A Case Study On Starbucks 593u6k

Starbucks at a Glance Starbucks started in 1971 at Seattle by Jerry

Baldwine, Zev Seigle and Gorden Bawker . Basicaly a retail chain of coffee, tea and spices.  four stores in Seattle and profitable since its’ opening Zev Seigle left the company in 1980 to pursue other interests. Mainly USP was the quality of Coffee offered to the customers. Howard Schultz, vice president and general manager of U.S operations for a swedish maker of Stylish chicken equipment and coffeemakers met with the partners of starbucks in 1981 and after understanding the company wished to starbucks.

The Specialty Coffee Industry - 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 Specialty Coffee Sales as a Percentage of Total Coffee Sales 60 50 40 % of Sales

30 20 10 0 1983

1988

1993

1998

Coffee Drinking Trends The Conspicuous Consumption of Coffee: - In 1996, per capita consumption of coffee was only about 1.7 cups per day per person - Consumption of specialty coffee had gone up during the same period, because of the following reasons -- Americans substituted specialty coffee for alcohol -- Coffee bars became a great place to meet people -- Coffee was an affordable luxury people liked to spend on -- Consumers were becoming more knowledgeable about coffee

Starbucks’ Business Starbucks has a very aggressive growth strategy, and has expanded its operations as follows: - Retail Stores - Specialty Sales UAL Nordstrom Barnes & Nobles Pepsi Co. (Frappuccino, etc.)

- Merchandising - Mail Order

PriceCostco Red Hook Breweries Dreyer’s Ice Cream ARAMARK

Schultz and Starbucks Schultz mainly focused on the expantion of

starbucks outside seattle. He ed strbucks in the four stores in seattle working behind the counters , tasting different kinds of coffees, talking with the customers , getting to store personel, and learning the retail aspects of the coffee business. Become CEO of the company and turn around the entire scenario of doing business of starbucks. Mainly focused in expansion plans and

Current Locations Licensed stores: Asi a Pa ci fi c Ja pa n C h in a T ai wa n South Kore a Phi li ppi ne s Ma l a ys i a Ne w Ze a la n d I n don e si a

T ota l

534 152 136 102

Store s ope n a s of Oct. 3, 2 004 Euro pe / Am eri ca s Mi ddle East/Afri ca Ge rm an y 35 Uni te d Sta te s 1839 Sa udi Ara bi a 32 C a na da 66 UA E 31 Ha wa i i 45 Spa i n 27 Me xi co 32

70 52 36

Kuwa i t Gree ce Swi tzerla nd

24

T urke y Le ba non A u s tr i a Qa ta r Ba hra i n Fra n ce Om a n Cyprus

1 106

27 25 18 15 10 8 6 5 4 3 2 248

C hi le Pue rto Ri co Pe ru

9 6 3

Company-operated stores:

Uni te d State s

N e t store s o pe ne d duri ng fi sca l ye a r 2004 514

Store s ope n a s of Oct. 3 , 2004 4 293

I n te rn a ti on a l: Uni te d Ki ng dom C a na da T h ai land A u s tr a l i a Si nga pore T ota l I n te rn a ti on a l T ota l C om pa nyo pe ra te d

49 56 11 4 120

422 372 49 44 35 922

634

5 215

2000

- More than 2400 stores in 33 countries outside the US - More than 1500 stores in 31 markets outside North America

Que-1 what are the key elements of starbucks strategy as of 2004? Does the company have a clear strategic intense according to chapter 2. Key elements…………. Expansion plans to open 1300 new outlets worldwide . To achieve comparable sales growth of 3 to 7%. Revenue expected to grow by 20% annually. Net earning by 20-25 % annually.

Strategic questions been considered

What could starbucks do to make its store more rewarded welcomed and surprised customers.  What new products and new experiences could starbucks provide that would uniquely belong to be aasociated with SB?  How to reach those customers who don’t drink coffee.  What are the new strategic paths should starbuck persue to achieve its objectives of becming the most recognized brand in the world. 

Yes the company has a clearly defined

strategy according to chapter 2. the justifications can as under As per the vision statement of starbucks

company is going to open 1300 new outlets worldwide To make the starbuck one of the leading world’s preeminent global brands and to sustain economic growth the company have to be innovatiove and compititive and take risk.

