German University in Cairo

Strategic Analysis for Starbucks

Prepared By:

1- Taghred Khattab
2- Ehab Aziz
3- Bassem Naguib

Class: Strategic Analysis 704

Monday from 8 PM to 10 PM

Represented to: Dr. Saneya El Gallaly

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Table of Content

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1- Introduction
* In 1971 Starbucks opened operations in Seattle’s Pike Place
Markets with the future aim of providing coffee to a number of
restaurants and surrounding bars. With the recruitment of Howard
Schultz who led the marketing and retail efforts of Starbucks.

* In 1982, the company took a change in direction through the views

of Schultz, who after visiting Italy tried to adapt the same principles in
order to a strong bar culture. Schultz then utilized Starbucks ability to
provide quality coffee beans and opened up a new store called Il
Giornale, which brewed coffee from these particular beans.

* In 1987, Giornale had decided to take over the assets of Starbucks

and also, further changed its name to Starbucks Corporation. By the
end of the year, Starbucks had increased the number of stores to 17
and furthered its location span by entering Chicago and Vancouver.
* In 1990, the company took further steps forward with expansion of
the Seattle headquarters and an increase in resources with the
opening of a new roasting plant. Relationships and other ventures also
took off during the early nineties as the company looked to
development organizations to further its progress.

*In 1995, the company really established its name with the opening
of the 676th store as well as increasing the products in store with the
addition of compact discs a result of a previously popular experiment
with ‘in-house’ music.

* In 1996, the company kept on stretching its reach by entering into

the market of Japan, Singapore and Hawaii. This was achieved through
joint ventures including the one formed with Sazaby Inc., which
pushed through the development of coffee houses in Japan.

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*By the year 2000, things had progressed so far that 3,300 stores
were already opened, the company had ventured into countries
ranging from England to Australia & China.

* By last quarter of 2008, total international stores became 5113

store & 11567store in United States.

2- Current situation
The current international situation for Starbucks seems to be an
emerging part of their business and the reorganization of this is proved
by their aim to become a leading global company through making a
difference in people’s lives all around the world. This goal is quite close
to being achieved as proved the Starbucks current locations in
international markets and the successfulness of these ventures. The
current countries in which Starbucks are located in are: Australia,
Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon,
Malaysia, New Zealand, Oman, Peoples Republic of China, Philippines,
Qatar, Saudi Arabia, Singapore, South Korea, Switzerland, Taiwan,
Thailand, United Arab Emirates, Egypt, United Kingdom, and the
United States.

2.1 Current performance

Overall, the aim of becoming a worldwide global brand seems to be

working in favor of the company and is helping it to attract the
attention of many major companies who would like to share a
partnership. This is all positive news for the company because it
provides a strong basis for future development of international
markets, which further strengthens the mission to become one of the
leading specialty coffee retailers in the world.

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However, the net revenues increased 3 percent to $2.5 billion for the
fourth quarter of 2008, compared to $2.4 billion for the fourth quarter
of 2007. For the 13-week period ended September 28, 2008,
Starbucks reported net income of $5.4 million, which included $105.1
million of restructuring charges and other transformation strategy
costs. Net income was $158.5 million for the same period a year ago.
The company actions announced in July of 2008 to close approximately
600 company-operated stores in the U.S. and 61 company-operated
stores in Australia, and reduce approximately 1,000 open and filled
positions within its leadership structure and non-store organization.

2.2 Strategic posture

1- mission
“To inspire and nurture the human spirit— one person, one cup,
and one neighborhood at a time”
“The mission of Starbucks is to establish Starbucks as the
premier purveyor of the finest coffee in the world while
maintaining our uncompromising principles while we grow”
None of this success would have been possible without a set of
goals that the company aimed to achieve and a set of principles,
which governed the decision making process. The six principles
of Starbucks are stated as:

1- Provide a great work environment and treat each other with

respect and dignity.

2- Embrace diversity as an essential component in the way we

do business.

3- Apply the highest standards of excellence to the purchasing.

4- Roasting and fresh delivery of our coffee.

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 5- Develop enthusiastically satisfied customers all of the time.

