STARBUCKS

Starbucks Corporation is an international coffee and coffee house chain based in

Seattle, Washington, United States. Starbucks is the largest coffee house company in the
world, with 16,635 stores in 49 countries, including 11,068 in the United States, nearly 1,000
in Canada and more than 800 in Japan. Starbucks sells drip brewed coffee, espresso-based hot
drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and paninis,
pastry, snacks, and items such as mugs and tumblers. Through the Starbucks Entertainment
division and Hear Music brand, the company also markets books, music, and film. Many of
the company's products are seasonal or specific to the locality of the store. Starbucks-brand
ice cream and coffee are also offered at grocery stores.

From Starbucks' founding in later forms in Seattle as a local coffee bean roaster and
retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store
every workday, a pace that continued into the 2000s. The first store outside the United States
or Canada opened in the mid-'90s, and overseas stores now constitute almost one third of
Starbucks' stores. The company plans to open a net of 900 new stores outside of the United
States in 2009, but has announced 900 store closures in the United States since 2008.

Starbucks has been a frequent target of protests on issues such as fair-trade policies,
labor relations, environmental impact, political views, and perceived anti-competitive
practices.

History of Starbucks

The original Starbucks was opened in Pike Place Market in Seattle, Washington, on
March 30, 1971 by three partners: English teacher Jerry Baldwin, history teacher Zev Siegel,
and writer Gordon Bowker. The three were inspired by entrepreneur Alfred Peet (whom they
knew personally) to sell high-quality coffee beans and equipment. From 1971–1976, that first
Starbucks was at 2000 Western Avenue; it then was relocated to 1912 Pike Place, where it
remains to this day. During their first year of operation, they purchased green coffee beans
from Peet's, and then began buying directly from growers.

1
 Entrepreneur Howard Schultz joined the company in 1982 as Director of Retail
Operations and Marketing, and after a trip to Milan, Italy advised that the company should
sell coffee and espresso drinks as well as beans. The owners rejected this idea, believing that
getting into the beverage business would distract the company from its primary focus. To
them, coffee was something to be prepared in the home, but they did give away free samples
of pre-made drinks.

In 1984, the original owners of Starbucks, led by Baldwin, took the opportunity to
purchase Peet's (Baldwin still works there).

During the 1980s Starbucks' benefits were enviable: part-time baristas not only had
medical insurance, they had stock options

In 1987, they sold the Starbucks chain to Schultz's Il Giornale, which rebranded the Il
Giornale outlets as Starbucks and quickly began to expand. Starbucks opened its first
locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago,
Illinois, that same year. At the time of its initial public offering on the stock market in 1992,
Starbucks had grown to 165 outlets.

Currently Starbucks is present in more than 55 countries.

The first Starbucks location outside North America opened in Tokyo, Japan, in 1996.
Starbucks entered the U.K. market in 1998 with the $83 million. Acquisition of the 60-outlet,
UK-based Seattle Coffee Company, re-branded all the stores as Starbucks.

In April 2003, Starbucks completed the purchase of Seattle's Best Coffee and
Torrefazione Italia from AFC Enterprises, bringing the total number of Starbucks-operated
locations worldwide to more than 6,400. On September 14, 2006, rival Diedrich Coffee
announced that it would sell most of its company-owned retail stores to Starbucks. This sale
includes the company-owned locations of the Oregon-based Coffee People chain. Starbucks
converted the Diedrich Coffee and Coffee People locations to Starbucks, although the
Portland airport Coffee People locations were excluded from the sale.

Many bookstores have Starbucks outlets within them, including Barnes & Noble in the
United States,Chapters-Indigo in Canada, Livraria Saraiva and Fnac in Brazil and B2S in
Thailand.

2
 The Starbucks location in the former imperial palace in Beijing closed in July 2007.
The coffee shop had been a source of ongoing controversy since its opening in 2000 with
protesters objecting that the presence of the American chain in this location "was trampling on
Chinese culture. Also in 2007, Starbucks cancelled plans to expand into India, but opened its
first store in Russia, ten years after first registering a trademark there. In 2008, Starbucks
continued its expansion, settling in Argentina, Bulgaria, the Czech Republic and Portugal. In
Buenos Aires, the biggest Starbucks store in Latin America was opened. In April 2009,
Starbucks entered Poland. New stores will be opened in Algeria. Starbucks has also opened its
doors on 5 August 2009, in Utrecht, Netherlands. On October 21, 2009 it was announced that
Starbucks will finally establish in Sweden, starting with a location at Arlanda airport outside
Stockholm.

In 1999, Starbucks experimented with eateries in the San Francisco Bay area through a
restaurant chain called Circadia. These restaurants were soon "outed" as Starbucks
establishments and converted to Starbucks cafes.

Orin C. Smith was President and CEO of Starbucks from 2001 to 2005.

Starbucks' chairman, Howard Schultz, has talked about making sure growth does not
dilute the company's culture and the common goal of the company's leadership to act like a
small company.

In January 2008, Chairman Howard Schultz resumed his roles as President and CEO
after an eight year hiatus, replacing Jim Donald, who took the posts in 2005 but was asked to
step down after sales slowed in 2007. Schultz aims to restore what he calls the "distinctive
Starbucks experience" in the face of rapid expansion. Analysts believe that Schultz must
determine how to contend with higher materials prices and enhanced competition from lower-
price fast food chains, including McDonald's and Dunkin' Donuts. Starbucks announced it
will discontinue its warm breakfast sandwich products, originally intended to launch
nationwide in 2008, in order to refocus the brand on coffee, but the sandwiches were
reformulated to deal with complaints and the product line stayed. On February 23, 2008,
Starbucks closed its stores from 5:30-9:00 p.m. local time to train its baristas.

3
 In March 2008, Schultz made several announcements to Starbucks shareholders.
Schultz introduced Starbucks' "state of the art espresso system"; the Thermoplan AG
manufactured Mastrena, which replaced their previous super auto, the Thermoplan Verismo
801 (known internationally as the Thermoplan Black & White). Starbucks also announced
that the company hopes to enter the energy drink market. Pre-ground beans will no longer be
used, so that the grinding of whole bean coffee will "bring aroma, romance and theater" to
American stores. The company also announced the acquisition of The Coffee Equipment
Company, the manufacturer of the Clover Brewing System. They are currently test marketing
this "fresh-pressed" coffee system at six Starbucks locations; three in Seattle, and three in
Boston.

Starbucks stopped using milk originating from rBGH-treated cows in 2007.

In early 2008, Starbucks started a community website, My Starbucks Idea, designed to

collect suggestions and feedback from customers. Other users comment and vote on
suggestions. Journalist Jack Schofield noted that "My Starbucks seems to be all sweetness and
light at the moment, which I don't think is possible without quite a lot of censorship". The
website is powered by the Salesforce software.

In May 2008, a loyalty program was introduced for registered users of the Starbucks
Card (previously simply a gift card) offering perks such as free Wi-Fi Internet access, no
charge for soy milk & flavored syrups, and free refills on brewed drip coffee. Free Wi-Fi
Internet access varies in different regions. US & Canadian card holders can access 2 hours of
Internet access through AT&T in the United States and through Bell Canada within Canada.
In Germany customers can get 1 hour of free Wi-Fi with a voucher card, and in Switzerland
and Austria customers can get 30 minutes the same way (through T-Mobile). Additionally,
Starbucks Gold, a $25 yearly membership, entitles members to 10% off all purchases (besides
iTunes, magazines, and payment for the membership/gift card) in Starbucks (not Barnes &
Noble) stores, and along with 3 10% off guest passes, allows for a member to bring people in
for friends and family day, allows for free treats throughout the year, and members-only
discounts.

In June 2009, the company announced that it will be overhauling its menu and selling
salads and baked goods without high-fructose corn syrup or artificial ingredients. The move is
expected to attract health- and cost-conscious consumers and will not affect prices.

4
 In September 2009, Starbucks in the UK rolled out free Wi-Fi at most of its outlets,
working with its Wi-Fi partner BT Openzone. Customers with a Starbucks Card will be able
to log-on to the Wi-Fi in-store for free with their card details, thereby bringing the benefits of
the loyalty program in-line with the US.

In October 2009, Starbucks rolled out its new instant coffee packets called Via to
Starbucks stores across the U.S. and Canada. The company had been testing the product in
Seattle, Chicago and London for a few months. Starbucks claims consumers can’t tell the
difference between a cup of Starbucks drip coffee and one made with Via. Some analysts
worry that by introducing instant coffee, Starbucks will devalue its own brand.

In December 2009, Starbucks updated the reward system.

Mission:

The main mission of Starbucks is wrapped with the following ideas:

 Impressing and feeding the human spirit,

 Serving the finest coffee by ethically sourcing it,

 Creating a place where individuals feel themselves secure and integrated, share a great
time with their friends, peers,

 Developing innovative and flexible solutions to bring about change,

 Encouraging all partners to share in our mission.

5
2. ) SITUATION ANALYSIS
2.1) EXTERNAL ENVIRONMENT

2.1.1) MACRO ENVIRONMENTAL ANALYSIS

Starbucks is an international giant in specialty coffee industry. So to evaluate the forces
in general environment, it’s better to separate the regions that Starbucks serves.

In 47 Countries and 5 Regions Starbucks Continues Its Operations

Starbucks Company, as showed in Table 1, operates in several countries all over the
five regions. (We will discuss the countries it serves briefly later in Global Environment
section.) Being an international corporation brings a lot of responsibilities attached to the new
market opportunities. So that it deals with local trends in every aspects of general
environment. During the analysis of this section we handle with the issues according to the
local indicators.

6
Political/Legal Environment
Recently the current state of political environment in United States is bustling.
Presidential Election divided the America into two and the election campaigns displayed as a
rivalry between the Republicans and the Democrats. The nerve of economy, daily life and
international operations was directly affected by the atmosphere.

Today the world becomes more integrated than ever by not only economic trends but
also by political and social trends, too. That change creates opportunities for international
companies such as Starbucks but also creates responsibilities attached to them. These
responsibilities are protected by new legislations and regulations by governmental bodies. For
our industry a couple of regulation and social acts can be mentioned priory:

Organic Coffee

Organic coffee means growing the coffee without prohibited synthetic substances. The
regulation requires an organic plan, a correct use of land and a very strict record keeping.
Retailers have to change their labels and identify their certifier. This regulation created a
higher level of customer trust with knowing their products are produced organically.

Fair Trade Organization

Fair trade is a social movement organized to set the standards for ethical trade
transactions, international labor conditions and production of fair trade labeled or unlabelled
goods. There are several local and international organizations (e.g. TransFair USA, FairTrade
Labeling Organizations International) point out the importance of fair trade product using but
even if so crucial, fair trade coffee represents nearly %1.51 of the West European Market.

Starbucks uses three business structures in international markets: joint ventures,

licenses, and company-owned operations. So the company does not deal with franchising
laws.

7
Technological Environment
Productivity of an organization depends on its ability to use resources effectively and
efficiently. Effective use of resources is possible by upgrading equipment, machinery and
software systems.

Recent trends in technological environment are also affected coffee shop industry, too.
Automatic espresso machines, superior performing grinding and brewing machines are
important to produce fresh beverages with appropriate water temperature and mixing time.
High quality coffee filters helping Baristas2 to serve best flavored espressos or espresso
combined beverages.

Lately esteem for electronically goods such as laptops, iPhones and mp4s created a
demand for WI-FI internet. This demand is attracted organizations to come up with new
applications with the internet server providers. For instance Starbucks finally signed an
agreement with AT&T to enhance the enterprise networking capabilities for Starbucks and
enhancing the customer experience.3 The application is started in April and with this
announcement AT&T agreed to provide network connectivity for point of sale and other store
operating systems for more than 10 years and more than 7000 Starbucks locations in the US.