Que-2 what grade would you give howard schultz for the job he has done as CEO of starbucks? Be prepared to your answer based on how well he has performed the five tasks of strategic mgt.( discussed in chap.2)  I WILL GIVE

( B+) GRADE

TO HOWARD SCHULTZ FOR THE JOB HE HAS DONE AS CEO OF STAR BUCK .

WHAT IS STRATEGY ? MANAGEMENT’S GAME PLAN FOR GROWING THE BUSINESS STAKING OUT A MARKET POSITION , ATTRACTING & PLEASING CUSTOMERS .

IT IS A PLAN OF ACTION .

STRATEGY MAKING & STRATEGY EXECUTING PROCESS 2. DEVELOPING A STRATGIC VISION & 3. 4. 5. 6.

MISSION STATEMENTS . SETTING FINANCIAL & STRATEGIC OBJECTIVES . CRAFTING STRATEGY FROM MISSION , VISION & OBJECTIVES . IMPLEMENTING & EXECUTING STRATEGY . MONITORING DEVELOPMENTS & EVALUTING PERFORMANCES .

STEP - 1

DEVELOPING A STRATGIC VISION & MISSION STATEMENTS

VISION STATMENT “ TO BECOME NATIONAL COMPANY WITH VALUES & GUIDING PRINCIPLES THAT EMPLOYEES COULD PROUD OFF ’’.

MISSION STATMENT “ESTABLISH STARBUCKS AS THE PREMIER PURVEYOR OF THE FINEST COFFEE IN THE WORLD WHILE MAINTAINING OUR UNCOMPROMISING PRINCIPLES WHILE WE GROW . ’’ GUIDING PRINCIPLES TO COMPLETE THE MISSION & VISION GREAT WORK ENVIORNMENT HIGHEST STANDARD TO EXCELLANCE CONTRIBUTE POSITIVELY TO COMMUNITIES & ENVIORNMENT . 9. RECOGNISE PROFITABLITY. 10. DEVELOP ENTHUSIASTICALLY SATISFIED CUSTOMER. 11. EMBRACE DIVERSITY AS AN ESSENTIAL COMPONENT IN THE WAY WE DO BUSINESS . 6. 7. 8.

STEP - 2

SETTING FINANCIAL & STRATEGIC OBJECTIVES

STRATEGIC OBJECTIVES  TO BUILD A COMPANY THAT VALUED AND RESPECTED ITS

PEOPLE , THAT INSPIED THEM , AND THAT SHARED THE FRUITS OF SUCCESS WITH THOSE WHO COTRIBUTED TO THE COMPANY’S LONG TERM VALUE .

 MANAGEMENT

EXPECTED TO HAVE 15000 STARBUCKS STORES BY YEAR – ENDED 2005 & 25000 LOCATIONS BY 2013 .

 SCGULTZ

DECIDED TO MAKE BUILDING A NEW RELATIONSHIP OF MUTUAL RESPECT BETWEEN EMPLOYEES & MANAGEMENT A PRIORITY .

FINANCIAL OBJECTIVES THERE

IS NO NEED TO SEE FINANCIAL OBJECTIVES AS STRATEGIC OBJECTIVES CLEARLY DEFINES THE FINANCIAL OBJECTS WHICH ARE DIRCTLY OR INDIRECTLY BEHIND THE STRATEGIC OBJECTIVES .

STEP - 3

CRAFTING STRATEGY FROM MISSION , VISION & OBJECTIVES

CRAFTING A STRATEGY THERE WAS A LACK OF MANAGEMENT STAFF SO …  APPOINT MR. DAVE OLSEN A SETTLE COFFEE BAR OWNER  APPOINT MR. LAWRENCE MALTZ , WHO HAD 20 YEARS

EXPERIENCE WILL TAKE CARE OF FINANCE ,HUMAN RESOURCE AND ALSO A VICE PRESIDENT

 NEW LOGO FOR THE NEW COMPANY.  STOCK OPTION PLAN FOR THE EMPLOYEES .  TAKE CARE OF PART TIME EMPLOYEES ALSO .  MADE STAR BUCK A GREAT PLACE TO WORK .  CUSTOMERS SHOULD HAVE POSITIVE EXPERIENCE .

STEP - 4

IMPLEMENTING & EXECUTING STRATEGY .

