Starbucks Case Study


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The original Starbucks opened in Seattle, Washington, in 1971 by three partners: English teacher Jerry Baldwin, history teacher Zev Siegel and writer Gordon Bowker. The three were inspired by Alfred Peet, whom they personally knew, to open their first store in Pike Place Market to sell high quality coffee beans and equipment. In 1982 Howard Schultz joined Starbucks as director of retail operations and marketing. After traveling to Italy and discovering the Italian coffee bar that sold espresso by the cup. When he returned, he wanted to apply that to their business in 1983. Within 2 months they were selling over 700 customers a day. In 1987 the owners of Starbucks Coffee Company decided to sell their business to a group of local investors for $3.7 million. The new investors were told they were going to open 125 Starbucks Coffee stores in the next 5 years. The company started expanding rapidly.
Starbucks is the #1 specialty coffee retailer. Starbucks business model was to sell the company's own premium roasted coffee along with espressos, pastries, coffee accessories and teas. Their business model goal was to expand internationally and to take over other coffee businesses. Starbucks products are:
Coffee: more then 30 blends and single-origin coffees
Handcrafted Beverages: hot and iced espresso, non-coffee blended beverages and Tazo teas
Merchandise: assorted home espresso machines, coffee brewers and grinders, premium chocolate, coffee mugs and gift items
Fresh Food: sandwiches and salads
Entertainment: selection of the best in music, books and film
Starbucks Card: card purchased to be able to swipe and are reusable
Starbucks is currently doing well in the market. There last trade was $22.81 and there yearly high was $37.14. There revenue up to September 2007 is $9.4 million and their gross profit is $5.4 million. Starbucks has an $8 billion Market Capitalization, 20+% annual sales growth rate and 11 years of 5+% comparable store sales revenue growths. Although the price per stock hit a year low, the overall average of the year is very well. Starbucks has very high quality products, although high prices, they pride themselves on satisfying their costumers all the time which separates them from their competitors. This makes their customers come back and spend their money for their products. Starbucks differentiation strategy was offering interesting coffee-related drinks, their unique coffee blending and roasting process,

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their employees received great deal of training to become very knowledgeable about coffee in order to provide an exceptional service to their customers and their ability to find perfect locations for their stores which enables them to maximize market share.
Starbucks security team has built the Enterprise Security Platform, a central security facility that monitors critical facilities such as roasting plants, container loading sites and retail stores. It also watches risk management conditions. They also provide in-store training incase of a robbery or any other mechanical malfunction. Starbucks has a copyright and trademark on their logo, which had been infringed upon by a San Francisco artist who had been putting it on coffee mugs, t-shirts, stickers and sold on his website, where he was brought up on a law suite from Starbucks.
Starbucks management and organization is very strong and don't have many issues. The organization understands the enormous value of unique regional differences and attributes. They give back to the people who grow the coffee beans in Guatemala, Indonesia, Kenya and Ethiopia by giving them better living conditions. Starbucks technology site is a huge part of their business success. They are always coming up with something new to improve the store and to better satisfy their customers. Starbucks employees whether full or part time qualify for a comprehensive benefits package that includes stock option grants, health, medical, dental and vision benefits. Starbucks had recently started a drive-thru so people didn't have to get out of their car to walk into the store, and yet receive the same quality service as if they were in the store. There big innovation which started 3 years ago was the Starbucks Card. It's like a gift card but reload able. It is going to reach the $1 billion mark at the end of the fiscal year. Starbucks published a mail-order catalog that was distributed six times a year that included all their products. This accounts for 5% of total revenues and had expanded retail into new markets.
Starbucks information systems provide them to have an advantage over their competitors. They record all their data and look back at it to make changes to the company. When an innovation does not do good in the market they are able to go back at the records and figure a way to make it better. Starbucks had launched its web site back in 1998. This allowed people to visit and buy coffee products and gifts. They could also learn more about the roasting and brewing process of coffee. The increased traffic on the website made Starbucks have to upgrade from Windows NT Server to Windows 2000 Server. Since then the site had experienced 100% availability, which contributed to the success of its e-commerce strategy. Starbucks website accounts for 15% of their total income.
Starbucks has a few business plan challenges that they have to overcome. They have a reputation for new product development and creativity. However they remain vulnerable to the possibility that their innovation may faultier over time. The organization is dependent on a main competitive advantage, the retail of coffee. This could make them slow to diversity into other sectors should the need arise. Some threats for Starbucks is that no one knows if the market will grow and stay in favor with customers, or whether another type of beverage or leisure activity will replace coffee in the future. They are exposed to rises in cost of coffee and diary products, and Starbucks' success has lead to the market entry of many competitors and copy cat brands that pose potential threats. Starbucks top 5 competitors are Green Mountain, Coffee Bean & Tea Leaf, Costa Coffee, Peet's and Caribou Coffee. These companies are doing well but don't come close to the profits that Starbucks has put up. They are all a couple million short of Starbucks. A future problem Starbucks faces is that since their company is rapidly expanding, opening up 3 new stores a day, they believe that the quality beans they want are not going to be grown fast enough. Also because of this there is going to be a shortage of farmers to grow the beans, which means they are going to have to get more farmers in order to produce.
If CEO these are some suggestions and changes for Starbucks in order to improve its business. They are going to have to prune its new store expansion, automotion efficiency projects, and anything else that is causing Starbucks to lose its identity of sourcing, roasting and serve the highest-quality coffee. The pruning effort will allow for Starbucks to rejuvenate its soul and refertilize its reason for existing. Starbucks would also have to remove unwanted, unneeded, and unhealthy elements of its business, and should expand its global operations. New markets for coffee such as India and the Pacific Rim nations are beginning to merge. They would be able to set up stores there for cheap costs. Also co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both would have potential for greater success. A fun an easy service Starbucks could implement is a make your own coffee/frappuccino station where you're able to make it on your own instead of ordering it from an employee behind the desk.


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