6- Contribute positively to our communities and our

environment, and recognize that profitability is essential to

our future success.
Application of these principles can be used as a guideline for
all employees from managers to workers to aim to achieve
the company’s goals, while maintaining a certain type of
standard.

This mission statement along with the set of guidelines provides

a focus for employees as they make strategic decisions. It not
only supports the employees, but supports the customers as
well, making a note that they should be satisfied all of the time.
The mission shows alignment with the vision by stating how the
company plans to reach the broad goals set by the vision
statement. Another supporting sentence in the mission
statement is that the “company applies the highest standards of
excellence to the purchasing, roasting and fresh delivery of its
coffee.” This statement supports the idea that Starbucks uses
the best available resources to give it a recognized and
respected name.

2- Objectives & Strategies:

Here are the following objectives of Starbucks:

Our Coffee
It has always been, and will always be, about quality. We’re
passionate about ethically sourcing the finest coffee beans,
roasting them with great care, and improving the lives of people

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who grow them. We care deeply about all of this; our work is
never done.
Our Partners
We’re called partners, because it’s not just a job, it’s our passion.
Together, we embrace diversity to create a place where each of
us can be ourselves. We always treat each other with respect
and dignity. And we hold each other to that standard.
Our Customers
When we are fully engaged, we connect with, laugh with, and
uplift the lives of our customers— even if just for a few
moments. Sure, it starts with the promise of a perfectly made
beverage, but our work goes far beyond that. It’s really about
human connection.
Our Stores
When our customers feel this sense of belonging, our stores
become a haven, a break from the worries outside, a place
where you can meet with friends. It’s about enjoyment at the
speed of life—sometimes slow and savored, sometimes faster.
Always full of humanity.
Our Neighborhood
Every store is part of a community, and we take our
responsibility to be good neighbors seriously. We want to be
invited in wherever we do business. We can be a force for
positive action— bringing together our partners, customers, and
the community to contribute every day. Now we see that our
responsibility—and our potential for good—is even larger. The
world is looking to Starbucks to set the new standard, yet again.
We will lead.
Our Shareholders

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 We know that as we deliver in each of these areas, we enjoy the
kind of success that rewards our shareholders. We are fully
accountable to get each of these elements right so that
Starbucks—and everyone it touches—can endure and thrive.
From all what mentioned above that Starbucks is aiming to
success through quality of product, diversify in business and
place, to satisfy customers and shareholders, through pleasant
and nice existence nearly to everyone.
2.3 Financial Analysis
The general financial performance for Starbucks in 2008 was declining
from the previous years dramatically. The following analysis will show
this fact.

Investment Returns % Company Industry

Return On Equity 12.6 25.8
Return On Assets 5.6 13.2

Both the ROE and ROA are lower than the industry’s average, which
means that the company is not using both the equity and their assets
properly to increase their revenue.

Profit Margins % Company Industry

Gross Margin 16 27
Pre-Tax Margin 4.4 13.2
Net Profit Margin 3.03 8.5

Starbucks margins are lower also that the industry’s average,

especially in 2008 where the net profit margin reduced to 3.03 from
6.3 in 2007.

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Financial Condition Company Industry
Debt/Equity Ratio 0.40 0.46
Current Ratio 0.80 1
Quick Ratio 0.48 0.7

Starbucks generally manages their debs and liabilities wisely, and this
considers a financial strength for the company.

Year 2008 2007 2006 2005

Sales 10,383,000 9,411,497 7,786,942 6,369,300
Net Income 315,500 672,638 564,259 494,467

Growth Rate

12,000,000 800,000
10,000,000 700,000
600,000
Value USD

8,000,000 500,000
6,000,000 400,000
4,000,000 300,000
200,000
2,000,000 100,000
0 0
2005 2006 2007 2008 Sales
Years Net Income

Although the total sales was increased in the last 4 years, the net
income was reduced, especially in 2008 when it reached almost half
2007.

Management Efficiency Company Industry

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Inventory Turnover 12.6 20.6

Asset Turnover 1.83 1.7

3- Corporate governance

Board of directors

As part of Starbucks mission they are committed to maintain their

uncompromising principles while they grow. In this regard, their Board
of Directors has adopted governance principles and committee
charters to lead Starbucks governance practices. Currently, the board
has 9 directors, a substantial majority of whom meet all of the
independence requirements of NASDAQ® and the U.S. Securities and
Exchange Commission. Of the nine members of Starbucks board, one
is Latino, two are African American (one of which is female), and one
other female also serves on the board. Starbucks president and CEO
Howard Schultz chair the board.