IMPLEMENTING & EXECUTING STRATEGY NEW STORES OPEN FIRST STORE IN CHICAGO -1987.

IN NEXT SIX MONTHS THREE MORE STORES CARLIFORNIA (L.A ) TO HIGH QUALITY & INNOVATIVE FOOD (L.A ) CONSUMERS EMBRACED STARBUCK QUICKLY . SAN FRANCISCO

OPEN MORE & MORE STORES 2

20

3

30

4

32

5

53

•

in winter season less people visit the place.

MADE QUALITY ASSURANCE BY FRESHLY ROASTED BENAS IN SPECIAL FLAVOURLOCK BAGS THAT USED VACUUM PACKAGING TECHNIQUES . •

NO FRANCHISEE…

TO KEEP THE COMPANY FULL CONTROL OF ITS PRODUCT .

THEY TOOK MONEY FROM VENTURE CAPTIALISTS 3

3.9$ MILLION

4

13.5$ MILLION

5

15 $ MILLION

THEY WERE COMMITING LOSSES .

3

3,30,000$

4

7,64,000$

5

1.2$ BILLION

6

ONWARD THEY BECOME PROFITABLE

VALID REASONS BEHIND LOSSES GIVEN BY HOWARD WE HAVE TO ATTRACT A MANAGEMENT

TEAM WELL BEYOND OUR EXPANSION NEEDS . WE HAVE TO BUILD WORLD CLASS ROASTING FACILITY . WE NEED COMPUTER INFORMATION SYSTEM SOPHISTICATED ENOUGH TO KEEP TRACK OF SALES IN HUNDREDS AND HUNDREDS OF STORES .

STEP - 5 MONITORING DEVELOPMENTS & EVALUTING PERFORMANCES .

SUCCESS OF STARBUCK YEAR 1987 1993 1996 1999 2002 2003

STORE 17 272 1015 2135 5886 7225

GROWTH OF STORES 8000 7000 6000 5000 4000 3000 2000 1000 0 1987

1993

1996

1999

2002

2003

OPERATING INCOME 450000 400000 350000 300000 250000 200000 150000 100000 50000 0

1998 1999 2000 2001 2002 2003 YEAR

DUE TO ALL THIS SKILLS AND IDEAS THE WAY IN WHICH HE HAD EXECUTED THE STRATEGY AND MADE STARBUCK PROFITABLE

AS PER MY BEST KNOWLEDGE

HE DESERVE (A- ) GRADE .

Que -3 what was howard Schultz's original strategic vision for starbucks? Is his present strategic vision different from the one he had in the 1980s? How many times has his strategic vision changed? Is his present strategic vision likely to undergo further evolution?  Past Strategy  To provide best service to the customers with varieties of

coffee.  Innovative products and services  Mainly focused on workforce management.  Just focused on the local market in seattle.

 Present Stately

Que-4 has starbucks strategy evolved as the strategic vision has evolved?

Que-5 what are the key policies practices and procedures that underline how howard schultz and strategic mgt have implemented and executed the chosen strategy?  On becoming the CEO of the company the vision of the starbucks was to make it a national company with guiding principles that employees could be proud of .  Schultz restored the old and honest employees of starbucks to give the best service to the customers.  Dave Lawrence was hired as a executive vice presented and charged with leading operation, finance and human resources.  New logo was invented to match the culture of the starbucks and Giornale.  New espresso machines were equipped and look more Italian than old world nautical  Chicago store opened in October 1987 as per expansion strategy  Identifying inability of the customers for having a cup of coffee in the winter season in Chicago, schultz solved the problem of freshness and quality assurance by putting freshly roasted beans in special flavor lock bags that used vacuum packaging technique.  Portland, oregon was the next market the cmpany entred.

 Entered in L.A in late 1991.  Opened 15 new stores in 1988, 20 in 1989, 30 in 1990, and 53 in 1992, producing a total of 161 stores in US.  Also went for franchising concept to retrieve the cost for new store expansion.  In order to make starbucks a great place to work schultz accepted to expand healthcare coverage to include part-time workers.  To oversee the expansion process starbucks created zone wise vice presidents to direct the development of each region and to implant the starbucks culture in the newly opened stores.  Starbucks had created a new subsidiary, starbucks coffee international, to orchestrate overseas expansion and build the starbucks brand name globally via license.  To accommodate its strategy of rapid store expansion, starbucks put in systems to recruit, hire and train baristas and store managers.  In august 2002 starbucks teamed up with T-mobile USA, the largest carrier-owned Wi-Fi services, to experiment with providing internet access and enhanced digital entertainment to patrons at over 1200 starbucks locations.