In addition to this agreement for the existing T-mobile users who enjoy visiting
Starbucks, the company also announced that T-Mobile Hotspot customers will be able to
continue to access Wi-Fi with no additional cost. (According to the agreement between
AT&T and T-Mobile.)

The other and the last topic we would like to express is the partnership between
Starbucks and Apple. They collaborate on selling music as apart of Starbucks experience. The
partnership is primarly targeted at iPhone, iPod Touch and Mac users. This feature started in
Seattle, New York City, San Francisco and will be offered in other markets.

Socio-cultural Environment
The subject can be perceived as the most important factor in general environment. Just
because it has a great influence on other environmental factors, it should be examined briefly.

8
Health of an international organisation depends on how well it can adopt to new socioculturel
issues.

Socioculturel environment refers to cultural motives such as practices, customs,

traditions of that society, have been accepted through the generations and conditioned to do
so. Every region and in fact every country has its own accepted truths of living and business
patterns. Main determinants that constitutes sociocultural environment can be classified as:

Language

Language is the center of communication between groups. Each cultural group with
its language expresses its way of living and point of perception. Language itself carries
patterns of a culture, and so if several languages are spoken in that country, it reflects how
rich that country from cultural perspective.

Starbucks in its shop all over the world considered this factor such as finding local
names instead of Starbucks:

Arabic speaking countries: ‫( ستاربكس‬transliteration: stārbaks)

Bulgaria: Старбъкс (transliteration: Starbâks)

China, Hong Kong, Macau, Taiwan: 星巴克 Pinyin: xīngbākè (星 xīng means "star",
while 巴克 is a transliteration of "-bucks")

Israel: ‫( סטארבקס‬transliteration: sṭārbaqs)

Japan: スターバックス (transliteration: sutābakkusu, phonological: staa-bahkss)

Russia: Старбакс (transliteration: Starbaks)

Speaking the language of the country you serve is an additional benefit for the
company. Even if you are not able to speak, working with employees that have the ability to
speak that country’s language would always create a value.

Lifestyle

Expresses the way of a person live. Directly related to place were you leave and time
you have outside of working hours. American culture has concentrated on consumption type

9
of living pattern. Such can be called ‘buy, use, and throw away’. In European Culture the
lifestyle is concentrated on pleasure. In Asian Cultures the lifestyle is more conservative. The
collectivism instead of individualism brings spending more time with family, etc.

Such indicators we have mentioned in the previous paragraph identify the structure of
coffee shop business. For example in fast living style you’re more needed to grab a coffee in
the morning while you’re going to your job. Or in pleasure style you’d like to spend more
time in coffee shop so that you will require more comfortable furniture. And lastly in
conservative style you might be willing to go the shop with your family and you require more
healthy drinks that you can offer to your children.

Starbucks came up with the idea of being ‘Third Place’ in the last decade. This
concept covers that shops of Starbucks will create a third living space between home and
office. Especially shops near to colleges are preferred by students. Young generation is
espoused easily with ‘self-service idea’ because they tend to make their own service rather
than waiting for waiter and leave a tip.

Aesthetics

A culture’s aesthetics is refers to the ideas concerning good taste and beauty as
expressed in the fine arts. It determines all the business applications from types of goods to
the package design and advertising activities.

Today the aesthetic perception of consumers is more active than ever. They do not
only care about the product itself but also they do interest in the way it served. Rapid
competition between organizations is ‘ON’ to innovate most competitive way of doing
business.

In Starbucks example, we see in French, the number of shops is expanding as quickly

as in the other European areas. Consumers do not prefer drinking coffee from cartoon glasses.

Religious Beliefs, Attitudes, Values

Religious beliefs are related to the spiritual side of a culture. Western culture is highly
influenced by the Judeo-Christian tradition while the eastern cultures have been strongly
influenced by Buddhism, Hinduism and Islamic traditions.

10
 In Western culture, individualism and autonomy is valued for personal achievement.
In a contrast Eastern countries value collectivism.

Global Environment
Globalization means internalization of markets and corporations. In today’s world, we
can clearly see that, borders between countries are abolished and this makes the world more
interdependent than ever. The stimuluses and the outcomes of globalization can be viewed
from different perspectives such as economical, technological, social and political.

Incentives for Globalization

o Advances in communication and transportation technology,

o Free market ideology to discover new areas to serve goods services,

o To take the advantage of cheap labor force,

o Highly interdepence in political decisions between countries by regional or

international unions such as European Union, International Monetary Fund, World
Trade Organizations,

o The rise of technology by satellites, internet, cable TVs.

o The Outcomes of Globalization

o Capital flows, decreased taxes on entering new markets, foreign direct investments,

o Electronic commerce: Use of internet to conduct business transactions,

o Warmed up competition,

o Some cultures become dominant and eradicate others,

o Integration of poor countries by reducing tariffs, privatizing state enterprises,

o A shift from blue-collar society to white collar society,

o Cohesiveness between countries while they take political decisions,

o Fast-paced share of knowledge.

The issues above mentioned, also brought some diversifications in business patterns
such as, in Middle East Region they create two separate parts for women and men. In Japan

11
by serving rice as an additional product they satisfied the needs and requirements of local
customers.

Starbucks, as we mentioned before an international giant in its industry. Serves more

than 47 countries and five regions all over the world. According to ‘Company Fact Sheet’ as
Feb.,2008:

In United States 50 States, 7087 Company-operated and 4081 Licensed stores.

Internationally, 43 countries 1796 Company-operated and 2792 Joint Venture&Licensed

stores.

But lately, in fourth quarter of 2008 Starbucks operates in more than 47 countries with
the new stores in Bulgaria, Portugal and Channel Islands.

Recently Starbucks started to close down its inefficient stores in some countries (e.g.
Australia, US). The new expansion strategy of Starbucks based on opening new stores in
attractive markets as well as closing less profitable ones.

International corporations have an impact on the thoughts and ideas of comities. So in

global perspective Starbucks is also responsible for that. When Howard Schultz was made the
following explanations he was criticized for his support of Israel by Arab Countries and pro-
Palestinian ‘What’s going on in the Middle East is not an isolated part of world. The rise of
anti-semitism is at an all time high since the 1930s. Palestinians are not doing their job,
they’re not stopping terrorism.’

Economic Trends
In United States, as of October ’08 personal income increased to 42.2(0.3 percent) billion
according to the Bureau of Economic Analysis. Personal Consumption Expenditures
decreased 102.8( 1.0 percent) billion. As this information shows even if there’s an increase in
personal income; there’s a greater decrease in expenditures. This may reflect two issues:

1) The purchasing power of consumers can not deal with the bargaining power of
sellers. In fact this is not totally true for America.

2) Consumer, more than day to day spending chooses to invest its money to
somewhere else. Mortgage loans are the most popular investment tools for American people
nowadays.

12
 The crisis in financial sector sourced by America started at the end of the 2007 and has
affected the all industries within the world. So as an international company Starbucks also
must have a ‘B plan’. In near future, the economy would remain vulnerable so its beter to
find new strategic plans.

2.2. Micro Environmental Analysis

These are the tangible resources of the company. Tangible resources include skills,
experience, knowledge, advisers, suppliers, distributors and customers.

Suppliers
Starbucks works with 185000 coffee workers. Starbucks has applied the learning by
developing an innovative program, C.A.F.E. Practices, to evaluate quantitatively the
performance of farmers, processors and traders according to environmental, social and quality
guidelines. Starbucks now requires its suppliers to comply with these guidelines, thus
leveraging globally the project’s impact. The Mexican exporting company, Agroindústrias
Unidas de México, is also designing a sustainability system for sales to other clients, based on
the transparent trading model that the project developed. This transparency is driving market
growth and poverty reduction in the specialty coffee industry.
The Principles formed the basis for Starbucks developing in 2001 its own system to
“provide purchasing preference to coffee suppliers providing green coffee that is grown,
processed and traded in an economically, social and environmentally responsible manner.
The system evaluated suppliers using a scorecard, with points awarded for their achievement
of defined social, environmental and quality criteria. Applicants who achieved a minimum of
60% total performance rating and 60% in each subject area achieved a Preferred Supplier
status to Starbucks, preferential contract terms and priority for buying.
Starbucks power in the market and the growth of the brand enabled it to cause a change in the
traditional value chain relationships. It was in its interest to know that if it pays more then the
benefit goes down to the farmers, and it has the market power to obtain compliance from its
suppliers.
Customers
Starbucks attracts a wide demographic of customers including people of different
ethnic backgrounds and ages. The success is because of high quality drinks and its friendly
environment.

13
 The company sees a direct link between customer satisfaction and customer loyalty
and Starbucks also believes that employee satisfaction leads to customer satisfaction.
Customer service is a very important part of the job in a retail business and the reason
of this is that it makes an impact on every person within observation range.
Any employee in any retail setting can find a way to put a personal touch into their work and
make a positive impact on customers. To achieve this Starbucks spent 21,000 hours and
several million dollars. The aim of Starbucks is to prove to the employees that it was serious
about the Starbucks-branded customer experience.
Customers of course, always know where they can get a cheaper cup of coffee, but
Starbucks is not just about coffee for the many of the customers.
While some customers have switched brands, the smaller, but loyal, customer base is still
drinking Starbucks. Now, Starbucks needs to prove to its loyal customers that their loyalty is
well placed.
Although it faces challenges, Starbucks is continuing to be Starbucks and customers
have proven that Starbucks is a valuable part of their day.
The value of creating a customer experience is not just what it will get you. There is
also value in the quality of your creation.
Competitors

Rivalry Among Competitors

Porter's first force is current rivalry among existing firms. In United States, Starbucks'
current and direct competitors are Diedrich Coffee, Seattle's Best Coffee, Einstein/Noah
Bagel Corporation and Dunkin Donuts. In Turkey its biggest competitors are Coffee World
and Gloria Jeans.

14
 Starbucks has few major competitors. Starbucks is the leading retailer, roaster and
brand of special coffee in the world and in Turkey, but small competitors pose potential
threats to the company. A slowing industry market growth is a threat which Starbucks is
facing. Competitors are selling similar products, including special coffees and high quality
foods. In this slowing market, competition is high.

Threat of Potential Entrants

The second force that Porter describes is the threat of potential entrants. Starbucks is
the world leader in its industry, so it has a chance to control access to distribution channels.
Starbucks has exhibited this control over distribution channels by setting guidelines for their
suppliers.

Some cost disadvantages enforced by new entrants which are independent of the
economies of scale. Purchase advantages, marketing parts and centralized human resources of
Starbucks are disadvantages of cost for them.

Nowadays most of the companies have product technology involved in the production
of coffee as well as lower per unit costs.

Starbucks is Fortune's number one most admired company in the food industry. One of
their key attributes to success is innovation, where Fortune ranks Starbucks number one in the
industry.*

Starbucks is innovating and showing product differentiation in their industry. So the

industry is becoming more differentiated. While this industry differentiation is an opportunity
for Starbucks, it is a threat to potential entrants. Statistics have shown that the industry is
slowing down, therefore making competition high and the threat of new entrants low.

Bargaining Power of Buyers

Another Porter's force is bargaining power of buyers. The buyers are Starbucks'
customers. Starbucks' typical customer buys small quantities of the products. Starbucks’
products are highly differentiated and unique. There is an enormous selection of coffees at a
Starbucks' stores.

Backward integration by the buyers of specialty coffee, can be a credible threat.

Backward integration can be carried out if a buyer chooses to start a coffee store. Backward

15
integration ability of buyers is enhanced by the availability of all information regarding the
supplier costs, demand, and market pricing in the industry. Due to the information, the buyer
is in a good position to ensure that they pay a favorable price and receive an appropriate level
of quality. Bargaining power of the buyers in the industry has increased as a result of the
availability of that kind of information.