In Starbucks there are well-defined criteria for the selection of new

board members, foremost being a clear demonstration of their own
personal integrity and ethics. Board diversity is sought in terms of
members’ personal and professional backgrounds, gender, race,
ethnicity or other differentiating characteristics, enabling a wider range
of opinions and perspectives to be considered. This criterias of
selection affected the company in a very good way that gave it the
opportunity to succeed in the international market. That the diversified
background, education, culture and gender in the board was one of the
greatest Starbucks strong points.

There are three committees of the board are comprised of independent

directors and have specific charters: Audit and Compliance,

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Compensation and Management Development and Nominating and
Corporate Governance.

In November 2007, the board amended the company’s bylaws to

include majority voting to allow shareholders to play a more
meaningful role in the election of directors. Director nominees must
receive more “for” than “against” votes to be elected in an
uncontested election. Additionally, the term of a nominee who does not
receive a majority of the votes cast will end on the earliest of either:
(1) 90 days after the date election results are certified; (2) the date
the director resigns; or (3) the date the board of directors fills the
position. This change demonstrates Starbucks ongoing commitment to
strong corporate governance practices.

Shareholders and partners (employees) can provide recommendations

and feedback to the board through the Business Conduct Helpline and
the Audit line. In addition, written correspondence can be sent to the
board, an individual director or to any of Starbucks independent board
committees.

Committee charters, governance principles, director nominations policy

(including criteria for board membership) and profiles on each board
member are available in the corporate governance section of
Starbucks.com.
Starbucks formed a Policy Governance Council in fiscal 2006 to
oversee and approve governance tools at the global enterprise level,
and to ensure they are well-defined, consistent with each other,
current, stored for easy retrieval, and effectively communicated to
partners. The Council is comprised of company leaders who represent
multiple business units and functions, and is supported by Starbucks
Policy Office and staff.

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Starbucks stakeholders include partners (employees), customers,
suppliers, farmers, shareholders, governments, community members,
environmental groups, activists and many others. The company
engaged them to be able to understand their concerns and gain their
input on topics of mutual importance.

4- External Environment: Opportunities and

Threats

Starbucks international operation was one of the major aspects of their

success. , in the mid 1990s, with the market reaching saturation,
Starbucks could no longer depend on the U.S. market for growth. To
maintain its growth rates and to boost revenues, Starbucks had to
venture abroad. Starbucks international presence is now in more than
25 countries and the United States of America. This presence is formed
in three modes in entry that are Joint venture, licensing and wholly
owned
subsidiaries. This became a burden on the mother company in a later
stage. That those types of entry moods need a lot of training,
supervising, management assistance and technology transfer for the
partner. This is along with inability to engage in global strategic
coordination.

However, the success of Starbucks is not only to its aggressive

expansion but also to its product innovation. Starbucks came out with
new products to attract customers on different periods.

Also diversification was one of the factors that Starbucks started to

apply even on a small initiated base. That along with serving coffee,
Starbucks also sold merchandise. In 1995, it started selling CDs of its
famous in-house music program. It also entered into alliances with

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various players such as Canadian Airlines, United Air Lines, Starwood
Hotels, and Barnes & Noble, Inc., to serve Starbucks coffee.
4.1 Michael Porter’s five forces
Michael Porter defines five forces impacting a firm's competitiveness—
threat of substitutes, threat of new entrants in the industry, bargaining
power of suppliers, bargaining power of customers, and the intensity
of competition within the industry. A firm's strategic decisions to
respond to these five forces are a source of risk also.
The company is facing a real threat of substitution from many other
companies that producing the same product that is satisfying the same
need. This is in its domestic market and even in the international
market specially Europe and Middle East.
Also Starbucks is facing a real problem of rival competition due to its
uncompetitive price all over the world and even in its domestic market.
Also the taste of Coffee had been judged by customers as an artificial
taste especially in Japan.
Suppliers bargaining power is really represent a threat for Starbucks.
That they decided to deal with a 51% women or minority owned
suppliers. Also they are not dealing with suppliers who don’t follow the
same environmental ethics that are for Starbucks. This may lead them
to lose a good opportunity or deal with a supplier that they will not
deal with him. Also dealing with small suppliers instead of dealing with
limited number of big power full suppliers is not giving them real good
deals for facilities and prices.
4.2 Societal Environment

Economics
Economic factors are an important aspects that concern the nature and
direction of the economy in which a firm operates.

