Feasibility Studies:

Starbucks

Submitted by: Kae Abegail O. Garcia Submitted to: Mrs. Maribel D. Cuenca
Winzleth Agaloos Applied Economics Teacher
XII- St. Thomas the Apostle

October 1, 2019
I. Geographic Area
Starbucks Corporation is famous all over the world for its quality coffee. It is
recognized as an International Organization which is famous all over the world. It has
almost 27,339 coffeehouses in more than 75 countries which makes it the largest coffee
company in the world. The Starbucks stores which are operated and are licensed
operation in US spread out in 50 states. For the international location, Starbucks’ store
can be found in 44 countries outside of the United States and 1,049 stores are company
owned operated in Australia, Canada, China, Germany, Singapore, Thailand and the
U.K. and 6,506 are joint ventures and licensed operation. Internationally Starbucks
opened their stores in Tokyo, Japan that there are more than 700 retails shops;
Starbucks also open in Hawaii and Singapore. Furthermore, Starbucks open in
Philippines, in Taiwan, New Zealand, Malaysia, Beijing, Kuwait, South Korea and
Lebanon, United Arab Emirates, Shanghai, Australia, Qatar, Saudi Arabia and Bahrain,
in Switzerland and Austria, in Oman, Germany, Spain, Mexico, Puerto Rico, Southern
China, Macao and Shenzhen, Greece and Indonesia, Turkey, Peru, Chile and Cyprus.
The decisions of Starbucks about where to site its stores depends on reaching its
potential customers and providing better service to its existing customers. Its stores are
typically clustered in high-traffic, high visibility locations. When it opens a new store near
an established Starbucks, it is generally intended to relieve long customer lines and
improve service. It takes more than just location to be successful. Attracting customers
to Starbucks happens by providing high-quality coffee as well as creating inviting,
comfortable places located in convenient location.

II. Industry
Starbucks Corporation is an American coffee company and coffeehouse chain.
The main aim of Starbucks is to become the leading brand and retailer of finest coffee in
each of its target markets nationally and internationally by selling the best quality coffee
and related products, and by providing high class customer service. Starbucks is the
premier roaster, marketer and retailer of specialty coffee in the world, operating in 75
countries. It purchase and roast high-quality coffees that they sell, along with
handcrafted coffee, tea and other beverages and a variety of high-quality food items,
including snack offerings, through company-operated stores. Starbucks also sell a
variety of coffee and tea products and license their trademarks through other channels
such as licensed stores, grocery and foodservice accounts. In addition to flagship
Starbucks Coffee brand, it sells goods and services under the following brands:
Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh and Ethos.

III. Product
Apart from coffee, Starbucks serves snacks with soft drinks and also espresso
based hot drinks. Starbucks purchases and roasts a high quality whole bean coffee to
sell them with fresh, rich-brewed espresso beverages, different varieties of pastries and
coffee related accessories and equipments. Moreover, Starbucks also sells coffee and
tea products strategically through other channels such as supermarkets and non
traditional retail channels such as United Airlines, Marriott International, Barnes & Noble
bookstores and Department stores. It has also started supplying some fancy items like
coffee mugs with Starbucks logo on it. Later on with the brand name of Hear Music
Starbucks entered into music division. It has also started selling some books and
movies related to the locality of the stores along with some seasonal and specific
company products. Also in many countries at various grocery shops Starbucks has
started selling ice-cream with its brand name. Today the Starbucks has become the
power brand for its coffee all over the world and is famous for its Italian style of coffee,
espresso beverages, teas and pastries.

IV. Buyers
Starbucks’ primary target market is adults, young adults, kids and teens. The
target audiences for Starbucks share a variety of characteristics, including a high-
income bracket, an awareness of social status and environmental consciousness.
Adults men and women aged 25 to 40 they account for almost half (49 percent) of its
total business. Starbucks’ appeal to this consumer age group through hip, contemporary
design that is consistent in its advertising and décor and working to keep its products
current as status symbols. Customers tend to be urbanites with relatively high income,
professional careers and a focus on social welfare. This target audience grows at a rate
of 3 percent annually. Young adults aged 18 to 24, total 40 percent of Starbucks’ sales.
Starbucks positions itself as a place college students can hang out, study, write term
papers and meet people. A Starbucks appeal to this consumer directly through
introducing technology as soon as it comes available, focusing on social networking and
actively cultivating a “cool” image. The young adult audience grows 4.6 percent each
year. Kids and teens are also a large part of Starbucks’ target audience. Together,
customers aged 13 to 17 accounts for just 2 percent of Starbucks’ sales, but most items
for kids are purchased by the parents. Whether the focus is on the steamed milk that
Starbucks’ baristas refer to as “babyccinos” or the sugary, caffeinated, whipped cream
topped coffee drinks that are so popular with teenagers, kids and teens form a large
part of Starbucks business. Kids go there with their parents; both mother and child leave
with a cup in hand. Teens meanwhile use Starbucks as a place to hang out with friends
or study. Starbucks may not cater directly to kids (and risk criticism about the high
calorie and caffeine content of some of its drinks) but it does make its products kid-
friendly, offering special child sizes for instance.