A threat for Starbucks is that the customers have the ability to brew their own coffee.
It is clear that Starbucks customers have some bargaining power in the industry.

Bargaining Power of Suppliers

Porter's next force is bargaining power of suppliers. Coffee is the world's second
largest traded commodity. South and Central America produce the majority of coffee traded
in the world. Starbucks depends upon both outside brokers and direct contact with exporters
for the supply of coffee. The supply of coffee is affected by weather conditions and the health
of coffee trees. An over-crowded market will give the coffee suppliers bargaining power. The
quality of Starbucks’ coffee is high and Starbucks has paid premium prices for its green
coffee.* Starbucks decided to deal with a 51% or minority owned suppliers.

Despite of the competition between the farmers of Arabica beans and Robusta coffee
bean growers, the bargaining power of them is not decreased by this threat.

There are no substitute products for the coffee beans the company must buy. This is a
potential threat to Starbucks, but it has exhibited how little control its suppliers might have.
Only suppliers who can meet Starbucks' standards will be able to supply them, but the
supplying industry to Starbucks has few companies. So this is a potential threat.

Forward integration affects the power of suppliers. The farmers can integrate forward
by setting up coffee stores. But there is not so much opportunity in the current recession time.

Starbucks has a degree of control over the suppliers in the industry where it is possible
for suppliers of premium coffees to have an enormous amount of bargaining power.

Threat of Substitute Products

There are substitute products, in foods and coffees industry. Other beverage industries
can satisfy the customer's need of drink or other food industries can satisfy the customer's

16
need to eat. There are good substitutes to Starbucks' products. This is why the image and the
ability to innovate and differentiate is very important for Starbucks.

There is a big threat of substitute products in the food and drink industry.

Threat of New Entry

Cost disadvantages

Strong brand image

Distribution channels

Bargaining Power of Industry

Suppliers Competitors
Bargaining Power of
Switching cost Gloria
Buyers
Jeans
Price sensitivity
Input
differentiation Coffee
World

Threat of Substitutes
Tendency of
buyers to
substitutes

17
Summary for Competitive Analysis

1 2 3 4 5
FORCES
Rivalry X
among
competitors
Threat of X
new
entrants
Bargaining X
power of
buyers
Bargaining X
power of
suppliers
Threat of X
substitute
products

Starbucks is the world leader in their industry. They have minimized the threats in
each force. Starbucks' size offsets many of the threats. Their ability to differentiate and
innovate has minimized the risk of potential entrants. Threats of customer bargaining power
were minimized by efforts to integrate the company into the home. Bargaining power of its
suppliers was set off by issuing coffee guidelines and paying premium prices for suppliers.

2.2 ) INTERNAL ENVIRONMENTAL ANALYSIS

Internal analysis depends on the resource-based view, which belongs to Wernerfelt
(1984), Porter (1985), and Barney (1991).This view recognizes the importance of internal
organizational resources, as listed below, capabilities as a principal source of creating and
sustaining competitive market position. According to this approach, resources are the main
source of an organization’s capabilities, whereas capabilities are the key source of its
competitive advantage (Grant 1991); Javidan (1998) differentiates between resources,
capabilities, competencies and core competencies based on two factors of difficulty and value.

18
 The figure below shows organizational capabilities continuum alongside usage level
(operational, strategic) and expected value.

High
Distinctive
Core
Competencies
Core
Competencies
Value
Competencies

Capabilities

Resources
Low

Operational Level of Usage Strategic

2.1.1. Marketing Environment

Starbucks is the largest coffeehouse company in the world, with 16,635 stores in 49
countries, including 11,068 in the United States, nearly 1,000 in Canada and more than 800 in
Japan. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold
drinks, coffee beans, salads, hot and cold sandwiches and paninis, pastry, snacks, and items
such as mugs and tumblers. Through the Starbucks Entertainment division and Hear Music
brand, the company also markets books, music, and film. Many of the company's products are
seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also
offered at grocery stores.4

Major companies include Starbucks, Dunkin’ Donuts, Caribou, Coffee Bean and Tea
Leaf, and Gloria Jean’s. The industry is highly concentrated at the top and fragmented at the
bottom: the top 50 companies have over 70 percent of industry sales.

Coffee is one of the world’s largest commodities. The top green coffee producing
countries are Brazil, Colombia, and Vietnam. Many grower countries are small, poor
developing nations that depend on coffee to sustain local economies. The U.S. is the world’s

4
http://en.wikipedia.org/wiki/Starbucks

19
largest importer of green coffee beans and the largest consumer of coffee. With the exception
of Hawaii and Puerto Rico, the United States’ climate cannot support coffee trees.

Coffee consumption is highest in the Northeast, where over 60 percent of the

population consumed coffee daily in 2005, according to the National Coffee Association
(NCA). Per capita consumption is highest in the Central U.S., where coffee drinkers average
3.7 cups per day.

Major products sold by coffee shops include beverages as well as complementary food
items. Beverages include brewed coffee and tea; espresso drinks (cappuccinos, cafe lattes);
cold blended beverages; bottled water; soft drinks; and juices. Many coffee shops sell whole
or ground coffee beans for home consumption and coffee or espresso-making equipment,
grinders, mugs, and other accessories.

Market strategy
Some of the methods Starbucks have used to expand and maintain their dominant
market position, including buying out competitors' leases, intentionally operating at a loss,
and clustering several locations in a small geographical area (saturating the market), have
been labeled anti-competitive by critics. For example, Starbucks fueled its initial expansion
into the UK market with a buyout of Seattle Coffee Company, but then used its capital and
influence to obtain prime locations, some of which operated at a financial loss. Critics
claimed this was an unfair attempt to drive out small, independent competitors, who could not
afford to pay inflated prices for premium real estate. Starbucks in the 2000s greatly increased
its "licensed store" franchise system, which permits Starbucks franchises only if they
contribute to less than 20% of the franchisees gross income, are inside other stores or in
limited or restricted access spaces, as to not dilute the brand image. Franchise agreements are
rare in volume and usually only made with Fortune 1000 or similar sized chain stores. The
licensed store system can create the illusion of 2 or more Starbucks cafes in the same
shopping plaza, when one is a standalone company owned, and the others are licensed. The
menus of licensed stores can be the same or trimmed or modified versions of the cafes, or be
positioned as independent cafes that happen to sell Starbucks products (ex. Barnes & Noble).
The policy of clustering stores was parodied in The Onion with the headline, "New Starbucks
Opens in Rest Room of Existing Starbucks".

20
 Core Competencies
Core competencies are resources and capabilities that serve as a source of competitive
advantage over rivals. Core competencies distinguish a company competitively and make it
distinctive.
Valuable: the capability allows the firm to exploit opportunities or neutralize threats in
its external environment
Rare: capabilities that few, if any, of its competitors possess
Costly to imitate: capabilities that other firms cannot easily develop. Take note
however, this does not simply mean it is expensive to imitate, it means it is difficult to imitate
(i.e. the capability developed through unique historical conditions, the capability itself is
ambiguous or the relationships that underpin the capability are complex to understand and
imitate).
Non-substitutable: the capability does not have a strategic equivalent. One example is
R&D, the objective of which is obtaining new technology. To obtain new technology you
could develop it internally, or you could monitor the external environment for developments
then acquire them - these are strategic equivalents.5
Starbucks’ Core Competencies;
1. Valuable: Starbucks is the first mover in the specialty coffee industry so that they
can handle with the stiff competition in the market. Starbucks has the accessibility
everywhere which creates quite difference according to its competitors. With its brand image,
which creates a trust and also loyalty within the customers, they can have the potential to
reduce the impact of price volatility in developing countries. The decrease in purchasing
power caused by recent economic crisis is a temporary situation, so this will be no more a
threat for the company after crisis.
2. Rare: The only thing that the competitors have different from Starbucks is the price
strategy although this does not affect the loyalty to the company.
3. Costly to imitate: Starbucks created global alliances with several important
companies like Pepsi-Co and Apple. Their most valuable data store is the most important
value that Starbucks owns, because it is not such an easy event that everyone in the market
can achieve, it requires trust to the company, loyalty and a continuous historical relationship
(historical background).

5
Hanson, Dallas; et al (2008). Strategic Management. Thomson Learning, pp. 83–88.

21
 4. Non-substitutable: Starbucks’ word of mouth advertising activities can be classified
non- substitutable part of the core competencies. And also the other item in this section is
Coffee Roasting Expertise.

Partnerships

Hear Music
Hear Music is the brand name of Starbucks' retail music concept. Hear Music began as
a catalog company in 1990, adding a few retail locations in the San Francisco Bay Area. Hear
Music was purchased by Starbucks in 1999. Nearly three years later, in 2002, they produced a
Starbucks opera album, featuring artists such as Luciano Pavarotti, followed in March 2007
by the hit CD "Memory Almost Full" by Paul McCartney, making McCartney the first artist
signed to New Hear Music Label sold in Starbucks outlets. Its inaugural release was a big
non-coffee event for Starbucks the first quarter of 2007.
In 2006, the company created Starbucks Entertainment, one of the producers of the 2006 film
Akeelah and the Bee. Retail stores heavily advertised the film before its release and sold the
DVD.
Apple
Starbucks has agreed to a partnership with Apple to collaborate on selling music as
part of the "coffeehouse experience". In October 2006, Apple added a Starbucks
Entertainment area to the iTunes Store, selling music similar to that played in Starbucks
stores. In September 2007 Apple announced that customers would be able to browse the
iTunes Store at Starbucks via Wi-Fi in the US (with no requirement to login to the Wi-Fi
network), targeted at iPhone, iPod touch, and Mac Book users. The iTunes Store will
automatically detect recent songs playing in a Starbucks and offer users the opportunity to
download the tracks. Some stores feature LCD screens with the artist name, song, and album

22
information of the current song playing. This feature has been rolled out in Seattle, New York
City, and the San Francisco Bay Area, and was offered in limited markets during 2007–2008.
During the fall of 2007, Starbucks also began to sell digital downloads of certain albums
through iTunes. Starbucks gave away 37 different songs for free download through iTunes as
part of the "Song of the Day" promotion in 2007, and a "Pick of the Week" card is now
available at Starbucks for a free song download. A Starbucks "app" is available in the iPhone
"App Store."
MSNBC
Starting on June 1, 2009, the MSNBC morning news program Morning Joe has been
presented as "brewed by Starbucks" and the show's logo changed to include the company
logo. Although the hosts have previously consumed Starbucks coffee on air "for free" in the
words of MSNBC president Phil Griffin, it was not paid placement at that time. The move
was met with mixed reactions from rival news organizations, viewed as both a clever
partnership in an economic downturn and a compromise of journalistic standards.

Advertising & Market Share

Position on Advertising Spiral
Starbucks is a well known company which entered an already mature market and has
competed with the use of differentiation which has been aided by the advertising it has
undertaken. It may be argued that the current position of Starbucks on the advertising spiral
indicates that the reliance on advertising is likely to be increasing. The advertising spiral is a
model which corresponds to the product life cycle. The model has three stages; the pioneering
stages, competitive stage and the retentive stage. To assess the position of Starbucks each
stage are considered, the pioneering stage corresponds to the product life cycle introduction
stage and has the aim of stimulating the primary demand. (Lane et al, 2007)
Starbucks is well established so has passed the stage. The next age is that of the
competitive stage, similar to the product life cycle market growth stage, where the market is
growing and there is an emphasis on selective demand; Starbucks has passed the stage which
was seen during the early 1990s. The last stage is that of the retentive stage, this corresponds
to the product life cycle maturity decline stages and sees an increased emphasis on name
advertising with the aim of maintaining market share. Starbucks has been facing some

23
problems and needs revitalization; therefore Starbucks most accurately placed in this latter
stage of the advertising spiral.

