STARBUCKS

Striving for Global

Dominance
Group 4
Vidhisha Dangeria - 12 | Sanika Nigudkar – 34 | Lalit Kalwar – 47 | Sachin
Pachpute – 53 | Sanika Raut – 62| Divya Keswani - 78
 Introduction

• Starbucks Corporation is an American coffee company

and coffeehouse chain

• It was founded in Seattle, Washington in 1971

• The company currently operates over 30,000 locations

worldwide

• The revenue is $24.71 billion as of 2018

 TimeLine

• 1971
Starbucks opens first store in Seattle’s Pike Place Market.
• 1982
Howard Schultz joins Starbucks as director of retail operations and
marketing. Starbucks begins providing coffee to fine restaurants and
espresso bars.
• 1983
Schultz travels to Italy, where he’s impressed with the popularity of
espresso bars in Milan. He sees the potential to develop a similar
coffeehouse culture in Seattle.
• 1984
Schultz convinces the founders of Starbucks to test the coffeehouse
concept in downtown Seattle, where the first Starbucks Caffè Latte is
served. This successful experiment is the genesis for a company that
Schultz founds in 1985.
• 1985
Schultz founds Il Giornale, offering brewed coffee and espresso
 TimeLine
• 1987
Il Giornale acquires Starbucks assets with the backing of local investors and
changes its name to Starbucks Corporation. Opens in Chicago and Vancouver,
Canada.
Total stores*: 17
• 1988
Offers full health benefits to eligible full- and part-time employees, including
coverage for domestic partnerships.
Total stores: 33
• 1991
Becomes the first privately owned U.S. company to offer a stock option
program that includes part-time employees.
Opens first licensed airport store at Seattle’s Sea-Tac International Airport.
Total stores: 116
• 1994
Opens first drive-thru location.
Total stores: 425
 TimeLine
• 1995
Begins serving Frappuccino® blended beverages.
Total stores: 677
• 1996
Opens stores in: Japan (first store outside of North America) and
Singapore.
Total stores: 1,015
• 1998
Extends the Starbucks brand into grocery channels across the U.S.
Launches Starbucks.com.
Opens stores in: England, Malaysia, New Zealand, Taiwan and Thailand.
Total stores: 1,886
 TimeLine
• 1999
Acquires Tazo Tea.
Acquires Hear Music, a San Francisco–based music company. (Selling
music talk about it)
Opens stores in: China, Kuwait, Lebanon and South Korea.
Total stores: 2,498
• 2001
Introduces ethical coffee-sourcing guidelines developed in partnership
with Conservation International.
Introduces the Starbucks Card..
Total stores: 4,709
• 2002
Launches Wi-Fi in stores.
Total stores: 5,886
• 2003
Acquires Seattle Coffee Company, which includes Seattle’s Best Coffee®
and Torrefazione Italia® coffee.
Total stores: 7,225
 TimeLine