V. Regulatory Environment
Government’s monitoring of food wholesomeness, labeling and safety.
Regulations on food safety have been an integral part of the century. Food regulations
aim to protect public safety and health the implementation of these laws lies in the
hands of several agencies, which make use of various regulatory methods to ensure the
objectives of the regulations are realized. Federal agencies administer laws related to
food safety; the Food and Drug Administration and the Food Safety and Inspection
Service get the majority of government funding and staffing. According to the
Congressional Research Service, the FDA is responsible for the safety of more than 80
percent of food products, which are either imported or domestic. It ensures that these
foods are accurately labeled, wholesome and nutritious. The objective of Starbucks is to
maintain Starbucks standing as one of the most recognized and respected brands in the
world. To achieve this, Starbucks Corporation is committed to full compliance with the
laws, rules and regulations of the countries in which it operates.

VI. Company Information

Starbucks as one of the leading business will be up against the most successful
business in the industry such as The Caribou Coffee Company, Costa Coffee, Dunkin'
Brands Group, Inc., Green Mountain Coffee Roasters, McDonald's Corporation, Nestlé
S.A. and many other restaurant chains and coffeehouses. Starbucks has been fighting
its main competitors – Dunkin' Donuts and McDonald's – for the top position as coffee
king for several years. Dunkin' Brands-owned Dunkin' Donuts peacefully co-existed with
Starbucks for decades. When the spokesman for the company's ad campaigns retired in
the late 1990s, however, Dunkin began to transition away from coffee and in the
direction of donuts. By the early 2000s, the company had introduced its first specialty
coffee line and slowly began to make a name for itself as a destination coffee shop. In
2006, Dunkin' upped the ante and declared war against Starbucks when it launched its
"America Runs on Dunkin'" ad campaign. While Starbucks has created an intentionally
chic and upscale environment, Dunkin' Donuts represents itself as an All-American
brand. The tactic helped bolster Dunkin's Q3 2018 earnings, but the company's $350
million in revenues still fell significantly short of Starbucks' $6.3 billion that quarter. By
November 2018, Dunkin Donuts operated 11,300 locations to Starbucks' 29,000.
McDonald's has long been known as a fast food restaurant, but the global franchise
joined in on the emerging coffee craze by introducing flavored and iced coffees in the
mid-2000s. With fiscal year 2017 revenues of $22.82 billion, McDonald’s outperformed
both Starbucks and Dunkin' Donuts that year, though this was in large part because of
the restaurant franchise's expanded menu. After leaning on the "I'm Lovin' It" advertising
campaign for more than 10 years, McDonald's recently found the slogan was not
performing as well as it had when first introduced. New commercials and
advertisements are slotted to roll out throughout 2019 and will fall in line with Dunkin'
Donuts' approach, pushing McDonald's as a brand for the every-day American with
emphasis placed on embracing people of every educational and cultural background.

VII. A brief history of the Industry

The first Starbucks was opened in Seattle, Washington, on March 31, 1971 by
three partners who met while they were students at the University of San Francisco:
English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker
were inspired to sell high-quality coffee beans and equipment by coffee roasting
entrepreneur Alfred Peet after he taught them his style of roasting beans.Bowker recalls
that Terry Heckler, with whom Bowker owned an advertising agency, thought words
beginning with "st" were powerful. The founders brainstormed a list of words beginning
with "st," and eventually landed on "Starbo," a mining town in the Cascade Range. From
there, the group remembered "Starbuck," the name of the chief mate in the book Moby-
Dick, Bowker said, "Moby-Dick didn't have anything to do with Starbucks directly; it was
only coincidental that the sound seemed to make sense." The first Starbucks store was
located in Seattle at 2000 Western Avenue from 1971–1976. This cafe was later moved
to 1912 Pike Place.During this time, the company only sold roasted whole coffee beans
and did not yet brew coffee to sell. During their first year of operation, they purchased
green coffee beans from Peet's, and then began buying directly from growers.

VIII. Factors that affect the growth of the Industry

The table below presents a PEST analysis for Starbucks. The acronym stands
for Political, Economic, Social, and Technological. It aims to identify the different factors
that affect the growth of Starbucks.

Political Economic Social Technological

Pressure to Increase in interest Income distribution; New inventions,
strengthen rates. coffee houses tend including advanced
environmental to sell premium roasting techniques
regulation. priced products can provide
which people on advantage.
lower income cannot
afford.
Pressure to increase Inflation rates are on Health New product
minimum wage. the up. consciousness with development,
coffee. including flavored
coffees and improved
decaffeinated coffee
for those concerned
about the caffeine
content.