Target Market and Audience

The target market Starbucks is part of the problem. The core target market in the past
has been office workers over the age of 25, with middle to high incomes, and a desire the
purchase premium products. However, this is a target market which is a resulting in a decline
for the stores due to the lower number of younger people drinking coffee in the age group 18
years to 24 years only 37% drink coffee, this is compared to 60% of people aged between 40
years and 59 years an 74% of people.6

We all know Starbucks spends very little on advertising. But this chart showing
market share and media spend numbers for the Top 10 Restaurant Chains is startling. Just
compare the media spend of the other restaurants to Starbucks.7

A strategic marketing plan is essential to the success of any company. A company can
have an ideal product, but without proper marketing plan, a company would not be able to

6
http://www.docstoc.com
7
http://brandautopsy.typepad.com/brandautopsy/2007/01/starbucks_marke.html

24
market its products to consumers. Starbucks has been able to translate its consumer
"experience" of the products into a highly profitable business.
Starbucks is a successful company and their success is rooted in their marketing
sensibility.
The company’s logo is a "twin-tailed siren or mermaid as she's known in Greek
mythology". The logo has been changed over the years. In the first version, the Starbucks
siren had bare breasts and a fully-visible double fish tail. In the second version, her breasts
were covered by hair and the fish tail was cropped slightly. In the current version, her navel
and breasts are not visible and only vestiges remain of the fish tails.

Starbucks would rather spend money to make the customers’ experience better than to
make television advertisement.

Starbucks has baked the marketing into the product. They think that the best tool to get
folks talking about Starbucks is the experience when they come into store, rather than hearing
or seeing it on an advertisement.

The marketing strategy of the company involves positioning the local Starbucks stores
as a "third place" (besides home and work) to spend time and the stores are designed to make
this easy and comfortable. The stores are outfitted with comfortable chairs and tables’ chairs.
There are electrical outlets providing free electricity to use or charge the portable music
devices or laptop computers. Most stores also have wireless Internet access.
The company asks its employees to abstain from wearing strong perfumes. Starbucks
generally does not prohibit smoking in outside seating areas.

To maximize the brand awareness and to be the most identified and respected brand
within their target market, Starbucks implemented a well-integrated marketing program that
would utilize a marketing mix (product, price, place, and promotion).

Product: Starbucks product-mix expanded from 30 varieties of whole bean coffees to

cappuccino. The drinks come in three sizes: tall, grande, and venti (Italian for small, medium,
and large).

Price: Starbucks products are priced higher due to most of its competitors. The
company implements "value strategies" to emphasize more on inexpensive coffee products
rather being perceived as unaffordable to price-sensitive consumers.

25
 Place: Starbucks can be found in any neighborhood where there is a perceived high
traffic for its stores. The locations of the stores are extremely conducive for individuals that
are on the go and for those who enjoy reading or listening to music.

Promotion: Starbucks has implemented numerous promotions to reach its target

markets, but Starbucks does not generally offer promotional prices on its products.

Starbucks contributes to several non-profit organizations as a way to improve brand

awareness locally.

The marketing principles, also follow the differentiator marketing strategy. Starbucks
is competing in an industry where marketing principles has to follow the differentiator
strategy. The company must create value to its customers, otherwise they can find another
place to spend their time and money. The marketing principles of Starbucks are the basis of
the company's competitive advantage within the industry. Starbucks products are associated
with quality because the company has differentiated itself as being committed to produce high
quality products. Because of this, Starbucks is able to charge a premium for its product.

2.2.2. Financial Environment

Balance Sheet

PERIOD ENDING 27-Sep-09 28-Sep-08 30-Sep-07

Assets
Current Assets
Cash And Cash Equivalents 599,800 269,800 281,261
Short Term Investments 66,300 52,500 157,433
Net Receivables 557,600 563,700 417,378
Inventory 664,900 692,800 691,658
Other Current Assets 147,200 169,200 148,757
Total Current Assets 2,035,800 1,748,000 1,696,487
Long Term Investments 423,500 374,000 279,868
Property Plant and Equipment 2,536,400 2,956,400 2,890,433
Goodwill 259,100 266,500 215,625
Intangible Assets 68,200 66,600 42,043
Other Assets 253,800 261,100 219,422
Total Assets 5,576,800 5,672,600 5,343,878

26
 Liabilities
Current Liabilities
Accounts Payable 1,192,100 955,100 1,147,643
Short/Current Long Term Debt 200 713,700 711,023
Other Current Liabilities 388,700 520,900 296,900
Total Current Liabilities 1,581,000 2,189,700 2,155,566
Long Term Debt 549,300 549,600 550,121
Other Liabilities 400,800 120,200 65,086
Deferred Long Term Liability Charges - 303,900 271,736
Minority Interest - 18,300 17,252
Total Liabilities 2,531,100 3,181,700 3,059,761
Stockholders' Equity
Common Stock 700 700 738
Retained Earnings 2,793,200 2,402,400 2,189,366
Capital Surplus 186,400 39,400 39,393
Other Stockholder Equity 65,400 48,400 54,620
Total Stockholder Equity 3,045,700 2,490,900 2,284,117
Net Tangible Assets $2,718,400 $2,157,800 $2,026,449
Income Statement

PERIOD ENDING 27-Sep-09 28-Sep-08 30-Sep-07

Total Revenue 9,774,600 10,383,000 9,411,497
Cost of Revenue 4,324,900 4,645,300 3,999,124
Gross Profit 5,449,700 5,737,700 5,412,373
Operating Expenses
Research Development - - -
Selling General and Administrative 4,142,500 4,531,200 3,999,274
Non Recurring 332,400 153,300 -
Others 534,700 549,300 467,160

Total Operating Expenses - - -

Operating Income or Loss 562,000 503,900 945,939
Income from Continuing Operations
Total Other Income/Expenses Net 36,300 9,000 2,419
Earnings Before Interest And Taxes 598,300 512,900 1,056,364
Interest Expense 39,100 53,400 -
Income Before Tax 559,200 459,500 1,056,364
Income Tax Expense 168,400 144,000 383,726

27
 Minority Interest - - -
Net Income From Continuing Ops 512,700 315,500 672,638
Non-recurring Events
Discontinued Operations - - -
Extraordinary Items - - -
Effect Of Accounting Changes - - -
Other Items - - -
Net Income 390,800 315,500 672,638
Preferred Stock And Other Adjustments - - -
Net Income Applicable To Common Shares $390,800 $315,500 $672,638
8

Starbucks Corporation generates revenue both from its company-operated retail stores
and from specialty operations. From 2004 to 2008, Starbucks grew its revenue by 14.5%.

Ratio Analysis
LIQUDITY RATIOS;
Current Ratio 2007 2006 2005

According to the ratio we can say that, in 2007 Starbucks, with one unit
current asset compensates 78, 70% of the current liabilities. We clearly see that this ratio has
increased during the period from 2005-2007. So the ability of Starbucks to cover its current
liabilities with its current assets has decreased. The measures the company’s ability to pay
short-term creditors with assets that can be quickly converted into cash. Although a ratio of 2
is an ideal situation (firm has twice as many current assets as current liabilities), we are not
alarmed by Starbuck’s 2006 current ratio of 0.8. Overall the Starbucks is not very leveraged,
so the company’s ability to meet its obligations should not be a problem.

Quick (acid test) Ratio

Measures the company’s ability to pay off short-term
creditors without relying on the sale of inventories. Much
like the current ratio, we don’t believe that the low quick
ratio is a problem. The company has other means to pay its
8
http://finance.yahoo.com short-term obligations. The company’s aggressive strategy
of using short-term debt to finance its day-to-day
operations is actually rather astute, given the attractive
short-term lending rates. 28
Inventory to net working capital

Cash ratio

McDonald's (%)
Corp.
Liqudity Ratios 2007 2006 2005
2007 Ratios
Current Ratio 79,62 78,70 79,03 98,56
Quick Ratio 76,84 46,62 46,16 54,04
Inv. to net working capital -13,67 -150,66 -156,77 - 3093,08
Cash Ratio 44.04 13,05 16,15 14,17

PROFITABILITY RATIO
Net profit margin

Gross profit margin

29
Return on investment

Return on equity
This shows the return stockholders are earning on their investment in the enterprise.
Starbucks’ shareholders return has skyrocketed in recent years, fueled by steady bottom-line
growth. An aggressive share repurchase program has also enhanced shareholders value.

Earnings per share

McDonald's
Corp.
Profitability Ratios
2007 2006 2005
2007 Ratios
Net profit margin 19.40% 7,15% 7,25% 7,76%
Gross profit margin 26.55% 20,21% 21,40% 22,07%
Return on inventory 8,20% 12,59% 12,74% 14,07%
Return on equity (ROE) 32,84% 29,45% 25,32% 23,65%
Earnings per share (EPS) N/A $0.87 $ 0.71 $ 0.61

30
31
ACTIVITY RATIOS
Inventory turnover

Days of inventory

Net working capital turnover

Asset turnover

Fixed asset turnover

Average collection period

32
Accounts payable period

Days of cash

McDonald's
Corp.
Activity Ratios 2007 Ratios 2007 2006 2005

Inventory turnover 130,23 13,61 12,24 11,66

Days of inventory N/A 34 38 40
Net working capital turnover N/A -20,50 -19,19 -360,62
Asset turnover 0.82 1,76 1,76 1,81
Fixed asset turnover N/A 3,26 3,40 3,46
Average collection period N/A 11,17 10,51 10,93
Days of cash N/A 11 15 10

Leverage Ratios
Debt to asset ratio

Debt to equity ratio

33
 Long-term debt to capital structure

Current liabilities to equity

McDonald's
Leverage Ratios Corp.
2007 2006 2005
2007 Ratios
Debt to Asset ratio N/A 38,10% 15,85% 27,68%
Debt to equity ratio N/A 89,14% 31,50% 46,52%
Long term dept to capital structure N/A 0,2408 0,0009 0,0014
Current liabilities to equity N/A 94,37% 86,86% 58,69%

5-Year Averages

20.2%
Return on Equity

10.0%
Return on Assets

17.8%
Return on Invested Capital

29.4%
Gross Profit Margin

8.6%
Pre-Tax Profit Margin

5.6%
Post-Tax Profit Margin

5.6%
Net Profit Margin (Total Operations)

34
 0.0%
R&D as a % of Sales

15.0%
SG&A as a % of Sales

0.14
Debt/Equity Ratio

Total Debt/Equity Ratio 0.33

9

2.2.3. Manufacturing Environment

A resource is something your organization owns or has access to even if that access is
temporary including its people and the value of brand name. Resources are important because
of their value-generating abilities. They can be either “tangible” or “intangible”.

Tangible Resources

Tangible resources of a firm include financial assets as well as physical assets such as
technology, machines, equipments, buildings and facilities.10 These resources are easy to
determine and according to intangible ones. When we come to the Starbucks’ tangible
resources; 172.000 employees (March 2008), more than 16,226 stores worldwide, including
11,434 stores located in the United States.

Starbucks has several special products classified as, whole bean coffee, boxed Tea,
made-to-order beverages, bottled beverages, baked goods, merchandise, frappuccino
beverages, smoothies services coffee.

Intangible Resources

Tangible resources are less easy to recognize. They include skills, experience, and
knowledge of employees, advisers, suppliers and distributors. Skills, knowledge and
experience can also be held or embodied in systems, personal and organizational networks,
brands and reputation.11
9
http://finapps.forbes.com/finapps/jsp/finance
10
Customer Knowledge Management,Minwir Al-Shammari, p. 12
11
www.assets.cambridge.org

35
• Brand: At Starbucks you aren’t just drinking a beverage, but are undertaking in an
emotional experience by the surroundings. Starbucks has been recognized for
exceeding expectations by the quality of their products and their service. This is what
will create their loyal customers. So, the brand name itself has an impression and
creates perception of value for company.