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 Starbucks also faced criticism from Non Governmental Organizations
(NGOs) that urged the company to acquire certified coffee beans,
ensuring that those coffee beans were grown and marketed under
certain
economic and social conditions.

Furthermore, Starbucks faced problems due to economic recession in

countries such as Switzerland, Germany, and Japan in the early 2000s,
where it experienced declining sales and revenues.

Moreover, a real expectation of huge recession during the next year

due to the worldwide financial crisis may affect the company’s results
badly.

Technological
Starbucks is continuously searching for ways to better a customers’
experience. With the introduction of the Starbucks Card for example,
the Company has created the opportunity to improve customer
service, shorten lines and make a customer’s visit at Starbucks quicker
and more convenient. Most if not all Starbucks location has WI-FI for
consumer needs.

Political/Legal
1- Increasing tensions between the United States and the rest of the
world, the business environment, especially in the Middle East and
Southeast Asia, was becoming increasingly volatile. After U.S.
declaration of war on Iraq in early 2003 matters became worse for the
company. This created serious problems for Starbucks. In July 2002,
Arab students called for a boycott of American goods and services, due
to the alleged close relationship between the United States and Israel.
The boycott targeted U.S. companies including Starbucks, Burger King,
Coca-Cola and Estee Lauder

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 2- In addition to these incidents, Starbucks topped the list of companies
to be boycotted due to Schultz's alleged closeness to the Jewish
community. Till now in the Arab countries & Middle East a lot of rumors
that Starbucks is sponsoring the Jewish community against Palestinian
crises. Due to increasing security threats, Starbucks closed down its
six stores in Israel.

3- Starbucks had two class action suits pending since 2001. The lawsuits
entitled Carr vs. Starbucks and Sheilds vs. Starbucks are challenging
the status of Starbucks California store managers and assistant
managers as exempt employees under California wage and hour laws.
Starbuck’s is denying all liabilities in these cases, however; the
company has agreed to the settlement in order to take care of all of
the plaintiffs’ claims without having to get involved in any protracted
litigation.
4- Starbucks only imports all their coffee beans, so possible threats could
include a change in import laws. A change in the status quo as far as
imports go could greatly affect numerous areas of production for the
company. For example, if it costs more to import or the process is
made more difficult the result could ultimately be a change in price,
which would affect the level of consumption for Starbucks coffees.
Social/Cultural
Environmental Mission Statement
(Starbucks is committed to a role of environmental leadership in all facets
of our business)
As a result of Starbucks closely following their objectives, the company
has installed a list of principles that further outline the company’s
willingness to make sure that its affect on the environment is as positive
as possible. These principles are stated as:

1- Understanding of environmental issues.

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 2- Sharing information with our partners.

3- Developing innovative and flexible solutions to bring

about change.

4- Striving to buy, sell and use environmentally friendly

products.

5- Recognizing that fiscal responsibility is essential to our

environmental future.

6- Instilling environmental responsibility as a corporate

value.

7- Measuring and monitoring our progress for each

project, and encouraging all partners to share in our

mission.

Those can only be seen as a positive for the image of the

company and shows that they are willing to utilize their
resources in order to more than satisfy requirements.

4.3 Task Environment

Not only this but also, Starbucks organizing activities such as

neighborhood clean-ups and walk-a-thons. Many examples are
available on the web site of the company.

Policies that also have been implemented are the buying policies,
which only allow the company to purchase from those other businesses
(suppliers) who follow the same environmental strategy as Starbucks.
This may push the company to lose an opportunity of good deal,
because the supplier doesn’t follow the company environmental
policies.

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Finally, to integrate these policies to new employees, Starbucks has
employed the services of a few partners which congregate together to
create a “Green Team,” which installs the environmental views into
trainees as well as coming up with inventive ways of helping the
environment.