IX. Trends in sales over the recent years

The table below shows Starbucks' revenue worldwide from 2014 to 2018. Since
the company’s founding, Starbucks has broadened its product range beyond warm
beverages. Food, packaged coffees and tea, as well as coffee making equipment and
merchandise such as mugs help boost Starbucks sales. Food items have become a
more significant product in recent years. The line's share of total Starbucks sales
increased annually over the past 10 years.
 Revenue of Starbucks worldwide from 2003 to 2018 (in billion U.S. dollars)

Year Revenue in billion

U.S. dollars

2018 24.72
2017 22.39
2016 21.32
2015 19.16
2014 16.45

X. Current operational or management trends within the industry, which are

standard practices prevalent among the firms
Starbucks main focus has been on its employees. Starbucks understands that
their employees are the driving factor and most important resource of the above
minimum wage standards as well as a quality health care and benefits packages. They
firmly believe that the welfare of their people, environment principles provide an
established and proven work environment for every staff member throughout every
retail store owned or operated by Starbucks. The performance objectives of Starbucks
are speed, quality, dependability, flexibility and cost. Speed, Starbucks is all about
customer experience and the key aspect to that is not keep a customer waiting. Speed
is an essential aspect, for the business, because profitability is affected when the staff
keeps the customers waiting and this could cost them dearly, besides, with regard to the
product, by being slow the time is to have efficient and smooth internal communications,
and by keeping an adequate quantity of inventory, especially a well organized kitchen.
Quality is probably the main performance objective as it is usually the one factor that
differentiates it from its competitors. Speed and Flexibility are related, the faster the
processing time the better the chances of processes being adjusted quickly. Cost
affects a large chunk of how the company works, because no matter which company it
is they all have a profit maximization objective. Major costs very specific about the
Arabica beans they procure, an example of minimizing cost would be how they have
started growing their own coffee beans, which costs. Another method to do so is to
update technology that better uses input and reduces waste.

XI. The types of marketing strategies prevalent within the industry

Being one of the renowned coffee brands worldwide with experience of more
than 3 decades in the business is helping the company to understand the businesses in
the better way & be innovative in the changing market factors. Starbucks offerings are
the star in the BCG matrix. Starbucks uses geographic and demographic segmentation
strategy to make its particular type of offerings available to customers accordingly.
Being present in more than 70 nations with its 24000+ outlets in these nations is helping
the company to source the best quality of the raw materials i.e. coffee beans, tea from
coffee producing regions. It focus on expansion in developing markets is one of the
smart strategies which are helping in speed up the growth in revenues of the company.
Starbucks has been involved in various CSR activities which helped the company to
connect with the communities around the globe. The ethical belief of the company has
helped it in retaining by nurturing the talents as well as winning various awards and
accolades such as being a fortune- most admired companies in America (2015).

XII. Competitor Information

Being one of the renowned coffee brands worldwide, Starbucks are up against
successful brands. Its three main competitors are Costa Coffee, McDonalds McCafe,
and Dunkin Donuts.
Costa Coffee is the second largest coffeehouse in the world after Starbucks and
the largest in the UK. Founded in 1971 in the UK, Costa coffee has expanded to over
3000 stores in over 30 countries. In the UK alone, it operates over 2000 restaurants.
Mid this year, Costa coffee moved its coffee roaster to Essex. An investment that cost a
close to 40 million pounds. This, in turn, increased the roasting capacity to 44,000 tons
of coffee beans from the initial 11,000 tons in a year. As at the end of 2016, Costa
Coffee’s net income was approximate £153 million with revenues exceeding £1.167
billion. This company reaches to its customers through its advertising slogan ‘a coffee
for every mile’ whose aim is to have as many coffee shops as possible. Costa Coffee is
also probably the only Starbucks Competitors on this list which exclusively deals and
promotes its coffee. All other brands have a combination of different products to offer.
McDonalds McCafe is strongly coming up as one of the Starbucks Competitors
which is gaining market share. This is because of the backing it has with the huge
number of McDonald’s stores across the globe. This coffee house not only specializes
in coffee but food and other beverages as well. It was formed in Australia in the year
1993 and is a true reflection of espresso coffees. In the year 2015, McCafe was among
the top three coffee sellers with over $1.4 billion from slightly over 4,500 outlets.
However, this is set to increase after McCafe upgraded its equipment to ensure
consistency in the taste of its coffee.Currently, it’s ranked the largest in New Zealand
and Australia.
Dunkin is a donut company as well as a coffee house based in Massachusetts
USA. Founded in 1950, it has expanded to become one of the largest baked food and
coffee chain in the world. It operates in more than 35 countries with over 11,500
restaurants. In the year 2010, its sales were estimated to be 6 billion dollars and an
estimated revenue stream of around US$828.9 Million as per the 2016 data. In terms of
production, Dunkins produces 8% donuts, 65% drinks and 27% of other food items. Its
presence in 35 countries itself tells the success story of the company.