• Reputation: Starbucks is perceived as a healthy establishment, which makes the new

coffee-free Frappuccinos appear healthy as well. Also it has several kinds of products
which provide a strong reputation such as blends and single origin coffees; high tech
and more complex equipments; locally designed specialty coffee-houses which make
customers feel themselves royal.

• Convenient Access: Starbucks is everywhere and easily accessible. In many

locations Starbucks offers drive-through windows, which are more convenient then its
competitors.

• Know-how: In specialty coffee industry, the key barrier for competitors who would be
the new players in market. So the expertise in preparing espresso based coffees can be
classified as main know-how difference.

• Innovation:

o Business Cards: Starbucks has opportunities for especially loyal

customers(Starbucks Gold Card) and also their target customers (Cards as
gifts which you can design yours or Christmas Cards which are already
designed as templates)

o Starbucks has a web-site called StarbucksRED where it allowed individuals

to share Starbucks Ideas.

• Global Alliances: With Apple, they served individual music CDs; with AT&T and T-
Mobile they served wireless internet connection free for two hours; with Pepsi-Co.
they served bottled Frappuccino. In addition to that, Starbucks has established
alliances with TransFair Canada, TransFair USA, United Airlines and Westin, Hilton,
Hyatt Hotels, VISA USA, Sodexho.

36
 2.2.4. Organizational Environment

Firm Infrastructure

As coffee is traded as a commodity and can be subjected to price turbulences, the

company has entered in to fixed price agreements with farmers to ensure price stability and
also acquired coffee futures so that customers are not subjected to price movements regularly.
Starbucks has practiced premium pricing strategy commanding almost five times that of
normal competitors as Mc Coffee for a cup of coffee based on their quality, image and
ambiance. However, as it enters less affluent markets with low disposable incomes, Starbucks
need to keep its cost structure low to offer promotional pricing and have flexibility in
manipulating prices to suit the customer spending powers. A Strategic Cost Analysis drawn
from a Value Chain Analysis will allow the company to have a clear understanding of where
the costs lie in the input and throughput stages of the company operation (Thomson &
Strickland, 2003).

HRM

Starbucks success is largely attributed to its highly trained workforce. Company

strategy has always been to reward excellence of employees and Starbucks is today among the
best companies to work for as per Fortune 500 ratings and Financial Times ratings. With
attractive fringe benefits, stock option plans and high wages and salary scales, the Starbucks
refers to its employees as partners, promoting commitment and loyalty.

Technology: Starbucks provide wireless internet accessibility for their customers.

Technology is improving products and processes to satisfy the customer. Starbucks improves
their products by developing new drinks, adding breakfast menus, and selling merchandise.
Starbucks is continually adding drive-through windows to cater to the fast paced world.

37
 Procurement: Procurement ties all of the primary and support activities together and
reports back on customer satisfaction. Starbucks will continue to prosper over its competitors
if it can adhere to the value chain model and continue to mold to the wants and demands of its
customer. In April 2003, Starbucks completed the purchase of Seattle’s best coffee and
Torrefazione Italy from AFC Enterprises.

Inbound Logistics: Inbound logistics is receiving the daily inventory, which consists
of milk, coffee beans, pastries, syrups and more. All these materials are stored at each
Starbucks location before distributed to the customer.

Operations: The Company has successfully generated a competitive advantage which

is difficult to be imitated. This is in terms of its highly trained baristas as well as high level of
customization offered in the served coffee beverage category. The Starbucks operations lie in
three main elements of quality, distribution and image with a high element of “perceived
value along with the value actually delivered”

Outbound Logistics: The operations and outbound logistics involve the making and
distributing of the coffee to the customer. The finished product is immediately distributed to
the customer lately the alliance with Pepsi-Co.

Marketing& Sales: Starbucks’ marketing and sales consists mainly through word of
mouth, networking, and infrequent advertisements. The company has been able to keep its
advertising budget to a minimum while still being successful. Starbucks developed customer
cards to create customer loyalty while gathering information about their buying habits.

Service: The service aspect of the company involves maintenance and repair of
Starbucks’ espresso machines, building regulations, and computer systems. Without the
maintenance of these items, Starbucks’ would not run as smoothly and successful as it needs
to, to remain profitable. All of these activities must be done correctly in order to have a
booming business.

38
 To fixed price agreements with farmers, premium pricing
strategy commanding almost five times that of normal competitors
Starbucks refers to its employees as partners, promoting commitment and loyalty
stock option plans, high wages and salary scales

Developing new drinks, adding breakfast menus, selling merchandise,

business cards, internet access
Starbucks completed the purchase of Seattle’s best coffee and Torrefazione
Italy from AFC Enterprises.
Receiving the -Up selling coffee -Starbucks’ card
-Drink
daily drinks -Word of mouth
inventory; Orders -Computer -Networking
-Milk -Baristas systems to order -Small ads -Customer
-Syrups -Drink drinks complaints
-Coffee -Computer,
consistency -Drive-through building
-Beans -Delivery
-Pastries maintenance
-Training Baristas

Organic Coffee

Organic coffee means growing the coffee without prohibited synthetic substances. The
regulation requires an organic plan, a correct use of land and a very strict record keeping.
Retailers have to change their labels and identify their certifier. This regulation created a
higher level of customer trust with knowing their products are produced organically.

Fair Trade Organization

Fair trade is a social movement organized to set the standards for ethical trade
transactions, international labor conditions and production of fair trade labeled or unlabelled
goods. There are several local and international organizations (e.g. Trans Fair USA, Fair
Trade Labeling Organizations International) point out the importance of fair trade product
using but even if so crucial, fair trade coffee represents nearly %1.5 of the West European
Market.

Starbucks uses three business structures in international markets: joint ventures,

licenses, and company-owned operations. So the company does not deal with franchising
laws.

39
 SWOT Analysis of Starbucks

Strengths

1- Starbucks is the number one coffee retailer.

2- Starbucks is a global organization which is built upon a reputation for fine products
and services. It has 16635 coffee stores in 40 countries world - wide.
3- Starbucks is a very profitable organization.
4- The company has a committed workforce.
5- The company has strong ethical values.
6- Starbucks has excellent customer service.

7- Due to its specialism in all coffee things, it utilizes international sourcing and it
achieves economies of scale - high buying volumes.

8- Starbucks has high brand equity.

9- The company also has brand name recognition and high brand awareness.

10- The company has a high, consistent brand quality at their products.

11- All Starbucks stores are WIFI ready for Internet connection.
12- Starbucks’ customers are satisfied with the quality and taste.
13- The company has huge number of satisfied employees.
14- The company’s financial conditions are good.
15- Starbucks coffee stores are located in places like shopping malls and commercial
complex.
16- Starbucks is making the business environmental friendly.

Weaknesses

1- Starbucks coffee’s pricing are high.

2- The company has a high operating cost.
3- The profits of the business are over-dependent on coffee and coffee products.
4- Starbucks’ seating tables are small.

40
5- Starbucks are criticized for not using free trade products.
6- The organization has a strong focus on the United States domestic market. They
need to look for a portfolio of countries, to spread business risk.
7- The company is dependent on a main competitive advantage, the retail of coffee.
This could make them slow to diversify into other sectors should the need arise.
8- Starbucks’ stores are crowded during lunch and dinner hours.

9- The company do not have much focus on internal.

10- Starbucks have less control over stores outside the United States.
11- There are protests against the company on different issues.

Opportunities

1- The market has a chance of product diversification.

2- A chance of market penetration in international countries
3- Product range diversification to food ranges and non-food items.
4- Through customer relationship management (CRM) and database marketing it
could target its high net worth customers and build greater loyalty with
customer base.

5- Continued focus on improving efficiency and effectiveness in the organization,

from procurement, to supply chain to customer service delivery.

6- The opportunity to expand global operations with low investments. New

markets for coffee are beginning to emerge.
7- There are potentials for co-branding with other food manufacturers and brand
franchising to manufacturers of other goods and services.
8- Outside of the domestic United States market is growing; opportunity for joint
ventures world-wide
9- Better public relations activity, introducing more fair trade products, better
distribution of profits to farmers and ethical sourcing practices
10- More younger generation like to buy and try different type of coffee.

41
Threats

1- Current recession, financial crises or downturn in the economy.

2- Numbers of competitors are increasing.
3- Possible saturation in the coffee market.

4- Consolidation on the high street, growing competition from national brands

and new entrants, aggressive marketing (price wars, promotions) putting
pressure on profit margins

5- Volatile of coffee

6- All companies seek cost savings and new way to differentiate to retain
customers.

7- Several activist groups that are criticizing fair-trade policies and

environmental impact

8- The rises in the cost of coffee and labour

9- Another type of beverage or leisure activity can replace coffee in the

future.
10- Competitors are trying to minimize the differentiation by imitating.
11- Labour Unions issues

42
INTERNAL STRENGTHS WEAKNESSES
EXTERNAL S9, S13, S7 W1, W3
OPPORTUNITIES • Grow to include new • Reduce costs to
O6, O3, O8 markets using the reduce prices in low
brand name. investment markets.
• Use the satisfied • Increase product
employees to range and
diversify in related diversification to
businesses. related businesses to
overcome the
dependency on
coffee.

THREATS • Differentiate using • Reduce costs to

T1, T5 the high brand reduce prices to
awareness. survive in current
• Make vertical recession.
integration using the
economies of scale to
avoid volatile of
coffee.

Competitive Analysis

Starbucks' marketing strategy involves positioning the stores as a place where

consumers can spend time other than their home or work. This is done by making each of the
stores comfortable and relaxing. Starbucks achieves these by using comfortable furniture and
relaxing music. Over the past several years, Starbucks also includes wireless internet. When
stores are positioned as locations for customers to spend time in a comfortable setting, the
product lines are positioned at the high quality.

Starbucks' success is reminding up a number of ambitious rivals to scale up their

development plans.

43
 At any time, a company with greater financial, marketing and operating resources
could enter the market and compete directly with Starbucks. Even some restaurants,
independent or local coffee shops could be competitors for Starbucks.

3) RESEARCH

The Objective, Scope and Constraints of the Research

The principle objective of the study is to understand if there is a significant difference

between the expectations and the perceptions of Starbucks customers towards current service

44
of Starbucks; and to determine the components of those differences. Furthermore, the
secondary objective is to determine if there are any significant differences that the customers,
with varied socio-demographic background, perceive the service quality.
The most important constraint of this study is limited with the Starbucks customers
who visited a branch of the chain within the last month. Because, the time passed after the
service received could affect the answers of the respondents.

The model of the Research

According to the model of the research; depending on the socio-demographical

characteristics of the consumers, the service they expect and the service they perceive are
different and the difference influences the satisfaction level.

The variables of the Research

In this section the research model variables are shown with subtopics.
• Socio-demographic Variables:

 Gender

45
  Marital Status

 Age

 Education Level

 Income Level

 Consumption frequency

 Average expenditure

 Primary consumption reason

• The service quality perceived

The quality perceived is measured in terms of 34 variables. The variables given below
are used to determine both the service perceived and expectations of customers. Rating in
Likert type scale; Strongly Agree (5), Agree (4), Neither agree nor disagree (3), Disagree
(2), Strongly Disagree (1).
1- Variety of products

2- Taste of coffee

3- Quality of coffee

4- Optimum temperature of the coffee served

5- Aroma of the coffee

6- Collateral products

7- Variety of collateral products

8- Quality of collateral products

9- Prices of collateral products

10-Prices of products

11-On the house

46
12-Order wait

13-Presentation of order

14-Modern equipment

15-Dresses of baristas

16-Behaviors of baristas

17-Attitudes of baristas

18-Competence of baristas

19-Knowledge level of baristas

20-Number of baristas in a branch

21-Number of branches

22-Accession to the shops

23-Location of branches

24-Airiness of shops

25-Lighting of shops

26-Air conditioning of the shop

27-Volume at the shops

28-Music level at the shops

29-Separate area for smokers

30-Hygiene of the place

31-Comfortableness of the furniture

32-Flexibility of working hours

33-Impressive name

34-Price policy

47
 Hypothesis of the Research

Towards the model of the research, hypothesis that reflects the expectations is given
below:

H0 = the expectancies of Starbucks customers and the service of Starbucks are pair.