Que-6 what is your assessment of starbucks financial performance during fiscal years 1998-03. Does the company’s performance indicate that starbucks strategy is working well?

SOME FINDINGS & SUGGESTIONS

GROWTH IN TOTAL NET REVENVUE SHOWS GROWTH OF 25.51% EVERY YEAR.

TOTAL NET REVENUE 4500000 4000000 3500000 3000000 2500000 2000000 1500000 1000000 500000 0

1998

1999

2000

2001

YEARS

2002

2003

GROWTH IN OPERATING INCOME SHOWS GROWTH OF 31.21%

OPERATING INCOME 450000 400000 350000 300000 250000 200000 150000 100000 50000 0

1998 1999 2000 2001 2002 2003 YEAR

CURRENT RATIOS FOR THE YEAR 1998 -2003 YEAR

RATIO

1998

1.52 :1

1999

1.67 :1

2000

1.33 :1

2001

1.47 :1

2002

1.54 :1

2003

1.90 :1

CURRENT RATIOS •

•

•

THE CURRENT RATIOS SHOWS THE COMPANY’S ABILITY TO PAY DEBT IN SHORT TERM & IS GOING TO BE IDLE ONE WHICH IS 2:1 . THE CURRENT RATIO SUGGESTS THAT THE COMPANY IS FINANCIALLY VERY SOUND AS THE ASSET RATIO IS FAVOURABLE FOR THE COMPANY . THE COMPANY IS UTILIZING THE CURRENT ASSET PROPERLY .

FIX ASSETS AS FAR AS TOTAL ASSETS ARE CONCERN COMPANY’S FIXED ASSETS ARE ALSO INCREASED AS THERE IS INCREASED IN STAR BUCK OUTLETS . THE GROTH RATE IN FIX ASSETS IS ABOUT 42.76 % WHICH IS SEEING THE EXCELLENT DEMAND OF THE PRODUCT IN COMING FUTURE

 Starbuck

had an agreement with Marriott Host International that allowed Host to operate Star Buck Retail stores in Airport location.  And with Aramark Food And Serving for the Star stores on university Campuses.  Starbuck received the license fee and royalty.  with this strategy licensed and Franchised stores starbuck has opened 1422 Stores in US and 1257 stores internationally in 2003.  Revenue is $150 mil from US and $250 mil from international.

What issues confront the company as of 2004? What should company’s management worried about?

 Issue of health care benefit to the part time

workers.  Uneasiness among the customers due to arrogant behavior of the employees as well as lack of knowledge about the fine coffee.  Due to acquisition of peet enterprise starbuck employees began to feel neglected and they didn’t receive a bonus due to tight financial conditions.  The first t venture of the starbuck went into failure.

Management's worried  In 2003 there were 14000 specialty outlet of specialty

coffee drinks against starbuck by 2015  No. of rival scale-up their expansion plan and local and regional player would merge in a better position themselves as alternative to star buck  Company had to do something for making its outlet more elegant that welcomed reward , and please customer ( third place)  To reach people ( geographical area) who are not coffee drinker

What recommendations would you make Howard to sustain the company’s growth and continued strong financial performance in the year ahead?

 Starbuck should allocate more of its budget towards

advertising for building the brand along with direct marketing.  Starbuck should look for new product through innovation and target new market segment that provide unique association among them.  Star buck should target new market segment that provide unique association among them.  The company should maintain the balance between the amount of dividends to be paid and to be reinvested in the business.  Starbuck should buy back its outstanding share from market.  Star buck should used its d/e ratio in a proper manner

What is the Starbucks Experience?

Q:5

What are the key policy practices and procedures that underlie? How Howard Schultz and Starbuck’s management have implemented and executed the chosen strategy?

