Starbucks:

Now and beyond

Presented by Team 5:
Denisa Dobrin, Colby Foster-Baker, Jen Allison,
Geoffrey MacLennan, Renee Volk


NECB (2012), MBA 525, Managerial Economics
Prof.: Dr. Ned Gandevani
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Agenda
Company Profile
Market Demand (Colby)
Pricing Strategy (Colby)
Market Size (Jen)
Production Scale / Scale of operation (Jen)
Market Structure (Geoff)
Conclusions, Recommendations, Q&A (Renee)


Starbucks mission statement:
To inspire and nurture the human spirit one person, one cup and
one neighborhood at a time. (Starbucks.com
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Company Profile
First store in Seattle, 1971
Currently 18,000+ stores in 60 countries
Employs approximately 149,000 people
Revenue:
2011 at $11.7 billion
2012 at $13.3 billion
Operating Income:
2011 at $1.7 billion
2012 at $2.0 billion

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Market Demand
Historical Demand
$13.3 billion in revenue in 2012 (14% increase from 2011)
7% increase in global sales
Will market demand for Starbucks be robust in the next 12
months?
International demand should increase
15% sales growth in China/Asia Pacific during 2012 fiscal year
154 new stores opened in China/Asia Pacific region in 2012
Plans to open additional 600 stores in China/Asia Pacific
Domestic demand remains strong
Moved up to 3
rd
largest American restaurant chain in 2011
New offerings to expand retail chain demand
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Market Demand (cont.)
Will market demand for Starbucks be robust in the next
12 months?

Branching into new markets
Teavana Holdings, Inc. specialty tea products
Verismo - single-serve home brewing system
Evolution Fresh - high-end specialty juice retailer
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Pricing Strategy
What is Starbucks pricing strategy?
Broke Skim Pricing mold by sustaining premium prices
Competitors prices have risen to compete
Factors affecting Pricing
Competition
McDonalds offering premium coffee at low $1 prices
Controls largest market share
Consumer Attitudes
Established as quality and innovation leader
High level of brand trust
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Pricing Strategy (cont.)
Economic Conditions: Global Financial Crisis
Standard drink prices lowered by $0.05 to $0.15
Specialty drink prices raised by up to $0.30
Overall, sustained premium pricing levels

Does Starbucks pricing strategy make sense?
Re-branded the cup of Joe and established market for high-end
coffee houses
Customers very willing to pay for perceived high quality
beverages and exceptional service
Premium pricing strategy is more profitable as economic
efficiency efforts are underway

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Current Scale of Operation

Just how big is Starbucks?
17,00 stores in 55 countries
60 million customers world wide
160,000 employees

Processing and Distribution
Roasting plants
Co-manufacturers
Tea
Distribution Centers

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Current Scale of Operation (cont.)

Market Share
In 2010 Starbucks had 33% of the coffee store market





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Local &
Regional
Specialty
Coffee
Shops
47%
Starbucks
33%
McDonalds
7%
Convenience
Stores & Gas
Stations
13%
Market Share (USA)
Current Scale of Operation (cont.)
2011 fastest competitor is Dunkin Donuts
Expansions
China
Products
Structure recommendations

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Cost Structure

Sticking it out in tough times
2008 Economic Crisis
Sales
Expenses
Outsourcing agreements
70% tied into agreements
Globalized process and improved efficiency at lower costs
Cost cutting measures
Store closings domestically and internationally

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Shut Down Effect

Could the Shut Down Rule apply to Starbucks?

Cost of product vs. Sales
Food sales doubled
Introduction of new products
Teavana
La Boulange
Short run vs. Long run

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Market Structure

Starbucks operates within a Monopolistic Competition
structure

What is a Monopolistic Competition Structure?
No major barriers to entry into market
There are many competitors
Each competitors product is differentiated
Each firm able to make independent decisions on price and
output

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Market Structure (cont.)

Coffee Industry
No Major Barriers to entry
McDonalds and Wendys upgraded coffee offerings
Independent coffee shops

Differentiated Competitors
Fast Food Chain Restaurants (McDonalds, Wendys)
Coffee - Donut Chains (Dunkin Donuts, Honey Dew)
Premium Coffee Chains (Peets, San Francisco Coffee House)
Independent Coffee Houses

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Market Structure (cont.)
Starbucks within a Monopolistic Competition

Starbucks Differentiation From Their Competition
Considers themselves a premium coffee provider
Offers premium product and experience
Customer loyalty programs
At Home Products

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Fiscal Cliff

How will the Fiscal Cliff Impact Starbucks

Strong 4th Quarter leading into Fiscal Cliff
Brand Resilience within the United States
Strong Growth Projections in Asian Market
Strong Corporate Leadership
Starbucks Takes Responsible Approach M
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Government Regulations

What impact does government regulations have
on Starbucks?
Starbucks is committed to full compliance with laws, rules,
and regulations in all countries
U.S. Food and Drug Administration cracked down on alcohol-
caffeine drinks
No immediate additional regulation seen on caffeine drinks
under 80 milligrams
Government concerns centered on marketing of caffeine
product to children

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Recommendations
Grow presence in key Asian markets
Starbucks has been expanding its presence in Asia particularly in
China and India
Chinas and Indias economy are growing quickly
In China, the Gross domestic product growth of 10.3% in fiscal
year 2010 and 9.2% in fiscal year 2009 (Starbucks Corporation
SWOT Analysis, 2012)
More than 160 cities in China have a population greater than
one million (Starbucks Corporation SWOT Analysis, 2012).
Middle class population in China is expected to double by
2025 and in increase in India
The Market within India is primarily tea drinkers but the
coffee consumption is rising
Starbucks can capitalize on this market





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Conclusion
Demand for Starbucks is going to increase over the next 12
months
In 2012 alone,
Starbucks has expanded into three new markets Specialty
juices, Teas, and At home brewing options for customer
Revenue increase 14 % 2011 to 2012
Current pricing strategy is simple yet effective
Built a brand and atmosphere customers are willing to pay for
and keep coming back for.
They are innovation, produce quality products, and are well
respected
Starbucks has a strong presences in the market and is known
for their premium products

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Team 5 would like to say:
THANK YOU!

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