Summary of External factors TO

However, it was found that the success of Starbucks was due to its
profitable domestic operations. It was reported that most of Starbucks'
international operations were running into losses. In May 2003,
Starbucks' Japanese operations reported a loss of $3.9 million (Japan
constituted the largest market for the company outside the United
States), and the company also performed badly in Europe and the
Middle East. Analysis pointed out that Starbucks' international
operations were not as well planned as its U.S. operations. It was also
observed that the volatile international business environment made it
difficult for the company to effectively manage its international
operations.

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 4.4 External Environment (EFAS) (SWOT)
Weighted
External Factors Weight Rating
Score
SR Opportunities

O1 New Markets with low investments 0.1 3 0.3

O2 Coffee Market Growing Worldwide 0.1 4 0.4

Product range diversification to more food and non-food
O3 0.12 2 0.24
items
O4 New distribution channels (delivery) 0.08 3 0.24

Threats

T1 Boycotting for Political reasons (Middle East and Arab) 0.08 4 0.32

T2 Financial Crises and Recession 0.15 4 0.6

T3 Increase in Domestic competition 0.1 4 0.4

T4 Volatile coffee and dairy products 0.1 4 0.4

T5 US market saturation 0.08 4 0.32

Consumer trends toward more healthy ways and away
T6 0.09 3 0.27
form caffeine
Total 1 3.49

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5- Internal Environment: Strengths and
Weaknesses

5.1 Corporate Structure

Starbuck has no formal organization chart and does not work with
hierarchy structure. It consists of to main departments, functional
department consists of marketing, supply chain, operations, finance
and human resources, and cross functional teams, consisting of local
store marketing and marketing campaigns. The decision making
process in Starbucks is bottom – up process, where the employees are
empowered even to take decisions without referring back to the
management. There is a conflict in the corporate structure where some
employees are reporting to two different divisions which in some cases
causing confusion and over lapping.

5.2 Corporate culture

The Chairman of Starbucks, Schultz decided to treat employees as
family, and called them partners. Both full time and part time
employees could benefit from training and health insurance. Starbucks
paid some more salaries than competitors to gain highly qualified
employees.
Starbucks relied on its baristas and other frontline staff to a great
extent in creating the ‘Starbucks Experience' which differentiated it
from competitors.
Employees had option to stock chare according to their base salaries.
Also Starbucks had shared values with their employees who made
them proud to work in such successful company, and this created good
culture. Schultz decided also to be open and honest with his
employees, and let them share in the decision making process. He

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gave extensive training to employees especially barista employees to
give careful attention to customers.
Environment was important to Starbucks. Using this concept Starbucks
gave good attention to their suppliers by helping them technically and
financially as part of their corporate social responsibility. Also it
encouraged all partners to share in the company’s mission. Starbucks
has deep tacit knowledge, which is difficult to be imitated by
competition.
5.3 Functional strategies
5.3.1 Marketing
The main marketing strategy and position for Starbucks is for
customers to consider it as their place after home and work, this will
guarantee customers visiting the shops several times. However it also
customizes its positioning for each store individually according to the
specific location it is in. Another important part of Starbucks’
positioning over competition is that they are environmentally friendly.
Starbucks does not generally offer promotional prices on its products.
It has a reputation for having pricey drinks; furthermore, Starbucks
brand is too expensive. The company mainly depends on the brand for
their high revenues, which could be risky from competition. However it
seems to be the market leader when it comes to new products and
ideas.
Starbucks has found more success advertising on a local level rather
than to the nation as a whole. The Company advertises a lot through
print mediums, as Starbucks’ target market tends to be educated
people who do more reading than the average person. In 2005,
Starbucks spent $87.7 million on advertising, or 1.4% of revenues.
Starbucks also market itself as environmentally friendly and focus on
its corporate social responsibility, one example is buying Ethos-Water

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Company and they also plan to donate $ 10 million to help countries
under developed lacking clean water.
5.3.2 R&D
The R&D role in Starbucks is to make a R&D mix and mainly consists
of the following activities:

 Coffee Science
 New Technology
 Equipment Technology
 Product Development
 Menu Development
 Coffee Quality Assurance
 Sensory Science