H1= the expectancies of Starbucks customers and the service of Starbucks are not pair.

Sampling Process

The population of the research is formed by the customers of Starbucks. It is not

possible to reach the population keep in view of time and cost.

The desired confidence level = 95%

p=0.5 (maximum variability)

e=0.067

48
 n= p (1-p) / (e /Z)2

n= 0.5 x 0.5 / (0.067 / 1.96)2

n= 213

300 questionnaire forms are prepared. They are given to respondents in 01-05 March
2010. After elimination of deficient and faulty filled forms, 213 forms are obtained.

Analysis of Data and Information

In the research, Pair t-test, Kendall Correlation Analysis and Pearson Correlation
Analysis are used. The data are analyzed with SPSS 15.0 program.

Results of the Research

Characteristics of the respondents

Socio-Demographic Characteristics of the Respondents

49
It could be seen that 16% of the respondents are consuming coffee out of home just
once or less in a month. The biggest proportion of the respondents is consuming
coffee out of home 4-5 times in a month. Respondents that consume coffee out of
home almost every day have 19% pie and it is equal to the consumers that prefer to
buy coffee almost every day. Minority of respondents are consuming more than once
with 6%.

The respondents attended to our research are consisting of 48% women and 52% men.

50
According to distribution given above, single respondents are the majority with 86%,
and the 14% of respondents are married.

The majority of respondents are between 21-25 ages with 56%. Second biggest
proportions of respondents are between 26-30 ages.

51
The respondents completed undergraduate programs are the biggest proportion with
42%. High school graduate respondents are the second majority with 39%.

The respondents with the range of 0-600TL income level forms 24% percent of
sample. 26% of the respondents’ income levels appear in 601-1200TL range.

52
The respondents who spend 0-15TL in a month constitute 11% of sample. The
percentages of respondents who spend 16-30TL or 45-60TL are equal to 25%.

53
 The conclusion of the research indicates that the majority of the respondents, 39%,
consume coffee with their friends. 31% of respondents consume because of taste. 20%
of respondents consume coffee because of their habits.

Correlations

In socio-demographic variables we have dependent and independent variables. Again

we can separate variables into two groups ,parametric and non-parametric.
To evaluate the effects of independent variables on dependent variables we made two
analysis. For non-parametric variables we used Kendall’s analysis and for parametric
variables we used Pearson’s Analysis.
We elect some of rows and columns to point-out only necessary datas.
For non-parametric variables;
coffee
consumpti average primary
on expenditu consumpti
frequency re on reason
Kendall's Correlation
tau_b gender Coefficient -0,0639 0,0046 0,1645
Sig. (2-
tailed) 0,3062 0,9402 0,0095
N 213 213 213
marital Correlation
status Coefficient 0,1122 0,0362 0,0591
Sig. (2-
tailed) 0,0725 0,5541 0,3516
N 213 213 213

54
 As it is seen at the table above; there is no significant relations between non-
parametric, independent varaibles “gender” - “marital status” and dependent variables
“coffe consumption frequency” , “average expenditure” , and “primary consumption
reason”
For parametric variables;

coffee primary
consumptio average consumption
n expenditure reason
age Pearson Correlation -0,0707 0,2679 0,0982
Sig. (2-tailed) 0,3042 0,0001 0,1533
N 213 213 213
educational
level Pearson Correlation 0,0410 0,0033 -0,0257
Sig. (2-tailed) 0,5519 0,9618 0,7090
N 213 213 213
income level Pearson Correlation -0,1657 0,3004 0,0820
Sig. (2-tailed) 0,0155 0,0000 0,2333
N 213 213 213

As it is seen at the table above; there is no significant relations between parametric,

independent variables “age”-“educational level”-“income level” and dependent variables
“coffe consumption frequency” , “average expenditure” , and “primary consumption
reason” apart from two of them. The exceptions are the intercepts of “age”-“ average
expenditure” and “income level”- “ average expenditure”. These two values are higher than
the other under %95 significance level. There is a positive relationship between of “age”-“
average expenditure” and “income level”- “ average expenditure” , but not very strong.

Reliability of the research

Cronbach's alpha is the most common form of internal consistency reliability
coefficient. Alpha equals zero when the true score is not measured at all and there is only an
error component. Alpha equals 1.0 when all items measure only the true score and there is no
error component.
Cronbach's alpha measures how well a set of items (or variables) measures a single
unidimensional latent construct. When data have a multidimensional structure, Cronbach's
alpha will usually be low. Technically speaking, Cronbach's alpha is not a statistical test - it

55
is a coefficient of reliability (or consistency). This models internal consistency based on
average correlation among items.

Expectancy Questions
Case Processing Summary
N %
Cases Valid 213 100,0
Excluded(a) 0 ,0
Total 213 100,0

Reliability Statistics
Cronbach's N of
Alpha Items
,872 34

Cronbach’s Alpha is 0,872. This shows us that expectancy questions of our questionnaire are
reliable.

Item Statistics

56
 Mean Std. Deviation N
SB1 4,27 ,901 213
SB2 4,71 ,581 213
SB3 4,75 ,531 213
SB4 4,66 ,532 213
SB5 4,60 ,571 213
SB6 4,06 ,883 213
SB7 3,80 ,995 213
SB8 4,17 ,830 213
SB9 4,13 ,817 213
SB10 4,33 ,768 213
SB11 4,22 ,809 213
SB12 4,67 ,649 213
SB13 4,11 ,861 213
SB14 4,20 ,863 213
SB15 4,73 ,465 213
SB16 4,61 ,601 213
SB17 4,61 ,601 213
SB18 2,11 ,639 213
SB19 4,36 ,774 213
SB20 4,43 ,688 213
SB21 4,14 ,818 213
SB22 4,23 ,732 213
SB23 4,09 ,896 213
SB24 4,47 ,641 213
SB25 4,08 ,742 213
SB26 4,56 ,584 213
SB27 4,38 ,667 213
SB28 4,43 ,622 213
SB29 3,55 1,422 213
SB30 4,63 ,572 213
SB31 4,57 ,637 213
SB32 3,90 ,990 213
SB33 3,54 1,155 213
SB34 4,54 ,832 213

Item-Total Statistics

57
 Corrected Cronbach's
Scale Mean if Scale Variance Item-Total Alpha if Item
Item Deleted if Item Deleted Correlation Deleted
SB1 140,38 127,539 ,310 ,871
SB2 139,94 131,378 ,221 ,872
SB3 139,90 131,486 ,237 ,872
SB4 140,00 129,835 ,374 ,870
SB5 140,05 130,521 ,292 ,871
SB6 140,60 125,893 ,403 ,869
SB7 140,85 125,355 ,373 ,870
SB8 140,48 125,326 ,465 ,867
SB9 140,53 124,741 ,506 ,866
SB10 140,32 125,994 ,468 ,867
SB11 140,43 125,369 ,477 ,867
SB12 139,99 128,118 ,416 ,868
SB13 140,54 123,570 ,540 ,865
SB14 140,46 125,815 ,418 ,868
SB15 139,92 130,583 ,363 ,870
SB16 140,04 129,720 ,334 ,870
SB17 140,04 128,946 ,391 ,869
SB18 142,54 131,061 ,218 ,872
SB19 140,29 126,387 ,440 ,868
SB20 140,22 125,833 ,541 ,866
SB21 140,51 124,232 ,535 ,865
SB22 140,42 124,839 ,567 ,865
SB23 140,56 124,880 ,448 ,867
SB24 140,18 128,103 ,423 ,868
SB25 140,58 128,273 ,347 ,870
SB26 140,09 130,412 ,292 ,871
SB27 140,27 129,338 ,321 ,870
SB28 140,23 127,874 ,454 ,868
SB29 141,10 126,527 ,191 ,879
SB30 140,02 129,226 ,392 ,869
SB31 140,08 128,281 ,413 ,869
SB32 140,76 124,157 ,431 ,868
SB33 141,11 122,955 ,405 ,869
SB34 140,11 126,950 ,374 ,869

This table shows us that if we exclude any expectancy question how Cronbach’s Alpha is
going to change.

Perception questions

58
Case Processing Summary

N %
Cases Valid 213 100,0
Excluded(a) 0 ,0
Total 213 100,0

Reliability Statistics

Cronbach's N of
Alpha Items
,904 34

Cronbach’s Alpha is 0,904. This shows us that perception questions of our questionnaire are
reliable.

Item Statistics

Mean Std. Deviation N

SA1 4,13 ,788 213
SA2 4,22 ,814 213
SA3 4,23 ,799 213
SA4 4,13 ,965 213
SA5 4,29 ,733 213
SA6 4,04 ,902 213

59
SA7 3,53 1,021 213
SA8 3,76 ,923 213
SA9 3,01 1,124 213
SA10 3,10 1,161 213
SA11 2,99 1,249 213
SA12 3,85 ,960 213
SA13 3,32 1,166 213
SA14 3,99 ,838 213
SA15 4,16 ,654 213
SA16 3,91 ,874 213
SA17 3,92 ,826 213
SA18 3,65 ,896 213
SA19 3,69 ,904 213
SA20 3,69 ,936 213
SA21 3,85 ,979 213
SA22 4,07 ,746 213
SA23 4,22 ,630 213
SA24 3,70 1,010 213
SA25 3,07 1,112 213
SA26 3,59 ,945 213
SA27 3,17 1,059 213
SA28 3,62 ,891 213
SA29 3,34 1,149 213
SA30 3,55 1,002 213
SA31 3,79 1,004 213
SA32 3,51 ,979 213
SA33 3,70 ,996 213
SA34 3,95 ,950 213

Item-Total Statistics

Corrected Cronbach's
Scale Mean if Scale Variance Item-Total Alpha if Item
Item Deleted if Item Deleted Correlation Deleted
SA1 122,60 239,827 ,478 ,902
SA2 122,50 238,298 ,523 ,901
SA3 122,50 238,657 ,520 ,901

60
SA4 122,60 237,865 ,447 ,902
SA5 122,43 239,539 ,531 ,901
SA6 122,68 238,747 ,450 ,902
SA7 123,20 235,055 ,512 ,901
SA8 122,96 236,480 ,521 ,901
SA9 123,71 235,705 ,439 ,902
SA10 123,62 233,954 ,473 ,901
SA11 123,74 235,440 ,394 ,903
SA12 122,87 238,498 ,428 ,902
SA13 123,40 232,855 ,503 ,901
SA14 122,74 236,638 ,573 ,900
SA15 122,56 238,832 ,636 ,900
SA16 122,82 235,763 ,580 ,900
SA17 122,81 235,977 ,609 ,900
SA18 123,07 235,085 ,590 ,900
SA19 123,03 234,471 ,608 ,899
SA20 123,03 234,343 ,590 ,900
SA21 122,87 240,149 ,363 ,903
SA22 122,65 241,567 ,431 ,902
SA23 122,51 243,478 ,419 ,903
SA24 123,02 236,886 ,457 ,902
SA25 123,65 251,190 -,009 ,910
SA26 123,13 238,247 ,445 ,902
SA27 123,55 246,380 ,139 ,907
SA28 123,10 240,367 ,397 ,903
SA29 123,38 242,106 ,243 ,906
SA30 123,17 237,474 ,442 ,902
SA31 122,93 236,241 ,482 ,901
SA32 123,22 236,463 ,488 ,901
SA33 123,02 236,462 ,479 ,901
SA34 122,77 239,470 ,399 ,903

This table shows us that if we exclude any perception question how Cronbach’s Alpha is
going to change.