• 2004
Opens first Farmer Support Center in San Jose, Costa Rica.
Introduces Starbucks Coffee Master Program.
Total stores: 8,569
• 2005
Acquires Ethos Water.
Total stores: 10,241
• 2006
Launches the industry’s first paper beverage cup containing post-consumer
recycled fiber.
Total stores: 12,440
• 2008
Chairman Howard Schultz returns as chief executive officer and begins
transformation of the company.
Launches My Starbucks Idea, Starbucks first online community. Also joins
Twitter and debuts Starbucks Facebook page.
Total stores: 16,680
 TimeLine
• 2009
Launches Starbucks VIA® Instant
Launches My Starbucks Rewards® loyalty program and Starbucks Card mobile
payment.
Total stores: 16,635
• 2011
Launches Create Jobs for USA to encourage small-business growth.
Total stores: 17,003
• 2012
Acquires La Boulange® bakery brand to elevate core food offerings.
Launches Starbucks Refreshers® beverage platform.
Acquires Teavana to transform the tea category.
Entered Indian Market.
Total stores: 18,066
• 2014
Launches Starbucks Mobile Order & Pay.
Total stores: 21,366
 Q1.
What are the key elements of
Starbucks strategy as of 2004?
 1984-1994 (USA)
 Political
• President Ronald Reagan
announced that he would
run for a second term. (1984)
• 1989 – Bush was sworn in as
the 41st President, Quayle as
Vice President
• 1993 — Bill Clinton becomes
the 42nd President, Al Gore
becomes Vice President.
Economical
• In October 1987, a sudden and alarming
stock market crash took place, but the
Federal Reserve responded by
increasing the money supply and
averted what could have been another
Great Depression
• Market growth rate for retail specialty
coffee was 6% in North America in 1987.
(Specialty Coffee Association of
America, 1988)
• When the 1990 oil price shock hit in
mid-1990, consumer spending
contracted and the economy entered
recession. Some of the hardest hit cities
were in California and the Northeast,
while much of the South was less
affected.
 Socio-cultural
• In 1994, Coffee was the second
most traded commodity after Oil
• There are two main categories
of Coffee, Basic and Specialty
• In 1994, the Specialty Coffee
Industry was growing at 15%
p.a. at the expense of the Basic
Coffee Industry
 Technological
• Apr 24, 1984- Apple leaders Steve
Jobs. Steve Wozniak and John Scully
introduced the new $1295 Apple IIc
personal computer at San
Francisco’s Moscone Center.
• 1991 — The World Wide Web
publicly debuts as an Internet
service
  Environmental
 Legal
• The Great Flood of 1993 was one of
• Oct 15, The Central the most destructive floods in United
Intelligence Agency's Freedom States history involving the Missouri
of Information Act was signed and Mississippi river valleys.
into law by Pres. Reagan.
• 1986 – Tax Reform Act of 1986
• The Environment (Protection) Act was
enacted in the year 1986. It was
enacted with the main objective to
provide the protection and
improvement of environment and for
matters connected therewith
1994-2004
 Political
• 2001 — September 11 attacks;
19 terrorists hijack four planes
and crash them into the World
Trade Center, the Pentagon, and
a field in Shanksville,
Pennsylvania killing nearly 3,000
people and injuring over 6,000.
All civilian air traffic is
suspended for three days, the
first time an unplanned
suspension had occurred in U.S.
history.
 Economic
• The Asian financial crisis was a
period of financial crisis that
gripped much of East and Southeast
Asia beginning in July 1997 and
raised fears of a worldwide
economic meltdown due to
financial contagion.
• 1995-1996 — A budget crisis forces
the federal government to shut
down for several weeks
 Socio-Cultural  Technological
• 1999-World Trade • 1995-Windows 95 released
Organization protests in August 24 Microsoft released its
Seattle much anticipated Windows 95.
Over 10,000 people protest Millions of dollars were spent on ad
the WTO in Seattle, campaigns by Microsoft and retail
Washington, shutting down stores. This release sealed the deal
the city and leading to in America becoming digitized.
hundreds of arrests. • The number of Internet users
worldwide reaches 150 million by
the beginning of 1999. Over 50%
are from the United States.
• 2004 — The social networking
website Facebook is launched
 Legal  Environmental
• Bush signs new tax-cut law, the • In December 3rd, 1998, a hurricane
largest in 20 years (June 7). rips across central America killing an
Background: Economic Downturn estimated 10,000 people. Thought to
and a Tax Cut. be the worse storm in two centuries
1. Competitive Strategy:
• Retail coffee bean store + Espresso bar/ café- To recreate Italian coffee bar
culture
• ‘Stores of the future’ project team- Come up with next generation
Starbucks stores
• Small Mail order operation- Publish a mail order catalogue to targeted
demographics
• Starbucks Cards- Provide enhanced Starbucks experience to the customers

2. HR Strategy:
• Health care coverage- Include part time employees under health care
coverage
• Fringe benefits package- Build positive long term relation with employees by
providing comprehensive package
• Employee stock option plan- Grant stock options to employees
• Employee stock purchase plan- Implement purchase plan of company’s
common stock
3. Operational Strategy:
• Company owned stores- Only open company owned stores and
avoid franchising
• Computer Information system- Implement a system to keep track
of sales in numerous stores
• Hub and spoke model- Use hub and spoke model for store
expansion
• Vertical Integration- Source coffee directly from farmers and
cooperatives