The introduction of the Starbucks Card for example, Starbucks has

created the opportunity to improve customer service, shorten lines and
make a customer’s visit at Starbucks quicker and more convenient

Starbucks is continuously searching for ways to better a customers’

experience. The company spent 7.2 Million in 2008 for new
technologies related to food and equipment.
5.3.3 Operations and logistics
The main operation for Starbucks divided into local operation in USA
and international operation. Starbucks depended mainly on their
employees to manage operation, that’s why they focused on training
employees as they are the main asset in the company. They are
managing all stores in USA, however, they are in the international
operation sometimes manage their store, or give licenses, or get into
joint ventures with existing companies. But they focus on their
operation on the quality of their coffee.

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Starbucks deals with international small suppliers. Starbucks made
good deals with their suppliers to supply coffee with fixed prices rather
than using the Fair Trade Coffee.
They mainly use non-smoking restrictions in their stores, however in
some countries because of culture conflicts they had to have either
smoking rooms or smoke areas in the air.
One of the main advantages Starbucks has is the accumulative
experience of their employees in operation, this is due to the low turn
over they have and their focus on employee satisfaction.
5.3.4 Human Resources
Starbucks paid considerable attention to the kind of people it recruited.
So the company hired people for qualities like adaptability,
dependability and the ability to work in a team. Starbucks was one of
the few retail companies to invest considerably in employee training
and provide comprehensive training to all classes of employees,
including part-timers
Company depends on their personnel in their high revenue, which is
very risky as if they lost some of the key persons. Early 2000s, the
company began to show signs that its generous policies and high
human resource costs were reflecting on its financial strength.
Although the company did not reveal the amount it spent on
employees, it said that it spent more on them than it did on
advertising
While the industry turnover rate is about 200 percent, Starbucks
maintains a turnover rate of only 60 percent. Due to this low turnover,
Starbucks has lowered their training time and costs. Furthermore, 82%
of the partners rated being “very satisfied” and 15% as “satisfied” with
their jobs when asked by outside audit agencies.

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5.3.5 Information System
Starbucks is following this major trend of moving towards multimedia
Direct Marketing Solutions and Web-based models. Customers visit its
web site to buy coffee products and gifts, and to learn more about the
art of roasting and brewing coffee. The site also offers services such as
the Starbucks “Taste Matcher” tool, which interactively recommends
specifics coffee roasts and blends bases on customer’s preferences.
Moreover in late November 2001 Starbucks Debit card was introduced
in US. Its introduction has increased customer loyalty as well as
attracted new customers to Starbucks stores.
Most if not all Starbucks locations have WI-FI for consumer needs. The
MIS department affects Starbucks partners whenever they open a
store cash register, use computer software or send voice mail
messages.
The IS department in Starbucks focuses mainly on:

 Business Applications Development

 Production Services
 Retail Business Systems
 Strategic Architecture

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 5.4 Internal Environment (IFAS) (SWOT)
Weighted
Internal Factors Weight Rating
Score
SR Strengths

S1 High Brand Equity 0.12 5 0.6

S2 Satisfied Employees 0.1 4 0.4

S3 Exclusive coffee products 0.08 4 0.32

S4 Economies of scale in purchasing 0.1 4 0.4

S5 Widespread and consistency 0.09 4 0.36

S6 Strong financial foundation 0.1 3 0.3

Weaknesses

W1 High prices 0.12 1 0.12

W2 Over dependency on coffee and coffee related products 0.1 3 0.3

W3 Lack of internal focus (too much focus on Expansion) 0.11 3 0.33

W4 Cross Functional management 0.08 3 0.24

Total 1 3.37

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6. SFAS, SWOT Analysis
Ratin Weighted Duration
SR SFAS Weight
g Score Long Intermediate Short
S1 High Brand Equity 0.09 5 0.45 X
S2 Satisfied Employees 0.07 4 0.28 X
S4 Economies of scale in purchasing 0.08 4 0.32 X
W1 High prices 0.09 2 0.18 X
Over dependency on coffee and coffee related
W2 0.09 3 0.27 X
products
Lack of internal focus (too much focus on
W3 0.09 4 0.36 X
expansion)
O1 New market with low investment 0.08 4 0.32 X
O2 Coffee Market growing worldwide 0.07 4 0.28 X
Product range diversification to food and non food
O3 0.09 2 0.18 X
items
T2 Financial Crises and Recession 0.09 4 0.36 X
T3 Increase in Domestic competition 0.08 4 0.32 X
T4 Volatile coffee and dairy products 0.08 4 0.32 X