Comparison of the expectancies and perceptions of Starbucks customers

T-test

Paired Samples Statistics

Std. Error
Mean N Std. Deviation Mean
Pair 1 SB1 4,27 213 ,901 ,062
SA1 4,13 213 ,788 ,054
Pair 2 SB2 4,71 213 ,581 ,040

61
 SA2 4,22 213 ,814 ,056
Pair 3 SB3 4,75 213 ,531 ,036
SA3 4,23 213 ,799 ,055
Pair 4 SB4 4,66 213 ,532 ,036
SA4 4,13 213 ,965 ,066
Pair 5 SB5 4,60 213 ,571 ,039
SA5 4,29 213 ,733 ,050
Pair 6 SB6 4,06 213 ,883 ,061
SA6 4,04 213 ,902 ,062
Pair 7 SB7 3,80 213 ,995 ,068
SA7 3,53 213 1,021 ,070
Pair 8 SB8 4,17 213 ,830 ,057
SA8 3,76 213 ,923 ,063
Pair 9 SB9 4,13 213 ,817 ,056
SA9 3,01 213 1,124 ,077
Pair 10 SB10 4,33 213 ,768 ,053
SA10 3,10 213 1,161 ,080
Pair 11 SB11 4,22 213 ,809 ,055
SA11 2,99 213 1,249 ,086
Pair 12 SB12 4,67 213 ,649 ,044
SA12 3,85 213 ,960 ,066
Pair 13 SB13 4,11 213 ,861 ,059
SA13 3,32 213 1,166 ,080
Pair 14 SB14 4,20 213 ,863 ,059
SA14 3,99 213 ,838 ,057
Pair 15 SB15 4,73 213 ,465 ,032
SA15 4,16 213 ,654 ,045
Pair 16 SB16 4,61 213 ,601 ,041
SA16 3,91 213 ,874 ,060
Pair 17 SB17 4,61 213 ,601 ,041
SA17 3,92 213 ,826 ,057
Pair 18 SB18 2,11 213 ,639 ,044
SA18 3,65 213 ,896 ,061
Pair 19 SB19 4,36 213 ,774 ,053
SA19 3,69 213 ,904 ,062
Pair 20 SB20 4,43 213 ,688 ,047
SA20 3,69 213 ,936 ,064
Pair 21 SB21 4,14 213 ,818 ,056
SA21 3,85 213 ,979 ,067
Pair 22 SB22 4,23 213 ,732 ,050
SA22 4,07 213 ,746 ,051
Pair 23 SB23 4,09 213 ,896 ,061
SA23 4,22 213 ,630 ,043
Pair 24 SB24 4,47 213 ,641 ,044
SA24 3,70 213 1,010 ,069
Pair 25 SB25 4,08 213 ,742 ,051
SA25 3,07 213 1,112 ,076
Pair 26 SB26 4,56 213 ,584 ,040
SA26 3,59 213 ,945 ,065
Pair 27 SB27 4,38 213 ,667 ,046
SA27 3,17 213 1,059 ,073

62
Pair 28 SB28 4,43 213 ,622 ,043
SA28 3,62 213 ,891 ,061
Pair 29 SB29 3,55 213 1,422 ,097
SA29 3,34 213 1,149 ,079
Pair 30 SB30 4,63 213 ,572 ,039
SA30 3,55 213 1,002 ,069
Pair 31 SB31 4,57 213 ,637 ,044
SA31 3,79 213 1,004 ,069
Pair 32 SB32 3,90 213 ,990 ,068
SA32 3,51 213 ,979 ,067
Pair 33 SB33 3,54 213 1,155 ,079
SA33 3,70 213 ,996 ,068
Pair 34 SB34 4,54 213 ,832 ,057
SA34 3,95 213 ,950 ,065

Paired Samples Correlations

N Correlation Sig.
Pair 1 SB1 & SA1 213 ,144 ,036
Pair 2 SB2 & SA2 213 ,194 ,004
Pair 3 SB3 & SA3 213 ,055 ,425
Pair 4 SB4 & SA4 213 ,085 ,217
Pair 5 SB5 & SA5 213 ,245 ,000
Pair 6 SB6 & SA6 213 ,169 ,014
Pair 7 SB7 & SA7 213 ,005 ,942
Pair 8 SB8 & SA8 213 ,281 ,000
Pair 9 SB9 & SA9 213 -,145 ,034
Pair 10 SB10 & SA10 213 -,107 ,119

63
 Pair 11 SB11 & SA11 213 ,180 ,008
Pair 12 SB12 & SA12 213 ,184 ,007
Pair 13 SB13 & SA13 213 ,119 ,083
Pair 14 SB14 & SA14 213 ,134 ,050
Pair 15 SB15 & SA15 213 ,079 ,250
Pair 16 SB16 & SA16 213 ,065 ,348
Pair 17 SB17 & SA17 213 ,247 ,000
Pair 18 SB18 & SA18 213 ,082 ,232
Pair 19 SB19 & SA19 213 ,138 ,044
Pair 20 SB20 & SA20 213 ,282 ,000
Pair 21 SB21 & SA21 213 ,074 ,284
Pair 22 SB22 & SA22 213 ,117 ,089
Pair 23 SB23 & SA23 213 ,081 ,239
Pair 24 SB24 & SA24 213 -,105 ,126
Pair 25 SB25 & SA25 213 -,001 ,992
Pair 26 SB26 & SA26 213 -,060 ,386
Pair 27 SB27 & SA27 213 -,006 ,934
Pair 28 SB28 & SA28 213 ,099 ,151
Pair 29 SB29 & SA29 213 ,151 ,027
Pair 30 SB30 & SA30 213 ,007 ,920
Pair 31 SB31 & SA31 213 ,079 ,248
Pair 32 SB32 & SA32 213 ,293 ,000
Pair 33 SB33 & SA33 213 ,301 ,000
Pair 34 SB34 & SA34 213 ,062 ,368

Paired Samples Test

Paired Differences
95% Confidence
Interval of the
Difference
Std. Std. Error Sig. (2-
Mean Deviation Mean Upper Lower t df tailed)
Pair 1 SB1 - SA1 ,146 1,108 ,076 -,004 ,295 1,916 212 ,057
Pair 2 SB2 - SA2 ,493 ,904 ,062 ,371 ,615 7,959 212 ,000
Pair 3 SB3 - SA3 ,526 ,934 ,064 ,400 ,652 8,213 212 ,000
Pair 4 SB4 - SA4 ,531 1,062 ,073 ,387 ,674 7,291 212 ,000
Pair 5 SB5 - SA5 ,310 ,811 ,056 ,200 ,419 5,574 212 ,000
Pair 6 SB6 - SA6 ,014 1,151 ,079 -,141 ,170 ,179 212 ,858
Pair 7 SB7 - SA7 ,277 1,422 ,097 ,085 ,469 2,843 212 ,005
Pair 8 SB8 - SA8 ,408 1,054 ,072 ,266 ,551 5,656 212 ,000

64
Pair 9 SB9 - SA9 1,117 1,483 ,102 ,917 1,318 10,998 212 ,000
Pair 10 SB10 - SA10 1,225 1,459 ,100 1,028 1,422 12,259 212 ,000
Pair 11 SB11 - SA11 1,235 1,360 ,093 1,051 1,418 13,248 212 ,000
Pair 12 SB12 - SA12 ,817 1,055 ,072 ,674 ,959 11,303 212 ,000
Pair 13 SB13 - SA13 ,793 1,365 ,094 ,609 ,978 8,484 212 ,000
Pair 14 SB14 - SA14 ,211 1,119 ,077 ,060 ,362 2,755 212 ,006
Pair 15 SB15 - SA15 ,573 ,771 ,053 ,469 ,677 10,838 212 ,000
Pair 16 SB16 - SA16 ,704 1,029 ,070 ,565 ,843 9,991 212 ,000
Pair 17 SB17 - SA17 ,695 ,893 ,061 ,574 ,815 11,352 212 ,000
Pair 18 SB18 - SA18 -1,545 1,057 ,072 -1,687 -1,402 -21,328 212 ,000
Pair 19 SB19 - SA19 ,667 1,106 ,076 ,517 ,816 8,797 212 ,000
Pair 20 SB20 - SA20 ,742 ,992 ,068 ,608 ,876 10,909 212 ,000
Pair 21 SB21 - SA21 ,291 1,229 ,084 ,125 ,457 3,458 212 ,001
Pair 22 SB22 - SA22 ,160 ,982 ,067 ,027 ,292 2,372 212 ,019
Pair 23 SB23 - SA23 -,122 1,052 ,072 -,264 ,020 -1,693 212 ,092
Pair 24 SB24 - SA24 ,765 1,252 ,086 ,596 ,934 8,921 212 ,000
Pair 25 SB25 - SA25 1,005 1,337 ,092 ,824 1,185 10,967 212 ,000
Pair 26 SB26 - SA26 ,972 1,141 ,078 ,818 1,126 12,434 212 ,000
Pair 27 SB27 - SA27 1,216 1,255 ,086 1,046 1,386 14,137 212 ,000
Pair 28 SB28 - SA28 ,808 1,035 ,071 ,668 ,947 11,387 212 ,000
Pair 29 SB29 - SA29 ,211 1,687 ,116 -,017 ,439 1,827 212 ,069
Pair 30 SB30 - SA30 1,085 1,150 ,079 ,929 1,240 13,761 212 ,000
Pair 31 SB31 - SA31 ,784 1,145 ,078 ,629 ,939 9,991 212 ,000
Pair 32 SB32 - SA32 ,390 1,171 ,080 ,232 ,548 4,857 212 ,000
Pair 33 SB33 - SA33 -,160 1,279 ,088 -,332 ,013 -1,822 212 ,070
Pair 34 SB34 - SA34 ,587 1,224 ,084 ,422 ,752 6,997 212 ,000

• Pair-1: There is no significant difference between “There should be product variety.”

and “There is a variety of products.” . t-value that calculated as 1,916 and it is
between +1,962 and -1,962. H0 is accepted. The respondents expectancy level is so
close to perception they have towards Starbucks products.

• Pair-2: There is a significant difference between “The coffee served should have a
good taste.” and “The coffee is tasteful.” t-value that calculated as 7,959 and it is not
between +1,962 and -1,962. H0 is rejected, H1 is accepted. The perception level of
respondents about the taste of coffee is under the expectations level.

65
• Pair-3: There is a significant difference between “The coffee served should be
quailified.” and “ The coffee is quailified.”. t-value that calculated as 8,213 and it is
not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The perception level of
respondents about the quality of coffee is not matching with their expectancies.

• Pair-4 : There is a significant difference between “The coffee served should be at

optimum temperature.” and “The coffee served is at optimum temperature.” t-value
that calculated as 7,291 and it is not between +1,962 and -1,962. H0 is rejected, H1 is
accepted. The perception level of respondents about the optimum temperature of
coffee served can not reach their expactancy levels.

• Pair-5: There is a significant difference between “The aroma of the coffee should be
good.” and “The aroma is tasteful.” t-value that calculated as 5,574 and it is not
between +1,962 and -1,962. H0 is rejected, H1 is accepted. The perception level of
respondents about the aroma of Starbucks coffee is lower than the expected aroma.

• Pair-6: There is no significant difference between “There should be collateral

products.” and “There are collateral products.” t-value that calculated as 0.179 it is
between +1,962 and -1,962. H0 is accepted, H1 is rejected. The perception level of
respondents related to collateral products is matching with their expectation level.

• Pair-7: There is a significant difference between “There should be variety of

collateral products.” and “The variety collateral product is considerable.” t-value that
calculated as 2,843 and it is not between +1,962 and -1,962. H0 is rejected, H1 is
accepted. The perception level of respondents about product variation at Starbucks is
lower than their expectancies.