4. Environmental Strategy:
• Formed Environment Committee- Find ways to reduce, reuse and
recycle
• Issue CSR Report- Annual report on philanthropic and
environmental activities
 Q2.
What grade would you give
Howard Schultz for the job he has
done as a CEO of Starbucks?
Be prepared to support your answer based on
how well (or not so well) he has performed the
five tasks of strategic management as
discussed
Five tasks of Strategic
Management
1. Developing a mission

To inspire and nurture the human spirit- One person, one cup and one
neighbourhood at a time.

Parameters of a good mission-

• Market oriented
• Achievable
• Specific
• Not too long or short
• Time bound
2. Objectives

• Growth Objective- To open 15000 stores by 2005 and 25000

stores by 2013
• Employee Loyalty Objective- To reduce employee turnover rate
by 30%

3. Strategy formulation
• 3 year geographic expansion
• Created a subsidiary to oversee global expansion via licensees
• Extend health care benefits to part-time workers
• Provide comprehensive fringe benefits package
4. Implementation

• Centralized buying, consolidated work under contractors with

good cost control practices and developing store layout on a
software. This cut the store development time from 24 to 18
weeks
• Company expense for employee health insurance was $300
million
• Employee turnover rate was as low as 13%

5. Control

Measuring performance and taking corrective measures

• Extremely passionate about the
success of the entire Starbucks
Company.
• Always thinking about the ever-
evolving nature of consumers
how Starbucks can adapt to
these new trends
Grade Remarks
• Strives to empower and inform
his employees to the best of his A Excellent
ability B Very
• Created goals and agendas in Good
order to have Starbucks be C Good
profitable and sustainable for D Average
years to come E Poor

We give Howard Schultz Grade A, as he planned and executed

the strategies flawlessly.
 Q3.
What was Howard Schultz original strategic
mission for Starbucks?
Is his present strategic mission for Starbucks
different from the one he had in the 1980s?
How many times has his strategic mission
changed?
Is his present strategic mission likely to
undergo further evolution?
Original Mission – ‘Establish Starbucks as the premier purveyor of the finest coffee
in the world while maintaining our uncompromising principles as we grow’
Focus – Growth and Expansion

New Mission – ‘To inspire and nurture the human spirit – one person, one cup and
one neighborhood at a time’
Focus – Customers, Employees and Expansion

They didn’t change the mission completely but made amendments to it.

Will it evolve further?

Yes. All businesses that are not willing to grow with their customers will eventually
fail.
 Q4.
Has Starbucks strategy evolved as the
strategic mission has evolved?
All businesses that are not willing to grow with their customers
will eventually fail.

Starbucks clearly understands their strategic mission has to

evolve with their customer’s overtime.
 Q5.
What are the key policy practices and
procedures that underlie how Howard Schultz
and Starbuck’s management have
implemented and executed the chosen
strategy?
Arenas

• High quality coffee market

(specialty coffee)

• Roasters, retailers

• CPG (consumer packaged

goods)

• At home brewing

• K CUP industry
Vehicles

• Licensing, mergers and

acquisitions
• (Teavana, Bay Bread, La
Boulange)

• K Cup industry

• Penetrated global
markets and urban cities
in high density areas
Differentiation

• Higher quality,
customer service,
variety of offerings,
asset turnover ability,
cleanliness

• Acquisitions, licensing
Staging & Pacing

• 1992- went public,

natural/quick growth
while abroad

• 62 countries and 9000+

retail stores
Economic Logic

• High willingness to pay

due to high quality of
products and high
loyalty

• Locations and
convenience
 Q6.
What is your assessment of Starbucks’
financial performance during the fiscal
years 1998 to 2003?
Does the company’s performance indicate
that Starbucks’ strategy is working well?
 (In dollars ‘000s)
Total Net Revenue($)
4500000
4075522
4000000
3500000 3288908
3000000
2648980
2500000 2177614
2000000 1686828
1500000 1308702
1000000
500000
0
1998 1999 2000 2001 2002 2003
Total Net Revenue
 (In dollars ‘000s)
Operating Profit($)
450000 424713
400000
350000 316338
300000 280219
250000
212252
200000
156711
150000
109216
100000
50000
0
1998 1999 2000 2001 2002 2003
Total Net Revenues($)
 (In dollars ‘000s)

