological loss makes the cost of changing customers' consumption high. This also
constitutes a competitive advantage for Starbucks, so the threat of substitutes is still at a lower
level.
Suppliers threaten companies in the industry by increasing product prices and reducing
product quality. Starbucks' main supplier is the Arabica Bean supplier. The supplier is small
and the industry concentration is low. It is difficult to form a strong bargaining alliance.
Starbucks has an advantage in bargaining. And because of the strong brand advantage,
suppliers are very willing to cooperate with them. But the coffee beans they supply are the
main materials for Starbucks, which in turn constitutes a supplier bargaining advantage. In
addition, Starbucks' requirements for suppliers are very demanding, which poses a threat to
Starbucks.

Buyers influence the profitability of existing companies in the industry by lowering product
prices and increasing product quality requirements.
Starbucks' customer positioning is a group of people with a certain social status, higher income,
and a certain life style. Therefore, such customers are less sensitive to price, they pay more
attention to the environment and experience, and pay more attention to quality and service.
Therefore, the customer's bargaining power is low.

Industry competitors pose threats through direct competition (price wars, advertising
campaigns, etc.).
Starbucks has a large number of existing competitors. They all regard Starbucks as their
biggest competitor, but they are all regional, and their scale and reputation are far from being
compared with Starbucks, which in turn constitutes the advantage of Starbucks. Therefore, the
threat it is facing is only at the upper middle level.

(The following is an internal environment analysis)

For the internal environment of Starbucks, we first start from the Strength mainly have the
advantages of brand and technology (Starbucks invests huge amounts of money every year
to study coffee technology), the advantage of the location of the store (good location not only
brings to Starbucks A large passenger flow, but also brings a good advertising effect.) And
financial advantages.

On the other hand, Starbucks' weakness is that the product line is unstable (Starbucks is
constantly introducing new products, such as Starbucks plans to sell ready-to-drink coffee in
supermarkets) experience diluting and declining service levels (because Starbucks is
expanding its core, leading to its core The dilution of the Starbucks experience and the decline
in service levels), the high price (the implementation of the high-price positioning strategy)

On the whole, Starbucks has hard-to-replace products and services, quality suppliers, loyal
customers and strong industry competitiveness, and has strong profitability. Therefore, it is
difficult to be surpassed in the short term. But for the internal environment, the Strength and
weakness are coexisting.

Strategic Alternatives
Expand momentum
It is necessary to keep the company's corporate culture and corporate core unchanged while
actively expanding and developing. Support existing and positive decision-making, such as
actively working with specialty sales partners, actively opening up emerging areas and bringing
the Starbucks brand to market faster. This form of cooperation and win-win is conducive to
reducing the risk of losses. Another example likes penetration in the grocery channel, more
products should be put into the supermarket to save the company's transportation costs and
reduce operating costs, and bring convenience to consumers.
But its shortcoming is that the expansion will have a certain impact on the brand itself, losing
the advantage of initially attracting consumers.
Innovative service

Innovative service
The premise of innovation is to improve existing services while expanding new services.
Starbucks' services have been extended to so many countries that we can feel the taste of
Starbucks wherever we are. But at the same time, innovation is vital to Starbucks, and it's
essential to stay in the best possible areas. For example, mailing services, it actually has more
ideas to be tapped, such as perfecting the distribution system and developing take-out services.
Let coffee go to the consumer, not the consumer to find coffee. Another is to establish a
consumer network, enhance consumer participation, strengthen brand equity and brand image,
and at the same time analyze big data for consumers and personalize services for consumers.
Innovation means trying new things into an unfamiliar area, but also means risk and capital
fragmentation. Losing original consumers without making innovative services is something we
don't want to see.

Recommendations and Implementation

Comparing the two options, I prefer to “Expand momentum” because the company's
development is relatively smooth now. What is more needed than innovative services is to
consolidate and develop existing industries. We can clearly see that Starbucks does not show
strong demand for new services, and its risks are not necessary.
For the "expanding momentum", the main goal should be to upgrade the international retail
market within five years, while ensuring that the corporate culture does not change, and
basically complete the food sales channels and continuously improve the mailing service.
Basically completed the entry into the market where the Starbucks brand has not yet entered.
The domestic coffee industry has a valuation of 30% and an average sales of 850,000.

I will be glad to discuss these recommendations with you later on and follow through on any
decisions you make.
 Appendix

Bargaining Bargaining
Source of Threat of Threat of Industry
power of power of
competition new entrants substitutes rivalry
customers suppliers

Small product
Low price
Small barriers differences;
Low cost sensitivity; More
to entry； low industrial
Environmental performance； high competitors;
large concentration;
Analysis high customer attention to scale
differences in supply of
transfer costs service and strengths vary
service materials for
quality
buyers

Competitive
Low Low Medium Low Medium
strength