66
• Pair-8: There is a significant difference between “The collateral products should be
qualified.” and “The collateral products are qualified.” t-value that calculated as 5,656
and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The expectation
levels of the respondents about the quality of collateral products are higher than the
perception levels.

• Pair-9: There is a significant difference between “The price of collateral products

should be favorable.” and “The prices of collateral products are favorable.” t-value
that calculated as 10,998 and it is not between +1,962 and -1,962. H0 is rejected, H1 is
accepted. The perception and expectation levels of the respondents related to price of
collateral products are not similar.

• Pair-10: There is a significant difference between “The price of products should be

favorable.” and “The prices are favorable.” t-value that calculated as 12,259 and it is
not between +1,962 and -1,962. H0 is rejected, H1 is accepted. . The perception and
expectation levels of the respondents related to price of the products are not similar.

• Pair-11: There is a significant difference between “There should be on the house

activities.” and “There are on the house activities.” t-value that calculated as 13,248
and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The expectancy
anf perception levels of the respondent depending on the house activities are not
resemble.

• Pair-12: There is a significant difference between “Order wait time should not be
long.” and “The order wait time is not long.” t-value that calculated as 11,303 and it is
not between +1,962 and -1,962. H0 is rejected, H1 is accepted. Order wait time is not
resemble at perception and expectation levels of the respondents.

67
• Pair-13: There is a significant difference between “Presentation of orders should be
attractive.” and “The presentation of order is impressive.” t-value that calculated as
8,484 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted.
Satisfaction level related to presentation of the order tells us that Starbucks could not
satisfy expectancies of customers.

• Pair-14: There is a significant difference between “The machines used should be up to

date.” and “The machines are up to date.” t-value that calculated as 2,755 and it is not
between +1,962 and -1,962. H0 is rejected, H1 is accepted. Satisfaction level related to
machines used in shops do not meet with the expectations of respondents.

• Pair-15: There is a significant difference between “The baristas should be well and
clean dressed.” And “The baristas are well and clean dressed.” t-value that calculated
as 10,838 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted.
Expectation and perception levels of respondents do not meet upon dresses of baristas.

• Pair-16: There is a significant difference between “The baristas should be cheerful.”

and “The baristas are cheerful.” t-value that calculated as 9,991 and it is not between
+1,962 and -1,962. H0 is rejected, H1 is accepted. The expectancy and perception
levels of respondents do not match on cheerfulness of baristas.

• Pair-17: There is a significant difference between “The baristas should be kind.” and
“The baristas are kind.” t-value that calculated as 11,352 and it is not between +1,962
and -1,962. H0 is rejected, H1 is accepted. The respondents are not satisfied with the
kindness of baristas considering expectancy and perception levels.

• Pair-19: There is a significant difference between “The baristas should have enough
knowledge.” and “The baristas have enough knowledge.” t-value that calculated as

68
 8,797 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted.
Satisfaction levels related to knowledge levels of baristas do not meet expectations of
respondents.

• Pair-20: There is a significant difference between “The number of baristas should be

enough.” and “The numbers of baristas are enough.” t-value that calculated as 10,909
and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. This data shows
us that the expectancy and perception levels of respondents related to number of
baristas do not meet.

• Pair-21: There is a significant difference between “The number of branches should be

enough.” and “The number of branches is enough.” t-value that calculated as 3,458
and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The expectancy
levels of respondents related to number of coffee shops are not pair to the perception
levels.

• Pair-22: There is a significant difference between “Reaching to branches should be

easy.” and “Reaching to branches is easy.” t-value that calculated and 2,372 and it is
not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The expectancy levels
of repondents related with easily reaching to branches is greater than the perception
levels.

• Pair-23: There is no a significant difference between “The branches should be at

central locations.” and “The branches are at central locations.” t-value that calculated
as -1,693 and it is between +1,962 and -1,962. H0 is accepted, H1 is rejected.
Perception levels of the respondents related to locations of brances is higher than the
expectancy levels. Perception and expectancy levels of respondents related to
locations of brances are pairs.

69
• Pair-24: There is a significant difference between “The inside of the coffee shop
should be spacious.” and “The coffee shops are spacious.” t-value that calculated as
8,921 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted.
Expectancy and perception levels of the respondent are not pair related to airness of
shops.

• Pair-25: There is a significant difference between “The inside of the coffee shop
should be well lightened.” and “The lightening is weak.” t-value that calculated as
10,967 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted.
Expectancy and perception levels of the respondents do not meet in this case.

• Pair-26: There is a significant difference between “The air condition of the shops
should be good.” and “The air condition is good.” t-value that calculated as 12,434 and
it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The perception
level of respondents about the air conditioning of coffee shops is not matching with
their expectancies.

• Pair-27: There is a significant difference between “There should not be so much

noise.” and “There is noise at the coffee shops.” t-value that calculated as 14,137 and
it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. This shows us the
difference between the perception and expectancy levels of the respondents.

• Pair-28: There is a significant difference between “The music volume should be

appropriate.” and “Music volume is likely.” t-value that calculated as 11,387 and it is
not between +1,962 and -1,962. H0 is rejected, H1 is accepted. The expectancy and
perception levels of the respondent related to music volume are not matching.

• Pair-29: There is no significant difference between “There should be a separated place

for smokers.” and “There is a separate area for smokers.” t-value that calculated as

70
 1,827 it is between +1,962 and -1,962. H0 is accepted, H1 is rejected. Expectancy and
perception levels of the respondents are pair related to separeted smoking areas.

• Pair-30: There is a significant difference between “The coffee shop should be cleaned
continually.” and “The locations are cleaned continually.” t-value that calculated as
13,761 and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. This
shows us that expectancies and perceptions of respondents do not meet related to
hygine of the place.

• Pair-31: There is a significant difference between “The furniture would be

comfortable.” and “The furniture are comfortable.” t-value that calculated as 9,991
and it is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. This shows us
that expectancies and perceptions of the respondents do not meet related to
comfortableness of the furniture.

• Pair-32: There is a significant difference between “The working hours should be

flexible.” and “The working hours are flexible.” t-value that calculated as 4,857 and it
is not between +1,962 and -1,962. H0 is rejected, H1 is accepted. Perception level
related to flexible working hours is not matching with expectancy levels of the
respondents.

• Pair-33: There is no significant difference between “The name of the coffee shop
should be attractive.” And “Their name is impressive.” t-value that calculated as
-1,822 and it is between +1,962 and -1,962. H0 is accepted, H1 is rejected. Expectancy
and perception levels of the respondents are in pair in case of brand name of
Starbucks.

71
• Pair-34: There is a significant difference between “The price policy should be the
same at all branches of the chain.” and “There is no price difference among the
branches.” t-value that calculated as 6,997 and it is not between +1,962 and -1,962. H0
is rejected, H1 is accepted. In case of price policy, the expectancy and perception
levels of the respondents are not matching.

72
73
 In this Snake Diagram, we could see all the distances between the expected and
perceived values for each question stated in our research. The blue line represents the
expectations of the respondents and the red line represents the perceptions of the respondents
towards Starbucks.
9-10-11-13-25-27 numbered questions is the ones that Starbucks could not satisfy its
customers. 6-23-33 numbered questions are the ones that Starbucks provides more than the
customer expectations. The average of perception questions is 3, 73. The average of
expectation questions is 4, 32.

74
 RECOMMENDATIONS

According to 4P’s of marketing

Product based:
The level of satisfaction related to product variation of Starbucks is so closed to the
expectancies. Starbucks must differentiate its products based firstly on image and secondly on
the product itself. It will be difficult for Starbucks to differentiate its products on quality
alone. Combined with its research and development emphasis on product development and
being the first mover into a market. Starbucks should differentiate its new products based on
the company’s unique features and brand image.
Starbucks has the potential for finding a new type of growth strategy once the
International growth strategy is no longer beneficial. We believe that in this case Starbucks
will need to concentrate on its core competency, high quality coffee products, and use a
concentration growth strategy. Starbucks will stay in the same industry, so the two main sub-
strategies would be Product Development, and Product-Market Diversification. It is important
to understand this in the Product Development phase the company would need to focus solely
on making its existing products better. Starbucks could demonstrate Product Market
Diversification through research and development, and creativity. The company could be
extra sensitive to changes in customer tastes, and the external environment.
Starbucks positions their products based on quality and image. The company created
the coffee shop revolution, and it has had the ability to be the public educator on espresso
coffee.
Collateral products have an important role. This does not mean that Starbucks should
start a new line related to collateral products because the company should keep its core
competencies.
Order wait time is one of the troubles. Although the customers perceive it lower than
their expectancies, it could be because of crowd of stores. In this instance, trained baristas
could be a positive factor would affect this condition. A trained barista should be more
competent. The company should have training program for baristas. Wherefore, it is obvious
that the customers are not satisfied with current circumstances.

75
 Place based:
Related to our research analysis, it is obvious that easiness to access the shops has
positive effects on the customers. Starbucks should continue locating its operations in high
traffic areas, high visibility areas. The company should continue to take excellent care about
picking locations. It is extremely important that Starbucks' international stores reflect
uniqueness in their location and layout. Having locations in a variety of locations will ensure
large market exposure. The location strategy of Starbucks beats the expectancy levels of
customers.
The physical condition of the shops is an issue that the company should make
improvements. Airiness and air conditioning of the shops should be regulated. Also, music
volume is the other issue that makes the customers unsatisfied.

Price based:
Price is one of the indicators that the company targets about income levels. Referring
the information gathered from the analysis, the respondents are not so pleased with the current
prices. However, this controls the customer profile of Starbucks. So, we recommend that
there is no need any change in prices.

Promotion based:
Promotion represents all of the communications that a marketer may use in the
marketplace. Promotion has four distinct elements; advertising, public relations, word of
mouth and point of sale. Starbucks do not need to have TV commercials or any other mass
communication tools because the company uses alternative channels effectively. This usage
reduces promotion costs. In Twitter, Starbucks has 804,987 followers globally and 1,629 in
Turkey page. In Facebook, Starbucks 6,226,136 fans globally and 150,721 fans in Turkey
page. The company has a channel at YouTube. Starbucks make commercials but those
commercials are not broadcast in TV as the other companies do. Instead of that, social media
and all other online tools are being used by the company. Starbucks has a strong presence in
social media. “my STARBUCKS IDEA” is one of the greatest campaigns the company ever
did and shows the company is fully aware of how customers interact with the brand online.
Word of mouth is the most effective weapon and also the costless one.

76
 The lack of Starbucks commercials highlights the company’s unique advertising
strategy – don’t advertise. Sure, there are one or two Starbucks commercials, but the
company is hesitant to focus on traditional methods of advertising. Instead of producing
Starbucks commercials for the masses, the company chooses instead to focus on the
customer’s in-store experience. Starbucks encourages the promotion of their stores as a ‘third
home’, providing comfortable chairs for customers to relax and spend time in, playing music
and providing outlets for people to plug their laptops into. So far, as Starbucks surpassed the
10,000 mark for number of outlets worldwide, it seems that word of mouth advertising has
worked more wonders than Starbucks commercials might.

In the lights of our research;

Starbucks will be able to combat the threats of bargaining power of buyers, substitute
products, and competitive forces by continuing to market based on its highly differentiated
products and unique brand image. It is critical that Starbucks position its brand for what the
brand stands for: an innovative industry leader that produces high quality products. Brand
image is a goal that all the future functional strategies will work to attain. If Starbucks can
keep a consistent atmosphere that combined with consistent, excellent quality coffee products,
the company can ensure its brand image and reputation.
For further researches, we recommend a focus group study for understanding the
customers more specifically. In terms of our research, general perception is under the
expectancy level, so Starbucks should have a more detailed customer profile research.

77
78