PAT
300000
268346
250000
212686
200000 180335

150000
101693 94564
100000
68372
50000

0
1998 1999 2000 2001 2002 2003
PAT
 (In dollars ‘000s)
Particulars 1998 1999 2000 2001 2002 2003

Total Net revenues 13,08,702.00 16,86,828.00 21,77,614.00 26,48,980.00 32,88,908.00 40,75,522.00

Growth % 28.89% 29.10% 21.65% 24.16% 23.92%

EBIT(Operating income) 1,09,216.00 1,56,711.00 2,12,252.00 2,80,219.00 3,16,338.00 4,24,713.00

Growth % 43.49% 35.44% 32.02% 12.89% 34.26%

EBIT Margin(Gross Profit ratio) 8.35% 9.29% 9.75% 10.58% 9.62% 10.42%

PAT 68,372.00 1,01,693.00 94,564.00 1,80,335.00 2,12,686.00 2,68,346.00

Growth % 48.73% -7.01% 90.70% 17.94% 26.17%

PAT Margin(Net Profit Ratio) 5.22% 6.03% 4.34% 6.81% 6.47% 6.58%
14.00 Return on Investment
13.04
(ROI) Return on Equity(ROE)
12.86
12.31
14.00 13.11 12.89
12.00 12.34
10.50
12.00
10.00 10.58
8.59 10.00
8.18
8.61 8.23
8.00
8.00
6.00
6.00
4.00
4.00
2.00 2.00

0.00 0.00
1998 1999 2000 2001 2002 2003 1998 1999 2000 2001 2002 2003
ROI ROE
 Debt/Equity ratio
0.900
0.800
0.800
0.700 0.624
0.600
0.500 0.471

0.400
0.295
0.300
0.227 0.209
0.200
0.100
0.000
1998 1999 2000 2001 2002 2003
Debt/Equity ratio
 Q7.
What issues confront the company as of 2004?
What should be Starbucks Management be
worried about?
saturated home market
Decline in sales due to recession
Higher prices compared to their competitors
Facing challenges from competitors and local and regional
players
Issue of health care benefits to their part time workers
 Q8.
What recommendations would you make to
Howard Schultz to sustain the company’s
growth & support continued strong financial
performance in the years ahead?
• Starbucks has great growth opportunities in Tea and Fresh Juice products mix. They
should build up these along with the coffee products

• Healthier product offering

• Packaged coffee packets and iced beverage products.

• New deals such as a buy one get one free offer during obscure hours for example,
from 3-6pm on week days. This would help increase the flow into Starbucks during
the non-“rush hours”.

• K-Cup Availability - The Keurig system has become increasingly popular within the
United States. This opens up an opportunity for Starbucks to break further into the
at home coffee market

• International Growth - It is important to start opening stores strategically in large

cities within these companies and recording their growth. This way the locations
that are failing can be shut down, and stores that are thriving can be focused on.
 Q9.
Why did Schultz come to India – a nation of tea
drinkers?
Why come to India?

India is the fifth largest coffee producer

worldwide
However, Indians have historically preferred
tea to coffee

According to Howard Schultz,

“India is a very complex market to enter.
There are so many coffee players doing pretty
well.
That gives us a lot of confidence that the
winds are going to be at our back.
India’s size in the coming years will rival some
of Starbucks’ other
key markets across the world ”

First opened its store in 2012.

Why TATA Global Beverages for a Joint
Venture?

The joint venture narrowed its losses

nearly 10 per cent in 2014-15
and saw revenue touch Rs 172 crore from
Rs 95 crore the previous year.(2016)

Has unique capabilities in terms of

infrastructure

Howard Schultz says,

“Mostly their values were so consistent
with ours, building a company with a
conscience,
treating people well, taking care of the
communities and we thought this
was an opportunity to do something
together that we just could not do
ourselves”