Total 1 3.19

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7. Reviewing mission and objective
Mission Statement: Starbucks should keep their mission statement as
it reflects the current situation as well, expect for changing the product
scope to include products more than the coffee for good diversification.
Objectives: The Company can keep the same current objects as it
serves the current situation of the company. Just one object should be
added which is:
Invest in other product for either related or unrelated business to
maintain the success.

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 8. Strategic alternatives (TOWS analysis)
Strengths Weaknesses
Internal factors
S1 High Brand Equity W1 High prices
S2 Satisfied employees W2 Over dependency on coffee and
S4 Economies of scale in purchasing coffee related products
External Factors
W3 Lack of internal focus (too much
focus on expansion)
Opportunities 1- Grow vertically to include 1- Diversification to related
O1 New market with low other low cost countries businesses to overcome the
investment using the good brand. dependency on the coffee
O2 Coffee Market
2- Use the experienced and increase product
growing worldwide
employees to diversify in range.
O3 Product range
diversification to food other related businesses. 2- Reduce costs to reduce
and non food items prices in low investment
markets and get benefits
from the growing markets.
Threats 1- Differentiate using the high 1- Reduce costs to reduce
T2 Financial Crises and brand to prevent domestic price in order to survive in
Recession competition. the current financial crises.
T3 Increase in Domestic
2- Make backward vertical 2- Depend on international
competition
integration using the alliances in the
T4 Volatile coffee and
dairy products economies of scale to avoid international stores to focus
volatile of coffee and dairy on the domestic market to
avoid competition, as the
domestic market is the
main source of revenue.

9. Review strategies
9.1 Corporate Strategy

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The corporate strategy should continue in Retrenchment as they
started in July 2008 close stores to reach 600 by the end of 2009.
One more strategy should be added to Diversify in related business to
secure the company, as they depend only on coffee products.
9.2 Business strategy
Domestic Business Unit: Should focus on more differentiation to face
the hard local competition.
International Business Unit: Should focus on reducing costs to reduce
prices; this will help in entering new low cost markets and gain more
profits. Also continue with alliances in countries to reduce
management focus and concentrate more on the Domestic Market.
9.3 Functional Strategies
Marketing
Starbuck should continue in their existing marketing strategy for
promotion and advertising.
Starbuck should make strategy of good price reduction strategy in
order to enter new markets and maintain current customers.
Research and Development
Starbuck can continue in their R&D strategy by being the Technological
leader in the coffee retail business.
Operation Strategy
Starbuck can continue in the current strategy for depending on
employees in management and to make good deals with suppliers to
reduce costs.
Human Resources
The company should continue in developing and motivating employees
as they are their best assets.
Information System

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The company should continue in developing their Information System
to help the company increasing profitability.

10. Implementation
The company can implement the above strategies by:
o Use the best of their Economies of scale to reduce costs.
o Start new independent Business Unit for New products, with
decentralization for products-group structure.
o They should reduce cross functional tasks to reduce confusion
between employees and increase efficiency.
o Depend on the outsiders of their board to get potential new
investments in new businesses.

11. Evaluation and Control

Starbucks should evaluate their performance quarterly in 2009 to
avoid any accumulative losses and to take quick corrective actions.
The best evaluation method for Starbucks will be financial evaluation
by measuring the following:
1- ROI for any new investment they made and for the old
investments as well.
2- Net profit for each store to separate between profitable and non
profitable stores.
3- Net profit for each country to separate between profitable and
non profitable countries.

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11. References
1- www.starbucks.com
2- Starbucks Annual Report.
3- http://company.monster.com/starbucks/about/structure.htm#mis
4- www.collegeresearch.us/show_essay/5779.html
5- www.businesspme.com/uk/articles/advertising/99/Starbucks'-marketing-
strategy.html
6- Seong-Min, Kim 2002. Starbuck Coffee Corporations, University
of Haway.

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