Howard strongly believes in……….. “Making Starbucks A Great Place To Work”

 HEALTHCARE BENEFIT TO PART TIME WORKERS  Cost of the benefit to company - $1500 per

employee  Cost of Hiring & Training new employee - $3000 per employee  Part time employees who are working more that 20 hour per week  75% of the by Starbucks  Extended Health coverage - Preventive care, Crisis counseling, Dental care, Eye care, Mental health

 EMPLOYEE STOCK OPTION PLAN  Give employee a chance to share in the

success of the company  Bean Stock plan  Stock

options worth 14% of the base pay

 Employees now Became Partners  Starbuck Became public company in 1992  One

of the most successful IPO in the year

 STOCK PURCHASE PLAN  Eligible employee can contribute up to 10% of

their base earnings to quarterly purchase of the company’s common stock @ 85% of going stock price.  5.7 million shares has been issued as of fiscal year 2003.  11,184 out of 35,000 eligible employees had participated

 WORK PLACE ENVIRONMENT  Employees are paid $9 - $12 which is higher

than minimum hourly wages  Turnover rate is 65% against 150 to 400% of other national retailers and fast food chains  Turnover of store managers was just 25% against 50% of other chain retailers  79% employees – favorable environment  72% employees- satisfied with their job  “One of the 100 best company to work” – Fortune Magazine

Other Fringe Benefits…..  Medical insurance  Dental and vision care  Life insurance  Sick time  Paid vacations  Free pound of coffee each week  30% product discount

WHAT IS STARBUCKS STRATEGY • For Howard Schultz • For Management and Employees • For Shareholders • For Customers • For Suppliers and Partners

What are the key elements of star buck's strategy as of 2004? Does the company have the clear strategic intent?

Key elements of star buck's strategy :  To expand its business internationally.  To recruit the people who are ionate about coffee and provide them a skilful training which familiarize them with company’s value principle and culture.  To experience the people with a unique store ambience.  To provide wider product line by offering vast range of coffee beverages.  To open up franchise along with starbuck’s own store in various countries.

Company’s strategic intent :  To establish starbuck as a most recognised and respected brand in the world.  To open the new stores worldwide in order to increase the revenue and market share.

What grade would you give Howard Schultz for the job he has done as CEO of star bucks? Be prepared to your answer based on how well (or not so well) he has performed the five tasks of strategic management discussed in chapter2.

Strategic vision  To establish starbuck as a most

recognised and respected brand in the world.

Setting objectives  To open 1300 stores worldwide.  To achieve sales growth of 3% to 7% that

could grow revenues by 20% per annum and net earning by 20-25% annually for next 3 to 5 years.  To recognise that profitability is essential to future success.

Crafting strategy  To expand its business internationally.  To develop a customer satisfaction by

building the brand loyalty through persuading starbuck’s exacting standards of quality and flavour.  To source greater range of coffee varieties to customers from multiple geographic areas which reduces the risk of weather, price and changing economic conditions.

Implementing and executing the strategy  Entered into franchise and licensing agreements to

enter into global market.  Employed the persons who were knowledgeable about the products, who eagerly communicated the company’s ion for the coffee and who possessed the skills and personality to deliver customer services.  Company gave the employees their chance to share in the success of the company in order to make harmonize relationship between the management and its employees

Monitoring the strategy  The company should evaluate their

performance quarterly basis and if any deviations found then it should try to revise it.

What issues confront the company as of 2004? What should company’s management worried about?

 Issue of health care benefit to the part time

workers.  Uneasiness among the customers due to arrogant behavior of the employees as well as lack of knowledge about the fine coffee.  Due to acquisition of peet enterprise starbuck employees began to feel neglected and they didn’t receive a bonus due to tight financial conditions.  The first t venture of the starbuck went into failure.

Management's worried  In 2003 there were 14000 specialty outlet of specialty

coffee drinks against starbuck by 2015  No. of rival scale-up their expansion plan and local and regional player would merge in a better position themselves as alternative to star buck  Company had to do something for making its outlet more elegant that welcomed reward , and please customer ( third place)  To reach people ( geographical area) who are not coffee drinker

What recommendations would you make Howard to sustain the company’s growth and continued strong financial performance in the year ahead?

 Starbuck should allocate more of its budget towards

advertising for building the brand along with direct marketing.  Starbuck should look for new product through innovation and target new market segment that provide unique association among them.  Star buck should target new market segment that provide unique association among them.  The company should maintain the balance between the amount of dividends to be paid and to be reinvested in the business.  Starbuck should buy back its outstanding share from market.  Star buck should used its d/e ratio in a proper manner